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

Reunion’s breadth of experience includes working with both new and seasoned tax credit market participants. Since the ability to transfer tax credits was only enacted through the Inflation Reduction Act in 2022, some buyers are still getting introduced to the advantages of transferable tax credits as it is written in the Internal Revenue Code §6418 (the Code). Therefore, it is essential for buyers to be aware of the negotiable terms in the transaction, as no two tax credit transfers are the same. Each party (and the underlying asset) involved in the transaction may require bespoke terms and conditions to make the deal close, as is exemplified in this case study of a $200m PTC transfer that met the “audit-ready” diligence requirements of the buyer. 

Below are 10 terms that Reunion helps buyers consider when negotiating a tax credit transfer agreement (TCTA). These are not ordered by importance since each buyer’s priorities are particular to them, however, each of the following should be considered when negotiating a transaction:

Payment Terms

The payment terms are primarily composed of the purchase price and payment timing. 

• Purchase Price: The purchase price is calculated as a dollar value for every $1.00 tax credit transferred – for instance, $0.935. Buyers and sellers negotiate this term based on the economics of the transaction and key risk factors, such as whether the counterparty is investment grade, what kinds of tax credits are involved, and the total expected volume of the transaction. Read more about the buyer’s perspective for these transactions and how to set the appropriate price. 
• Payment Timing: When a transaction closes can significantly influence the negotiated purchase price. Transactions with earlier payments, such as a simultaneous sign and close, are often favored by the seller due to the time value of money. Therefore, the seller may be more open to a lower purchase price. Sometimes the buyer is inelastic on this term and requires that transfer payments align with their quarterly estimated tax payment dates to minimize out-of-pocket spend.

Transaction Cost Reimbursement

Most buyers opt to include a transaction cost reimbursement provision in their tax credit bids. It is common for buyers to ask sellers to reimburse some or all of the transaction costs they incur. This request is often driven by accounting considerations, as most buyers do not want to incur an “above the line” expense to generate a “below the line” tax benefit.

Buyers should first identify the expenses they will incur, such as legal fees for outside counsel or costs for accounting firms providing third-party diligence support. For transfers with subsequent funding milestones (e.g. multiple closing dates), buyers should consider the timing of expenses as well as the amount needed to support subsequent fundings.Buyers must weigh what other impacts this provision could have on the transaction. A reimbursement provision will ultimately decrease the amount of proceeds to the seller, so it could impact the overall economics of the transaction (e.g., smaller tax credit transfers may not support large transaction cost reimbursements) or make the bid less competitive when a seller considers their net proceeds.

Exclusivity

Most of Reunion’s tax credit transfers move from term sheet execution to TCTA signing in under 45 calendar days. During the exclusivity period, both parties are generally incurring costs related to definitive documentation and due diligence. To protect their investment of time, effort, and money, buyers typically request an exclusive right to purchase the credits. 

Buyers can negotiate for a fixed exclusivity period when drafting the term sheet and will typically request an extension if the exclusivity period has expired and all parties are working in good faith to close the transaction. Reunion has seen exclusivity periods range from zero to 60 days following execution of the term sheet. A period beyond 60 days is not typical and could signal to the seller that the buyer is not able to close the transaction in a timely manner.

Indemnity Scope

In every tax credit transfer agreement, a buyer will require the seller to indemnify them for the disallowance or recapture of tax credits. Indemnities can be structured in two ways:

• Breach-Based Indemnity: Indemnification for a loss is triggered by a specific breach of a representation, warranty, or covenant.
• No-Fault Indemnity: Indemnification for a loss occurs regardless of whether a contractual breach has happened. 

Most indemnities will cover any tax gross-up, interest, penalties, and fees incurred in connection with the loss. For ITC transactions, as further described in the Section 48 ITC Due Diligence Guide, buyers negotiate for indemnity in the case of a recapture event.

Indemnity Seller Cap

Sellers may negotiate for a cap to the amount recoverable through the indemnity clause. Stipulated limitations of liability are often required by larger, institutional sellers. If the seller makes this request, buyers should analyze whether the indemnity limit is sufficient enough to recoup any losses incurred on an after-tax basis (including anticipated damages such as interest, penalties, taxes, and additional expenses needed to enforce the claim). 

Reunion has supported transactions with no caps, as well as transactions with caps expressed as a percentage of the face value of the credits or the purchase price of the credits. The former is more common.

IRS Contest Process

In the case of an IRS contest, Reunion sees most transactions include language in the TCTA that dictates which party will be responsible for working through, and leading, the process with the IRS and what rights each party will hold. Buyers should consider how they want this to be managed while reviewing the TCTA. In most cases, the party that is directly involved in the contest with the IRS controls the process at that party’s expense and notifies the other party as needed. 

Buyers and sellers may also be required to adhere to any requirements under the insurance policy (where applicable) to preserve and pursue a claim to minimize the amount of tax credits lost. 

Change in Law

Due to the uncertain political climate, most buyers have asked for provisions to be included in the TCTA that protect them from any future changes in the Code, or regulations that could impact their ability to utilize any purchased tax credits. A recent focus for buyers has been on language that specifically indemnifies the buyer against changes in law that are retroactive in effect (e.g., tax credits for projects placed in service on or before a retroactive change in law). Buyers may also seek the ability to terminate an agreement if there are changes in law that have a material adverse effect between signing and closing.

Credit Enhancements

When the seller is not investment grade or there are other unique risks in the transaction, the buyer can negotiate for further credit support. 

• Guarantor: The primary option is a guarantee from the seller's parent company or another affiliated party. Securing protection from an investment-grade guarantor may result in a higher net credit price if the seller does not have to obtain tax credit insurance.‍
• Tax Credit Insurance: If the seller cannot provide a suitable guarantor, tax credit insurance is an alternative. The policy limit of liability is typically based on a negotiated percentage of the tax credits' face value. However, all policies have specific exclusions to coverage, including material misrepresentations, inaccuracies or omissions, breaches of transaction documents, recapture that is caused by the seller, fraudulent or criminal conduct, any position taken in tax returns that is materially inconsistent with the covered tax position, and change in law. Additional exclusions may also apply depending on specific circumstances relating to the underwriting of the tax credit.

Step-up Limit

For investment tax credit transactions, project developers commonly sell a project into a partnership where the purchase price is “stepped up” to a fair market value (FMV) that exceeds the developer’s total capital expenditure. These FMVs should be supported by underlying documentation and assessed by a third-party appraiser. Some buyers and insurers have requested a limit to the step-up percentage as a higher step-up may have additional risk in the event of an IRS contest if the step-up is partially or fully disallowed. Recent transactions have allowed for at least a 20% step-up when supported by the facts and circumstances of the applicable transaction.

Diligence Requirements

After the buyer and seller have executed a term sheet, they work alongside their respective counsel and any other third-party assistance, to mitigate concerns around the transaction and underlying tax credits. Most transactions require a standard set of diligence items, which typically extends beyond the minimum documentation requirements under Treas. Reg. Section 1.6418-2(b)(5)(iv). Diligence may include, but is not limited to, third party reports, legal memoranda, and original project documents. 

Standard diligence items include:

• Third Party Consultant Reports: Examples include a cost segregation report, fair market value appraisal, independent engineer report, 80/20 analysis, and tax memo, depending on the type of tax credit.
• Legal Memoranda: In some instances, a third-party legal analysis may be required to address specific risks in a transaction, including qualification as eligible technology or qualification for credit adders.
• Original Project Documents: Sellers should anticipate requests to substantiate the tax credits and analyze any potential for recapture. For §48 ITCs and §45 PTCs, this may include executed site control and interconnection documents, as well as offtake, EPC, asset management, and O&M agreements. Photographs or satellite imagery is often used in diligence as well. In instances where a portfolio of distributed generation assets is involved, buyers can request a sampling size that is reasonable given the terms of the transaction. For §45X AMPCs, the documentation involves proof of sales contracts and underlying costs for the eligible technology. 

Buyers should consider which diligence items are non-negotiable given the details of the transaction and parties involved. We have seen in recent transactions, buyers and sellers collaborating on mandatory diligence requests and finding a path to resolution. On items that are not imperative, flexibility from buyers has helped transactions be executed within the exclusivity period. 

More details can be found in the Transferable Tax Credit Handbook.

Summary

Reunion has seen many recent transactions accommodate the pain points of both the buyer and the seller - especially when backed with well-reasoned requirements. Ultimately, both parties benefit from these transactions moving forward de-risked and well positioned in the market. 

If you are interested in buying credits, thinking through which of these terms is important to you will help get ahead of negotiations in your tax credit transfer deal. Then as an informed and prepared buyer, you can move quickly and take advantage of quality tax credits as they become available in the market.

Andy Moon, CEO of Reunion, offers S&P Global his perspective on the proposed Republican-led budget bill. He states that while there's a current window for activity as buyers proceed with eligible projects started in 2025, the window will close after the bill's 2028/2029 expiration dates. He noted that Reunion will need to diversify its offerings to serve its extensive network of 300 developers and 150 buyers with adapted financing solutions. With power demand exponentially increasing, alongside bipartisan support for the tax credits and their benefits for Republican-led states, "in some ways maybe we were too comfortable that things would work themselves out," Moon said. The article highlights $40 billion of tax credits were monetized in 2024 through the transfer market. If the cutting of technology-neutral tax credits by 2029 alongside the 2028 phaseout of 45X manufacturing credits is enacted, then "participation by third-party corporations in clean energy project finance would effectively end."

Read the full article here.

Andy Moon, CEO of Reunion, commented on the proposed repeal of transferability for clean energy tax credits.

He stated that despite the House bill significantly shortening the availability window for these credits, market participants are confident that tax credit transfers will be respected in 2025. Moon believes this assurance, particularly assuaging fears of retroactive repeal, will likely accelerate credit transfers through the end of the year. He expects "to see a wave of buyers looking for tax credits in the second half of the year, which will drive prices up similar to what we saw in 2024." Moon also noted that for projects meeting safe harbor requirements, transfers could still occur for the next couple of years, even if the House bill passes as is.

Read the full article here.

Andy Moon, CEO of Reunion, provided comments to Tax Notes on the rapid materialization and evolution of the IRA credit transfer market.  He noted that 2024 began with few buyers, but by midyear, comfort with the process grew, leading to a surge in transactions where credits would sell within days or weeks by year-end.  Moon observed that while purchasers are committing to production tax credits for multiple years, there's reluctance for long-term commitments to ITCs expected in 2026 and beyond, with only a few large buyers engaging in extensive negotiations for such deals.  He mentioned that buyers who acted early in 2024 generally secured lower prices, and while the learning curve of 2024 won't repeat, early movers in 2025 might still benefit by committing despite legislative uncertainty (see Andy’s breakdown of The One, Big, Beautiful Bill).  Moon also highlighted that purchase agreements are now heavily negotiating change-in-law provisions, and the time to close deals has significantly reduced, indicating a maturing market.

Read the full article here.

NOTE TO READERS: This content is current as of Friday, May 23, 2025. Given current discussions in the Senate, we will post updates here as they become available.

On May 22, the House passed the budget reconciliation bill by a vote of 215-214. The bill extends tax cuts from the 2017 Tax Cuts and Jobs Act, while rolling back parts of the Inflation Reduction Act to help cover the cost. Last-minute amendments made to the bill are significantly worse for the clean energy industry compared to the first draft, which was made public on May 12. 

All eyes turn to the Senate, which is expected to moderate the proposed bill.

The proposed bill provides some short-term stability, with a projected uptick in clean energy tax credit transactions for 2025 and the next 2+ years

In the short term, we expect an uptick in clean energy tax credit transactions. The bill provides guidance that current-year and near-term tax credits and associated transfers will be respected.

• Tax credits will not be retroactively repealed for the 2025 tax year
• Tech-neutral credits (§45Y or §48E) eligibility is significantly shortened. However, projects can qualify for under the following conditions:
  
  • Must begin construction within 60 days after enactment of bill, and 
  • Must be placed in service before 12/31/2028 to qualify for credits
• Complex FEOC (Foreign Entity of Concern) restrictions were introduced, but there are short-term exemptions (e.g., at the project level, FEOC restrictions are meant to apply to projects placed in service starting in 2026. However, a possible drafting error exempts projects that are under construction by the end of 2025)

Assume that the bill becomes law in August 2025, and a project begins construction by October 2025 (within 60 days of the bill’s enactment). A project that generates a tech-neutral credit (§45Y or §48E) and is placed in service in 2028 will qualify for the credit, which can be transferred to a third party. This will lead to a wave of projects looking to establish start of construction in the next few months.

In addition, many corporate taxpayers have held off on purchasing 2025 credits due to a lack of clarity on their 2025 tax liability.In particular, three outstanding tax issues have contributed to uncertainty for tax planning departments. While the bill’s impact will be to lower corporate tax liability, buyers will have better visibility into tax liabilities and as a result will be able to more confidently move forward on tax credit purchases:

• Section 174: reinstate immediate expensing of R&D costs for tax years from 2025 to 2029
• Bonus depreciation: reinstate 100% bonus depreciation for property acquired after January 19, 2025, and before January 1, 2030
• Section 163(j): reinstate the more favorable calculation of the limit on the interest deduction under Section 163(j) for tax years beginning after Dec. 31, 2024, and before Jan. 1, 2030

In 2024, a wave of buyers entered the market in the 3rd quarter of the year when they had clarity on their tax liabilities. We could see a similar dynamic this year, with many buyers coming into the market late in the year… and having to compete over a dwindling number of tax credit opportunities.

However, the proposal as written creates significant medium to long-term uncertainty for clean energy projects

In the medium to long term, the proposed changes are concerning for clean energy projects and will significantly slow clean energy deployment if enacted. The primary changes are as follows:

• Accelerated phasedown or reduced eligibility of clean energy tax credits
• Transferability repeal on select credits; notably, §45X credits starting in 2028
• FEOC (Foreign Entity of Concern) restrictions, which will be difficult to comply with as currently written

Summary of proposed tax credit phasedown and transferability repeal schedule

The majority of credits are subject to some form of accelerated phasedown

Under the draft bill, most clean energy credits are subject to some form of accelerated phasedown. 

Projects seeking tech-neutral credits (§45Y and §48E) must begin construction within 60 days after enactment of the bill, and be placed in service by 12/31/2028 to be eligible to claim credits. Projects can establish start of construction through two well-established methods: the physical work test or the 5% safe harbor. 

§45X credits are subject to a faster phasedown, with credits generated from wind energy components only eligible through the end of 2027.

There are a few exceptions:

• §45U (nuclear power production) credits remain unchanged and do not have an accelerated phasedown
• §45Q (carbon oxide sequestration) credits and §45 production tax credits and §48 investment tax credits (with the exception of geothermal heat pumps) remain unchanged and do not have an accelerated phasedown
• §45Z (clean fuel production) credits will be extended, through the end of 2031

The bill proposes repeal of transferability on select credits with a transition period; extending transferability will be a major focus for corporate taxpayers, utilities, and clean energy advocates

Transferability has unlocked a major source of financing for clean energy projects. Fortune 500 corporations from virtually every industry have purchased transferable tax credits, and have started integrating purchases into their tax planning process. Corporations purchased over $25 billion in tax credits in 2024, and the market is expected to continue growing.

Credits generated under the legacy §45 and §48 credits (with the exception of geothermal heat pumps are not subject to transferability changes. Neither are the tech-neutral credits (§45Y, §48E) or the nuclear power (§45U) credits. However, the availability of the tech neutral-credits has been greatly shortened, which negatively impacts the market for transferable tax credits. The clean energy industry will focus on extending the time horizon for these credits in the next round of negotiations.

Credits generated under §45Q, §45X, §45Z, and geothermal heat pumps under §48 are subject to some form of transferability repeal.

The bill includes complex restrictions to avoid benefitting Foreign Entities of Concern. The current draft is problematic and will potentially cause a major slowdown in future clean energy projects, but we don’t expect significant market disruption in 2025

Complex Foreign Entity of Concern (FEOC) restrictions will apply to §48E, §45Y, §45Q, §45U, §45X and §45Z credits to ensure that the benefit of tax credits do not accrue to China, Russia, Iran, or North Korea. Observers expect the language to change significantly in the Senate to make the rules clearer, as the current draft is complex and may not be administrable in its current form.

We do not anticipate significant market disruption in 2025. Most PTCs and ITCs on the market for transfer began construction before 2025 and therefore qualify for the legacy §45 and §48 credits, which are not subject to FEOC rules.

For the newer §45Y and §48E credits, there is a transition period for complying with FEOC rules (e.g., it appears that, due to a drafting error, projects that begin construction before the end of 2025 are exempt from FEOC at the project level. Rules to ensure FEOC compliance at the taxpayer level begin in 2026, and become stricter in 2028).

However, there is an annual compliance requirement to ensure that “specified foreign entities” do not benefit from tax credits. There are also payment restrictions to ensure that prohibited foreign entities do not earn a certain amount of dividends, interest, compensation for services, rents, royalties, or similar payments. For §48E credits, these compliance requirements must be tested for 10 years, and any breach results in a full recapture of the §48E credits. A recapture period this long and also this difficult to diligence will make it more challenging to raise financing or sell tax credits from projects that require FEOC compliance. As a result, we expect the clean energy industry to lobby for clarifications and adjustments to the FEOC restrictions.

For a full discussion of FEOC, please refer to the Tax Law Center’s analysis here, and see Norton Rose Fulbright’s summary here.

Conclusion

We expect a strong, continued mobilization from the industry (including clean energy developers, banks, utilities, and corporates) to advocate against early phasedown of tax credits and repeal of tax credit transferability, and to create a workable version of FEOC regulations.

On May 16, Reunion hosted a webinar with Keith Martin of Norton Rose Fulbright, a leading authority on energy and tax policy. We address these topics in depth – the conversation is available to listen to here.

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Key takeaways from the session: 

• Short-term clarity on the ability to transfer tax credits: Repeals were not retroactive, and will give the market stability to move forward on near-term transactions. We expect an uptick in buyer activity for 2025.
• The Senate historically moderates changes proposed by the House: However, four House Republicans declined to support the bill on May 16, and have demanded additional IRA rollbacks.
• The clean energy industry will be focused on clarifying FEOC (Foreign Entity of Concern) restrictions, and extending transferability:
  • The proposed FEOC restrictions will be almost impossible to administer, and their complexity will slow clean energy deployment. The Senate is expected to simplify the rules.
  • Clean energy developers will rush to start construction to secure FEOC exemption, and preserve ability to transfer credits.