A CPA's Guide to Transferable Credit Due Diligence

Your client buys the tax position. If the credit is reduced, your client owes the shortfall and possibly more. This is the structure we suggest CPAs use to document a purchase. A printable version is on the client qualification checklist page.

1. Qualification of the buyer

• Entity type and the §469 and §38(c) capacity analysis.
• Relationship test: buyer unrelated to seller; cash only (IRS FAQ Q4 and Q5).

2. Identity and registration

• IRS pre-filing registration number for each credit property, valid only for the tax year obtained (Form 3800 instructions). A registration number alone does not mean the credit was earned or the election made properly.
• Seller's ownership and any change in ownership, which requires an amended registration.

3. The credit itself

• Credit type under §6418(f)(1) and the related specific-credit form.
• Placed-in-service date and evidence; beginning-of-construction evidence where relevant (see our OBBBA summary).
• Qualifying basis, cost segregation and, for stepped-up basis, an appraisal (market practice per Reunion).
• Prevailing wage and apprenticeship compliance, or exemption.
• Bonus credit support (domestic content, energy community). A bonus portion cannot be transferred separately from the rest of the credit (IRS FAQ Q3).
• Foreign entity restrictions (§6418(g)(5)).

4. Recapture

Investment credits vest 20% a year over five years (§50(a)). The transferee bears its proportionate share of recapture and the seller must notify (§1.6418-5(d)). Review insurance, site control, interconnection and ownership-change covenants. Details.

5. Contract protections

• Indemnity for disallowance, reduction and recapture, with a creditworthy indemnitor.
• Credit insurance or a holdback; understand exclusions.
• Cooperation clauses for audits.
• Payment timing consistent with §1.6418-2.

6. Return reporting

Transfer election statement, Form 3800, specific credit form with registration number. See the reporting guide.

7. Estimated tax, accounting and file memo

Document the basis for any estimate reduction (estimated taxes) and the accounting policy (ASC 740). Write a file memo recording what you relied on.

Referring a client? Our CPA partner program gives you diligence packages and keeps you in control of the client relationship.

Document request list

• IRS registration confirmation and number for each property.
• Credit computation workbook with basis support.
• Placed-in-service evidence and permits.
• Prevailing wage and apprenticeship records, or exemption support.
• Ownership chart and any financing documents.
• Insurance certificates and any tax credit insurance binder.
• Draft transfer election statement and the transfer agreement.

Red flags

• Seller cannot produce a registration number.
• Cost basis exceeds an arm's-length range with no appraisal.
• Related-party EPC or developer fees included in basis.
• Indemnitor is a thinly capitalized project company.
• Seller asks for payment in anything other than cash.

Educational resource for tax professionals. It is not legal or tax advice, and it does not replace your engagement standards.