Taxpayers encouraged to try innovative new option before April 15 deadline

WASHINGTON ̶ The Internal Revenue Service announced today the full-scale launch of the innovative Direct File pilot and encouraged eligible taxpayers in 12 states to try the new service to file their tax returns online for free directly with the IRS.

The pilot effort has been in testing mode for several weeks, allowing early users to file their 2023 federal tax returns online for free and directly with the IRS. Thousands of taxpayers have successfully used the system, and early users are giving the new option positive reviews.

Following the initial Direct File success, the IRS is moving the pilot out of the test phase, allowing all eligible taxpayers in the 12 states – representing 19 million taxpayers – to use the system at any time. Taxpayers can log in to Direct File to start their return and complete it any time before the April filing deadline.

“The early results from Direct File have shown taxpayers like the ease and convenience of the tool, and moving into the full-scale launch of the pilot will give more taxpayers the chance to use this free option,” said IRS Commissioner Danny Werfel. “Expanding Direct File as the tax deadline approaches will provide more taxpayers a way to file directly with the IRS for free, and it will give us more valuable information to assess this pilot. For those who haven’t filed their taxes in these 12 states, we encourage them to visit IRS.gov and see if Direct File is the right option for them.”

Direct File is one of many options that taxpayers have to file their taxes, including tax software and tax professionals. For the pilot, the IRS worked on a streamlined way for people with simpler tax situations to file directly with the agency.

“A team of experts from across government built and tested the Direct File pilot to give taxpayers an easy, accurate free way to file their taxes online directly with the IRS,” Werfel added. “Our goal with the Direct File pilot is to help people meet their tax obligations as easily and quickly as possible. We developed Direct File from the beginning with taxpayers’ help, and we’ll continue to talk to taxpayers about their experience to learn more about what taxpayers want for future digital services.”

Direct File walks the taxpayer through the complexities of the nation’s tax code to complete their filing easily with an accurate calculation of their refund or tax owed. Direct File is designed to be easy for taxpayers to use. At every step, it shows the work behind the calculations, so users can be confident that the tax return is complete and accurate. Once taxpayers start their return on the Direct File site, they can pause and then securely sign in to finish any time before the April filing deadline.

Users can also get support from special IRS customer service representatives through Direct File’s live chat feature. Direct File, like other electronic filing options, allows taxpayers to typically get their refund in less than 21 days when the direct deposit is chosen.

“We’ve gotten great initial feedback from the thousands of taxpayers who used it during testing,” Werfel said. “Many taxpayers we’ve heard from filed their taxes in less than 30 minutes using Direct File and praised it as an easy, no cost tax filing experience.”

Who’s eligible?
Taxpayers in 12 pilot states who meet certain requirements can use Direct File through the April tax deadline. Pilot states include:

• Arizona
• California
• Florida
• Massachusetts
• Nevada
• New Hampshire
• New York
• South Dakota
• Tennessee
• Texas
• Washington State
• Wyoming

After completing their federal returns, taxpayers in the states with a state-income tax – Arizona, California, Massachusetts and New York -- will be guided to a state-sponsored tool to complete their state tax return.

The IRS designed the pilot to follow the best practices for launching a new technology platform by starting small, making sure it works and then building from there. The pilot is purposefully limited to cover relatively straightforward tax situations.

The Direct File pilot is an option for taxpayers who fall into these categories:

• Report income earned from jobs that generate a Form W-2; including taxpayers with more than one job with W-2 wages;
• Claim Earned Income Tax Credit, Child Tax Credit and the Credit for Other Dependents;
• Claim the standard deduction and deductions for educator expenses and student loan interest;
• Lived in the same state for the entire calendar year 2023.

Interested taxpayers can go to directfile.irs.gov, where they can determine if they are eligible. Using Direct File requires identity verification through ID.me. Once their identity is verified and they’ve signed in securely to Direct File, they will be providing the tax information directly to the IRS, not a third party.

For taxpayers who visit Direct File but aren’t eligible for the pilot, they will be directed to Free File on IRS.gov. Now in its 22nd filing season, taxpayers across the nation can access free software products provided by IRS Free File trusted partners. Through this public-private partnership, tax preparation and filing software providers make their online products available to eligible taxpayers. Eight private-sector Free File partners provide online guided tax software products this year to any taxpayer with an Adjusted Gross Income (AGI) of $79,000 or less in 2023. Free access to online products is available by starting from IRS Free File.

Direct File Pilot for Filing Season 2024
The IRS launched the Direct File pilot for the 2024 filing season. The Inflation Reduction Act mandated that the IRS study interest in and feasibility of creating a direct e-filing tool taxpayers could use to prepare and file their federal income tax return. The IRS commissioned an independent study, which indicated broad interest in such a system, which the IRS detailed in a Direct File Report to Congress in May 2023.

Shortly after that report, as directed by the Treasury Department, the IRS assembled a team of tax experts, technologists, engineers and strategists from across government to build the Direct File system. The IRS worked closely with the U.S. Digital Service and the General Services Administration’s technology office 18F to build and test Direct File.

Initial testing began in early February 2024 with a handful of federal and state government employees, followed by short open availability windows for more taxpayers to start their returns. On March 4, the IRS announced that Direct File would enter final testing, which included an allotment of available spaces with more spaces added every day. Direct File is now open to all eligible taxpayers in pilot states to decide if it is the right option for them to file their 2023 federal tax return online for free, directly with IRS.

 

WASHINGTON – The Internal Revenue Service will open 70 Taxpayer Assistance Centers (TACs) on Saturday, March 16, from 9 a.m. to 4 p.m., to provide in-person help across the nation. These special Saturday hours are part of the agency’s continuing transformation efforts to improve taxpayer service.

This marks the second of four special Saturday hours to help taxpayers. The IRS also plans special Saturday openings for April 13 and May 18 and also has expanded hours at many locations on Tuesdays and Thursdays to help taxpayers.

At TACs, people meet face-to-face with IRS employees to get help with tax account issues. During these special weekend events, people can visit offices in 70 cities and communities, including the District of Columbia and Puerto Rico.

During the events, people can make payments by check or money order, get help with identity authentication and ask about account adjustments, to name a few available services. The IRS can’t accept cash payments during the special Saturday openings. Tax return preparation services are also not available.

Before travelling to an office, the IRS encourages everyone to visit the event page on IRS.gov, Saturday hours, to get current information.

“While taxpayers are on our site, it’s important they also check other IRS.gov pages because the website offers plenty of information and tools, and they might find an online resource that will meet their needs,” said IRS Wage & Investment Commissioner Ken Corbin.

He added that Online Account and “Where’s My Refund?” are good examples of tools taxpayers can use to get account information without going to an office.

Normally, TACs are open Monday through Friday, 8:30 a.m. to 4:30 p.m., and provide service by appointment. To make an appointment during regular hours, taxpayers can call 844-545-5640.

Services provided
The IRS’s Contact Your Local Office site lists all services provided at specific TACs. Tax return preparation is not a service offered at IRS TACs during these events or normal operating hours. During each event, visitors can get information on free local tax preparation resources. Additionally, File your return, on IRS.gov, gives step-by-step information on how to file individual tax returns.

If someone has questions about a tax bill or IRS audit or they need help resolving a tax problem, they’ll receive assistance from IRS employees specializing in those services. If these employees aren’t available, the individual will receive a referral for these services. IRS Taxpayer Advocate Service employees may also be available to help with some issues.

Professional foreign language interpretation will be available in many languages through an over-the-phone translation service. For deaf or hard of hearing individuals who need sign language interpreter services, IRS staff will schedule appointments for a later date. Alternatively, these individuals can call TTY/TDD 800-829-4059 to make an appointment.

Please come prepared
Individuals should bring the following documents when they visit these offices:

• Current government-issued photo identification,
• Social Security or Individual Taxpayer Identification Numbers for themselves and all members of their household, including their spouse and dependents (if applicable),
• Any IRS letters or notices received and related documents,
• For identity verification services, taxpayers will need two forms of identification and, if filed, a copy of the tax return for the year in question.

During the visit, IRS staff may also request the following information:

• A current mailing address,
• Proof of financial account information included on a tax return to receive payments or refunds by direct deposit.

Many TACs extend office hours on Tuesdays and Thursdays
Another option for people to get face-to-face help outside of a TAC’s normal operating hours is to visit before or after regular operating hours on Tuesdays and Thursdays. Many TACs around the country have extended their office hours on these days until April 16. To see if a nearby TAC is offering the added hours, view its listing at IRS.gov/taclocator.

Tax return preparation options
While tax return preparation is not a service offered at IRS TACs, information will be shared about available local free tax preparation options. Help is also available using the following services:

• Eligible individuals or families can get free help preparing their tax return at Volunteer Income Tax Assistance (VITA) or Tax Counseling for the Elderly (TCE) sites. To find the closest free tax return preparation help, use the VITA Locator Tool or call 800-906-9887.
• To find an AARP Tax-Aide site, use the AARP Site Locator Tool or call 888-227-7669.
• Any individual or family whose adjusted gross income (AGI) was $79,000 or less in 2023 can use IRS Free File’s Guided Tax Softwareat no cost. There are products in English and Spanish.
• Free File Fillable Formsare electronic federal tax forms, equivalent to a paper 1040 form. Taxpayers should know how to prepare their own tax return using form instructions and IRS publications, if needed. Anyone, regardless of income, can use the forms. They are a free option for those whose AGI is greater than $79,000.
• MilTax, a Department of Defense program, offers free return preparation software and electronic filing for federal tax returns and up to three state income tax returns. It’s available for all military members, and some veterans, with no income limit.
• The Direct File pilot gives eligible taxpayers a new choice to file their 2023 federal tax returns online, for free, directly with the IRS. It will be rolled out in phases and is expected to be widely available in mid-March. Visit Direct File to learn about eligibility, scope and the 12 participating states.

Help available 24/7 at IRS.gov
The fastest and easiest way for people to get the help they need is through IRS.gov. Go to IRS.gov for more information. Available resources include:

• “Where’s My Refund?”, check refund status and estimated delivery date.
• Get Transcript, view and print a tax transcript online.
• Payments, get information on a variety of payment methods, including cash.
• Direct Pay, make tax payments or estimated tax payments for free from a checking or savings account.
• Electronic Federal Tax Payment System, individuals or businesses can make all types of federal tax payments.
• Online Payment Agreement, set up installment payments to pay taxes owed.
• “Where’s My Amended Return?”, track the status of an amended return.
• Interactive Tax Assistant and FAQs, get answers to many tax law questions.
• All IRS Forms and Publications, find and download current tax forms, instructions and publications. Those without access to the internet can call 800-829-3676 to order tax forms by mail.

For additional information on available services, see IRS Publication 5136, IRS Services Guide.

WASHINGTON — The Internal Revenue Service, in response to disruptions to the supply of fuel for diesel powered highway vehicles resulting from wildfires, will not impose a penalty when dyed diesel fuel with a sulfur content that does not exceed 15 parts-per-million is sold for use or used by diesel-powered vehicles on the highway in certain counties in Texas.

This penalty relief begins on February 23, 2024, and will remain in effect through March 22, 2024, and applies to the following counties in the state of Texas; Archer, Armstrong, Bailey, Baylor, Briscoe, Carson, Castro, Childress, Cochran, Collingsworth, Cottle, Crosby, Dallam, Deaf Smith, Dickens, Donley, Fannin, Floyd, Foard, Garza, Gray, Gregg, Hale, Hall, Hansford, Hardeman, Harrison, Hartley, Haskell, Hemphill, Hockley, Hutchinson, Kent, King, Knox, Lamb, Lipscomb, Lubbock, Lynn, Moore, Motley, Nacogdoches, Newton, Ochiltree, Oldham, Parmer, Potter, Randall, Roberts, Sherman, Stonewall, Swisher, Terry, Throckmorton, Upshur, Wheeler, Wichita, Wilbarger, Yoakum and Young counties.

The penalty relief is available to any person that sells or uses dyed diesel fuel in vehicles suitable for highway use. In the case of the operator of the highway vehicle in which the dyed diesel fuel is used, the relief is available only if the operator or the person selling such fuel pays the tax of 24.4 cents per gallon that is normally applied to un-dyed diesel fuel for highway use.

The IRS will not impose penalties for failure to make semimonthly deposits of tax for dyed diesel fuel sold for use or used in diesel powered vehicles on the highway in the listed counties above in the state of Texas during the relief period. IRS Publication 510, Excise Taxes, has information on the proper method for reporting and paying the tax.

Ordinarily, dyed diesel fuel is not taxed, because it is sold for uses exempt from excise tax, such as to farmers for farming purposes, for home heating use and to local governments.

The IRS is closely monitoring the situation and will provide additional relief as needed.

WASHINGTON – Amid concerns about people being misled, the Internal Revenue Service today reminded taxpayers and heath spending plan administrators that personal expenses for general health and wellness are not considered medical expenses under the tax law.

This means personal expenses are not deductible or reimbursable under health flexible spending arrangements, health savings accounts, health reimbursement arrangements or medical savings accounts (FSAs, HSAs, HRAs and MSAs).

This reminder is important because some companies are misrepresenting the circumstances under which food and wellness expenses can be paid or reimbursed under FSAs and other health spending plans.

“Legitimate medical expenses have an important place in the tax law that allows for reimbursements,” said IRS Commissioner Danny Werfel. “But taxpayers should be careful to follow the rules amid some aggressive marketing that suggests personal expenditures on things like food for weight loss qualify for reimbursement when they don’t qualify as medical expenses.”

Some companies mistakenly claim that notes from doctors based merely on self-reported health information can convert non-medical food, wellness and exercise expenses into medical expenses, but this documentation actually doesn’t. Such a note would not establish that an otherwise personal expense satisfies the requirement that it be related to a targeted diagnosis-specific activity or treatment; these types of personal expenses do not qualify as medical expenses.

For example: A diabetic, in his attempts to control his blood sugar, decides to eat foods that are lower in carbohydrates. He sees an advertisement from a company stating that he can use pre-tax dollars from his FSA to purchase healthy food if he contacts that company. He contacts the company, who tells him that for a fee, the company will provide him with a ‘doctor’s note’ that he can submit to his FSA to be reimbursed for the cost of food purchased in his attempt to eat healthier. However, when he submits the expense with the 'doctor's note', the claim is denied because food is not a medical expense and plan administrators are wary of claims that could invalidate their plans.

FSAs and other health spending plans that pay for, or reimburse, non-medical expenses are not qualified plans. If the plan is not qualified, all payments made to taxpayers under the plan, even reimbursements for actual medical expenses, are includible in income.

The IRS encourages taxpayers with questions to review the frequently asked questions on medical expenses related to nutrition, wellness and general health to determine whether a food or wellness expense is a medical expense.

IRS.gov provides more information regarding details and requirements for deductibility of medical expenses; taxpayers can also review Can I Deduct My Medical and Dental Expenses? and Publication 502, Medical and Dental Expenses.

Dear IVES Participants,

 
Thank you for your input and sharing your concern on a critical area of tax administration. We acknowledge the concerns raised and are assessing our ability to provide return information when necessary while keeping taxpayer information confidential and protected from disclosure. Although IRS announced the policy change on January 2, 2024, we are suspending that change as we seek input from you and other stakeholders on possible changes and impacts to the program.

WASHINGTON — The Internal Revenue Service reminds taxpayers they’re generally required to report all earned income on their tax return, including income earned from digital asset transactions, the gig economy and service industry as well as income from foreign sources.

Reporting requirements for these sources of income and others are outlined in the Instructions for Form 1040 and Form 1040-SR. The information is also available on IRS.gov.

This release is the third in a four-part series called the Tax Time Guide, a resource to help taxpayers file an accurate tax return. Additional guidance is available in Publication 17, Your Federal Income Tax (For Individuals).

Digital assets, including cryptocurrency
A digital asset is a digital representation of value that is recorded on a cryptographically secured, distributed ledger. Common digital assets include:

• Convertible virtual currency and cryptocurrency.
• Stablecoins.
• Non-fungible tokens (NFTs).

Everyone must answer the question
Everyone who files Forms 1040, 1040-SR, 1040-NR, 1041, 1065, 1120 and 1120S must check one box answering either "Yes" or "No" to the digital asset question. The question must be answered by all taxpayers, not just by those who engaged in a transaction involving digital assets in 2023.

Checking “Yes”: Normally, a taxpayer must check the "Yes" box if they:

• Received digital assets as payment for property or services provided;
• Transferred digital assets for free (without receiving any consideration) as a bona fide gift;
• Received digital assets resulting from a reward or award;
• Received new digital assets resulting from mining, staking and similar activities;
• Received digital assets resulting from a hard fork (a branching of a cryptocurrency's blockchain that splits a single cryptocurrency into two);
• Disposed of digital assets in exchange for property or services;
• Disposed of a digital asset in exchange or trade for another digital asset;
• Sold a digital asset; or
• Otherwise disposed of any other financial interest in a digital asset.

In addition to checking the "Yes" box, taxpayers must report all income related to their digital asset transactions. For example, an investor who held a digital asset as a capital asset and sold, exchanged or transferred it during 2023 must use Form 8949, Sales and other Dispositions of Capital Assets, to figure their capital gain or loss on the transaction and then report it on Schedule D (Form 1040), Capital Gains and Losses. A taxpayer who disposed of any digital asset by gift may be required to file Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.

If an employee was paid with digital assets, they must report the value of the digital assets received as wages. Similarly, if they worked as an independent contractor and were paid with digital assets, they must report that income on Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship). Schedule C is also used by anyone who sold, exchanged or transferred digital assets to customers in connection with a trade or business and who did not operate the business through an entity other than a sole proprietorship.

Checking “No”: Normally, a taxpayer who merely owned digital assets during 2022 can check the "No" box as long as they did not engage in any transactions involving digital assets during the year. They can also check the "No" box if their activities were limited to one or more of the following:

• Holding digital assets in a wallet or account;
• Transferring digital assets from one wallet or account they own or control to another wallet or account they own or control; or
• Purchasing digital assets using U.S. or other real currency, including through electronic platforms such as PayPal and Venmo.

For more information, see the list of frequently asked questions (FAQs) and other details, visit the Digital Assets page on IRS.gov.

Gig economy earnings
Typically, income earned from the gig economy is taxable and must be reported to the IRS on tax returns. Examples of gig work include providing on-demand labor, services or goods, or selling goods online. Transactions often occur through digital platforms such as an app or website.

Taxpayers are required to report all income earned from the gig economy on a tax return, even if the income is:

• From temporary, part-time or side work.
• Paid through digital assets like cryptocurrency, as well as cash, goods or property.
• Not reported on an information return form like a Form 1099-K, 1099-MISC, W-2 or other income statement.

Taxpayers can visit the gig economy tax center for more information on the gig economy.

Service industry tips
Individuals who work in service industries such as restaurants, hotels and salons often receive tips from customers for their services. Generally, tips like cash or non-cash payments are taxable and should be reported.

• All cash tips should be reported to the employer, who must include them on the employee’s Form W-2, Wage and Tax Statement. This includes direct cash tips from customer to employee, tips from one employee to another employee, electronically paid tips and other tip-sharing arrangements.
• Noncash tips include value received in any medium other than cash, such as: passes, tickets, or other goods or commodities a customer gives the employee. Noncash tips aren't reported to the employer but must be reported on a tax return.
• Any tips the employee didn't report to the employer must be reported separately on Form 4137, Social Security and Medicare Tax on Unreported Tip Income, to include as additional income with their tax return. The employee must also pay the employee share of Social Security and Medicare tax owed on those tips.

Service industry employees don't have to report tip amounts of less than $20 per month per employer. For larger amounts, employees must report tips to the employer by the 10th of the month following the month the tips were received.

See Tip Recordkeeping and Reporting for more information on how to report tips.

Foreign source income
Generally, A U.S. citizen or resident alien’s worldwide income is subject to U.S. income tax, regardless of their residence. They're also subject to the same income tax filing requirements that apply to U.S. citizens or resident aliens living in the United States.

U.S. citizens and resident aliens must report unearned income, such as interest, dividends and pensions, from sources outside the United States unless exempt by law or a tax treaty. They must also report earned income, such as wages and tips, from sources outside the United States.

An income tax filing requirement generally applies even if a taxpayer qualifies for tax benefits, such as the Foreign Earned Income Exclusion or the Foreign Tax Credit, which substantially reduce or eliminate U.S. tax liability. These tax benefits are available only if an eligible taxpayer files a U.S. income tax return.

A taxpayer is allowed an automatic two-month extension to file a tax return to June 15 if both their tax home and abode are outside the United States and Puerto Rico. Even if allowed an extension, a taxpayer will have to pay interest on any tax not paid by the regular due date of April 15, 2024.

Those serving in the military outside the U.S. and Puerto Rico on the regular due date of their tax return also qualify for the extension to June 15. The IRS recommends attaching a statement if one of these two situations applies. More information can be found in the Instructions for Form 1040 and Form 1040-SR, Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad and Publication 519, U.S. Tax Guide for Aliens.

Foreign accounts and assets
Federal law requires U.S. citizens and resident aliens to report their worldwide income, including income from foreign trusts and foreign bank and other financial accounts. In most cases, affected taxpayers need to complete and attach Schedule B (Form 1040), Interest and Ordinary Dividends, to their tax return. Part III of Schedule B asks about the existence of foreign accounts such as bank and securities accounts and usually requires U.S. citizens to report the country in which each account is located.

In addition, certain taxpayers may also have to complete and attach to their return Form 8938, Statement of Foreign Financial Assets. Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on this form if the aggregate value of those assets exceeds certain thresholds. See the instructions for this form for details.

In addition, U.S. persons with an interest in or signature or other authority over foreign financial accounts where the aggregate value exceeded $10,000 at any time during 2023 must file electronically with the Treasury Department a Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR). Because of this threshold, the IRS encourages U.S. persons with foreign assets, even relatively small ones, to check if this filing requirement applies to them. The form is available only through the BSA E-filing System website.

The deadline for filing the annual Report of Foreign Bank and Financial Accounts (FBAR) is April 15, 2024. FinCEN grants U.S. persons who miss the original deadline an automatic extension until Oct. 15, 2024, to file the FBAR. There is no need to request this extension. See FinCEN’s website for further information.

WASHINGTON – Margie Rollinson took the oath of office today to become the 49th IRS Chief Counsel and the first woman to permanently hold the top legal position at the nation’s tax agency.

Rollinson was sworn in and began work today at the IRS.

“Margie brings a wide range of experience from inside and outside government to this important role,” said IRS Commissioner Danny Werfel. “She will provide leadership and guidance on tax issues during a critical time in the history of the IRS. Her background and insights will be a great addition to the IRS leadership team and the Chief Counsel organization.”

With her new role, Rollinson marks a historic milestone for the IRS and nation’s tax system. She is the first woman to ever formally serve as IRS Chief Counsel, a position that dates back to 1866. While the Chief Counsel position has had several women serve temporarily in an acting capacity, there had never been a woman formally confirmed by the Senate until she was confirmed Feb. 29 to lead the Chief Counsel organization.

At the IRS, Rollinson will lead one of the largest legal teams in the nation. The Chief Counsel organization has approximately 2,600 employees.

As a traditional part of her role as Chief Counsel, Rollinson will also serve as assistant general counsel at the Treasury Department. The Chief Counsel and the Commissioner are the only two Senate-confirmed positions at the IRS.

She rejoins the IRS following a variety of roles in the tax world. Rollinson retired from the firm Ernst & Young, where she served as the Deputy Director of the National Tax Department since the start of 2019. She began her career at Ernst & Young in 1987 (known then as Ernst & Whinney), becoming a partner in 1997. In 2003, she became the Director of the International Tax Services National Tax Group, where she served clients directly and also led the International Tax Technical Committee.

Her work at the IRS began in 2013 when she became Technical Deputy Associate Chief Counsel in the Office of the Associate Chief Counsel International, and she was named Associate Chief Counsel International in 2016. In this role, Rollinson oversaw an office of 100 tax lawyers who were responsible for issuing published guidance and providing technical expertise on international tax rules.

Rollinson received her B.A. from Wellesley College in 1984, and her J.D. from the University of Maryland School of Law in 1987. She is a member of the Maryland Bar Association.

WASHINGTON – The Internal Revenue Service (IRS) today issued final regulations that provide guidance for the entities choosing the elective payment for the advanced manufacturing investment credit, established by the CHIPS Act of 2022.

The final regulations include special rules for partnerships and S corporations making the election. In addition, the final regulations provide rules related to the mandatory pre-filing registration requirement that were previously issued as temporary regulations.

This credit will incentivize the manufacturing of semiconductors and semiconductor manufacturing equipment within the United States. The credit is available to taxpayers that meet certain eligibility requirements, and there is the ability for taxpayers to make an elective payment election to be treated as making a refundable payment against the tax equal to the amount of the credit. A partnership or S corporation can make an elective payment election to receive a payment, instead of claiming the credit.

The final regulations provide guidance related to the mandatory IRS pre-filing registration process, which is available through pre-filing registration tool. The pre-filing registration process must be completed, and a registration number received, prior to making an elective payment election.

For more information, see Publication 5884, Inflation Reduction Act (IRA) and CHIPS Act of 2022 (CHIPS) Pre-Filing Registration Tool -- User Guide and Instructions

Treasury, IRS finalize rules on elective payments of certain clean energy credits under the Inflation Reduction Act

WASHINGTON — The Department of the Treasury and Internal Revenue Service issued final regulations today for applicable entities that earn certain clean energy credits and choose to make an elective payment election.

For tax years beginning after Dec. 31, 2022, applicable entities can choose to make an elective payment election, which will treat certain clean energy credits as a payment against their federal income tax liabilities rather than as a nonrefundable credit. This payment will first offset any income tax liability of the applicable entity and any excess is refunded to the applicable entity.

Applicable entities generally include tax-exempt organizations, state and local governments, Indian tribal governments, Alaska Native Corporations, the Tennessee Valley Authority and rural electric cooperatives. Electing taxpayers, which includes other taxpayers, may elect to be treated as an applicable entity for a limited number of credits.

Previously, the IRS issued proposed regulations for the elective payment of applicable credits and temporary regulations that provide rules for the mandatory IRS pre-filing registration process through the Inflation Reduction Act (IRA) and CHIPS Act of 2022 (CHIPS) pre-filing registration tool.

For detailed instructions on how to use the tool, refer to Publication 5884, Inflation Reduction Act (IRA) and CHIPS Act of 2022 (CHIPS) Pre-Filing Registration Tool -- User Guide and Instructions.

The IRS also updated the elective payment frequently asked questions based on the final regulations.

The pre-filing registration process must be completed, and a registration number received, prior to making an elective payment election.

Proposed regulations were also issued today regarding elections by certain unincorporated organizations that are owned by one or more applicable entities to be excluded from the application of the partnership tax rules. These proposed regulations would provide certain exceptions to the existing regulations for certain unincorporated organizations with one or more applicable entities and would allow such entities to make an elective payment election.

Finally, the IRS issued Notice 2024-27 that requests additional comments on any situations in which an elective payment election could be made for a clean energy credit that was purchased in a transfer, which is referred to as chaining.

Notice 2024-27 requests additional comments on any situations in which an election under § 6417(a) could be made for a credit that was purchased in a transfer for which an election under § 6418(a) is made. Such sequence of events is referred to as “chaining” in this notice.

Notice 2024-27 will be in IRB: 2024-12, dated March 18, 2024.