As part of the Inflation Reduction Act (“IRA”) passed in August of 2022, $391 billion of governmental funding was allocated to energy and climate initiatives. The ability to transfer (i.e. sell) clean energy credits was part of the new legislation and covered under IRC Section 6418. The intent of IRC Section 6418, was to increase participation in clean energy initiatives by allowing taxpayers to sell credits without engaging in complicated tax structures. The much-anticipated Internal Revenue Service (“IRS”) regulations were released this month and provide additional guidance to a growing subsidy market for clean energy. The proposed regulations detail an intensive documentation process and limits the ability to utilize purchased credits to a narrow field.
IRC Section 6418 also provides for a one-time transfer of designated clean energy credits to an unrelated party for cash. Such a transfer does not create gross income for the taxpayer selling the credit or a deduction for the taxpayer purchasing the credit.
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