§48E credit indemnity and insurance: what the buyer bears and what to ask

When you buy a §48E credit, some risks move to you by law. The purchase agreement, a parent guaranty and tax credit insurance decide who ends up paying if the credit is reduced or recaptured. This page sets out what the statute and regulations put on the buyer, then the questions to put to the seller or broker before you sign.

What the law puts on the buyer

Risk	Rule	Source
Excessive credit transfer	If you claim more credit than the seller could have claimed, your tax increases by the excess plus 20% of the excess. The 20% does not apply if you show reasonable cause.	IRC §6418(g)(2); Treas. Reg. §1.6418-5(a)
Several buyers of one property	All transferees of one eligible credit property are treated as one transferee, and any excess is shared pro rata.	Treas. Reg. §1.6418-5(b)(2)
Recapture	If the facility is disposed of or stops qualifying within the five-year §50 period, the buyer, not the seller, owes the recapture tax. The seller must notify the buyer in time for the buyer's return.	IRC §6418(g)(3); Treas. Reg. §1.6418-5(d)
Ineffective election	If the seller's election fails (for example, there was no valid registration), no §6418 transfer occurred, and the tax results follow other Code rules.	Treas. Reg. §1.6418-5(g)
Basis reduction	Stays with the seller's property, as if the seller had claimed the credit.	Treas. Reg. §1.6418-5(c)

The regulations list factors that can support reasonable cause. They include reviewing the seller's records (including bonus-credit documentation), reasonable reliance on third-party expert reports, and reasonable reliance on the seller's representations that the total transferred does not exceed the credit (Treas. Reg. §1.6418-5(a)(4)). Good diligence is part of the protection. See the §48E diligence checklist.

Questions to ask about the indemnity

• Who is the indemnitor? A project company with few assets is weaker than a creditworthy parent. Ask for financial statements or a parent guaranty.
• What does it cover? Disallowance, reduction (including failed bonus amounts), recapture, the 20% excessive credit transfer addition, interest, and the costs of an IRS contest.
• Is it no-fault? A no-fault indemnity pays whether or not the seller breached a representation. Crux's data indicates about 89% of ITC deals include one (third-party data).
• Caps and baskets: is the cap at least the purchase price, or the full credit amount plus interest and penalties?
• Survival: does it last through the five-year recapture period and the assessment period for your returns? The general assessment period is three years after filing (IRC §6501(a)).
• Gross-up and treatment: ask whether indemnity payments are grossed up, and have your CPA advise on the tax treatment of any payment received.
• Audit control: who controls an IRS examination of the credit, and what notice and cooperation duties apply? The regulations let the parties contract on the form and timing of recapture notices (Treas. Reg. §1.6418-5(d)(2)).
• Security: is there an escrow or holdback, or a deferred payment tied to placed-in-service or documentation milestones?

Questions to ask about tax credit insurance

• Named insured: is the buyer named as an insured, or only the seller?
• Limit: Cenet reports coverage often runs 90% to 140% of the credit, and premiums about 2% to 5% of the insured limit (third-party data). Ask whether the limit covers the credit plus interest, penalties and gross-up.
• Retention: what loss do you absorb before the policy pays?
• Exclusions: look for known issues, change in law and foreign-entity (FEOC) items. Crux reports most foreign-entity risk is not covered. See foreign-entity rules.
• Insurer and term: the carrier's rating, the policy period versus the recapture and assessment periods, and the claims process.
• Who pays: the premium is often built into the price. Compare net pricing with and without coverage. See §48E pricing.

How deal size changes the package

Cenet's Q4 2026 report says about 67% of transfers of $10 million or more carried insurance, versus about 11% of smaller deals (third-party data). Smaller buyers often rely on a parent guaranty, a no-fault indemnity and diligence instead. That can be reasonable, but test the indemnitor's credit carefully.

What to be careful of

• An indemnity does not change who owes the IRS. The buyer still pays the tax, then seeks reimbursement.
• Insurance and indemnity terms are negotiated market practice, not statutory requirements. Ask counsel to review the actual documents.
• Recapture covenants (no sale of the project, insurance on the property, notice duties) should run for the full five-year period. See recapture risk and insurance and transfer agreement key terms.

Educational information only, not tax, legal or investment advice, and no outcome is promised. Rules and figures were checked against the cited sources on November 2, 2026; they change, so confirm with your CPA and counsel before acting. Market figures are third-party data and are not Veritas quotes. See our disclaimer.