Six Tax Credit Takeaways from Analyzing 6,000 Public Company Filings

Jordan Tamchin, Executive Vice President and leader of the Tax Insurance Practice at CAC Specialty, will join Reunion's transactions team for a 60-minute workshop covering recent market developments in tax credit insurance and a lively discussion about unique tax insurance solutions that have emerged in 2024.

Topics

• Tax credit insurance at a glance: Typical covered tax positions and exclusions
• Market snapshot: Depth of insurance market, pricing considerations, underwriting standards
• Emerging issues and trends: Coverage of step ups, PWA underwriting, bonus credit adder coverage, buy side vs sell side policies, typical limits of liability, audit experience
• Audience Q&A

Speakers

Jordan Tamchin – CAC Specialty

Jordan Tamchin is Executive Vice President and leader of the Tax Insurance Practice at CAC Specialty, where he specializes in delivering innovative and unique insurance solutions for the most complex tax risks across a variety of tax credit and tax equity deals.

Andy Moon and Billy Lee – Reunion

Andy Moon and Billy Lee are the co-founders of Reunion and work closely with Fortune 500 corporations and clean energy companies to buy and sell clean energy tax credits.

Andy and Billy have led hundreds of clean energy financings since 2006, including some of the first solar transactions with institutions such as US Bank, JP Morgan, Wells Fargo, Bank of America, D.E. Shaw, and others. 

Questions welcome

We want our office hours to be interactive, so please bring any questions you have, whether related to current market conditions, pricing, or commercial terms.

You're welcome to ask questions beforehand.

Executive summary

Transferable tax credits are sold at a discount to face value, providing attractive financial benefits to corporate investors. They are not without risk, however, and tax credit buyers should have a clear sense of how to identify, track, and mitigate relevant risks.

At the same time, clean energy developers should understand the scope of due diligence during a tax credit transfer.

This due diligence checklist and documentation guide gives tax credit buyers, sellers, and their respective advisors a set of shared expectations on the required analysis and documentation for Section 48 Investment Tax Credits.

To download a PDF version of this guide, please visit our resources page.

Jump to a due diligence category

• Transaction overview
• Major deal participants
• Seller diligence
• Qualification
• Structure
• Recapture (qualified energy facility, change in ownership)
• Prevailing wage and apprenticeship requirements (compliance, exemption)
• Bonus credits (domestic content, energy community, low-income community)
• Tax credit insurance

Transaction overview

The transaction overview should include an overall description of the transaction, including:

• Brief description of sponsor
• Technology
• Project size in MW AC, location, and description
• Placed in service (PIS) date
• Eligible cost basis
• Resulting ITC credit amount
• Description of tax credit percentage, including bonus credit adders and compliance with, or exemption from, prevailing wage and apprenticeship requirements
• Details on how the project is financed

Major deal participants

Tax credit transfers involve a range of stakeholders on the buy- and sell-sides, all of whom should be memorialized for reference during the five-year recapture period.

Seller diligence

Qualification

Buyer should validate that the Project qualifies for the Section 48 ITC. Buyer should ensure that the Project qualifies as energy property, the proper cost basis is used, and that the Project was placed in service in the appropriate tax year.

Structure

Buyer should validate that Seller is an eligible transferor, and that the Seller’s underlying legal structure will be respected by the IRS.

Recapture

To avoid recapture, a Section 48 ITC requires that (1) the property remains qualified energy property for five years and (2) there is no change in ownership of the property for five years. If a project fails to meet these requirements, the IRS will recapture the unvested portion of the ITC.

The ITC vests equally over a five-year period, meaning 20% of the total ITCs claimed will vest on each anniversary of Project’s placed in service date.

Qualified energy facility

A property can cease to be qualified energy property when an asset is disposed of, or otherwise ceases to be investment credit property to the eligible taxpayer during the recapture period. For example, the asset is:

• Destroyed and not rebuilt and placed back in service
• Abandoned
• Repurposed to sell something other than electricity derived from the qualified generation asset

Key risk mitigation measures include sufficient property and casualty insurance, adequate site control and interconnection rights, and identification of alternatives in the event of an Offtaker default.

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Change in ownership

A change in ownership can occur if the project owner transfers its ownership of the facility during the five-year recapture period. If a lender has a collateral interest in the project company, a foreclosure can trigger recapture due to change in ownership.

Key risk mitigation measures include a forbearance agreement with lenders, structuring the debt in a way that foreclosure will not trigger a recapture, and indemnification from the seller.

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Prevailing wage and apprenticeship requirements

Buyer should validate that the Project is exempt from, or compliant with, prevailing wage and apprenticeship requirements. Prevailing wage rules require that certain workers are paid a minimum prevailing wages specified by the U.S. Department of Labor during the construction of a facility or property, and during alteration or repair of a facility or property for a certain number of years after the project is placed in service.

Buyers should require proper documentation that the correct wage was paid.

Exempt from PWA

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Compliant with PWA

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Bonus credits

If a Project claims a bonus credit adder (domestic content, low-income community, or energy community), the Buyer should substantiate that the Project qualifies for the relevant bonus credit adder.

Domestic content

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Energy community

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Low-income community

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Tax credit insurance

If a Seller is unable to offer an indemnity from a creditworthy guarantor, tax credit insurance is commonly purchased to provide additional risk mitigation in the event of a disallowance or recapture of credits.

There is a robust market for tax credit insurance, which has been utilized on tax equity transactions for over a decade. Tax Credit Insurance Brokers can help place insurance with a wide selection of investment-grade insurance carriers.

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Download Reunion's Section 48 Investment Tax Credit Due Diligence Guide

To download Reunion's Section 48 due diligence guide in PDF format, please visit our resources page.

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Reunion recently surpassed $1.5B in clean energy tax credit sales in 2024. Our transactions have spanned solar, wind, battery storage, fuel cells, biomass, and advanced manufacturing components.

Our team works directly with dozens of Fortune 500 tax credit buyers and leading clean energy companies, and we have observed several emerging trends in 2024.

Emerging 2024 trends

Speed of execution is a critical factor in winning deals

An increasing number of deals are competitive bidding situations. Buyers should have a clear sense from relevant stakeholders — e.g., CFO, legal, board of directors — on what deal terms are acceptable and what specific approvals are required prior to starting the negotiation process, as delays can be the difference between winning and losing a deal.

We have seen several companies proactively establish investment thresholds that allow them to move quickly for the right credit.

Very large credits carry premium pricing

There has been increased interest in tax credit purchases from major corporations that pay $500M to $1B or more in annual taxes, resulting in more competition for large credit opportunities.

These opportunities tend to trade at a premium — upwards of $0.01 to $0.02, depending on the credit type.

Buyers are increasingly interested in ITCs

Many buyers were reluctant to pay for ITCs early in the year because doing so required them to “pre-pay” their taxes. Buyers, consequently, willing to purchase ITCs in Q1 or Q2 were rewarded with deeper discounts.

Now that we are in Q3 and payments for ITCs will not occur until later in the year, buyer interest has increased.

Pricing on ITCs, PTCs, and AMPCs trended upward in Q3

Buyers, particularly ones that have bid and lost on tax credit opportunities, want to make sure that they lock in credits in time to offset Q3 and/or Q4 estimated tax payments.

There is a price ceiling on ITC transactions

ITCs are still expected to trade at a wider discount compared to production credits. Although sellers often ask for mid-$0.90s pricing for ITCs, buyers typically push back since lower-risk PTCs or AMPCs would be available at similar pricing.

Scope and coverage of insurance is a focus of deal negotiation

Initially, tax credit buyers demanded tax credit insurance to cover 100% or more of the tax credit value. We are seeing more flexibility in structures, whereby insurance may not cover the full tax credit amount due to presence of other risk mitigants such as portfolio diversification, creditworthy seller indemnities or parent guaranties.

Buyer fee reimbursement becoming standard

‍Over the past few months, virtually every transaction we’ve executed has included a capped fee reimbursement for the buyer. The size of the reimbursement is largely dependent on the deal size.

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Reunion recently announced our collaboration with Summit Ridge to sell $40M in tax credits to fund community solar projects.

Phil Schapiro, VP of Project Finance at Summit Ridge Energy, will join Reunion's transactions team on Tuesday, August 20th for a 60-minute workshop covering recent market developments and a discussion about their experience working through a tax credit transaction. 

Topics

The workshop will include three 15-minute modules, with about five minutes of Q&A per module.

Speakers

Phil Schapiro – Summit Ridge Energy

Phil Schapiro is VP of Project Finance at Summit Ridge Energy, where he leads fundraising efforts across the capital stack including debt, equity, and monetization of tax credits.

Andy Moon and Billy Lee – Reunion

Andy Moon and Billy Lee are the co-founders of Reunion and work closely with Fortune 500 corporations and clean energy companies to buy and sell clean energy tax credits.

Andy and Billy have led hundreds of clean energy financings since 2006, including some of the first solar transactions with institutions such as US Bank, JP Morgan, Wells Fargo, Bank of America, D.E. Shaw, and others. 

Questions welcome

We want our office hours to be interactive, so please bring any questions you have, whether related to current market conditions, pricing, or commercial terms.

You're welcome to ask questions beforehand.

Introduction to Production Tax Credits (PTCs)

Production Tax Credits (PTCs) are performance-based federal financial incentives that reward the volume of clean energy generated or specific components manufactured and sold to unrelated parties. The current landscape includes legacy renewables under §45, technology-neutral electricity under §45Y, and specialized credits for nuclear energy (§45U), clean hydrogen (§45V), and transportation fuels (§45Z). Additionally, §45X supports the domestic production of advanced manufacturing components. These credits typically accrue over a ten-year period following a project’s service date. While most require Prevailing Wage and Apprenticeship (PWA) compliance for maximum value, §45X is a notable exception.

What Is the Production Tax Credit (PTC)?

A Production Tax Credit (PTC) is a federal income tax benefit calculated based on the precise amount of electricity or specific components produced and sold to unrelated parties. Essential IRC sections include §45, §45Y, §45X, §45U, §45V, and §45Z. Through transferability, eligible taxpayers can sell these credits to third parties for cash, simplifying clean energy financing. Unlike investment credits, PTCs do not face recapture risk but instead rely on rigorous production accounting to substantiate claims. To receive the full 5x credit multiplier, most projects must meet PWA standards, though advanced manufacturing under §45X is exempt.

How does the Production Tax Credit work?

The Production Tax Credit (PTC) provides a federal benefit based on the volume of energy produced or components manufactured and sold to unrelated third parties. For electricity projects (§45 and §45Y), the credit is calculated per megawatt-hour (MWh) generated over ten years, verified by revenue-grade meter reports or system operator settlement data. Advanced manufacturing under §45X uses specific rates tied to weight, capacity, or production cost. Credits are transferable for cash, and unlike investment credits, they carry no recapture risk. Buyers often pay for PTCs quarterly in arrears, aligning with estimated tax payment dates.‍

Which Energy Projects Qualify for the Production Tax Credit?

The Production Tax Credit (PTC) incentivizes investment in clean energy by offering tax benefits to a range of qualifying facilities — from traditional renewables to advanced manufacturing and emerging clean fuel technologies.

Advanced manufacturing: solar and wind components, batteries, inverters, and critical minerals produced in the United States

Eligibility often depends on either the beginning of construction date or the date the project is placed in service, making early planning and documentation critical for developers seeking to claim these credits.‍

How Much Is the Production Tax Credit Worth?

Credit values vary significantly by technology and labor compliance. The amount a project can claim depends on the applicable credit section, technology type, whether prevailing wage and apprenticeship standards are met, and any qualifying bonus adders. For 2025, the base credit rate for legacy renewable technologies and some newer tech-neutral projects is $6/MWh, while projects meeting PWA requirements qualify for a significantly higher full rate of $30/MWh. Certain technologies, such as open-loop biomass, receive a reduced rate of half these amounts, and 45V and 45Z rates are on different unit scales. Additionally, qualifying for energy community or domestic content bonus adders can increase these rates by another 10%.
PTC rates for electricity are generally inflation-adjusted annually, so the credit values a project can access may shift from year to year — understanding which rate applies to your placed-in-service year is an important part of project planning.

Production Tax Credit vs Investment Tax Credit

The Production Tax Credit (PTC) and Investment Tax Credit (ITC) differ in how the credit is calculated and when the financial benefit is realized. Developers often evaluate both incentives based on project economics and expected performance.

The key differences between these two credits are summarized below.

Because the PTC is based on electricity production rather than project cost, it can provide greater long-term value for projects with strong generation performance.

Compliance Requirements for Claiming the Production Tax Credit

To claim the maximum credit value, developers must comply with Prevailing Wage and Apprenticeship (PWA) rules during construction and the credit period. Projects must also navigate Foreign Entity of Concern (FEOC) restrictions, which prohibit "prohibited foreign entities" from claiming or receiving "material assistance" for credits like §45Y and §45X. Substantiation requires maintaining payroll records, production reports from revenue-grade meters, and evidence of sales to unrelated parties. Furthermore, projects must be placed in service within specific windows to qualify for intended rates and tech-neutral transitions.

Transferability and Monetization of Production Tax Credits

Under §6418, "eligible taxpayers" can transfer PTCs to unrelated third parties for cash consideration. This monetization process is a one-time transfer; buyers cannot resell purchased credits. To effectuate a transfer, sellers must complete IRS pre-filing registration to obtain a unique registration number for each facility. Both parties must then execute a Transfer Election Statement and attach it to their respective tax returns. Cash payments received by the seller are federal tax-exempt, while the buyer recognizes no federal gross income from the purchase discount.

How the Inflation Reduction Act Changed the Production Tax Credit

The Inflation Reduction Act (IRA) transformed the PTC landscape by introducing transferability, allowing developers to monetize credits without complex tax equity structures. It established a two-tiered rate system, linking maximum credit value to PWA compliance. The IRA also created the §45X credit to incentivize domestic manufacturing and introduced tech-neutral PTCs (§45Y) to replace resource-specific credits after 2024. Furthermore, it introduced bonus adders for projects in Energy Communities or those meeting Domestic Content requirements, significantly increasing the potential financial return for clean energy investments.

Key Takeaways for Developers Claiming the Production Tax Credit

Developers should prioritize production accounting and ensure all output is sold to unrelated parties to secure §45 and §45Y credits. Maintaining rigorous PWA documentation for both construction and ongoing alterations is essential to avoid credit reduction. To attract corporate buyers, developers can leverage quarterly-in-arrears payment structures, which allow buyers to offset estimated taxes without upfront cash outlays. Finally, securing tax credit insurance and offering strong indemnities can mitigate qualification risks and maximize the sale price of transferred credits.

Treasury’s June 2023 guidance made clear that corporate taxpayers can offset their quarterly estimated tax payments using tax credits they “intend to purchase,” opening the door for tax credit buyers to realize most or all of the benefit of a tax credit prior to paying the tax credit seller.

An increasing number of corporate tax directors and treasurers are focused on these types of opportunities, which do not require the buyers to go “out of pocket” to invest in a tax credit. Instead, the buyer pays a clean energy company a discounted amount compared to what they would have paid the IRS; the payment is concurrent with, or in some cases even after their scheduled tax payment date.

In this article, we outline four scenarios where buyers can realize tax benefits prior to cash outlay. We assume the buyer is a corporation that pays $200M each year in federal tax, and is looking to purchase $50 to $100M in tax credits.

Structures that enable buyers to realize full tax benefit prior to cash outlay

Structure 1: §45 PTCs, paid quarterly in arrears

The buyer commits to purchasing $100M in tax credits in Q1, which allows the buyer to offset $25M in tax payments each quarter. Note that if the buyer commits to purchase $100M in Q2 instead of Q1, there is a similarly strong benefit; the buyer can offset $50M in tax payments in Q2, and $25M in both Q3 and Q4.

§45 PTC transactions are typically paid quarterly in arrears. Often, the payment schedule is organized such that the buyer pays concurrently or shortly after each quarterly estimated tax payment date, based on actual tax credits generated during the preceding period. In this example, the buyer pays a clean energy developer $23.75M on each estimated tax payment date, instead of paying the IRS $25M. This results in a $1.25M net benefit each quarter, without any out-of-pocket investment.

For a real-world illustration of how this structure delivers value, see our Section 45 PTC transfer case study, which details transaction mechanics, cash flow timing, and buyer benefits.

Both §45 PTCs, from electricity generated by qualified renewable energy resources such as solar or wind, and §45X AMPCs from advanced manufacturing facilities, can be structured in this way.

Structure 2: §48 ITC portfolio, paid quarterly in arrears

A portfolio of ITCs can be structured similarly to the previous example, where the buyer pays quarterly in arrears (and is therefore able to utilize the full tax benefit prior to cash outlay).

In this example, the seller has a portfolio of rooftop solar projects that will be placed in service throughout the year, generating a total of $100M in tax credits. The seller is offering an 8% discount for the credits. The buyer commits to the tax credit purchase in Q1, and reduces their estimated tax payments by $25M each quarter. 

The buyer will pay for the actual credits generated at the end of each preceding quarter. In this example, we assume that $20M in credits are generated in Q1 and Q2, while $30M is generated in Q3 and Q4. As a result, a relatively lower volume of credits need to be paid for in Q1 and Q2 (while the reduction in estimated tax payments remains fixed at $25M each quarter), resulting in a strong net benefit in Q1 and Q2. Overall, the buyer saves $8M in taxes over the course of the year, without any out of pocket investment.

There is a risk that the seller does not generate as many credits as anticipated in a given tax year; if so, a make-whole provision can be negotiated, which obligates the seller to make the buyer whole for any difference between what they agreed to pay for the credits and what they would have to reasonably pay for any replacement credits. In the event of a shortfall of credits, Reunion will also work with the buyer to source replacement credits.

Structure 3: Commit to ITC early in the year, but pay late in the year

In this scenario, a buyer commits to purchasing ITCs that a developer will generate later in the year. While the IRS was clear that buyers can offset quarterly tax payments with tax credits they intend to purchase, it is up to buyers and their legal and tax advisors to decide what documentation is needed to establish intent. 

Assume that the buyer and seller execute a tax credit transfer agreement in Q1, and the buyer uses this as a basis to start offsetting quarterly estimated tax payments. If the project is placed in service around or after the Q3 estimated tax payment date, the buyer will be able to offset taxes in Q1, Q2, and Q3 before having to pay the seller for the credits (see example below). This will free up $25M of additional cash each quarter for other corporate purposes, with the understanding that a lump sum will need to be paid to the tax credit seller at a later date.

Sellers typically prefer to receive payment as soon as the credits are generated, but it is possible to negotiate a delayed payment date. For example, if the payment date can be delayed to on or after the Q4 estimated payment date, the buyer will be able to take the full benefit of the tax credit before any cash outlay.

This strategy also applies if the buyer commits to the ITC in Q2 or Q3, and does not have to pay for the credit until later in the year.

Scenario 3 carries the risk that the project is not placed in service in 2024 tax year, which would require the buyer to source replacement credits. It is possible for the buyers to negotiate a make-whole provision, in the event that credits are not delivered as promised.

Structure 4: Buy tax credits to top up at the end of the year, resulting in a lower Q4 or final tax payment

The final scenario is a variation of Scenario 3. A company purchases tax credits at the end of the year, once they have a more concrete understanding of their total annual tax liability, and delays payment until their Q4 or final tax payment date.

Assume the buyer has paid $150M in taxes through the first 3 quarters, and has $50M due in taxes in Q4. The buyer can fully offset their remaining taxes due by committing to purchase $50M in credits in Q4. In this example, the buyer receives an 8% discount, paying $46M for the credits and achieving tax savings of $4M. The buyer can achieve the full benefit of the credit prior to cash outlay by arranging to pay the seller of the tax credit on or after the Q4 estimated tax payment date.

The same logic applies for credits purchased in time for the final tax filing (e.g., on April 15 for the prior tax year, for a calendar year filer). If a buyer has $20M in remaining payments due at final tax filing, they could offset the entire tax payment through purchase of a tax credit. Assuming they could identify and purchase a tax credit with an 8% discount, they would pay $18.4M to a tax credit seller, achieving $1.6M in tax savings. It is worth noting that if the buyer procures more than they end up owing in their final tax payment, the overpayment can be applied to the first estimated tax payment of the following year.

How Reunion works with corporate finance teams to purchase tax credits

Reunion partners with corporate tax and treasury teams to identify and purchase tax credits in a five-step process.

Download an Excel model with the four structures

To download the Excel model featured in this article, please visit our resources page.

Customize these scenarios to your company

Tax credit buyers have a variety of objectives when choosing to purchase a tax credit. Some are focused on maximizing the amount they can save on taxes by looking for the largest discount, while others want to minimize complexity and risk. 

We have observed an increasing number of corporate tax and treasury professionals who are focused on transactions that preserve the timing of existing tax-related cashflows, or even improve corporate cash availability relative to the status quo.

Please reach out to the Reunion team if you’d like to examine the cash flow impact of tax credit purchases in further detail, and hear about specific project opportunities that can be structured to maximize economic benefits prior to cash payment.

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What Is Section 48 Investment Tax Credit (ITC)?

The Section 48 Investment Tax Credit (ITC) is a federal credit calculated as a percentage of a project’s qualified cost basis. It is realized during the tax year in which the eligible energy property is officially placed in service. The scope of §48 includes various technologies such as solar, geothermal, fuel cells, and energy storage systems. This credit generally applies to projects that began construction prior to 2025, before technology-neutral frameworks take over.

How the Section 48 Investment Tax Credit (ITC) Works 

The Section 48 Investment Tax Credit (ITC) is a federal tax incentive for investment in qualified energy properties, facilities or energy storage technologies, under Section 48, determined by a project's qualified cost basis and providing a financial benefit when the property is placed in service. Most projects qualify for a 30% credit if they satisfy prevailing wage and apprenticeship (PWA) requirements; otherwise, the rate is reduced to 6%. The total value can grow through bonus adders related to domestic content or energy communities. A critical characteristic of ITCs is the five-year recapture period, during which the credit vests at 20% annually. If ownership changes or the facility ceases operations prematurely, the IRS may recapture the unvested portion. These mechanics form the foundation of how Section 48 ITCs are calculated, claimed, and evaluated during project diligence.

Eligibility for Section 48 Investment Tax Credit

Eligibility for Section 48 Investment Tax Credits (ITCs) depends on technology, timing, and labor standards. Section 48 applies to projects like solar, energy storage, and geothermal that begin construction before 2025 (with the exception of geothermal heat pumps which remain eligible if construction begins prior to January 1, 2035). Section 48E replaces this for zero-emission facilities and energy storage technologies placed in service after 2024; wind and solar projects have additional OBBBA restrictions around beginning of construction and placed in service dates compared to other technologies. To secure the full 30% credit rate, projects must satisfy prevailing wage and apprenticeship (PWA) requirements. Additionally, under the OBBBA, eligibility for §48E is restricted to entities that are not Foreign Entities of Concern (FEOC), ensuring benefits remain with compliant domestic stakeholders.‍

Projects Eligible Under Section 48 Investment Tax Credit

Section 48 Investment Tax Credits apply to a diverse range of energy properties. Under Section 48, qualifying investments include solar, fuel cells, geothermal, energy storage, and microgrid controllers. Section 48E extends eligibility to technology-neutral facilities generating zero-emission electricity. 

In addition to the base credit rate, projects may qualify for the following bonus adders:

How to Transfer Section 48 Investment Tax Credits

Transferring a Section 48 Investment Tax Credit (ITC) involves a structured process, beginning with negotiating a tax credit transfer agreement. Sellers must complete IRS pre-filing registration for each Section 48 project to obtain a unique registration number for each facility. Finally, both parties must execute a transfer election statement and attach it to their respective tax returns to finalize the transfer.

The following documentation is typically required to substantiate and transfer the credit:

Common Mistakes to Avoid When Transferring Investment Tax Credits

When transferring Section 48 Investment Tax Credits (ITCs), taxpayers must avoid technical pitfalls like inflating the qualified cost basis under Section 48 with ineligible affiliate fees. Neglecting Prevailing Wage and Apprenticeship (PWA) compliance can drastically reduce credit rates from 30% to 6%. Additionally, failing to mitigate five-year recapture risks, such as lacking lender forbearance agreements to prevent ownership changes via foreclosure, is a critical oversight. Finally, late IRS pre-filing registration may invalidate intended credit transfers.

The IRS may recapture previously claimed Section 48 ITCs under the following circumstances: 

Benefits of Transferring Investment Tax Credits

A Section 48 Investment Tax Credit (ITC) transfer offers significant financial and structural benefits for clean energy developers and corporate investors. By selling credits at a discount to face value, developers can reduce the cost and complexity of financing projects. For corporate buyers, transferability simplifies participation by eliminating the need for high-cost, multi-year tax equity co-ownership structures. Buyers enjoy a narrower set of risks because they are not directly subject to asset performance issues. Furthermore, ITCs provide straightforward accounting treatment and can be used to offset quarterly estimated tax payments or CAMT liabilities.

Recent Changes to Section 48 ITC (IRA & OBBBA) 

The Inflation Reduction Act (IRA) expanded the Section 48 Investment Tax Credit (ITC) and introduced transferability, enabling credits to be sold for cash. Recently, the One Big Beautiful Bill Act (OBBBA) implemented an accelerated phasedown for wind and solar projects under §48E. The OBBBA also introduced strict Foreign Entity of Concern (FEOC) restrictions and eliminated the permanent 10% minimum ITC under Section 48. Furthermore, 2025 Treasury guidance modified Beginning of Construction standards for solar and wind projects.

Section 48 ITC: Key Takeaways 

The Section 48 Investment Tax Credit (ITC) remains a transformative tool for clean energy financing, offering significant federal tax savings while lowering overall project costs. However, technical complexities introduced by the OBBBA necessitate a disciplined approach to risk management. To maximize value and avoid recapture or excessive credit transfer penalties, stakeholders must prioritize rigorous due diligence, substantiate qualification and cost basis, and ensure strict PWA compliance. Ultimately, a proactive strategy involving tax credit insurance and meticulous recordkeeping will ensure these incentives remain a secure investment.

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 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."

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.

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.

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.

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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The Inflation Reduction Act of 2022 (IRA) greatly expanded energy-related federal income tax credits and created Internal Revenue Code Section 6418, which allows eligible taxpayers to transfer, or sell, certain clean energy tax credits to unrelated parties for cash.

One key area of due diligence when purchasing a tax credit is to ensure that the project complies with prevailing wage and apprenticeship requirements (PWA), which the IRA introduced to encourage a robust market for well-paying clean energy jobs.

Clean energy projects that comply with PWA requirements receive a five-times multiplier on the value of tax credits. If a tax credit buyer purchases a credit that later is found not to comply with PWA requirements, the buyer will face a recapture of the increased tax credit amount.

Buyers of tax credits should understand PWA requirements and the documentation required to ensure compliance. Buyers should also mitigate the risk of recapture due to PWA noncompliance with careful due diligence, contractual protections (including provisions requiring the tax credit seller to compensate the buyer for PWA noncompliance), and tax credit insurance.

How PWA applies to each credit type

All but one of the IRA’s eleven transferable tax credits are subject to PWA requirements; the exception is the Section 45X advanced manufacturing production credit (AMPC). The following table shows how long PWA compliance is required for each credit.

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Projects that comply with PWA requirements receive a tax credit five times greater than non-PWA-compliant projects. For example, a solar project with a $100 million cost basis qualifies for a base tax credit amount of $6 million (assuming a Section 48 ITC). If the project meets PWA compliance, the tax credit amount increases to $30 million.

If a tax credit buyer purchases a credit that later is determined not to comply with PWA requirements, then the Internal Revenue Service will recapture the PWA multiplier portion of the credits, which is equivalent to eighty percent of the tax credit value — for example, $24 million of a $30 million credit. For Section 48 ITCs, the recapture is applied to the unvested portion of the credit (the ITC vests twenty percent annually over a five-year period).

As a result, buyers of tax credits must perform proper diligence on projects to ensure that the project will not later be found to fail to comply with PWA requirements.

Summary of PWA requirements

Prevailing wage requirements

Prevailing wage rules require that certain workers be paid a minimum prevailing wage specified by the US Department of Labor (DOL). The DOL publishes a list of prevailing wages on www.sam.gov according to geographic location, labor classification, and type of construction. It is also important to use the correct wage determination based on timing of work, which is primarily driven by when construction begins.

If no applicable published wage rate is available, the taxpayer or project developer must request a supplemental wage determination from the DOL.

Apprenticeship requirements

The apprenticeship rules require that a certain percentage of labor hours during construction, alteration, or repair for a project be performed by a qualified apprentice. The minimum percentage of hours that must be performed by qualified apprentices is:

• 12.5% for projects that began construction in 2023
• 15.0% for projects that begin construction in 2024 or later

Two exceptions to PWA compliance

The IRA includes two general exceptions to PWA requirements — the “beginning of construction” exception and the “one megawatt” exception. Projects that meet one of these exceptions receive the five-times credit multiplier without necessarily paying prevailing wages and employing qualified apprentices. Specifically:

• Beginning of construction: Projects that began construction before January 29, 2023, are generally exempt from the wage and apprenticeship rules, except for credits under Sections 48C and 45Z
• One megawatt: Projects under Sections 45 and 48 (and their replacements under Sections 45Y and 48E) are exempt from PWA if the maximum net output is less than one megawatt or the capacity of electrical or equivalent thermal storage is less than one megawatt

PWA information developers should collect and maintain

In its August 2023 guidance, the Treasury provided a list of required and recommended documentation for PWA compliance. All documentation should cover every person working on the project, including contractors and subcontractors. Subcontractors may be several companies removed from the actual sponsor of the project.

Required PWA information

According to the IRS guidance from August 2023, PWA documentation must include “payroll records for each laborer and mechanic (including each qualified apprentice) employed by the taxpayer, contractor, or subcontractor employed.”

Recommended PWA information

The IRS also recommends collecting additional documentation. Nine of the recommended items relate to wages — including the name, social security number, address, and email address for each laborer and mechanic — and five items relate to apprentices. Buyers should require this optional documentation, which can be found in Proposed Regulations Section 1.45-12(b) and (c).

Additionally, the PWA’s proposed labor requirements have significant overlap with the Davis- Bacon Act — a nearly century-old federal law. Some project developers document certified payroll, a practice required for federal projects subject to Davis-Bacon rules, although not required under the IRA. Each employee on the certified payroll must receive weekly payment for work performed and must have their legal name, address, correct job classification, rate of prevailing wage pay, daily hours worked, weekly hours worked, and amount paid clearly recorded on the required certified payroll report. Other project developers use the certified payroll form, WH-347, when compiling and maintaining payroll records.

Opportunity to cure if a project fails to comply

If a clean energy project claims an increased PWA credit value and the IRS later determines the project did not meet PWA requirements, the tax credit is not automatically reduced to the base rate. A deficiency can be cured within 180 days after the IRS identifies a failure.

The seller of the tax credit has a strong incentive to cure any PWA issues, as it typically signs an indemnity to compensate the buyer in the event of a recapture of tax credits. The seller is also closer to the underlying compliance issue. That said, the buyer should require the seller to provide notification of any failure to meet PWA requirements; the buyer may want to step in and make penalty payments on behalf of the seller if there is substantial doubt as to whether the seller will make the cure.

Requirements for curing prevailing wage deficiencies

To cure prevailing wage defects, the taxpayer or project developer must:

• Pay the affected laborers or mechanics the difference between what they were paid and the amount they were required to have been paid (multiplied by three for intentional disregard), plus interest at the federal short-term rate (as defined in IRC Section 6621) plus six percent; and
• Pay a penalty to the IRS of $5,000 (or $10,000 for intentional disregard) for each laborer or mechanic who was not paid at the prevailing wage rate during the year

Requirements for curing apprenticeship deficiencies

To cure a failure to meet the apprenticeship requirements, project developers must pay a penalty of $50 multiplied by the total labor hours for which the apprenticeship requirements were not met. The amount of the penalty with respect to the apprenticeship requirements is also increased to $500 per labor hour if the IRS determines the failure was due to intentional disregard.

Buyers have several tools to mitigate risk of PWA noncompliance

Buyers should proactively manage risk concerning PWA compliance. Buyers have three primary risk management tools at their disposal:

• Comprehensive due diligence
• Properly structured tax credit transfer agreement (TCTA)
• Tax credit insurance

Comprehensive due diligence

Proper and comprehensive due diligence is critical for tax credit purchasers.

Project developers currently document PWA in a variety of ways, from manual capture in spreadsheets to certifi ed payroll systems to the use of third-party consultants.

Buyers should understand the process by which PWA information is tracked so they can reconstruct payment records in the event of an IRS challenge. Each contractor and subcontractor should have a system in place to document payroll. In addition, proper records should be kept so workers who were underpaid can be located and compensated to cure any failure to meet PWA requirements.

In the case of the Section 48 ITC, the seller should also provide any information or compliance reports the IRS requires during the five-year recapture period.

Properly structured TCTA

Buyers bear the risk of any reduction in tax credit amount due to noncompliance with PWA. Buyers should ensure that the TCTA includes sufficient indemnity from the seller in the event of PWA noncompliance. The indemnity should make the buyer economically whole, including the cost of any penalties.

In addition, the TCTA should include several other clauses that protect tax credit buyers:

• Representations and warranties: The seller has complied with or is exempt from all recordkeeping requirements relating to the PWA requirements
• Indemnification: The seller’s indemnification obligations include any interest or penalties the IRS may impose because of PWA noncompliance
• Conditions precedent to closing: The seller must furnish evidence the project has complied with PWA requirements
• Post-closing obligations: The seller will comply with all laws and regulations required to qualify for and receive the PWA multiplier, including making the necessary filings, registrations, and elections with the IRS

Purchase tax credit insurance

Finally, tax credit insurance is available to mitigate the risk of noncompliance with PWA requirements. Tax credit insurance is recommended if the buyer has doubts about the ability of the seller to fulfill its indemnity obligation in the event of an IRS challenge. Tax credit insurance can be sized to make the buyer whole in the event the IRA imposes a penalty.

Conclusion

For corporate taxpayers, transferable tax credits represent a new opportunity to reduce federal tax liabilities and achieve a strong risk-adjusted return while providing much-needed capital to clean energy projects. However, buyers are responsible for financial penalties imposed by the IRS due to noncompliance with PWA requirements.

Tax credit buyers should proactively mitigate the risk of penalties with careful due diligence, contractual protections, and tax credit insurance, ensuring that they preserve the full financial benefi t of their tax credit purchase.

For a deeper dive into how savvy buyers are approaching these transactions in today’s market, see our insights in “Transferable Tax Credits in 2025: The Buyer Perspective.”