Deloitte Tax looks at guidance on tax credit transfers, ‘direct pay’ elections

Two new tax alerts from Deloitte Tax LLP examine recent guidance from the IRS and Treasury Department on two novel tax provisions—one permitting taxpayers to transfer certain tax credits to unrelated taxpayers and one permitting taxpayers to treat certain credits as direct payments—that were added to the Internal Revenue Code under the Inflation Reduction Act of 2022 (P.L. 117-169).

Credit transfers

The Inflation Reduction Act added a “transferable credit” provision—section 6418—to the code, which provides that “eligible taxpayers” may elect to transfer (i.e., sell) certain credits to unrelated taxpayers rather than using the credits against their federal income tax liabilities.

The IRS and Treasury Department on June 14 released proposed regulations (REG-101610-23) under section 6418, as well as temporary regulations (T.D. 9975) setting forth mandatory information and registration requirements for transfer elections.

Find out more about the credit transferability guidance from Deloitte Tax.

‘Direct pay’ election

Another new tax code provision—section 6417—enacted under the Inflation Reduction Act

provides that “applicable entities” (or “electing taxpayers” for credits provided in sections 45V, 45Q, or 45X) may elect to treat certain credits as a direct payment made against their federal income tax liabilities, thereby allowing such entities a federal tax refund of the amount of the direct payment in excess of any tax liability.

Proposed regulations (REG-101607-23) under section 6417 were released on June 14, along with temporary regulations (T.D. 9975) that set forth mandatory information and registration requirements for direct-payment elections.

Find out more about the “direct pay” guidance from Deloitte Tax.

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