What is Direct Pay?
The direct pay election, established under Section 6417 of the Internal Revenue Code, allows certain tax-exempt entities to receive a direct payment from the IRS equal to the amount of specified clean energy tax credits. This makes clean energy investments viable for organizations that previously could not benefit from tax credits because they had no federal income tax liability.
Key Benefit: Tax-exempt entities can now monetize clean energy tax credits directly through cash payments from the Treasury, rather than relying on complex tax equity structures.
Who Can Elect Direct Pay?
Tax-Exempt Organizations
501(c) organizations, including nonprofits, charities, and educational institutions.
Government Entities
State and local governments, political subdivisions, and public universities.
Tribal Governments
Indian Tribal governments and Alaska Native Corporations.
Rural Electric Cooperatives
Electric cooperatives exempt under Section 501(c)(12).
Tennessee Valley Authority
The Tennessee Valley Authority is specifically eligible for direct pay.
Taxable Entities (Limited)
Taxable entities can elect direct pay for certain credits for facilities placed in service before 2025.
Credits Eligible for Direct Pay
- Section 30C - Alternative Fuel Refueling Property
- Section 45 - Renewable Electricity Production
- Section 45Q - Carbon Sequestration
- Section 45U - Zero-Emission Nuclear
- Section 45V - Clean Hydrogen
- Section 45X - Advanced Manufacturing
- Section 45Y - Clean Electricity Production
- Section 45Z - Clean Fuel Production
- Section 48 - Energy Investment
- Section 48C - Advanced Energy Projects
- Section 48E - Clean Electricity Investment
- 1Register with the IRS and obtain registration number
- 2Make the election on the annual tax return
- 3File Form 990-T or applicable return
- 4Receive payment as refundable credit
The direct pay election must be made on the tax return for the year the credit is determined. The election is irrevocable once made. Pre-registration with the IRS is required before claiming the credit.