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Sec. 1.6417-2 Rules for making elective payment elections.

(a) Elective payment elections—

(1) Elections by applicable entities—

(i) In general. An applicable entity that makes an elective payment election in the manner provided in paragraph (b) of this section will be treated as making a payment against the Federal income taxes imposed by subtitle A for the taxable year with respect to which an applicable credit is determined in the amount determined under paragraph (c) of this section.

(ii) Disregarded entities. If an applicable entity is the owner (directly or indirectly) of a disregarded entity that directly holds an applicable credit property, the applicable entity may make an elective payment election in the manner provided in paragraph (b) of this section for applicable credits determined with respect to the applicable credit property held directly by the disregarded entity.

(iii) Undivided ownership interests. If an applicable entity is a co-owner in an applicable credit property through an arrangement properly treated as a tenancy-in-common for Federal income tax purposes, or through an organization that has made a valid election under section 761(a) of the Code to be excluded from the application of subchapter K of the Code, then the applicable entity’s undivided ownership share of the applicable credit property will be treated as a separate applicable credit property owned by such applicable entity, and the applicable entity may make an elective payment election in the manner provided in paragraph (b) of this section for the applicable credits determined with respect to such applicable credit property.

(iv) Partnerships and S corporations not applicable entities. Partnerships and S corporations are not applicable entities described in §1.6417-1(c), and thus are not eligible to make any election under paragraph (b) of this section, unless the partnership or S corporation is an electing taxpayer. This is the case no matter how many of the partners of a partnership are described in §1.6417-1(c), including if all of a partnership’s partners are so described.

(v) Members of a consolidated group of which an applicable entity is the common parent. In the case of a consolidated group (as defined in §1.1502-1) the common parent of which is an applicable entity, any member that is an electing taxpayer may make an elective payment election with respect to applicable credits determined with respect to the member. See §1.1502-77 (providing rules regarding the status of the common parent as agent for its members).

(2) Electing taxpayers—

(i) Electing taxpayers that are not partnerships or S corporations. An electing taxpayer other than a partnership or an S corporation that has made an elective payment election in accordance with §1.6417-3 and paragraph (b) of this section will be treated as making a payment against the Federal income taxes imposed by subtitle A of the Code for the taxable year with respect to which the applicable credit is determined, in the amount determined under paragraph (c) of this section.

(ii) Electing taxpayers that are partnerships or S corporations. In the case of an electing taxpayer that is a partnership or S corporation that has made an elective payment election in accordance with §§1.6417-3 and 1.6417-4 and paragraph (b) of this section, the Internal Revenue Service will make a payment to such partnership or S corporation equal to the amount of such credit determined under paragraph (c) of this section and §1.6417-4(d) (unless the partnership owes any Federal income tax liability, in which case the payment may be reduced by such tax liability).

(iii) Partners and S corporation shareholders prohibited from making any elective payment election. Under section 6417(c)(1) of the Code, any elective payment election with respect to applicable credit property held directly by a partnership or S corporation must be made by the partnership or S corporation. As provided under section 6417(c)(2), no partner in a partnership, or shareholder of an S corporation, may make an elective payment election with respect to any applicable credit determined with respect to such applicable credit property.

(iv) Disregarded entities. If an electing taxpayer is the owner (directly or indirectly) of a disregarded entity that directly holds any applicable credit property, the electing taxpayer may make an elective payment election in the manner provided in paragraph (b) of this section for applicable credits determined with respect to the applicable credit property held directly by the disregarded entity.

(v) Undivided ownership interests. If an electing taxpayer is a co-owner in an applicable credit property through an arrangement properly treated as a tenancy-in-common for Federal income tax purposes, or through an organization that has made a valid election under section 761(a) to be excluded from the application of subchapter K of the Code, then the electing taxpayer's undivided ownership interest in or share of the applicable credit property will be treated as a separate applicable credit property owned by such electing taxpayer, and the electing taxpayer may make an elective payment election in the manner provided in paragraph (b) of this section for the applicable credits determined with respect to such applicable credit property.

(vi) Members of a consolidated group. A member of a consolidated group may make an elective payment election with respect to applicable credits determined with respect to the member. See §1.1502-77 (providing rules regarding the status of the common parent as agent for its members).

(3) Special rules for certain credits—

(i) Renewable electricity production credit. Any election under this paragraph (a) with respect to a section 45 credit—

(A) Applies separately with respect to each qualified facility;

(B) Must be made in the manner provided in paragraph (b) of this section for the taxable year in which such qualified facility is originally placed in service; and

(C) Applies to such taxable year and to any subsequent taxable year that is within the period described in section 45(a)(2)(A)(ii) with respect to such qualified facility.

(ii) Credit for carbon oxide sequestration. Except as provided in §1.6417-3(c), which provides a special rule for electing taxpayers, any election under this paragraph (a) with respect to a section 45Q credit--

(A) Applies separately with respect to the carbon capture equipment originally placed in service by the applicable entity during a taxable year;

(B) Must be made in the manner provided in paragraph (b) of this section for the taxable year in which such carbon capture equipment is originally placed in service; and

(C) Applies to such taxable year and to any subsequent taxable year that is within the period described in section 45Q(3)(A) or (4)(A) with respect to such equipment.

(iii) Credit for production of clean hydrogen. Except as provided in §1.6417-3(b), which provides a special rule for electing taxpayers, any election under this paragraph (a) with respect to a section 45V credit--

(A) Applies separately with respect to each qualified clean hydrogen production facility;

(B) Must be made in the manner provided in paragraph (b) of this section for the taxable year in which such facility is placed in service (or within the 1-year period after August 16, 2022, for facilities placed in service before December 31, 2022); and

(C) Applies to such taxable year and all subsequent taxable years with respect to such facility.

(iv) Clean electricity production credit. Any elective payment election with respect to a section 45Y credit--

(A) Applies separately with respect to each qualified facility;

(B) Must be made in the manner provided in paragraph (b) of this section for the taxable year in which such facility is placed in service; and

(C) Applies to such taxable year and to any subsequent taxable year that is within the period described in section 45Y(b)(1)(B) with respect to such facility.

(v) Advanced manufacturing production credit. Any elective payment election with respect to a section 45X credit applies separately with respect to each facility (whether the facility existed on or before, or after, December 31, 2022) at which a taxpayer produces, after December 31, 2022, eligible components (as defined in section 45X(c)(1)) during the taxable year.

(b) Manner of making election—

(1) In general—

(i) Election is made on the annual tax return. An elective payment election is made on the annual tax return, as defined in §1.6417-1(b), in the manner prescribed by the IRS in guidance, along with any required completed source credit form(s) with respect to the applicable credit property, a completed Form 3800, General Business Credit, (or its successor), and any additional information, including supporting calculations, required in instructions.

(ii) Election must be made on original return. An election must be made on an original return (including any revisions on a superseding return) filed not later than the due date (including extensions of time) for the original return for the taxable year for which the applicable credit is determined. No elective payment election may be made for the first time on an amended return, withdrawn on an amended return, or made or withdrawn by filing an administrative adjustment request under section 6227 of the Code. A numerical error with respect to a properly claimed elective payment election may be corrected on an amended return or by filing an administrative adjustment request under section 6227 if necessary; however, the applicable entity or electing taxpayer’s original return, which must be signed under penalties of perjury, must contain all of the information, including a registration number, required by these final regulations. To properly correct an error on an amended return or administrative adjustment request under section 6227, an applicable entity or electing taxpayer must have made an error in the information included on the original return such that there is a substantive item to correct; an applicable entity or electing taxpayer may not correct a blank item or an item that is described as being “available upon request.” There is no relief available under §301.9100-1 or §301.9100-3 of this chapter for an elective payment election that is not timely filed; however, relief under §301.9100-2(b) may apply if the applicable entity or electing taxpayer has not received an extension of time to file a return after the original due date, has timely filed a return, takes corrective action under §301.9100-2(c) within the six-month extension period, and meets the procedural requirements outlined in §301.9100-2(d).

(2) Pre-filing registration required. Pre-filing registration in accordance with §1.6417-5 is a condition for making an elective payment election. An elective payment election will not be effective with respect to credits determined with respect to an applicable credit property unless the applicable entity or electing taxpayer received a valid registration number for the applicable credit property in accordance with §1.6417-5(c) and provided the registration number for each applicable credit property on its Form 3800 (or its successor), and on any required completed source form(s) with respect to the applicable credit property, attached to the tax return, in accordance with guidance.

(3) Due date for making the election. To be effective, an elective payment election must be made no later than:

(i) In the case of any taxpayer for which no Federal income tax return is required under sections 6011 or no Federal return is required under 6033(a) of the Code (such as a State; the District of Columbia; an Indian Tribal government; any U.S. territory; a political subdivision of a State, the District of Columbia, or a U.S. territory, or a subdivision of an Indian Tribal government; certain agencies or instrumentalities of a State, the District of Columbia, an Indian Tribal government, or a U.S. territory; or a taxpayer excluded from filing pursuant to section 6033(a)(3)), the 15th day of the fifth month after the end of the taxable year. For purposes of section 6417, an applicable entity that is not required to file a Federal income tax return pursuant to sections 6011 or a Federal return pursuant to 6033(a), but is filing solely to make an elective payment election, may choose whether to file its first return (and thus adopt a taxable year for purposes of section 6417) based upon a calendar or fiscal year, provided that such entity maintains adequate book and records, including a reconciliation of any difference between its regular books of account and its chosen taxable year, to support making an elective payment election on the basis of its chosen taxable year. Subject to issuance of guidance that specifies the manner in which an entity for which no Federal income tax return is required under sections 6011 or no Federal return is required pursuant to 6033(a) could request an extension of time to file and make the elective payment election, an automatic paperless six-month extension from the 15th day of the fifth month after the end of the taxable year is deemed to be allowed.

(ii) In the case of any taxpayer located in a U.S. territory, the due date (including extensions of time) that would apply if the taxpayer were located in the United States.

(iii) In any other case, the due date (including extensions of time) for the original return for the taxable year for which the election is made, but in no event earlier than February 13, 2023.

(4) Election is not revocable—

(i) In general. Except as provided in paragraphs (b)(4)(ii) and (iii) of this section, any elective payment election, once made, is irrevocable and applies with respect to any applicable credit for the taxable year for which the election is made.

(ii) Election lasts for a period of years for certain credits. For applicable entities making elective payment elections with respect to section 45 credits described in §1.6417-1(d)(2) or section 45Y credits described in §1.6417-1(d)(8), the election applies to each taxable year in the 10-year period provided in section 45(a)(2)(A)(ii) or 45Y(b)(1)(B), respectively, beginning on the date the facility was originally placed in service. For applicable entities making elective payment elections with respect to section 45Q credits described in §1.6417-1(d)(3), the election applies to each taxable year in the 12-year period provided in section 45Q(a)(3)(A) or (4)(A) beginning on the date the carbon capture equipment was originally placed in service. For applicable entities making elective payment elections with respect to section 45V credits described in §1.6417-1(d)(5), the election applies to the taxable year in which the qualified clean hydrogen production facility was originally placed in service and all subsequent taxable years.

(iii) Electing taxpayers. For electing taxpayers who make an elective payment election, the election applies for one five-year period per applicable credit property, but such election may be revoked once per applicable credit property, as provided in §1.6417-3.

(5) Scope of election. An elective payment election applies to the entire amount of applicable credit(s) determined with respect to each applicable credit property that was properly registered for the taxable year, resulting in an elective payment amount that is the entire amount of applicable credit(s) determined with respect to the applicable entity or electing taxpayer for a taxable year.

(c) Determination of applicable credit—

(1) In general. In the case of any applicable entity making an elective payment election, any applicable credit is determined--

(i) Without regard to section 50(b)(3) and (4)(A)(i) of the Code, and

(ii) By treating any property with respect to which such credit is determined as used in a trade or business of the applicable entity.

(2) Effect of trade or business rule. The trade or business rule in paragraph (c)(1)(ii) of this section--

(i) Allows the applicable entity to treat an item of property as if it is: of a character subject to an allowance of depreciation (such as under sections 30C and 45W); one for which depreciation (or amortization in lieu of depreciation) is allowable (such as in sections 48, 48C, and 48E); and used to produce items in the ordinary course of a trade or business of the taxpayer (such as in sections 45V and 45X);

(ii) Allows the applicable entity to apply the capitalization and accelerated depreciation rules (such as sections 167, 168, 263, 263A, and 266 of the Code) that apply to determining the basis and the depreciation allowance for property used in a trade or business;

(iii) Makes applicable those credit limitations generally applicable to persons engaged in the conduct of a trade or business, such as section 49 of the Code in the context of investment tax credits and section 469 of the Code for all applicable credits;

(iv) Does not create any presumption that the trade or business is related (or unrelated) to a tax-exempt entity’s exempt purpose; and

(v) Subjects the applicable entity to the credit limitation in paragraph (c)(3)(ii) of this section.

(3) Special rule for investment-related credit property acquired with amounts, including income from certain grants and forgivable loans, that are exempt from taxation—

(i) Amounts included in basis. Subject to paragraph (c)(3)(ii) of this section, for purposes of section 6417, amounts that are exempt from taxation under subtitle A or otherwise excluded from taxation (such as income from certain grants and forgivable loans), and used to purchase, construct, reconstruct, erect, or otherwise acquire an applicable credit property described in section 30C, 45W, 48, 48C, or 48E (investment-related credit property) are included in basis for purposes of computing the applicable credit amount determined with respect to the applicable credit property, regardless of whether basis is required to be reduced (in whole or in part) by such amounts under general tax principles.

(ii) No excess benefit from restricted tax exempt amounts. If an applicable entity receives a grant, forgivable loan, or other income exempt from taxation under subtitle A or otherwise excluded from taxation (tax exempt amount) for the specific purpose of purchasing, constructing, reconstructing, erecting, or otherwise acquiring an investment-related credit property (restricted tax exempt amount), and the sum of any restricted tax exempt amounts plus the applicable credit otherwise determined with respect to that investment-related credit property exceeds the cost of the investment-related credit property, then the amount of the applicable credit is reduced so that the total amount of applicable credit plus the amount of any restricted tax exempt amounts equals the cost of investment-related credit property. The determination of whether a tax exempt grant is made for the specific purpose of purchasing, constructing, reconstructing, erecting, or otherwise acquiring an investment-related credit property is made at the time the grant is awarded to the applicable entity. A tax exempt grant awarded after the investment-related credit property is purchased, constructed, reconstructed, erected, or otherwise acquired is generally not a restricted tax exempt amount unless approval of the grant was perfunctory and the amount of the grant was virtually assured at the time of application. The determination of whether a loan is made for the specific purpose of purchasing, constructing, reconstructing, erecting, or otherwise acquiring an investment-related credit property and whether forgiveness of that loan is dependent on satisfying that specific purpose is made at the time the loan is approved. This paragraph does not apply if a tax exempt amount is not received for the specific purpose of purchasing, constructing, reconstructing, erecting, or otherwise acquiring a property eligible for an investment-related credit; for example, if the tax exempt amount is from the organization’s general funds or if such amount’s use is not restricted to the purpose of purchasing, constructing, reconstructing, erecting, or otherwise acquiring an investment-related credit property (such as purchasing an electric vehicle) and could be used for any of several different applicable credit properties (such as purchasing an electric vehicle or purchasing solar panels) or can be put to other purposes (such as purchasing an electric vehicle or making a building more energy efficient).

(4) Credits must be determined with respect to the applicable entity or electing taxpayer. Any credits for which an elective payment election is made must have been determined with respect to the applicable entity or electing taxpayer. An applicable credit is determined with respect to an applicable entity or electing taxpayer if the applicable entity or electing taxpayer owns the underlying applicable credit property and conducts the activities giving rise to the credit or, in the case of section 45X (under which ownership of applicable credit property is not required), to be considered (under the section 45X regulations) the taxpayer with respect to which the section 45X credit is determined. Thus, no election may be made under this section for any credits transferred pursuant to section 6418, allowed pursuant to section 45Q(f)(3), acquired by a lessee from a lessor by means of an election to pass through the credit to a lessee under former section 48(d) (pursuant to section 50(d)(5)), owned by a third party, or otherwise not determined with respect to the applicable entity or electing taxpayer.

(5) Examples. The following examples illustrate the rules of this paragraph (c).

(i) Example 1. School district A receives a tax exempt grant in the amount of $400,000 from the Environmental Protection Agency to purchase electric school bus B. The grant is a restricted tax exempt amount described in paragraph (c)(3)(ii) of this section. A purchases B for $400,000. Pursuant to paragraph (c)(3)(i) of this section, A’s basis in B is $400,000. B qualifies for the maximum section 45W credit, $40,000. However, because the amount of the restricted tax exempt grant plus the amount of the section 45W credit exceeds the cost of B, the no excess benefit rule found in paragraph (c)(3)(ii) of this section applies. A’s section 45W credit is reduced by the amount necessary so that the total amount of the section 45W credit plus the restricted tax exempt amount equals the cost of B. A’s section 45W credit is therefore reduced by $40,000 to zero.

(ii) Example 2. Assume the same facts as in paragraph (c)(5)(i) of this section (Example 1), except that the grant is in the amount of $300,000. This grant is still a restricted tax exempt amount described in paragraph (c)(3)(ii) of this section. A purchases B using the grant and $100,000 of A’s unrestricted funds. A’s basis in B is still $400,000 and A’s section 45W credit is $40,000. Since the amount of the restricted tax exempt amount plus the amount of the section 45W credit ($340,000) is less than the cost of B, A’s 45W credit under section 6417(b)(6) is not subject to the no excess benefit rule found in paragraph (c)(3)(ii) of this section.

(iii) Example 3. Public charity B receives a $60,000 grant from a private foundation to build energy property, P, a qualified investment credit property that costs $80,000. The $60,000 grant is a restricted tax exempt amount described in paragraph (c)(3)(ii) of this section. B uses $20,000 of its own funds plus the $60,000 grant to build P. Pursuant to paragraph (c)(3)(i) of this section, B’s basis in P is $80,000. Assume that, based upon acquisition cost, B can earn a section 48 investment credit (with bonus credit amounts) of $40,000 (50% of basis). However, because the amount of the restricted tax exempt amount ($60,000) plus the section 48 credit ($40,000) exceeds P’s cost by $20,000, the no excess benefit rule found in paragraph (c)(3)(ii) of this section applies to reduce B’s section 48 applicable credit by $20,000 so that the total amount of the section 48 investment credit plus the restricted tax exempt amount equals the cost of P.

(iv) Example 4. The U.S. Department of Housing and Urban Development annually provides Capital Funds to Public Housing Agencies (PHAs) for the development, financing, and modernization of public housing developments and for management improvements. Public Housing Authority H uses its annual allotment of Capital Funds to purchase rooftop solar panels for its property and to pay for the related equipment and labor to install the panels. These purchases are considered among the list of eligible uses, but are not the exclusive uses, of H’s Capital Funds. Although the Capital Funds are exempt from taxation under subtitle A and used to purchase, construct, reconstruct, erect, or otherwise acquire an investment-related credit property, pursuant to paragraph (c)(3)(i) of this section, they are included in basis for purposes of computing the applicable credit amount determined with respect to the applicable credit property. In addition, because the Capital Funds were not given for the specific purpose of purchasing, constructing, reconstructing, erecting, or otherwise acquiring an investment-related credit property, they are not considered restricted tax exempt amounts and the no excess benefit rule found in paragraph (c)(3)(ii) of this section does not apply.

(v) Example 5. Taxpayer Q is engaged in the business of capturing carbon oxide. Q properly elects to be treated as an applicable entity with respect to the section 45Q credit determined with respect to single process trains A, B, and C for 2024. In the same year, Q also purchases section 45Q credits under section 6418 from an unrelated taxpayer and has section 45Q credits allowed to itself pursuant to section 45Q(f)(3). Q can make an elective payment election only with respect to section 45Q applicable credits determined with respect to A, B, and C. Q cannot make an elective payment election with respect to any credits transferred to Q pursuant to section 6418 or allowed to Q pursuant to section 45Q(f)(3).

(d) Timing of payment. Except as provided in §1.6417-4(d) (relating to payments to partnerships and S corporations), the elective payment amount will be treated as made—

(1) In the case of any taxpayer for which no Federal income tax return is required under section 6011 or no Federal return is required under 6033(a), on the later of—

(i) The date that is the 15th day of the fifth month after the end of the taxable year, or

(ii) The date on which such taxpayer submits a claim for credit or refund in accordance with paragraph (b) of this section.

(2) In any other case, on the later of—

(i) The due date (determined without regard to extensions) of the return for the taxable year, or

(ii) The date on which such return is filed.

(e) Denial of double benefit—

(1) In general. Under section 6417(e), in the case of an applicable entity or electing taxpayer making an elective payment election with respect to an applicable credit, such credit is reduced to zero and is, for any other purposes of the Code, deemed to have been allowed as a credit to such entity or taxpayer for such taxable year. Paragraph (e)(2) and (3) of this section explain the application of the section 6417(e) denial of double benefit rule to an applicable entity or electing taxpayer (other than a partnership or S corporation). The application of section 6417(e) for an electing taxpayer that is a partnership or S corporation is provided in §1.6417-4(c)(1)(ii).

(2) Application of the denial of double benefit rule. An applicable entity or electing taxpayer (other than an electing taxpayer that is a partnership or S corporation) making an elective payment election applies section 6417(e) by taking the following steps:

(i) Compute the amount of the Federal income tax liability (if any) for the taxable year, without regard to the general business credit allowed by section 38 of the Code (GBC), that is payable on the due date of the return (without regard to extensions), and the amount of the Federal income tax liability that may be offset by GBCs pursuant to the limitation based on amount of tax under section 38.

(ii) Compute the allowed amount of GBC carryforwards carried to the taxable year under section 38(a)(1) plus the amount of current year GBCs (including current applicable credits) for the taxable year under section 38(a)(2) and (b). Because the election is made on an original return for the taxable year for which the applicable credit is determined, any business credit carrybacks are not considered in determining the elective payment amount for the taxable year.

(iii) Calculate the net elective payment amount for all applicable credits, which equals the lesser of the sum of all applicable credits for which an elective payment election is made or the excess (if any, otherwise the excess is zero) of the total GBC credits described in paragraph (e)(2)(ii) of this section over the amount of the Federal income tax liability that may be offset by GBCs pursuant to the limitation based on amount of tax under section 38 computed in paragraph (e)(2)(i) of this section. Treat the net elective payment amount of all applicable credits for which an elective payment election is made as a payment against the tax imposed by subtitle A for the taxable year with respect to which such credits are determined.

(iv) Excluding the net elective payment amount determined under paragraph (e)(2)(iii) of this section, but including any applicable credits that are not part of the net elective payment amount, compute the allowed amount of GBC carryforwards carried to the taxable year plus the amount of current year GBCs allowed for the taxable year under section 38 (including, for clarity purposes, the ordering rules in section 38(d)). Apply these GBCs against the tax liability computed in paragraph (e)(2)(i) of this section.

(v) Reduce the applicable credits for which an elective payment election is made by the net elective payment amount, as provided in paragraph (e)(2)(iii) of this section, and by the amount (if any) allowed as a GBC under section 38 for the taxable year, as provided in paragraph (e)(2)(iv) of this section, which results in the applicable credits being reduced to zero.

(3) Use of applicable credit for other purposes. The full amount of the applicable credits for which an elective payment election is made is deemed to have been allowed for all other purposes of the Code, including, but not limited to, the basis reduction and recapture rules imposed by section 50 and calculation of tax, calculation of the amount of any underpayment of estimated tax under sections 6654 and 6655 of the Code, and the addition to tax for the failure to pay under section 6651(a)(2) of the Code (if any).

(4) Examples. The following examples illustrate the rules of this paragraph (e).

(i) Example 1. U is a tax-exempt university that is not a trust subject to section 469 and is described in section 501(c)(3). U’s fiscal year runs from July 1 to June 30. U places in service P, energy property eligible for a section 48 credit, in June 2024. P is an asset used in connection with its unrelated business. U completes the pre-filing registration in accordance with §1.6417-5 as an applicable entity that has placed P into service and intends to make an elective payment election with respect to section 48 credits determined with respect to P. U timely files its 2024 Form 990-T on November 15, 2024. On its return, U properly determines that it has $500,000 of Unrelated Business Income Tax (UBIT) under section 512. On its Form 3800 attached to its return, U calculates its limitation of GBC under section 38(c) (simplified) is $375,000 (paragraph (e)(2)(i) of this section). U attaches Form 3468 to claim a section 48 credit of $100,000 with respect to P (its GBC for the taxable year) (paragraph (e)(2)(ii) of this section). Under paragraph (e)(2)(iii) of this section, the net elective payment amount is $0, so the section 48 credit is considered a credit that reduces U’s UBIT liability to $400,000 under paragraph (e)(2)(iv) of this section. U pays its $400,000 tax liability on November 15, 2024. Under paragraph (e)(2)(v) of this section, the $100,000 of section 48 credit is reduced by the $100,000 of applicable credits claimed as GBCs for the taxable year, which results in the applicable credits being reduced to zero. However, the $100,000 of current year section 48 credit is deemed to have been allowed to U for 2024 for all other purposes of the Code (paragraph (e)(3) of this section).

(ii) Example 2. Assume the same facts as in paragraph (e)(4)(i) of this section (Example 1), except that U has $80,000 of Unrelated Business Income Tax (UBIT) under section 512 and calculates its limitation of GBC under section 38(c) (simplified) is $60,000 (paragraph (e)(2)(i) of this section). Under paragraph (e)(2)(iii) of this section, the net elective payment amount is $40,000 (lesser of $100,000 applicable section 48 credit or $100,000 of total GBC credits described in paragraph (e)(2)(ii) of this section minus $60,000 of section 38(c) limitation). Under paragraph (e)(2)(iv) of this section, U uses $60,000 of its $100,000 of section 48 credit against its tax liability. U reduces its applicable credit by the $40,000 net elective payment amount determined in paragraph (e)(2)(iii) of this section and by the $60,000 section 48 credit claimed against tax in paragraph (e)(2)(iv) of this section, resulting in the applicable credit being reduced to zero (paragraph (e)(2)(v) of this section). When the IRS processes U’s 2024 Form 990-T, the net elective payment amount results in a $20,000 refund to U (after applying $20,000 of the $40,000 net elective payment amount to cover U’s tax shown on the return). However, for other purposes of the Code, the $100,000 section 48 credit is deemed to have been allowed to U for 2024 (paragraph (e)(3) of this section).

(iii) Example 3. V is a city located in the United States that never has Federal income tax liability, so paragraph (e)(2)(i) of this section does not apply. V timely completes pre-filing registration in accordance with §1.6417-5 as an applicable entity that will be eligible to make an elective payment election, with regard to its annual accounting period ending in 2024, for the credit determined under section 30C(a) from properties A, B, and C; the credit determined under section 45(a) for facility D; the credit determined under section 45U(a) for facility E; the credit determined under section 45W(a) with respect to vehicles F, G, and H; and the credit determined under section 48(a) with respect to property I and J. V timely files its 2024 Form 990-T. V properly completes and attaches the relevant source credit forms and Form 3800 with registration numbers and all required information in the instructions, properly making the elective payment election for all of the credits, and properly determining that the amount of applicable credits determined with respect to A, B, C, D, E, F, G, H, I, and J is $500,000 (its GBC for the taxable year) (paragraph (e)(2)(ii) of this section). Under paragraph (e)(2)(iii) of this section, the net elective payment amount is $500,000. Under paragraph (e)(2)(iii) of this section, the entire $500,000 net elective payment amount is a payment against the tax imposed by subtitle A for the taxable year with respect to which such credits are determined. When the IRS processes V’s 2024 Form 990-T, the net elective payment amount results in a $500,000 refund to V. V’s elective payment amount is reduced by the net elective payment amount, so all applicable credits for 2024 are reduced to zero (paragraph (e)(2)(v) of this section). However, for other purposes of the Code, the $500,000 of applicable credits are deemed to have been allowed to V for its annual accounting period ending in 2024 (paragraph (e)(3) of this section).

(iv) Example 4. W is a business taxpayer engaged in the manufacturing of components, including eligible components as defined in section 45X(c)(1) at facility F. W completes pre-filing registration in accordance with §1.6417-5 stating that it intends to elect to be treated as an applicable entity with respect to eligible components produced at F in 2024. In 2025, W timely files its 2024 return electing to be treated as an applicable entity, calculating its Federal income tax before GBCs of $125,000 and that its limitation of GBC under section 38(c) (simplified) is $100,000 (paragraph (e)(2)(i) of this section). W attaches Form 7207 to claim a current section 45X credit of $50,000 with respect to eligible components produced at F (its applicable credits). W also attaches Form 5884 to claim a current work opportunity tax credit (WOTC) of $50,000 (WOTC is not an applicable credit). W also has business credit carryforwards of $25,000, which together with the 45X credit and WOTC results in a total of $125,000 of GBC for the taxable year (paragraph (e)(2)(ii) of this section). Under paragraph (e)(2)(iii) of this section, the net elective payment amount is $25,000. Under paragraph (e)(2)(iv) of this section, including using the ordering rules in section 38(d), W is allowed $25,000 of the carryforwards, $50,000 of WOTC plus only $25,000 of section 45X credit against net income tax, as defined under section 38(c)(1)(B). The $25,000 of unused section 45X credit is the net elective payment amount that results in a $25,000 payment against tax by W (paragraph (e)(2)(iii) of this section). On its return, W shows net tax liability of $25,000 ($125,000 - $100,000 allowed GBC) and the net elective payment of $25,000 that W applied to net tax liability, resulting in zero tax owed on the return. Under paragraph (e)(2)(v) of this section, W’s applicable credit is reduced by the $25,000 of the net elective payment amount, as well as by the $25,000 of section 45X credit claimed as a GBC for the taxable year, resulting in the $50,000 of applicable credit being reduced to zero. However, for all other purposes of the Code, the $50,000 of 45X applicable credits are deemed to have been allowed to W for 2024 (paragraph (e)(3) of this section). Even though W did not owe tax after applying the net elective payment amount against its net tax liability, W may be subject to the section 6655 penalty for failure to pay estimated income tax. The net elective payment is not an estimated tax installment, rather, it is treated as a payment made at the filing of the return.

(v) Example 5. Assume the same facts as in paragraph (e)(4)(iv) of this section (Example 4), except W filed the return on a timely filed extension after the due date of the return (excluding extensions). Even though the net elective payment amount is sufficient to cover W’s tax liability, W may also be subject to the section 6651(a)(2) penalty for failure to pay tax.

(vi) Example 6. Assume the same facts as in paragraph (e)(4)(iv) of this section (Example 4), except W’s activities gave rise to a $100,000 section 45Q credit and W filed a Form 8933, Carbon Oxide Sequestration Tax Credit, instead of a $50,000 section 45X credit and Form 7207. Assume also that W’s activities gave rise to a $50,000 small employer health insurance credit under section 45R (section 45R credit) and W filed Form 8941, Credit for Small Employer Health Insurance Premiums, instead of a $50,000 WOTC and Form 5884. Under paragraph (e)(2)(iii) of this section, the net elective payment amount is $75,000. Under paragraph (e)(2)(iv) of this section, including using the ordering rules in section 38(d), W is allowed $25,000 of the carryforwards, $25,000 of the section 45Q credit, plus its $50,000 of section 45R credit against net income tax, as defined under section 38(c)(1)(B). The $75,000 of unused section 45Q credit that is the net elective payment amount results in a $75,000 payment against tax by W (paragraph (e)(2)(iii) of this section). On its return, W shows net tax liability of $25,000 ($125,000 - $100,000 allowed GBC) and the net elective payment amount of $75,000 that W applied to net tax liability, resulting in a refund of $50,000. Under paragraph (e)(2)(v) of this section, W’s applicable credit is reduced by the $75,000 of the net elective payment amount, as well as by the $25,000 of section 45Q credit claimed as a GBC for the taxable year, resulting in the $100,000 of applicable credit being reduced to zero. However, for all other purposes of the Code, the $100,000 of section 45Q applicable credits are deemed to have been allowed to W for 2024 (paragraph (e)(3) of this section).

(f) Applicability date. This section applies to taxable years ending on or after March 11, 2024. For taxable years ending before March 11, 2024, taxpayers, however, may choose to apply the rules of §§1.6417-1 through 1.6417-4 and 1.6417-6, provided the taxpayers apply the rules in their entirety and in a consistent manner.

[Added by T.D. 9988, 89 FR 17546-17596, Mar. 11, 2024.]

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