December 27, 2023
Any taxpayer who wishes to transfer or receive a direct payment with respect to credits must complete a registration process and obtain a registration number for each eligible credit property before claiming the credit or refund.
On December 22, 2023, the IRS and Treasury unveiled their new pre-filing registration portal (available here) for transferable and refundable tax credits under the Inflation Reduction Act of 2022 (the โIRAโ)[1] and the CHIPS and Science Act of 2022 (the โCHIPS Actโ). As discussed in more detail in our previous alerts on the transferability of IRA tax credits (available here) and the direct payment rules related to these credits (available here), any taxpayer wishing to transfer or receive a direct payment with respect to credits must complete a registration process and obtain a registration number for each eligible credit property before claiming the credit or refund. Without a registration number, no tax credit transfers or direct payments are allowed, so understanding the process for obtaining a registration number will be critical for taxpayers who want to take advantage of the IRA and CHIPS Act incentives.
In connection with the implementation of the new pre-filing registration portal, the IRS provided detailed instructions (64 pages, plus appendices) (available here). These instructions explain how to access and use the pre-submission registration portal,[2] describe the information that must be submitted (including both general information applicable to all taxpayers using the portal and credit-specific information),[3] explain the process to be used by taxpayers with multiple qualified projects or facilities (including specific procedures for mass registrations),[4] describe the process the IRS will use if it requires additional information from a taxpayer,[5] clarify which person is required to submit a registration (including addressing consolidated groups and disregarded entities),[6] and clarify the process to follow if facts change after obtaining a registration number.[7]
Although a comprehensive discussion of the portal and its explanatory instructions is beyond the scope of this alert, we have included ten important observations below:
- Long waiting period required โ The instructions recommend that taxpayers be sure to budget 120 days to receive a registration number after filing, assuming there are no comments. This recommendation suggests that the IRS review period for filings may be lengthy.
- Get in line quickly โ The instructions state that registration number requests will be processed in the order in which they are received. Taxpayers looking to transfer credits will want to act as quickly as possible to get in line.
- Don't lose your place in line โ If the IRS makes a follow-up request to an applicant before providing a registration number, but the applicant does not respond to that request in a timely manner, the applicant will be relegated to the back of the line. For this reason, applicants should implement processes to ensure they carefully monitor the IRS portal after submitting a registration number request.
- One registration package per year โ The portal allows only one registration package per taxable year per applicant. So, for example, even if an applicant has multiple facilities for which registration numbers are needed, that applicant may submit only one registration package. Once a package is sent, no adjustments are allowed until the IRS has responded to the package. (An amended filing can be made, but only after the IRS has provided its response.)
- Advisors may not be welcome โ The portal requires the person requesting registration for an entity transferor to certify that the person is โa corporate officer, partner, guardian, executor, trustee, administrator, trustee or individual other than the taxpayerโ and that โhe or she has the legal authority to execute [the] authorization in the name of the taxpayer.โ The instructions go on to state that information submitted will be compared to information in IRS records and that errors creating a portal account for a business result in a 24-hour lockout. Based on these statements, it is unclear whether an advisor can complete registration on behalf of a taxpayer. It would be helpful if the IRS clarified whether representatives can help obtain registration numbers.
- Know which EIN to use โ The instructions for the portal include detailed instructions on employer identification numbers (โEINsโ), including rules regarding which EIN to use in the case of a disregarded entity (for disregarded entities owned by trusts/individuals, the name of the disregarded entity and the EIN are used, and for disregarded entities owned by other taxpayers, the EIN and the name of the deemed owner must be used), and the rules that apply to consolidated groups (the the EIN of the consolidated parent company).
- Collect necessary information and documents in advance โ Applicants must submit detailed information, both about themselves and the projects for which the registration number is requested. In addition, many of the credits require various documents (or document summaries). Although this information (e.glongitude and latitude coordinates that pinpoint the location of a project precisely (in inches)) and these documents will certainly help protect against fraud, it is reasonable to anticipate that the burden on taxpayers will not be insignificant, and it will be important that applicants Collect all necessary materials to ensure the shipping process goes smoothly.
- Mass shipments โ The online application portal allows applicants to submit applications for registration numbers related to multiple facilities in bulk (using a spreadsheet that can be downloaded from the portal). This will be particularly useful for applicants who have many projects with many facilities (e.g, a wind farm), since a separate registration number is required for each installation. However, as mentioned, each taxpayer is not allowed to have more than one pending application process at a particular time.
- Dates of service are key. No pre-submission registration of a facility is permitted prior to the date the facility enters service. For tax credit assignees who require obtaining a registration number prior to payment of tax credits, this feature may affect credit-related transactions or financings.
- Beware of traps โ The pre-filing registration process prioritizes fraud prevention over flexibility. Therefore, it is important to remember that a registration number is specific to a type of election (that is to say, transfer versus direct payment), type of credit, facility/property, tax period for election, and owner of the facility/property. If any of these changes, a new registration number will be required. For corporations, if a corporation obtained a registration number and subsequently joins or leaves a consolidated group, a new registration number will be necessary.
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[1] As was the case with the so-called Tax Cuts and Jobs Act, Senate reconciliation rules prevented senators from changing the name of the Act, and the formal name of the so-called Inflation Reduction Act is actually โA law to establish conciliation in accordance with the law.โ title II of S. Con. Res. 14.โ
[2] The IRS and Treasury have partnered with ID.me, a third-party technology provider, to provide login and identity verification services. The portal requires each taxpayer to create an account and, if the person filing the return is not the taxpayer (e.gin the case of transferors that are entities), requires an authorization process, which requires the submission of information about both the taxpayer and the person acting on behalf of the taxpayer.
[3] All taxpayers must submit their name, address, entity type, bank account information (required for verification), tax period to which the election relates, types of tax returns filed by the taxpayer, and (if applicable) information on consolidated subsidiaries. Additionally, information about the type of election being made (that is to say, direct payment versus transfer), key dates (including the start of construction and commissioning) and the location of the premises/property are required for many credits. Additionally, many loans require the submission of unique, credit-specific information or certifications. For example, for a taxpayer seeking to record production tax credits, a certification is required that no investment tax credit will be claimed under section 48 for the facility/property.
[4] The portal requires that each taxpayer not have more than one pending filing at any given time. The portal allows taxpayers who require numerous registration numbers to file in bulk using a specific format.
[5] Once a filing has been made, the IRS will use the portal to communicate with the taxpayer, although taxpayers may choose to receive email alerts.
[6] The relevant rules are very specific and not always intuitive, particularly the rules that apply to disregarded entities and consolidated groups. These rules are discussed in more detail below.
[7] At a high level, and as discussed in more detail later in this alert, a resubmission is generally required.
Gibson Dunn attorneys are available to help answer any questions you may have about these developments. For more information on these issues, please contact the Gibson Dunn attorney with whom you regularly work, any member of the firm's team. Tax either Energy and renewable energies practice groups, or the authors:
Tax:
Michael Q. Cannon โ Dallas (+1 214.698.3232, [emailย protected])
Matt Donnelly โ Washington, DC (+1 202.887.3567, [emailย protected])
Energy and Renewables:
Peter J. Hanlon โ New York (+1 212.351.2425, [emailย protected])
Nicolas H. Politan, Jr. โ New York (+1 212.351.2616, [emailย protected])
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