A wide range of tax-exempt and government entities, like non-profit organizations, municipalities, states, public utilities, rural electric cooperatives, Tribes, school districts, and others, can receive credits through Elective Pay. A non-exhaustive list of examples includes:

• Organizations exempt from federal income tax

  • Ex: Private nonprofits 

  • Ex: Houses of Worship, Community and Senior Centers

• State governments and agencies, including the District of Columbia

  • Ex: The Governor’s office of the State of Arizona

  • Ex: The Energy Office of the State of Arizona

• Local governments and agencies

  • Ex: K-12 public schools

• Indian Tribal governments and subdivisions

  • Ex: The Cheyenne River Sioux Tribe

• U.S. territories and subdivisions

• Alaska Native Corporations 

• Rural electric cooperatives

  • Ex: Roanoke Electric Cooperative 

Partnerships, as defined in Section 7701 of the Internal Revenue Code, are NOT eligible for clean energy tax credits through Elective Pay. Colloquially speaking, we know that many entities describe their collaborations with public or community partners on clean energy property projects as “partnerships”. Here, however, we are referring only to a specific type of tax entity status defined as a partnership in Section 7701 of the Internal Revenue Code.

For more information on which entities are eligible for Elective Pay (referred to as “applicable entities), see IRS FAQs 1-10.

Eligible entities must own the energy property they seek to claim the credit for. Ownership does not need to be direct; an eligible energy property may be owned through a disregarded entity, for example. 

Generally, entities canNOT claim a tax credit for clean energy property or facilities (ex. wind turbine, solar panel, etc.) they lease from someone else. However, some lease scenarios may be considered financing for U.S. federal income tax purposes, in which case the purported lessee may be eligible for Elective Pay. Learn more from L4GG Guidance Brief: When is a Lease Actually Financing? (Resource ID 79)

An entity does NOT need to own the land or real estate where the clean energy property is located.  For example, a nonprofit that buys and installs rooftop solar panels on the office building it is renting can claim the tax credit for those solar panels (as long as the entity owns the panels and has permission from the building owner to install them).

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There are many steps involved in constructing an eligible energy property (installation, interconnection, etc.), especially for larger and more complex energy properties that may take years to finish. Therefore, the tax code incorporates the concept of “placement in service” to define when an eligible energy property is considered actually complete in the eyes of the IRS. An energy property is generally considered to be “placed in service” when it is “in a condition or state of readiness and availability for a specifically assigned function.” In other words, the energy property is operational and can start doing what it was built for. 

In general, electric vehicles (EVs) are considered to be placed in service when the purchasing entity physically takes possession of the vehicle. View L4GG’s Guidance Brief: Code Section 45W Credit for Qualified Commercial Clean Vehicles for streamlined placement in service dates. 

Recent IRS guidance, however, clarifies that a vehicle is “acquired,” and therefore confirmed as eligible for the EV tax credit, once the purchasing entity is under a binding written contract for the vehicle’s purchase and has made a nominal payment on that contract. A payment may include a down payment or a vehicle trade-in. Note that while an EV becomes eligible for the credit by being “acquired” on or before the expiration of the EV tax credit on September 30, 2025, entities must still wait to claim the credit until after the vehicle has been placed in service. 

For energy-generating projects like wind or solar, this is usually the date a turbine or panel can be “switched on” and start generating electricity, often documented in an agreement such as a Permission to Operate (PTO) or interconnection agreement. Entities should retain documentation related to proof of placement in service because they will need it later when claiming the credit(s).

Placement in service is an important term that appears in many IRS materials on Elective Pay because many of the clean energy credits may only be claimed for the tax year in which the eligible energy property was placed in service. Learn more about determining tax years below.

See a non-exhaustive list of examples of documentation that can demonstrate proof of placement in service here.

An entity’s tax year is usually a period of 12 consecutive months, though under certain very specific circumstances entities may have a one-off short or “stub” tax year when making a change in its tax year. Entities have either a calendar tax year, which runs from January to December, or a fiscal tax year, which is 12 consecutive months ending on the last day of any month except December  (for example, running from July first of one year through June thirtieth of the following year). If an entity has previously filed U.S. federal income tax returns, it can check its filing history (for example, past 990s or 990-Ts) to see its established tax year. Entities with a previously established tax year need to remain consistent with it. 

L4GG’s Guidance Brief: Identifying Filing Deadlines & Applicable Tax Year 

Entities that are filing a tax return for the first time for the sole purpose of pursuing Elective Pay may choose to align their tax year with the calendar year or, if they have a fiscal year for internal accounting, their fiscal year (provided that they maintain adequate accounting records to reconcile any differences between their fiscal and tax years). Keep in mind that submitting a return will establish an entity’s tax year with the IRS, which it must maintain going forward. Changing from one tax year to another has its own separate process and cannot be done on a whim. 

Note on terminology: Generally speaking, the IRS refers to tax years by the year in which they begin. For example, “Tax Year 2023” includes tax year Jan 2023 - Dec 2023 and tax year July 2023 - June 2024.  

For more information, see our Direct Pay Timeline Worksheet and tutorial on deadlines and extensions for registration and filing. 

For most entities, the original filing due date for a tax return is the 15th day of the 5th month after the end of its tax year. If that date falls on a weekend or legal holiday, the deadline is no later than the next business day.  Entities must submit elective pay filings on time. Entities cannot claim credits through Elective Pay on a late return. Entities that anticipate needing more time may request a 6-month filing extension by filling out Form 8868. As long as Form 8868 is correctly filed by the original filing due date, the extension request will be granted.

While the Elective Pay process itself remains intact, H.R. 1 sunsets many of the clean energy tax credits that were claimed using the Elective Pay process and adds burdensome Prohibited Foreign Entity (PFE) restrictions. Timelines for when credits expire and PFE restrictions begin are listed in the chart below.

There’s a lot of work that goes into starting a project, but IRS rules have official definitions for when they consider construction to have started or commenced. This “beginning of construction” or BOC date is important to note as it’s often used to mark when provisions of the tax code and regulatory guidance start to apply. The table from the previous question illustrates that some credits and restrictions phase-out or phase-in based on an energy property’s BOC date.

Historically, there have been two ways to establish the beginning of construction date: 

• Physical work test: Start work of a “significant” physical nature either on or off-site.

• 5% safe harbor: Entity pays or incurs a minimum of 5% of total eligible project costs for the energy property (as determined at the clean energy project’s completion) and thereafter maintains continuous efforts to complete the clean energy project. Because the 5% amount is determined at the clean energy project’s completion, paying or incurring exactly 5% of a project’s estimated cost may not be sufficient to establish the beginning of construction if that project ultimately goes over budget. For this reason, many entities choose to spend 10% or more of initial estimated costs in order to be confident that cost overruns will not result in a change to the project’s beginning of construction date.

BUT the IRS released new guidance on August 15, 2025, relating to the “beginning of construction” standards for eligible wind and solar energy properties pursuing the ITC or PTC. Under this guidance, which goes into effect September 2, 2025, all wind and solar energy projects with an output of 1.5 megawatts (MW) or more can only meet the definition of beginning construction through the physical work test. Solar projects smaller than 1.5 MW may use either the physical work test or 5% safe harbor to meet the definition of beginning of construction.  

Additional Resources

• Watch a video explanation of the definition of “beginning of construction” here from 5:00-10:00. 

• Watch a video overview here from 10:00-13:15 of the “beginning of construction” deadlines for the Investment Tax Credit and Production Tax Credit for wind and solar projects. 

• Learn more from Guidance Brief: Beginning of Construction for the 48E & 45Y Tax Credits

Established under H.R. 1, these rules disallow the ITC and PTC credits for entities that have ownership or influence ties to, or use a significant portion of manufactured materials from “Prohibited Foreign Entities” to build their clean energy properties. Prohibited Foreign Entities include entities organized under the laws and nations of Russia, China, North Korea, and Iran, but may also include entities organized under the laws of other nations designated in the future. Previous bill drafts referred to these as “Foreign Entities of Concern” or FEOC, but the final H.R. 1 law uses the term “Prohibited Foreign Entities” or PFE so we’ll also use that term in our explanatory materials. See the table in FAQ#6 for a breakdown of when these rules start to apply.

Watch an introductory overview of the prohibited foreign entity rules in this webinar here starting at 18:28-21:38.  These are a bit tricky so we do recommend watching the full webinar if you can. You can reference the slide deck here. Please note this webinar was recorded on July 30, 2025.

Check out L4GG’S Guidance Brief: Prohibited Foreign Entity Restrictions on Clean Energy Tax Credits. 

While ground-source heat pumps are eligible for Elective Pay through the old Investment Tax Credit (ITC) under Section 48, weatherization (ex. insulation, roof repair, ventilation, etc.) and energy efficiency (ex. electric appliances, upgraded electric wiring, etc.) projects are not. 

Tax-exempt entities doing energy efficiency projects can consider the 179D Commercial Buildings Energy-Efficiency Tax Deduction, which is available for eligible projects that begin construction by June 30, 2026. The 179D is NOT a clean energy tax credit available through Elective Pay and is not claimed by the tax-exempt entity directly. Section 179D allows tax-exempt entities making qualifying energy efficiency improvements to allocate the 179D deduction to the taxpaying designers (architects, engineers, etc.) of the improvements in exchange for reduced construction costs.  

Watch a video explanation here from 29:47-30:38 

Entities building an eligible energy property or “facility” (ex. solar panel, wind turbine, battery storage) can use the Investment Tax Credit to earn 30-70% of total eligible project costs. In general, eligible project costs are any costs that are part of an entity’s basis in eligible energy property. Eligible basis in eligible energy property is, broadly speaking, the total cost that can be properly capitalized to the eligible energy property using U.S. Generally Accepted Accounting Principles (“U.S. GAAP”). For this reason, entities will need to evaluate the total costs that went into building an eligible energy property, and evaluate whether those costs can be capitalized to the eligible energy property.

While a lot of costs go into constructing an ITC facility, only some of them are includable as eligible costs for the ITC. Generally, eligible costs are ones related to the labor, equipment/materials, and permitting necessary to install the eligible energy property. Eligible costs generally include, but are not limited to:

• Direct labor costs (i.e., contractor salaries)

• Eligible equipment (e.g. solar panels, mounting or racking, inverters, etc) and sales tax on eligible equipment

• Although general overhead costs are usually not includable in a facility’s cost basis, direct and indirect costs of producing a specific facility may be capitalized into basis.  Thus, to the extent a project management company was paid a specific fee for an eligible energy property, the project management company’s overhead and profit likely could be included in the cost basis.

• The costs of services, e.g. utilities, incurred during construction of the eligible energy property.  

• The costs of permits that relate to the energy property are eligible for inclusion in the cost basis (e.g. permits for solar panels). 

  • The costs of permits that are needed for other components of construction are generally not eligible for inclusion in the cost basis of eligible energy property (e.g. permit costs for the roof itself, in a rooftop solar installation or new building).

• Costs of most “behind the meter” electrical property necessary to make the energy property work.

• Pre-construction planning or eligible energy property project design costs are likely eligible for inclusion in the cost basis, to the extent that they are directly related to the eligible energy property.

It is important to note that since entities receive Elective Pay as a tax refund, they will not receive their cash payment until after they 1) place the clean energy property in service, 2) file their taxes claiming the relevant credits, and 3) the IRS processes their return. This means that eligible entities are responsible for acquiring all the upfront capital for a project. 

Eligible entities can explore the following funding and financing options for their projects:

• Credit Unions

• Community Development Financial Institutions (CDFIs)

• Municipal Bonds*

• Private or government grants*

• Local or State revolving loan funds

• Green Banks

Fill out L4GG’s Elective Pay Sprint Hub intake form to be considered for additional funding resources. 

*Please note that there are some cases in which energy property’s funding source(s) can reduce the credit amount for which the energy property is eligible. 

1. Complete the Elective Pay clean energy properties and ensure they are “placed in service,” or begin generating energy in the tax year for which the applicable tax credits will be claimed through the Elective Pay process.

2. Register each clean energy property in the IRS pre-filing registration portal. Entities should complete pre-filing registration at least 120 days before they plan to file the applicable tax forms for the tax year in which each eligible energy property was placed in service. Refer to "Pre-Filing Registration Requirements: A Step-by-Step Guide,” which provides a full overview of the process, what information is needed to register, and when registration may occur. 

3. Receive the registration number(s) from the IRS for each clean energy property. The IRS may take up to 120 days to review registration submissions and issue registration number(s).

4. Use the registration numbers to file the applicable tax forms by the applicable filing deadline. Entities will need to complete a Form 990-T, the relevant source credit form(s) for each tax credit being claimed, and Form 3800 for the General Business Credit.

5. Receive the credit in the form of a tax-free payment from the IRS!

Watch a video explanation here from 38:00-43:43

Pre-filing registration is a mandatory step that comes after placing a eligible energy property in service but before filing the applicable tax forms. Essentially, it is designed to help the IRS weed out any “bad” actors and ensure there are no fraudulent claims. During the pre-filing registration process, entities submit information about themselves and each of the projects for which they intend to claim the clean energy tax credits through the Elective Pay process in the IRS’s online portal. The IRS will issue a unique registration number for each correctly submitted eligible energy property (or flag any problems that prevented them from issuing a registration number). The registration number(s) will be necessary to file for credits using the Elective Pay process later, so don’t lose them! 

Watch a video explanation: IRS Video Walk-Through of Pre-Filing Registration Portal

For more information about pre-registering, refer to our publication "Pre-Registration Requirements: A Step-by-Step Guide."

If the required tax forms are filed on time and correctly, the IRS says entities can expect refund payments within 45 days after the applicable filing deadline. Note that this may take longer due to the IRS’s processing time, especially given the agency's staffing and funding cuts. If payments are made more than 45 days after an entity’s applicable filing deadline, the IRS must pay interest on the late payment amount, so the IRS has every incentive to issue payments as promptly as possible.

If an entity files early, that’s great! Just understand that the earliest possible day to receive a payment is on the applicable filing deadline. 

Watch a video explanation here from 12:14-14:44

Learn more from L4GG Guidance Brief: Elective Pay Refund Status

To receive the full base credit, there are labor requirements for electric vehicle charging infrastructure energy property as well as ITC and PTC projects with an output greater than 1 megawatt (MW). These requirements will help protect local wages and incentivize clean-energy workforce development. The ITC increases from 6% to 30% if prevailing wage and apprenticeship requirements are met. 

There are similar increases to the PTC for meeting the PWA requirements, but because the PTC is indexed to inflation, the specific amounts will vary depending on the year.

Prevailing wage is the minimum rate employers must pay laborers and mechanics constructing, modifying, or repairing a project. It includes workers’ hourly wages and fringe benefits, like health insurance. There is no one prevailing wage applicable to all workers; it varies by project type, location, and the type of worker in question. To find the prevailing wage determination in a project’s area, click here.

A registered apprenticeship is an apprenticeship program that meets specific federal standards, including ones for wages, training quality, and safety to protect apprentices on the job and ensure their experiences allow them to succeed long-term. If a project begins after 2023, the apprenticeship standards require 15% percent of total labor hours on a supported construction site to be completed by registered apprentices.

Watch a video explanation here from 32:50-34:50

Learn more about prevailing wage, registered apprentices, and creating high-quality jobs from “Step-by-Step Guide to Worker Protection Requirements” and “FAQS on How to Protect Direct Pay Project Workers.”

While not required by law to access the full base credits, entities pursuing Elective Pay can set high-road labor standards for their projects. We encourage entities to partner with local unions on clean energy projects to protect high-quality jobs and expand the utilization of unionized labor. 

Entities should also consider employing pre-hire collective bargaining agreements, known as Community Workforce Agreements (CWAs) or Project Labor Agreements (PLAs), to avoid labor-related disruptions on large construction projects and create employment opportunities for members of the local community. For more on PLAs and CWAs, click here.

CWAs can stipulate certain pro-equity policies, such as hiring locally to draw upon the existing labor market in a given community (particularly from historically disadvantaged zip codes or underrepresented groups). They can also include oversight and accountability requirements to monitor the implementation of the CWA.

Learn more from “Building Worker Power and Good Jobs in Your Community with Federal Clean Energy Refunds”

See a more detailed step-by-step guide to planning a project with worker power and justice in mind: “A Roadmap for Direct Pay Project Success.”

Unfortunately not. Entities will need to carefully review both their energy property’s eligibility for the specific tax credit(s) they wish to pursue. The free online tool, the Clean Energy Tax Navigator, provides resources to help entities do this. Please also keep in mind that completing the pre-filing registration process and receiving a registration number does not guarantee eligibility for the credits available through the Elective Pay process.