Final Guidance Released by IRS on Transferring Specific Credits

The Department of Treasury and the Internal Revenue Service (IRS) have announced new rules that will allow taxpayers to transfer certain tax credits to others starting from Jan. 1, 2023. These rules, part of the Inflation Reduction Act and the CHIPs Act, aim to incentivize investment in manufacturing, clean energy, and production.

Under the new rules, eligible taxpayers can transfer tax credits to unrelated parties in exchange for cash. These cash payments will not be taxed as income for the taxpayers transferring the credits and cannot be deducted by those receiving them. The rules also outline procedures for situations where too many credits are transferred or if there is a need to reverse credits.

Partnerships and S corporations are also included in these guidelines, detailing their roles as both taxpayers transferring credits and those receiving them. The IRS has provided a mandatory pre-filing registration process through an online portal for taxpayers to complete before transferring credits.

Taxpayers can find detailed instructions for the registration process in Publication 5884 related to the Inflation Reduction Act and CHIPs Act. The IRS has updated its FAQ section to provide more information on these final regulations. For more information, taxpayers can visit the Inflation Reduction Act of 2022 page on the IRS website.

These new rules aim to streamline the process of transferring tax credits and encourage investment in key sectors of the economy.