Fact Sheet Inflation Reduction Act Clean Energy Opportunity: Direct Pay for Nonprofits and Tax-Exempt Entities

The Inflation Reduction Act of 2022 introduced "direct pay" (or "elective pay"), allowing tax-exempt entities—such as nonprofits, state and local governments, and tribal governments—to receive direct payments from the IRS in lieu of tax credits for clean energy investments. Eligible credits include a 30% base credit for solar and battery storage, credits for commercial electric vehicles up to $40,000, and credits for alternative fuel infrastructure. Additional bonuses are available for projects in "energy communities," those using "domestic content," or those qualifying for the Low-Income Community Tax Credit. The process involves pre-registering with the IRS and filing specific tax forms, with a total timeline ranging from four to 18 months.

• The Inflation Reduction Act of 2022 allows tax-exempt entities to receive direct payments from the IRS instead of tax credits, a process known as "direct pay" or "elective pay," which is available through 2033.
• Eligible entities for direct pay include nonprofits, churches, school districts, tribal governments, rural electric cooperatives, municipal utilities, and state and local governments and their agencies.
• Tax-exempt entities can monetize 12 different tax credits, including a 30% base credit for battery storage, ground-source heat pump, and solar projects, with potential 10-percentage-point bonuses for "domestic content" or projects in "energy communities," and a further 20-percentage-point bonus via the DOE's Low-Income Community (LIC) Bonus Credit Program.
• Other qualifying credits include the Commercial Clean Vehicle Credit, which offers up to $40,000 (or $7,500 for vehicles under 14,000 pounds), and the Alternative Fuel Infrastructure Tax Credit, providing 30% up to $100,000 per unit for refueling equipment and charging stations.
• The Commercial Buildings Energy Efficiency Tax Deduction is available for improvements resulting in at least 25% energy savings; tax-exempt entities can pass this deduction to the project's designers or contractors to lower overall costs.
• The administrative process for accessing direct pay involves pre-registration with the IRS and filing forms 3468, 3800, and the annual 990 T-form, with the entire process taking between four and 18 months.

APA

Environmental and Energy Study Institute (n.d.). Fact Sheet Inflation Reduction Act Clean Energy Opportunity: Direct Pay for Nonprofits and Tax-Exempt Entities. https://www.eesi.org/files/FactSheet_Direct_Pay_Nonprofits.pdf

Chicago

Environmental and Energy Study Institute. Fact Sheet Inflation Reduction Act Clean Energy Opportunity: Direct Pay for Nonprofits and Tax-Exempt Entities. n.d. https://www.eesi.org/files/FactSheet_Direct_Pay_Nonprofits.pdf.

Wikipedia

{{cite report |author=Environmental and Energy Study Institute |title=Fact Sheet Inflation Reduction Act Clean Energy Opportunity: Direct Pay for Nonprofits and Tax-Exempt Entities |url=https://www.eesi.org/files/FactSheet_Direct_Pay_Nonprofits.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{environmentalandenergystudyinstitutendfact, author = {{Environmental and Energy Study Institute}}, title = {{Fact Sheet Inflation Reduction Act Clean Energy Opportunity: Direct Pay for Nonprofits and Tax-Exempt Entities}}, institution = {Environmental and Energy Study Institute}, url = {https://www.eesi.org/files/FactSheet_Direct_Pay_Nonprofits.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }