May 25, 2023
5 min read

Navigating December Rush and Three-Year Carryback - The Complex World of Transferability

Tax equity, the December 31st deadline, and the "game changer" that is transferability.

Anyone who has developed solar projects knows about the “December rush” – all hands on deck to get projects built and interconnected, hounding utilities for inspections and PTO letters, coordinating last minute signature pages up until COB on New Year’s Eve – all because tax equity investors generally allocate tax capacity on an annual, tax year basis. If tax equity commits to fund a project in a certain year, it wants to make sure it gets the expected tax benefits from that project in that tax year. Accordingly, there is significant pressure for developers not to miss the 12/31 deadline, and often there are significant financial penalties if they do – hence, the December rush that many developers and financiers know well. (For years, my peers and I never took vacation until January 1st.)

Transferability is appropriately labeled a “game changer.” Having worked in project finance and tax equity for nearly 20 years, I knew that the ability for clean energy tax credits to be freely bought and sold would be transformative and disruptive. So much so, that soon after the passage of the Inflation Reduction Act, I dropped everything and launched Reunion with my longtime colleague and renewable energy veteran, Andy Moon.

Lately, I’ve heard some people mention that transferability gives developers the “gift of time” and will alleviate the massive pressure to place projects in service by the end of year. Unfortunately, transferability, while transformative, is not a panacea for all challenges.

What is the gift of time?

In a typical tax equity partnership transaction, a tax equity partner must fund 20% of its investment by mechanical completion. Time is not a developer’s friend; as a project approaches COD, the need to close tax equity becomes more and more urgent (and a developer’s leverage in tax equity negotiations diminishes). With the IRA, this urgency becomes less pronounced, because the developer always has a fall back option to sell tax credits.

With transferable tax credits, Section 6418 of the Internal Revenue Code (IRC) indicates that the seller of the credit has until the filing date of its tax returns (as extended) to sell the credits.  Therefore, the owner of a project that is being placed in service on 12/31/2023 can sell the associated 2023 tax credits up until 9/15/2024 (the extended filing date for partnerships). If the project is placed in service on 1/1/24, it generates a 2024 credit but that credit can be sold up until 9/15/2025.

This certainly gives developers more flexibility on when to sell the credit. However, what hasn’t changed is that tax credits (specifically, the IRC §48 investment tax credit which applies to solar, storage and other technologies) are generated when the project is placed in service. So a project placed in service on 12/31/2023 will generate a 2023 tax credit, whereas a project placed in service on 1/1/2024 will generate a 2024 credit. This is true whether or not the tax credit is transferred or allocated to a partner in a traditional tax equity partnership. 

So a tax credit buyer who has agreed to buy a 2023 credit from a project developer to reduce its 2023 tax liability will not be obligated to close the purchase if the project slips to 2024 (unless of course, this has been contemplated in the deal documents and priced accordingly).

The IRA does include a three-year carryback provision, but it’s not straightforward to utilize

At first blush, the three-year carryback seems like an incredible tool to unlock significant tax liability and add flexibility. However, actually utilizing the carryback is cumbersome in practice; it is not as simple as just carrying the credit back to the prior year.

In the example above, a developer misses the year end deadline and places a project in service on 1/1/2024. It sells the 2024 credits to a buyer who wishes to apply those credits against 2023 liability. Unfortunately, the buyer must first apply those credits against its 2024 liability. Only to the extent that there are unused credits after application against 2024 liability can the buyer carryback the credits. But it must first carryback the credits to the earliest possible date applicable, or 2021; any unused credits would then be applied to 2022; then finally to 2023. Buyers do not have the discretion to pick and choose which years to apply carryback credits.1

Practically speaking, carrying back credits would require a buyer to amend one or more of its prior year returns, which has its own complexities (Joint Committee review, increased audit risk, etc.). The juice may not be worth the squeeze.2

Reunion is committed to sharing transparently both the benefits and risks of transferable tax credits, based on our years of experience structuring renewable energy finance transactions. Transferability will unlock billions of dollars in additional renewable energy financing, by attracting new investors to the space with a simplified and low-risk investment process. However, tax credit buyers will continue to need to ensure that the developers they work with are able to deliver tax credits within the desired tax year. Reunion can help both tax credit buyers and sellers navigate this challenge.

If you'd like to learn more about how Reunion can help you buy or sell the highest quality clean energy tax credits, please reach out to



[1] IRC §39 is the code section that governs carrybacks.

[2] Anecdotally, many people don’t realize that the pre-IRA §48 credit had a one-year carryback feature, and not surprisingly, was rarely employed in prior tax equity deals.

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