How CPAs Can Qualify a Client for a Transferable Credit Purchase

Most clients are not candidates. This five-question screen helps you identify the ones who are before anyone spends time on diligence. The printable version is the client qualification checklist.

1. Who is the taxpayer?

C corporations that are not closely held generally use credits against regular tax, subject to §38(c). Closely held C corporations, personal service corporations, individuals, estates and trusts are subject to §469 (IRS FAQ Q15). S corporations and partnerships pass items through, so the question is about the owners.

2. What is the federal income tax?

You want a meaningful forecast tax liability for the year; transaction costs usually make very small bills poor candidates. Compute the §38(c) ceiling and subtract credits already earned.

3. If passive rules apply, how much tax is passive?

For individuals and closely held entities, estimate the tax attributable to passive income (K-1 guide). Wages, portfolio income and investment gains do not count (why).

4. When does the benefit matter?

Quarterly estimates, extension payments or the return date. Calendar-year corporate installments are due April, June, September and December 15 (guide).

5. Is the client ready to underwrite the credit?

Do they understand that they, not the seller, bear the exposure if the credit is reduced, subject to indemnity and insurance? Is there capacity to complete diligence?

A simple rating

Answer pattern	Next step
C corporation with meaningful tax and known estimate dates	Request indicative offers
Individual with large passive tax	Compute passive tax first; then decide
Mostly W-2 or portfolio income	Not a fit for purchased credits

Not sure? Use the eligibility quiz with the client.

Talking points with the client

• "A purchased credit reduces tax; it is not an investment return."
• "If the credit is reduced later, you may owe the difference, so we require diligence and protections."
• "For you as an individual, only tax on passive income can be offset."

Disqualifiers we see most

• Income is mostly W-2 or portfolio.
• Tax liability is small relative to deal costs.
• No tax professional to report the credit.
• The client wants an assured result or a return in place of tax planning. Credit purchases are not that.

Educational only. This is a screening framework, not tax advice.