Revenue Procedure 2024 Safe Harbors for Energy Credit Elective Pay

Elective pay safe harbors address two distinct compliance challenges, filing a valid election and resolving domestic content requirements. Revenue Procedure 2024-39 provides filing relief, while Notices 2024-41 and 2024-84 set out how to calculate domestic content and claim statutory exceptions. For practitioners advising applicable entities, the central point is that these measures perform different jobs, and none replaces the others or the required pre-filing registration.

What elective pay is and which entities can use it

The Inflation Reduction Act created elective pay, also called direct pay, so entities that owe no federal income tax can get certain clean energy tax credits as refunds. The IRS treats the elective payment as a tax payment, counts it as an overpayment, and refunds it. An entity with zero tax liability can therefore receive the full credit value in cash. The main credits include clean energy investment and production credits. Transferability is a parallel but distinct mechanism for taxpayers that cannot use elective pay.

The IRS elective pay page identifies a broad group of applicable entities. These include tax-exempt organizations described in sections 501 through 530, states and political subdivisions, Indian tribal governments and their subdivisions, and U.S. territories and their political subdivisions. Eligibility also extends to Alaska Native Corporations, the Tennessee Valley Authority, rural electric cooperatives, and agencies and instrumentalities of state, local, tribal, and U.S. territorial governments. Elective pay compliance consequently reaches organizations with very different tax filing practices and administrative resources.

Why elective pay creates two distinct compliance problems that safe harbors must solve

The first failure mode is procedural, while the second is substantive. Procedurally, an applicable entity must make an effective election through the required return process. Many tax-exempt organizations are unaccustomed to filing Form 990-T, and missing the return deadline or failing to request a timely extension on Form 8868 can render an election ineffective. A project’s eligibility for a credit does not, by itself, overcome an invalid election.

Domestic content affects both bonus qualification and the elective payment phaseout. Notice 2023-38 required manufacturers’ actual direct costs to calculate the Domestic Cost Percentage under the Adjusted Percentage Rule. Manufacturers usually keep those costs private, so most project owners lack the data they need to do the calculation. Domestic content thresholds also escalate from 2024 through 2027 and beyond.

Pre-filing registration sits in front of both problems as a threshold requirement. The entity must obtain a registration number through the IRS Energy Credits Online (ECO) portal and include a valid number on its return. Without that number, the election is ineffective regardless of substantive compliance. The IRS registration page advises registering well in advance of the return due date.

Revenue Procedure 2024-39 and what it actually fixes for filing entities

Revenue Procedure 2024-39 first provides prospective protection against a missed filing deadline. Applicable entities making an elective payment election under §6417 that must file Form 990-T receive an automatic six-month extension from the original return due date. The relief applies even if the entity did not file a timely extension request on Form 8868. No extension request form is required to claim this relief. It gives covered filers additional time to submit an original or superseding Form 990-T with the relevant schedules and forms.

The revenue procedure also addresses filing method. Certain applicable entities may make the election on a paper-filed Form 990-T if they follow the specified procedural requirements. That conditional paper-filing option matters for entities without the infrastructure to file electronically. For past failures, a separate procedure addresses entities that already filed and received an IRS notice stating that their election was ineffective because the return was late. Practitioners therefore have a formal repair path as well as prospective deadline relief.

Neither form of relief waives registration. A valid ECO registration number must still appear on the return, so the procedure cannot serve as a complete cure for procedural defects. Governmental entities also require attention to a separate extension distinction. The IRS registration page states that state, local, and tribal government entities registering for tax years beginning in 2023 received a paperless automatic six-month extension when registering, provided they had no existing annual filing requirement under IRC §6011 or §6033(a). For tax years beginning in 2024 and later, those entities must use the revised Form 8868 to request an extension.

Notice 2024-41 and the new elective safe harbor for domestic content calculations

Notice 2024-41 addresses the cost-data barrier by providing predetermined classifications and cost percentages through its New Elective Safe Harbor. It covers ground-mount and rooftop solar photovoltaic systems, land-based wind, and battery energy storage systems (BESS). The notice also expands Table 2 in Notice 2023-38 to include hydropower and pumped hydropower storage facilities. That classification expansion is distinct from the coverage of the new cost-percentage safe harbor.

The election comes with an all-or-nothing constraint. A taxpayer choosing the safe harbor must use the IRS classifications and cost percentages as the exclusive and exhaustive set of components for the project. It cannot use actual manufacturer costs for favorable items and table percentages for the rest. The safe harbor therefore substitutes a complete calculation framework for actual-cost calculations rather than supplying optional values for selected components. Its administrative benefit depends on accepting that loss of flexibility.

For an owner able to obtain favorable actual costs, this restriction may appear more constraining than the original approach. A taxpayer with usable manufacturer cost data may choose to calculate under Notice 2023-38 without electing the new safe harbor. For the vast majority that cannot get that data, predetermined percentages make the calculation easier by removing the need to get proprietary cost information. The choice is between two mutually exclusive calculation methods.

Battery storage exposes the table’s practical limits. Without a domestically manufactured cell, the maximum Domestic Cost Percentage available from all other domestic components under the new table is 40%. That falls short of the 45% threshold for construction commencing in 2025, making cell sourcing a structural constraint. Practitioners advising BESS projects must account for that limit when evaluating the election. Reliance is also time-sensitive, because the notice permits use for projects beginning construction before a defined period after a future modification, update, or withdrawal is published.

Notice 2024-84 and the attestation safe harbor for applicable entities claiming the statutory exception to the elective payment phaseouts when they cannot meet domestic content

Notice 2024-84 addresses a different question from bonus qualification. It applies to applicable entities that claim a statutory exception to the elective payment phaseouts because their projects cannot meet domestic content requirements. Congress directed the Secretary of the Treasury to provide exceptions on two grounds. One applies when including U.S.-made steel, iron, or manufactured products increases overall construction costs by more than 25%. The other applies when the relevant materials are not produced in the U.S. in sufficient and reasonably available quantities or satisfactory quality.

The IRS had not issued formal regulations specifying how to claim those exceptions. Notice 2024-9 provided a transitional attestation safe harbor for projects that begin construction before 2025, and Notice 2024-84 sets out how the extended attestation framework works. Its “later of” structure means practitioners should not treat January 1, 2027 as a hard expiration date. The endpoint also depends on further guidance. Client memos should flag that contingency instead of presenting the transitional route as fixed.

Attestation is not self-executing. The entity must also follow the recordkeeping requirements described in Notice 2024-9, and practitioners should confirm that both the attestation and supporting records are documented before relying on the safe harbor. This route supports only an exception to payment reduction. Public power industry groups have objected to how the phaseout is structured. Those objections do not replace the attestation and documentation work required for a claim.

How the three safe harbors interact in a single project's compliance timeline

Before it files, the entity must get an ECO registration number for each applicable credit property. The IRS registration page advises beginning registration after the property is placed in service but well before the return due date, including extensions. The entity needs registration to file, but it must make domestic content choices earlier, when it plans the project. In particular, a BESS project’s cost-percentage limits make the calculation method a planning decision.

During project planning, practitioners should assess whether the project can qualify for the domestic content bonus, needs a statutory exception, or is under one megawatt and therefore exempt from the phaseout. If bonus qualification is the objective, the choice between predetermined percentages and actual costs sets the calculation framework. If domestic content cannot be met, the relevant inquiry shifts to the exception and its documentation. Both paths still require a valid election made on time.

At filing, the return must bring the registration number and the chosen substantive position together. Revenue Procedure 2024-39 gives covered Form 990-T filers an automatic extension and allows paper filing if they meet its conditions. Its retroactive remedy belongs in the review of prior elections rejected for late filing. The three instruments thus address sequential dependencies even though their tasks arise at different stages.

Applicable entities may combine the base ITC, energy community bonus, low-income communities bonus, and domestic content bonus, with each subject to its own requirements. Boston Medical Center, a tax-exempt not-for-profit, installed a 356-kW on-campus solar array and expects a combined 60% credit covering the base ITC, energy community, and low-income communities bonuses. The elective pay phaseout applies to the aggregate credit, so domestic content failure can reduce the entire refundable payment. Before estimating refunds, practitioners must also account for the “no excess benefit” rule for grants, forgivable loans, and other restricted tax-exempt amounts, which can reduce the credit base.

Where the guidance still leaves gaps and what practitioners should watch

The safe harbors reduce uncertainty without resolving every project’s domestic content position. Offshore wind remains outside Notice 2024-41’s New Elective Safe Harbor table, leaving practitioners to navigate the original Notice 2023-38 Adjusted Percentage Rule and its manufacturer-cost data challenge. Treasury has signaled that more guidance will cover other project types and may include more incentives for solar wafer technology. Practitioners should watch for that guidance and check which questions the current tables leave open. The reliance and attestation windows also require attention as guidance develops.

Threshold escalation creates a separate planning risk. Domestic content thresholds rise to 55% in 2027, so a BESS configuration that passes the initial threshold in 2024 may not pass for construction beginning in later years without a domestically manufactured cell. Plans that span several years must use the threshold that applies to each planned construction start. A calculation that supports one project year is not a durable answer for every later project. The safe harbor simplifies the source of cost percentages while leaving rising qualification standards in effect.

The remaining workload is both technical and repetitive. Registration tracking, deadline monitoring, manufacturer and vendor document collection, and phaseout calculations across projects are high-volume, rules-based tasks where purpose-built automation can reduce practitioner error. That support can free time for judgments about calculation methods, exception claims, and changing guidance, without resolving those judgments itself. The practical conclusion is that elective pay compliance will not shrink as thresholds escalate and new guidance adds procedural detail.