Treasury Finalizes Direct Pay Regulations on Tax Credits

The U.S. Treasury Department and IRS have finalized regulations that expand access to clean energy tax credits through a process known as direct pay, effective January 19, 2025. This new framework allows tax-exempt entities, tribal governments, and non-profits to convert clean energy tax credits into refundable payments, addressing previous limitations where these groups could not benefit due to minimal federal tax liabilities. The regulations also modify partnership tax rules, enabling co-owned clean energy projects to opt out of partnership status for tax purposes, allowing eligible co-owners to individually claim tax credits. This initiative aims to accelerate investment in clean energy projects by providing more flexibility and certainty for participants. By enabling these entities to access full tax credit benefits, the administration hopes to promote a quicker transition to a greener economy.