The Internal Revenue Service (IRS) recently issued final regulations and removal of temporary regulations for the transfer of certain credits pertaining to the Inflation Reduction Act (IRA) of 2022.
It outlines the final rules for transferring certain tax credits under the IRA. The regulations explain how taxpayers can transfer these credits, including the necessary definitions, special rules for partnerships and S corporations, and what happens if credits are transferred incorrectly or need to be recaptured. There are also rules about an IRS pre-filing registration process that must be followed.
Taxpayers can elect to transfer all or part of their eligible tax credits to an unrelated taxpayer for a given year. The recipient of the credit then becomes the taxpayer for said credit. This payment must be in cash and is not taxable or deductible.
There are 11 specific credits that can be transferred, such as those for renewable electricity production, clean hydrogen production and energy projects. Each credit transfer must be made separately for each facility and year.
The election must be made on the original tax return for the year the credit is determined and cannot be revoked. The transferee cannot re-transfer the credit and must account for it in their first taxable year after the transfer.
These regulations will go into effect on July 1, 2024.
Jeff Wardon, Jr. is the assistant editor for the facilities market.
