May 20, 2024
5 min read

A review of how tax year-end affects transferability for buyers and sellers.

A review of how tax year-end affects transferability for buyers and sellers.

Transferable tax credits are a powerful tool for profitable companies looking to manage their federal tax liability. When buying transferable tax credits, however, companies must consider their tax year-end in conjunction with that of the seller in order to claim the credits correctly and to the greatest extent possible.

IRC §6418(d) dictates tax credit purchase timing between buyers and sellers

Internal Revenue Code §6418(d) explains the specific rule relating to this relationship between buyer’s and seller’s tax year end.

...a transferee taxpayer takes the transferred eligible credit into account in its first tax year ending with, or after, the eligible taxpayer’s tax year with respect to which the transferred eligible credit was determined.

Scenario 1: Buyer and seller both have a calendar year-end

For transactions where both the buyer and seller have a 12/31 tax year-end date, the credits simply apply to the tax year in which they were generated.

Scenario 2: Buyer has a fiscal year-end, seller has a calendar year-end

For a transaction where the buyer tax year ends before that of the seller – for example, the buyer has a 6/30 tax year, and the seller has a 12/31 tax year – any credits generated in the same calendar year are pushed into the next tax year for the buyer.

Scenario 3: Buyer has a calendar year-end, seller has a fiscal year-end

Lastly, for a transaction where the seller's tax year ends before that of the buyer, credits generated prior to the end of the seller tax year will apply to the current calendar year, but credits generated after the end of the seller tax year will push into the next calendar year.

Find credits that complement your company's tax year-end

To find clean energy tax credits that complement your company's tax year-end, please contact Reunion's transactions team. In addition to providing access to our tax credit marketplace, we can curate a list of projects that most closely align with your needs.

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