Clean energy final regulations released

The U.S. Department of the Treasury and the IRS today released final regulations on the transfer of clean energy tax credits enacted under the Inflation Reduction Act of 2022 (IRA). Monetizing these credits is a central driver of the Biden administration’s push to address climate change. Following are highlights of the final regulations:

• An eligible taxpayer may not make an election to transfer credits for progress expenditures for an energy project.
• An eligible taxpayer must make an election to transfer their credit on an original tax return for the taxable year for which the credit is determined by the due date of such return (including extensions of time).
• The risk of potential recapture of a credit that is transferred falls on the buyer (transferee) of the credit.
• A taxpayer (transferor) must notify the transferee taxpayer of a recapture event in such form and manner as the secretary of the Treasury may provide. Additionally, the transferee taxpayer must notify the eligible taxpayer (transferor) of the recapture amount, if any, in such form and manner as the secretary may provide.

Crowe observation

The final regulations are long and complex. Potential buyers and sellers of green credits should analyze the final regulations to ensure that currently planned and future transactions meet the regulatory requirements.

Looking ahead

While these rules answer questions about the transfer of clean energy credits, Treasury and the IRS continue to work through their list of guidance projects to implement the clean energy tax benefits enacted under the IRA. Taxpayers should consult their tax advisers to evaluate how the new rules on the transfer of credits might affect them and continue to follow developments in this area.