The “One, Big, Beautiful Bill” and the implications for corporate taxpayers and the clean energy industry

Read by over 2,000 members of the transferable tax credit market

Since launching in October 2023, Reunion's handbook has been read by over 2,000 members of the transferable tax credit market, including hundreds of attorneys, accountants, and other strategic advisors.

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Preview what's inside

Before downloading our comprehensive guide to buying and selling clean energy tax credits, we hope you'll take a peak inside.

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Download the complete, 100-page handbook

Once you have downloaded our handbook, we will email you whenever we release an update.

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Takeaways

• The low-income community bonus is an allocated – that is, capped – credit, and we believe it will be fully utilized
• Developers must apply for an allocation through the Department of Energy. All applications received within the initial 30 days will be treated as received at the same time
• There are 21 business days in the 30-day window. The last day coincides with the expiration of the federal government’s current continuing resolution
• Allocation amounts can different from applied-for amounts

Overview of the low-income community bonus

The low-income bonus is designed to incentivize investment in communities that have historically been left behind. Specifically, the credit promotes wind, solar, and associated energy storage investments in low-income communities, on Indian land, as part of affordable housing developments, or benefitting low-income households.

The low-income bonus is an allocated credit. For 2023, the bonus is subject to an 1,800 MW annual capacity limitation, which is further allocated across four categories:

1. Located in a low-income community: 700 MW
2. Located on Indian land: 200 MW
3. Qualified Low-Income Residential Project: 200 MW
4. Qualified Low-Income Economic Benefit Project: 700 MW

Projects in the first two categories receive a 10% bonus credit value, while projects in the third and fourth categories receive a 20% bonus credit value. All low-income projects must be less than 5 MWac in size.

For 2023, the 700 MW in category one will be further subdivided: 560 MW will be reserved for residential rooftop solar and other “behind-the-meter” (BTM) facilities, and 140 MW will be reserved for “front-of-the-meter” (FTM) facilities.

The bonus is available for §48 and §48E credits

The low-income bonus is only applicable to §48 and §48E investment tax credits. The latter credit, the technology-neutral ITC, is available to projects placed in service in 2025 or later, so it’s possible that many developers will generate §48E ITCs.

How to apply

Since the low-income bonus is an allocated bonus, developers must apply for and receive an allocation from the IRS. (The DOE administers the application process, but the IRS ultimately makes allocation decisions.)

The DOE has published a  checklist for applicants in each category.

If any category or sub-category is oversubscribed during the initial 30-day period, the IRS will make awards based on a randomized lottery. Following the initial 30-day period, any leftover capacity will be awarded on a first-come, first-served basis. Applicants may only submit one application per facility, per program year.

The IRS will make allocations with certain ownership and location priorities in mind:

• Ownership: Priority will be given to (1) projects owned directly or indirectly by Indian tribes; (2) consumer or purchasing cooperatives with controlling members who are workers or from low-income households; (3) tax-exempt charities and religious organizations; and (4) state and local governments, and U.S. territories, Indian tribes, and rural electrical cooperatives
• Location: Priority will be given to (1) persistent poverty counties, where 20% of residents have experienced high rates of poverty of the last 30 years; and (2) and census tracts designated as “disadvantaged” in the Climate and Economic Justice Screening Tool (CEJST)

Once a developer has an allocation, they will have four years to complete the project and place it in service.

When to apply

All applications received within the first 30 days will be treated as received at the same time

The allocation portal opened on Thursday, October 19th at 9:00am ET. Applications submitted within 30 days of this date will be treated as submitted on the same date and at the same time.

Submit applications before November 17th, when the federal government’s current continuing resolution expires

The 30th day of the application window falls on Friday, November 17th. Developers should strive to submit their applications before this day because the federal government’s current, 45-day continuing resolution expires at the end of it.

Allocation amounts may differ from application amounts

Developers who receive an allocation will receive an award letter from the IRS with their allocation amount. Notably, the IRS makes it clear that a developer “may receive an allocation less than its [applied for] nameplate capacity.”

The allocation, not the project’s capacity, determines the credit value.

Reunion expects the IRS to fully allocate the credit

The IRS and DOE have stated that they can adjust the category allotments within the low-income bonus credit to ensure full allocation. Therefore, we expect the low-income bonus to be fully utilized every year – likely within the 30-day, all-applications-are-equal window.

The IRS and DOE have released extensive guidance and detailed resources for applicants

Guidance

• Initial guidance (February 13, 2023): Notice 2023-17, Initial Guidance Establishing Program to Allocate Environmental Justice Solar and Wind Capacity Limitation Under §48(e)
• Proposed regulations (May 31, 2023): Notice of Proposed Rulemaking, Additional Guidance on Low-Income Communities Bonus Credit Program
• Final regulations (August 10, 2023): Final Regulations, Additional Guidance on Low-Income Communities Bonus Credit Program
• Revenue procedure (August 10, 2023): Revenue Procedure 2023-27

Resources

• The Department of Energy (DOE) maintains a low-income communities bonus credit program website
• Applicant checklist
• Category 1 eligibility map with CEJST and persistent poverty county screens
• Category 3 eligible covered housing programs
• Category 4 household income limits

Hello,

The market for transferable tax credits has gained momentum heading into Q4, as many buyers want to get their first deals done in the 2023 tax year. We expect the volume of deals to increase substantially as we reach the end of the year.

Exploring the latest market developments with EY and Troutman Pepper

In the latest edition of 10 Questions With Reunion, Brian Murphy of EY, Adam Kobos of Troutman Pepper, and our CEO, Andy Moon, discuss what they are seeing in transferable tax credit transactions.

The wide-ranging discussion covers topics of interest to tax credit buyers including pricing, using credits to offset estimated tax payments, timing of the IRS portal, and how to mitigate project risks.

Watch the full episode here.

See you at TEI on October 22-25 in NYC

Reunion is headed to New York on October 22-25 to attend the Tax Executives Institute (TEI) Annual Conference. Reunion CEO Andy Moon will be speaking on a panel about tax credit transfers. If you’d like to meet and discuss tax credit transfers while we are in New York, please schedule a meeting with us.

Best of luck to everyone closing out the quarter!

Team Reunion

As the leading marketplace for clean energy tax credits, Reunion has been approached by many non-profit organizations to help them monetize clean energy credits, primarily from distributed solar projects. Unfortunately, non-profits are not able to transfer tax credits to third parties.

But non-profits have an alternative. The elective pay provision, sometimes called direct pay, allows “applicable entities,” including tax-exempt entities, to benefit from IRA clean energy tax credits even though they are not traditional taxpayers. This provision allows non-profits to receive refund payments directly from the IRS for the amount of eligible credits claimed.

Unlike transferable tax credits, where credits are purchased at a discount to their face value, applicable entities are entitled to receive the full amount of the credits from the IRS.

In order to qualify for elective pay, an applicable entity needs to pre-register its project with the IRS and receive a registration number. The direct payment election is made on Form 990-T, and the amount of credit would be treated as a payment of tax, which would be refundable, absent any other tax liability.

The elective payment provisions of the IRA are codified in IRC §6417. The internal revenue code (IRC) defines six applicable entities that are eligible for elective pay:

• Organizations exempt from income tax
• Any state or political subdivision thereof
• The Tennessee Valley Authority
• An Indian tribal government
• Rural energy cooperatives
• Alaska Native Corporations

Most nonprofits, including 501(c)(3) and 501(d) entities, fall into the first category.

12 credits are available for elective pay:

• §48: Energy Credit
• §48E: Clean Electricity Investment Credit
• §45: Renewable Electricity Production Credit
• §45Y: Clean Electricity Production Credit
• §45W: Commercial Clean Vehicle Credit
• §45U: Zero-emission Nuclear Power Production Credit
• §45X: Advanced Manufacturing Production Credit
• §45V: Clean Hydrogen Production Credit
• §45Z: Clean Fuel Production Credit
• §45Q: Carbon Oxide Sequestration Credit
• §30C: Credit for Alternative Fuel Vehicle Refueling/Recharging Property
• §48C: Qualifying Advanced Energy Project Credit

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.

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

Internal Revenue Code §6418(d) explains the specific rule relating to the relationship between a buyer’s (transferee taxpayer) and seller’s (eligible taxpayer) tax year-ends.

"In the case of any credit (or portion thereof) with respect to which an election is made under subsection (a), such credit shall be taken into account in the first taxable year of the transferee taxpayer ending with, or after, the taxable year of the eligible taxpayer with respect to which the credit was determined."

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Corporate taxpayers will face one of three scenarios when engaging tax credit sellers

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's tax year ends before that of the seller

For a transaction where the buyer tax year ends before that of the seller – for example, the buyer has a 9/30 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.

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Scenario 3: Buyer's tax year ends after that of the seller

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.

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Most eligible corporate taxpayers are calendar-year filers

There are approximately 600 publicly traded companies in the U.S. with a trailing 12-month income tax liability over $100M (as of May 2024).

Of these companies, 78% are calendar-year filers, while another 8.0% close out their fiscal year in February or September.

If we increase the threshold to $500M of trailing 12-month income tax liability, the numbers remain consistent: 78.2% of companies are calendar-year filers.

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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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