The Deal Corner: Prince Lobel’s Business Advisory Blog

Investment Tax Credit Transfer Mechanisms Under the Inflation Reduction Act

June 4, 2024

By Adam Braillard and Max Riffin


One of the major objectives of the Inflation Reduction Act of 2022 (IRA) is to create an economy that runs on clean and renewable energy sources. To accomplish this goal, the IRA expands renewable energy tax incentives, including the Investment Tax Credit (ITC), which aims to facilitate investments in clean energy production.

On June 14, 2023, the Internal Revenue Service (IRS) and the Treasury Department issued draft regulations on the monetization of 11 clean energy tax credits through transferability, meaning the buying and selling of federal tax credits. Notably, the draft regulations expand the scope for taxpayer benefit beyond traditional tax equity structures, removing constraints that limited these transactions to complex joint ventures and leasing arrangements known as “tax equity.” According to estimates by the Joint Committee on Taxation, the scale of potential investments and transactions in this domain is substantial, with clean energy tax incentives anticipated to reach about $550 billion over the next decade.

The Transferability of Investment Tax Credits

The concept of transferability, enacted through Tax Code Section 6418, democratizes the ability to benefit from clean energy tax credits by expanding eligibility beyond entities traditionally involved in complex tax equity investments. This simplification is expected to draw a wide range of new investors into the clean energy market.

The transferability of ITCs benefits both sellers and buyers. For sellers, it provides an opportunity to monetize the credits for more immediate capital return, whereas buyers benefit from tax savings and by contributing to sustainability goals. The expansion of clean energy tax incentives has led to a robust market, including developers, lenders, and investors, and the negotiation and structuring of these transactions are now more complex and also more important.

Transaction Structures for Transferring ITCs

Transferability under the IRA has quickly become a key point for innovation in clean energy finance. It offers a new layer of flexibility for project financing, allowing credits to be sold or transferred, consequently widening the pool of potential investors beyond those with immediate tax liabilities.  The most common applicable financing models are set forth below.

Direct Sale: This straightforward model involves the sale of ITCs directly from the generating entity to a buyer seeking tax benefits. The process is regulated by strict legal and compliance frameworks to ensure the integrity of the transfer. The consideration for the credit transfer must be made in cash, with the amount being nondeductible for the transferee and not included in the income of the transferor, as per the new guidelines.

Partnership Flip: The partnership flip is a widely adopted model for owning and operating most types of renewable energy production facilities. This model allows developers and investors to share economic benefits, including tax credits and operating cash flows. The structure is favored for its flexibility and established track record in clean energy financing.

Inverted Lease: The inverted lease employs two partnerships: one partnership owns the facility, and a second partnership operates the facility. This model allows the tax equity investor to invest in the operating partnership to capitalize on the ITCs. This structure is known for its complexity and is not applicable for all tax credits.

Sale-Leaseback: In this arrangement, developers sell the renewable energy production facility to an investor and lease it back, simplifying the ownership transition. This structure is favored for its relative simplicity and the financial benefits it offers to both parties.

Hybrid Structures: T-Flips: These newer structures combine traditional tax equity investment partnerships with the advantage of transferability, e.g., the investor can cause the partnership to transfer credits. These models have gained popularity for their ability to lower capital costs and introduce standardization in some deal terms, although many specifics remain negotiable.

Allocating Credits and Limitations on Secondary Transfers

The regulations allow for the splitting of credits among multiple transferees but require that each portion accurately reflects a proportionate share of an eligible credit, including all components. This approach prevents the selective transfer of less risky credit portions, ensuring that risks and benefits are evenly distributed among buyers. Furthermore, the proposed regulations specify that credits cannot be divided based on their “base,” “added,” or “bonus” amounts, but must reflect a proportionate share of each transferred credit.


The IRA has opened new avenues for transferring Investment Tax Credits, presenting both challenges and opportunities for stakeholders in the clean energy sector. The emergence of hybrid financing structures — and the expanding pool of investors — underscore the industry’s resilience and innovative spirit. By understanding the transaction structures and their implications, businesses can navigate these transactions more effectively, optimizing their financial and environmental gains.

For further guidance and support in structuring ITC transactions, the Renewable Energy Group and the Corporate Practice Group at Prince Lobel offer experienced counsel and advisory services to make sure your investments align with regulatory requirements and strategic objectives.


For questions on the Inflation Reduction Act and the corresponding tax credits, please reach out to Adam Braillard, Max Riffin, or any other member of Prince Lobel’s Business Transactions or Renewable Energy Groups.

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