Tax Credits

solar panels photovoltaics in solar farm

One of the most celebrated features of the Inflation Reduction Act (“IRA”) is the ability to sell tax credits, including the Production Tax Credit (“PTC”) under Internal Revenue Code (“IRC”) § 45 and the Investment Tax Credit (“ITC”) under IRC § 48. Under federal statute and IRS regulations issued last year, the sale of these tax credits does not result in taxable income to the seller and a buyer does not have to recognize gain on the difference between the value of the tax credit and the buyer’s purchase price. But the answer isn’t so simple under state law, which does not always track the federal rule; in some cases, whether the sale proceeds are taxable is unclear, and buyers and sellers of tax credits need to ensure that they are accurately assessing risk and expense.

Lately, elected representatives on both sides of the aisle have been displaying an appetite for expanding transferable tax credits to a broader variety of industries. This is evidenced by the recent profusion of proposed legislation that endeavors to subsidize emerging or important technologies with such valuable, transferable credits. This glut of proposed legislation—and the significant opportunities it may afford to the savvy buyer or seller—only promises to increase in importance with federal tax reform on the horizon.

Upon becoming law in 2022, the Inflation Reduction Act (“IRA”) extended the opportunity to generate investment tax credits (“ITCs”) to renewable natural gas (“RNG”) projects, incentivizing the development of new projects and enabling some projects already in the development pipeline to capture material new value. Specifically, the IRA provided for the generation of ITCs pursuant…

As year’s end approaches and biogas developers turn from Section 48 investment tax credits (“ITCs”) under the Inflation Reduction Act of 2022 (the “Act”), which required projects to begin construction before December 31, 2024, for eligibility, to Section 48E ITCs, it is critical to understand the differences between how each Section addresses biogas projects. Under Section 48, the Act extended and expanded existing ITCs, adding “qualified biogas property” as property eligible for credits.  However, projects that begin construction on or after January 1, 2025, will be subject to the technology-neutral Section 48E clean electricity ITCs, which may leave some biogas property ineligible for credits.

On November 3, 2022, the Internal Revenue Service (IRS) issued three notices (“November 3 Notices”) requesting public input on the climate and clean energy incentives contained in the Inflation Reduction Act (“IRA”). The November 3 Notices request comments by December 2, 2022, on the amendments, extensions, and enhancements of the IRA’s energy tax benefits. The November 3 Notices follow an initial set of six notices that were issued by the IRS on October 5, 2022 to seek public input on other aspects of the energy tax incentives contained in the IRA.

On September 22, 2022, the U.S. Department of Energy (DOE) announced a $6-7 billion Funding Opportunity to begin the development of a nationwide program for the planning, construction, and operation of commercial-scale Regional Clean Hydrogen Hubs, known colloquially as “H2Hubs.” H2Hubs are defined as “a network of clean hydrogen producers, potential clean hydrogen consumers, and connective infrastructure located in close proximity.” The DOE’s effort results from the Bipartisan Infrastructure Law (BIL) passed in 2021. The BIL appropriates $8 billion over a five-year period (2022-2026) and amends the Energy Policy Act of 2005 to establish a program to develop four to ten regional H2Hubs.

Perspective line of ocean wind mills with dark water and sky

In the wake of increasing inflation and as a means of codifying several of the Biden administration’s legislative priorities, the Senate passed the $750 billion Inflation Reduction Act on August 7, 2022 (the “Act”), by a 51-50 party-line vote. The Act, which is comprised of sweeping healthcare, energy, and tax measures, was approved by the House of Representatives on August 12, 2022, and signed into law by President Biden on August 16, 2022, creating a significant number of renewable energy sector benefits.