Category: Newsletters

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. 

In Brief

• All companies that want to file the IRA & CHIPs credit as transferable or an elective payment must pre-file with the IRS.
• Online pre-filing registration process launched on 12-22-23. 
• Each property that could receive credit must have its own registration number.
• A registration number is only valid for one taxable year.

Before applying for clean energy credits (IRA) and semiconductor credits (CHIPs), companies must pre-file through the IRS to gain their registration number. This is required before any tax credit form is to be filed or intended to be claimed. However, this does not guarantee that the credit will be claimed by the company, it only legitimizes the application when the company files for the credit on their tax returns.

Pre-Filing Registration Process

This is a required electronic process for all companies that intend to make an elective payment election or those that intend to make a credit transfer. It is designed to expedite the processing of returns and prevent improper payments. The IRS has provided guidance on how new and returning users can access their clean energy accounts to pre-file: https://www.irs.gov/newsroom/irs-opens-free-ira-and-chips-pre-filing-registration-tool-for-organizations-to-register-to-monetize-clean-energy-credits

As part of the pre-filing registration process, companies need to list all applicable credits they intend to claim on their income tax return or Form 990-T (tax exempt) and each applicable credit property that contributed or will contribute to determine these credits. Companies also need to provide any other specific information required, such as any required information about each applicable credit property. Once the company successfully completes the pre-filing registration process, they will receive a registration number(s) that will be necessary for making the elective payment election or a transfer election on their tax return.

After you complete the pre-filing registration process, the IRS will review the information provided and will issue a separate registration number for each applicable credit property for which the applicable entity or electing taxpayer provided sufficient verifiable information.

Why is this registration number important?

For each applicable credit property, it will need to have a unique registration number that contributes to an applicable credit. For example, a company plans to make an elective payment election to claim credits related to two applicable credit properties—a solar energy property and a geothermal energy property—they would complete and list both properties during the pre-filing registration process to obtain registration numbers for each property. When making an elective payment election for the credit attributable to both properties, both registration numbers must then be provided when filing a tax return.

When can you pre-file?

The online pre-filing registration process launched on Friday December 22^nd, 2023. After the launch, a company may complete pre-filing registration as soon as they have all the information required. The IRS has also issued Publication 5884 with instructions on the pre-filing process.

Do you need to file again for the same credit in the next year?

A registration number is only valid for the taxable year for which it is obtained. Registration numbers must be renewed each year as necessary. For example, an elective payment for the Renewable Electricity Production Credit (45/45Y) requires annually renewing registration numbers even though the credit lasts for 10 years.

What happens if you’re late registering?

Completing the pre-filing process and receiving a registration number is a requirement to making an elective payment election. There are no extensions for registration numbers and the IRS recommend completion of the pre-registration at 120 days before filing the respective tax return, to give time for the IRS to review the information and provide back a valid registration number.

Am I locked into Elective Payment after pre-filing?

No. Completing the pre-filing registration process does not require that a company make an elective payment election when filing a return. Also, the pre-filing registration process is unnecessary if a company will not be using elective pay (or a transfer election).

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.