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New Money – Part 1: IRA Credits

This segment of TRACS: Finance Lab is the first of a three-part series on interesting opportunities for grants, credits, and refunds of which you and your institution may not be aware.

For this first round, let’s look closely at the “green” credits that were included in the InflationReduction Act (IRA) of 2022. At first, these credits were not generally available to not-for-profit organizations – unless you have unrelated business income taxes payable.However, with the release of Internal Revenue Code section 6417 – as part of the guidance onthe IRA credits – the concept of the “Elective Payment Option” or “Direct Pay” was established.This proviso made it possible for not-for-profit organizations to participate in some IRA creditprograms and receive “credit” dollars as a cash refund – not a grant.

There are two types of available credits in the IRA: 1) Investment Tax Credit; 2) Production TaxCredit. Pretty much, they are just as they appear to be. The ITC would be for itemspurchased/installed for your institution’s use (solar panels, biomass facilities, electric vehicles).The PTC would be for investments in projects, equipment, etc. that would help your institutionmanufacture/produce/sell a manufactured product (electricity, renewable energy equipment, etc.)These are generally available for projects placed into service after January 31, 2023 – or later.This program runs through 2032 – a ten-year project.

For most institutions, the focus will be upon the Investment Tax Credit. This could result in anup to 70% credit for qualified expenditures. Also, receiving government grants for a projectdoes not disqualify the project from the ITC – it may be limited, but not disallowed.

Many experts and advisors have pointed out that institutions like yours will generally benefit from taking advantage of credits that are available to offset projects and/or purchases that you already have planned, rather than planning projects simply because the credits might be available.The most likely code sections your institution may qualify for are:

  • 30C – Alternative Fuel Vehicle Refueling

  • 45W – Qualified Commercial Clean Vehicles

  • 48 – Investment Tax Credit

  • 48E – Clean Electricity Investment Credit (begins January 1, 2025)

This includes items such as solar panels, wind electricity, electric vehicle recharging stations,and “clean” commercial vehicles (buses, autos, trucks, equipment).For projects of less than 1 megawatt hour (about the size of a 7 acre solar array), the initial levelof credit will be 30%. Then, the domestic content (made in the U.S.A.) component can add 10%more. Then, 10% each might be available for projects in an “Energy Community” and/or“Environmental Justice Allocation for Low-income Community or Tribal Land” (generallymapped using the “New Market Tax Credit” qualifications). Finally, a further 20% might be

available for projects in an “Environmental Justice Allocation for Affordable Housing or Low-Income Community Benefit.” All of these could get the total opportunity up to a 70% credit.

Just for the fun of it, let’s look at a quick example…Troas Bible College is looking to purchase and put into service a new bus to assist students inmoving around campus and the immediate area. They have applied for and received agovernment grant in the amount of $80,000 for the bus project. The cost of the bus is $150,000.TBC’s out of pocket cost at that point would be $70,000.The “bus project” qualifies for the ITC under I.R.C. section 45W. As the TBC Finance Teamanalyzes the “levels” of opportunities with the ITC from the IRA (love those acronyms!), theyqualify for a 50% credit. That would mean $75,000 in ITC. However, the credit – when a government grant is also in play – is “limited” to the institution’s cash outlay, which equals $70,000. Notice, though, that in this example, the whole cost of the bus ($150,000) is paid forwith “new money.”

There are several “hoops” to jump through in qualifying for and applying for the IRA credits.Many are still being defined by the IRS and other government agencies. One important point isthat you are required to “register” each project prior to putting them in service. Another point isthat you will “apply for” the credits through filing of Form 990-T (along with Form 3800 – andmaybe others) – even if you do not owe any unrelated business income taxes.

We will continue to monitor this area of interest and will provide updates to you as they becomeavailable. More to follow!

Written byDavid C. Moja, CPA www.mojacompany.comThe information provided herein presents general information and should not be relied on asaccounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.

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