Finalized Direct Pay Rules for Inflation Reduction Act by Holland & Knight LLP

Final Regulations on Direct Payment under Section 6417

Understanding Final Regulations on Direct Payment under Section 6417


The U.S. Department of the Treasury and IRS have recently released final regulations under Section 6417 of the Internal Revenue Code, as enacted by the Inflation Reduction Act (IRA). This new regulation allows certain taxpayers to opt for a direct payment instead of a tax credit. Let’s delve into the details of this important update.

Applicable Entities and Elective Payment Election

Under Section 6417, “applicable entities” such as tax-exempt organizations, states, Indian tribal governments, and more can choose to receive direct payment for specific tax credits. The final regulations have expanded the eligibility criteria, making it easier for a wider range of entities to benefit from this option.

Additional Guidance

The regulations also provide clarity on which entities can make an elective payment election. While partnerships and S corporations are generally excluded, there are certain circumstances where they can qualify as “applicable entities” for specific tax credits.

Proposed Regulations for Unincorporated Organizations

In a departure from previous positions, the Treasury Department and IRS have issued proposed regulations for unincorporated organizations seeking direct payment. These regulations offer additional guidance for partnerships and other entities with applicable entities as owners, allowing them to opt out of certain tax rules.

Rules for Making Elective Payment Elections

The final regulations also outline the procedural rules for making an elective payment election. The due dates vary depending on the taxpayer’s status, ensuring that the process is clear and efficient.

Electing Taxpayers

For entities that are not considered applicable entities, such as partnerships or S corporations, the final regulations provide specific guidance on when and how they can make an elective payment election. This option is available for certain tax credits and under specific circumstances.

Read More of this Story at – 2024-03-19 20:10:12

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