Final Clean Energy Tax Credit Transferability Rules Include Few Surprises And Increase Certainty For Transactions

The Treasury and IRS published their final rules on transferability for clean energy tax credits on April 30, 2024. The final rules include very few changes from the proposed regulations and rejected many of the suggestions offered by commenters during the public hearing.

Some key takeaways from the final regulations include:

• Treasury and IRS rejected commenters suggestion to allow "base" credits and "bonus" credits to be sold separately and will continue to require the entire credit to be divided in portions that include both the base and bonus credit.
• Project developers cannot sell their "progress expenditures" for Section 48 ITC projects before they have placed their project into service.
• Final rules maintain the "paid in cash" definition set forth in the proposed regulations. The final rules do not allow for advanced payments for eligible credits prior to the taxable year an eligible credit is determined.
• The final rules clarify the procedural and documentation requirements. Notably, the final regulations maintain the same minimum documentation needed to be provided by an eligible taxpayer to a transferee taxpayer, underscoring the importance of parties to carefully review contractual arrangements.
• The final rules are effective on July 1, 2024.

With the certainty provided by the final regulations, we expect continued growth in the clean energy tax credit transfer market, including from taxpayers who were initially hesitant to enter the market. To take advantage of this opportunity, taxpayers need a clear understanding of the rules around these credits to plan and to anticipate potential audits or litigation.

Our Clean Energy Tax Credit attorneys at Crowell & Moring continue to follow developments closely, and are available to discuss the impact of these regulations. For additional coverage of the Inflation Reduction Act clean energy tax credits, please visit our Clean Energy Tax Credit page and previous coverage of the proposed transferability regulations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.