Tax-Exempt Organizations

Energy Cost-Saving Opportunities for Local Governments, Nonprofits, and Other Tax-Exempt Organizations

Taking advantage of clean energy incentives can help your organization cut costs and reduce pollution.

I’m interested in generating renewable energy

Generating renewable energy can reduce your electricity costs and lower your organization’s emissions. New incentives help make it more affordable to:

• Install solar panels
• Build energy storage to save excess energy for later

I’m interested in upgrades that save on energy costs

Upgrade your building with the latest technologies to save energy, modernize your space, and cut your energy bills. It’s now more affordable than ever to:

• Make energy efficiency upgrades like improving interior lighting and building envelope upgrades
• Upgrade HVAC and hot water systems to be more efficient

I’m interested in electric vehicles or EV chargers

Electric vehicles have lower lifecycle costs due to lower fuel and maintenance costs compared to traditional gasoline and diesel vehicles.  Making the swap to electric vehicles can also create cleaner air in your community and reduce your company's pollution.

Take advantage of incentives to help you:

• Purchase or lease an electric vehicle
• Install electric vehicle charging equipment

I'm interested in clean manufacturing

New incentives can support manufacturing investments, production, and facility upgrades if your project reduces industrial emissions or creates components for eligible clean energy equipment or electric vehicles.

Find two examples of tax-exempt clean manufacturing activities below.

• A nonprofit could build a carbon sequestration plant to cut community greenhouse gas emissions, improve local air quality, and get money back on the project with the Credit for Carbon Sequestration 45Q.
• A local government that wants to increase solar electricity production to create job growth can start manufacturing solar panel components at a municipally owned facility and receive a payment from the federal government through the Advanced Manufacturing Production Tax Credit 45X.

What is direct pay and how do I use it?

Tax-exempt entities are now able to take advantage of key tax credits through direct pay, also known as elective pay. Direct pay is a process in which the Internal Revenue Service (IRS) will provide a payment to eligible organizations for the full value of a tax credit.  

How to claim direct pay:

1. Identify the project and the credit you want to pursue.
2. Complete your project.
3. Determine the corresponding tax year your return will be due.
4. Complete pre-filing registration with the IRS before your tax return is due to get a registration number.
   1. In general, each registration number corresponds to one clean energy project in one tax year—you will need to renew the number if you need to use it in other tax years.
5. Once you receive a valid registration number, file your tax return by the due date, including extensions.
   1. You’ll need to provide your registration number and make the elective payment selection on your tax return (typically a Form 990-T for most entities that don’t normally file a tax return).
   2. You also need to provide additional required documentation (forms specific to the tax credit) and underlying credit forms when you file your return.
6. Receive your direct payment.

You can find more information on how to use direct pay here and frequently asked questions here.  Lawyers for Good Government also runs a Clean Energy Tax Navigator that can walk you through direct pay step by step.

Who are tax-exempt entities?

Tax-exempt entities are organizations that do not pay federal income taxes. Tax-exempt entities include:

• Political subdivisions such as local governments
• Indian tribal governments
• Agencies and instrumentalities of state, local, tribal, and U.S. territorial governments
• Rural electric cooperatives
• School districts and universities
• 501(c)(3) nonprofit organizations such as public charities, hospitals, and houses of worship
• States

Where can I learn more?

For a comprehensive list of federal funding programs that public and nonprofit entities can access, check out the America’s Federal Funding Opportunities and Resources for Decarbonization (AFFORD).

Disclaimer: None of the information presented on this website should be considered official legal or financial advice. Please contact a licensed tax professional for additional information.