Inflation Reduction Act Key Renewable Energy Tax Credit Initiatives

White Paper

Inflation Reduction Act Key Renewable Energy Tax Credit Initiatives

Green Energy Initiatives

President Biden recently signed the Inflation Reduction Act of 2022 (the “Act”). The Act is arguably the most significant renewable energy legislation in U.S. history. The Act contains numerous provisions focused on advancing investment in green climate and energy initiatives. The Act includes a variety of tax incentives intended on boosting such initiatives, including but not limited to the following:

  • Extending the solar renewable electricity production and investment credit and increased usability for such credits.
  • Extending and expanding the production tax credit for onshore and offshore wind projects (including repowering) and increased usability for such credits.
  • Enhanced credits for meeting certain domestic production requirements/ projects located in “energy community” locations, low-income communities or on Indian land (as defined in the Energy Policy Act).
  • Expansion of investment tax credit to standalone storage technology.
  • Ability to monetize and transfer tax credits for cash.
  • Extension and increase of carbon capture credit and lower carbon capture requirements for qualification.
  • New credits for clean electricity, zero emission nuclear power facilities, clean hydrogen, new and used electric vehicles and other fuel production.
  • Ability to use certain credits to offset corporate minimum tax.

Other Tax Motivated Items

The Act also included other revenue focused items including the following:

  • A 15% corporate minimum tax to certain corporations (does not apply to S corporations, RICs or REITs) who have “adjusted financial statement income” over a three-year period that is in excess of $1 billion.
  • 1% tax on corporate stock buybacks including buybacks of certain subsidiaries.
  • Additional $80 billion in funding to the IRS largely dedicated to tax enforcement activities and updating technology to increase audit efficiency. These enforcement activities include, among other things: (A) the determination and collection of unpaid taxes, (B) criminal investigations (including funding for investigative technology) and (C) digital asset monitoring and compliance activities.

Insurable Tax Credit Risks

  • Structure Risk – Will the IRS respect the investment structure put in place between tax equity investor and sponsor?
  • Qualification Risk – Will tax credits be allowed to be claimed in full – FMV/Qualifying Basis, Begin Construction Requirement, 80/20 Rule, Placed in Service Requirement and Equipment Qualification?
  • Recapture Risk – Covers risk that the tax credits will be recaptured even if such credits were appropriately claimed initially.
  • Coverage can be tailored to help protect against some or all of these potential losses and can include advances of taxes required to be paid or deposited with a tax authority.
Joe Ehrlich, JD

National Practice Leader

Private Equity, Family Office and Mergers & Acquisitions Practice

Jackson Bender

National Practice Leader

Private Equity, Family Office and Mergers & Acquisitions Practice

Yonatan Tammam

Vice President

Family Office and Mergers & Acquisitions Practice

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