Inflation Reduction Act Sees $5 Billion in Tax Credit Transfers Amid Regulatory Challenges and Industry Adaptations.

The Inflation Reduction Act of 2022 (IRA) has been implemented two years into its existence. The IRA created a tax credit transfer market, which has seen almost $5 billion in tax credits transferred across over 40 deals. However, Treasury regulations have been criticized for favoring tax policy over stimulating clean energy. These regulations restrict individuals’ ability to buy tax credits from individuals even stricter than the passive activity loss regulations themselves. The industry has found ways to circumvent these issues, including uncertainty about whether the IRS will audit tax credit buyers or sellers, and whether transaction costs for tax credit transfers are deductible. The 10% tax credit adder for projects built in “energy communities” has been largely successful, with developers able to determine if their projects qualify for that adder and then monetize the adder. However there is some cautious optimism about the safe harbor for safe solar batteries.