The Internal Revenue Service (IRS) issued final regulations on April 24, 2024, including rules and definitions for the transfer of eligible manufacturing investment, clean energy investment, and production tax credits in a taxable year.
The Inflation Reduction Act (IRA) of 2022 and the Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act enable taxpayers to take advantage of these credits through elective pay or transfer provisions. Elective payment and the transfer election create alternative ways for applicable entities and eligible taxpayers who have earned one of the IRA clean energy or CHIPS credits to receive the benefit of the credit, even if the taxpayer cannot use the credit to offset the tax liability.
For tax years beginning after December 31, 2022, eligible taxpayers can choose to transfer all or a portion of eligible credits to unrelated taxpayers for cash payments. These unrelated taxpayers may then claim the transferred credits on their tax returns. The cash payments are not included in gross income of the eligible taxpayers and are not deductible by the unrelated taxpayers.
Ian Boccaccio, Income Tax Principal at Ryan commented: “The ability to transfer these federal income tax credits is mutually beneficial to both the buyer and seller, when properly transacted. The rules, procedures, and approaches to mitigating risk in the tax credit transfer market are complex, and final guidance has now provided the roadmap the industry has been anticipating. It is essential to purchase from a reputable source and to properly perform due diligence on the credit purchase to ensure viability.”
In December 2023, the IRS announced that qualifying businesses; tax-exempt organizations; or entities such as state, local, and Indian tribal governments can register using the new IRA/CHIPS Pre-filing Registration Tool available free from the IRS to take advantage of the elective payment or transfer of credits.
The final regulations clarify the election under the IRA to transfer certain tax credits. The regulations describe rules for the election to transfer eligible credits in a taxable year regarding excessive credit transfer or recapture events, including rules for determining whether an event has occurred, the resulting tax impact, and the person responsible for that tax impact.
The final regulations also provide rules for a mandatory IRS pre-filing registration process through an electronic portal. The pre-filing registration process must be completed, and a registration number received, prior to making an election to transfer eligible credits.
In addition, the final regulations describe specific rules for partnerships and S corporations as eligible taxpayers and transferee taxpayers.
Our Ryan tax professionals can facilitate your access to valuable tax credits through this process.
TECHNICAL INFORMATION CONTACTS:
Ian Boccaccio
Principal
Ryan
469.399.4545
ian.boccaccio@ryan.com
Nicholaus List
Director
Ryan
917.472.9472
nicholaus.list@ryan.com
The material presented in this communication is intended to provide general information only and should solely be seen as broad guidance and not directed to the particular facts or circumstances of any individual who may read this publication. No liability is accepted for acts or omissions taken in reliance upon the content of this piece. Before taking (or not taking) any action, readers should seek professional advice specific to their situation from Ryan, LLC or other tax professionals. For additional information about this topic, please contact us at info@ryan.com.
- Sujet
- Ian Boccaccio