On 25 April 2024, the US Internal Revenue Service (IRS) released the final guidance (regulations) for the transfer of eligible credits under the Inflation Reduction Act of 2022 (IRA) in a taxable year, including specific rules for partnerships and S corporations. The final regulations will be published in the Federal Register on 30 April 2024 and will go into effect after 60 days of its publication.

The Inflation Reduction Act and the Creating Helpful Incentives to Produce Semiconductors Act (CHIPs) enable taxpayers to take advantage of certain manufacturing investment, clean energy investment, and production tax credits through elective pay or transfer provisions.

For tax years beginning after 31 December 2022, eligible taxpayers can choose to transfer all or a portion of eligible credits to unrelated taxpayers for cash payments. The unrelated taxpayers are then allowed to claim the transferred credits on their tax returns. The cash payments are not included in the gross income of the eligible taxpayers and are not deductible by the unrelated taxpayers.

The final regulations also describe special rules related to excessive credit transfers and recapture events, including rules for determining whether an event has occurred, the resulting tax impact, and the person responsible for that tax impact. The final regulations also provide rules for a mandatory IRS pre-filing registration process through an electronic portal. The pre-filing registration process must be completed, and a registration number received, prior to making an election to transfer eligible credits.

In addition, the final regulations describe specific rules for partnerships and S corporations as eligible taxpayers and transferee taxpayers. Previously, the IRS issued proposed regulations for the transfer of applicable credits and temporary regulations for the mandatory IRS pre-filing registration process.