The government rejected suggestions from the clean energy industry to relax restrictions and provide taxpayers with more flexibility on transferring specific energy credits, maintaining stringent transfer rules in its final regulations.
In final regulations (T.D. 9993) issued April 25, Treasury and the IRS describe rules for the election to transfer eligible credits under section 6418 in a tax year, including special rules regarding partnerships and S corporations, excessive credit transfers, and recapture events.
Members of the clean energy sector asked the government during an August 2023 public hearing to consider additional flexibility in transferring credit portions, a grouping rule for the transfer of some credits, and changes to the recapture rules.
They didn’t get their wish. Dustin Stamper of Grant Thornton LLP called the rejection “fairly disappointing.”
“Their reasoning for rejecting some of the most reasonable and helpful recommendations was that the comments didn’t ‘fully’ address every potential administrative issue. This is a pretty vague and difficult standard that reads like a cop-out,” Stamper said.
“The government appears to be focused primarily on easing the administrative burden on the IRS with regard to future audits and minimizing fraud,” Carina C. Federico of Crowell & Moring LLP said, noting that most of the changes requested could open up the credits so investors could take advantage of them.
Congress enacted the section 6418 transferability provision in the Inflation Reduction Act to allow taxpayers not using direct pay to transfer all or a portion of any applicable credits to a third party in exchange for cash. Transferability is available for all energy generation and carbon capture credits, clean vehicle credits, some manufacturing credits, and some clean fuel credits.
The government released proposed regulations (REG-101610-23) in June 2023, which included general requirements for making a transfer election and special rules for partnerships and S corporations and for excessive credit transfer or recapture events.
In a Treasury release, National Economic Council Director Lael Brainard said that businesses are “eager to participate in the transfer market,” noting that more than 50,000 registration numbers have been requested for eligible projects and facilities pursuing transferability.
In the final regs, the government rejected suggestions to allow more taxpayers to sell base and bonus credits separately. Taxpayers will be required to have the entire credit divided into portions with the bonus credit included.
Stamper said the government’s decision to... to continue reading please subscribe to NovaTax.