Some colleges are missing out on the opportunity to monetize clean energy tax credits.

Ambiguities in President Joe Biden’s tax and climate laws could prevent some public universities from monetizing millions of dollars in clean energy tax credits.
Colleges and universities generally have no tax liability, so the direct payment option — or where loans can be considered reimbursable payments — gives 501(c)(3) institutions the opportunity to take advantage of the benefits.
However, not all public universities have 501(c)(3) status, and when the law lists relevant groups, it does not specify institutions that are considered public institutions.
Many colleges are postponing programs until Treasury and IRS guidance is clearer, unless colleges determine they qualify.
Ben Davidson, director of tax policy analysis and junior university advisor at the University of North Carolina at Chapel Hill, said there was “significant risk” in interpreting government instruments as rules without guidance.
The Treasury declined to comment on whether government agencies are eligible for direct payments pending guidance.
Colleges or universities with no unrelated business income or UBIT may offer direct compensation options under section 6417. Institutions with UBIT will be able to claim tax relief on their taxable income, but if UBIT exceeds the credit, they will end up paying the difference.
Depending on how a public university is established in its state, it can be classified as a constituent of that state, a political branch, or an institution of that state. Institutions that are an integral part of state or political power are entitled to direct remuneration.
“Each state has its own unique set of tax issues, which makes the situation seem more diverse than I think tax observers sometimes recall,” said Lindsey Tepe, assistant vice president of government affairs at the Institute of State and Land resources. Grant University.
Some institutions that are considered institutions also receive 501(c)(3) status individually through their foundations or other affiliates to simplify tax reporting, Tepe said.
However, Davidson said most schools don’t need to know how they are classified, and many don’t know if they haven’t received an IRS decision. According to him, UNC is immune to legal ambiguity.
Direct-fee elections also remove the restriction in Section 50(b)(3) that restricts eligibility for a tax credit for tax-exempt organizations. This section includes tools. However, these restrictions have not been lifted for taxpayers who want to sell their tax credits using the statutory transfer option, which disqualifies institutions from making direct payments or transfers and cannot transfer any credits, Davidson said. Monetizing the amount.
Historically, entities such as public authorities, public universities, and Native American governments and territorial governments have been excluded from tax credits for renewable energy projects.
But after tax and climate laws were passed, tax-exempt organizations became eligible for various credits for clean energy projects such as electric parks, green building power, and energy storage.
“It’s a bit of a chicken-and-egg problem – we need to see what the rules allow,” Tepe said of the projects the agency is interested in.
The decision on when to monetize the tax credit will depend on the project. For some, the project may not be available without direct payment, while others will be monitored after the completion of the project.
Tepe said colleges and universities are in talks about how the loans fit into state and local development plans. Most colleges have a fiscal year from July 1 to June 30, so they can’t hold elections yet.
Industry professionals stated that the removal of instruments from the acceptance list was a drafting error and the Treasury had the right to correct it.
Colorado, Connecticut, Maine, and Pennsylvania also requested clarification in a comment letter about whether institutions such as public universities and public hospitals could qualify for direct payments.
“It’s clear that Congress wants public universities to participate in these incentives and really think about how to plan their campus communities in a more energy efficient way,” Tepe said.
Without direct compensation, agencies will have to think about tax fairness, said Michael Kelcher, senior legal counsel and director of the climate tax project at NYU Law School’s Center for Tax Law.
However, while tax equity “works quite well for large programs,” the types of programs that public universities and other government agencies will implement may be too small to achieve tax equity—otherwise the agency would have to cut the loan, Kercher said. because most of the will goes to investors in the form of taxes.
To contact the editors responsible for this article: Meg Shreve at mshreve@bloombergindustry.com, Butch Mayer at bmaier@bloombergindustry.com