Last August, the Inflation Reduction Act of 2022 (the “IRA”) introduced transferability provisions that will allow developers to sell clean energy tax credits.  On June 14, 2023, the IRS released proposed regulations (which we discussed here) and requested comments from the public. 

This request quickly prompted an outpouring of comments from tax organizations and practitioners, many of which suggest clarifications and modifications that may speed along the development of an efficient market for sales of clean energy tax credits.

Here is what some are saying:

• New York State Bar Association (“NYSBA”): The NYSBA advocates for the IRS to articulate circumstances in which purchased credits may be treated as arising from non-passive activity in order to broaden the potential pool of buyers of credits.  Currently, the proposed regulations confirm that unless a buyer of credits “materially participates” in the seller’s business, purchased credits will only offset passive income of buyers subject to the passive activity rules.  Additionally, the NYSBA contemplates whether restricting subsequent transfers of credits should necessarily preclude a secondary market for credits.  Finally, the NYSBA urges the IRS to consider allocating the risk of recapture to sellers of credits in all cases.
• Securities Industry and Financial Markets Association (“SIFMA”): SIFMA recommends that the IRS simplify the pre-filing registration process to require only one registration number per taxpayer or project, and also clarify that commitments to purchase credits can be assigned to another taxpayer prior to the actual transfer of credits (and prior to the filing of the “transfer election statement”).  Further, SIFMA notes that the treatment of transaction costs remains an important open question.

All of the comments received to date are posted here.  We will continue to monitor further developments in this area and report notable updates.