The clock is ticking: why nonprofits must act now on solar direct pay registration

Posted December 9, 2025

For nonprofit organizations exploring or investing in solar energy systems, time has suddenly become the most critical factor in securing substantial federal tax benefits. The One Big Beautiful Bill Act (OBBBA), passed on July 4th, 2025, has fundamentally altered the landscape for solar investment tax credits, creating urgent deadlines that could mean the difference between receiving significant cash refunds and missing out entirely.

Tax-exempt entities that qualify can elect the direct-pay option and receive from the IRS a cash payment equal to the value of the Investment Tax Credit (ITC) plus applicable bonus credits. This benefit is available only if organizations satisfy specific sequence, registration, documentation, and timing requirements. Delay or inaction could result in loss of substantial value.

New timing realities

Under the original Inflation Reduction Act (IRA) framework, tax-exempt organizations became eligible for the credit via the direct-pay election for clean energy investment property. Under the OBBBA’s revised framework, deadlines have been accelerated, and new eligibility constraints have been added.

For solar and on-shore wind facility projects under §48E (Clean Electricity Investment Credit) and §45Y (Clean Electricity Production Credit), the revised deadlines are:

Projects that begin construction on or before July 4, 2026, may remain eligible under the credit regime (assuming they meet other requirements).
Projects that begin construction after July 4, 2026, must be placed in service by December 31, 2027, to qualify.

The compressed timeline becomes even more challenging when considering the sequential nature of the Direct Pay process. Unlike traditional tax credits that might be claimed retroactively, the Direct Pay system requires organizations to complete their solar installation first, then register with the IRS Energy Credits Online portal, and finally file their tax return to receive the cash refund.

For organizations with solar systems already placed in service, the urgency is immediate. The registration process should begin now, regardless of when the tax return filing deadline occurs. Projects completed in 2024 or early 2025 can still access the full 30% credit, but only if they successfully navigate the registration requirements before filing their Form 990-T.

Direct pay – why the process demands early planning

The direct-pay mechanism means tax-exempt entities (e.g., nonprofits, municipalities, universities) can receive a cash payment from the IRS equal to the value of the ITC and any applicable bonus credits rather than simply using the credit to offset tax liability.

However, the process must follow a specific order: first, organizations install and place the solar (or other eligible property) in service – this triggers project eligibility. Second, they create accounts on the IRS Energy Credits Online portal and submit detailed project information for review. Third, after receiving IRS approval and a registration number, they file the required tax return (typically a Form 990-T) and include the appropriate form (such as Form 3468) to claim the payment.

Because the direct-pay route depends on successful registration and documentation, nonprofits must build their timeline with a buffer for this administrative review. And although many sources quote a 120-day processing window, that figure should be treated as illustrative rather than guaranteed; many variables may extend the timeline.

Documentation and compliance considerations

The documentation requirements for direct-pay are significantly heavier than the more typical tax credit-claim model (where a taxable entity simply files a Form 3468 and carries the credit). Nonprofits must document:

Precise placed in service dates (for solar and wind, the correct definition of “begin construction” may matter).
Equipment specifications, sourcing (especially if domestic-content or other bonus credit elections are made)
Labor and apprenticeship requirements (where applicable)
Supply-chain compliance, including new restrictions on “Foreign Entities of Concern” (FEOC) under OBBBA for projects beginning construction in 2026 and later.
For bonus credits (e.g., domestic-content, energy-community, low-income communities), the ancillary applications or capacity allocations may apply and require advanced planning.
The IRS has implemented specialized review processes for these registrations. Unlike traditional tax return processing, where routine items move through automated systems, Direct Pay registrations receive individual attention from IRS personnel trained specifically in clean energy credits. These reviewers examine submissions carefully and will request additional documentation for any items that appear unclear or incomplete.

Organizations must also maintain this documentation for potential future reviews. The complexity of these programs and the cash-payment nature of the benefits mean proper documentation serves not just as a registration requirement but also as an ongoing compliance necessity.

Strategic considerations

The compressed OBBBA timeline creates urgency to act quickly. Projects currently in development face a critical choice: accelerate construction to meet the July 4, 2026, deadline or risk losing access to the 30% credit entirely.

For organizations with completed projects, the focus shifts to optimizing the registration and filing process. This includes evaluating potential bonus credits that might not have been initially considered, ensuring all documentation is properly organized, and coordinating the filing timeline to maximize cash flow benefits.

Organizations should also consider the interaction between Direct Pay benefits and other funding sources. Some grants or financing arrangements may have provisions that affect how tax credit benefits are treated, potentially requiring coordination with other funding partners or modifications to existing agreements.

The Foreign Entity of Concern requirements, which take effect in 2026, add another layer of strategic consideration. Organizations with projects that will be placed in service after these requirements become effective need to evaluate their supply chain documentation to ensure compliance with these additional restrictions.

Storage projects: a different timeline

While solar projects face the accelerated OBBBA deadlines, energy storage projects continue to have access to the full ITC through the end of 2033. Storage projects with a nameplate capacity of at least 5 kilowatt hours remain eligible for the 30% baseline credit plus applicable bonus credits, providing nonprofits with additional time to plan and implement these technologies.

However, starting in 2026, storage projects will be subject to the same Foreign Entity of Concern restrictions that apply to other clean energy technologies. Organizations considering storage should factor these upcoming requirements into their planning and procurement decisions.

Action steps for nonprofit leaders

Organizations with solar projects already in service should begin the registration process immediately. This includes gathering all project documentation, creating the necessary IRS portal accounts, and submitting registration materials as quickly as possible. The 120-day processing timeline means that delays in starting the registration process directly translate to delays in receiving refunds.

For organizations with projects still in development, the focus should be on ensuring construction begins before the July 4, 2026, deadline while simultaneously preparing all registration materials. This parallel approach allows organizations to maximize their chances of qualifying while minimizing delays in accessing benefits.

Organizations should also engage qualified tax professionals who understand the specific requirements of the Direct Pay process. The complexity of these regulations and the substantial financial benefits involved make professional guidance essential for maximizing benefits while ensuring compliance.

For more personalized guidance, please contact our office.