What Do Your Tax Returns Have to Do with the US’s Clean Energy Transition?

The Inflation Reduction Act (IRA) is the largest investment in climate and energy in American history, a piece of legislation that provides an array of tax credits and incentives—21, to be exact—to both companies and consumers. There is the Alternative Fuel Refueling Property Credit, the Clean Fuel Production Credit, the New Energy Efficient Home Credit, the Energy Efficient Commercial Buildings Deduction—all providing, as their names suggest, credits and incentives on everything from batteries to EVs to heat pumps to energy-efficient buildings. As of March 2024, companies have announced more than $340 billion in manufacturing investments to build America’s clean-energy economy.

Actually implementing these tax incentives and making the rules behind the IRA possible is the job of two government institutions: the IRS and the Treasury Department. Treasury makes the policy calls on the guidance for claiming the IRA’s credits (i.e., what qualifies, and how), and the IRS makes sure those credits can be accessed and accounted for when corporates and consumers file their taxes.

But as the IRS Commissioner has told Congress, years of underfunding have left the agency understaffed and with outdated technology. Why is that a problem for the IRA? Because tax credits are the IRA’s primary lever to address climate change; if the IRS can’t help consumers and corporates take advantage of those credits, the US stands to lose out on billions of dollars of investment—and will instead watch its net-zero ambitions recede. Hence why the legislation also designated $80 billion to modernize the IRS over a decade.

Brunswick’s Emily Buczynski and Steve Power sat down with Sourav Bhowmick, Chief of Staff in the Treasury’s IRA Implementation Office, to understand a day in the life of those making the IRA happen. They also asked Bhowmick, who worked at Brunswick from 2012 to 2017, about what the private sector—and everyday Americans—should know about the legislation.

What is the IRA Implementation Office and what is its role in seeing the IRA through?

First, the Treasury’s Office of Tax Policy is developing the tax guidance behind the clean energy credits, while the job of the IRA Implementation Office is to do just what the name says—operationalize and implement that guidance. While we participate in the policy discussions as the guidance is being developed, the role of our office is to convene, enable and communicate. Our broader objectives are to work with other offices within Treasury and interagency partners so that the tax credits are getting to the right stakeholders, that those stakeholders have the resources they need to effectively use those credits, and that communities across the country understand the economic value they can unlock through the IRA.

Why is the modernization of the IRS so important in making the IRA possible?

Treasury’s IRA priorities are implementing the tax credits and modernizing the IRS—and the latter makes the former possible. You can’t have this sweeping set of tax credits without a modern, fully-functioning tax administrator to administer it. And those tax credits are key to addressing climate change, to enhancing US energy security, to creating jobs across the country.

When the IRA was passed there was $80 billion designated to modernize the IRS over 10 years. The IRS devised a Strategic Operating Plan with five key areas identified for investment and improvement: improving customer service and the taxpayer experience; resolving taxpayer issues and making things easier to understand; closing the tax gap by investing in fair enforcement; improving the back-end technology and data analytics; investing in the workforce and culture of the IRS.

Making the IRS best-in-class is important, not just to administer the tax credits but for the broader service it provides for taxpayers. For most Americans who have simple tax situations, filing taxes shouldn’t be burdensome. These taxpayers should be able to do it quickly, securely and for free. That’s what we’re doing with the Direct File pilot program, made possible by IRA funding.

Also thanks to IRA funding, only one year into the law, we cut phone wait times last filing season to just four minutes—it was 27 minutes the year before. A properly funded IRS that meaningfully serves taxpayers will go a long way in helping restore faith in public institutions and showing that government can do things in an efficient and modern way. This is of real civic importance.

In what ways is implementing the IRA turning out to be different than what you thought it might be like?

The IRA is a sweeping piece of legislation that covers so much. It runs the gamut from healthcare and climate change to corporate taxes and stock buybacks. What I didn’t fully appreciate about the IRA initially is that it is a monumental accomplishment of American climate diplomacy.

We are doing this in a way that puts America at the head of the table on global climate policy. The IRA was designed to allow the US and our allies to lead on the clean energy transition in a way that all Americans benefit from, not just corporates. Whether that’s consumers who can take advantage of the clean vehicle tax credit or the home energy credit, or workers who are going to be hired and upskilled at new manufacturing facilities, or the private sector that will get the resources they need to support clean energy innovation, there’s really no aspect of American life that the IRA doesn’t touch.

You talked about the IRA being a significant accomplishment for American climate diplomacy. How do you think about the IRA in relation to climate legislation around the world?

It’s important to recognize that the US is not relying on a magic bullet to address climate change—we’re taking a structural approach, where consumers, communities, local governments, and corporates are each a piece of it. But the IRA is not going to single-handedly solve this global challenge. It’s a bold first step. By making the largest investment ever in fighting climate change, we’re in a position to credibly lead on this issue, and we can now lean on other countries to take the right steps as well so that we all get to 2050 having done our part. Averting this existential crisis is a collective effort.  

How is the 2024 election impacting Treasury’s approach?

2024 was always going to be a make-or-break year for the IRA as it’s the first year that taxpayers can harness the full breadth and depth of the tax credits. The goal of our office, election year or not, has always been to accelerate the uptake of these credits and to continue building the momentum that will carry through the full lifecycle of the IRA credits, which extends well past this decade.

What is something you really want readers to understand about IRA implementation?

This is a transformative piece of legislation that was designed to raise all boats—that brings along Americans across all communities, not just the private sector. While it is a significant economic opportunity, companies taking advantage of the IRA’s tax credits also have an opportunity to truly transform the communities in which they operate.

With provisions such as the energy communities bonus and the low-income communities bonus, the IRA incentivizes investment in historically underinvested communities like coal communities or tribal lands. There’s also the prevailing wage and apprenticeship bonus which creates good-paying jobs and incentivizes job training and upskilling for roles that will be needed in the clean energy transition.

Yes, corporates stand to benefit, but the IRA’s impact is channeled directly to places that need it.

What’s a provision in the IRA that you think isn’t well known or understood?

Elective pay and transferability. These are new mechanisms that allow tax credits to be monetized unlike anything before. We want to fund projects of all shapes and sizes and ensure we can spread out the scope and scale of the legislation. For example, through elective pay, tax-exempt entities can get the cash value of a tax credit if they undertake an eligible activity; for transferability, other entities could transfer their credit to a third-party buyer in exchange for cash. This is opening the door to a huge number of other players and participants for whom cash is more useful than credits.

There is no one mega-project that will solve climate change—we’re going to need a lot of small ones. The IRA is less focused on the whale than all the fish.