The Inflation Reduction Act of 2022 (the “IRA”) now allows firms to develop and sell clean energy tax credits.  For the latest on this topic, click here. 

The IRS has been criticized for confirming that the passive activity rules apply to individual buyers of clean energy tax credits.  Currently, under proposed regulations, unless an individual buyer of credits “materially participates” in the seller’s business, purchased credits will only offset passive income.  This makes it difficult for small energy projects to attract buyers, as individuals will be unlikely to purchase these credits.

A solution may be on the horizon.  At the American Bar Association’s virtual conference last week, one Treasury attorney said they are looking closely at this issue, as it is unclear whether Congress intended for individuals to be effectively unable to purchase these credits.  However, Treasury must give serious thought to how to prevent fraud if they decide to allow individuals to participate.

In other developments, earlier this month Treasury released proposed regulations on the IRA provisions that allow consumers to receive tax credits for purchasing electric vehicles, sell them back to the dealer at the time of sale and receive an immediate rebate to reduce the upfront cost of the vehicle.  These “point of sale” transfers are unique to clean vehicle tax credits and are expected to encourage consumers to trade in their gas guzzlers for cleaner electric vehicles.

These developments indicate that Treasury is thinking creatively about new ways to expand participation in energy tax credit transfers to help advance the Biden Administration’s clean energy goals, rather than focusing solely on protecting the fisc.