Comment Letter re Treasury and IRS Guidance on IRC § 6417, Elective payment of applicable credits

In Notice 2022-50, the Department of Treasury and the Internal Revenue Service requested public comment on guidance to be issued in connection with § 6417, one of the provisions enacted as part of the Inflation Reduction Act to encourage clean energy. This letter discusses treatment of § 115 exclusion entities under this provision. Such entities have no income pursuant to section 115(1), which states that gross income does not include “income derived from . . . the exercise of any essential governmental function and accruing to a State or any political subdivision thereof, or the District of Columbia.”The letter argues that § 115 exclusion entities can and should be treated as exempt organizations under § 6417(d)(1)(A) so that they qualify to monetize certain energy credits. It draws on the author’s many years of scholarly writing on § 115(1) as well as the purpose of § 6417, the language of the statute, and other IRS guidance, to make its argument