Breaking Down the Latest IRS Guidance on Clean Energy Credits for Sellers of Tax Credits

On June 14th, the IRS released proposed regulations and FAQs outlining the rules for clean energy transferability. In part one of our two-part series to synthesize key takeaways, we have included answers to questions that are most relevant to sellers of tax credits. In part two, we'll do the same for buyers of tax credits.

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We are busily updating our tax credit platform for the latest guidance. For more information on the latest IRS guidance and its implications, and to discuss how you can buy or sell tax credits on the Atheva platform please feel free to contact us.

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Can a single credit be sold to different buyers?

Yes.

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See Prop. Treas. Reg. § 1.6418-2(a)(2) which provides, “An eligible taxpayer may make multiple transfer elections to transfer one or more specified credit portion(s) to multiple transferee taxpayers, provided that the aggregate amount of specified credit portions transferred with respect to any single eligible credit property does not exceed the amount of the eligible credit determined with respect to the eligible credit property.”

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Can a credit be split up between where buyers buy different aspects of a credit? For example, can one buyer buy the base part of a credit and another buyer buy the portion of the credit attributable to the prevailing wage bonus?

No.

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See Prop. Reg. § 1.6417-1(h) which provides, “A specified credit portion of an eligible credit must reflect a proportionate share of each bonus credit amount that is taken into account in calculating the entire amount of eligible credit determined with respect to a single eligible credit property.”

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If the property is held by a disregarded entity (for example a wholly owned LLC that has not made an election to be treated as a corporation for tax purposes) who makes the election?

The regarded owner of the disregarded entity is the party that would make the election. 

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See Prop. Treas. Reg. § 1.6418-2(a)(3)(i).

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If the property is held by a partnership or an S corporation, who makes the election?

The partnership or S Corporation makes the election. 

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See Prop. Treas. Reg. § 1.6418-2(a)(3)(iv).

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When can a seller receive a payment for a credit?

Payments may not be made before the year that credits are determined. Payment cannot be made after the due date for completing a transfer election statement. See Prop. Treas. Reg. § 1.6418-1(f)(2).

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This means that people cannot receive cash to purchase credits prior to the taxable year of the year in which the credits are earned. So, for example, if energy property of a calendar year taxpayer is placed in service in 2024, payment for that credit cannot be made before January 1, 2024.

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Does a taxpayer that wants to transfer multiple credits need to make multiple elections?

Yes. 

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See Prop. Treas. Reg. § 1.6418-1(f)(2) which provides, “An eligible taxpayer must make a transfer election to transfer a specified credit portion of an eligible credit on the basis of a single eligible credit property.”

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Note that a “unit of property” is not defined in the proposed regulations which creates some uncertainty about how many elections may need to be made for a single project.

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For properties eligible for a production credit over multiple years, when does one make the election?

A seller of tax credits must make a separate transfer election each year that credits are transferred. See Prop. Treas. Reg. § 1.6418-2(b)(2)(ii).

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What does a seller of tax credits need to provide with their return?

1. A properly completed form related to the credit itself. For an investment tax credit this would be Form 3468.
   
   
2. A properly completed form 3800 showing the amount of the eligible credit transferred for each property.
   
   
3. A schedule attached to Form 3800 that shows the credit transferred for each eligible property.
   
   
4. A transfer election statement.
   
   
5. Other information provided in guidance.
   
   See Prop. Treas. Reg. § 1.6418-2(b)(2)(iv).

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When does the return with the information required on the return of the tax credit seller need to be provided?

The information needs to be provided in the original tax return of the selling taxpayer not later than the due date for the return (including extensions). 

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See Prop. Treas. Reg. § 1.6418-2(b)(4).

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• Name, address and TIN of the seller.
• Name, address and TIN of the buyer.
• A description of the eligible credit 
• Total amount of the credit determined with respect to the eligible credit property
• Amount of the credit being sold in the particular transfer
• The taxable year of the seller
• The first taxable year in which the buyer will take the credit into account.
• The amount of cash consideration and the dates on which they are paid by the transferred taxpayer
• The registration number related to the eligible credit property.
• Attestation that neither the seller nor any member of its consolidated group, if applicable, is related, within the meaning of section 267(b) or 707(b)(1)), to the buyer or any member of its consolidated Group, if applicable. 
• A statement from the seller that it has and will comply with all requirements of section 6418, the section 6418 regulations, and the provisions of the Code applicable to the eligible credit.
• A statement or representation from the seller and the buyer acknowledging the notification of recapture requirements under section 6418(g)(3) and the section 6418 regulations (if applicable).
• A statement or representation from the seller that the seller has provided the required minimum documentation to the buyer.
• The transfer election statement must be signed under penalties of perjury by an individual with authority to legally bind the taxpayer.

See Proposed Treas. Reg. § 1.6418-2(b)(5)(ii).

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When must the transfer election statement be completed?

The transfer election statement must be completed before the earlier of (i) the filing of the tax return for the buyer in the year in which the credit is determined and the filing of the tax return of the seller in the year in which the credit is taken into account. See Proposed Treas. Reg. § 1.6418-2(b)(5)(iii).

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• Information that validates the existence of the eligible credit property.
• If applicable, documentation that substantiates any bonus credit amounts.
• In the case of an investment tax credit, evidence of qualifying costs.
• In the case of a production tax credit, evidence of qualifying production activities or sales amounts.

See Proposed Treas. Reg. § 1.6418-2(b)(5)(iv).

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How does a seller get a registration number?

To obtain the registration number that must be included in the transfer election, a seller must complete the pre-filing registration process electronically through an IRS electronic protocol.

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See Proposed Treas. Reg. § 1.6418-4(b)(1).

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Does a seller need to get a separate registration number for each portion of a transferred credit?

Yes.

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See Proposed Treas. Reg. § 1.6418-4(b)(4).

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What information is required to be provided to the IRS to obtain a registration number?

• Seller’s name
• Seller’s address
• Seller’s taxpayer identification number
• Type of legal entity of the seller
• Seller’s taxable year
• The type of annual tax return filed by the seller
• The type of eligible credit
• Address of the property
• Longitude and latitude of the property
• Supporting documentation relating to the construction and acquisition of the eligible property
• Beginning construction date of the eligible property
• Placed in service date of the eligible property
• The name of the contact person of the eligible taxpayer (who must either have the legal authority to bind the taxpayer of for whom there is a Power of Attorney filed executed with the IRS)
• Any additional information required in the electronic portal
• Any other information that the seller believes will help the IRS evaluate the registration request
• A penalties of perjury statement

See Proposed Treas. Reg. § 1.6418-4(b)(5).

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Is a transfer number automatically provided?

No. The IRS will issue a registration number after it determines that the taxpayer provided sufficient verifiable information.

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See Proposed Treas. Reg. § 1.6418-4(c)(1).

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Does the registration number expire?

Yes. It is only valid to the selling taxpayer in the year the credit is determined.

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See Proposed Treas. Reg. § 1.6418-4(c)(2).

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Can a registration number be renewed?

Yes. This will be necessary if tax credits are transferred for a taxable year after registration. 

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See Proposed Treas. Reg. § 1.6418-4(c)(3).

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Get in touch

The IRS guidance on clean energy tax credit transferability creates new opportunities in the clean energy space. If you have questions on the IRS guidance or want to discuss how you can buy or sell credits on the Atheva platform, please contact us.

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Atheva does not provide tax or legal advice and you are encouraged to consult with your own tax or legal advisor regarding any legal or tax matter discussed herein.