The Clean Energy Tax Credit: What School Districts Should Know

August 12, 2024

The recent Inflation Reduction Act (IRA) passed by Congress in 2022 offers substantial tax credits for not-for-profits, including potential school districts like yours, that pursue clean energy projects. However, like most government incentives, the complexities of these tax credits can be arduous, if not burdensome, to navigate. Here’s a quick overview of the key benefits and challenges school districts should consider.

THE PROS

The IRA provides potentially significant Tax Credits for Not-for-Profits (i.e., Direct pay recipients) to include school districts that construct and put into service Clean Energy Project(s) such as Solar, Geothermal, Thermal Storage, etc. on their property.
- https://www.whitehouse.gov/cleanenergy/directpay/
Direct Pay recipients may qualify for up to 50% (less deductions) of the approved project cost if they meet the IRS stipulated requirements. These requirements include compliance with the Prevailing Wage and Apprentice program, up to 30% credit, a Domestic Content Bonus of 10% credit and a 10% Energy Community Bonus for projects in a Department of Energy (DOE) mapped underserved location.
To qualify for the tax credit, not-for-profits must meet the requirements above, pre-register their project/property with the IRS after the project is placed into service and file a tax return (990T-Exempt Organization Business Income Tax Return and Form 3648- Investment Credit) along with the required supporting documentation.
- https://home.treasury.gov/news/press-releases/jy2016#:~:text=How%20Do%20School%20Districts%20Register,%2Dspecific%20form(s).

THE CONS

The IRA Clean Energy Tax Credits are an IRS regulated program (Section 48) and as such compliance with the tax law requires significant documentation.
An unknown number of those who receive credits will be audited. Compliance with the IRS rules extend five years beyond the date placed in service for all construction, alteration, and repair.
The amount of credit can only be accurately determined once the project has been completed, all expenses have been approved, and all deductions have been reconciled against the project by an ITC Tax Expert.
- https://www.irs.gov/credits-deductions/frequently-asked-questions-about-the-prevailing-wage-and-apprenticeship-under-the-inflation-reduction-act

THE BOTTOM LINE

Funding is available, and districts are strongly encouraged to involve their own IRA ITC tax expert, with a fiduciary relationship, as early as possible in the project. This expert will help identify potential credits, navigate the specific rules, and ensure compliance with all regulations and record-keeping requirements.

For additional information, please contact Building Controls and Services at info@bldgcontrols.com or call 816-400-2246.