Unlocking Potential: How Tribal Nations Can Benefit from the Inflation Reduction Act

Unlocking Potential: How Tribal Nations Can Benefit from the Inflation Reduction Act

February 13, 2024

There’s never been a better time for Tribal Nations and Native communities to make vital investments in their energy infrastructure, thanks to the Inflation Reduction Act (IRA) of 2022. Introduced primarily to implement clean energy initiatives throughout the U.S. and mitigate climate impacts, the Act includes more than $720 million in funding for Indian Country—though, as you’ll see, the process to obtain those benefits can be complicated.

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Among the numerous IRA programs of particular interest to Tribes, most have received further clarification by the various departments charged with implementing and managing them. For example:

  • The Bureau of Indian Affairs (BIA) is managing several programs that encourage Tribal climate resilience and adaptation.
  • The National Oceanic and Atmospheric Administration (NOAA) is being provided $2.6 billion to fund conservation efforts to preserve and restore the nation’s coastal and water facilities—including fish hatcheries and projects to mitigate drought impacts, as well as restore and protect marine resources.
  • The Environmental Protection Agency is charged with managing several funding opportunities related to renewable energy implementation and upgrades, including:
    • Funding for Tribal electrification programs to bring renewable energy to homes and businesses that currently have no electricity and upgrade existing buildings to renewable energy options. Increased loan guarantees through the Tribal Energy Loan Guaranty Program from $2 billion to $20 billion for energy development.
    • Tax credits and deductions for families and businesses that upgrade appliances, water heaters and cooling systems or implement weatherization treatments to reduce energy needs.

Provisions for Including Tribes

Tribal Nations have often been excluded from beneficial initiatives like these in the Inflation Reduction Act because the mechanism for receiving monetary benefits is in the form of tax credits and tax deductions—which are not applicable to tax-exempt organizations.

Happily, the Internal Revenue Service (IRS) has addressed this shortcoming by implementing a new online process that allows for the direct payment of tax credits to Tribal entities and others. It also permits the assignment of tax deductions to third parties so that non-profits can benefit from IRS programs that provide relief solely through tax deductions.

IRS Guidance

To begin the process, entities must first register for the elective payment of tax credits and the transfer of tax deductions. Publication 5884 describes the pre-filing registration process in greater detail. Before Tribal communities can realize the benefits of these tax credit programs and tax deduction options, however, they must first expend the funds and complete the projects. (The additional funding to the Tribal Energy Loan Guaranty Program, noted above, is meant to address this gap.) Loans can be taken out for this purpose, and then the tax credits can be applied toward the repayment of the loans. Transferred deductions will also offset the costs of projects by reducing the amounts owed to the contractors utilized.

Next Steps

While navigating the process to benefit from tax incentive programs like these can be complex, the financial advisors at REDW are ready to partner with Tribal Nations to help them take full advantage of this unprecedented opportunity. REDW has been committed to working with and advocating for Tribes for more than 40 years, and we value the relationships we have forged together.

Please contact us today if our tribal tax experts can assist with implementing the many options and benefits available to you through the Inflation Reduction Act.

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