In this episode, CEO Alfred Johnson of Crux Climate explains how IRA making clean-energy tax credits transferable has created a market that is already providing billions in new clean-energy investment.
I have a question for Alfred, if he's up for answering it.
"But individuals and S corporations can participate, assuming that they have a certain kind of tax liability, really passive tax liability."
Is this because passive liability is a kind of tax liability Crux Climate sees market demand for? If so, could an investment fund taxed as a partnership aggregate demand from multiple individuals who might want to buy transferable credits, but whose income/net worth is too small to warrant a family office?
Quick update: it looks like the final regulations have tweaked this rule and offered a way for a transferee to get around section 469 by owning a little slice of the eligible entity?
"The Treasury Department and the IRS agree that in the limited circumstance of a transferee taxpayer who materially participates in an eligible credit generating activity within the meaning of section 469(h) in which the transferee taxpayer owns an interest at the time the work is done, the transferee taxpayer should be permitted to purchase eligible credits generated from the activity (assuming the transferee taxpayer is not related to the eligible taxpayer within the meaning of section 267(b) or section 707(b)(1)) and treat those purchased credits as not arising in connection with a passive activity."
Thank you! I apologize, I realize now I should have spent more time learning how §469 applied to the buyer's side of the transaction before asking my question.
I have a question for Alfred, if he's up for answering it.
"But individuals and S corporations can participate, assuming that they have a certain kind of tax liability, really passive tax liability."
Is this because passive liability is a kind of tax liability Crux Climate sees market demand for? If so, could an investment fund taxed as a partnership aggregate demand from multiple individuals who might want to buy transferable credits, but whose income/net worth is too small to warrant a family office?
Hi Beth - this is actually a result of IRS rules limiting individuals and S corps to using credits such as these to satisfy their tax liabilities arising only from passive activities. You can read more here: https://www.cruxclimate.com/insights/tax-credit-investing-for-individuals-rules-on-passive-activity
Quick update: it looks like the final regulations have tweaked this rule and offered a way for a transferee to get around section 469 by owning a little slice of the eligible entity?
"The Treasury Department and the IRS agree that in the limited circumstance of a transferee taxpayer who materially participates in an eligible credit generating activity within the meaning of section 469(h) in which the transferee taxpayer owns an interest at the time the work is done, the transferee taxpayer should be permitted to purchase eligible credits generated from the activity (assuming the transferee taxpayer is not related to the eligible taxpayer within the meaning of section 267(b) or section 707(b)(1)) and treat those purchased credits as not arising in connection with a passive activity."
https://www.federalregister.gov/public-inspection/2024-08926/transfer-of-certain-credits
Thank you! I apologize, I realize now I should have spent more time learning how §469 applied to the buyer's side of the transaction before asking my question.