A practical guide to transferable tax credits carrybacks

Introduction

The Treasury’s final transferability regulations allow corporations to carry transferable tax credits back up to three years, with the ability to offset up to 75% of prior-year tax liabilities. 

Although carrybacks and carryforwards have been available for clean energy tax credits since the introduction of transferability under the Inflation Reduction Act (IRA), as detailed in Section 39(a)(4) of the Internal Revenue Code (IRC), only in the past six months has Reunion seen a meaningful increase in companies exploring and modeling carrybacks.

In our view, this emerging interest in carrybacks reflects market maturity, as both experienced and first-time buyers seek to maximize the value and flexibility of their tax credit investments. By leveraging carrybacks, purchasers can expand the total credit volume under consideration, unlocking more favorable deal terms and better overall returns.

How does a tax credit carryback work?

Tax credit buyers can carry credits back three years, and then apply credits forward to subsequent years. A company who purchases 2025 tax credits for a carryback, for instance, would first have to max out their 2025 capacity and then apply any unused amount to 2022, then 2023, and then to 2024. For each year, the company would apply credits up to the statutory cap (75% of total tax liability) before moving on to subsequent years. Buyers do not have the discretion to pick and choose which years to apply carryback credits.

It’s worth reiterating that a company may only carry back credits after they have exhausted their ability to apply those credits to the tax year of the credits. In other words, a company may only carry back 2025 credits once they have hit the 75% statutory cap for 2025. 

Taxpayers may also carry applicable IRA tax credits forward up to 22 years. However, the carryforward is 22 years from the three-year carryback, meaning a taxpayer may effectively carry unused tax credits forward 20 years from their current tax year.

Assume a taxpayer purchases $75 million of 2025 tax credits and is expected to have a gross tax liability of $100 million from 2022 through 2028. The tax credit deduction would follow the below structure:

What types of companies should consider a carryback?

A carryback generally makes sense for companies who have a significant tax liability across one or more of their three prior tax years. A common use case is a sizable tax event, like a strategic divestiture, within the three-year carryback window. This holds true for public and private companies, both of whom Reunion has supported in carryback transactions.

When and how do you apply for a carryback refund request?

If a company is requesting a carryback refund via IRS Form 1139, Corporate Application for Tentative Refund, the tax team would typically submit Form 1139 at the same time as, but not in the same package with, their income tax return for the year of the credits they purchased for a carryback. 

From Instructions for Form 1139:

• “When to File: Generally, the corporation must file Form 1139 within 12 months of the end of the tax year in which an NOL, net capital loss, unused credit, or claim of right adjustment arose. The corporation must file its income tax return for the tax year no later than the date it files Form 1139.
• Where to File: File Form 1139 with the Internal Revenue Service Center where the corporation files its income tax return. Do not file Form 1139 with the corporation's income tax return.”

Because a company effectively files their refund request at the same time as their income tax return, they will have a concrete understanding of how many credits are unused from the current tax year. 

How long should it take to process a carryback refund request?

The IRS has 90 days to process a Form 1139 carryback refund request 

The Instructions for Form 1139 states, “The IRS will process this application within 90 days of the later of:

• The date the corporation files the complete application, or
• The last day of the month that includes the due date (including extensions) for filing the corporation's income tax return for the year in which the loss or credit arose (or, for a claim of right adjustment, the date of the overpayment under section 1341(b)(1))”

Importantly, receiving a refund doesn't validate the application. The IRS may later assess penalties and interest for overvalued property, negligence, rule disregard, or substantial income tax understatement if deductions or credits are found incorrect.

Current refund processing times are around 90 days

The IRS publishes processing statuses for various tax forms online. As of the publication date of this note (October 2025), the IRS is processing Form 1139s from June 2025 – that is, generally within the prescribed 90-day window.

Reunion accessed the IRS processing status webpage on October 29. The footer stated that the page was last reviewed or updated on October 24.

Some companies are assuming more than 90 days for modeling purposes

Reunion has supported several corporate tax leaders who are baking additional time into their carryback modeling assumptions. These are generally larger C corporations who are requesting refunds over $5 million, which are subject to another level of review through the Joint Committee on Taxation (JCT).

Most of these companies consider 90 days their best-case scenario and anticipate that a refund could take longer.

The IRS pays interest on refunds that take longer than 45 days

For financial modeling purposes, it’s worth bearing in mind that the IRS pays interest on refund requests that take longer than 45 calendar days (from the point at which the IRS deems the application complete).

Tax credits with wider discounts or delayed payments are most suitable

Generally speaking, due to the time-value-of-money implications of the refund process, tax credits with wider discounts are most suitable for a carryback. As shown in Reunion’s market monitor, Section 48 ITCs are prime candidates.

However, all transferable tax credits, irrespective of discount, can be suitable candidates for a carryback as long as they are “applicable credits” – see exhaustive list below.  

At the same time, a buyer can achieve the same time-value-of-money benefit with delayed payments. Reunion supported a publicly traded buyer, for instance, who purchased 2025 Section 45 PTCs for a carryback from a seller who was willing to accept payment in June 2026.

"Applicable credits" that are eligible for a carryback

The following transferable tax credits are “applicable credits” that are eligible for three-year carrybacks (per Section 39(a)(4) and Section 6417(b)): 

• Section 48 ITCs
• Section 48E ITCs
• Section 45 PTCs attributable to qualified facilities which are originally placed in service after December 31, 2022
• Section 45Y PTCs
• Section 45X advanced manufcaturing production credits
• Section 45U zero-emission nuclear power production credits
• Section 45Z clean fuel production credits
• Section 48C qualifying advanced energy project credits
• Section 45V clean hydrogen production credits attributable to qualified facilities which are originally placed in service after December 31, 2012
• Section 45Q carbon oxide sequestration credits attributable to carbon capture equipment which is originally placed in service after December 31, 2022
• Section 30C alternative fuel vehicle refueling property credits which, pursuant to subsection (d)(1) of such section, are treated as a credit listed in Section 38(b)

Reunion's webinar on tax credit carrybacks and carryforwards

Reunion is hosting a webinar, The Role of Carrybacks & Carryforwards in Clean Energy Tax Credit Transactions, on Wednesday, November 12 at 11am PT/2pm ET. 

A panel of tax and legal experts from CLA, Orrick, and McDermott will explore how carryback and carryforward provisions work and what they mean for corporate tax credit purchasers. 

The panel will discuss:

• How carryback and carryforward provisions apply to transferred credits under the IRA
• Key considerations for timing, documentation, and compliance
• How purchasers can plan for credit utilization across multiple tax years
• IRS guidance updates and emerging best practices from prior filing cycles
• Practical insights from recent transactions

Please register here.

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