Bulletin No. 2024–25

HIGHLIGHTS

OF THIS ISSUE





Bulletin No. 2024–25

June 17, 2024

These synopses are intended only as aids to the reader in

identifying the subject matter covered. They may not be

relied upon as authoritative interpretations.

ADMINISTRATIVE

T.D. 9997, page 1730.

Tax return preparers must use a preparer tax identification

number (PTIN) on returns they prepare for compensation.

The PTIN must be renewed annually. The IRS charges a user

fee for each PTIN application or application for renewal to

recover costs for issuing and renewing PTINs. The fee was

established at $11 per application or application for renewal,

in addition to an amount payable directly to a third-party

contractor, by interim final rule (TD 9980) and cross-referencing notice of proposed rulemaking (REG-106203-23)

published in the Federal Register on October 4, 2023.

These final regulations adopt the $11 fee per application

or application for renewal, in addition to an amount payable

directly to a third-party contractor. TD 9997. Published May

15, 2024.

EMPLOYEE PLANS

Notice 2024-42, page 1732.

This notice specifies updated static mortality tables to be

used for defined benefit pension plans under § 430(h)(3)

(A) of the Code and section 303(h)(3)(A) of ERISA. This

notice also specifies a mortality table for use in determining minimum present value under § 417(e)(3) of the Code

and section 205(g)(3) of ERISA for distributions with annuity

starting dates that occur during stability periods beginning

in the 2025 calendar year.

INCOME TAX

Announcement 2024-25, page 1741.

This announcement provides the total amount of unallocated environmental justice solar and wind capacity lim-

Finding Lists begin on page ii.

itation (Capacity Limitation) for the Low-Income Communities Bonus Credit Program (Program) under § 48(e) of

the Internal Revenue Code and § 1.48(e)-1 of the Income

Tax Regulations that has been carried over from the 2023

Program year to the 2024 Program year. Additionally, this

announcement sets forth the distribution of the carried over

Capacity Limitation among the facility categories, category

1 sub-reservations, and application options for the 2024

Program year.

Notice 2024-43, page 1737.

This Notice announces that the Treasury Department and

the IRS intend to amend the regulations under sections 59A

and 6038A to defer the applicability date of certain provisions of the regulations relating to the reporting of qualified derivative payments until taxable years beginning on or

after January 1, 2027.

Notice 2024-44, page 1737.

This Notice announces that Treasury and the IRS intend to

amend the section 871(m) regulations to delay the effective/applicability date of certain rules in those final regulations and extends the phase-in period provided in Notice

2022-37, 2022-37 I.R.B. 234, for certain provisions of the

section 871(m) regulations.

REG-133850-13, page 1742.

These proposed regulations would remove the associated

property rule and similar rules from the existing regulations

under § 1.263A-11(e) on the interest capitalization requirements for improvements to designated property. In addition, these proposed regulations would update the definition

of “improvement” under § 1.263A-8(d)(3) for purposes of

applying those existing regulations. Lastly, these proposed

regulations would clarify the application of other rules in

those existing regulations in light of the proposed removal

of the associated property rule.

Rev. Rul. 2024-12, page 1677.

Federal rates; adjusted federal rates; adjusted federal longterm rate, and the long-term tax exempt rate. For purposes

of sections 382, 1274, 1288, 7872 and other sections of

the Code, tables set forth the rates for June 2024.

T.D. 9993, page 1679.

The final regulations describe the rules for the transfer

of eligible credits in a taxable year, including definitions

and specific rules for partnerships and S corporations

to follow. In addition, the final regulations provide rules

related to a required IRS pre-filing registration process.

Temporary regulations that were previously issued to

describe rules for the pre-filing registration process are

removed. The pre-filing registration process is necessary

to complete before making a transfer election for eligible

credits.

The IRS Mission

Provide America’s taxpayers top-quality service by helping

them understand and meet their tax responsibilities and

enforce the law with integrity and fairness to all.

Introduction

The Internal Revenue Bulletin is the authoritative instrument

of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service

and for publishing Treasury Decisions, Executive Orders, Tax

Conventions, legislation, court decisions, and other items of

general interest. It is published weekly.

It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application

of the tax laws, including all rulings that supersede, revoke,

modify, or amend any of those previously published in the

Bulletin. All published rulings apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management are not published; however, statements of

internal practices and procedures that affect the rights and

duties of taxpayers are published.

Revenue rulings represent the conclusions of the Service

on the application of the law to the pivotal facts stated in

the revenue ruling. In those based on positions taken in rulings to taxpayers or technical advice to Service field offices,

identifying details and information of a confidential nature are

deleted to prevent unwarranted invasions of privacy and to

comply with statutory requirements.

Rulings and procedures reported in the Bulletin do not have the

force and effect of Treasury Department Regulations, but they

may be used as precedents. Unpublished rulings will not be

relied on, used, or cited as precedents by Service personnel in

the disposition of other cases. In applying published rulings and

procedures, the effect of subsequent legislation, regulations,

court decisions, rulings, and procedures must be considered,

and Service personnel and others concerned are cautioned

against reaching the same conclusions in other cases unless

the facts and circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.

This part includes rulings and decisions based on provisions

of the Internal Revenue Code of 1986.

Part II.—Treaties and Tax Legislation.

This part is divided into two subparts as follows: Subpart A,

Tax Conventions and Other Related Items, and Subpart B,

Legislation and Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.

To the extent practicable, pertinent cross references to these

subjects are contained in the other Parts and Subparts. Also

included in this part are Bank Secrecy Act Administrative

Rulings. Bank Secrecy Act Administrative Rulings are issued

by the Department of the Treasury’s Office of the Assistant

Secretary (Enforcement).

Part IV.—Items of General Interest.

This part includes notices of proposed rulemakings, disbarment and suspension lists, and announcements.

The last Bulletin for each month includes a cumulative index

for the matters published during the preceding months. These

monthly indexes are cumulated on a semiannual basis, and are

published in the last Bulletin of each semiannual period.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

June 17, 2024 

Bulletin No. 2024–25

Part I

Section 1274.—

Determination of Issue

Price in the Case of Certain

Debt Instruments Issued for

Property

(Also Sections 42, 280G, 382, 467, 468, 482, 483,

1288, 7520, 7872.)

Rev. Rul. 2024-12

This revenue ruling provides various prescribed rates for federal income

Annual

AFR

110% AFR

120% AFR

130% AFR

5.12%

5.65%

6.16%

6.69%

AFR

110% AFR

120% AFR

130% AFR

150% AFR

175% AFR

4.66%

5.13%

5.61%

6.08%

7.04%

8.23%

AFR

110% AFR

120% AFR

130% AFR

4.79%

5.27%

5.76%

6.24%

Short-term adjusted AFR

Mid-term adjusted AFR

Long-term adjusted AFR

Bulletin No. 2024–25

tax purposes for June 2024 (the current

month). Table 1 contains the shortterm, mid-term, and long-term applicable federal rates (AFR) for the current

month for purposes of section 1274(d)

of the Internal Revenue Code. Table 2

contains the short-term, mid-term, and

long-term adjusted applicable federal

rates (adjusted AFR) for the current

month for purposes of section 1288(b).

Table 3 sets forth the adjusted federal long-term rate and the long-term

tax-exempt rate described in section

382(f). Table 4 contains the appropri-

ate percentages for determining the

low-income housing credit described in

section 42(b)(1) for buildings placed in

service during the current month. However, under section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service

after July 30, 2008, shall not be less

than 9%. Finally, Table 5 contains the

federal rate for determining the present

value of an annuity, an interest for life

or for a term of years, or a remainder or

a reversionary interest for purposes of

section 7520.

REV. RUL. 2024-12 TABLE 1

Applicable Federal Rates (AFR) for June 2024

Period for Compounding

Semiannual

Quarterly

Short-term

5.06%

5.03%

5.57%

5.53%

6.07%

6.02%

6.58%

6.53%

Mid-term

4.61%

4.58%

5.07%

5.04%

5.53%

5.49%

5.99%

5.95%

6.92%

6.86%

8.07%

7.99%

Long-term

4.73%

4.70%

5.20%

5.17%

5.68%

5.64%

6.15%

6.10%

Annual

3.88%

3.53%

3.62%

REV. RUL. 2024-12 TABLE 2

Adjusted AFR for June 2024

Period for Compounding

Semiannual

3.84%

3.50%

3.59%

1677

Quarterly

3.82%

3.48%

3.57%

Monthly

5.01%

5.51%

5.99%

6.49%

4.57%

5.02%

5.47%

5.92%

6.82%

7.94%

4.68%

5.14%

5.61%

6.07%

Monthly

3.81%

3.47%

3.56%

June 17, 2024

REV. RUL. 2024-12 TABLE 3

Rates Under Section 382 for June 2024

Adjusted federal long-term rate for the current month

Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjusted federal

long-term rates for the current month and the prior two months.)

3.62%

3.62%

REV. RUL. 2024-12 TABLE 4

Appropriate Percentages Under Section 42(b)(1) for June 2024

Note: Under section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service after

July 30, 2008, shall not be less than 9%.

Appropriate percentage for the 70% present value low-income housing credit

8.10%

Appropriate percentage for the 30% present value low-income housing credit

3.47%

REV. RUL. 2024-12 TABLE 5

Rate Under Section 7520 for June 2024

Applicable federal rate for determining the present value of an annuity, an interest for life or a term of years,

or a remainder or reversionary interest

Section 42.—Low-Income

Housing Credit

The applicable federal short-term, mid-term,

and long-term rates are set forth for the month of

June 2024. See Rev. Rul. 2024-12, page 1677.

Section 280G.—Golden

Parachute Payments

The applicable federal short-term, mid-term,

and long-term rates are set forth for the month of

June 2024. See Rev. Rul. 2024-12, page 1677.

Section 382.—Limitation

on Net Operating Loss

Carryforwards and

Certain Built-In Losses

Following Ownership

Change

The adjusted applicable federal long-term rate

is set forth for the month of June 2024. See Rev.

Rul. 2024-12, page 1677.

Section 467.—Certain

Payments for the Use of

Property or Services

The applicable federal short-term, mid-term,

and long-term rates are set forth for the month of

June 2024. See Rev. Rul. 2024-12, page 1677.

Section 468.—Special

Rules for Mining and Solid

Waste Reclamation and

Closing Costs

The applicable federal short-term rates are set

forth for the month of June 2024. See Rev. Rul.

2024-12, page 1677.

Section 482.—Allocation

of Income and Deductions

Among Taxpayers

The applicable federal short-term, mid-term,

and long-term rates are set forth for the month of

June 2024. See Rev. Rul. 2024-12, page 1677.

5.6%

Section 483.—Interest on

Certain Deferred Payments

The applicable federal short-term, mid-term,

and long-term rates are set forth for the month of

June 2024. See Rev. Rul. 2024-12, page 1677.

Section 1288.—Treatment

of Original Issue Discount

on Tax-Exempt Obligations

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of

June 2024. See Rev. Rul. 2024-12, page 1677.

Section 7520.—Valuation

Tables

The applicable federal mid-term rates are set

forth for the month of June 2024. See Rev. Rul.

2024-12, page 1677.

Section 7872.—Treatment

of Loans With BelowMarket Interest Rates

The applicable federal short-term, mid-term,

and long-term rates are set forth for the month of

June 2024. See Rev. Rul. 2024-12, page 1677.

June 17, 2024

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Bulletin No. 2024–25

26 CFR 1.6418-1 through 1.6418-5; 26 CFR 1.7064(e)(2)(ix) and (g)(2)

T.D. 9993

DEPARTMENT OF THE

TREASURY

Internal Revenue Service

26 CFR Part 1

Transfer of Certain Credits

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Final Regulations and removal

of temporary regulations.

SUMMARY: This document contains

final regulations concerning the election

under the Inflation Reduction Act of 2022

to transfer certain tax credits. The regulations describe rules for the election to

transfer eligible credits in a taxable year,

including definitions and special rules

applicable to partnerships and S corporations and regarding excessive credit

transfer or recapture events. In addition,

the regulations describe rules related to a

required IRS pre-filing registration process. These regulations affect eligible taxpayers that elect to transfer eligible credits

in a taxable year and the transferee taxpayers to which eligible credits are transferred.

DATES: Effective Date: These regulations are effective on July 1, 2024.

Applicability Dates: For dates of applicability, see §§1.6418-1(r), 1.6418-2(g),

1.6418-3(f), 1.6418-4(d), and 1.6418-(5)

(j).

FOR FURTHER INFORMATION

CONTACT: Concerning the regulations,

James Holmes at (202) 317-5114 and Jeremy Milton at (202) 317-5665 (not tollfree numbers).

SUPPLEMENTARY INFORMATION:

This document contains final regulations that amend the Income Tax Regulations (26 CFR part 1) to implement

the statutory provisions of section 6418

Bulletin No. 2024–25

of the Internal Revenue Code (Code),

as enacted by section 13801(b) of Public Law 117-169, 136 Stat. 1818, 2009

(August 16, 2022), commonly known

as the Inflation Reduction Act of 2022

(IRA).

Background

I. Overview of section 6418

Section 6418(a) provides that, in the

case of an eligible taxpayer that elects

to transfer to an unrelated transferee

taxpayer all (or any portion specified

in the election) of an eligible credit

determined with respect to the eligible

taxpayer for any taxable year, the transferee taxpayer specified in such election

(and not the eligible taxpayer) is treated

as the taxpayer for purposes of the Code

with respect to such credit (or such portion thereof). Under section 6418(b),

any amount of consideration paid by

the transferee taxpayer to the eligible

taxpayer for the transfer of such credit

(or such portion thereof) is (1) required

to be paid in cash, (2) not included in

the eligible taxpayer’s gross income,

and (3) not allowed as a deduction to the

transferee taxpayer under any provision

of the Code.

Section 6418(f)(2) defines the term

“eligible taxpayer” to mean any taxpayer

that is not described in section 6417(d)(1)

(A) of the Code (that is, any taxpayer that

is not an “applicable entity” by reason of

section 6417(d)(1)(A)).

Section 6418(f)(1)(A) defines the term

“eligible credit” to mean each of the following 11 credits:

(1) So much of the credit for alternative

fuel vehicle refueling property allowed

under section 30C of the Code that, pursuant to section 30C(d)(1), is treated as a

credit listed in section 38(b) of the Code

(section 30C credit);

(2) The renewable electricity production credit determined under section 45(a)

of the Code (section 45 credit);

(3) The credit for carbon oxide sequestration determined under section 45Q(a)

of the Code (section 45Q credit);

(4) The zero-emission nuclear power

production credit determined under section 45U(a) of the Code (section 45U

credit);

1679

(5) The clean hydrogen production

credit determined under section 45V(a) of

the Code (section 45V credit);

(6) The advanced manufacturing production credit determined under section

45X(a) of the Code (section 45X credit);

(7) The clean electricity production

credit determined under section 45Y(a) of

the Code (section 45Y credit);

(8) The clean fuel production credit

determined under section 45Z(a) of the

Code (section 45Z credit);

(9) The energy credit determined under

section 48 of the Code (section 48 credit);

(10) The qualifying advanced energy

project credit determined under section

48C of the Code (section 48C credit); and

(11) The clean electricity investment

credit determined under section 48E of the

Code (section 48E credit).

Under section 6418(f)(1)(B), an election to transfer a section 45 credit, section

45Q credit, section 45V credit, or section

45Y credit is made separately with respect

to each facility and for each taxable year

during the credit period of the respective

credit. Pursuant to section 6418(f)(1)(C)

an eligible credit does not include any

business credit carryforward or business

credit carryback. Section 6418(g)(4) provides that an eligible taxpayer may not

make an election to transfer credits for

progress expenditures.

Pursuant to section 6418(e)(1), an eligible taxpayer must make an election to

transfer any portion of an eligible credit

on its original tax return for the taxable

year for which the credit is determined

by the due date of such return (including

extensions of time) but such an election

cannot be made earlier than 180 days

after the date of the enactment of section 6418 by section 13801(b) of the IRA

(that is, in no event earlier than 180 days

after August 16, 2022, which is February

13, 2023). An eligible taxpayer cannot

revoke an election to transfer any portion

of a credit. Pursuant to section 6418(d), a

transferee taxpayer takes the transferred

eligible credit into account in its first taxable year ending with, or after, the eligible taxpayer’s taxable year with respect to

which the transferred eligible credit was

determined. Section 6418(e)(2) provides

that a transferee taxpayer may not make

any additional transfers of a transferred

eligible credit under section 6418.

June 17, 2024

II. Section 6418 rules for partnerships

and S corporations

Pursuant to section 6418(c), in the case

of a partnership or an S corporation (as

defined in section 1361(a)) that directly

holds a facility or property for which an

eligible credit is determined: (1) the election to transfer an eligible credit is made

at the entity level and no election by any

partner or shareholder is allowed with

respect to such facility or property; (2) any

amount received as consideration for a

transferred eligible credit is treated as tax

exempt income for purposes of sections

705 and 1366 of the Code; and (3) a partner’s distributive share of the tax exempt

income is based on the partner’s distributive share of the transferred eligible credit.

III. Special rules

Section 6418(g) provides special rules

regarding the elective transfer of certain

credits. Section 6418(g)(1) provides that,

as a condition of, and prior to, any transfer

of any portion of an eligible credit pursuant to section 6418(a), the Secretary of

the Treasury or her delegate (Secretary)

may require such information (including,

in such form or manner as is determined

appropriate by the Secretary, such information returns) or registration as the Secretary deems necessary for purposes of

preventing duplication, fraud, improper

payments, or excessive payments under

section 6418.

Pursuant to section 6418(g)(2), if

the Secretary determines that there is an

excessive credit transfer to a transferee

taxpayer, then the tax imposed on the

transferee taxpayer by chapter 1 of the

Code (chapter 1), regardless of whether

such entity would otherwise be subject

to tax under chapter 1, is increased in the

year of such determination by the amount

of the excessive credit transfer plus 20

percent of such excessive credit transfer.

The additional amount of 20 percent of the

excessive credit transfer does not apply if

the transferee taxpayer demonstrates to

the satisfaction of the Secretary that the

excessive credit transfer resulted from

reasonable cause.

An excessive credit transfer is defined

in section 6418(g)(2)(C) as, with respect

to a facility or property for which an elec-

June 17, 2024

tion is made under section 6418(a) for

any taxable year, an amount equal to the

excess of (i) the amount of the eligible

credit claimed by the transferee taxpayer

with respect to such facility or property

for such taxable year; over (ii) the amount

of the eligible credit that, without application of section 6418, would be otherwise

allowable under the Code with respect to

such facility or property for such taxable

year.

Pursuant to section 6418(g)(3), if a

section 48 credit, section 48C credit,

or section 48E credit is transferred, the

basis reduction rules of section 50(c) of

the Code apply to the applicable investment credit property as if the transferred

eligible credit was allowed to the eligible

taxpayer. Further, if applicable investment

credit property is disposed of, or otherwise ceases to be investment credit property with respect to the eligible taxpayer,

before the close of the recapture period as

described in section 50(a)(1), then certain

notification requirements apply. The eligible taxpayer must notify the transferee

taxpayer of a recapture event in such form

and manner as the Secretary may provide.

In addition, the transferee taxpayer must

notify the eligible taxpayer of the recapture amount, if any, in such form and manner as the Secretary may provide.

Section 6418(h) directs the Secretary to

issue regulations or other guidance as may

be necessary to carry out the purposes of

section 6418, including guidance providing rules for determining a partner’s distributive share of the tax exempt income

described in section 6418(c)(1).

IV. Notice 2022-50

On October 24, 2022, the Department

of the Treasury (Treasury Department)

and the IRS published Notice 2022-50,

2022-43 I.R.B. 325, to, among other

things, request feedback from the public on potential issues with respect to the

transfer election provisions under section

6418 that may require guidance. Stakeholders submitted more than 200 letters in

response to Notice 2022-50.

V. Proposed and Temporary Regulations

On June 21, 2023, informed by

the stakeholder feedback received in

1680

response to Notice 2022-50, the Treasury Department and the IRS published

proposed regulations under section 6418

(REG-101610-23) in the Federal Register (88 FR 40496) to provide guidance on transfer elections (proposed

regulations). The proposed regulations

included proposed §1.6418-4, which

contained proposed rules identical to

the text of temporary regulations (TD

9975) at §1.6418-4T. Those temporary

regulations also were published on June

21, 2023, in the Federal Register (88

FR 40086) to provide guidance on the

mandatory information and registration

requirements for transfer elections. The

preamble to the proposed regulations

discusses stakeholder feedback received

in response to Notice 2022-50 and

explains in greater detail the provisions

of the proposed regulations.

VI. 6417 Final Regulations

On March 11, 2024, the Treasury

Department and the IRS published final

regulations under section 6417 (TD 9988)

in the Federal Register (89 FR 17546)

to provide guidance on the section 6417

elective payment election (section 6417

final regulations). Among other things,

the section 6417 final regulations provide

guidance on the definition of applicable

entity under section 6417(d)(1)(A).

Summary of Comments and

Explanation of Revisions

This Summary of Comments and

Explanation of Revisions summarizes

comments submitted in response to the

proposed regulations and the revisions to

the proposed regulations reflected in these

final regulations. The Treasury Department and the IRS received more than

80 written comments in response to the

proposed regulations. The comments are

available for public inspection at https://

www.regulations.gov or upon request.

A hearing was conducted in person and

telephonically on August 23, 2023, during

which 10 presenters provided testimony.

After full consideration of the comments

received and testimony provided, these

final regulations adopt the proposed regulations with modifications in response

to such comments and testimony as

Bulletin No. 2024–25

described in this Summary of Comments

and Explanation of Revisions.

Comments merely summarizing or

interpreting the proposed regulations,

recommending statutory revisions to section 6418 or other statutes, or addressing

issues that are outside the scope of this

rulemaking, such as the calculation of eligible credits (including any bonus credit

amounts) or recommended changes to IRS

forms, are beyond the scope of these regulations and are generally not described in

this preamble.

I. General Rule and Definitions

Proposed §1.6418-1 would have

described general rules related to the

transfer of eligible credits. Proposed

§1.6418-1(a) would have provided an

overview of a transfer of eligible credits, and paragraphs (b) through (q) would

have provided definitions of terms under

the section 6418 regulations. Commenters

addressed certain aspects of the proposed

definitions, as described in this part I. To

the extent a definition in §1.6418-1(b)

through (q) is not addressed in this part I

and no comment addressed it, such definition is adopted by this Treasury Decision

as proposed.

A. Eligible Taxpayer

Section 6418(f)(2) defines the term

“eligible taxpayer” to mean any taxpayer

that is not described in section 6417(d)(1)

(A). Proposed §1.6418-1(b) would have

clarified that the term “eligible taxpayer”

means any taxpayer (as defined in section

7701(a)(14) of the Code), other than one

described in section 6417(d)(1)(A) and

§1.6417-1(b). The intended cite in the

proposed regulations was to §1.6417-1(c),

rather than §1.6417-1(b). As the preamble to the proposed regulations noted, the

term “taxpayer” in section 7701(a)(14)

means “any person subject to any internal

revenue tax” and generally includes entities that have a United States employment

tax or excise tax obligation even if they

do not have a United States income tax

obligation.

A commenter recommended that an

eligible taxpayer also include any person

that does not have a United States internal revenue tax obligation, such as a tax-

Bulletin No. 2024–25

payer that is only subject to the taxes of a

territory of the United States. Broadening

the definition of eligible taxpayer in section 6418(f)(2) is beyond the definition of

taxpayer in section 7701(a)(14) and is not

supported by section 6418. Section 6418(f)

(2) defines eligible taxpayer as “any taxpayer” not described in section 6417(d)

(1)(A). Section 7701(a)(14) provides the

definition of taxpayer for purposes of

the Code. Pursuant to section 7701(a),

the definition under section 7701(a)(14)

applies to all Code provisions unless a

different definition is otherwise distinctly

expressed or the definition in section

7701(a)(14) is manifestly incompatible

with the intent of section 6418. Under section 6418, there is no distinct expression

that the term “taxpayer” should include

those not subject to any United States

tax obligations, and there is no indication

that the definition in section 7701(a)(14)

is incompatible with the intent of section

6418. Thus, it is appropriate to use the

definition of taxpayer in section 7701(a)

(14) for purposes of defining eligible taxpayer for purposes of section 6418, and

these regulations finalize the definition of

eligible taxpayer as proposed.

A commenter requested a clarification that a partnership wholly or partially

owned by applicable entities described

in section 6417(d)(1)(A) qualifies as an

eligible taxpayer under section 6418(f)

(2). The Treasury Department and the

IRS agree that if such a partnership has

not elected to be treated as an applicable entity with respect to the section 45Q

credit, section 45V credit, or section 45X

credit, it can otherwise qualify as an eligible taxpayer. Section 6418(f)(2) defines

eligible taxpayer as a taxpayer other than

one described in section 6417(d)(1)(A).

Under section 6417 and the section 6417

final regulations, a partnership (regardless

of the tax status of its partners) can only

be treated as an applicable entity with

respect to the section 45Q credit, section

45V credit, or section 45X credit and only

if the partnership makes an elective payment election. Further, section 7701(a)

(14) defines the term “taxpayer” as any

person subject to any internal revenue tax.

The term “person” is defined in section

7701(a)(1) and includes a partnership.

Consequently, if a partnership has not

elected to be treated as an applicable entity

1681

with respect to the section 45Q credit, section 45V credit, or section 45X credit, it

can qualify as an eligible taxpayer.

The same commenter also sought to

clarify that a partnership that has one or

more applicable entity partners described

in section 6417(d)(1)(A) is entitled to

transfer the entirety of the eligible credits determined with respect to a property

or facility held directly by the partnership

without a reduction of the eligible credits

allocable to the applicable entity partners.

The Treasury Department and the IRS

agree that such a partnership is entitled to

transfer the entirety of the eligible credits

determined with respect to a property or

facility held directly by the partnership;

however, section 50(b)(3) and (4) may

limit the amount of eligible investment

tax credits (ITCs) determined with respect

to any tax-exempt or government entity

partner.

B. Eligible credit property

Section 6418(a) states that an eligible

taxpayer can elect to transfer all (or any

portion specified in the election) of an

eligible credit determined with respect to

such eligible taxpayer. Proposed §1.64181(a) would have provided that an eligible

taxpayer may make a transfer election to

transfer any specified portion of an eligible credit determined with respect to

any eligible credit property of the eligible

taxpayer for any taxable year. Proposed

§1.6418-1(d) would have defined the

term “eligible credit property” as the unit

of property of an eligible taxpayer with

respect to which the amount of an eligible

credit is determined. Proposed §1.64181(d)(1) through (11) would have described

the unit of property that is considered an

eligible credit property for each of the 11

eligible credits.

A commenter recommended that the

final regulations use the same concept of

a unit of property as is used for the various underlying eligible credit provisions

(for example, energy property or energy

project for purposes of section 48, and

qualified facility for purposes of section

45). The proposed regulations referenced

the statutory rules for each eligible credit

to determine the appropriate unit of measurement for section 6418 registration and

election and provided additional infor-

June 17, 2024

mation relevant for each eligible credit.

For example, proposed §1.6418-1(d)(2)

would have provided that, in the case of a

section 45 credit, the relevant unit of property is a qualified facility described in section 45(d). Likewise, proposed §1.64181(d)(9) would have provided that, in the

case of a section 48 credit, the relevant

unit of property is an energy property

described in section 48, or, at the option of

the taxpayer, an energy project described

in section 48(a)(9)(A)(ii) and defined in

guidance. The proposed regulations, without modification, are consistent with this

comment. Thus, these final regulations,

consistent with the proposed regulations,

base the definition of an eligible credit

property on the underlying Code provisions for the eligible credits and no further

changes are necessary.

Another commenter asked for clarification that section 48 credits determined

with respect to energy property qualifying

as “energy storage technology” under section 48(c)(6)(A) would be eligible credits

that could be transferred under section

6418. The preamble to the proposed regulations provided in part that energy property is comprised of all components of

property necessary to generate electricity

up to the point of transmission or distribution. The commenter raised that “energy

storage technology” is specifically designated as “energy property” under section

48(a)(3)(A)(ix), but unlike other forms

of “energy property,” it does not generate

electricity. The Treasury Department and

the IRS confirm that, to the extent a section 48 credit is determined with respect

to energy property held by an eligible taxpayer, whether the credit is with respect to

energy storage technology or other energy

property, such credit is an eligible credit

that can be transferred under section 6418

by the eligible taxpayer.

Other commenters recommended

revising the definition of eligible credit

property for purposes of section 45Q.

Proposed §1.6418-1(d)(3) would have

provided that an eligible credit is determined, for purposes of section 45Q, based

on a single process train of carbon capture equipment described in §1.45Q-2(c)

(3). Commenters recommended that, for

the section 45Q credit, the definition of

eligible credit property be a component

of a single process train for the capture,

June 17, 2024

disposal, utilization, or injection of qualified carbon oxide, rather than a single

process train of carbon capture equipment

described in §1.45Q-2(c)(3). Other commenters urged that the final regulations

reconcile the proposed rules with Rev.

Rul. 2021-13, 2021-30 I.R.B. 152, under

which a taxpayer need own only one component in a single process train to be the

person to whom the section 45Q credit is

attributable to (assuming the taxpayer also

meets the requirements of section 45Q(a),

as applicable). The Treasury Department

and the IRS agree that guidance under

section 45Q does not require a taxpayer to

own every component of a single process

train and have revised the language under

§1.6418-1(d)(3) (defining eligible credit

property with respect to the section 45Q

credit) to state “[i]n the case of a section

45Q credit, a component of carbon capture equipment within a single process

train described in §1.45Q-2(c)(3).”

C. Paid in Cash

Section 6418(b)(1) requires that any

amount paid by a transferee taxpayer

to an eligible taxpayer as consideration

for a transfer be paid in cash. Proposed

§1.6418-1(f) would have defined the

term “paid in cash” to mean a payment in

United States dollars that (1) is made by

cash, check, cashier’s check, money order,

wire transfer, automated clearing house

(ACH) transfer, or other bank transfer of

immediately available funds; (2) is made

within the period beginning on the first

day of the eligible taxpayer’s taxable year

during which a specified credit portion is

determined and ending on the due date for

completing a transfer election statement

(as provided in proposed §1.6418-2(b)

(5)(iii)); and (3) may include a transferee taxpayer’s contractual commitment

to purchase eligible credits with United

States dollars in advance of the date a

specified credit portion is transferred to

such transferee taxpayer if all payment of

United States dollars are made in a manner described in proposed §1.6418-1(f)(1)

and during the time period in proposed

§1.6418-1(f)(2).

Several commenters recommended

revising the proposed paid in cash rule so

that advanced payments could be made

for eligible credits that will be deter-

1682

mined in later taxable years. For example, commenters specifically requested

that the final regulations allow upfront

payments for transfers of eligible credits

that are production tax credits (PTCs) that

are expected to be determined in a future

taxable year. Commenters suggested that

such a rule would more closely align the

timing of payments for eligible credits

that are PTCs with the timing of payments

for eligible credits that are ITCs. Commenters raised that upfront payments for

PTCs determined in future taxable years

are standard in tax equity transactions and

that allowing for upfront payments for

future PTCs under section 6418 would

more closely align transferability with

traditional tax equity structures. Another

commenter asked for clarification that the

use of certain loan structures would not

violate the paid in cash rule. Specifically,

the commenter requested confirmation

that loans, including security arrangements, made on arm’s length terms by a

transferee taxpayer or a third party to an

eligible taxpayer would not be treated

as an upfront payment under an eligible

credit purchase and sale agreement or otherwise recharacterized.

Allowing advanced payments prior to

the taxable year an eligible credit is determined may more closely align the section

6418 regulations with current tax equity

transactions. However, proposed §1.64181(f)(2) would have specifically provided

a timing safe harbor that is intended to

provide certainty as to the treatment of

payments of United States dollars made

during the prescribed time period. Allowing advanced payments would also raise

several complex legal and administrative

issues, such as whether an excessive credit

transfer has occurred or if the eligible taxpayer has gross income if prepaid eligible

credits were not transferred in a later tax

year. No commenter addressed the administrative and legal challenges of allowing

for advanced payments. Based on these

reasons, the Treasury Department and the

IRS have adopted the paid in cash definition of the proposed regulations without

change.

Further, the Treasury Department and

the IRS note that there is no prohibition

on either a transferee taxpayer or another

third-party loaning funds to an eligible

taxpayer, including loans secured by an

Bulletin No. 2024–25

eligible credit purchase and sale agreement, provided such loans are at arm’s

length and treated as loans for Federal tax

purposes. Whether such loans are treated

as upfront payments for eligible credits or

otherwise recharacterized is an analysis

based on the facts and circumstances of

the loan and is otherwise outside the scope

of these final regulations.

D. Specified Credit Portion

Section 6418(a) provides that an eligible taxpayer can elect to transfer all (or

any portion specified in the election) of

an eligible credit determined with respect

to such taxpayer. Proposed §1.6418-1(h)

would have defined the term “specified

credit portion” to mean a proportionate

share (including all) of an eligible credit

determined with respect to a single eligible credit property of the eligible taxpayer that is specified in a transfer election. The proposed regulations further

provided that a specified credit portion of

an eligible credit reflects a proportionate

share of each bonus credit amount that is

taken into account in calculating the entire

amount of eligible credit determined with

respect to a single eligible credit property.

Thus, under the proposed regulations, an

eligible taxpayer would not be permitted to sever bonus credit amounts taken

into account to determine an eligible

credit from the base eligible credit determined with respect to the relevant eligible credit property and separately transfer

any bonus credit amount or base eligible

credit amount (horizontal credit transfer). Instead, an eligible taxpayer would

be permitted to transfer the entire eligible credit (or portion of the entire eligible

credit, which would include a proportionate amount of any component bonus credit

amounts taken into account to determine

the entire eligible credit) determined with

respect to a single eligible credit property

(vertical credit transfer).

Several commenters recommended that

the final regulations allow for horizontal

credit transfers and that the term “portion”

in section 6418(a) should be broadly construed. As support, commenters contended

that horizontal credit transfers would

increase flexibility and marketability of

eligible credits and allow eligible taxpayers to better allocate credit risk among

Bulletin No. 2024–25

various transferee taxpayers. Commenters

also asserted that requiring vertical credit

transfers favors large investors with sufficient resources for diligence, finance,

and risk tolerance. One commenter stated

that requiring vertical credit transfers will

increase the burden of tax administration

because auditing a transferee taxpayer’s

portion of a vertical credit transfer would

require a larger audit team and auditors

conversant with the rules applicable to the

underlying eligible credits and the rules

applicable to the bonus credit amounts.

Another commenter suggested the final

regulations allow for eligible taxpayers to

elect either a vertical or a horizontal credit

transfer for each specified credit portion.

Each eligible credit determined with

respect to a single eligible credit property is a single eligible credit that cannot

be separated into a base credit amount

and bonus credit amounts for purposes of

making transfer elections. The language

in section 6418(a) that refers to a portion

specified in the election is better understood to refer to a percentage of a single

overall eligible credit amount, rather than

to a particular “layer” of credit. Further,

while commenters suggested allowing

horizontal transfers of eligible credits,

none of the commenters fully addressed

the potential administrative issues with

the approach. For example, allowing horizontal credit transfers would add another

layer of compliance due to the need for

taxpayers and the IRS to track all base and

bonus credit amounts separately. Moreover, a bonus credit amount is not itself an

eligible credit but only an amount taken

into account to determine the single eligible credit with respect to an eligible credit

property. In this regard, the pre-filing registration portal does not allow for registration numbers associated only with bonus

credit amounts. Thus, these final regulations adopt the definition of specified

credit portion in proposed §1.6418-1(h)

without change.

II. Rules for Making Transfer Elections

A. In general

Proposed §1.6418-2 would have provided general rules for an eligible taxpayer to make a transfer election under

section 6418 with respect to any eligible

1683

credit determined with respect to such taxpayer. Proposed §1.6418-2(a)(1) would

have provided that an eligible taxpayer

can make an election as provided in proposed §1.6418-2. Proposed §1.6418-2(a)

(2) through (4) would have provided

rules regarding making multiple transfer

elections, rules for determining the eligible taxpayer in certain ownership situations, and rules describing circumstances

in which no transfer election is allowed.

Commenters addressed aspects of these

proposed rules, as discussed in this part

II of the Summary of Comments and

Explanation of Revisions. These final regulations generally adopt the rules as proposed, with the modifications described in

this part II of the Summary of Comments

and Explanation of Revisions.

Proposed

§1.6418-2(a)(2)

would

have provided that an eligible taxpayer

may make multiple transfer elections to

transfer one or more specified credit portion(s) to multiple transferee taxpayers,

provided that the aggregate amount of

specified credit portions transferred with

respect to any single eligible credit property does not exceed the amount of the

eligible credit determined with respect to

the eligible credit property. A commenter

asked for clarification of whether an eligible taxpayer may transfer all or a portion of an eligible credit to more than one

taxpayer. The Treasury Department and

the IRS confirm that the proposed regulations, as drafted, would have allowed an

eligible taxpayer to make multiple transfer elections of specified credit portions of

an eligible credit determined with respect

to an eligible credit property subject to

the limitation that such portions, in the

aggregate, cannot exceed the amount of

the determined eligible credit. Because

proposed §1.6418-2(a)(2) would have

already provided this result, a revision

to the proposed rules is unnecessary, and

these final regulations adopt the proposed

rule without change.

Proposed §1.6418-2(a)(3) would have

provided rules for transfer elections in

certain ownership situations, specifically

with respect to ownership through a disregarded entity, as an undivided ownership

interest, as a member of a consolidated

group (as defined in §1.1502-1), and for

partnerships and S corporations. One

commenter asked for clarity as to whether

June 17, 2024

a grantor trust is treated as a disregarded

entity in determining ownership of an eligible credit property, and, if a grantor trust

directly holds an eligible credit property,

which party registers the property and

makes a transfer election. The Treasury

Department and the IRS agree that these

final regulations should provide rules for

transfer elections if eligible property is

held directly by a grantor trust. Accordingly, the final regulations add §1.64182(a)(3)(v) to provide that if an eligible

taxpayer is a grantor or any other person

that is treated as the owner of any portion

of a trust as described in section 671 of

the Code, then the eligible taxpayer may

make a transfer election in the manner provided in §1.6418-2 for any eligible credits

determined with respect to eligible credit

property held directly by the portion of the

trust that the eligible taxpayer is treated as

owning under section 671.

Proposed §1.6418-2(a)(4) would have

described three circumstances in which

no transfer election can be made. First,

consistent with section 6418(g)(4), the

proposed regulations would have precluded any election with respect to any

amount of an eligible credit determined

based on progress expenditures that is

allowed pursuant to rules similar to the

rules of section 46(c)(4) and (d) (as in

effect on the day before the date of the

enactment of the Revenue Reconciliation

Act of 1990). Second, consistent with section 6418(b)(1), proposed §1.6418-2(a)

(4)(ii) would have precluded a transfer

election if an eligible taxpayer receives

any amount not paid in cash (as defined

in proposed §1.6418-1(f)) as consideration in connection with the transfer of a

specified credit portion. Third, consistent

with section 6418(a), proposed §1.64182(a)(4)(iii) would have provided that no

election is allowed if eligible credits are

not determined with respect to an eligible

taxpayer. As a result, proposed §1.64182(a)(4)(iii) would have provided as an

example that a section 45Q credit allowable to an eligible taxpayer because of

an election under section 45Q(f)(3)(B),

or a section 48 credit allowable to an

eligible taxpayer because of an election

made under section 50(d)(5) and §1.48-4,

although described in proposed §1.64181(c)(2), is not an eligible credit that can

be transferred because such credit is not

June 17, 2024

determined with respect to the eligible

taxpayer.

A commenter suggested that the final

regulations allow transfers of section 48

ITCs before the taxable year in which

the energy property is placed in service.

While not explicitly referenced, the commenter appears to be requesting that progress expenditures (under section 48(b)) be

permitted to be transferred under section

6418. Section 6418(g)(4) and proposed

§1.6418-2(a)(4)(i) both directly prohibit

making a transfer election if an eligible

credit is related to progress expenditures.

Based on this, these final regulations

adopt the rule in proposed §1.6418-2(a)

(4)(i) without change.

Multiple commenters advocated that

the proposed regulations be modified to

permit a taxpayer that is allowed a section 45Q credit due to an election under

section 45Q(f)(3)(B) to make a transfer election with respect to the section

45Q credit. Commenters generally suggested that the proposed rule is incorrect because (1) ownership of the single

process train is not necessary for credit

determination, and (2) a taxpayer claiming the credit and making an election

under section 45Q(f)(3)(B) does in fact

determine the credit because of their

activities. Commenters relied in part on

the language in proposed §1.6418-2(d)

(1), which states that “[f]or an eligible

credit to be determined with respect to

an eligible taxpayer, the eligible taxpayer must own the underlying eligible

credit property or, if ownership is not

required, otherwise conduct the activities giving rise to the underlying eligible

credit [emphasis added].”

A taxpayer that is allowed a section

45Q credit as a result of an election

under section 45Q(f)(3)(B) is not the

taxpayer with respect to which the section 45Q credit is determined. Under

section 45Q(f)(3)(A)(ii), a section 45Q

credit is attributable to the person that

owns the carbon capture equipment and

physically or contractually ensures the

capture and disposal, utilization, or use

as a tertiary injectant of such qualified

carbon oxide. Further, under §1.45Q1(h)(3), it is the taxpayer described in

§1.45Q-1(h)(1) to whom the section 45Q

credit is attributable (electing taxpayer),

that may elect to allow the person that

1684

enters into a contract with the electing

taxpayer to dispose of the qualified carbon oxide (disposer), utilize the qualified

carbon oxide (utilizer), or use the qualified carbon oxide as a tertiary injectant

to claim the credit (section 45Q(f)(3)

(B) election). Contrary to commenters’

assertions, it is not sufficient for a party

to only conduct carbon capture activities

to be eligible for a section 45Q credit.

Further, the ownership requirement in

the section 45Q statute and regulations

means the commenters’ suggestions that

the language in proposed §1.6418-2(d)

(1) allows a section 45Q credit to be

determined with respect to an eligible

taxpayer if the party “otherwise conducts

the activities giving rise to the underlying applicable credit” is misplaced. That

language in proposed §1.6418-2(d)(1)

applies only in the case of an eligible

credit for which ownership of property is

not required, which is not the case with

respect to a section 45Q credit. Thus,

these final regulations clarify in §1.64182(d)(1) that the only eligible credit for

which ownership is not required is the

section 45X credit. While the activities

of a contractor may be necessary for a

section 45Q credit to be determined, ultimately, the credit is attributable to and

determined by the person that both owns

the equipment and physically or contractually ensures the capture and disposal,

injection, or utilization of such qualified

carbon oxide. Thus, these final regulations adopt the proposed regulations

without change on this issue.

A commenter asked that separate,

unrelated taxpayers to which section 45Q

credits and section 45Z credits are determined with respect to the same qualified facility each be permitted to make

a separate transfer election with respect

the section 45Q credits or section 45Z

credits determined with respect to such

taxpayer. Specifically, the commenter

requested clarification as to who is an eligible taxpayer if more than one eligible

credit (for example, a section 45Q credit

and a section 45Z credit) is determined

with respect to two unrelated, eligible

taxpayers for units of property or a facility within the same general geographic

location. The commenter stated that the

qualified facility definition under section

45Z(d)(4) should not preclude an owner

Bulletin No. 2024–25

and producer taxpayer from making a

transfer election, even if an unrelated

taxpayer who is eligible for the section

45Q credit makes a transfer election in

the same taxable year.

It is beyond the scope of these final

regulations to address underlying requirements of eligible credits, such as the

requirements of sections 45Q and 45Z,

and who may be eligible for those credits. The Treasury Department and the IRS

will consider this comment in connection

with drafting additional guidance under

sections 45Q and 45Z.

Several commenters recommended that

the final regulations allow transfer elections following a lease passthrough election under the rules of section 50(d)(5),

both generally and with specific additional

rules (such as, revising §1.48-4 to require

a lessor to commit to not making an election to transfer under section 6418 and

requiring the lessee to complete pre-filing

registration). One commenter stated that

the proposed regulations are inconsistent

with existing tax law, suggesting that the

original inclusion of the lease passthrough

election obviated the need to engage in

more complicated sale-leaseback transactions in order to calculate the credit based

on fair market value of a property rather

than on its cost. The commenter posited

that the proposed regulations would upend

that balance by putting sale-leaseback

transactions on unequal footing with lease

passthrough structures in the context of a

contemplated transfer of eligible credits,

which the commenter thought was precisely the outcome that Congress sought

to avoid in 1962 at the time of the introduction of the ITC.

There is a distinction between

sale-leaseback transactions under section

50(d)(4) and lease passthrough elections

under former section 48(d) (pursuant to

section 50(d)(5)). In the latter case, it is

the owner or lessor that is the party with

respect to which the credit is determined,

and not the lessee that is allowed to claim

the credit as a result of the election. Therefore, the lessee does not meet the requirement of section 6418(a), which requires

the eligible credit to be determined with

respect to the eligible taxpayer making the

transfer election. For the reasons stated,

these final regulations adopt the proposed

rule without change.

Bulletin No. 2024–25

B. Manner and due date of making a

transfer election

1. In general

Proposed §1.6418-2(b)(1) would have

provided that an eligible taxpayer must

make a transfer election to transfer a specified credit portion on the basis of a single eligible credit property. As an example, the proposed regulations would have

provided that an eligible taxpayer that

determines eligible credits with respect to

two eligible credit properties would need

to make a separate transfer election with

respect to any specified credit portion

determined with respect to each eligible

credit property. Because no comments

were received on proposed §1.6418-2(b)

(1), these final regulations adopt this provision without change. Some commenters

requested that grouping of eligible credit

properties be permitted for purposes of

registration and making a transfer election. These comments are discussed in

part IV of this Summary of Comments and

Explanation of Revisions.

2. Special rules for certain eligible credits

Section 6418(f)(1)(B) provides that, in

the case of any eligible credit under sections 45, 45Q, 45V, or 45Y, an election is

made (1) separately with respect to each

facility for which a credit is determined,

and (2) for each taxable year during the

10-year period beginning on the date such

facility was originally placed in service

(or, in the case of a section 45Q credit,

for each taxable year during the 12-year

period beginning on the date the single

process train of carbon capture equipment was originally placed in service).

Proposed §1.6418-2(b)(2) would have

provided rules consistent with section

6418(f)(1)(B). Because no comments

were received on proposed §1.6418-2(b)

(2), these final regulations adopt this provision without change.

3. Manner of making a valid transfer

election

Proposed §1.6418-2(b)(3) would have

provided rules for making a valid transfer

election and included that a transfer election is made based on each specified credit

1685

portion with respect to a single eligible

credit property. To make a valid transfer

election, an eligible taxpayer as part of filing an annual tax return (or a return for a

short year within the meaning of section

443 of the Code), must include the following: (1) a properly completed relevant

source credit form for the eligible credit

for the taxable year that the eligible credit

was determined; (2) a properly completed

Form 3800, General Business Credit (or

its successor); (3) a schedule attached to

the Form 3800 (or its successor) showing

the amount of eligible credit transferred

for each eligible credit property, except

as otherwise provided in guidance; (4) a

transfer election statement as described

in proposed §1.6418-2(b)(5); and (5) any

other information related to the election

specified in guidance. While comments

were received on individual aspects of

this proposed rule as described later in this

Summary of Comments and Explanation

of Revisions, there were no comments

received on proposed §1.6418-2(b)(3),

and so these final regulations adopt the

proposed rule without substantive change.

However, the final regulations clarify that

the registration number received during

the required pre-filing registration (as

described in proposed §1.6418-4) related

to an eligible credit property with respect

to which a transferred eligible credit was

determined must be included on a properly

completed relevant credit source form.

4. Due date and original return

requirement of a transfer election

Section 6418(e)(1) states that an election under section 6418(a) to transfer

any portion of an eligible credit must be

made not later than the due date (including

extensions of time) for the return of tax

for the taxable year for which the credit

is determined, but in no event earlier than

180 days after the date of the enactment

of this section. Proposed §1.6418-2(b)(4)

would have provided that a transfer election must be made on an original return not

later than the due date (including extensions) for the original return of the eligible

taxpayer for the taxable year for which the

eligible credit is determined. The proposed

regulations stated that no transfer election

could be made or revised on an amended

return or by filing an administrative

June 17, 2024

adjustment request under section 6227 of

the Code (AAR). The preamble to the proposed regulations clarified that an original

return includes a superseding return filed

on or before the due date (including extensions). The proposed regulations also did

not provide for relief under §§301.9100-1

through 301.9100-3 (9100 relief) for a late

transfer election.

Some commenters asked that a transfer election be permitted on an amended

return or AAR and/or that a taxpayer be

permitted an extension of time under the

9100 relief procedures to make a late

election. Commenters raised concerns

that the amount of information required

to obtain a registration number and file

a transfer election is substantial, and that

given there are bound to be omissions

and misstatements, an eligible taxpayer

should have the ability to cure errors or

omissions on an amended return or pursuant to an AAR. Further, commenters

urged that 9100 relief should be available

in situations in which the parties acted in

good faith with respect to a transfer election.

The section 6418 transfer election

process is novel and eligible taxpayers

may experience inadvertent errors or

omissions. The statutory text of section

6418(e), however, provides that a transfer

election must not be made “later than the

due date (including extensions of time)

for the return of tax for the taxable year

for which the credit is determined.” The

preamble to the proposed regulations provided that eligible taxpayers could make a

transfer election on a superseding return

up until the extended due date for the

return.

Neither the Code nor regulations define

a superseding return, but administrative

IRS guidance provides that a superseding return is a return filed subsequent to

the originally-filed return but before the

due date for filing the return (including

extensions). For example, if an eligible

taxpayer subject to an automatic 6-month

extension files an original return on the

due date (excluding extensions) and then

files a subsequent return within the automatic extension period, the subsequent

return would generally be considered a

superseding return. Unlike a superseding

return, an amended return is a return filed

after the taxpayer filed an original return

June 17, 2024

and after the due date for filing the return

(including extensions).

Accordingly, these final regulations

modify proposed §1.6418-2(b)(4) by

clarifying that a transfer election filed

by an electing taxpayer may be made or

revised on a superseding return, but not

on an amended return or AAR. These final

regulations further clarify that a transfer

election cannot be made for the first time

on an amended return, withdrawn on an

amended return, or made or withdrawn by

filing an AAR, although a numerical error

with respect to a properly claimed transfer

election may be corrected on an amended

return or by filing an AAR if necessary.

This clarification is intended to address

situations in which an eligible taxpayer

intended to make a transfer election but

made a reporting error with respect to an

element of a valid election (for example,

miscalculating the amount of the eligible

credit on the original return or making

a typographical error in the process of

inputting a registration number), and to

allow the eligible taxpayer to correct any

errors that would result in a denial of the

transfer election. The provision cannot be

used to revoke a transfer election made

on an original return or to make a transfer

election for the first time on an amended

return. In addition, the eligible taxpayer’s

original return (including a superseding

return), which must be signed under penalties of perjury, must contain all of the

information, including a registration number, required by these final regulations. In

order to correct an error on an amended

return or AAR, an eligible taxpayer must

have made an error in the information

included on the original return such that

there is a substantive item to correct; a

taxpayer cannot correct a blank item or an

item that is described as being “available

upon request.”

The Treasury Department and the IRS

note that the rules described in this part

II.B.4 of the Summary of Comments

and Explanation of Revisions, regarding

the original return requirement, apply to

transfer elections made on an originally

filed return of the eligible taxpayer. A

transferee taxpayer, however, may take

a transferred specified credit portion into

account on a properly filed amended

return or AAR, or correct the amount of

the transferred specified credit portion on

1686

a properly filed amended return or AAR

to, for example, avoid a determination by

the IRS that the transferee taxpayer is subject to an excessive credit transfer under

§1.6418-5(a). Excessive credit transfers

are discussed in more detail in part V.A of

this Summary of Comments and Explanation of Revisions.

An eligible taxpayer may file an

amended return or an AAR to adjust the

amount of the eligible credit following a

timely and properly filed transfer election.

Such an adjustment may affect the information that was reported on the transfer

election statement under §1.6418-2(b)

(5)(ii), for example, the total amount of

the credit determined with respect to the

eligible credit property and any corresponding specified credit portion being

transferred. Some commenters suggested

that the final regulations provide clarity

for a taxpayer that may need to correct the

amount of an eligible credit reported on

its tax return. The final regulations modify

proposed §1.6418-2(b)(4) to provide that

an eligible taxpayer may, after making

a timely and complete transfer election,

file an amended return or AAR, if applicable, to adjust the amount of the eligible

credit reported on the eligible taxpayer’s

original return if the amount of the eligible credit was incorrectly reported on the

original return. Under §1.6418-2(b)(4)(ii)

(B), to the extent the eligible taxpayer’s

correction of an eligible credit results in

an increase in the amount of the eligible credit reported, such amount must be

reflected on the credit source forms with

the eligible taxpayer’s amended return

or AAR, if applicable. However, such

increase cannot be reflected by either

the eligible taxpayer or the transferee

taxpayer as a transferred specified credit

portion on the transfer election statement,

in accordance with the rules set forth in

§1.6418-2(b)(4)(i). Those rules, regarding

the due date and original return requirement of a transfer election, are described

in greater detail in part II.B.3 and 4 of the

Summary of Comments and Explanation

of Revisions.

Under §1.6418-2(b)(4)(ii)(C), to the

extent the eligible taxpayer’s correction of

an eligible credit results in a decrease in

the amount of the eligible credit reported,

such amount must be reflected on the

credit source forms with the eligible tax-

Bulletin No. 2024–25

payer’s amended return or AAR, if applicable, and the transfer election statement

reducing the amount of the credit reported.

The amount of the decrease first reduces

the amount of the eligible credit that is

retained, if any (and thus not transferred)

by the eligible taxpayer. Any portion of

such decrease that remains after reducing

the eligible credit retained by the eligible

taxpayer then reduces the amount reported

by the transferee taxpayer. If the eligible

credit was transferred to more than one

transferee taxpayer, the reduction to each

transferee taxpayer’s specified credit portion is on a pro rata basis. The amount of

any cash consideration retained by the

eligible taxpayer after accounting for any

reduction in the amount of the eligible

credit transferred to the transferee taxpayer(s) cannot be excluded from gross

income. These rules are further described

in §1.6418-2(e)(2). The final regulations

provide examples illustrating these rules.

If an eligible taxpayer has made an

adjustment such that the specified credit

portion is reduced, depending on the facts

and circumstances, a transferee taxpayer

may be at risk for an excessive credit

transfer, should the IRS make such a

determination prior to the transferee taxpayer making its own adjustment to correct the specified credit portion through a

qualified amended return under §1.66642(c)(3). The eligible taxpayer itself may

have income to include to the extent it

received a payment that directly relates to

the excessive credit transfer.

These final regulations do not mandate

a reporting or notification requirement on

the eligible taxpayer or the transferee taxpayer in the event of an adjustment that

occurs after a timely and properly filed

transfer election. The eligible taxpayer

and the transferee taxpayer may freely

contract for such a requirement. Nevertheless, this part II.B.4 of the Summary of

Comments and Explanation of Revisions

acknowledges that an adjustment to the

eligible credit determined by an eligible

taxpayer may impact the tax liability of a

transferee taxpayer.

Additionally, these final regulations

modify the proposed regulations to permit

an extension of time under §301.91002(b) to allow for an automatic six-month

extension of time from the due date of the

return (excluding extensions) to make the

Bulletin No. 2024–25

election prescribed in section 6418(e)(1).

A transfer election is a statutory election

because its due date is prescribed by statute. As such, the section 9100 relief procedures only apply insofar as the late election

is being filed pursuant to §301.9100-2(b),

which requires that the taxpayer timely

filed its return for the year the election

should have been made. Relief under this

provision will only apply to taxpayers that

have not received an extension of time

to file a return after the original due date

(excluding extensions). Taxpayers eligible

for this relief must take corrective action

under §301.9100-2(c) and follow the procedural requirements of §301.9100-2(d).

5. Transfer election statement

Proposed §1.6418-2(b)(5)(i) generally would have defined a transfer election statement as a written document that

describes the transfer of a specified credit

portion between an eligible taxpayer and

transferee taxpayer and would have provided rules for both an eligible taxpayer

and transferee taxpayer to attach a transfer election statement to their respective

return. The proposed regulations would

have provided that any document can be

used that meets the requirements of proposed §1.6418-2(b)(5)(ii), with the document labeled as a “Transfer Election

Statement” that is attached to a return.

The information required in proposed

§1.6418-2(b)(5)(ii) would not otherwise

have limited any other information that the

eligible taxpayer and transferee taxpayer

may agree to provide in connection with

the transfer of any specified credit portion.

The proposed regulations would have provided that the statement must be signed

under penalties of perjury by an individual

with authority to legally bind the eligible

taxpayer and must also include the written

consent of an individual with authority to

legally bind the transferee taxpayer.

Proposed §1.6418-2(b)(5)(ii) described

the information required in a transfer election statement, which generally would

have included: (1) information related to

the transferee taxpayer and the eligible

taxpayer; (2) a statement that provides

the necessary information and amounts

to allow the transferee taxpayer to take

into account the specified credit portion

with respect to the eligible credit prop-

1687

erty; (3) an attestation that the parties are

not related (within the meaning of section

267(b) or 707(b)(1)); (4) a statement or

representation from the eligible taxpayer

that it has or will comply with all relevant

requirements to make a transfer election;

(5) a statement or representation from

the eligible taxpayer and the transferee

taxpayer acknowledging the notification

of recapture requirements under section

6418(g)(3) and the section 6418 regulations (if applicable); and (6) a statement or

representation from the eligible taxpayer

that it has provided the required minimum

documentation to the transferee taxpayer.

A commenter requested clarification on

whether a transfer election statement can

be a partnership agreement. Unless otherwise provided in guidance, any document,

including a written partnership agreement,

can serve as a transfer election statement

if the document otherwise meets the

requirements of proposed §1.6418-2(b)

(5)(i) and includes the information outlined in proposed §1.6418-2(b)(5)(ii). The

Treasury Department and the IRS did not

include a specific rule in these final regulations allowing for a partnership agreement to be treated as a transfer election

statement because the language in proposed §1.6418-2(b)(5) was already broad

enough to allow for such an agreement to

qualify.

Another commenter recommended that

an eligible taxpayer be required, in a form

accompanying its annual tax return, to list

all tax credits it generated in the year by

credit type, the total amount of those tax

credits it sold, a schedule of projects to

which the sold credits relate, the parties

to whom it sold, and the remaining credits it retained. The Treasury Department

and the IRS note that the registration and

transfer election process will require an

eligible taxpayer to list all eligible credits it determined and transferred during a

taxable year. Additionally, an eligible taxpayer will be required to file the relevant

credit source forms and the Form 3800,

which will include the type of credits

the eligible taxpayer determined and if it

claimed any credits against its tax liability. At this time, the Treasury Department

and the IRS do not think it is necessary for

tax administration purposes for an eligible

taxpayer to report the parties to whom it

transferred eligible credits as part of the

June 17, 2024

registration process. This is because the

IRS matches the registration numbers

obtained by an eligible taxpayer in the

registration process with the transferee

taxpayers that claim transferred specified

credit portions against their tax liability.

Because no changes are necessary to proposed §1.6418-2(b)(5)(i) and (ii), these

final regulations adopt these provisions

without substantive change.

Proposed §1.6418-2(b)(5)(iii)

described the time by which a transfer

election statement must be completed.

The proposed rule provided that a transfer election statement can be completed

at any time after the eligible taxpayer and

transferee taxpayer have sufficient information to meet the requirements of proposed §1.6418-2(b)(5)(ii), but, for any

year, the transfer election statement cannot be completed after the earlier of: (1)

the filing of the eligible taxpayer’s return

for the taxable year for which the specified

credit portion is determined with respect

to the eligible credit; or (2) the filing of the

transferee taxpayer’s return for the year in

which the specified credit portion is taken

into account. Because no comments were

received on proposed §1.6418-2(b)(5)

(iii), these final regulations adopt this provision without change.

Proposed §1.6418-2(b)(5)(iv) would

have defined required minimum documentation as the minimum documentation that

the eligible taxpayer is required to provide

to a transferee taxpayer. This documentation included: (1) information that validates

the existence of the eligible credit property;

(2) if applicable, documentation substantiating that the eligible taxpayer has satisfied the requirements to include any bonus

credit amounts (as defined in proposed

§1.6418-1(c)(3)); and (3) evidence of the

eligible taxpayer’s qualifying costs in the

case of a transfer of an eligible credit that is

part of the investment credit or the amount

of qualifying production activities and

sales amounts, in the case of a transfer of

an eligible credit that is a production credit.

Proposed §1.6418-2(b)(5)(v) would have

specified that a transferee taxpayer, consistent with §1.6001-1(e), would be required

to retain the required minimum documentation provided by the eligible taxpayer so

long as the contents thereof may become

material in the administration of any internal revenue law.

June 17, 2024

Several commenters recommended

that the final regulations increase the

amount of required minimum documentation that an eligible taxpayer must provide

to a transferee taxpayer to make a valid

transfer election under section 6418(a).

One commenter urged that all of the

records that would be necessary for an eligible taxpayer to substantiate the claimed

tax credit should be provided to the transferee taxpayer. Other commenters stated

that more robust minimum documentation

requirements should be imposed, including specific disclosure requirements and

minimum documentation that an eligible

taxpayer must provide to a transferee taxpayer concerning compliance with labor

laws and an affirmation that the eligible

taxpayer has undertaken best efforts to

establish compliance. Another commenter

asked for confirmation that the required

minimum documentation is the same for

all taxpayers.

In providing for the required minimum

documentation that an eligible taxpayer

must provide to a transferee taxpayer,

the intention was to require a baseline

of information that is necessary for validating an eligible taxpayer’s claim of

eligibility to an eligible credit, while

not overburdening the eligible taxpayer

with production requirements or altering

the arm’s length arrangement between

the parties. Further, the proposed regulations did not limit the amount or type

of information that a transferee taxpayer

can require prior to agreeing to an eligible credit transfer. This means that while

the required minimum documentation

requirements are the same for all taxpayers, any particular agreement between an

eligible taxpayer and transferee taxpayer

may go beyond the required minimum

documentation based on the arrangement of the parties. The proposed regulations allowed sufficient flexibility for

market participants to determine if more

information is necessary in a particular

transaction, while balancing the burden

of producing the required minimum documentation required to make a transfer

election. Thus, these final regulations

adopt proposed §1.6418-2(b)(5)(iv) and

(v) without substantive change.

Another commenter requested clarification that any responsibility to engage

in regular reporting of certified payroll,

1688

apprentice labor hour reports, or other

obligation under the prevailing wage and

apprenticeship requirements for transferred specified credit portions remain

with the eligible taxpayer. Because an eligible taxpayer determines any increased

credit amount applicable to the prevailing

wage and apprenticeship requirements,

proposed regulations under section 45

would provide that the requirements relevant to determining the credit, including the correction and penalty provisions

described in section 45(b)(7)(B) and 45(b)

(8)(D), would remain with the eligible

taxpayer who determined the credit. On

August 30, 2023, the Treasury Department and the IRS published proposed regulations under section 45 (REG-10090823) in the Federal Register (88 FR

60018) (section 45 proposed regulations)

that would also provide that the general

recordkeeping requirements for prevailing

wage and apprenticeship (PWA) requirements would remain with an eligible

taxpayer who transfers a specified credit

portion that includes an increased credit

amount. The section 45 proposed regulations would not require regular reporting

of certified payroll or apprentice labor

hour reports to the IRS. The responsibility of determining a credit is initially with

the eligible taxpayer, and the transfer of

an eligible credit does not relieve an eligible taxpayer of this responsibility or the

responsibility to substantiate. Thus, the

responsibility for substantiating a PWA

increased credit amount does not shift to

the transferee taxpayer, although a transferee taxpayer may be treated as the relevant taxpayer for other purposes under the

IRA under section 6418(a). In light of the

section 45 proposed regulations, the Treasury Department and the IRS have determined that no clarification is needed under

proposed §1.6418-2(b)(5)(iv) and (v) and

thus, these final regulations adopt these

provisions without substantive change.

C. Limitations after a transfer election is

made

Proposed §1.6418-2(c)(1) would have

provided that a transfer election with

respect to a specified credit portion is irrevocable. No comments were received on

this rule, and these final regulations adopt

the rule without change.

Bulletin No. 2024–25

Consistent with section 6418(e)(2),

proposed §1.6418-2(c)(2) would have

provided that a specified credit portion

may only be transferred pursuant to a

transfer election once. A transferee taxpayer cannot make a transfer election of

any specified credit portion transferred

to the transferee taxpayer. As described

in the Explanation of Provisions in the

preamble to the proposed regulations, the

proposed rule would have disallowed any

arrangement in which the Federal income

tax ownership of a specified credit portion

transfers first from an eligible taxpayer

to a dealer or intermediary and then, ultimately, to a transferee taxpayer. In contrast, the Explanation of Provisions in the

preamble to the proposed regulations provided that an arrangement using a broker

to match eligible taxpayers and transferee

taxpayers should not violate the no additional transfer rule, assuming the arrangement at no point transfers the Federal

income tax ownership of a specified credit

portion to the broker or any taxpayer other

than the transferee taxpayer.

Commenters advocated for the final

regulations to allow certain transactions with brokers, or other taxpayers,

that were disallowed under proposed

§1.6418-2(c)(2) based on the no additional transfer rule of section 6418(e)(2).

Those commenters posited that allowing such transactions would increase the

number of participants entering the credit

purchasing market. Another commenter

recommended that the final regulations

apply the no additional transfer rule in

proposed §1.6418-2(c)(2) to prohibit only

successive transfers made by a transferee

taxpayer specified in the transfer election, assuming the intent of the rule is not

to prohibit the development of a liquid

trading market or derivative activity by

third parties other than the eligible taxpayer. The commenter stated that if the

intent of the rule is to prevent the development of such a market or activities,

then the final regulations should contain

clear and administrable rules based upon

the other timing rules provided in the proposed regulations because applying normal “benefits and burdens of ownership”

principles, as described in the Explanation of Provisions in the preamble to the

proposed regulations, to transfers of eligible credits is not workable.

Bulletin No. 2024–25

The Treasury Department and the IRS

agree that it is unnecessary to apply benefits and burdens of ownership principles to

transfers of eligible credits under section

6418, but no changes are needed to proposed §1.6418-2(c)(2) because it does not

reference those principles. To clarify the

rules, to make a transfer election, all the

requirements of §1.6418-2(b) must be satisfied. Until the requirements are satisfied,

then there is no valid transfer, no transferee taxpayer, and the requirements of

§1.6418-2(c)(2) are not applicable. To the

extent there are brokers or other taxpayers

providing liquidity, it is noteworthy that

any payments received by those taxpayers

related to eligible credits will be taxable

because the provisions of section 6418

will not prevent the inclusion of gross

income for such taxpayers, or for any

amounts received by an eligible taxpayer

other than amounts paid by a transferee

taxpayer in consideration for the eligible

credit. Further, if brokers, or others, are

transferred a specified credit portion after

satisfying the rules of §1.6418-2(b) such

that they are considered transferee taxpayers, then the prohibition of section 6418(e)

(2) and the requirements of §1.6418-2(c)

(2) will prevent a second transfer by such

transferee taxpayer.

A commenter recommended that the

final regulations clarify that agreements

for the right to purchase eligible credits

may be transferred and are not subject

to the rule in proposed §1.6418-2(c)(2).

Specifically, the commenter raised that

the statutory language prohibiting multiple transfers with respect to any portion

of an eligible credit does not prohibit a

transferee taxpayer that entered into an

agreement with an eligible taxpayer for

the right to purchase eligible credits for

a number of years from transferring that

right to another transferee taxpayer as long

as the eligible credits themselves have not

been transferred to the original transferee

taxpayer first. These final regulations do

not adopt a specific rule related to this situation because it describes a transaction

that is outside of section 6418. As previously described, until the requirements of

a valid transfer election are satisfied, then

there is no valid transfer and no transferee

taxpayer.

Several commenters asked for clarity

on when a transfer has occurred or rec-

1689

ommended the point at which a transfer

has occurred. For example, one commenter recommended a rule that once the

amount of the credit has been determined,

the specified credit portion is considered

to have been transferred on the earliest

date on which payment for credit has been

made, the last day of the eligible taxpayer’s taxable year, or (if earlier) the date the

transfer election statement has been filed.

To clarify, a transfer of a specified credit

portion does not technically occur until an

eligible taxpayer satisfies all the requirements in §1.6418-2(b) to make a valid

transfer election. However, it is important

to note that the technical transfer date does

not necessarily control for other purposes

of section 6418. For example, under the

paid in cash rule, amounts can be paid

with respect to the specified credit portion

as early as the beginning of the taxable

year in which the related eligible credit is

determined.

D. Determining the eligible credit

Section 6418(a) states that an eligible

taxpayer may elect to transfer an eligible

credit determined with respect to such taxpayer. Proposed §1.6418-2(d) would have

provided rules to clarify how an eligible

taxpayer determines an eligible credit.

Under proposed §1.6418-2(d)(1), an eligible taxpayer can only transfer eligible

credits determined with respect to the eligible taxpayer. The proposed regulations

would have provided that, for an eligible

credit to be determined with respect to

an eligible taxpayer, the eligible taxpayer

must own the underlying eligible credit

property or, if ownership is not required,

conduct the activities giving rise to the

underlying eligible credit.

A commenter suggested that, in the

absence of clear statutory language indicating that ownership of underlying eligible credit property or conducting activities giving rise to the underlying eligible

credit is a prerequisite to transferability,

such requirements should not be imposed

under proposed §1.6418-2(d)(1). The text

of section 6418(a), which requires the eligible credit to be determined with respect

to the eligible taxpayer, and the text of

the underlying eligible credit provisions

confirm the requirement that ownership

of underlying eligible credit property or

June 17, 2024

conducting activities giving rise to the

underlying eligible credit is a prerequisite

to transferability. However, as discussed

in part 2.A of this Summary of Comments

and Explanation of Revisions, these final

regulations clarify that the only eligible

credit for which an eligible taxpayer does

not have to own an underlying eligible

credit property, and instead can merely

conduct activities, is section 45X. This

revision should help clarify the “determined with respect to” requirements of

section 6418.

A commenter noted that section 50(b)

(1) limits the use of certain eligible

credits in the territories and requested

that the final regulations provide an

exception to section 50(b)(1) to allow

eligible taxpayers in U.S. territories to

transfer all eligible credits. Since before

the enactment of the IRA, section 50(b)

(1) has limited the use of certain credits

(including ITCs, vehicle-related credits, and energy efficiency incentives)

for property used in the U.S. territories.

Section 50(b)(1) provides that no credit

can be determined with respect to any

property that is used predominantly outside the United States1 unless section

168(g)(4)(G) applies. Section 168(g)(4)

(G) provides an exception for any property that is owned by a domestic corporation or by a United States citizen other

than a citizen entitled to the benefits of

sections 931 or 933, and that is used

predominantly in a possession of the

United States by such a corporation or

such a citizen, or by a corporation created or organized in, or under the law of,

a possession of the United States. The

IRA did not amend these provisions;

instead, the IRA specifically referenced

section 50(b)(1) in section 30C and did

not exclude section 48, 48C, or 48E

from the application of section 50(b)

(1). Without specific language in section 6418 or in the underlying eligible

credits addressing section 50(b)(1), or

other compelling evidence of Congressional intent, a special rule turning off

the application of section 50(b)(1) is not

supported by the Code. Therefore, these

final regulations do not adopt this recommendation.

1

E. Treatment of Payments Made in

Connection with a Transfer Election

Section 6418(b)(1) through (3) provides rules related to the treatment of payments made in connection with a transfer.

Proposed §1.6418-2(e)(1) through (4)

would have provided guidance related to

these rules, including that such amounts

are required to be paid in cash, are not

includable in the gross income of the eligible taxpayer and are not deductible by

the transferee taxpayer, as well as an antiabuse rule that included examples illustrating the anti-abuse rule.

1. Cash requirement

Section 6418(b)(1) requires that any

amount paid by a transferee taxpayer for an

eligible credit must be paid in cash. Consistent with section 6418(b)(1), proposed

§1.6418-2(e)(1) would have provided that

an amount paid by a transferee taxpayer

to an eligible taxpayer would be consideration for a transfer of a specified credit

portion only if it is paid in cash (as defined

in proposed §1.6418-1(f)), directly relates

to the specified credit portion, and is not

described in proposed §1.6418-5(a)(3)

(describing payments related to an excessive credit transfer). Consistent with section 6418(b)(2), proposed §1.6418-2(e)(2)

would have provided that any amount paid

to an eligible taxpayer as consideration for

a transfer of a specified credit portion is

not includible in the gross income of the

eligible taxpayer. Correspondingly and

consistent with section 6418(b)(3), proposed §1.6418-2(e)(3) would have provided that no deduction is allowed to the

transferee taxpayer for consideration that

is paid as consideration for a transfer of a

specified credit portion.

2. Anti-abuse provision

Section 6418(h) authorizes the Secretary to issue regulations or other guidance that may be necessary to carry out

the purposes of section 6418. To prevent

transactions contrary to the purposes of

section 6418, the proposed regulations

would have included an anti-abuse pro-

vision in proposed §1.6418-2(e)(4). This

rule would have provided that a transfer

election of any specified credit portion,

and therefore the transfer of that specified

credit portion to a transferee taxpayer,

may be disallowed, or the Federal income

tax consequences of any transaction(s)

effecting such a transfer may be recharacterized, in circumstances in which the

parties to the transaction have engaged in

the transaction or a series of transactions

with the principal purpose of avoiding any

Federal tax liability beyond the intent of

section 6418. For example, under the proposed rule, an amount of cash paid by a

transferee taxpayer would not be considered as paid in connection with the transfer

of a specified credit portion in proposed

§1.6418-2(e)(1) if a principal purpose

of a transaction or series of transactions

was to allow an eligible taxpayer to avoid

gross income. Conversely, an amount of

cash paid by a transferee taxpayer would

have been considered paid in connection

with the transfer of a specified credit portion under proposed §1.6418-2(e)(1) if a

principal purpose of a transaction or series

of transactions was to increase a Federal

income tax deduction of a transferee taxpayer.

The proposed regulations included

two examples in §1.6418-2(e)(4)(ii)

and (iii) to illustrate the application of

the anti-abuse rule. In the first example,

to avoid recognizing gross income, the

eligible taxpayer (Taxpayer A) undercharges for services to the transferee taxpayer (Customer B) in combination with

the transfer of a specified credit portion,

and so the transaction is recharacterized. Specifically, Taxpayer A normally

charges $20 for the same services without

the purchase of the eligible credit, and

the average transfer price of the eligible

credit between unrelated parties is $80

paid in cash for $100 of an eligible credit.

The example provides that Taxpayer A

instead charges Customer B $100 for the

eligible credit and $0 for the services. In

the second example, to increase a transferee taxpayer’s (Customer D) deduction,

an eligible taxpayer (Taxpayer C) overcharges for property and undercharges

for the eligible credit. Specifically, Tax-

Under section 7701(a)(9), “[t]he term ‘United States’ when used in a geographical sense includes only the States and the District of Columbia.”

June 17, 2024

1690

Bulletin No. 2024–25

payer C normally charges $20 for the

same property without the transfer of the

eligible credit, and the average transfer

price of an eligible credit between unrelated parties is $80 paid in cash for $100

of the eligible credit. The example provides that Taxpayer C instead charges

Customer D $80 for the property and $20

for the eligible credit. In both examples,

the proposed regulations would have

recharacterized the transactions.

A number of commenters made suggestions related to the proposed anti-abuse

rule and examples. One commenter urged

the Treasury Department and the IRS to

take all possible precautionary measures

to protect taxpayer interests and prevent abuse. Another commenter, while

acknowledging that concerns raised by

the anti-abuse rule and the examples are

fair and appropriate, recommended as an

alternative that the final regulations only

include the general anti-abuse rule and

remove the specific rules and examples.

The commenter suggested that the IRS

could rely on generally applicable principles and the anti-abuse rule to recharacterize abusive transactions and separately

issue sub-regulatory guidance to provide

safe harbors for cases in which the antiabuse rule will not be asserted. The commenter also suggested that the IRS could

issue further clarifying guidance if a publicly available and readily commoditized

market develops. While the commenter

did not expressly describe the specific

rules it recommended be removed, the

Treasury Department and the IRS infer

that the commenter was referring to the

language describing situations that had

a principal purpose of eligible taxpayers

avoiding the recognition of gross income

or of transferee taxpayers increasing

deductions. Other commenters, however,

recommended that the final regulations

include additional specific examples or

safe harbors to determine those situations

that would not be considered abusive.

In considering all of these commenters’

views, the Treasury Department and IRS

have determined that taxpayers would

benefit from having fact patterns in these

final regulations that are likely to represent

situations in which abuse could be present. Thus, these final regulations adopt

the anti-abuse provision of the proposed

regulations, but with certain revisions in

Bulletin No. 2024–25

response to commenters that are described

in the following paragraphs.

A commenter noted a discrepancy

in the language of the anti-abuse rule in

proposed §1.6418-2(e)(4)(i), making it

unclear whether the standard of the antiabuse rule was that parties to the transaction have engaged in the transaction

or a series of transactions with “the” or

“a” principal purpose of tax avoidance.

As noted by the commenter, the use of

“the” or “a” represent different standards.

To demonstrate the difference, the commenter compared the regulations under

section 269 of the Code (employing a

“the principal purpose” standard) with the

regulations under section 881 of the Code

(section 881 regulations) (employing a

“one of the principal purposes” standard).

The proposed rule was intended to apply

the anti-abuse provision if a transaction

was entered into with “a” principal purpose of avoidance of tax beyond the intent

of section 6418. In response to the comment, these final regulations are clarified.

This “a” principal purpose standard is similar to other anti-abuse standards, such as

the standard in the section 881 regulations

cited by the commenter or the anti-abuse

rule in §1.45D-1(g) (relating to the new

markets tax credit determined under section 45D (section 45D credit)). This standard is appropriate based on the goals of

preventing fraud and improper payments

and in accordance with section 6418(h)

to provide rules necessary to carry out the

purposes of section 6418.

Another commenter requested clarification on the meaning of the phrase “will

be considered paid” in proposed §1.64182(e)(4)(i), noting that the proposed regulations would have provided that an “amount

of cash paid by a transferee taxpayer will

not be considered as paid in connection

with the transfer of a specified credit portion under paragraph (e)(1) of this section

if a principal purpose of a transaction or

series of transactions is to allow an eligible taxpayer to avoid gross income.”

The commenter stated, however, that the

next sentence in proposed §1.6418-2(e)

(4)(i) provides: “[c]onversely, an amount

of cash paid by a transferee taxpayer will

be considered paid in connection with the

transfer of a specified credit portion under

paragraph (e)(1) of this section if a principal purpose of a transaction or series

1691

of transactions is to increase a Federal

income tax deduction of a transferee taxpayer [emphasis added].” The commenter

believed that the “will be considered paid”

in the quoted second sentence should read

as “will not be considered paid” similar

to the quoted first sentence. The Treasury

Department and the IRS clarify that the

proposed rule is written as intended, and

no changes to the proposed rule are made

based on this comment. The quoted second sentence is describing a situation in

which a transferee taxpayer paid less for

an eligible credit and more for an item or

service that resulted in a deduction. In this

scenario, it is correct that the amount “will

be considered paid” in connection with

the transfer of the specified credit portion,

and not with respect to the purchase of the

item that was deductible.

Commenters requested clarification of

the language in the examples in proposed

§1.6418-2(e)(4)(ii) and (iii) that referred

to the “average transfer price of the eligible credit between unrelated parties”

in determining whether the transactions

are subject to recharacterization under

the proposed anti-abuse rule. Commenters raised concerns about the availability

of pricing information, including specifically in the case of the section 45U credit.

A commenter thought that there will be

insufficient publicly available pricing

information, and if the available data are

limited and incomplete, price averages

will not yield reliable results. That same

commenter noted that if the IRS develops the requisite data to determine an

average transfer price for each eligible

credit, organizing such data and publishing it regularly would be administratively

burdensome. Further, commenters were

concerned that the average price would

not take into account the facts and circumstances of an arrangement, which commenters believed relevant for determining price. The commenter recommended

changing “the average transfer price of the

eligible credit between unrelated parties”

to “an arm’s length price of the eligible

credit without regard to other commercial

relationships” could solve potential issues

with the language in the proposed regulations. The commenter stated that the recommendation would also resolve a separate comment related to the use of the term

“unrelated party” in the proposed regula-

June 17, 2024

tions by clarifying that the intent was the

price be determined without regard to

other commercial relationships.

In response, these final regulations

adopt the commenter’s suggested language and revise the examples in proposed

§1.6418-2(e)(4)(ii) and (iii) accordingly.

This change is made in acknowledgment

that average price data may not be currently available, may take more time to

develop, and will most likely be dependent on the facts and circumstances of the

transaction (for example, the risk profile

of the project). The language suggested

by the commenter will still allow average

transfer price data to be used to the extent

it is relevant. The intent of using an average transfer price was to suggest an objective criterion for evaluating a transaction,

along with using the pricing information

of the eligible taxpayer in the determination. While the language “an arm’s length

price of the eligible credit without regard

to other commercial relationships” has the

potential to add more subjectivity to the

determination, concerns with respect to

determining the average transfer price of

a certain eligible credit, including those

with limited markets, outweigh any benefit with respect to retaining a potentially

more objective standard.

Another commenter requested clarification on whether a transfer of a credit

for cash consideration could ever be fully

respected in cases in which the cash consideration for such credit transfer is greater

or less than the average transfer price

of the eligible credit between unrelated

parties. Any deviation from an average

transfer price of an eligible credit should

not necessarily require recharacterization

under the anti-abuse rule; however, the

revisions made to the examples in proposed §1.6418-2(e)(4)(ii) and (iii) should

help clarify this issue. The intent of the

anti-abuse rule is to allow recharacterization if the price paid is not economically

supportable and is unreasonable based on

the facts and circumstances of the transaction.

Another commenter asked that the

final regulations include considerations of

whether an eligible taxpayer is viewed as

transferring credits at a discount without

avoiding tax liabilities. For example, if

an eligible taxpayer is willing to transfer

eligible credits at a discount and receive

June 17, 2024

income from product sales or services

that is in accordance with such eligible

taxpayer’s acceptable investment rate of

return, the commenter wanted to know

whether the anti-abuse rule would be

applicable. In the commenter’s hypothetical, the eligible taxpayer appears to be

decreasing the price of eligible credits to

encourage customers to purchase products

or services but not making a corresponding increase to the price of its products or

services, which could avoid recognizing

gross income. However, the facts and circumstances would dictate whether the eligible taxpayer and the transferee taxpayer

were engaging in the transaction with a

principal purpose of avoiding any Federal

income tax liability beyond the intent of

section 6418.

The Treasury Department and the IRS

have concluded that it is premature to

adopt any safe harbor or a list of abuse

examples in these final regulations in

§1.6418-2(e)(4) but will continue to study

transactions between eligible taxpayers

and transferee taxpayers to determine if it

is appropriate to adopt an objective safe

harbor or clarify other examples of abusive practices.

F. Transferee taxpayer’s treatment of

eligible credit

1. Taxable year

Pursuant to section 6418(d), a transferee taxpayer takes the transferred eligible credit into account in its first taxable

year ending with, or after, the eligible

taxpayer’s taxable year with respect to

which the transferred eligible credit was

determined. Proposed §1.6418-2(f)(1)

would have adopted this rule and further

explained that to the extent the taxable

years of an eligible taxpayer and a transferee taxpayer end on the same date, the

transferee taxpayer will take the specified

credit portion into account in that taxable

year. To the extent the taxable years of an

eligible taxpayer and a transferee taxpayer

end on different dates, the transferee taxpayer will take the specified credit portion

into account in the first taxable year that

ends after the taxable year of the eligible

taxpayer.

Commenters requested clarification

on whether a taxpayer that has a 52–53-

1692

week taxable year can rely on §1.441-2(c)

(1) to allow its taxable year that otherwise ends the last Saturday in December

to be treated as ending on December 31.

Otherwise, a transferee taxpayer with a

52–53-week taxable year would have to

wait until the following taxable year to

take into account an eligible credit that

was transferred by an eligible taxpayer

with a calendar year. A similar delay could

result if the eligible taxpayer had a 52–53week taxable year ending in January and

the transferee taxpayer has a taxable year

ending on December 31. Section 1.4412(c)(1) provides, in relevant part, that for

purposes of determining the effective date

(for example, of legislative, regulatory, or

administrative changes) or the applicability of any provision of the internal revenue

laws that is expressed in terms of taxable

years beginning, including, or ending with

reference to the first or last day of a specified calendar month, a 52–53-week taxable year is deemed to begin on the first

day of the calendar month nearest to the

first day of the 52–53-week taxable year,

and is deemed to end or close on the last

day of the calendar month nearest to the

last day of the 52–53-week taxable year,

as the case may be. While the fact patterns

from commenters do not fall within the

explicit language of §1.441-2(c)(1), the

Treasury Department and the IRS conclude it is consistent to adopt a similar

rule with respect to taxable year ends for

purposes of section 6418(d). Thus, these

final regulations include a rule in §1.64182(f)(1)(ii) providing that, for purposes of

determining the taxable year in which a

credit is taken into account under section

6418(d) and §1.6418-2(f)(1)(i), a 52–53week taxable year of an eligible taxpayer

and transferee taxpayer is deemed to end

on or close on the last day of the calendar month nearest to the last day of the

52–53-week taxable year, as the case may

be. Thus, in the fact patterns described

by commenters, the transferee taxpayer

and the eligible taxpayer would have the

same year end, and the transferee taxpayer

would not have to wait until the following year-end to take the eligible credit into

account.

Another commenter asked when a

transferee taxpayer with a taxable year that

is a calendar year can take into account an

eligible credit transferred from an eligible

Bulletin No. 2024–25

taxpayer that has a fiscal year ending June

30, if the eligible taxpayer’s project was

placed in service on November 1, 2023,

and the eligible taxpayer proposes to

transfer the eligible credit to the transferee

taxpayer on November 15, 2023 (and

assuming all other requirements of section

6418 were met). It appears this comment

is seeking clarity on whether it is possible for an eligible taxpayer to determine

an eligible credit during its taxable year

beginning July 1, 2023, and ending June

30, 2024, and transfer the eligible credit in

November 2023 to a transferee taxpayer

with a taxable year ending December 31,

2023, for the transferee taxpayer to use

in calculating its 2023 tax liability. Section 6418(d)(1) requires that a transferee

taxpayer take a specified credit portion

into account in a taxable year ending

with or after the taxable year of the eligible taxpayer to which the eligible credit

was determined. In this fact pattern, the

transferee taxpayer’s taxable year ends

after the eligible taxpayer’s taxable year.

The transferee taxpayer cannot take into

account the eligible credit until its first

taxable year ending after June 30, 2024,

meaning that the transferee taxpayer

would have to wait until it filed its 2024

tax return (not considering whether the

transferee taxpayer was able to use the

eligible credit against its estimated tax

payments as described in part II.F.5 of this

Summary of Comments and Explanation

of Revisions). The eligible taxpayer’s

taxable year end of June 30, 2023, does

not impact this analysis, as there was no

eligible credit determined with respect to

the eligible taxpayer in that taxable year.

Further, even if a credit was determined

in the taxable year ending June 30, 2023,

because section 6418 only applies to taxable years beginning after December 31,

2022, no eligible credits generated in such

year are eligible to be transferred.

2. No gross income for a transferee

taxpayer upon claiming a transferred

specified credit portion

Proposed §1.6418-2(f)(2) would have

provided that a transferee taxpayer does

not have gross income upon claiming a

transferred specified credit portion even

if the amount of cash paid to the eligible taxpayer was less than the amount of

Bulletin No. 2024–25

the transferred specified credit portion,

assuming all other requirements of section 6418 are met. For example, a transferee taxpayer who paid $9X for $10X of

a specified credit portion that the transferee taxpayer then claims on its return

does not result in the $1X difference being

included in the gross income of the transferee taxpayer.

A commenter suggested that the proposed rule conflicted with Palmer v. Commissioner, 302 U.S. 63 (1937), which held

that the purpose of a bargain purchase

determines its tax treatment; that is, if it

is intended as compensation, then it is so

treated for Federal tax purposes. Based

on the case, the commenter thought that

it is not possible to determine that a bargain purchase of a tax credit is not gross

income to the purchaser, as the proposed

regulations provided, without examining

the facts and circumstances surrounding

the transaction.

Proposed §1.6418-2(f)(2) does not

conflict with Palmer. The proposed rule

presumes that the eligible taxpayer and

the transferee taxpayer negotiated the

consideration paid for the specified credit

portion at arm’s length and that the difference between the specified credit portion

and the consideration paid for the credit

(the “discount”) reflects the transferee

taxpayer’s assumption of the risk of an

excess credit transfer or recapture event.

The proposed rule does not preclude the

IRS from parsing the net consideration

paid for the specified credit portion and

analyzing whether the net consideration

reflects a reduction due to an amount

separately owed by the transferor to the

transferee due to the receipt of services or

property from the transferee. In such situation, the proposed rule does not preclude

the IRS from asserting that a portion of the

discount is income to the transferee taxpayer under Palmer or the anti-abuse rule

in §1.6418-2(e)(4) if a portion of the discount, in fact, constitutes compensation to

the transferee taxpayer under section 61.

Section 6418(a) is unambiguous that the

transferee taxpayer is treated as the eligible taxpayer for purposes of the Code.

Because the eligible taxpayer does not

recognize gross income from generating

or claiming a transferred specified credit

portion under the Code, the Treasury

Department and the IRS interpret section

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6418(a) to provide the transferee taxpayer

with the same treatment upon claiming a transferred specified credit portion

acquired at a discount. Section 6418(a) is

also unambiguous that the income exclusion is limited to the claiming of the eligible credit and does not cover compensation paid to the transferee taxpayer.

For these reasons, these final regulations adopt proposed §1.6418-2(f)(2)

without substantive change.

3. Transferee taxpayer treated as the

eligible taxpayer

Consistent with the language in section 6418(a), proposed §1.6418-2(f)(3)

(i) would have provided that a transferee

taxpayer (and not the eligible taxpayer) is

treated as the taxpayer for purposes of the

Code with respect to the transferred specified credit portion. Proposed §1.6418-2(f)

(3)(i) further explained that an eligible

taxpayer must apply the rules necessary to

determine the amount of an eligible credit

prior to making the transfer election for a

specified credit portion, and therefore a

transferee taxpayer does not re-apply rules

that relate to a determination of an eligible credit, such as the rules in sections 49

or 50(b). However, a transferee taxpayer

must apply rules that relate to computing

the amount of the specified credit portion

that is allowed to be claimed in the taxable

year by the transferee taxpayer, such as the

rules in sections 38 or 469, as applicable.

a. Passive credit rules generally

Proposed §1.6418-2(f)(3)(ii) provided

a more specific rule regarding application

of section 469 to a transferee taxpayer.

This proposed rule provided that a specified credit portion transferred to a transferee taxpayer is treated as determined in

connection with the conduct of a trade or

business and, if applicable, such transferred specified credit portion is subject

to the rules in section 469 (passive credit

rules).

Many comments were received regarding the application of section 469 to transferred specified credit portions. One commenter supported applying the passive

credit rules to transferee taxpayers and

believed that a more restrictive rule would

better prevent potential fraud and abuse.

June 17, 2024

Similarly, another commenter raised that

allowing individuals to be credit purchasers raises important potential concerns

about fraud and abuse since individuals,

particularly those who are less affluent,

may have less ability to perform due diligence on the transferred eligible credits

and may become targets of fraudulent

schemes. Most commenters, however,

asserted that the passive credit rules

should not apply to transferee taxpayers or

that the rules should only apply in limited

circumstances.

Some commenters argued that applying

the rules will limit the market of potential

purchasers of eligible credits to corporate

entities with large tax liabilities and thus,

exclude other taxpayers as potential investors. Other commenters contended that

if the passive credit rules did not apply

to transferee taxpayers, participation of

individuals could materially increase,

which would strengthen the transferability

market and support the IRA’s renewable

energy and job creation goals. One commenter supported providing a carveout

from the application of the passive credit

rules for projects that generate less than

5 megawatts of energy. A few commenters requested that if the application of the

passive credit rules remains, the Treasury

Department and the IRS should allow for

some amount of non-passive income tax

liability flowing from operating S corporations and limited liability companies to

be eligible to be offset by transferred eligible credits.

Many commenters addressed the rule

in proposed §1.6418-2(f)(3)(ii) that would

treat a specified credit portion transferred

to a transferee taxpayer as determined in

connection with the conduct of a trade or

business. One commenter generally supported the position that an eligible credit

is earned in connection with the conduct

of a trade or business, as that reflects how

an eligible credit would arise. Other commenters, however, contended that treating transferred specified credit portions

as earned in connection with a trade or

business is inconsistent with the language

in section 6418(a), which states that the

transferee taxpayer is treated as the taxpayer with respect to a transferred credit.

Some commenters stated that the language

in section 6418(a) should be read as only

transferring the rights of the credit to the

June 17, 2024

transferee rather than subjecting the transferee to the passive credit rules. Another

commenter argued that section 469 cannot apply to an activity that is not owned

directly, or indirectly, by the taxpayer.

A few commenters urged that instead of

treating transferred specified credit portions as determined in connection with the

conduct of a trade or business, it would be

appropriate to treat transferee taxpayers

as engaged in an investment activity and

specified credit portions as determined in

connection with such investment activity. As support for this position, these

commenters cited Rev. Rul. 2010-16,

2010-26 I.R.B. 769, which addresses the

application of the passive credit rules to

section 45D credits earned through certain factual situations. Although unclear,

another commenter appeared to assert

that a transferred specified credit portion

should be treated as a capital asset under

section 1221 to a transferee taxpayer and

that Palmer v. Commissioner, supra, is

misapplied.

The language in section 6418 is most

straightforwardly understood to not support disregarding the passive credit rules

for transferred specified credit portions or

applying the rules in a different manner

than they apply to other general business

credits arising in a trade or business. In

enacting the novel credit delivery mechanisms of sections 6417 and 6418 as part of

the IRA, Congress considered the application of the rules governing the determination and the utilization of tax credits. In

cases in which Congress desired to alter

the application of certain rules, they provided as such. For example, Congress

generally turned off section 38(c) and sections 50(b)(3) and (4)(A)(i) in the case of

elective pay under section 6417. Like section 38(c), the application of section 469

can materially affect whether a taxpayer

can use tax credits to offset its tax liability. There is no carveout for section 469

in section 6418. Instead, section 469 provides in relevant part that a credit is subject to the passive credit rules if the credit

arises in the conduct of a trade or business

in which the taxpayer does not materially

participate in the year to which it is attributable, and the credit is a general business

credit under section 38. All of the eligible

credits listed in section 6418(d) arise in the

conduct of a trade or business and are gen-

1694

eral business credits under section 38. As

a result, section 469 applies to the use of

such eligible credits unless Congress provides otherwise, and commenters did not

point to strong statutory or other evidence

that Congress intended a different result.

Moreover, any differences in the application of the passive credit rules among taxpayers is a result of section 469(a) and not

the result of section 6418 or the proposed

regulations.

Also, the application of section 469

to a transferee taxpayer is not inconsistent with the language in section 6418(a)

that provides a transferee taxpayer “shall

be treated as the taxpayer” for purposes

of the Code with respect to a transferred

credit. Absent section 6418, any taxpayer

that has determined a general business

credit under section 38 in the conduct of

a trade or business is subject to section

469. While section 469 may not apply,

for example, because a taxpayer is not a

person described in section 469(a)(2), or

may not result in a passive activity credit

because a taxpayer materially participated

in the trade or business or has sufficient

passive activity income, all taxpayers

have to consider whether section 469 is

applicable to the use of any general business credit arising in the conduct of a trade

or business. Thus, it is not inconsistent to

apply section 469 to a transferee taxpayer

that is treated as the taxpayer for purposes

of the Code with respect to a transferred

credit. Moreover, an eligible credit generated through the conduct of a trade or

business and transferred does not lose its

status as a section 38 credit or its status of

having arisen in a trade or business solely

because the credit is transferred. If such

attributes did not transfer under section

6418, eligible credits earned and used

by eligible taxpayers would be subject

to different limitations than transferred

eligible credits used by transferee taxpayers. Lastly, the Treasury Department

and the IRS agree with commenters that

not applying the passive credit rules to

transferred specified credit portions could

increase the risk of fraud and abuse.

It is also inappropriate to treat transferred specified credit portions as determined in connection with the conduct

of an investment activity or as a capital

asset. Specifically, the facts and analysis

in Rev. Rul. 2010-16 are distinguishable

Bulletin No. 2024–25

from transfers of specified credit portions

under section 6418. Rev. Rul. 2010-16

held that if an acquisition, either directly

or indirectly through a partnership, of a

qualified equity investment in a community development entity (CDE) is not in

connection with the conduct of a trade

or business (or in anticipation of a trade

or business), the section 45D credit will

not be a passive activity credit under section 469. The determination of a section

45D credit does not require the conduct

of a trade or business. Instead, a section

45D credit is determined based on the

percentage of the amount paid to a CDE

for a qualified equity investment at original issue and can be determined through a

mere investment activity. Under the facts

of Rev. Rul. 2010-16, the section 45D

credit was not a passive activity credit

under section 469 to either the individual

or the partnership investors because it did

not arise in the conduct of a trade or business. Conversely, eligible credits under

section 6418 can only be determined (or

arise) in connection with the conduct of a

trade or business. Moreover, eligible credits are not determined through (or do not

arise in connection with) an investment

activity by a transferee taxpayer. Instead,

all eligible credits are determined with

respect to (or arise in connection with)

the conduct of a trade or business owned

by an eligible taxpayer. Eligible credits

are transferred after they are determined.

Thus, they cannot be redetermined in connection with an investment activity by a

transferee. For these reasons, the final

regulations do not adopt commenters’

suggestions to not apply the passive credit

rules to transferred specified credit portions or to apply the passive credit rules

in a different manner than as provided in

the proposed regulations. For a discussion

of the application of Palmer v. Commissioner, supra, to section 6418, see part

II.F.2 of this Summary of Comments and

Explanation of Revisions.

A comment was received stating that

the proposed regulations were silent on

the rule of section 48(a)(3)(C) requiring

the property to be used in a trade or business or held for the production of income.

Any rules applicable to the underlying eligible credits are beyond the scope of the

final regulations; however, the Treasury

Department and the IRS note that any

Bulletin No. 2024–25

rules that relate to the determination of

the eligible credit apply to the eligible taxpayer as described in proposed §1.64182(d).

b. Material participation and grouping

rules

Proposed §1.6418-2(f)(3)(ii) provided

that in applying section 469, a transferee

taxpayer is not considered to own an

interest in the eligible taxpayer’s trade or

business at the time the work was done (as

required for material participation under

§1.469-5(f)(1)) (material participation

rules). Accordingly, a transferee taxpayer

will not ordinarily materially participate

within the meaning of section 469(h) in

order to be treated as participating in the

activity. Proposed §1.6418-2(f)(3)(ii) also

provided that a transferee taxpayer cannot

change the characterization of its participation (or lack thereof) in the eligible

taxpayer’s trade or business by using any

of the grouping rules under §1.469-4(c)

(grouping rules). Generally, §1.469-4(c)

allows a taxpayer to satisfy the material

participation standard for a specific activity by virtue of having materially participated in a separate but related trade or

business.

Comments were received in connection

with the application of the material participation and grouping rules under section

469 to transferred specified credit portions. One commenter supported treating

a transferee as not materially participating

in the trade or business that generates an

eligible credit if they did not actually do

so. Other commenters asserted that the

final rules should clarify that a transferee

taxpayer that actually owns an interest in

an eligible taxpayer, and materially participates in the credit generating activity,

is treated as owning an interest in the eligible taxpayer’s trade or business at the

time the work was done. One commenter

requested that transferee taxpayers that

conduct an activity directly relating to and

necessary for the generation of an eligible

credit (but do not own an interest in the

eligible taxpayer’s credit generating trade

or business) be treated as materially participating in the credit generating activity

for purposes of section 469. Another commenter supported an approach that would

permit taxpayers subject to the passive

1695

credit rules that satisfy the material participation requirement with respect to a specific activity (but do not own an interest in

the activity that generates to the specified

credit portion) to treat purchased credits from that activity as nonpassive. The

same commenter raised that the application of the grouping rules under §1.4694(c) could be used to expand the potential

purchasers of credits but acknowledged

that this approach would be difficult to

administer. Other commenters suggested

that the language in section 6418(a) treating the transferee taxpayer as the taxpayer

for purposes of the Code with respect to

the transferred specified credit portion

supports attributing the activities or all

characteristics of an eligible taxpayer to a

transferee taxpayer for purposes of applying the passive credit rules.

The Treasury Department and the IRS

agree that in the limited circumstance of

a transferee taxpayer who materially participates in an eligible credit generating

activity within the meaning of section

469(h) in which the transferee taxpayer

owns an interest at the time the work is

done, the transferee taxpayer should be

permitted to purchase eligible credits

generated from the activity (assuming

the transferee taxpayer is not related to

the eligible taxpayer within the meaning of section 267(b) or section 707(b)

(1)) and treat those purchased credits as

not arising in connection with a passive

activity. It is not workable to expand the

material participation rules under section

469 for purposes of transferred specified

credit portions in a meaningful manner

without substantially increasing administrative burdens. For example, such a view

would presumably require ownership of

the underlying eligible credit property

to be attributed to a transferee taxpayer.

This formulation would be impracticable

for purposes of section 50(c) and section

6418(g)(3)(A), which require an eligible

taxpayer to make basis adjustments for

transferred ITCs. Commenters did not

address how to overcome the technical

and administrative complexities in attributing the activities or attributes of an eligible taxpayer to a transferee taxpayer for

purposes of applying the passive credit

rules. Additionally, allowing a transferee

taxpayer to change the characterization

of an eligible credit based on grouping

June 17, 2024

with its own activities is inconsistent with

the grouping rules under §1.469-4(c) and

would create significant administrative

complexity. As such, these final regulations clarify that a transferee taxpayer

who directly owns an interest in an eligible taxpayer’s trade or business at the

time the work was done (as required for

the material participation rules), is not

deemed to fail the requirements of section

469(h). However, these final regulations

do not adopt commenters’ suggestions

to expand the material participation or

grouping rules for purposes of applying

the passive credit rules to transferred

specified credit portions.

Lastly, commenters wanted confirmation that an individual transferee taxpayer

can use eligible credits acquired as a result

of a transfer election to offset passive

income tax liability if the approach from

the proposed regulations is adopted. The

Treasury Department and the IRS confirm

that if an individual transferee taxpayer

does not materially participate (within

the meaning of §§1.469-5 and 1.469-5T)

in the activity that generates a specified

credit portion, a transferred specified

credit portion will be treated to the transferee taxpayer as arising in connection

with a passive activity.

4. Transferee taxpayer requirements to

take into account a transferred specified

credit portion.

Section 6418(d) provides the taxable

year that a transferee taxpayer takes a

transferred eligible credit into account but

does not provide rules on how a transferee

taxpayer can take a transferred specified

credit portion into account. To that end,

proposed § 1.6418-2(f)(4) would have

required (1) a properly completed Form

3800, General Business Credit (or its successor), taking into account a transferred

eligible credit as a current general business credit, including all registration number(s) related to the transferred eligible

credit; (2) the transfer election statement

described earlier in this preamble attached

to the return; and (3) any other information related to the transfer election specified in guidance. Because no comments

were received on proposed §1.6418-2(f)

(4), these final regulations adopt this provision without change.

June 17, 2024

5. Estimated tax payments

The preamble to the proposed regulations explained that a transferee taxpayer

could take into account a specified credit

portion that it has purchased, or intends

to purchase, to calculate its estimated tax

payments, though the transferee taxpayer

remains liable for any additions to tax in

accordance with sections 6654 and 6655

of the Code to the extent the transferee

taxpayer has an underpayment of estimated tax.

Commenters generally acknowledged

that the preamble to the proposed regulations provided that transferred credits

could be taken into account for purposes

of calculating estimated tax but asked that

the final regulations include a specific rule

on how transferred credits should be taken

into account. Commenters also offered

particular circumstances for the Treasury

Department and the IRS to consider in formulating a potential rule regarding transferred credits and estimated tax. One commenter requested that credits purchased in

the first quarter could be applied against

the transferee taxpayer’s first quarter estimated tax payment if the taxpayer relied

on a “prior year safe harbor” under section 6655(d)(2)(B). Another commenter

requested clarification that the transferred

credits should apply to a transferee’s tax

liability when the credit is determined.

Another commenter requested that the

final regulations should permit a transferee taxpayer to make an election to take

into account the specified credit portion in

the first taxable year in which such credit

was determined by the eligible taxpayer.

The addition of a specific rule on estimated tax payments is unnecessary. The

appropriateness of a transferee taxpayer

taking the eligible credit into account for

purposes of determining its quarterly estimated tax liability depends on the facts

and circumstances. Nevertheless, as a

clarification, because section 6418 generally contemplates a transferee taxpayer

effectively stepping in the shoes of the

eligible taxpayer from whom the transferee taxpayer was transferred the eligible

credit, it follows that a transferee taxpayer

can take into account the eligible credit for

purposes of determining its quarterly estimated tax liability no earlier than an eligible taxpayer would. Further, if a transferee

1696

taxpayer is required to take a transferred

eligible credit into account in a taxable

year that has not yet begun because of

the application of section 6418(d) and

§1.6418-2(f)(1), then a transferee taxpayer

cannot take the eligible credit into account

for purposes of determining quarterly estimated tax liability until after the start of

that later year. As noted in the preamble

to the proposed regulations and confirmed

in this part II.F.5 of the Summary of Comments and Explanation of Revisions, the

transferee taxpayer remains liable for

any additions to tax in accordance with

sections 6654 and 6655 to the extent the

transferee taxpayer has an underpayment

of estimated tax.

For example, if a calendar year eligible

taxpayer enters into an agreement with a

calendar year transferee taxpayer during

calendar year 2024 to transfer an eligible

credit, and such credit is determined with

respect to the eligible taxpayer in calendar year 2024, then assuming a timely

and complete transfer election is made,

the transferee taxpayer can take the transferred credit into account when calculating

the required annual payment and quarterly

estimated tax installments for calendar

year 2024. The transferee taxpayer cannot

treat the transferred credit as a payment of

estimated tax. If any portion of the eligible credit that is ultimately transferred to a

transferee taxpayer under section 6418(a)

is subsequently adjusted to an amount less

than what was agreed upon by the eligible taxpayer and the transferee taxpayer

in calendar year 2024, the transferee taxpayer may be liable for any additions to

tax under sections 6654 or 6655, given the

reduced credit amount being transferred.

Commenters requested clarification of

the phrase “intends to purchase” as used in

the preamble to the proposed regulations.

The phrase captures a situation in which

the taxpayer plans to complete a transaction that meets the requirements of proposed §1.6418-2(b) so that the taxpayer

would qualify as a transferee taxpayer

with respect to a specified credit portion,

but has not yet done so. This phrase illustrates that all the requirements of proposed

§1.6418-2(b) do not have to be met for a

transferee taxpayer to take the expected

eligible credit into account in its estimated

tax calculations, though the transferee taxpayer remains liable for any additions to

Bulletin No. 2024–25

tax in accordance with sections 6654 and

6655 of the Code to the extent the transferee taxpayer has an underpayment of

estimated tax if the eligible credit is not

obtained as expected.

6. Chaining

Multiple commenters responding to

the section 6418 proposed regulations, as

well as the section 6417 proposed regulations, requested that a transferee taxpayer

that is also an applicable entity under section 6417 be permitted to make an elective

payment election under section 6417(a)

for a credit that the transferee taxpayer

purchased from an eligible taxpayer under

section 6418(a) (referred to in the section

6417 regulations as “chaining”). These

comments are outside of the scope of these

final regulations because they ask a question that can only be resolved under section

6417. As explained in the preamble to TD

9988, the Treasury Department and the IRS

note that §1.6417-2(c)(4) specifically does

not adopt commenters’ recommendations.

However, the Treasury Department and the

IRS also published Notice 2024-27, 202412 IRB 715, which requests comments on

situations in which a section 6417(a) election could be made for credits purchased

in transfers under section 6418(a). Written

comments submitted pursuant to procedures described in Notice 2024-27 are due

by December 1, 2024.

III. Additional Rules for Partnerships and

S corporations

Section 6418(c)(2) provides that, in

the case of any facility or property held

directly by a partnership or an S corporation, any election under section 6418(a)

is made by such partnership or S corporation. Section 6418(c)(1)(A) and (B)

describes the treatment of a transfer election made by a partnership or an S corporation, and proposed §1.6418-3 would

have provided additional rules for partnerships or S corporations that are eligible

taxpayers or transferee taxpayers.

A. Rules applicable to both partnerships

and S corporations

Proposed §1.6418-3(a)(1) through (6)

provided certain rules that are applicable

Bulletin No. 2024–25

to both partnerships and S corporations.

Proposed §1.6418-3(a)(1) provided generally that a partnership or an S corporation may qualify as an eligible taxpayer

or a transferee taxpayer, assuming all

other relevant requirements in section

6418 are met. Proposed §1.6418-3(a)(2)

provided that in the case of any specified

credit portion determined with respect to

any eligible credit property held directly

by a partnership or an S corporation, if

such partnership or S corporation makes

a transfer election with respect to such

specified credit portion, (i) any amount of

cash payment received as consideration

for the transferred specified credit portion will be treated as tax exempt income

for purposes of sections 705 and 1366 of

the Code, and (ii) a partner’s distributive

share of such tax exempt income will be

as described in proposed §1.6418-3(b)(1)

and (2). Proposed §1.6418-3(a)(3) clarified that in the case of an eligible credit

property held directly by a partnership or

an S corporation, no transfer election by

any partner or S corporation shareholder

is allowed. Proposed §1.6418-3(a)(4) clarified that the language in section 6418(c)

requiring an eligible credit property to be

“held directly” by a transferor partnership

or transferor S corporation allows for such

eligible credit property to be owned by an

entity disregarded as separate from the

transferor partnership or transferor S corporation for Federal income tax purposes.

Proposed §1.6418-3(a)(5) provided that

any tax exempt income resulting from the

receipt of consideration for the transfer of

a specified credit portion by a transferor

partnership or transferor S corporation

is treated as arising from an investment

activity and not from the conduct of a

trade or business within the meaning of

section 469(c)(1)(A). Additionally, the

proposed regulations provided that any

tax exempt income is not treated as passive income to any direct or indirect partners or shareholders who do not materially

participate within the meaning of section

469(c)(1)(B). Lastly, proposed §1.64183(a)(6)(i) provided that the disposition

of a partner’s interest under §1.47-6(a)

(2) or the disposition of an S corporation

shareholder’s interest under §1.47-4(a)

(2) in a transferor partnership or an S

corporation, respectively, does not result

in recapture under section 6418(g)(3)(B)

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to which a transferee taxpayer is liable.

Likewise, proposed §1.6418-3(a)(6)(ii)

provided that a change in the nonqualified

nonrecourse financing (as defined in section 49(a)(1)(D)) amount of any partner

or shareholder of a transferor partnership

or transferor S corporation, respectively,

after the close of the taxable year in which

the investment credit property is placed in

service and the specified credit portion is

determined, is disregarded for purposes

of section 6418(g)(3)(B). That is, only

the applicable partner in the transferor

partnership or shareholder in the transferor S corporation is liable for recapture

in such a circumstance. As such, notification by the transferor partnership or

transferor S corporation to the transferee

taxpayer of a section 49 recapture event is

not required. Because there were no comments related to the provisions described

in this paragraph, the proposed regulations are adopted without change in these

final regulations.

B. Rules solely applicable to transferor

and transferee partnerships

Section 6418(c)(1)(A) provides that

any amount received as consideration

for a transfer of eligible credits by a

transferor partnership is treated as tax

exempt income for purposes of section

705. Section 6418(c)(1)(B) provides that

a partner’s distributive share of such tax

exempt income is based on such partner’s

distributive share of the otherwise eligible credit for each taxable year. Proposed

§1.6418-3(b)(1) provided that a transferor

partnership must generally determine a

partner’s distributive share of any tax

exempt income resulting from the receipt

of consideration by a transferor partnership for a transferred specified credit portion based on such partner’s proportionate

distributive share of the eligible credit

that would otherwise have been allocated

to such partner absent the transfer of the

specified credit portion (otherwise eligible

credit). The proposed regulations noted

that a partner’s distributive share of an

otherwise eligible credit is determined

under §§ 1.46-3(f) and 1.704-1(b)(4)(ii).

The proposed regulations further clarified

that any tax exempt income resulting from

the receipt of consideration by a transferor partnership for a transferred spec-

June 17, 2024

ified credit portion is treated as received

or accrued, including for purposes of section 705, as of the date the specified credit

portion is determined with respect to the

transferor partnership (such as, for investment credit property, the date the property

is placed in service).

Proposed §1.6418-3(b)(2) provided a

special rule for allocations of tax exempt

income and eligible credits resulting from

a transfer of a specified credit portion of

less than all eligible credits determined

with respect to an eligible credit property held by a transferor partnership. This

special rule permitted tax exempt income

resulting from the receipt of consideration

for a transfer of one or more specified

credit portion(s) of less than all eligible

credits from an eligible credit property to,

generally, be allocated to those partners

that desired to transfer their distributive

share of the underlying credits. To take

advantage of this special rule, the proposed

regulations provided that a transferor partnership would first determine each partner’s distributive share of the otherwise

eligible credits determined with respect to

such eligible credit property in accordance

with §§1.46-3(f) and 1.704-1(b)(4)(ii).

This amount is referred to as a “partner’s

eligible credit amount.” Thereafter, the

transferor partnership would determine,

either in a manner described in the partnership agreement or as the partners may

agree, the portion of each partner’s eligible credit amount to be transferred and the

portion of each partner’s eligible credit

amount to be retained and allocated to

such partner. Following the transfer of the

specified credit portion(s), the transferor

partnership would be permitted to allocate

to each partner its agreed upon share of

eligible credits, tax exempt income resulting from the receipt of consideration for

the transferred specified credit portion(s),

or both, as the case may be; provided that,

the amount of eligible credits allocated to

each partner did not exceed such partner’s

eligible credit amount and the amount

of tax exempt income allocated to each

partner would equal such partner’s proportionate share of tax exempt income

resulting from the transfer(s). Each partner’s proportionate share of tax exempt

income resulting from the transfer(s)

would be equal to the total tax exempt

income resulting from the transfer(s) of

June 17, 2024

the specified credit portion(s) multiplied

by a fraction, (i) the numerator of which

would be a partner’s total eligible credit

amount minus the amount of eligible credits actually allocated to the partner with

respect to the eligible credit property for

the taxable year, and (ii) the denominator

of which would be the total amount of the

specified credit portion(s) transferred by

the partnership with respect to the eligible

credit property for the taxable year. The

proposed regulations provided examples

of this rule.

A commenter generally supported the

partnership allocation rules in the proposed regulations, although there was a

non-specific question related to the administrability of the proposed rules in the tax

credit industry. The Treasury Department

and the IRS appreciate that the partnership allocation rules under section 6418

could be considered complex and difficult

to administer, but any such complexity of

those rules is warranted given the flexibility they provide to taxpayers operating

through transferor partnerships.

A commenter requested clarifying

language and an example showing that

the varying annual election and separate

determination of each partner’s eligible

credit amount to be transferred under

section 6418 and the portion of each partner’s eligible credit amount to be retained

and allocated to such partner and related

allocations of tax exempt income can be

made or revised at any time during the

taxable year the eligible credit is generated and the following taxable year up to

the due date of the partnership return for

the taxable year under sections 706 and

761. Section 761(c) provides that for purposes of subchapter K of chapter 1 of the

Code, a partnership agreement includes

any modifications of the agreement made

on or before the due date (not including

extensions) of the partnership return for

the taxable year, which are agreed to by

all the partners or are adopted in accordance with the provisions of the agreement. The effect of section 761(c) is that

a partnership is allowed to change its partners’ distributive shares of income, gain,

loss, deductions or credits for a taxable

year (assuming such allocations are compliant with section 704(b)) up until the

due date (not including extensions) for

the partnership’s tax return for such year.

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Proposed §1.6418-3(b)(2)(ii) would have

provided that a transferor partnership may

determine, in any manner described in the

partnership agreement, or as the partners

may agree, the portion of each partner’s

eligible credit amount to be transferred,

and the portion of each partner’s eligible

credit amount to be retained and allocated

to such partner. Assuming the agreement

between the partners as to the portion of

each partner’s eligible credit amount to be

transferred, and the portion of each partner’s eligible credit amount to be retained

and allocated to such partner, is properly treated as part of the partnership’s

agreement, such amounts can be made or

revised under section 761(c) up until the

due date (not including extensions) of the

partnership’s annual tax return. As such,

there would already be considerable flexibility under the proposed regulations, and

that additional language or an example is

unnecessary to address this commenter’s

request.

Proposed §1.6418-3(b)(4)(i) would

have provided that a partnership may

qualify as a transferee partnership to the

extent it is not related (within the meaning of section 267(b) or 707(b)(1)) to an

eligible taxpayer. The proposed regulations also would have provided that while

a transferee partnership is subject to the

no additional transfer rule, an allocation

of a transferred specified credit portion to

a direct or indirect partner of a transferee

partnership under section 704(b) is not a

transfer for purposes of section 6418. Proposed §1.6418-3(b)(4)(ii) would have provided that a cash payment by a transferee

partnership as consideration for a transferred specified credit portion is treated

as an expenditure described in section

705(a)(2)(B). Proposed §1.6418-3(b)(4)

(iii) would have provided that each partner’s distributive share of any transferred

specified credit portion is based on such

partner’s distributive share of the section

705(a)(2)(B) expenditures used to fund

the purchase of such transferred specified

credit portion. Under the proposed regulations, each partner’s distributive share

of the section 705(a)(2)(B) expenditures

used to fund the purchase of any transferred specified credit portion would be

determined by the partnership agreement.

Or, if the partnership agreement did not

provide for the allocation of such nonde-

Bulletin No. 2024–25

ductible expenditures, then each partner’s

distributive share would be based on the

transferee partnership’s general allocation

of nondeductible expenditures.

To prevent avoidance of the no additional transfer rule in proposed § 1.64182(c)(2), the proposed regulations in proposed § 1.6418-3(b)(4)(iv) would have

provided that a transferred specified

credit portion purchased by a transferee

partnership is treated as an extraordinary

item under §1.706-4(e) (and would have

included a proposed addition to §1.7064(e) confirming a transferred specified

credit portion is an extraordinary item).

The proposed regulations further would

have provided that if the transferee partnership and eligible taxpayer have the

same taxable years, such extraordinary

item is deemed to occur on the date the

transferee partnership first makes a cash

payment to an eligible taxpayer for any

transferred specified credit portion. The

proposed regulations also would have

provided that if the transferee partnership and eligible taxpayer have different

taxable years, the extraordinary item is

deemed to occur on the later of the first

date the transferee partnership takes the

transferred specified credit portion into

account under section 6418(d), or the first

date that the transferee partnership made a

cash payment to the eligible taxpayer for

the transferred specified credit portion.

Lastly, proposed §1.6418-3(b)(4)(v)

would have provided that if an upper-tier

partnership is a direct or indirect partner

of a transferee partnership and directly

or indirectly receives an allocation of a

transferred specified credit portion, the

upper-tier partnership is not an eligible

taxpayer under section 6418 with respect

to the transferred specified credit portion.

The proposed regulations would have

provided that an upper-tier partnership

must determine each partner’s distributive

share of the transferred specified credit

portion in accordance with rules in proposed §1.6418-3(b)(4)(iii) and (iv) and

must report the credits to its partners in

accordance with guidance.

A commenter recommended that the

final regulations avoid excluding partners

from credit allocations due to the extraordinary items rule of proposed §1.64183(b)(4)(iv) if a new partner is admitted

to the partnership after the transferee

Bulletin No. 2024–25

taxpayer signs a credit purchase agreement but before any cash payments have

been made. The commenter’s concern

was with respect to the application of proposed §1.6418-1(f)(3) to a partnership.

This provision stated that the term “paid

in cash” means a payment in U.S. dollars

and “[m]ay include a transferee taxpayer’s contractual commitment to purchase

eligible credits with United States dollars

in advance of the date a specified credit

portion is transferred to such transferee

taxpayer.” The commenter suggested that

the clause in the previous sentence could

be interpreted to mean that the term “paid

in cash” means the advance contractual

commitment itself, rather than the payment pursuant to the advance commitment

and suggested some changes to proposed

§1.6418-1(f)(3). The paid in cash definition in proposed §1.6418-1(f)(3) confirms

that advanced commitments are permissible and do not violate the paid in cash

requirement. As the commenter hypothesizes, this provision is intended to clarify that payments in U.S. dollars made

at the proper time can qualify even if the

payments are made pursuant to advance

contractual commitments. Likewise, the

Treasury Department and the IRS confirm

that an advanced commitment is not by

itself considered a cash payment. Thus, if

a partnership has not yet made any cash

payments pursuant to a commitment to

purchase eligible credits, an extraordinary

item has not yet arisen.

A commenter requested additional

guidance in the form of examples that

illustrate the transfer of partnership interests. The Treasury Department and the IRS

have considered these general requests

and have determined such additional

guidance is not necessary. The final regulations already provide examples demonstrating the rules applicable to a transferee

partnership and its partners under section

6418, including rules applicable to an

upper-tier partnership that is a direct or

indirect partner in a transferee partnership.

However, the final regulations clarify that

an upper-tier partnership’s distributive

share of a transferred specified credit portion is treated as an extraordinary item to

the upper-tier partnership. As a result, a

transferred specified credit portion must

be allocated among the partners of an

upper-tier partnership as of the time the

1699

transfer of the specified credit portion is

treated as occurring to the transferee partnership in accordance with §1.6418-3(b)

(4)(iv) and §1.706-4(e)(1) and (e)(2)(ix).

This is the case regardless of whether the

transferee partnership and the upper-tier

partnership have different taxable years

under section 706(b).

A commenter recommended updates

to §1.704-1(b)(3) to provide that the special allocations of tax exempt income and

non-deductible expenses in the manner

contemplated by the proposed regulations

will be treated as having been made in

accordance with the partners’ interests in

the partnership. The Treasury Department

and the IRS have considered whether

updates to §1.704-1(b)(3) are necessary

and have determined that updates to those

regulations are outside the scope of final

regulations for section 6418.

C. Rules solely applicable to transferor

and transferee S corporations

Section 6418(c)(1)(A) provides that

any amount received as consideration for

a transfer of eligible credits by a transferor

S corporation is treated as tax exempt

income for purposes of section 1366.

Proposed §1.6418-3(c)(1) would have

provided that each shareholder of a transferor S corporation must take into account

such shareholder’s pro rata share (as

determined under section 1377(a) of the

Code) of any tax exempt income resulting

from the receipt of consideration for the

transfer. The proposed regulations further

would have provided that any tax exempt

income resulting from the receipt of consideration by a transferor S corporation

for a transferred specified credit portion is

treated as received or accrued, including

for purposes of section 1366 of the Code,

as of the date the specified credit portion is

determined with respect to the transferor S

corporation (such as, for investment credit

property, the date the property is placed in

service).

Proposed §1.6418-3(c)(2)(i) would

have provided that an S corporation may

qualify as a transferee taxpayer to the

extent it is not related (within the meaning

of section 267(b) or 707(b)(1)) to an eligible taxpayer. The proposed regulations

also would have provided that while a

transferee S corporation is subject to the

June 17, 2024

no additional transfer rule, an allocation

of a transferred specified credit portion

to a direct or indirect shareholder of a

transferee S corporation is not a transfer

for purposes of section 6418. Proposed

§1.6418-3(c)(2)(ii) would have provided

that a cash payment by a transferee S corporation as consideration for a transferred

specified credit portion is treated as an

expenditure described in section 1367(a)

(2)(D) of the Code. Proposed §1.64183(c)(2)(iii) would have provided that each

shareholder of a transferee S corporation

must take into account such shareholder’s

pro rata share (as determined under section

1377(a)) of any transferred specified credit

portion. The proposed regulations further

would have provided that if a transferee S

corporation and eligible taxpayer have the

same taxable years, the transfer of a specified credit portion is treated as occurring

to a transferee S corporation during the

transferee S corporation’s permitted year

(as defined under section 1378(b)) or the

taxable year elected under section 444 that

the transferee S corporation first makes a

cash payment as consideration to the eligible taxpayer for the specified credit portion. The proposed regulations also would

have provided that if a transferee S corporation and eligible taxpayer have different

taxable years, then the transfer of a specified credit portion is treated as occurring

to a transferee S corporation during the

transferee S corporation’s first permitted

year (as defined under sections 444 and

1378(b)) ending with or after, the taxable

year of the eligible taxpayer to which the

transferred specified credit portion was

determined. Because there were no comments related to the provisions described

in this paragraph, the proposed regulations are adopted without change in these

final regulations.

D. Elections for transferor partnerships

and transferor S corporations

Proposed §1.6418-3(d) would have

provided specific rules relating to elections

for transferor partnerships or transferor

S corporations. Proposed §1.6418-3(d)

(1) would have provided that a transfer

election is made on the basis of an eligible credit property and only applies to the

specified credit portion identified in the

transfer election by such partnership or S

June 17, 2024

corporation in the taxable year for which

the election is made. Proposed §1.64183(d)(2) would have provided that a transfer election for a specified credit portion

must be made in the manner provided in

proposed §1.6418-2(b)(1) through (3),

including that all documents required in

proposed §1.6418-2(b)(1) through (3)

must be attached to the partnership or S

corporation return for the taxable year

during which the transferred specified

credit portion was determined. The proposed regulations further would have provided that for the transfer election to be

valid, the return must be filed not later than

the time prescribed by §§1.6031(a)-1(e)

and 1.6037-1(b) (including extensions of

time) for filing the return for such taxable

year. Additionally, the proposed regulations would have provided that no transfer election may be made or revised on an

amended return or by filing an AAR and

that no 9100 relief would be available for

a transfer election that is not timely filed.

Lastly, proposed §1.6418-3(d)(3) would

have provided that a transfer election by

a partnership or an S corporation is irrevocable. As described in greater detail in

part II.B.4 of this Summary of Comments

and Explanation of Revisions, these final

regulations modify proposed §1.64182(b)(4) to permit an automatic six-month

extension of time under §301.9100-2(b)

to make the election prescribed in section

6418(e)(1). Consistent with that modification, these final regulations also modify

proposed §1.6418-3(d)(2) to provide for

late-election relief under §301.9100-2(b)

for a partnership or an S corporation making a transfer election and permit, based

on some commenters’ requests, that a

partnership or an S corporation, much like

any other eligible taxpayer, may correct a

numerical error with respect to a properly

claimed transfer election on an amended

return or AAR. The partnership‘s or S corporation’s original return must have been

signed under penalties of perjury and must

have contained all of the information,

including a registration number, required

by these final regulations. The final regulations clarify that in order to correct an

error on an amended return or AAR, a

partnership or an S corporation must have

made an error in the information included

on the original return such that there is a

substantive item to correct. A partnership

1700

or an S corporation cannot correct a blank

item or an item that is described as being

“available upon request.”

IV. Additional Information and

Registration

Section 6418(g)(1) provides that as

a condition of, and prior to, any transfer

of any portion of an eligible credit under

section 6418, the Secretary may require

such information (including, in such form

or manner as is determined appropriate by

the Secretary, such information returns)

or registration as the Secretary deems

necessary for purposes of preventing

duplication, fraud, improper payments,

or excessive payments under this section.

Proposed §1.6418-4 would have addressed

these requirements by adding a pre-filing

registration process, and §1.6418-4T,

issued contemporaneously, put those rules

into effect for taxable years ending on or

after June 21, 2023. Because the temporary regulations are removed, this part IV

discusses the proposed regulations rather

than the temporary regulations, which are

identical.

Proposed §1.6418-4(a)-(c) would have

provided the mandatory pre-filing registration process that, except as provided in

guidance, an eligible taxpayer would be

required to complete as a condition of, and

prior to, the transfer of an eligible credit

under proposed §1.6418-2 or §1.6418-3.

Proposed §1.6418-4(a) would have

provided an overview of the pre-filing

registration process. Proposed §1.64184(b) would have inclu

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