Understanding the regulatory compliance landscape for renewable energy tax credits: verification, documentation, and risk management.
Renewable energy tax credits come with substantial regulatory compliance requirements. Failure to meet these requirements can result in credit disallowance, recapture, penalties, and interest. Both transferors and transferees need to understand the compliance landscape to minimize risk and maintain the integrity of claimed credits.
The IRS verifies the accuracy of information provided in tax credit claims and transfers through a combination of required documentation, audit authority, and procedural safeguards.
Before making a transfer election, transferors must complete the IRS pre-filing registration process and obtain a registration number for each credit property. This registration serves as an initial verification step and creates a record of the intended transfer.
Transferors must provide transferees with "required minimum documentation" that validates the credit property, including:
Transferor registers the credit property with the IRS and obtains a registration number.
Transferor provides required minimum documentation to the transferee.
Both parties prepare and sign the transfer election statement with all required information.
Both parties attach the transfer election statement to their respective tax returns.
IRS processes returns and may select some for further examination.
If selected, IRS may request additional documentation to verify credit eligibility and transfer compliance.
The IRS may select tax credit claims and transfers for audit as part of its standard examination procedures. During an audit, the IRS will typically:
Both parties should be prepared to defend the credit if challenged by the IRS, with the transferor maintaining responsibility for substantiating the credit amount and eligibility.
Recapture provisions are a critical compliance area for tax credits, particularly after a transfer. Understanding these provisions is essential for both transferors and transferees.
Under Section 6418 final regulations, if a recapture event occurs after a credit transfer:
Many renewable energy tax credits offer increased rates for meeting certain requirements. These "bonus credits" come with additional compliance obligations.
Tax credit compliance is not a one-time event but a continuous process. From initial planning through the entire credit period (and potentially beyond for recapture periods), maintaining compliance requires ongoing attention, documentation, and verification.
Need help with compliance? Our team can assist with verification, documentation, and risk assessment for your tax credit projects.
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