In Brief
- Transferable credits are available to companies that qualify under the Inflation Reduction Act.
- A company can sell transferable credits to multiple buyers.
- Companies purchase transferable credits, usually at a discount, to reduce tax liabilities.
- A transfer statement and the required documentation are necessary to sell credits.
What Is Transferability?
Transferability is the ability to exchange (i.e. sell) credit to another eligible entity. Taxpayers can either sell all or a portion of a tax credit to an unrelated third-party transferee in exchange for cash. Here is a list of the IRA tax credits that can be transferred and sold.
- Energy Credit (48)
- Clean Electricity Investment Credit (48E)
- Renewable Electricity Production Credit (45)
- Clean Electricity Production Credit (45Y)
- Zero-emission Nuclear Power Production Credit (45U)
- Advanced Manufacturing Production Credit (45X)
- Clean Hydrogen Production Credit (45V)
- Clean Fuel Production Credit (45Z)
- Carbon Oxide Sequestration Credit (45Q)
- Credit for Alternative Fuel Vehicle Refueling/Recharging Property (30C)
- Qualified Advanced Energy Project Credit (48C)
Why Sell/Transfer?
In the scenario that the Seller’s credit exceeds their tax liability, they are eligible and have the option to transfer a portion or the entirety of that credit amount. This allows certain entities (including tax-exempt) to generate “cash” from the qualified energy projects.
Why Buy?
Buyers of transferable credits can offset current tax liability with the purchased credits, and they are typically purchased at a discounted rate. It is important to note when buying credit from another taxpayer, the buyer of the credit cannot then transfer the credit.
What is needed for “Transfer Election Statement”?
According to 1.6418-2(b)(5)(ii), there are certain items that need to be included within the “Transfer Election Statement”. This statement must be attached to the tax return for both the buyer and seller. The transfer election statement includes the following: name, address, and taxpayer identification number for both the buyer and seller, a description of the type and amount of the eligible tax credit transferred, the timing and amount of cash paid for the eligible tax credit transferred, and the registration number related to the eligible credit property.
In addition, the tax return will also need a statement or representation from the seller and the buyer taxpayer acknowledging the notification of recapture requirements under section 6418(g)(3) and the section 6418 regulations (if applicable). Also, a statement or representation from the seller that the seller has provided the required minimum documentation to the buyer.
The “required minimum documentation” that the seller will provide to the buyer will be information that validates the existence of the eligible credit property, which could include evidence prepared by third parties. Additionally, if applicable, documentation substantiating that the seller has satisfied the requirements to include any bonus credit amounts in the eligible credit that was part of the transferred credit. This could include evidence of the seller’s qualifying costs in the case of a transfer of an eligible credit that is part of the investment credit or the amount of qualifying production activities and sales amounts, as relevant, in the case of a transfer of a production credit.
More information available
At CFO Services, we are assisting our clients on both sides of these transactions, because of the significance of the transaction and the ongoing responsibility of each party. We have put together a short list of the attributes that the seller and buyer need to be aware of in a transfer of credit. If interested, please reach out to us and we would be happy to schedule a time to discuss.
IRS CircIRS Circular 230 Required Notice‐‐IRS regulations require that we inform you that to the extent this communication contains any statement regarding federal taxes, that statement was not written or intended to be used, and it cannot be used, by any person (i) for the purpose of avoiding federal tax penalties that may be imposed on that person, or (ii) to promote, market or recommend to another party any transaction or matter addressed herein.