IRS allows tax-exempts to change tax year for energy credits

The IRS has issued procedures (Rev. Proc. 2025-6) allowing applicable exempt organizations automatic approval to change or adopt an annual accounting period. Prior to this guidance, exempt organizations were generally permitted to change their annual accounting period only once every 10 years by filing either an appropriate Form 990-series or Form 1128.

This procedure is welcome news for tax-exempt and governmental entities that made an elective payment election for certain clean energy investment or production credits.

Regulations under Section 6417 allow applicable exempt organizations, described below, that file an annual return solely for purposes of making the elective payment election for certain energy credits to adopt a taxable year upon filing an initial Form 990-T. This new procedure now allows those same entities to subsequently change their annual accounting period. To do so, they must timely file a Form 990-T on or before the due date, including extensions, for the short period (the “first effective year”) required to effect the change. They are not required to file a Form 1128 but must attach a white paper statement describing the change to the Form 990-T.

Under Rev. Proc. 2025-6, an in-scope applicable entity is one that is not required to file either a federal income tax return under Section 6011 or an annual information return under Section 6033(a) but adopted a taxable year by filing Form 990-T solely to make an elective payment election under Section 6417; wants to change its taxable year to match its books and records; and is one of the following:

• Government of any state, the District of Columbia, any U.S. territory, or political subdivisions thereof
• An Indian tribal government or subdivision and their wholly owned entities
• An agency of any applicable entity described above

The procedures are effective for any first effective years beginning on or after Jan. 1, 2024, as long as the period for filing the Form 990-T for such year has not yet expired. In-scope applicable entities should consider whether they want to make a change under this procedure and take care to timely file the Form 990-T and potentially an extension on Form 8868. The accounting period can affect when credits can be claimed and which projects are eligible for direct pay.

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