Maximizing Elective Payment: How the Attestation Safe Harbor Protects Direct Pay Value through 2026
The Inflation Reduction Act (IRA) introduced elective payment (also known as direct pay) under IRC §6417, allowing certain tax exempt and governmental entities (“Applicable Entities”) to receive refundable payments in lieu of energy tax credits under Sections 45, 45Y, 48, and 48E. However, Congress also imposed statutory phaseouts that reduce or eliminate direct pay benefits for projects not meeting Domestic Content requirements.
IRS Notice 2024-9 and Notice 2024-84 collectively provide transitional relief and procedures for claiming exceptions to these phaseouts.
Notice 2024-9: Transitional Guidance on Domestic Content Exceptions
Issued January 8, 2024, Notice 2024-9 provides initial administrative procedures for Applicable Entities seeking a Domestic Content Exception to avoid reductions in elective payment value.
Under the IRA, projects failing to meet Domestic Content face direct pay reductions based on when construction begins:
For facilities that begin construction in 2024 or 2025, failure to meet the domestic content requirements reduces direct payment amounts.
Facilities that begin construction after 2025 and that do not meet the domestic content requirements are ineligible for direct payments.
| Construction Start | Elective-Pay Percentage if Domestic Content NOT met |
|---|---|
|
2023 |
100% of credit value |
|
2024 |
90% of credit value |
|
2025 |
85% of credit value |
|
2026+ |
0% (no elective pay permitted) |
Three legal exceptions allow energy providers to qualify for full direct payments without meeting the domestic content requirements.
- If a facility’s maximum net electrical output (as measured in alternating current) is less than 1 MW (megawatt), the firm may receive direct payments regardless of the domestic content requirements.
- The Secretary of the Treasury may waive the requirements if “the inclusion of steel, iron, or manufactured products which are produced in the United States increases the overall costs of construction of qualified facilities by more than 25 percent.
- The Secretary may also waive the requirements if “[the] relevant steel, iron, or manufactured products are not produced in the United States in sufficient and reasonably available quantities or of a satisfactory quality.”
The IRS will accept that attestation as establishing that the exception applies for transitional purposes, allowing the entity to receive the full direct pay amount (i.e., avoid the 90/85/0 phaseout).
Notice 2024-84: Extension of the Safe Harbor Through 2027
Released on November 22, 2024, Notice 2024-84 substantially extends the transitional safe harbor procedures established by Notice 2024 9.
Key Relief Provided by Notice 2024-84
The notice states that the attestation based process remains valid for projects beginning construction before the later of:
- January 1, 2027, or
- The issuance of future IRS/Treasury regulations.
Thus, projects starting construction through 2026 may continue relying on the attestation process instead of a more complex and currently unavailable regulatory exception framework. This relief is essential because, beginning after 2025, the statutory phaseout becomes significantly more restrictive, completely removing elective pay for non compliant projects that start construction in 2026 or later unless a specific exception applies.
| Condition | Needs Attestation? |
|---|---|
|
Project <1 MW |
No |
|
Project meets Domestic Content |
No |
|
Project ≥1 MW fails Domestic Content but meets Increased Cost Exception |
Yes |
|
Project ≥1 MW fails Domestic Content but meets Non Availability Exception |
Yes |
|
Construction begins after 2027 or after future IRS guidance |
No (safe harbor expired) |
Final Takeaway & Practical Implications for Tax-Exempt & Government Entities
- The extended safe harbor (construction start date through 2026) helps tax‑exempt entities maintain 100% direct‑pay value when domestic supply or cost hurdles persist,
- Determine that an exception applies and maintain supporting documentation to support the basis of the exception claim.
- Treasury has signaled forthcoming rules on exceptions; Projects that start construction after 2026 (or after new guidance) should expect more formal documentation standards.
