The Treasury Department and Internal Revenue Service issued a statement final regulations today describes rules and definitions for the transfer of eligible credits in a taxable year, including specific rules for partnerships and S corporations.
The Inflation Reduction Act and the Creating Useful Incentives to Produce Semiconductors Act (CHIPs) allow taxpayers to take advantage of certain manufacturing investments, clean energy investments, and production tax credits through optional wage or transfer provisions.
For taxable years beginning after December 31, 2022, eligible taxpayers may elect to transfer all or a portion of eligible credits to unrelated taxpayers for cash payments.
The unrelated taxpayers may then claim the transferred credits on their tax returns. The cash payments are not included in the gross income of the eligible taxpayers and are not deductible by the unrelated taxpayers.
The final regulations also set forth special rules regarding excessive transfers and recapture events, including rules for determining whether an event has occurred, the resulting tax consequences, and the person responsible for those tax consequences.
The final regulations also provide rules for a mandatory IRS pre-filing filing process through an electronic portal. The pre-submission registration process must be completed and a registration number received before an election can be made to transfer eligible credits.
In addition, the final regulations describe specific rules for partnerships and S corporations as eligible taxpayers and beneficiary taxpayers.
Previously, the IRS issued proposed regulations for the transfer of applicable credits and temporary regulations for the mandatory IRS pre-filing registration process.
Ben Norris, VP of Regulatory Affairs at the Solar Energy Industries Association (SEIA), issued the following statement in response to the release:
“Expanded clean energy tax credits boost America’s energy economy. The solar and storage industry appreciates the Treasury Department’s efforts to quickly finalize complex rules around tax credit portability, providing the flexibility many clean energy companies need to move forward with billions of dollars in investments.
“These rules enable solar, storage and manufacturing companies of all sizes to efficiently monetize various tax credits without the need for large, complex and expensive tax equity structures. The rules will strengthen existing transfer markets and add much-needed liquidity to clean energy companies facing high interest rates and other economic headwinds.
“Now that the portability provisions of the Inflation Reduction Act (IRA) have been fully implemented, we continue to call on the Biden Administration to revise the proposed Basel III rules on equity tax capitalization requirements. The U.S. solar and storage industry is expected to add well over half a trillion dollars to the U.S. economy over the next decade, and the proposal, as written, threatens to blunt the impact of the IRA’s portability provisions .”
For detailed instructions on how to use the tool, see Publication 5884Inflation Reduction Act (IRA) and CHIPS Act of 2022 Pre-Filing Registration ToolPDF.
The tax authorities also have the Frequently Asked Questions based on the final regulations. More information can be found at Page on the Inflation Reduction Act of 2022 at IRS.gov.
News item from the Tax Authorities
