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What tribes should know about clean energy investment tax credits

Jun 22, 2023

Read updated IRS guidelines about what clean energy investment tax credits mean for tribes.

As tax credits have become more widely available in a range of areas, tribes and tribal enterprises are taking notice and being noticed for potential partnerships.

First to come was the Employee Retention Tax Credit (ERTC) and now, thanks to the 2022 Inflation Reduction Act, there are Section 45 and Section 48 clean energy investment tax credits with their emphasis on reaching disadvantaged communities with environmental justice concerns.

While tribal governments do not pay taxes or file tax returns, opportunities are available for tribes to participate in the program and receive funding payments. Between now and December 2024, tribes will likely be approached to be partners on renewable energy deals.

The expanded credits cover investments in renewable energy that generate solar, wind, geothermal, fuel cells, waste energy recovery, energy storage and microgrid controllers. The value of these credits is calculated starting at 6% and can max out at a much higher percentage of the investment. These investments must be placed into service starting January 1, 2023, through December 31, 2024.

Direct pay to tribes

The benefit to the tribes involved in these partnerships is that instead of receiving a tax credit, which can be transferred, they can use the direct pay option, which allows tribes to directly request payments from the IRS.

A company bringing the opportunity to the tribe can increase the percentage of the investment that the credit is based on by partnering with tribes and completing these projects on tribal land.

So, what can tribes expect to happen next? A variety of businesses may be looking to reach out to discuss partnering with you to create these renewable energy investments. Similar to the ERTC, tribes will receive solicitations from consultants offering to help them file their direct pay requests with the IRS for a fee, likely contingent on the value of the payment.

Tribes need to be careful before entering into any such agreements, keeping in mind that the IRS has yet to detail the process for making direct payment requests.

How Wipfli can help

Many questions may arise when navigating energy tax credits. Wipfli tax professionals with deep experience working with tribal enterprises are ready to work with you to help you understand these new opportunities and maximize your benefits. Contact us to learn more about our services to tribal enterprises.

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Jamison Scarpelli, CPA
Senior Manager
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