What Are Transferable Tax Credits? - Best Practices for Tax Credit Transfers

For Developers (Sellers)

1. Document Everything from Day One

Maintain meticulous records of all costs, compliance certifications, and project milestones. Poor documentation is the primary reason deals fall apart during due diligence. Track: - Qualified capital costs with supporting invoices - Prevailing wage and apprenticeship compliance records - Domestic content certifications and supply chain documentation - Placed-in-service evidence - Engineering and technical specifications

2. Understand Your Credit Value Precisely

Work with qualified tax advisors to calculate your exact credit amount, including all applicable bonuses. Understand which requirements you’ve met (prevailing wage, domestic content, energy communities) and which you haven’t. Buyers will verify these calculations, and discrepancies damage credibility and pricing.

3. Start Marketing Early

Begin identifying potential buyers 6-12 months before anticipated credit generation. Building relationships and understanding buyer requirements early allows you to structure your project optimally and secure better pricing. Consider: - Direct outreach to corporations with tax liability - Engaging brokers or advisors with buyer networks - Listing on tax credit marketplaces and platforms

4. Negotiate Strong Indemnification Caps and Escrows

While you’ll likely indemnify buyers for recapture, negotiate reasonable caps on liability and time limits. Consider whether escrow holdbacks are necessary and, if so, size them appropriately relative to actual risk. Work with experienced counsel to balance buyer protection with your cash flow needs.

5. Choose Qualified Advisors and Partners

Engage attorneys, accountants, and advisors with specific expertise in Section 6418 transfers. This is a new and evolving area—general tax knowledge isn’t sufficient. Specialists can help structure deals efficiently, avoid pitfalls, and maximize value.

6. Plan for Multiple Years with PTCs

If you’re transferring Production Tax Credits over 10 years, consider whether to: - Sell all 10 years of credits to one buyer upfront - Transfer year-by-year to maximize flexibility and potentially capture price improvements - Split the difference with a multi-year commitment but annual pricing adjustments

Each approach has tradeoffs around certainty, pricing, and transaction costs.

For Buyers (Corporations)

1. Conduct Thorough Due Diligence

Don’t rely solely on seller representations. Independently verify: - Credit calculations and eligibility - Compliance with prevailing wage, apprenticeship, and other requirements - Project quality and operational viability - Recapture risks and likelihood of compliance issues

Engage technical advisors, engineers, and tax specialists to review documentation.

2. Diversify Your Credit Portfolio

Rather than concentrating purchases in one credit type or with one seller, diversify across: - Multiple projects and developers - Different technologies (solar, wind, storage, etc.) - Geographic locations - Credit types (ITC, PTC, 45V, etc.)

Diversification reduces concentration risk and provides broader clean energy impact.

3. Understand Recapture Protections

Ensure transfer agreements include: - Strong seller indemnification for recapture events - Reasonable holdback or escrow mechanisms to secure indemnification obligations - Clear triggering events and claim processes - Appropriate caps and baskets that don’t eviscerate protection

Work with experienced counsel to ensure recapture protections are enforceable and sufficient.

4. Plan for Tax Liability Matching

Purchase credits appropriate to your projected tax liability. Excess credits can carry forward, but this reduces the present value of your investment. Model various scenarios to ensure credits align with your tax planning.

5. Integrate with ESG and Sustainability Reporting

Document the environmental attributes and impacts of projects you support through credit purchases. Many corporations use these transactions to demonstrate climate action, support renewable energy, and meet ESG commitments. Ensure you capture the data needed for sustainability reporting.

6. Stay Informed on Evolving Guidance

IRS guidance on Section 6418 continues to evolve. Maintain relationships with tax advisors who monitor developments and can help you adapt to new rules, clarifications, or market practices.

For Advisors (Brokers, Consultants, Attorneys)

1. Maintain Independent Expertise

Represent either buyers or sellers in a transaction—not both. Conflicts of interest undermine trust and can create legal liability. If you operate a marketplace or platform, ensure transparent fee structures and clear disclosure of your role.

2. Standardize Where Possible

Develop template transfer agreements, due diligence checklists, and documentation requirements that reflect market best practices. Standardization reduces transaction costs and accelerates closings, benefiting all parties.

3. Educate Clients Proactively

Many participants are new to transferable credits. Provide educational resources, market updates, and guidance that help clients make informed decisions. Well-informed clients make better counterparties and build stronger market fundamentals.

4. Build Compliance Expertise

Deep understanding of IRS requirements—prevailing wage, apprenticeship, domestic content, registration processes, recapture rules—is essential. This knowledge is your primary value-add and differentiates you from general advisors.

5. Foster Market Development

Contribute to market infrastructure by participating in industry associations, providing feedback on IRS guidance, sharing anonymized market data for price discovery, and promoting best practices. A healthy, liquid market benefits all participants.