Reg-101610-23

40496

Federal Register / Vol. 88, No. 118 / Wednesday, June 21, 2023 / Proposed Rules

DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG–101610–23]
RIN 1545–BQ64

Section 6418 Transfer of Certain
Credits
Internal Revenue Service (IRS),
Treasury.
ACTION: Notice of proposed rulemaking
and notice of public hearing.
AGENCY:

This document contains
proposed regulations concerning the
election under the Inflation Reduction
Act of 2022 to transfer certain Federal
income tax credits. The proposed
regulations describe the proposed 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
proposed regulations describe rules
related to an IRS pre-filing registration
process that would be required. These
proposed 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: Written or electronic comments
must be received by August 14, 2023.
The public hearing on these proposed
regulations is scheduled to be held on
August 23, 2023, at 10 a.m. ET. Requests
to speak and outlines of topics to be
discussed at the public hearing must be
received by August 14, 2023. If no
outlines are received by August 14,
2023, the public hearing will be
cancelled. Requests to attend the public
hearing must be received by 5 p.m. ET
on August 21, 2023. The public hearing
will be made accessible to people with
disabilities. Requests for special
assistance during the hearing must be
received by August 18, 2023.
ADDRESSES: Commenters are strongly
encouraged to submit public comments
electronically. Submit electronic
submissions via the Federal
eRulemaking Portal at https://
www.regulations.gov (indicate IRS and
REG–101610–23) by following the
online instructions for submitting
comments. Once submitted to the
Federal eRulemaking Portal, comments
cannot be edited or withdrawn. The
Department of Treasury (Treasury
Department) and the IRS will publish
for public availability any comments
submitted, whether electronically or on

lotter on DSK11XQN23PROD with PROPOSALS2

SUMMARY:

VerDate Sep<11>2014

20:16 Jun 20, 2023

Jkt 259001

paper, to the IRS’s public docket. Send
paper submissions to: CC:PA:LPD:PR
(REG–101610–23), Room 5203, Internal
Revenue Service, P.O. Box 7604, Ben
Franklin Station, Washington, DC
20044.
FOR FURTHER INFORMATION CONTACT:
Concerning these proposed regulations,
Jeremy Milton at (202) 317–5665 and
James Holmes at (202) 317–5114 (not a
toll-free number); concerning
submissions of comments and requests
for a public hearing, Vivian Hayes at
(202) 317–6901 (not a toll-free number)
or by email to [email protected]
(preferred).
SUPPLEMENTARY INFORMATION:
Background
Section 6418 was added to the
Internal Revenue Code (Code) on
August 16, 2022, by section 13801(b) of
Public Law 117–169, 136 Stat. 1818,
2009, commonly referred to as the
Inflation Reduction Act of 2022 (IRA).
Section 6418 allows ‘‘eligible taxpayers’’
to elect to transfer certain credits to
unrelated taxpayers rather than using
the credits against their Federal income
tax liabilities. Section 6418 also
provides special rules relating to
partnerships and S corporations and
directs the Secretary of the Treasury or
her delegate (Secretary) to provide rules
for making elections under section 6418
and to require information or
registration necessary for purposes of
preventing duplication, fraud, improper
payments, or excessive payments under
section 6418. Section 13801(g) of the
IRA provides that section 6418 applies
to taxable years beginning after
December 31, 2022. This document
contains proposed regulations that
would amend the Income Tax
Regulations (26 CFR part 1) to
implement the statutory provisions of
section 6418.
In the Rules and Regulations section
of this issue of the Federal Register, the
Treasury Department and the IRS are
issuing temporary regulations under
§ 1.6418–4T that implement the prefiling registration process described in
§ 1.6418–4 of the proposed regulations.
The temporary regulations require
eligible taxpayers that want to elect to
transfer eligible credits under section
6418 to register with the IRS through an
IRS electronic portal in advance of the
eligible taxpayer filing the return on
which the election under section 6418
is made.
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

PO 00000

Frm 00002

Fmt 4701

Sfmt 4702

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).
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);
(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,

E:\FR\FM\21JNP2.SGM

21JNP2

Federal Register / Vol. 88, No. 118 / Wednesday, June 21, 2023 / Proposed Rules
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 may not 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
tax year ending with, or after, the
eligible taxpayer’s tax 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.

lotter on DSK11XQN23PROD with PROPOSALS2

II. Section 6418 Rules for Partnerships
and S Corporations
Pursuant to section 6418(c), in the
case of a partnership or an S corporation
that directly holds a facility or property
for which an eligible credit is
determined: 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; 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
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 may require such information
(including, in such form or manner as
is determined appropriate by the
Secretary, such information returns) or

VerDate Sep<11>2014

20:16 Jun 20, 2023

Jkt 259001

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
election 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)
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).

PO 00000

Frm 00003

Fmt 4701

Sfmt 4702

40497

IV. Notice 2022–50
On October 24, 2022, the Treasury
Department and the IRS published
Notice 2022–50, 2022–43 I.R.B. 325, to,
among other things, request feedback
from the public at large on potential
issues with respect to the transfer
election provisions under section 6418
that may require guidance. Over 200
comment letters were received in
response to Notice 2022–50. Based in
part on the feedback received, the
Treasury Department and the IRS are
issuing these proposed regulations
regarding the transfer election
provisions under section 6418. The
major areas with respect to which
public stakeholders provided letters are
discussed in the following Explanation
of Provisions.
Explanation of Provisions
I. Transfers of Eligible Credits
Proposed § 1.6418–1(a) would provide
generally that an eligible taxpayer may
make a transfer election under proposed
§ 1.6418–2 to transfer any specified
portion of an eligible credit determined
with respect to any eligible credit
property of such eligible taxpayer for
any taxable year to a transferee taxpayer
in accordance with section 6418 of the
Code and §§ 1.6418–1 through 1.6418–
5 (‘‘the section 6418 regulations’’). The
remainder of proposed § 1.6418–1
would then provide definitions for
terms used throughout the section 6418
regulations, including definitions of
eligible taxpayer, eligible credit, eligible
credit property, paid in cash, specified
credit portion, transferred specified
credit portion, transfer election,
transferee taxpayer, transferee
partnership, transferee S corporation,
transferor partnership, and transferor S
corporation.
Proposed § 1.6418–1(b) would define
the term ‘‘eligible taxpayer’’ to mean
any taxpayer (as defined in section
7701(a)(14) of the Code), other than one
described in section 6417(d)(1)(A) and
proposed § 1.6417–1(b). 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.
Proposed § 1.6418–1(c) would define
the term ‘‘eligible credit’’ consistent
with section 6418(f)(1)(A), and include
all 11 of the credits listed in such
section. Further, the definition would
include a rule that an eligible credit
does not include any business credit
carryforward or business credit
carryback determined under section 39

E:\FR\FM\21JNP2.SGM

21JNP2

lotter on DSK11XQN23PROD with PROPOSALS2

40498

Federal Register / Vol. 88, No. 118 / Wednesday, June 21, 2023 / Proposed Rules

of the Code, which is consistent with
section 6418(f)(1)(C). The regulations
also would clarify that the entire
amount of any eligible credit is
separately determined with respect to
each single eligible credit property of
the eligible taxpayer and includes any
bonus credit amounts (described in
proposed § 1.6418–2(c)(3)) determined
with respect to that single eligible credit
property.
Consistent with the proposed rules
described later in this Explanation of
Provisions related to the manner of
making the transfer election, proposed
§ 1.6418–1(d) would generally define
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. While the proposed
regulations reference the statutory rules
for each eligible credit to determine the
appropriate unit of measurement for
section 6418 registrations and election,
the following additional information is
relevant for each of the 11 eligible
credits:
(1) For the section 30C credit, a
taxpayer would be required to register
and make an election on a property-byproperty basis. For this purpose, a
property means a ‘‘qualified alternative
fuel vehicle refueling property’’ as
defined in section 30C(c).1
(2) For the section 45 credit, a
taxpayer would be required to register
and make an election on a facility-byfacility basis. For this purpose, a facility
means a ‘‘qualified facility’’ as defined
in section 45(d).
(3) For the section 45Q credit, a
taxpayer would be required to register
and make an election on the basis of a
unit of carbon capture equipment. The
regulations under § 1.45Q–2(c)(3) state
that all components that make up an
independently functioning process train
capable of capturing, processing, and
preparing carbon oxide for transport
(single process train) will be treated as
a single ‘‘unit of carbon capture
equipment.’’
(4) For the section 45U credit, a
taxpayer would be required to register
and make an election on a facility-byfacility basis. For this purpose, a facility
means a ‘‘qualified nuclear power
facility’’ as defined in section 45U(b)(1).
(5) For the section 45V credit, a
taxpayer would be required to register
and make an election on a facility-byfacility basis. For this purpose, a facility
means a ‘‘qualified clean hydrogen
1 These proposed regulations under section 6418
do not impact the ability of tax-exempt entities to
transfer a section 30C credit to the seller of the
qualified alternative fuel vehicle refueling property
under section 30C(e)(2).

VerDate Sep<11>2014

20:16 Jun 20, 2023

Jkt 259001

production facility’’ as defined in
section 45V(c)(3).
(6) For the section 45X credit, a
taxpayer would be required to register
and make an election on a facility-byfacility basis. For this purpose, a facility
means one that produces eligible
components, as described in guidance
under sections 48C and 45X.
(7) For the section 45Y credit, a
taxpayer would be required to register
and make an election on a facility-byfacility basis. For this purpose, a facility
means a ‘‘qualified facility’’ as defined
in section 45Y(b)(1).
(8) For the section 45Z credit, a
taxpayer would be required to register
and make an election on a facility-byfacility basis. For this purpose, a facility
means a ‘‘qualified facility’’ as defined
in section 45Z(d)(4).
(9) For the section 48 credit, a
taxpayer would be required to register
and make an election on a property-byproperty basis. For this purpose, a
property means an energy property,
which generally includes all
components of property that are
functionally interdependent (unless
such equipment is an addition or
modification to an energy property). See
Notice 2018–59, 2018–28 I.R.B. 196.
Components of property are
functionally interdependent if the
placing in service of each component is
dependent upon the placing in service
of each of the other components in order
to generate electricity. Functionallyinterdependent components of property
that can be operated and metered
together and can begin producing
electricity separately from other
components of property within a larger
energy project will be considered an
energy property. See Id. (Section 7.01 of
Notice 2018–59 describes energy
property generally and also cites Rev.
Rul. 94–31, 1994–1 C.B. 16.) Energy
property is comprised of all components
of property necessary to generate
electricity up to the point of
transmission or distribution. However,
an eligible taxpayer would have the
option, to the extent consistently
applied for purposes of the pre-filing
registration requirements of proposed
§ 1.6418–4 and the election
requirements of proposed §§ 1.6418–2
through 1.6418–3, to make the section
6418 registrations and election for an
energy project, as defined in
forthcoming guidance. See section
48(a)(9)(A)(ii).
(10) For the section 48C credit, a
taxpayer would be required to register
and make an election on a property-byproperty basis. For this purpose, a
property means an ‘‘eligible property’’
as defined in section 48C(c)(2).

PO 00000

Frm 00004

Fmt 4701

Sfmt 4702

(11) For the section 48E credit, a
taxpayer would be required to register
and make an election on a facility-byfacility basis if the credit relates to a
qualified investment with respect to a
qualified facility. For this purpose, a
facility means a ‘‘qualified facility’’ as
defined in section 48E(b)(3). However, a
taxpayer would be required to register
and make an election with respect to the
section 48E credit on a property-byproperty basis if the credit relates to a
qualified investment with respect to
energy storage technology. For this
purpose, a property means a unit of
‘‘energy storage technology’’ as defined
in section 48E(c)(2).
Proposed § 1.6418–1(j) would define
the term ‘‘transfer election’’ as an
election under section 6418(a) of the
Code to transfer to a transferee taxpayer
a specified portion of an eligible credit
determined with respect to an eligible
credit property in accordance with the
section 6418 regulations. This term
would be consistent with the references
in section 6418(a) to a taxpayer
‘‘elect[ing] to transfer’’ and transferring
‘‘all (or any specified portion in the
election)’’ of an eligible credit.
Also consistent with the language in
section 6418(a) requiring the portion of
the credit transferred to be specified,
proposed § 1.6418–1(h) would define a
‘‘specified credit portion’’ to mean a
proportionate share (including all) of an
entire eligible credit determined with
respect to an eligible credit property of
the eligible taxpayer that is specified in
a transfer election. A specified credit
portion of an eligible credit would be
required to reflect a proportionate share
of each bonus credit amount that is
taken into account in calculating the
entire amount of the eligible credit
determined with respect to a single
eligible credit property. In defining this
term, the Treasury Department and the
IRS considered questions from
stakeholders asking whether it is
possible to transfer bonus credit
amounts related to an eligible credit
separately from the ‘‘base’’ eligible
credit determined with respect to the
relevant eligible credit property. As
section 6418 does not contemplate such
a transfer, the proposed regulations
would not permit this type of transfer.
Thus, an eligible taxpayer would not be
permitted to divide an eligible credit
from a single eligible credit property
into the portion from the qualified
activity or investment credit property
and one or more bonus amounts of the
eligible credit. 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

E:\FR\FM\21JNP2.SGM

21JNP2

lotter on DSK11XQN23PROD with PROPOSALS2

Federal Register / Vol. 88, No. 118 / Wednesday, June 21, 2023 / Proposed Rules
component part of the entire eligible
credit) determined with respect to a
single eligible credit property.
Proposed § 1.6418–1(p) would define
the term ‘‘transferred specified credit
portion’’ to mean the specified credit
portion that is transferred from an
eligible taxpayer to a transferee taxpayer
pursuant to a transfer election.
Section 6418(b)(1) and proposed
§ 1.6418–2(a)(4)(ii) (disallowing transfer
elections for non-cash consideration)
and proposed § 1.6418–2(e)(1)
(treatment of payments made in
connection with a transfer election)
would require that any amounts paid by
a transferee taxpayer in connection with
the transfer of a specified credit portion
be paid in cash. Proposed § 1.6418–1(f)
would define ‘‘paid in cash’’ as a
payment made in United States dollars.
The definition of ‘‘paid in cash’’
contemplates limiting the manner in
which United States dollars may be
transferred in connection with a transfer
election to payments by cash, check,
cashier’s check, money order, wire
transfer, ACH transfer, or other bank
transfer of immediately available funds.
The proposed regulations also would
provide a safe harbor timing rule to
allow for certainty as to the treatment of
such payments of United States dollars
made during a prescribed time period.
The proposed regulations would
provide that a payment does not violate
the paid in cash requirement if the cash
payment 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)). The proposed regulations
also address an issue raised by
stakeholders regarding advanced
commitments and would provide that a
contractual commitment to purchase
eligible credits in advance of the date a
specified credit portion is transferred
satisfies the paid in cash requirement,
so long as all cash payments are made
during the time period described in
proposed § 1.6418–1(f)(1)(ii).
Proposed § 1.6418–1(m) would define
the term ‘‘transferee taxpayer’’ by
incorporating the requirement in section
6418(a) that an eligible taxpayer only
transfer eligible credits to a taxpayer
that is not related (within the meaning
of section 267(b) or 707(b)(1)) to the
eligible taxpayer. Thus, the proposed
regulations would define a transferee
taxpayer as any taxpayer that is not
related (within the meaning of section
267(b) or 707(b)(1) of the Code) to the
eligible taxpayer making the transfer
election to which the eligible taxpayer

VerDate Sep<11>2014

20:16 Jun 20, 2023

Jkt 259001

transfers a specified credit portion of an
eligible credit. Further, consistent with
the proposed definitions of transferee
taxpayer and eligible taxpayer, proposed
§ 1.6418–1(k), (l), (n), and (o) would
define the terms ‘‘transferee
partnership,’’ ‘‘transferee S
corporation,’’ ‘‘transferor partnership,’’
and ‘‘transferor S corporation,’’
respectively.
II. Rules for Making Transfer Elections
The rules in proposed § 1.6418–2
would describe the general
requirements for making a transfer
election, including clarifying when a
transfer election can be made in certain
ownership situations, situations where
no transfer election may be made, the
manner and due date for the election,
limitations related to a transfer election,
the determination of an eligible credit,
the treatment of payments related to a
transfer of eligible credits, and the
treatment of a transferred specified
credit portion by a transferee taxpayer.
A. Transfer Elections in General
Proposed § 1.6418–2(a) would provide
rules generally applicable to a transfer
election. Consistent with the language
in section 6418(a), the proposed rules
would provide that if a valid transfer
election is made by an 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 the specified credit
portion.
Proposed § 1.6418–2(a)(2) would
clarify the rule related to multiple
transfer elections. Stakeholders
requested clarification on whether an
eligible taxpayer can make multiple
elections to transfer an eligible credit to
multiple transferees. Proposed § 1.6418–
2(a)(2) would provide 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 a
single eligible credit property does not
exceed the amount of the eligible credit
determined with respect to the eligible
credit property. In other words, section
6418 does not, and therefore these
proposed regulations would not, limit
the number of transfer elections or
number of transferee taxpayers for
which an eligible taxpayer can make a
transfer election, unless the transfer of
a specified credit portion would exceed
the available eligible credit to be
transferred.
Proposed § 1.6418–2(a)(3) would
address when eligible taxpayers are

PO 00000

Frm 00005

Fmt 4701

Sfmt 4702

40499

permitted to make a transfer election in
certain ownership situations. The
situations addressed are based on
requests from stakeholders for
clarification. Rules are proposed for
disregarded entities, undivided
ownership interests, members of a
consolidated group, and partnerships
and S corporations. For a disregarded
entity wholly owned (directly or
indirectly) by an eligible taxpayer, the
eligible taxpayer makes a transfer
election. For undivided ownership
interests, if eligible credit property is
directly owned through an arrangement
properly treated as a tenancy-incommon for Federal income tax
purposes, or through an organization
that has made a valid election under
section 761(a) of the Code, each coowner’s or member’s undivided
ownership share of the eligible credit
property will be treated for purposes of
section 6418 as a separate eligible credit
property owned by such co-owner or
member, and each makes a separate
transfer election. For members of a
consolidated group, a member is
required to make a transfer election.
Finally, for a partnership or S
corporation, with respect to any eligible
credit property held directly by such
partnership or S corporation, the
partnership or S corporation makes a
transfer election, not the partners or
shareholders.
Proposed § 1.6418–2(a)(4) would
describe three circumstances where no
transfer election can be made.
First, consistent with section
6418(g)(4), the proposed regulations
preclude 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, the proposed rules would
preclude a transfer election when an
eligible taxpayer receives any amount
not paid in cash (as defined in § 1.6418–
1(f)) as consideration in connection with
the transfer of a specified credit portion.
Section 6418(b)(1) requires that ‘‘any’’
consideration paid in connection with a
transfer be paid in cash. Thus, if any
consideration is other than cash, the
transfer election is disallowed.
Third, no election is allowed when
eligible credits are not determined with
respect to an eligible taxpayer. As
further explained later in this preamble,
an eligible credit is determined with
respect to an eligible taxpayer in cases
where the eligible taxpayer owns the
underlying eligible credit property or, if
ownership is not required, otherwise

E:\FR\FM\21JNP2.SGM

21JNP2

40500

Federal Register / Vol. 88, No. 118 / Wednesday, June 21, 2023 / Proposed Rules

lotter on DSK11XQN23PROD with PROPOSALS2

conducts the activities giving rise to the
underlying eligible credit. As examples,
the proposed regulations describe two
situations where a credit is allowable to
an eligible taxpayer, but the eligible
taxpayer is not permitted to transfer the
credit under section 6418. First, the
proposed regulations provide that a
section 45Q credit allowable to a person
that disposes of qualified carbon oxide,
utilizes qualified carbon oxide, or uses
qualified carbon oxide as a tertiary
injectant due to an election made under
section 45Q(f)(3)(B) is not transferable
under section 6418. Second, the
proposed regulations provide that a
section 48 credit allowable to a lessee of
property under section 50(d)(5) and an
election under § 1.48–4 is not
transferable under section 6418. In both
cases, the taxpayer is only allowed to
claim the credit as a result of an election
by another taxpayer, and does not own
the eligible credit property to which the
credit was determined. These situations
can be contrasted with a sale-leaseback
transaction under section 50(d)(4) where
a purchaser/lessor of investment credit
property owns the underlying property
to which an eligible credit is
determined. In that case, provided all of
the rules are met, because the eligible
credit is determined with respect to
eligible credit property owned and
treated as originally placed in service by
the purchaser/lessor, the purchaser/
lessor can elect to transfer eligible
credits determined with respect to the
property under section 6418.
B. Manner and Due Date of Making a
Transfer Election
Section 6418(a) allows an eligible
taxpayer to transfer an eligible credit (or
portion thereof) determined with
respect to such taxpayer to a transferee
taxpayer. Generally, section 6418 does
not expressly provide for the relevant
unit of measurement for an election to
transfer eligible credits. Proposed
§ 1.6418–2(b) would provide generally
that an eligible taxpayer is required to
make a transfer election to transfer a
specified credit portion on the basis of
a single eligible credit property. For
example, 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. This approach
would provide eligible taxpayers with
flexibility in determining the credit to
transfer and aligns with how an
excessive credit transfer is defined in
section 6418(g)(2)(C).
In requiring the election to be made
on the basis of a single eligible credit

VerDate Sep<11>2014

20:16 Jun 20, 2023

Jkt 259001

property, the Treasury Department and
the IRS request comments on two
issues. First, whether more specific
guidance with respect to any eligible
credit property is needed to allow
eligible taxpayers to make the election
as required. If such guidance is needed,
suggestions for further defining the
relevant eligible credit property are
requested. Second, whether to adopt a
grouping rule that allows taxpayers to
make an election with respect to certain
groups of eligible credit properties. If
such a rule is recommended, discussion
of the eligible credits that a rule should
apply to, the appropriate circumstances
for grouping, as well as specific rules for
determining a group with respect to an
eligible credit is requested.
Consistent with section
6418(f)(1)(B)(i), proposed § 1.6418–
2(b)(2) would provide specific rules in
the case of any section 45 credit, section
45Q credit, section 45V credit, or
section 45Y credit that is an eligible
credit. The proposed rules would
provide that a transfer election is made
with respect to each eligible credit
property for which an eligible credit is
determined. Consistent with section
6418(f)(1)(B)(ii), the proposed rules also
would provide that a transfer election
would be required to be made for each
taxable year an eligible taxpayer elects
to transfer a specified credit portion
with respect to such eligible credit
property during the 10-year period
beginning on the date such eligible
credit property 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
eligible credit property was originally
placed in service).
Proposed § 1.6418–2(b)(3) would
provide the manner of making a valid
transfer election. Stakeholders asked for
clarity regarding the manner of making
a valid election and provided
suggestions for how an election should
be effectuated and potential information
to be included. Proposed § 1.6418–
2(b)(3) outlines the requirements for
making a transfer election for eligible
taxpayers other than partnerships or S
corporations (those rules are in
proposed § 1.6418–3(d)). While
described in more detail in the proposed
regulations, to make a valid transfer
election, an eligible taxpayer as part of
filing a return (or a return for a short
year within the meaning of section 443
of the Code (short year return)),
generally would be required to include
the following—(A) a properly completed
relevant source credit form for the
eligible credit; (B) a properly completed
Form 3800, General Business Credit (or
its successor), including reporting the

PO 00000

Frm 00006

Fmt 4701

Sfmt 4702

registration number received during the
required pre-filing registration (as
described in proposed § 1.6418–4); (C) a
schedule attached to the Form 3800 (or
its successor) showing the amount of
eligible credit transferred for each
eligible credit property; (D) a transfer
election statement as described later in
this preamble; and (E) any other
information related to the election
specified in guidance (as defined in
proposed § 1.6418–1(e)).
A transfer election statement is
described in proposed § 1.6418–2(b)(5)
and would be generally defined as a
written document that describes the
transfer of a specified credit portion
between an eligible taxpayer and
transferee taxpayer. Election statements
are used in similar situations to a
transfer election under section 6418 (for
example, an election under section
50(d)(5) and § 1.48–4, section 45G, or
section 45J all require a written
document between the parties). A
transfer election statement that is
completed by both the eligible taxpayer
and the transferee taxpayer would be
necessary to allow the transferee
taxpayer the opportunity to file a return
without needing to wait for the eligible
taxpayer to file. A transfer election
statement, which is described in more
detail in the proposed regulations,
would be required to generally include
(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 property; (3) a
statement that the parties are not related
(within the meaning of section 267(b) or
707(b)(1)); (4) a representation from the
eligible taxpayer that it has complied
with all relevant requirements to make
a transfer election; (5) a statement 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 the eligible
taxpayer has provided the required
minimum documentation to the
transferee taxpayer. Required minimum
documentation is specified in proposed
§ 1.6418–2(b)(3)(iv). Required minimum
documentation would be the minimum
documentation that the eligible taxpayer
is required to provide to a transferee
taxpayer, and is more fully described in
the proposed regulations, but is
generally documentation to validate the
existence of the eligible credit property,
any bonus credits amounts, and the

E:\FR\FM\21JNP2.SGM

21JNP2

lotter on DSK11XQN23PROD with PROPOSALS2

Federal Register / Vol. 88, No. 118 / Wednesday, June 21, 2023 / Proposed Rules
evidence of credit qualification. This
requirement is consistent with a
stakeholder suggestion that such
information should be required to be
provided by the eligible taxpayer.
Proposed § 1.6418–2(b)(5)(v) would
specify that a transferee taxpayer,
consistent with § 1.6001–1(e), would be
required to retain the requirement
minimum documentation provided by
the eligible taxpayer so long as the
contents thereof may become material in
the administration of any internal
revenue law.
Proposed § 1.6418–2(b)(5)(iii) would
provide a rule on the timing of the
transfer election statement. The
proposed rule generally allows a
transfer election statement to be
completed any time after the eligible
taxpayer and transferee taxpayer have
sufficient information to prepare a
transfer election statement. However, a
transfer election statement cannot be
completed for any taxable year after the
earlier of (A) 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
taxpayer, or (B) the filing of the return
of the transferee taxpayer for the year in
which the specified credit portion is
taken into account. This proposed rule
is intended to provide flexibility but
places an outer limit on the timing of
the transfer election statement because
both the eligible taxpayer and the
transferee taxpayer would be required to
include a transfer election statement as
part of filing a return, and therefore, the
transfer election statement would need
to be completed before a return is filed
by either party.
Consistent with section 6418(e)(1),
proposed § 1.6418–2(b)(4) would
provide that an election to transfer any
specified credit portion would need to
be made not later than the due date
(including extensions) for the tax return
for the taxable year for which the
eligible credit is determined. The
proposed regulations would also clarify
that an election would need to be filed
on an original return and may not be
made or revised on an amended return
or by filing a request for an
administrative adjustment under section
6227 of the Code. An original return
includes a superseding return filed on
or before the due date (including
extensions). The proposed regulations
would also provide that there is no
relief available under §§ 301.9100–1
through 301.9100–3 for a late transfer
election.
C. Limitations on the Election
Proposed § 1.6418–2(c) would include
rules that describe certain limitations

VerDate Sep<11>2014

20:16 Jun 20, 2023

Jkt 259001

with respect to making an election
under section 6418. First, consistent
with section 6418(e)(1), the proposed
regulations would provide that once
made, an election to transfer an eligible
credit is irrevocable. Second, consistent
with section 6418(e)(2), the proposed
regulations would prohibit a transferee
taxpayer of any specified credit portion
from making a second transfer under
section 6418 with respect to any amount
of such transferred credit.
Stakeholders asked whether a
passthrough transferee taxpayer that
allocates purchased eligible credits to its
direct or indirect owners violates the no
second transfer rule in section
6418(e)(2). An allocation of a transferred
specified credit portion to a direct or
indirect owner of a passthrough entity
would not be considered a transfer
under section 6418. As a result, an
allocation of a transferred specified
credit portion to a direct or indirect
owner of a passthrough transferee
taxpayer does not violate the no second
transfer rule in section 6418(e)(2).
However, certain rules would apply to
allocations of a transferred specified
credit portion from passthrough entities
as further described in proposed
§ 1.6418–3.
Stakeholders also inquired whether
eligible credits can be transferred
through dealer arrangements. Any
arrangement where 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
is in violation of the no second transfer
rule in section 6418(e)(2). In contrast, an
arrangement using a broker to match
eligible taxpayers and transferee
taxpayers should not violate the no
second 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.
D. Determining the Eligible Credit
Proposed § 1.6418–2(d) would
provide rules to clarify how to
determine the amount of an eligible
credit that is transferable. Any rules that
relate to the determination of an eligible
credit, such as rules in sections 49 and
50(b), would apply to the eligible
taxpayer and therefore can limit the
amount of transferable eligible credits
determined with respect to a single
eligible credit property owned by the
eligible taxpayer. 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

PO 00000

Frm 00007

Fmt 4701

Sfmt 4702

40501

taxpayer. The inclusion of the word
‘‘determined’’ is instructive, and the
proposed regulations would draw a
distinction between rules that impact
the amount of credit determined or the
credit base (and thus, the amount of
eligible credit that can be transferred)
versus rules that impact a taxpayer’s
ability to claim a particular eligible
credit against its tax liability. Rules that
impact the ability of a taxpayer to claim
a particular eligible credit against its tax
liability do not limit the amount of an
eligible credit that an eligible taxpayer
can transfer. Providing a limitation
based on an eligible taxpayer’s ability to
claim an eligible credit would undercut
one of the purposes of section 6418,
which is to provide an alternative
monetization mechanism to eligible
taxpayers that would be unable to
utilize credits in the current taxable
year.
As previously stated, section 49
generally impacts the amount of a credit
determined with respect to an
investment credit property that an
eligible taxpayer can transfer. The
proposed regulations would provide
rules for the application of section 49 to
a partnership or S corporation that is an
eligible taxpayer and elects under
section 6418 to transfer an eligible
credit (a transferor partnership or
transferor S corporation). The proposed
regulations would provide that any
amount of eligible credit determined
with respect to investment credit
property held directly by a transferor
partnership or transferor S corporation
(or held directly by an entity
disregarded as separate from such
transferor partnership or transferor S
corporation) is determined by the
transferor partnership or transferor S
corporation by taking into account the
section 49 at-risk rules at the partner or
shareholder level as of the close of the
taxable year in which the investment
credit property is placed in service.
Thus, if the credit base of the
investment credit property is limited to
a partner or shareholder by section 49,
then the amount of the eligible credit
determined by the transferor
partnership or transferor S corporation
is also limited. The proposed
regulations would provide that a
transferor partnership or transferor S
corporation that transfers any specified
credit portion with respect to an
investment credit property must request
from each of its partners or
shareholders, respectively, that is
subject to section 49, the amount of
such partner’s or shareholder’s
nonqualified nonrecourse financing
with respect to the investment credit

E:\FR\FM\21JNP2.SGM

21JNP2

40502

Federal Register / Vol. 88, No. 118 / Wednesday, June 21, 2023 / Proposed Rules

lotter on DSK11XQN23PROD with PROPOSALS2

property as of the close of the taxable
year in which the property is placed in
service. Additionally, the transferor
partnership or transferor S corporation
would attach to its tax return for the
taxable year in which the property is
placed in service, the amount of each
partner’s or shareholder’s section 49
limitation with respect to any specified
credit portion transferred with respect
to the investment credit property. The
Treasury Department and the IRS
request comments as to whether (1) any
information or reporting requirements
are needed for transferor partnerships or
transferor S corporations to apply these
rules when determining the amount of
an eligible credit that can be transferred
or (2) any additional clarifications are
needed regarding how the at-risk rules
apply to the determination of an eligible
credit by an eligible taxpayer.
E. Treatment of Payments Made in
Connection With Transfer
Proposed § 1.6418–2(e) would include
rules to clarify the treatment of
payments made by a transferee taxpayer
to an eligible taxpayer in connection
with the transfer of an eligible credit.
The proposed regulations relate to the
rules provided in section 6418(b)(1)
through (3) and include a rule clarifying
when a payment is considered to be
made in connection with a transfer
election.
Proposed § 1.6418–2(e)(1) would
provide that an amount paid by a
transferee taxpayer to an eligible
taxpayer is consideration for a transfer
of a specified credit portion only if it is
paid in cash (as defined in § 1.6418–
1(f)), directly relates to the specified
credit portion, and is not described in
§ 1.6418–5(a)(3) (describing payments
related to an excessive credit transfer).
These proposed rules would provide
objective criteria for eligible taxpayers
and transferee taxpayers that seek
certainty as to the timing of payments
and acceptable forms of payment.
General tax rules apply to any payments
made or received outside of the
requirements described in proposed
§ 1.6418–2(e)(1). Additionally, the
requirements of proposed § 1.6418–
2(e)(1) would not be satisfied where a
specified credit portion is not ultimately
transferred to a transferee taxpayer.
Pursuant to section 6418(b), the
proposed regulations also include rules
that would clarify that amounts paid in
connection with a transfer election by a
transferee taxpayer are not includible in
the gross income of an eligible taxpayer
and are not deductible by the transferee
taxpayer.
In addition to these rules, the
proposed regulations would include an

VerDate Sep<11>2014

20:16 Jun 20, 2023

Jkt 259001

anti-abuse provision. The intent of the
anti-abuse provision is to disallow the
election and transfer of an eligible credit
under section 6418, or otherwise
recharacterize a transaction’s income tax
consequences, in circumstances where
the parties to the transaction have
engaged in the transaction or a series of
transactions with the principal purpose
of avoiding tax liability beyond the
intent of section 6418. This could
include transactions that are intended to
decrease the eligible taxpayer’s gross
income or increase a transferee
taxpayer’s deductions. For example, a
transaction where an eligible taxpayer
undercharges or overcharges for services
to a customer who is also purchasing
credits from the eligible taxpayer as a
transferee taxpayer may violate the antiabuse rule. The proposed regulations
include two examples to illustrate
application of the anti-abuse rule.
The proposed regulations do not
address (1) the Federal income tax
treatment of transaction costs, either for
the eligible taxpayer or the transferee
taxpayer, and (2) whether a transferee
taxpayer is permitted to deduct a loss if
the amount paid to an eligible taxpayer
exceeds the amount of the eligible credit
that the transferee taxpayer can
ultimately claim. The Treasury
Department and the IRS are currently
developing rules on these general issues
and seek comments as part of that
process. Any comments should also
consider the specific matters described
in the following paragraphs.
Generally, gain or loss is recognized
on the sale or other disposition of
property. See section 1001 of the Code.
If a seller incurs costs to facilitate the
sale of property, such costs are generally
required to be capitalized and reduce
the amount realized from the sale. See
§ 1.263(a)–1(e). If a buyer incurs costs to
facilitate the acquisition of property (for
example, legal fees to draft the purchase
agreement), such costs are generally
required to be capitalized and included
in the basis of property acquired. See,
for example, §§ 1.263(a)–2(f)(1) and
1.263(a)–4(b)(1)(v).
It is a longstanding principle that
courts should construe Federal tax laws
in harmony with the legislative intent
and seek to carry out the legislative
purpose. Foster v. U.S., 303 U.S. 118
(1938). Furthermore, it is a wellestablished principle of statutory
interpretation that a tax law should not
be interpreted to allow the practical
equivalent of a double benefit absent a
clear declaration of intent by Congress
(no double benefit principle). See
generally U.S. v. Skelly Oil Co. 394 U.S.
678, 684 (1969); cf. Hillsboro Nat. Bank
v. Commissioner, 460 U.S. 370 (1983). A

PO 00000

Frm 00008

Fmt 4701

Sfmt 4702

double tax benefit could arise in
situations of a double deduction, a
deduction and a credit, a credit or a
deduction from amounts that are
excluded from gross income, or credits
from expenditures made to generate
other credits. Cf. Hintz v. Commissioner,
712 F2d 281 (7th Cir. 1983); section 265,
Expenses and Interest Relating to TaxExempt Income; S/V Drilling Partners v.
Commissioner, 114 T.C. 83 (2000).
Section 6418 provides specific rules
that explicitly or implicitly supersede
certain general Federal income tax rules
in whole or in part. Accordingly, the
Treasury Department and the IRS must
consider not only the application of
specific provisions of section 6418 but
also other applicable provisions of the
Code when developing rules on the
general issues described previously.
With respect to an eligible taxpayer,
section 6418(b)(2) provides that any
consideration received from a transferee
taxpayer for the transfer of an eligible
credit (or portion thereof) is not
includible in gross income of the
eligible taxpayer. Section 6418(c)(1)(A)
provides that in the case of any eligible
credit determined with respect to any
facility or property held directly by a
partnership or S corporation, any
amount received as consideration for
the transfer of such credit is treated as
tax exempt income for purposes of
sections 705 and 1366. In developing
the rules applicable to transaction costs
of an eligible taxpayer, it will be
necessary to determine, among other
things, whether (1) the no double
benefit principle applies and, if so, how
it should apply, and (2) the
capitalization rules of section 263 and
the regulations thereunder apply and, if
so, how they interact with the rules
under section 6418(b)(2) and (c)(1)(A).
With respect to a transferee taxpayer,
as described herein, the proposed
regulations would provide that there is
no gross income to a transferee taxpayer
when claiming an eligible credit if the
amount paid for the eligible credit is
less than the amount of the eligible
credit transferred and claimed
(transferee gross income exclusion rule).
Similar to the development of rules for
transaction costs of an eligible taxpayer,
in developing the rules applicable to
transaction costs of a transferee
taxpayer, it will be necessary to
determine, among other things, whether
(1) the no double benefit principle
applies and, if so, how it should apply,
and (2) the capitalization rules of
section 263 and the regulations
thereunder apply and, if so, how they
interact with the transferee gross income
exclusion rule in the proposed
regulations.

E:\FR\FM\21JNP2.SGM

21JNP2

Federal Register / Vol. 88, No. 118 / Wednesday, June 21, 2023 / Proposed Rules

lotter on DSK11XQN23PROD with PROPOSALS2

Also, with respect to a transferee
taxpayer, section 6418(b)(3) provides
that any consideration paid to the
eligible taxpayer for an eligible credit is
not deductible under any provision of
the Code. However, it is not clear
whether the ‘‘not deductible’’ language
in section 6418(b)(3) should be read to
preclude capitalization of the
consideration paid to the eligible
taxpayer (for example, under section
263). Therefore, it will be necessary for
the Treasury Department and the IRS to
determine whether the capitalization
rules of section 263 and the regulations
thereunder apply to a transferee
taxpayer and, if so, how they should
apply. It will also be necessary to
interpret the scope of section 6418(b)(3)
and resolve whether it precludes a
deduction for any amount of
consideration paid that is otherwise
deductible as a loss under section 165
(for example, where the amount of
consideration paid exceeds the amount
of the credit the transferee taxpayer can
ultimately claim).
F. Transferee Taxpayer’s Treatment of
an Eligible Credit
Proposed § 1.6418–2(f) would provide
rules describing the transferee
taxpayer’s treatment of a transferred
specified credit portion. Stakeholders
sought clarification of whether a
transferee taxpayer has a choice of
which year to take an eligible credit into
account. Section 6418(d) provides that
in the case of any eligible credit
transferred to a transferee taxpayer
pursuant to a transfer election, the
eligible credit is taken into account in
the first taxable year of the transferee
taxpayer ending with, or after, the
taxable year of the eligible taxpayer with
respect to which the credit was
determined. This language prescribes
the specific year the transferee taxpayer
takes the transferred eligible credit into
account. Therefore, no clarification is
needed. 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 transferee taxpayer’s first taxable
year that ends after the taxable year of
the eligible taxpayer. Consistent with
this rule, the transferee taxpayer may
claim a specified credit portion on an
amended return or, if applicable, a
request for administrative adjustment. A
transferee taxpayer may also take into
account a specified credit portion that it

VerDate Sep<11>2014

20:16 Jun 20, 2023

Jkt 259001

has purchased, or intends to purchase,
when calculating its estimated tax
payments, though 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.
Stakeholders also asked whether there
are any income tax consequences to a
transferee taxpayer if the amount paid
for an eligible credit is less than the
amount of the eligible credit transferred
and claimed. As described earlier, the
proposed regulations would clarify this
issue by providing that there is no gross
income to a transferee taxpayer when
claiming an eligible credit if the amount
paid for the eligible credit is less than
the amount of the eligible credit
transferred and claimed. Under section
6418(a), a transferee taxpayer is treated
as the eligible taxpayer for other
purposes of the Code with respect to a
transferred eligible credit. An eligible
taxpayer would not have gross income
as a result of claiming an eligible credit.
As such, a transferee taxpayer also
should not have gross income as a result
of claiming a transferred eligible credit.
The proposed regulations would also
describe the effect of the language in
section 6418(a), which provides that the
transferee taxpayer specified in an
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). Consistent
with an eligible credit being determined
based on ownership of the underlying
eligible credit property by an eligible
taxpayer, or, if ownership is not
required, based on conducting the
activities giving rise to the eligible
credit, the proposed regulations would
provide that a transferee taxpayer does
not also apply rules that relate to the
determination of an eligible credit, such
as rules in section 49 or 50(b) as
described in proposed § 1.6418–2(d)(1).
However, a transferee taxpayer would
apply rules that relate to the amount of
a transferred eligible credit that is
allowed to be claimed in the taxable
year based on a transferee’s particular
circumstances, such as the rules in
section 38 or 469.
Consistent with applying credit
utilization rules to transferee taxpayers,
the proposed regulations would provide
a rule that a transferred specified credit
portion is treated as earned in
connection with the conduct of a trade
or business, and, if applicable, such
transferred specified credit portion is
subject to the passive activity limitation
rules in section 469. However, a
transferee taxpayer (or a direct or
indirect owner of a transferee taxpayer

PO 00000

Frm 00009

Fmt 4701

Sfmt 4702

40503

that claims a transferred specified credit
portion) that is subject to section 469 is
not, as a result of a transfer election,
considered to have owned an interest in
the eligible taxpayer’s business at the
time the work was done (as required for
material participation in § 1.469–5(f)(1))
and cannot change the characterization
of the transferee taxpayer’s participation
with respect to generation of the
transferred specified credit portion by
using any of the grouping rules in
§ 1.469–4(c). This proposed rule would
be consistent with the result that the
transferee taxpayer does not apply rules
that relate to the determination of an
eligible credit because the transferee
does not own the underlying eligible
credit property to which the credit is
determined or conduct the activity
directly. Further, allowing a transferee
taxpayer to try to change the
characterization of an eligible credit
based on grouping with its own
activities under § 1.469–4(c) would
conflict with the conclusion that the
eligible credit has already been
determined. In contrast, an eligible
credit generated through the conduct of
a trade or business does not lose such
attribute through a transfer under
section 6418 for purposes of
determining whether a transferee
taxpayer is allowed the credit. Likewise,
a section 38 business credit does not
become an individual (non-business)
credit if transferred to an individual. 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. The impact of this
rule for a transferee taxpayer that is
subject to section 469 is that such
transferee taxpayer will be considered to
earn eligible credits through the conduct
of a trade or business related to the
eligible credit but will not materially
participate in such business for
purposes of section 469. Thus, a
transferee taxpayer subject to section
469 would be required to treat the
credits making up the specified credit
portion as passive activity credits (as
defined in section 469(d)(2)) to the
extent the specified credit portion
exceeds passive tax liability. The
Treasury Department and the IRS
request comments on whether there are
circumstances in which it would be
appropriate to not apply the passive
activity rules under section 469 to a
transferee taxpayer or to attribute the
participation of an eligible taxpayer to a
transferee taxpayer.
Lastly, proposed § 1.6418–2(f)(4)
would provide rules for how a

E:\FR\FM\21JNP2.SGM

21JNP2

40504

Federal Register / Vol. 88, No. 118 / Wednesday, June 21, 2023 / Proposed Rules

transferee taxpayer can 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 further
procedures applicable to a transferee
taxpayer. In determining the proposed
procedures, consideration was given to
the requirements for any taxpayer when
taking into account a general business
credit, with additional information
required that is necessary for tracking
the transfer of specified credit portions.
The proposed rules would provide that
in order for a transferee taxpayer to take
into account a specified credit portion,
the transferee taxpayer would be
required to include certain information
as part of filing a return (or short year
return). The proposed regulations would
require (A) 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; (B) the
transfer election statement described
earlier in this preamble attached to the
return; and (C) any other information
related to the transfer election specified
in guidance.

lotter on DSK11XQN23PROD with PROPOSALS2

III. Partnerships and S Corporations
A. Overview
The proposed regulations would
provide general rules related to transfers
of eligible credits by transferor
partnerships and transferor S
corporations and purchases of eligible
credits by transferee partnerships and
transferee S corporations. As a
preliminary matter, the proposed
regulations would clarify 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. The proposed regulations
would also clarify 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.
In addition, the proposed regulations
would clarify 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

VerDate Sep<11>2014

20:16 Jun 20, 2023

Jkt 259001

trade or business within the meaning of
section 469(c)(1)(A). As a result, such
tax exempt income is not treated as
passive income to any partners or
shareholders who do not materially
participate within the meaning of
section 469(c)(1)(B). Because a transfer
of a specified credit portion does not
involve the transfer of any assets used
in a trade or business, it is more
appropriate to treat any tax exempt
income resulting from the transfer as
arising from an investment activity.
B. Special Recapture Rules for
Transferor Partnerships and S
Corporations
Stakeholders requested clarification
on whether indirect disposition events
result in recapture of transferred
investment tax credits to a transferee
taxpayer under section 6418(g)(3)(B).
Section 1.47–4(a)(2) provides that if an
S corporation shareholder’s interest in
an S corporation is reduced as a result
of certain events during the recapture
period by a certain percentage of the
shareholder’s interest for the taxable
year of the S corporation in which the
investment credit property is placed in
service, recapture can occur to such S
corporation shareholder. Likewise,
§ 1.47–6(a)(2) provides that if a partner’s
interest in the general profits of a
partnership is reduced as a result of
certain events during the recapture
period by a certain percentage of the
partner’s interest in general profits for
the taxable year of the partnership in
which the investment credit property is
placed in service, recapture can occur to
such partner. As explained later in part
V of this Explanation of Provisions, the
proposed regulations would provide
generally that if an applicable
investment credit property is disposed
of, or otherwise ceases to be investment
credit property with respect to the
eligible taxpayer, a transferee taxpayer
bears the recapture tax associated with
any transferred eligible investment tax
credit transferred to such transferee
taxpayer.
The recapture events described in
§§ 1.47–4(a)(2) and 1.47–6(a)(2) are
applicable with respect to the specific
shareholder or partner to which the
recapture event occurs and not with
respect to the transferor S corporation or
transferor partnership. As a result, such
recapture events should not result in
recapture of a transferred eligible
investment tax credit to a transferee
taxpayer under section 6418(g)(3)(B).
Instead, the recapture tax liability
resulting from the reduction of an S
corporation shareholder’s interest or a
partner’s interest in general profits
should continue to result in recapture to

PO 00000

Frm 00010

Fmt 4701

Sfmt 4702

the applicable disposing shareholder or
partner. The proposed regulations
would clarify that ‘‘indirect’’
dispositions under §§ 1.47–4(a)(2) and
1.47–6(a)(2) do not result in recapture
tax liability to a transferee taxpayer
under section 6418. Instead, these rules
continue to apply to a disposing partner
or shareholder in a transferor
partnership or transferor S corporation,
respectively. Any recapture to a
disposing partner is calculated based on
the partner’s share of the basis (or cost)
of the section 38 property to which the
eligible credits were determined in
accordance with § 1.46–3(f). Any
recapture to a disposing shareholder is
calculated based on the shareholder’s
pro rata share of the basis (or cost) of the
section 38 property to which the eligible
credits were determined in accordance
with § 1.48–5.
The Treasury Department and the IRS
request comments on whether
additional rules or clarifications are
needed with respect to how the indirect
disposition recapture rules under
§§ 1.47–6(a)(2) and 1.47–4(a)(2) apply to
partners or shareholders in transferor
partnerships or transferor S
corporations, respectively.
As previously stated, the proposed
regulations would provide that any
amount of eligible credit determined
with respect to investment credit
property held directly by a partnership
or S corporation would be required to be
determined by the partnership or S
corporation taking into account the
section 49 at-risk rules at the partner or
shareholder level as of the close of the
taxable year in which the investment
credit property is placed in service. The
proposed regulations also would
provide that any net increase in the
amount of nonqualified nonrecourse
financing during the recapture period
for a partner or shareholder in a
transferor partnership or transferor S
corporation with respect to such
partner’s or shareholder’s credit base for
a transferred eligible investment tax
credit does not result in recapture to a
transferee taxpayer under section
6418(g)(3). Similar to the indirect
disposition recapture rules described
above, the recapture rules under section
49(b) for partners or shareholders in a
transferor partnership or transferor S
corporation apply with respect to a
disposition or change in financing at the
partner or shareholder level and not at
the eligible taxpayer (i.e., the
partnership or S corporation) level. As
such, these rules would continue to
apply to partners or shareholders in
transferor partnerships or transferor S
corporations that increase their
nonqualified nonrecourse financing

E:\FR\FM\21JNP2.SGM

21JNP2

Federal Register / Vol. 88, No. 118 / Wednesday, June 21, 2023 / Proposed Rules

lotter on DSK11XQN23PROD with PROPOSALS2

amount during the recapture period.
Any recapture to a disposing partner is
calculated based on the partner’s share
of the basis (or cost) of the section 38
property to which the eligible credits
were determined in accordance with
§ 1.46–3(f). Any recapture to a disposing
shareholder is calculated based on the
shareholder’s pro rata share of the basis
(or cost) of the section 38 property to
which the eligible credits were
determined in accordance with § 1.48–
5.
The Treasury Department and the IRS
request comments on whether
additional rules or clarifications are
needed with respect to how the
recapture rules under section 49(b)
apply to partners or shareholders in
transferor partnerships or transferor S
corporations. As a clarification,
recapture under section 49(b) applicable
directly to an eligible taxpayer (for
example, to an eligible taxpayer that is
an individual) results in recapture to a
transferee taxpayer under section
6418(g)(3).
The proposed regulations would also
provide that any net decrease in the
amount of nonqualified nonrecourse
financing during the recapture period
with respect to a partner’s or
shareholder’s credit base for a
transferred specified credit portion
determined with respect to investment
credit property does not result in
additional eligible credit that can be
transferred by the applicable partner,
shareholder or transferor partnership or
transferor S corporation. Instead, any
net decrease in the amount of
nonqualified nonrecourse financing and
resulting increase in the credit base to
a partner or shareholder results in
additional investment tax credit that can
be used by the applicable partner or
shareholder. The Treasury Department
and the IRS request comments on
whether additional rules or
clarifications are needed with respect to
how decreases in nonqualified
nonrecourse amounts under section
49(a)(2) that increase the credit base for
which eligible credits have previously
been transferred apply to partners or
shareholders in a transferor partnership
or transferor S corporation, respectively.
C. Rules Solely Applicable to Transferor
and Transferee Partnerships
The proposed regulations include
special rules applicable to transferor
and transferee partnerships and their
direct and indirect partners. 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.

VerDate Sep<11>2014

20:16 Jun 20, 2023

Jkt 259001

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. Stakeholders asked for clarity as to
how this determination should be made.
The proposed regulations would
provide generally that a partner’s
distributive share of tax exempt income
resulting from the receipt of cash by a
transferor partnership for a transferred
specified credit portion is based on the
partner’s proportionate distributive
share of the otherwise eligible credit as
determined under §§ 1.46–3(f) and
1.704–1(b)(4)(ii). The proposed
regulations further clarify that any tax
exempt income resulting from the
receipt of cash by a transferor
partnership for a transferred specified
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. In
effect, this means that tax exempt
income resulting from the receipt of
cash by a transferor partnership in
exchange for a transferred specified
credit portion should be allocated to the
same partners and in the same
proportionate amount, as the specified
credit portion would have been
allocated if not transferred.
The proposed regulations would
provide a special rule for allocations of
tax exempt income resulting from a
transfer of a specified credit portion of
less than all eligible credit(s)
determined with respect to an eligible
credit property held by a transferor
partnership. This special rule permits
tax exempt income resulting from the
receipt of cash 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, 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 may 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

PO 00000

Frm 00011

Fmt 4701

Sfmt 4702

40505

transferor partnership may 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 may 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) is equal to the total
tax exempt income resulting from the
transfer(s) of the specified credit
portion(s) multiplied by a fraction, (i)
the numerator of which is 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 is 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 provide
examples of this rule.
The Treasury Department and the IRS
request comments on whether
additional rules or clarifications are
needed with respect to when allocations
of tax exempt income and eligible
credits under section 6418 will be
respected under section 704(b).
The proposed regulations would
clarify that a partnership that is an
indirect or direct partner of a transferor
partnership (an upper-tier partnership)
is not an eligible taxpayer with respect
to an eligible credit allocated by a
transferor partnership. The proposed
regulations also would clarify that for
any tax exempt income allocated to an
upper-tier partnership as a result of the
receipt of consideration for a transfer of
a specified credit portion by a transferor
partnership, the upper-tier partnership
would determine its partners’
distributive shares of the tax exempt
income in proportion to the partners’
distributive shares of the otherwise
eligible credit. In effect, this means that
the upper-tier partnership would
allocate any tax exempt income
resulting from a transfer of a specified
credit portion by a lower-tier
partnership among its partners as of the
same time, and in the same
proportionate amount, as the eligible
credit would have been allocated if not
transferred by the transferor
partnership.
Stakeholders asked for confirmation
that cash payments received by a

E:\FR\FM\21JNP2.SGM

21JNP2

lotter on DSK11XQN23PROD with PROPOSALS2

40506

Federal Register / Vol. 88, No. 118 / Wednesday, June 21, 2023 / Proposed Rules

transferor partnership as consideration
for a transfer of eligible credits can be
distributed in a manner different from
the partners’ distributive shares of the
tax exempt income resulting from the
receipt of the cash payment. A
transferor partnership that receives a
cash payment from a transfer of a
specified credit portion is under no
restriction on how it can use such cash
payment (including on how it makes
distributions to its partners). Such cash
payment is treated in the same manner
as the transferor partnership’s other
cash flows.
The proposed regulations would
provide rules for transferee partnerships
and clarify that allocations of a
transferred specified credit portion by a
transferee partnership are not a
violation of the no additional transfer
rule in § 1.6418–2(c)(2). The proposed
regulations also would provide that cash
payments by a transferee partnership for
a transferred specified credit portion are
treated as a section 705(a)(2)(B)
expenditure. 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. Each partner’s
distributive share of the section
705(a)(2)(B) expenditures used to fund
the purchase of any transferred
specified credit portion is determined
by the partnership agreement. Or, if the
partnership agreement does not provide
for the allocation of such nondeductible
expenditures, then each partner’s
distributive share is based on the
transferee partnership’s general
allocation of nondeductible
expenditures.
To prevent avoidance of the no
additional transfer rule in proposed
§ 1.6418–2(c)(2) through transfers of
interests in transferee partnerships, the
proposed regulations in proposed
§ 1.6418–3(b)(4)(iv) would provide that
a transferred specified credit portion
purchased by a transferee partnership is
treated as an extraordinary item under
§ 1.706–4(e) (including also a proposed
addition to § 1.706–4(e) confirming a
transferred specified portion is an
extraordinary item). The proposed
regulations further provide 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. If
the transferee partnership and eligible
taxpayer have different taxable years,
the extraordinary item is deemed to

VerDate Sep<11>2014

20:16 Jun 20, 2023

Jkt 259001

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. For example, if an
eligible taxpayer is a calendar year
taxpayer and a transferee partnership is
a fiscal year taxpayer with its tax year
beginning on June 1st, and the
transferee partnership makes its first
cash payment before June 1st for a
transferred specified credit portion
determined with respect to the eligible
taxpayer during year 1, then the
transferred specified credit portion is
deemed to occur to the transferee
partnership on June 1st. However, if the
transferee partnership makes its first
cash payment at any point from June 1st
to December 31st, the transferred
specified credit portion is deemed to
occur on the cash payment date. The
Treasury Department and the IRS
continue to study whether additional
rules are required under section 6418 to
prevent avoidance of the no additional
transfer rule through transfers of
interests in transferee partnerships.
Finally, for transferee partnerships,
the proposed regulations would clarify
that an upper-tier partnership that is a
direct or indirect partner in a transferee
partnership and that is allocated a
transferred specified credit portion is
not an eligible taxpayer with respect to
such transferred specified credit
portion. The upper-tier partnership
would determine each partner’s
distributive share of the transferred
specified credit portion in accordance
with the same rules the transferee
partnership determines its partners’
distributive shares of the transferred
specified credit portion.
The Treasury Department and the IRS
request comments on whether
additional rules or clarifications are
needed with respect to when allocations
of a transferred specified credit portion
will be respected under section 704(b).
The Treasury Department and the IRS
also request comments on whether
additional rules or clarifications are
needed with respect to transfers of
partnership interests that are made after
the transferring partner has contributed
capital to a transferee partnership for
the purpose of purchasing eligible
credits, but before the transferee
partnership has made any cash
payments to an eligible taxpayer.
D. Rules Solely Applicable to Transferor
and Transferee S Corporations
The proposed regulations would
include special rules applicable to

PO 00000

Frm 00012

Fmt 4701

Sfmt 4702

transferor and transferee S corporations
and their shareholders. 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.
The proposed regulations would
provide that each shareholder would
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
cash for the transfer of a specified credit
portion by a transferor S corporation.
The proposed regulations would further
clarify that any tax exempt income
resulting from the receipt of cash for the
transfer of a specified credit portion by
a transferor S corporation is treated as
received or accrued, including for
purposes of section 1366, as of the date
the transferred specified credit portion
is determined with respect to the
transferor S corporation. In effect, this
means that any tax exempt income
resulting from the receipt of cash by a
transferor S corporation for a transferred
specified credit portion should be
allocated to the same shareholders and
in the same proportionate amount as the
specified credit portion would have
been allocated if not transferred.
The proposed regulations would also
provide rules for transferee S
corporations and indicate that
allocations of a transferred specified
credit portion by a transferee S
corporation are not a violation of the no
additional transfer rule in § 1.6418–
2(d)(2).
The proposed regulations would
clarify that cash payments by a
transferee S corporation for a transferred
specified credit portion are treated as an
expenditure under section 1367(a)(2)(D)
of the Code since such payments are
nondeductible. The proposed
regulations would also provide rules for
how shareholders of a transferee S
corporation account for a transferred
specified credit portion. Each
shareholder of a transferee S corporation
would take into account its pro rata
share (as determined under section
1377(a)) of any transferred specified
credit portion. If the 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
sections 444 and 1378(b)) that the
transferee S corporation first makes a
cash payment as consideration to an
eligible taxpayer for the transferred
specified credit portion. If the transferee
S corporation and eligible taxpayer have

E:\FR\FM\21JNP2.SGM

21JNP2

Federal Register / Vol. 88, No. 118 / Wednesday, June 21, 2023 / Proposed Rules
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.

lotter on DSK11XQN23PROD with PROPOSALS2

E. Elections for Transferor Partnerships
and Transferor S Corporations
Finally, the proposed regulations
would provide specific rules relating to
elections for transferor partnerships or
transferor S corporations. Consistent
with the rules for other eligible
taxpayers, partnerships and S
corporations would generally make a
transfer election for a specified credit
portion in the manner provided in
proposed § 1.6418–2(b)(1) through (3)
described earlier in this preamble. The
proposed regulations would also clarify
that all documents required in § 1.6418–
2(b)(1) through (3) would need to be
attached to the partnership or S
corporation return for the taxable year
during which the transferred specific
credit portion was determined. For the
transfer election to be valid, the return
would need to 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.
IV. Registration Under Section
6418(g)(1)
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.
In general, consistent with section
6417, stakeholders requested additional
information about this provision and
requested that the regulations balance
the need to prevent fraud and abuse
with the burden on taxpayers.
Stakeholders recommended a
registration system that assigns a
transfer number to an eligible taxpayer
that can be used by transferee taxpayers
to claim transferred credits and allows
the IRS to track transfers of eligible
credits. Stakeholders also recommended
that information or registration
requirements should be as consistent as
possible across sections 48D(d)(1),
6417(d)(5), and 6418(g)(1). In order to
meet the purpose of section 6418(g)(1),

VerDate Sep<11>2014

20:16 Jun 20, 2023

Jkt 259001

the Treasury Department and the IRS
believe that it is necessary to establish
a mandatory registration process that is
in place before the end of the 2023
calendar year, which is the first full
taxable year during which a transfer
election under section 6418 is available.
Proposed § 1.6418–4 generally
provides rules requiring that eligible
taxpayers register before filing the
return on which a transfer election is
made and provide information related to
each eligible credit property for which
the eligible taxpayer intends to transfer
a specified credit portion. Proposed
§ 1.6418–4(a), consistent with section
6418(g)(1), requires that, as a condition
of, and prior to, making an election to
transfer a specified credit portion, an
eligible taxpayer satisfy the pre-filing
registration requirements in proposed
§ 1.6418–4(b). After the required prefiling registration process is successfully
completed, an eligible taxpayer will
receive a unique registration number
from the IRS for each registered eligible
credit property for which the eligible
taxpayer intends to transfer a specified
credit portion. The Treasury Department
and the IRS intend for this pre-filling
registration process to occur through an
IRS electronic portal (unless otherwise
allowed in guidance). An eligible
taxpayer that does not obtain a
registration number and report the
registration number on its return with
respect to an eligible credit property is
ineligible to make a transfer election.
However, completion of the pre-filing
registration requirements and receipt of
a registration number does not, by itself,
mean the eligible taxpayer is eligible to
transfer any specified credit portion
determined with respect to the eligible
credit property. The registration number
also must be reported on the eligible
taxpayer’s return.
Proposed § 1.6418–4(b) provides the
following pre-filing registration
requirements.
First, an eligible taxpayer must
complete the pre-filing registration
process electronically through an IRS
electronic portal in accordance with the
instructions provided therein, unless
otherwise provided in guidance. If the
election is by a member of a
consolidated group, the member must
complete the pre-filing registration
process as a condition of, and prior to,
making an elective payment election.
See § 1.1502–77 (providing rules
regarding the status of the common
parent as agent for its members).
Second, an eligible taxpayer must
satisfy the registration requirements and
receive a registration number prior to
making a transfer election for a specified

PO 00000

Frm 00013

Fmt 4701

Sfmt 4702

40507

credit portion on the eligible taxpayer’s
return for the taxable year at issue.
Third, an eligible taxpayer is required
to obtain a registration number for each
eligible credit property with respect to
which a transfer election of a specified
credit portion is made.
Finally, an eligible taxpayer must
provide the specific information
required to be provided as part of the
pre-filing registration process. The
provision of such information, which
includes information about the
taxpayer, about the eligible credits, and
about the eligible credit property, will
allow the IRS to prevent duplication,
fraud, improper payments, or excessive
transfers under section 6418. For
example, verifying information about
the taxpayer will allow the IRS to
mitigate the risk of fraud or improper
transfers. Information about eligible
credit properties, including their
address and coordinates (longitude and
latitude), supporting documentation,
beginning of construction date, and
placed in service date will allow the IRS
to mitigate the risk of duplication, fraud,
and improper transfers for properties
that are not eligible credit properties.
Proposed § 1.6418–4(c) provides rules
related to the registration number that is
obtained after the IRS has reviewed and
approved the taxpayer’s submitted
information. First, these rules provide
that a registration number is valid for an
eligible taxpayer only for the taxable
year for which it is obtained, and for a
transferee taxpayer’s taxable year in
which the specified credit portion is
taken into account. Second, proposed
§ 1.6418–4(c) provides rules for the
renewal of a registration number that
has been previously obtained. The
eligible taxpayer is required to renew
the registration with respect to an
eligible credit property each year in
accordance with guidance, including
attesting that all the facts are still correct
or updating any facts. Third, the
proposed regulations provide that, if
facts change with respect to an eligible
credit property for which a registration
number has been previously obtained,
an eligible taxpayer is required to
amend the registration to reflect these
new facts. Lastly, the proposed
regulations provide that an eligible
taxpayer is required to include the
registration number of the eligible credit
property on the eligible taxpayer’s
return for the taxable year, as provided
in proposed § 1.6418–2(b), for an
election to be effective with respect to
any eligible credit determined with
respect to any eligible credit property.
The IRS will treat a transfer election as
ineffective with respect to an eligible
credit determined with respect to an

E:\FR\FM\21JNP2.SGM

21JNP2

40508

Federal Register / Vol. 88, No. 118 / Wednesday, June 21, 2023 / Proposed Rules

lotter on DSK11XQN23PROD with PROPOSALS2

eligible credit property for which the
eligible taxpayer does not include a
valid registration number on its return.
A transferee taxpayer is also required
to report the registration number
received from an eligible taxpayer on its
return for the taxable year that the
transferee taxpayer takes the transferred
eligible credit into account.
V. Special Rules
The proposed regulations would
provide special rules relating to the
determination of an excessive credit
transfer, reasonable cause for a
transferee taxpayer, the difference
between an excessive credit transfer and
recapture under section 50(a) or
45Q(f)(4), the mechanics for basis
reduction and recapture notification,
and rules for ineffective elections. The
proposed regulations also would
provide special rules relating to the
carryback and carryforward of
transferred eligible credits.
The proposed regulations describe the
rules related to an excessive credit
transfer consistent with section
6418(g)(2)(A). Section 6418(g)(2)(A)
provides in the case of any specified
credit portion that is transferred to a
transferee taxpayer pursuant to section
6418(a) that the Secretary determines
constitutes an excessive credit transfer,
the tax imposed on the transferee
taxpayer by chapter 1, regardless of
whether such entity would otherwise be
subject to chapter 1 tax, for the taxable
year in which such determination is
made will be increased by an amount
equal to the sum of (i) the amount of
such excessive credit transfer, plus (ii)
an amount equal to 20 percent of such
excessive credit transfer.
Consistent with section 6418(g)(2)(B),
the proposed regulations would provide
that the 20 percent penalty related to an
excessive credit transfer does not apply
if the transferee taxpayer demonstrates
to the satisfaction of the IRS that the
excessive credit transfer resulted from
reasonable cause. Under the proposed
regulations, reasonable cause would be
generally determined based on the
relevant facts and circumstances of a
transaction. The proposed regulations
would further provide that the
determination of reasonable cause
includes an evaluation of a transferee
taxpayer’s efforts to determine that the
amount of eligible credit transferred by
the eligible taxpayer to the transferee
taxpayer is not more than the eligible
credit that was determined with respect
to the eligible credit property for the
taxable year in which the eligible credit
was determined and has not been
transferred to any other taxpayer.
Further, based on a review of

VerDate Sep<11>2014

20:16 Jun 20, 2023

Jkt 259001

suggestions by stakeholders, the
proposed regulations would provide a
list of factors that a transferee taxpayer
could show to demonstrate reasonable
cause. The list of factors is not
exhaustive and is also not intended as
a list of required actions in all transfers.
Instead, the list of factors, which
includes a review of the eligible
taxpayer’s records with respect to the
determination of the eligible credit
(including documentation evidencing
eligibility for bonus credit amounts),
would be intended to provide more
clarity with respect to reasonable cause
in these circumstances for eligible
taxpayers, transferee taxpayers and the
IRS in administration of the provision.
The proposed regulations also would
define the term ‘‘excessive credit
transfer’’ consistent with section
6418(g)(2)(C) to mean, with respect to an
eligible credit property for which an
election is made under proposed
§ 1.6418–2 or § 1.6418–3 for any taxable
year, an amount equal to the excess of—
(i) the amount of the specified credit
portion claimed by the transferee
taxpayer with respect to such eligible
credit property for such taxable year;
over (ii) the amount of the eligible credit
that, without the application of section
6418, would be otherwise allowable
under the Code with respect to such
eligible credit property for such taxable
year. In the second part of the definition
of the term, the Treasury Department
and the IRS are interpreting the phrase
‘‘amount of such credit . . . which
would be otherwise allowable’’ with
respect to such eligible credit property
for the taxable year to have the same
meaning as the amount of the eligible
credit properly determined with respect
to such eligible credit property for such
taxable year in the hands of the eligible
taxpayer. See Joint Committee on
Taxation, Description Of Energy Tax
Changes Made By Public Law 117–169,
JCX–5–23, 98 (April 17, 2023).
The proposed regulations would also
provide a rule for determining an
excessive credit transfer when there are
multiple transferees. The proposed
regulations would provide that all
transferee taxpayers are considered one
transferee for calculating whether there
was an excessive credit transfer and the
amount of the excessive credit transfer.
If there was an excessive credit transfer,
then the amount of excessive credit
transferred to a specific transferee
taxpayer is equal to the total excessive
credit transferred multiplied by the
transferee’s portion of the total credit
transferred to all transferees. This rule is
applied on an eligible credit property
basis.

PO 00000

Frm 00014

Fmt 4701

Sfmt 4702

Finally, with respect to excessive
credit transfers, the proposed
regulations provide three examples to
illustrate when there is no excessive
credit transfer, when there is an
excessive credit transfer, and when
there is an excessive credit transfer as to
multiple transferees.
Stakeholders asked whether a
recapture event under section 50(a)
would be treated as an excessive credit
transfer under section 6418(g)(2). The
excessive credit transfer rules operate
separately from the recapture rules. The
excessive credit transfer rules apply
where the credit amount reported on the
original credit source form by the
eligible taxpayer and transferred to a
transferee taxpayer was excessive.
Recapture of a tax credit occurs when
the original tax credit reported would
have been correct without the
occurrence of a subsequent recapture
event. The proposed regulations
therefore would provide a rule that
recapture events under section 45Q(f)(4)
or 50(a) do not result in an excessive
credit transfer.
Stakeholders asked for clarification
whether the recapture tax under section
50(a) is imposed on the eligible taxpayer
or the transferee taxpayer. Section
6418(g)(3)(B) provides that if, during
any taxable year, the applicable
investment credit property (as defined
in section 50(a)(5)) 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))—(i) such eligible taxpayer
must provide notice of such occurrence
to the transferee taxpayer (in such form
and manner as the Secretary prescribes),
and (ii) the transferee taxpayer must
provide notice of the recapture amount
(as defined in section 50(c)(2)), if any,
to the eligible taxpayer (in such form
and manner as the Secretary prescribes).
The proposed regulations include a rule
that the recapture amount is calculated
and taken into account by the transferee
taxpayer. This interpretation is
consistent with the statutory framework
for recapture tax under section 50,
which generally imposes recapture tax
on the taxpayer who claimed the credit,
regardless of whether such taxpayer
owns the underlying property to which
the credit is determined. This
interpretation is also consistent with
section 6418(a), which treats the
transferee taxpayer (and not the eligible
taxpayer) as the taxpayer for purposes of
the Code with respect to a specified
credit portion, and with section
6418(g)(3)(B)(ii), which requires the
transferee taxpayer to provide notice of

E:\FR\FM\21JNP2.SGM

21JNP2

lotter on DSK11XQN23PROD with PROPOSALS2

Federal Register / Vol. 88, No. 118 / Wednesday, June 21, 2023 / Proposed Rules
the recapture amount, if any, to the
eligible taxpayer.
Consistent with recapture tax liability
being imposed on the transferee
taxpayer, as a requested clarification,
there is no prohibition under section
6418 for an eligible taxpayer and a
transferee taxpayer to contract between
themselves for indemnification of the
transferee taxpayer in the event of a
recapture event.
The proposed regulations would also
provide guidance on the notifications
that are required by the eligible taxpayer
and the transferee taxpayer after a
recapture event, as described in section
6418(g)(3)(B)(i) and (ii). The proposed
regulations would provide that an
eligible taxpayer would be required to
provide notification of a recapture event
to a transferee taxpayer, with such
notification including all of the
information necessary for the transferee
taxpayer to calculate the recapture
amount (as defined under section
50(c)(2)). This notification would need
to be provided in a timely manner so
that a transferee taxpayer can calculate
the recapture amount by the due date of
the transferee taxpayer’s return (without
extensions). Beyond these requirements,
the parties can contract as to the form
the notice must take and to any
additional time periods for providing
the notice, provided the terms of the
contract do not otherwise conflict with
the terms of the proposed regulations.
The IRS would also be permitted to
provide further information
requirements or more specific time
periods if required through instructions
to forms or further guidance. The
proposed regulations contain similar
requirements as to the notification
required by the transferee taxpayer of
the recapture amount, with the
difference being the type of information
that is provided. Together, these
notification rules seek to inform parties
of the minimum information required in
a notice and the outer limits on time
periods, but still allow for parties to
agree to other terms as needed.
Section 6418(g)(3) does not
specifically address recapture under
section 45Q(f)(4). Instead, section
6418(g)(3) only addresses recapture
under section 50(a), which occurs when
an investment credit property for which
an eligible credit was determined is
disposed of, or otherwise ceases to be
investment credit property with respect
to the eligible taxpayer before the end of
the recapture period. However, applying
rules consistent with section 6418(g)(3)
to eligible section 45Q credits is
appropriate. Section 45Q has similar
requirements in that carbon oxide that
has been sequestered, utilized, or used

VerDate Sep<11>2014

20:16 Jun 20, 2023

Jkt 259001

and to which a section 45Q credit has
been determined is generally intended
to remain sequestered, utilized or used
for the entire recapture period.
Addressing this issue is also consistent
with the authority granted in section
6418(h) to issue regulations necessary to
carry out the purposes of section 6418.
As such, the proposed regulations
would clarify that the rules under
proposed §§ 1.6418–5(d) and 1.45Q–5
apply to a transferee taxpayer to the
extent any eligible section 45Q is
transferred under section 6418. The
proposed regulations would also clarify
that an eligible taxpayer would be
required to provide notice to a
transferee taxpayer of a recapture event,
the amount of leaked qualified carbon
oxide, the amount of qualified carbon
oxide subject to recapture and the
recapture amount in accordance with
§ 1.45Q–5(c) through (e). Such notice
would be required to be provided in a
timely manner so that a transferee
taxpayer can calculate the recapture
amount by the due date of the transferee
taxpayer’s tax return (without
extensions).
The proposed regulations would also
provide a clarification that an
ineffective election is not considered an
excessive credit transfer to the
transferee taxpayer. An ineffective
election to transfer an eligible credit
means that no transfer has occurred for
purposes of section 6418. This means
that section 6418 would not apply to the
transaction, and the tax consequences
are determined under any other relevant
provisions of the Code. For example, an
ineffective election results if an eligible
taxpayer tries to elect to transfer an
eligible credit, but the eligible taxpayer
did not complete or receive a
registration number with respect to the
eligible credit property to which the
credit is determined or if an eligible
taxpayer attempts to transfer an eligible
credit to a related party.
Stakeholders asked whether eligible
credits are subject to new section
39(a)(4), regarding additional carryback
and carryforward years. The proposed
regulations would provide that a
transferee taxpayer can use section
39(a)(4) to the extent an eligible credit
is also listed in section 6417(b). Section
39(a)(4) generally allows a 3-year
carryback period (as opposed to a 1year) in the case of any applicable credit
(as defined in section 6417(b)). This
issue has two parts, the first of which is
broader than these proposed
regulations. The first issue is whether
the reference in section 39(a)(4) to
applicable credit is only referring to an
applicable credit determined by an
applicable entity under section 6417(a),

PO 00000

Frm 00015

Fmt 4701

Sfmt 4702

40509

or, if the reference is only referring to
the list of credits in section 6417(b). The
proposed regulations would provide
that the language in section 39(a)(4) is
referring to the list of credits in section
6417(b). Regardless of the taxpayer
determining the credit, if the credit is
listed in section 6417(b), then the credit
is an applicable credit. The second issue
is whether there is any prohibition
against a transferee taxpayer using
section 39(a)(4). No statutory language
prohibits a transferee taxpayer from
using the rule in section 39(a)(4) with
respect to an eligible credit. All of the
eligible credits would meet the
definition in section 6417(b), although
there are placed in service dates under
section 6417(b)(2), (3), and (5) that may
impact application of section 39(a)(4),
which must be taken into consideration.
With respect to real estate investment
trusts (REITs), stakeholders requested
that the proposed regulations clarify
that eligible credits that have not yet
been transferred are treated as a real
estate asset, cash, or cash item and thus,
will not potentially cause a REIT to fail
the asset test for REITs under section
856(c)(4). The proposed regulations do
not directly adopt this comment;
however, the Treasury Department and
the IRS believe that the proposed
regulations, particularly with respect to
the paid in cash and timing of sale
requirements, will assist REITs in
managing issues with the REIT asset
test. Further comments are requested
with respect to whether the proposed
regulations provide sufficient guidance
to enable REITs to manage the potential
REIT asset test issues.
Stakeholders also requested that the
proposed regulations clarify that the
transfer of an eligible credit pursuant to
section 6418 is not considered a dealer
sale under the REIT prohibited
transactions rules of section 857(b)(6).
The proposed regulations do not
include a rule addressing this question.
The Treasury Department and the IRS
do not believe that a prohibited
transaction tax issue arises from the
transfer of eligible tax credits. Section
6418 provides that the cash amount
received as consideration for the
transfer of an eligible credit from an
eligible taxpayer to a transferee taxpayer
is not includible in the eligible
taxpayer’s gross income. Section
857(b)(6) imposes a tax equal to 100%
of the net income derived from a REIT’s
prohibited transactions. Since cash
received by an eligible REIT as
consideration for the transfer of an
eligible tax credit would not be
includible in any calculation of the
eligible taxpayer’s gross income, the
transaction cannot result in any net

E:\FR\FM\21JNP2.SGM

21JNP2

40510

Federal Register / Vol. 88, No. 118 / Wednesday, June 21, 2023 / Proposed Rules

income and, consequently, there is no
prohibited transaction tax issue
regarding the transfer of an eligible
credit.
Stakeholders also requested
confirmation that receipt of (or the right
to receive) an eligible credit does not
result in income to an eligible taxpayer
that is also a REIT. Generally, Federal
income tax rules do not treat as gross
income a person’s becoming entitled
under the Code to a credit against
Federal income tax. This general
principle equally applies to an eligible
taxpayer—including a REIT—becoming
entitled to an eligible credit that it may
transfer under section 6418.
Accordingly, the proposed regulations
do not include the requested rule
specifically addressing REITs.
Lastly, stakeholders sought
confirmation that the sale of energy
under sections 45 and 45Y is not a
dealer sale under the REIT prohibited
transactions rules of section 857(b)(6).
The proposed regulations do not
address this issue. However, in the
preamble to TD 9784 (81 FR 59849,
59856 (August 31, 2016)), the Treasury
Department and the IRS noted that until
additional guidance is published in the
Internal Revenue Bulletin, in any
taxable year in which (1) the quantity of
excess electricity transferred to the
utility company during the taxable year
from energy producing distinct assets
that serve an inherently permanent
structure does not exceed (2) the
quantity of electricity purchased from
the utility company during the taxable
year to serve the inherently permanent
structure, the IRS will not treat any net
income resulting from the transfer of
such excess electricity as constituting
net income derived from a prohibited
transaction under section 857(b)(6). The
Treasury Department and the IRS
believe that any sale of electricity that
is not within the scope of the statement
in the 2016 preamble should be
analyzed on a facts and circumstances
basis to determine whether the sale is
subject to the prohibited transaction
rules of section 857(d)(6).

lotter on DSK11XQN23PROD with PROPOSALS2

Proposed Applicability Dates
These regulations are proposed to
apply to taxable years ending on or after
the date the final regulations are
published in the Federal Register
Taxpayers may rely on these proposed
regulations for taxable years beginning
after December 31, 2022, and before the
date the final regulations are published
in the Federal Register, provided the
taxpayers follow the proposed
regulations in their entirety and in a
consistent manner.

VerDate Sep<11>2014

20:16 Jun 20, 2023

Jkt 259001

Special Analyses
I. Paperwork Reduction Act
The Paperwork Reduction Act of 1995
(44 U.S.C. 3501–3520) (‘‘PRA’’)
generally requires that a Federal agency
obtain the approval of the Office of
Management and Budget (OMB) before
collecting information from the public,
whether such collection of information
is mandatory, voluntary, or required to
obtain or retain a benefit. An agency
may not conduct or sponsor, and a
person is not required to respond to, a
collection of information unless the
collection of information displays a
valid control number.
The collections of information in
these proposed regulations contain
reporting and recordkeeping
requirements. The recordkeeping
requirements mentioned within these
proposed regulations are considered
general tax records under § 1.6001–1(e).
These records are required for the IRS
to validate that transferee taxpayers
have met the regulatory requirements
and are entitled to the transferred
specified credit portions. For PRA
purposes, general tax records are
already approved by OMB under 1545–
0074 for individuals and under 1545–
0123 for business entities.
These proposed regulations also
mention reporting requirements related
to making transfer elections as detailed
in proposed §§ 1.6418–2 and 1.6418–3.
These transfer elections will be made by
eligible taxpayers as part of filing a
return (such as the appropriate Form
1040, Form 1120, Form 1120–S, or Form
1065), including filling out the relevant
source credit form and completing the
Form 3800. The proposed regulation in
proposed § 1.6418–2(b)(5) describes
third-party disclosures, which require
eligible taxpayers and transferee
taxpayers to complete transfer election
statements and also require eligible
taxpayers to provide required minimum
documentation to transferee taxpayers
as part of making a transfer election.
These forms and third-party disclosures
are approved under 1545–0074 for
individuals and 1545–0123 for business
entities.
These proposed regulations also
describe recapture procedures as
detailed in proposed § 1.6418–5 that are
required by section 6418(g)(3). The
reporting of a recapture event will still
be required to be reported using Form
4255, Recapture of Investment Credit.
This form is approved under 1545–0074
for individuals and 1545–0123 for
business entities. The proposed
regulation is not changing or creating
new collection requirements not already
approved by OMB.

PO 00000

Frm 00016

Fmt 4701

Sfmt 4702

These proposed regulations mention
the reporting requirement to complete
pre-filing registration with IRS to be
able to transfer eligible credits to a
transferee taxpayer as detailed in
proposed § 1.6418–4. For further
information concerning the registration
and where to submit comments on the
collection of information and the
accuracy of the estimated burden, and
suggestions for reducing this burden,
please refer to the preamble to the
corresponding temporary regulations
(T.D. 9975) published in the Rules and
Regulations section of this issue of the
Federal Register. For burden estimates
associated with the pre-filing
registration requirement as detailed in
proposed § 1.6418–4, see the preamble
to the corresponding temporary
regulations. This proposed regulation is
not changing or creating new collection
requirements beyond the requirements
that are being reviewed and approved
by OMB under the temporary
regulations.
II. Regulatory Flexibility Act
The Regulatory Flexibility Act (5
U.S.C. 601 et seq.) (RFA) imposes
certain requirements with respect to
Federal rules that are subject to the
notice and comment requirements of
section 553(b) of the Administrative
Procedure Act (5 U.S.C. 551 et seq.) and
that are likely to have a significant
economic impact on a substantial
number of small entities. Unless an
agency determines that a proposal is not
likely to have a significant economic
impact on a substantial number of small
entities, section 603 of the RFA requires
the agency to present an initial
regulatory flexibility analysis (IRFA) of
the proposed rule. The Treasury
Department and the IRS have not
determined whether the proposed rule,
when finalized, will likely have a
significant economic impact on a
substantial number of small entities.
This determination requires further
study. However, because there is a
possibility of significant economic
impact on a substantial number of small
entities, an IRFA is provided in these
proposed regulations. The Treasury
Department and the IRS invite
comments on both the number of
entities affected and the economic
impact on small entities. Pursuant to
section 7805(f), this notice of proposed
rulemaking has been submitted to the
Chief Counsel of Advocacy of the Small
Business Administration for comment
on its impact on small business.
1. Need for and Objectives of the Rule
The proposed regulations would
provide guidance to taxpayers that

E:\FR\FM\21JNP2.SGM

21JNP2

Federal Register / Vol. 88, No. 118 / Wednesday, June 21, 2023 / Proposed Rules

lotter on DSK11XQN23PROD with PROPOSALS2

intend to make an election under
section 6418 to transfer eligible credits.
The proposed regulations would also
provide guidance to transferee taxpayers
as to the treatment of transferred eligible
credits under section 6418. The
proposed rules would include needed
definitions, the time and manner to
make a transfer election, and
information about the pre-filing
registration process, among other items.
The Treasury Department and the IRS
intend and expect that providing
taxpayers guidance that allows them to
effectively use section 6418 to transfer
eligible credits will beneficially impact
various industries, deliver benefits
across the economy, and reduce
economy wide greenhouse gas
emissions.
In particular, section 6418 allows
eligible taxpayers to transfer an eligible
credit (or portion thereof) to a transferee
taxpayer. Allowing eligible taxpayers
without sufficient Federal income tax
liability to use a business tax credit to
instead transfer the tax credit to a
taxpayer that has sufficient tax liability
to use the credit will increase the
incentive for taxpayers to invest in clean
energy projects that generate eligible
credits. It will also increase the amount
of cash available to such taxpayers,
thereby reducing the amount of
financing needed for clean energy
projects.
2. Affected Small Entities
The RFA directs agencies to provide
a description of, and where feasible, an
estimate of, the number of small entities
that may be affected by the proposed
rules, if adopted. The Small Business
Administration’s Office of Advocacy
estimates in its 2023 Frequently Asked
Questions that 99.9 percent of American
businesses meet its definition of a small
business. The applicability of these
proposed regulations does not depend
on the size of the business, as defined
by the Small Business Administration.
As described more fully in the preamble
to this proposed regulation and in this
IRFA, section 6418 and these proposed
regulations may affect a variety of
different entities across several different
industries as there are 11 different
eligible credits that may be transferred
pursuant to a transfer election. Although
there is uncertainty as to the exact
number of small businesses within this
group, the current estimated number of
respondents to these proposed rules is
50,000 taxpayers as described in the
Paperwork Reduction Act section of the
preamble. The Treasury Department and
the IRS expect to receive more
information on the impact on small
businesses through comments on this

VerDate Sep<11>2014

20:16 Jun 20, 2023

Jkt 259001

proposed rule and again when taxpayers
start to make the transfer election using
the guidance and procedures provided
in these proposed regulations.
3. Impact of the Rules
The proposed regulations provide
rules for how taxpayers can take
advantage of the section 6418 credit
monetization regime. Taxpayers that
elect to take advantage of transferability
will have administrative costs related to
reading and understanding the rules in
addition to recordkeeping and reporting
requirements because of the pre-filing
registration and tax return requirements.
The costs will vary across differentsized taxpayers and across the type of
project(s) in which such taxpayers are
engaged.
The pre-filing registration process
requires a taxpayer to register itself as
intending to make a transfer election, to
list all eligible credits it intends to
transfer, and to list each eligible credit
property that contributed to the
determination of such credits. This
process must be completed to receive a
registration number for each eligible
credit property with respect to which
the eligible taxpayer intends to transfer
an eligible credit. On filing the return,
to make a valid transfer election, the
eligible taxpayer and transferee taxpayer
would be required to complete and
attach a transfer election statement. The
transfer election statement is generally a
written document that describes the
transfer of a specified credit portion
between an eligible taxpayer and
transferee taxpayer. Further, the eligible
taxpayer is required to provide certain
required minimum documentation to
the transferee taxpayer, and the
transferee taxpayer is required to retain
the documentation for as long as it may
be relevant. Many of the other
requirements, such as completing the
relevant source credit form and
completing the Form 3800 would be
required for any taxpayer that is
claiming a general business credit,
regardless of whether the taxpayer was
transferring the credit under section
6418. Although the Treasury
Department and the IRS do not have
sufficient data to determine precisely
the likely extent of the increased costs
of compliance, the estimated burden of
complying with the recordkeeping and
reporting requirements are described in
the Paperwork Reduction Act section of
the preamble.
4. Alternatives Considered
The Treasury Department and the IRS
considered alternatives to the proposed
regulations. The proposed regulations
requirements of pre-filing registration

PO 00000

Frm 00017

Fmt 4701

Sfmt 4702

40511

and the additional requirements to make
a valid transfer election were designed
to minimize burden while also
minimizing the opportunity for
duplication, fraud, improper payments,
or excessive payments under section
6418. For example, in adopting these
requirements, the Treasury Department
and the IRS considered whether such
information could be obtained strictly at
filing of the relevant return. However,
the Treasury Department and IRS
decided that such an option would
increase the opportunity for
duplication, fraud, improper payments
or excessive payments under section
6418. Section 6418(g)(1) specifically
authorizes the IRS to require such
information or registration as the
Secretary deems necessary for purposes
of preventing duplication, fraud,
improper payments, or excessive
payments under section 6418 as a
condition of, and prior to, any transfer
of any portion of an eligible credit. As
described in the preamble to these
proposed regulations, these proposed
rules carry out that Congressional intent
as pre-filing registration allows for the
IRS to verify certain information in a
timely manner and then process the
annual tax return of the eligible
taxpayer and the transferee taxpayer
with minimal delays. Having a
distinction between eligible taxpayers
that are small businesses versus others
making a transfer election would create
a scenario where a subset of taxpayers
seeking to transfer eligible credits would
not have been verified or received
registration numbers, potentially
delaying return processing for both
eligible taxpayers and transferee
taxpayers.
Another example is the proposed
requirement that eligible taxpayers and
transferee taxpayers complete a transfer
election statement. In determining to
adopt this proposal, the Treasury
Department and the IRS considered that
such a statement would again minimize
opportunity for fraud and decrease the
chance of duplication but would also
benefit a transferee taxpayer by allowing
the filing of its return without having to
wait for an eligible taxpayer to file in all
cases. Further, the contents of the
transfer election statement were
intended to be available to eligible
taxpayers, such that the size of the
business should not impact greatly the
time needed to prepare such statements.
The Treasury Department and the IRS
also considered whether any required
documentation was needed to be
provided by eligible taxpayers to
transferee taxpayers, which the
transferee taxpayers are then required to

E:\FR\FM\21JNP2.SGM

21JNP2

40512

Federal Register / Vol. 88, No. 118 / Wednesday, June 21, 2023 / Proposed Rules

keep for so long as the contents thereof
may become material in the
administration of any internal revenue
law. Again, this requirement was
considered consistent with the goal of
minimizing fraud, as the information is
generally documentation to validate the
existence of the eligible credit property,
any bonus credits amounts, and the
evidence of credit qualification. Any
size business generating an eligible
credit should have access to such
information. Further the recordkeeping
duration is consistent with general
recordkeeping rules under § 1.6001–
1(e). This proposed requirement also
will benefit small businesses that are
transferee taxpayers as it provides a
mechanism to receive such information
from the eligible taxpayer. Comments
are requested on the requirements in the
proposed regulations, including
specifically, whether there are less
burdensome alternatives that do not
increase the risk of duplication, fraud,
improper payments, or excessive
payments under section 6418.
5. Duplicative, Overlapping, or
Conflicting Federal Rules
The proposed rule would not
duplicate, overlap, or conflict with any
relevant Federal rules. As discussed
above, the proposed rule would merely
provide procedures and definitions to
allow taxpayers to take advantage of the
ability to transfer eligible credits. The
Treasury Department and the IRS invite
input from interested members of the
public about identifying and avoiding
overlapping, duplicative, or conflicting
requirements.

lotter on DSK11XQN23PROD with PROPOSALS2

IV. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandate
Reform Act of 1995 requires that
agencies assess anticipated costs and
benefits and take certain other actions
before issuing a final rule that includes
any Federal mandate that may result in
expenditures in any one year by a state,
local, or tribal government, in the
aggregate, or by the private sector, of
$100 million (updated annually for
inflation). These proposed regulations
do not include any Federal mandate that
may result in expenditures by state,
local, or tribal governments, or by the
private sector in excess of that
threshold.
V. Executive Order 13132: Federalism
Executive Order 13132 (Federalism)
prohibits an agency from publishing any
rule that has federalism implications if
the rule either imposes substantial,
direct compliance costs on state and
local governments, and is not required
by statute, or preempts state law, unless

VerDate Sep<11>2014

20:16 Jun 20, 2023

Jkt 259001

the agency meets the consultation and
funding requirements of section 6 of the
Executive order. These proposed
regulations do not have federalism
implications and do not impose
substantial, direct compliance costs on
state and local governments or preempt
state law within the meaning of the
Executive order.
VI. Executive Order 13175: Consultation
and Coordination With Indian Tribal
Governments
Executive Order 13175 (Consultation
and Coordination With Indian Tribal
Governments) prohibits an agency from
publishing any rule that has tribal
implications if the rule either imposes
substantial, direct compliance costs on
Indian tribal governments, and is not
required by statute, or preempts tribal
law, unless the agency meets the
consultation and funding requirements
of section 5 of the Executive order. This
proposed rule does not have substantial
direct effects on one or more federally
recognized Indian tribes and does not
impose substantial direct compliance
costs on Indian tribal governments
within the meaning of the Executive
order.
VII. Regulatory Planning and Review
Pursuant to the Memorandum of
Agreement, Review of Treasury
Regulations under Executive Order
12866 (June 9, 2023), tax regulatory
actions issued by the IRS are not subject
to the requirements of section 6 of
Executive Order 12866, as amended.
Therefore, a regulatory impact
assessment is not required.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations,
consideration will be given to comments
that are submitted timely to the IRS as
prescribed in the preamble under the
ADDRESSES section. The Treasury
Department and the IRS request
comments on all aspects of the proposed
regulations. Any electronic comments
submitted, and any paper comments
submitted, will be made available at
https://www.regulations.gov or upon
request.
Announcement 2023–16, 2023–20
I.R.B. 854 (May 15, 2023), provides that
public hearings will be conducted in
person, although the IRS will continue
to provide a telephonic option for
individuals who wish to attend or
testify at a hearing by telephone. Any
telephonic hearing will be made
accessible to people with disabilities.
A public hearing has been scheduled
for August 23, 2023, beginning at 10:00
a.m. ET, in the Auditorium at the

PO 00000

Frm 00018

Fmt 4701

Sfmt 4702

Internal Revenue Building, 1111
Constitution Avenue NW, Washington,
DC, unless no outlines are received by
August 14, 2023. Due to building
security procedures, visitors must enter
at the Constitution Avenue entrance. In
addition, all visitors must present photo
identification to enter the building.
Because of access restrictions, visitors
will not be admitted beyond the
immediate entrance area more than 30
minutes before the hearing starts.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing. Persons who wish
to comment by telephone at the hearing
must submit written or electronic
comments and an outline of the topics
to be discussed as well as the time to be
devoted to each topic by August 14,
2023, as prescribed in the preamble
under the ADDRESSES section.
A period of ten minutes will be
allocated to each person for making
comments. After the deadline for
receiving outlines has passed, the IRS
will prepare an agenda containing the
schedule of speakers. Copies of the
agenda will be made available at https://
www.regulations.gov, search IRS and
REG–101610–23. Copies of the agenda
will also be available by emailing a
request to [email protected].
Please put ‘‘REG–101610–23 Agenda
Request’’ in the subject line of the email.
Individuals who want to testify in
person at the public hearing must send
an email to [email protected] to
have your name added to the building
access list. The subject line of the email
must contain the regulation number
REG–101610–23 and the language
TESTIFY In Person. For example, the
subject line may say: Request to
TESTIFY In Person at Hearing for REG–
101610–23.
Individuals who want to testify by
telephone at the public hearing must
send an email to [email protected]
to receive the telephone number and
access code for the hearing. The subject
line of the email must contain the
regulation number REG–101610–23 and
the language TESTIFY Telephonically.
For example, the subject line may say:
Request to TESTIFY Telephonically at
Hearing for REG–101610–23.
Individuals who want to attend the
public hearing in person without
testifying must also send an email to
[email protected] to have your
name added to the building access list.
The subject line of the email must
contain the regulation number REG–
101610–23 and the language ATTEND
In Person. For example, the subject line
may say: Request to ATTEND Hearing In
Person for REG–101610–23. Requests to
attend the public hearing must be
received by 5:00 p.m. EST on August 21,

E:\FR\FM\21JNP2.SGM

21JNP2

Federal Register / Vol. 88, No. 118 / Wednesday, June 21, 2023 / Proposed Rules
2023. Individuals who want to attend
the public hearing by telephone without
testifying must also send an email to
[email protected] to receive the
telephone number and access code for
the hearing. The subject line of the
email must contain the regulation
number REG–101610–23 and the
language ATTEND Hearing
Telephonically. For example, the
subject line may say: Request to
ATTEND Hearing Telephonically for
REG–101610–23. Requests to attend the
public hearing must be received by 5:00
p.m. EST on August 21, 2023.
Hearings will be made accessible to
people with disabilities. To request
special assistance during a hearing
please contact the Publications and
Regulations Branch of the Office of
Associate Chief Counsel (Procedure and
Administration) by sending an email to
[email protected] (preferred) or by
telephone at (202) 317–6901 (not a tollfree number) at least August 18, 2023.
Statement of Availability of IRS
Documents
IRS notices and other guidance cited
in this preamble are published in the
Internal Revenue Bulletin (or
Cumulative Bulletin) and are available
from the Superintendent of Documents,
U.S. Government Publishing Office,
Washington, DC 20402, or by visiting
the IRS website at https://www.irs.gov.
Drafting Information
The principal authors of these
proposed regulations are James Holmes
and Jeremy Milton, Office of the
Associate Chief Counsel (Passthroughs
and Special Industries), IRS. However,
other personnel from the Treasury
Department and the IRS participated in
their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.
Proposed Amendments to the
Regulations
Accordingly, the Treasury Department
and the IRS propose to amend 26 CFR
part 1 as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 is amended by adding an entry
in numerical order for §§ 1.6418–0
through 1.6418–5 to read in part as
follows:

lotter on DSK11XQN23PROD with PROPOSALS2

■

Authority: 26 U.S.C. 7805 * * *
Sections 1.6418–0 through 1.6418–5 also
issued under 26 U.S.C. 6418(g)(1) and (h).

*

*

*

VerDate Sep<11>2014

*

*

20:16 Jun 20, 2023

Jkt 259001

Par. 2. Section 1.706–4 is amended as
follows:
■ 1. Redesignate paragraphs (e)(2)(ix)
through (xi) as paragraphs (e)(2)(x)
through (xii).
■ 2. Add new paragraph (e)(2)(ix).
■ 3. Revise the heading of paragraph (g).
■ 4. Redesignate the text of paragraph
(g) as paragraph (g)(1).
■ 5. Add paragraph (g)(2).
The addition and revisions read as
follows:
■

§ 1.706–4 Determination of distributive
share when a partner’s interest varies.

*

*
*
*
*
(e) * * *
(2) * * *
(ix) Any specified credit portion
transferred pursuant to section 6418 and
§§ 1.6418–1 through 1.6418–5;
*
*
*
*
*
(g) Applicability date. * * *
(2) Paragraph (e)(2)(ix) of this section
applies to taxable years ending on or
after [DATE OF PUBLICATION OF
FINAL RULE].
■ Par. 3. Sections 1.6418–0 through
1.6418–5 are added to read as follows:
Sec.

*

*

*

*

*

1.6418–0 Table of contents.
1.6418–1 Transfer of eligible credits.
1.6418–2 Rules for making transfer
elections.
1.6418–3 Additional rules for partnerships
and S corporations.
1.6418–4 Additional information and
registration.
1.6418–5 Special rules.

*

*

§ 1.6418–0

*

*

*

Table of contents.

This section lists the captions
contained in §§ 1.6418–1 through
1.6418–5.
§ 1.6418–1 Transfer of eligible credits.
(a) Transfer of eligible credits.
(b) Eligible taxpayer.
(c) Eligible credit.
(d) Eligible credit property.
(e) Guidance.
(f) Paid in cash.
(g) Section 6418 regulations.
(h) Specified credit portion.
(i) Statutory references.
(j) Transfer election.
(k) Transferee partnership.
(l) Transferee S corporation.
(m) Transferee taxpayer.
(n) Transferor partnership.
(o) Transferor S corporation.
(p) Transferred specified credit portion.
(q) U.S. territory.
(r) Applicability date.
§ 1.6418–2 Rules for making transfer
elections.
(a) Transfer election.
(b) Manner and due date of making a
transfer election.
(c) Limitations after a transfer election is
made.

PO 00000

Frm 00019

Fmt 4701

Sfmt 4702

40513

(d) Determining the eligible credit.
(e) Treatment of payments made in
connection with a transfer election.
(f) Transferee taxpayer’s treatment of
eligible credit.
(g) Applicability date.
§ 1.6418–3 Additional rules for partnerships
and S corporations.
(a) Rules applicable to both partnerships
and S corporations.
(b) Rules applicable to partnerships.
(c) Rules applicable to S corporations.
(d) Transfer election by a partnership or S
corporation.
(e) Examples.
(f) Applicability date.
§ 1.6418–4 Additional information and
registration.
(a) Pre-filing registration and election.
(b) Pre-filing registration requirements.
(c) Registration number.
(d) Applicability date.
§ 1.6418–5 Special rules.
(a) Excessive credit transfer tax imposed.
(b) Excessive credit transfer defined.
(c) Basis reduction under section 50(c).
(d) Notification and impact of recapture
under section 50(a) or 49(b).
(e) Notification and impact of recapture
under section 45Q(f)(4).
(f) Impact of an ineffective transfer election
by an eligible taxpayer.
(g) Carryback and carryforward.
(h) Applicability date.
§ 1.6418–1

Transfer of eligible credits.

(a) Transfer of eligible credits. An
eligible taxpayer may make a transfer
election under § 1.6418–2(a) to transfer
any specified portion of an eligible
credit determined with respect to any
eligible credit property of such eligible
taxpayer for any taxable year to a
transferee taxpayer in accordance with
section 6418 of the Code and the section
6418 regulations (defined in paragraph
(g) of this section). Paragraphs (b)
through (q) of this section provide
definitions. See § 1.6418–2 for rules and
procedures under which all transfer
elections must be made, limitations to
making transfer elections, the treatment
of payments made in connection with
transfer elections, and the treatment of
eligible credits transferred to transferee
taxpayers. See § 1.6418–3 for special
rules pertaining to transfer elections
made by partnerships or S corporations.
See § 1.6418–4 for pre-filing registration
requirements and other information
required to make any transfer election
effective. See § 1.6418–5 for special
rules related to the imposition of tax on
excessive credit transfers, basis
reductions, required notifications and
impacts of the recapture of transferred
credits, and rules regarding carrybacks
and carryforwards.
(b) Eligible taxpayer. The term eligible
taxpayer means any taxpayer (as
defined in section 7701(a)(14) of the

E:\FR\FM\21JNP2.SGM

21JNP2

lotter on DSK11XQN23PROD with PROPOSALS2

40514

Federal Register / Vol. 88, No. 118 / Wednesday, June 21, 2023 / Proposed Rules

Code), other than one described in
section 6417(d)(1)(A) and § 1.6417–1(b).
(c) Eligible credit—(1) In general. The
term eligible credit is a credit described
in paragraph (c)(2) of this section
determined for a taxable year with
respect to a single eligible credit
property of an eligible taxpayer but does
not include any business credit
carryforward or business credit
carryback determined under section 39
of the Code.
(2) Separately determined credit
amounts. The amount of any credit
described in this paragraph (c)(2) is the
entire amount of the credit separately
determined with respect to each single
eligible credit property of the eligible
taxpayer and includes any bonus credit
amounts described in paragraph (c)(3) of
this section determined with respect to
that single eligible credit property. The
eligible credits described in this
paragraph (c)(2) are:
(i) Alternative fuel vehicle refueling
property. 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).
(ii) Renewable electricity production.
The renewable electricity production
credit determined under section 45(a) of
the Code (section 45 credit).
(iii) Carbon oxide sequestration. The
credit for carbon oxide sequestration
determined under section 45Q(a) of the
Code (section 45Q credit).
(iv) Zero-emission nuclear power
production. The zero-emission nuclear
power production credit determined
under section 45U(a) of the Code
(section 45U credit).
(v) Clean hydrogen production. The
clean hydrogen production credit
determined under section 45V(a) of the
Code (section 45V credit).
(vi) Advanced manufacturing
production. The advanced
manufacturing production credit
determined under section 45X(a) of the
Code (section 45X credit).
(vii) Clean electricity production. The
clean electricity production credit
determined under section 45Y(a) of the
Code (section 45Y credit).
(viii) Clean fuel production. The clean
fuel production credit determined under
section 45Z(a) of the Code (section 45Z
credit).
(ix) Energy. The energy credit
determined under section 48 of the
Code (section 48 credit).
(x) Qualifying advance energy project.
The qualifying advanced energy project
credit determined under section 48C of
the Code (section 48C credit).

VerDate Sep<11>2014

20:16 Jun 20, 2023

Jkt 259001

(xi) Clean electricity. The clean
electricity investment credit determined
under section 48E of the Code (section
48E credit).
(3) Bonus credit amounts. The bonus
credit amounts described in this
paragraph (c)(3) are:
(i) In the case of a section 30C credit,
the increased credit amounts for which
the requirements under section
30C(g)(2)(A) and (3) are satisfied.
(ii) In the case of a section 45 credit,
the increased credit amounts for which
the requirements under section
45(b)(7)(A)(8), (9), and (11) are satisfied.
(iii) In the case of a section 45Q
credit, the increased credit amounts for
which the requirements under section
45Q(h)(3) and (4) are satisfied.
(iv) In the case of a section 45U credit,
the increased credit amount for which
the requirements under section
45U(d)(2) are satisfied.
(v) In the case of a section 45V credit,
the increased credit amounts for which
the requirements under section
45V(e)(3) and (4) are satisfied.
(vi) In the case of a section 45Y credit,
the increased credit amounts for which
the requirements under section
45Y(g)(7), (9), (10), and (11) are
satisfied.
(vii) In the case of a section 45Z
credit, the increased credit amounts for
which the requirements under section
45Z(f)(6) and (7) are satisfied.
(viii) In the case of a section 48 credit,
the increased credit amounts for which
the requirements under section
48(a)(10), (11), (12), (14), and (e) are
satisfied.
(ix) In the case of a section 48C credit,
the increased credit amounts for which
the requirements under section
48C(e)(5) and (6) are satisfied.
(x) In the case of a section 48E credit,
the increased credit amounts for which
the requirements under section
48E(a)(3)(A), (B), (d)(3), (d)(4), and (h)
are satisfied.
(d) Eligible credit property. The term
eligible credit property means each of
the units of property of an eligible
taxpayer described in paragraphs (d)(1)
through (11) of this section with respect
to which the amount of an eligible
credit is determined:
(1) In the case of a section 30C credit,
a qualified alternative fuel vehicle
refueling property described in section
30C(c).
(2) In the case of a section 45 credit,
a qualified facility described in section
45(d).
(3) In the case of a section 45Q credit,
a single process train of carbon capture
equipment described in § 1.45Q–2(c)(3).
(4) In the case of a section 45U credit,
a qualified nuclear power facility
described in section 45U(b)(1).

PO 00000

Frm 00020

Fmt 4701

Sfmt 4702

(5) In the case of a section 45V credit,
a qualified clean hydrogen production
facility described in section 45V(c)(3).
(6) In the case of a section 45X credit,
a facility that produces eligible
components, as described in guidance
under sections 48C and 45X.
(7) In the case of a section 45Y credit,
a qualified facility described in section
45Y(b)(1).
(8) In the case of a section 45Z credit,
a qualified facility described in section
45Z(d)(4).
(9)(i) In general. In the case of a
section 48 credit and except as provided
in paragraph (d)(9)(ii) of this section, an
energy property described in section 48.
(ii) Pre-filing registration and
elections. At the option of an eligible
taxpayer, and to the extent consistently
applied for purposes of the pre-filing
registration requirements of § 1.6418–4
and the election requirements of
§§ 1.6418–2 through 1.6418–3, an
energy project as described in section
48(a)(9)(A)(ii) and defined in guidance.
(10) In the case of a section 48C
credit, an eligible property described in
section 48C(c)(2).
(11) In the case of a section 48E credit,
a qualified facility as defined in section
48E(b)(3) or, in the case of a section 48E
credit relating to a qualified investment
with respect to energy storage
technology, an energy storage
technology described in section
48E(c)(2).
(e) Guidance. The term guidance
means guidance published in the
Federal Register or Internal Revenue
Bulletin, as well as administrative
guidance such as forms, instructions,
publications, or other guidance on the
IRS.gov website. See §§ 601.601 and
601.602 of this chapter.
(f) Paid in cash. The term paid in cash
means 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 § 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 payments
of United States dollars are made in a
manner described in paragraph (f)(1) of

E:\FR\FM\21JNP2.SGM

21JNP2

lotter on DSK11XQN23PROD with PROPOSALS2

Federal Register / Vol. 88, No. 118 / Wednesday, June 21, 2023 / Proposed Rules
this section during the time period
described in paragraph (f)(2) of this
section.
(g) Section 6418 regulations. The term
section 6418 regulations means this
section and §§ 1.6418–2 through
1.6418–5.
(h) Specified credit portion. The term
specified credit portion means 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. A specified credit
portion of an eligible credit must reflect
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.
(i) Statutory references—(1) Chapter
1. The term chapter 1 means chapter 1
of the Code.
(2) Code. The term Code means the
Internal Revenue Code.
(3) Subchapter K. The term
subchapter K means subchapter K of
chapter 1.
(4) Subtitle A. The term subtitle A
means subtitle A of the Code.
(j) Transfer election. The term transfer
election means an election under
section 6418(a) of the Code to transfer
to a transferee taxpayer a specified
portion of an eligible credit determined
with respect to an eligible credit
property in accordance with the section
6418 regulations.
(k) Transferee partnership. The term
transferee partnership means a
partnership for Federal income tax
purposes that is a transferee taxpayer.
(l) Transferee S corporation. The term
transferee S corporation means an S
corporation within the meaning of
section 1361(a) that is a transferee
taxpayer.
(m) Transferee taxpayer. The term
transferee taxpayer means any taxpayer
that is not related (within the meaning
of section 267(b) or 707(b)(1) of the
Code) to the eligible taxpayer making
the transfer election to which an eligible
taxpayer transfers a specified credit
portion of an eligible credit.
(n) Transferor partnership. The term
transferor partnership means a
partnership for Federal income tax
purposes that is an eligible taxpayer that
makes a transfer election.
(o) Transferor S corporation. The term
transferor S corporation means an S
corporation within the meaning of
section 1361(a) that is an eligible
taxpayer that makes a transfer election.
(p) Transferred specified credit
portion. The term transferred specified
credit portion means the specified credit
portion that is transferred from an

VerDate Sep<11>2014

20:16 Jun 20, 2023

Jkt 259001

eligible taxpayer to a transferee taxpayer
pursuant to a transfer election.
(q) U.S. territory. The term U.S.
territory means the Commonwealth of
Puerto Rico, Guam, the U.S. Virgin
Islands, American Samoa, and the
Commonwealth of the Northern Mariana
Islands.
(r) Applicability date. This section
applies to taxable years ending on or
after [DATE OF PUBLICATION OF
FINAL RULE].
§ 1.6418–2
elections.

Rules for making transfer

(a) Transfer election—(1) In general.
An eligible taxpayer can make a transfer
election as provided in this section. If a
valid transfer election is made by an
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 the specified
credit portion. This paragraph (a)
provides rules on the number of
transfers permitted, rules for
determining the eligible taxpayer in
certain ownership situations, and rules
describing circumstances where no
transfer election is allowed. Paragraph
(b) of this section provides specific rules
regarding the scope, manner, and timing
of a transfer election. Paragraph (c) of
this section provides rules regarding
limitations applicable to transfer
elections. Paragraph (d) of this section
provides rules regarding an eligible
taxpayer’s determination of an eligible
credit. Paragraph (e) of this section
provides the treatment of payments in
connection with a transfer election.
Paragraph (f) of this section provides
rules regarding a transferee taxpayer’s
treatment of an eligible credit following
a transfer.
(2) Multiple transfer elections
permitted. 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.
(3) Transfer election in certain
ownership situations—(i) Disregarded
entities. If an eligible taxpayer is the
sole owner (directly or indirectly) of an
entity that is disregarded as separate
from such eligible taxpayer for Federal
income tax purposes and such entity
directly holds an eligible credit
property, the eligible taxpayer may
make a transfer election in the manner
provided in this section with respect to

PO 00000

Frm 00021

Fmt 4701

Sfmt 4702

40515

any eligible credit determined with
respect to such eligible credit property.
(ii) Undivided ownership interests. If
an eligible taxpayer is a co-owner of an
eligible credit property through an
arrangement properly treated as a
tenancy-in-common for Federal income
tax purposes, or through an organization
that has made a valid election under
section 761(a) of the Code, then the
eligible taxpayer’s undivided ownership
share of the eligible credit property will
be treated for purposes of section 6418
as a separate eligible credit property
owned by such eligible taxpayer, and
the eligible taxpayer may make a
transfer election in the manner provided
in this section for any eligible credit(s)
determined with respect to such eligible
credit property.
(iii) Members of a consolidated group.
A member of a consolidated group is
required to make a transfer election in
the manner provided in this section to
transfer any eligible credit determined
with respect to the member. See
§ 1.1502–77 (providing rules regarding
the status of the common parent as
agent for its members).
(iv) Partnerships and S corporations.
A partnership or S corporation that
determines an eligible credit with
respect to any eligible credit property
held directly by such partnership or S
corporation may make a transfer
election in the manner provided in
§ 1.6418–3(d) with respect to eligible
credits determined with respect to such
eligible credit property.
(4) Circumstances where no transfer
election can be made—(i) Prohibition on
election or transfer with respect to
progress expenditures. No transfer
election can be made with respect to
any amount of an eligible credit that is
allowed for progress expenditures
pursuant to rules similar to the rules of
section 46(c)(4) and (d) (as in effect on
the day before the enactment of the
Revenue Reconciliation Act of 1990).
(ii) No election allowed when noncash consideration. No transfer election
is allowed when an eligible taxpayer
receives any consideration other than
cash (as defined in § 1.6418–1(f)) in
connection with the transfer of a
specified credit portion.
(iii) No election allowed when eligible
credits not determined with respect to
taxpayer. No transfer election is allowed
for eligible credits that are not
determined with respect to an eligible
taxpayer as described in paragraph (d)
of this section. For example, a section
45Q credit allowable to an eligible
taxpayer because of an election made
under section 45Q(f)(3)(B), or a section
48 credit allowable to an eligible
taxpayer because of an election made

E:\FR\FM\21JNP2.SGM

21JNP2

lotter on DSK11XQN23PROD with PROPOSALS2

40516

Federal Register / Vol. 88, No. 118 / Wednesday, June 21, 2023 / Proposed Rules

under section 50(d)(5) and § 1.48–4,
although described in § 1.6418–1(c)(2),
is not an eligible credit that can be
transferred by the taxpayer because such
credit is not determined with respect to
the eligible taxpayer.
(b) Manner and due date of making a
transfer election—(1) In general. An
eligible taxpayer must make a transfer
election to transfer a specified credit
portion of an eligible credit on the basis
of a single eligible credit property. For
example, 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 of the eligible credit determined
with respect to each eligible credit
property. Any transfer election must be
consistent with the eligible taxpayer’s
pre-filing registration under § 1.6418–4.
(2) Specific rules for certain eligible
credits. In the case of any section 45
credit, section 45Q credit, section 45V
credit, or section 45Y credit that is an
eligible credit, the rules in paragraphs
(b)(2)(i) and (ii) of this section apply.
(i) Separate eligible credit property. A
transfer election must be made
separately with respect to each eligible
credit property described in § 1.6418–
1(d)(2), (3), (5), and (7), as applicable,
for which an eligible credit is
determined.
(ii) Time period. A transfer election
must be made for each taxable year an
eligible taxpayer elects to transfer
specified credit portions with respect to
such an eligible credit property during
the 10-year period beginning on the date
such eligible credit property 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).
(3) Manner of making a valid transfer
election. A transfer election is made by
an eligible taxpayer on the basis of each
specified credit portion with respect to
a single eligible credit property that is
transferred to a transferee taxpayer. To
make a valid transfer election, an
eligible taxpayer as part of filing a
return (or a return for a short year
within the meaning of section 443 of the
Code (short year return)), must include
the following—
(i) A properly completed relevant
source credit form for the eligible credit
(such as Form 7207, Advanced
Manufacturing Production Credit, if
making a transfer election for a section
45X credit) for the taxable year that the
eligible credit was determined;
(ii) A properly completed Form 3800,
General Business Credit (or its

VerDate Sep<11>2014

20:16 Jun 20, 2023

Jkt 259001

successor), including reductions
necessary because of the transferred
eligible credit as required by the form
and instructions and the registration
number received during the required
pre-filing registration (as described in
§ 1.6418–4) related to the eligible credit
property with respect to which a
transferred eligible credit was
determined;
(iii) A schedule attached to the Form
3800 (or its successor) showing the
amount of eligible credit transferred for
each eligible credit property (such as for
a section 45X election, the relevant lines
that include the eligible credit property
reported on Form 7207), except as
otherwise provided in guidance;
(iv) A transfer election statement as
described in paragraph (b)(5) of this
section; and
(v) Any other information related to
the election specified in guidance.
(4) Due date and original return
requirement of a transfer election. A
transfer election by an eligible taxpayer
with respect to a specified portion of an
eligible credit must be made on an
original return not later than the due
date (including extensions of time) for
the original return of the eligible
taxpayer for the taxable year for which
the eligible credit is determined. No
transfer election may be made or revised
on an amended return or by filing an
administrative adjustment request under
section 6227 of the Code. There is no
late-election relief available under
§§ 301.9100–1 through 301.9100–3 of
this chapter for a transfer election that
is not timely filed.
(5) Transfer election statement—(i) In
general. A transfer election statement is
a written document that describes the
transfer of a specified credit portion
between an eligible taxpayer and
transferee taxpayer. An eligible taxpayer
and transferee taxpayer must each
attach a transfer election statement to
their respective return as required under
paragraphs (b)(3)(iv) and (f)(4)(ii) of this
section, unless otherwise provided in
guidance. An eligible taxpayer and
transferee taxpayer can use any
document (such as a purchase and sale
agreement) that meets the conditions in
paragraph (b)(5)(ii) of this section but
must label the document a ‘‘Transfer
Election Statement’’ when attaching to a
return. The information required in
paragraph (b)(5)(ii) of this section does
not otherwise limit 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
statement must be signed under
penalties of perjury by an individual
with authority to legally bind the

PO 00000

Frm 00022

Fmt 4701

Sfmt 4702

eligible taxpayer. The statement must
also include the written consent of an
individual with authority to legally bind
the transferee taxpayer.
(ii) Information required in transfer
election statement. A transfer election
statement must, at a minimum, include
each of the following:
(A) Name, address, and taxpayer
identification number of the transferee
taxpayer and the eligible taxpayer. If the
transferee taxpayer or eligible taxpayer
is a member of a consolidated group (as
defined in § 1.1502–1), then only
include information for the group
member that is the transferee taxpayer
or eligible taxpayer (if different from the
return filer).
(B) 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
property, including—
(1) A description of the eligible credit
(for example, advanced manufacturing
production credit for a section 45X
transfer election), the total amount of
the credit determined with respect to
the eligible credit property, and the
amount of the specified credit portion;
(2) The taxable year of the eligible
taxpayer and the first taxable year in
which the specified credit portion will
be taken into account by the transferee
taxpayer;
(3) The amount(s) of the cash
consideration and date(s) on which paid
by the transferee taxpayer; and
(4) The registration number related to
the eligible credit property.
(C) Attestation that the eligible
taxpayer (or any member of its
consolidated group) is not related to the
transferee taxpayer (or any member of
its consolidated group) within the
meaning of section 267(b) or 707(b)(1)).
(D) A statement or representation
from the eligible taxpayer that it has or
will comply with all requirements of
section 6418, the section 6418
regulations, and the provisions of the
Code applicable to the eligible credit,
including, for example, any
requirements for bonus credit amounts
described in § 1.6418–1(c)(3) (if
applicable).
(E) 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).
(F) A statement or representation from
the eligible taxpayer that the eligible
taxpayer has provided the required
minimum documentation (as described
in paragraph (b)(5)(iv) of this section) to
the transferee taxpayer.

E:\FR\FM\21JNP2.SGM

21JNP2

lotter on DSK11XQN23PROD with PROPOSALS2

Federal Register / Vol. 88, No. 118 / Wednesday, June 21, 2023 / Proposed Rules
(iii) Timing of transfer election
statement. 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 paragraph (b)(5)(ii) of
this section, but the transfer election
statement cannot be completed for any
year after the earlier of:
(A) 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
taxpayer; or
(B) The filing of the return of the
transferee taxpayer for the year in which
the specified credit portion is taken into
account.
(iv) Required minimum
documentation. Required minimum
documentation is the minimum
documentation that the eligible taxpayer
is required to provide to a transferee
taxpayer. This documentation consists
of—
(A) Information that validates the
existence of the eligible credit property,
which could include evidence prepared
by a third party (such as a county board
or other governmental entity, a utility,
or an insurance provider);
(B) If applicable, documentation
substantiating that the eligible taxpayer
has satisfied the requirements to include
any bonus credit amounts (as defined in
§ 1.6418–1(c)(3)) in the eligible credit
that was part of the transferred specified
credit portion; and
(C) 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, as relevant, in the case
of a transfer of an eligible credit that is
a production credit.
(v) Transferee recordkeeping
requirement. Consistent with § 1.6001–
1(e), the transferee taxpayer must retain
the required minimum documentation
provided by the eligible taxpayer as long
as the contents thereof may become
material in the administration of any
internal revenue law.
(c) Limitations after a transfer election
is made—(1) Irrevocable. A transfer
election with respect to a specified
credit portion is irrevocable.
(2) No additional transfers. A
specified credit portion may only be
transferred pursuant to a transfer
election once. A transferee taxpayer may
not make a transfer election of any
specified credit portion transferred to
the transferee taxpayer.
(d) Determining the eligible credit—
(1) In general. An eligible taxpayer may
only transfer eligible credits determined
with respect to the eligible taxpayer

VerDate Sep<11>2014

20:16 Jun 20, 2023

Jkt 259001

(paragraph (a)(4) of this section
disallows transfer elections in other
situations). 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,
otherwise conduct the activities giving
rise to the underlying eligible credit. All
rules that relate to the determination of
the eligible credit, such as the rules in
sections 49 and 50(b) of the Code, apply
to the eligible taxpayer and therefore
can limit the amount of eligible credit
determined with respect to an eligible
credit property that can be transferred.
Rules relating to the amount of an
eligible credit that is allowed to be
claimed by an eligible taxpayer, such as
the rules in section 38(c) or 469 of the
Code, do not limit the eligible credit
determined, but do apply to a transferee
taxpayer as described in paragraph (f)(3)
of this section.
(2) Application of section 49 at-risk
rules to determination of eligible credits
for partnerships and S corporations.
Any amount of eligible credit
determined with respect to investment
credit property held directly by a
transferor partnership or transferor S
corporation that is eligible credit
property (eligible investment credit
property) must be determined by the
partnership or S corporation taking into
account the section 49 at-risk rules at
the partner or shareholder level as of the
close of the taxable year in which the
eligible investment credit property is
placed in service. Thus, if the credit
base of an eligible investment credit
property is limited to a partner or S
corporation shareholder by section 49,
then the amount of the eligible credit
determined by the transferor
partnership or transferor S corporation
is also limited. A transferor partnership
or transferor S corporation that transfers
any specified credit portion with respect
to an eligible investment credit property
must request from each of its partners or
shareholders, respectively, that is
subject to section 49, the amount of
such partner’s or shareholder’s
nonqualified nonrecourse financing
with respect to the eligible investment
credit property as of the close of the
taxable year in which the property is
placed in service. Additionally, the
transferor partnership or transferor S
corporation must attach to its tax return
for the taxable year in which the eligible
investment credit property is placed in
service, the amount of each partner’s or
shareholder’s section 49 limitation with
respect to any specified credit portion
transferred with respect to the eligible
investment credit property. Changes to

PO 00000

Frm 00023

Fmt 4701

Sfmt 4702

40517

at-risk amounts under section 49 for
partners or S corporation shareholders
after the close of the taxable year in
which the eligible investment credit
property is placed in service do not
impact the eligible credit determined by
the transferor partnership or transferor S
corporation, but do impact the
partner(s) or S corporation
shareholder(s) as described in § 1.6418–
3(a)(6)(ii).
(e) Treatment of payments made in
connection with a transfer election—(1)
In general. An amount paid by a
transferee taxpayer to an eligible
taxpayer is in connection with a transfer
election with respect to a specified
credit portion only if it is paid in cash
(as defined in § 1.6418–1(f)), directly
relates to the specified credit portion,
and is not described in § 1.6418–5(a)(3)
(describing payments related to an
excessive credit transfer).
(2) Not includible in gross income.
Any amount paid to an eligible taxpayer
that is described in paragraph (e)(1) of
this section is not includible in the gross
income of the eligible taxpayer.
(3) Not deductible. No deduction is
allowed under any provision of the
Code with respect to any amount paid
by a transferee taxpayer that is
described in paragraph (e)(1) of this
section.
(4) Anti-abuse rule—(i) In general. 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 where 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. 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. Conversely, 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 of transactions is to increase a
Federal income tax deduction of a
transferee taxpayer.
(ii) Example 1. Taxpayer A, an
eligible taxpayer, generates $100 of an
eligible credit with respect to an eligible
credit property in the course of its trade
or business. Taxpayer A also provides

E:\FR\FM\21JNP2.SGM

21JNP2

lotter on DSK11XQN23PROD with PROPOSALS2

40518

Federal Register / Vol. 88, No. 118 / Wednesday, June 21, 2023 / Proposed Rules

services to customers. Taxpayer A offers
Customer B, a transferee taxpayer that
cannot deduct the cost of the services,
the opportunity to be transferred $100 of
eligible credit for $100 while receiving
Taxpayer A’s services for free. 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 the eligible credit. Taxpayer A
is engaged in a transaction where it is
undercharging for services to Customer
B to avoid recognizing $20 of gross
income. This transaction is subject to
recharacterization under the anti-abuse
rule in paragraph (e)(4) of this section,
and Taxpayer A will be treated as
transferring $100 of the eligible credit
for $80, and have $20 of gross income
from the services provided to Customer
B.
(iii) Example 2. Taxpayer C, an
eligible taxpayer, generates $100 of an
eligible credit with respect to an eligible
credit property in the course of its trade
or business. Taxpayer C also sells
property to customers. Taxpayer C offers
Customer D, a transferee taxpayer that
can deduct the purchase of property, the
opportunity to receive the $100 of
eligible credit for $20 while purchasing
Taxpayer C’s property for $80. Taxpayer
C normally charges $20 for the same
property without the transfer of the
eligible credit, and the average transfer
price of the eligible credit between
unrelated parties is $80 paid in cash for
$100 of the eligible credit. Taxpayer C
is willing to accept the higher price for
the property because Taxpayer C has a
net operating loss carryover to offset any
taxable income from the transaction.
This transaction is subject to
recharacterization under the anti-abuse
rule under paragraph (e)(4) of this
section, and Taxpayer C will be treated
as selling the property for $20 and
transferring $100 of the eligible credit
for $80, and Customer D will have a $20
deduction related to the purchase of the
property instead of $80.
(f) Transferee taxpayer’s treatment of
eligible credit—(1) Taxable year in
which credit taken into account. In the
case of any specified credit portion
transferred to a transferee taxpayer
pursuant to a transfer election under
this section, the transferee taxpayer
takes the specified credit portion into
account in the transferee taxpayer’s first
taxable year ending with or ending after
the taxable year of the eligible taxpayer
with respect to which the eligible credit
was determined. Thus, to the extent the
taxable years of an eligible taxpayer and
a transferee taxpayer end on the same
date, the transferee taxpayer will take

VerDate Sep<11>2014

20:16 Jun 20, 2023

Jkt 259001

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 transferee taxpayer’s first taxable
year that ends after the taxable year of
the eligible taxpayer.
(2) No gross income for a transferee
taxpayer when claiming a transferred
specified credit portion. A transferee
taxpayer does not have gross income
when claiming a transferred specified
credit portion even if the amount of
cash paid to the eligible taxpayer was
less than the amount of 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.
(3) Transferee treated as the eligible
taxpayer—(i) In general. 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. 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 section 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
section 38 or 469, as applicable.
(ii) Application of section 469. 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. 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)) and
cannot change the characterization of
the transferee taxpayer’s participation
(or lack thereof) in the eligible
taxpayer’s trade or business by using
any of the grouping rules under § 1.469–
4(c).
(4) Transferee taxpayer requirements
to take into account a transferred
specified credit portion. In order for a

PO 00000

Frm 00024

Fmt 4701

Sfmt 4702

transferee taxpayer to take into account
in a taxable year (as described in
paragraph (f)(1) of this section) a
specified credit portion that was
transferred by an eligible taxpayer, as
part of filing a return (or short year
return), an amended return, or a request
for an administrative adjustment under
section 6227 of the Code, the transferee
taxpayer must include the following—
(i) A properly completed Form 3800,
General Business Credit (or its
successor), to take into account the
transferred specified credit portion as a
current general business credit, and
including all registration number(s)
related to the transferred specified
credit portion;
(ii) The transfer election statement
described in paragraph (b)(5) of this
section attached to the return; and
(iii) Any other information related to
the transfer election specified in
guidance.
(g) Applicability date. This section
applies to taxable years ending on or
after [DATE OF PUBLICATION OF
FINAL RULE].
§ 1.6418–3 Additional rules for
partnerships and S corporations.

(a) Rules applicable to both
partnerships and S corporations—(1)
Partnerships and S corporations as
eligible taxpayers and transferee
taxpayers. Under section 6418, a
partnership or an S corporation may
qualify as a transferor partnership or a
transferor S corporation and may elect
to make a transfer election to transfer a
specified credit portion to a transferee
taxpayer. A partnership or S corporation
may also qualify as a transferee
partnership or a transferee S
corporation. This section provides rules
applicable to transferor partnerships
and transferor S corporations and
transferee partnerships and transferee S
corporations. Paragraph (b) of this
section provides rules applicable solely
to partnerships. Paragraph (c) of this
section provides rules applicable solely
to S corporations. Paragraph (d) of this
section provides guidelines for the
manner and due date for which a
partnership or S corporation makes an
election under section 6418(a).
Paragraph (e) of this section contains
examples illustrating the operation of
the provisions of this section. Except as
provided in this section, the general
rules under section 6418 and the section
6418 regulations apply to partnerships
and S corporations.
(2) Treatment of cash received for a
specified credit portion. In the case of
any specified credit portion determined
with respect to any eligible credit
property held directly by a partnership

E:\FR\FM\21JNP2.SGM

21JNP2

lotter on DSK11XQN23PROD with PROPOSALS2

Federal Register / Vol. 88, No. 118 / Wednesday, June 21, 2023 / Proposed Rules
or 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 paragraphs (b)(1) and (2) of
this section.
(3) No partner or shareholder level
transfers. In the case of an eligible credit
property held directly by a partnership
or S corporation, no transfer election by
any partner or S corporation
shareholder is allowed under § 1.6418–
2 or this section with respect to any
specified credit portion determined
with respect to such eligible credit
property.
(4) Disregarded entity ownership. In
the case of an eligible credit property
held directly by an entity disregarded as
separate from a partnership or S
corporation for Federal income tax
purposes, such eligible credit property
will be treated as held directly by the
partnership or S corporation for
purposes of making a transfer election.
(5) Treatment of tax exempt income.
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). As
such, 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).
(6) Certain recapture events not
requiring notice—(i) Indirect
dispositions under section 50—(A)
Treatment of transferor partnership or
transferor S corporation and transferee
taxpayer. For purposes of section
6418(g)(3)(B) only, the disposition of a
partner’s interest under § 1.47–6(a)(2) or
an S corporation shareholder’s interest
under § 1.47–4(a)(2) in an eligible
taxpayer that is treated as a transferor
partnership or transferor S corporation
is disregarded. As such, provided the
investment credit property that is
eligible credit property owned by the
transferor partnership or transferor S
corporation is not disposed of, and
continues to be investment credit
property with respect to such transferor
partnership or transferor S corporation,
a transferor partnership or transferor S
corporation should not provide notice to

VerDate Sep<11>2014

20:16 Jun 20, 2023

Jkt 259001

a transferee taxpayer of an interest
disposition by the partner or
shareholder because the disposition
does not result in recapture under
section 6418(g)(3)(B) to which the
transferee taxpayer is liable, and thus,
the transferee taxpayer does not have to
calculate a recapture amount.
(B) Treatment of partner or
shareholder. A partner or S corporation
shareholder that has disposed of an
interest in a transferor partnership or
transferor S corporation is subject to the
rules relating to such disposition under
§ 1.47–6(a)(2) or § 1.47–4(a)(2),
respectively. Any recapture to a
disposing partner is calculated based on
the partner’s share of the basis (or cost)
of the section 38 property to which the
specified credit portion was determined
in accordance with § 1.46–3(f). Any
recapture to a disposing shareholder is
calculated based on the shareholder’s
pro rata share of the basis (or cost) of the
section 38 property to which the
specified credit portion was determined
in accordance with § 1.48–5.
(ii) Changes in at-risk amounts under
section 49—(A) Treatment of transferor
partnership or transferor S corporation
and transferee taxpayer. For purposes of
section 6418 only, 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. A
transferor partnership or transferor S
corporation should not provide notice to
a transferee taxpayer of the change
because the change does not cause
recapture under section 6418(g)(3)(B) to
which the transferee taxpayer is liable,
and thus, the transferee taxpayer does
not have to calculate a recapture
amount.
(B) Treatment of partner or
shareholder. A partner or shareholder in
a transferor partnership or transferor S
corporation, respectively, must apply
the rules under section 49 at the partner
or shareholder level if there is a change
in nonqualified nonrecourse financing
with respect to the partner or
shareholder after the close of the taxable
year in which the investment credit
property is placed in service and the
specified credit portion is determined. If
there is an increase in nonqualified
nonrecourse financing to a partner, any
adjustment under the rules of section
49(b) is calculated based on the
partner’s share of the basis (or cost) of
the section 38 property to which the
specified credit portion was determined

PO 00000

Frm 00025

Fmt 4701

Sfmt 4702

40519

in accordance with § 1.46–3(f). If there
is an increase in nonqualified
nonrecourse financing to a shareholder,
any adjustment under the rules of
section 49(b) is calculated based on the
shareholder’s pro rata share of the basis
(or cost) of the section 38 property to
which the specified credit portion was
determined in accordance with § 1.48–
5. If there is a decrease in nonqualified
nonrecourse financing, any increase in
the credit base is taken into account by
the partner or shareholder as provided
under section 49, and any resulting
credit is not eligible for transfer under
section 6418.
(b) Rules applicable to partnerships—
(1) Allocations of tax exempt income
amounts generally. A transferor
partnership must generally determine a
partner’s distributive share of any tax
exempt income resulting from the
receipt of consideration for the transfer
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). A partner’s
distributive share of an otherwise
eligible credit is determined under
§§ 1.46–3(f) and 1.704–1(b)(4)(ii). Tax
exempt income resulting from the
receipt of consideration for the transfer
of a specified credit portion by a
transferor partnership is treated as
received or accrued, including for
purposes of section 705 of the Code, 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).
(2) Special rule for allocations of tax
exempt income amounts and eligible
credits for an election to transfer less
than all eligible credits determined with
respect to an eligible credit property. In
the event a transferor partnership elects
to transfer one or more specified credit
portions of less than all eligible credits
determined with respect to an eligible
credit property held directly by the
partnership, the partnership may
allocate any tax exempt income
resulting from the receipt of
consideration for the specified credit
portion(s) in accordance with the rules
in this paragraph (b)(2).
(i) First, the partnership must
determine each partner’s distributive
share of the otherwise eligible credits
with respect to such eligible credit
property in accordance with paragraph
(b)(1) of this section (partner’s eligible
credit amount).
(ii) Thereafter, the transferor
partnership may determine, in any
manner described in the partnership

E:\FR\FM\21JNP2.SGM

21JNP2

lotter on DSK11XQN23PROD with PROPOSALS2

40520

Federal Register / Vol. 88, No. 118 / Wednesday, June 21, 2023 / Proposed Rules

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. The partnership may
allocate to each partner its agreed upon
share of eligible credits, tax exempt
income resulting from the receipt of
consideration for the specified credit
portion(s), or both, as the case may be,
provided that—
(A) The amount of eligible credits
allocated to each partner may not
exceed such partner’s eligible credit
amount; and
(B) Each partner is allocated its
proportionate share of tax exempt
income resulting from the transfer(s).
(iii) Each partner’s proportionate
share of tax exempt income resulting
from the transfer(s) is equal to the total
amount of tax exempt income resulting
from the transfer(s) of the specified
credit portion(s) by the partnership
multiplied by a fraction—
(A) The numerator of which is such
partner’s eligible credit amount minus
the amount of eligible credits actually
allocated to such partner with respect to
the eligible credit property for the
taxable year; and
(B) The denominator of which is the
specified credit portion(s) transferred by
the partnership with respect to the
eligible credit property for the taxable
year.
(3) Transferor partnerships in tiered
structures. If a partnership (upper-tier
partnership) is a direct or indirect
partner of a transferor partnership and
directly or indirectly receives—
(i) An allocation of an eligible credit,
the upper-tier partnership is not an
eligible taxpayer under section 6418
with respect to any eligible credit
allocated by a transferor partnership; or
(ii) An allocation of tax exempt
income resulting from the receipt of
consideration for the transfer of a
specified credit portion by a transferor
partnership, the upper-tier partnership
must determine its partners’ distributive
shares of such tax exempt income in
proportion to the partners’ distributive
shares of the otherwise eligible credit as
provided in paragraph (b)(1) of this
section.
(4) Partnership as a transferee
taxpayer—(i) Eligibility under section
6418. 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. A transferee partnership is
subject to the no additional transfer rule
in § 1.6418–2(c)(2), however, an
allocation of a transferred specified
credit portion to a direct or indirect

VerDate Sep<11>2014

20:16 Jun 20, 2023

Jkt 259001

partner of a transferee partnership under
section 704(b) is not a transfer for
purposes of section 6418.
(ii) Treatment of a cash payment for
a transferred specified credit portion. 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).
(iii) Allocations of transferred
specified credit portions. A transferee
partnership must determine each
partner’s distributive share of any
transferred specified credit portion
based on such partner’s distributive
share of the nondeductible expenses for
the taxable year used to fund the
purchase of such transferred specified
credit portion. Each partner’s
distributive share of the nondeductible
expenses used to fund the purchase of
any transferred specified credit portion
is determined by the partnership
agreement, or, if the partnership
agreement does not provide for the
allocation of nondeductible expenses
paid pursuant to section 6418, then the
allocation of the specified credit portion
is based on the transferee partnership’s
general allocation of nondeductible
expenses.
(iv) Transferred specified credit
portion treated as an extraordinary
item. A transferred specified credit
portion is treated as an extraordinary
item and must be allocated among the
partners of a transferee partnership as of
the time the transfer of the specified
credit portion to the transferee
partnership is treated as occurring in
accordance with this paragraph
(b)(4)(iv) and § 1.706–4(e)(1) and
(e)(2)(ix). If the transferee partnership
and eligible taxpayer have the same
taxable years, the transfer of a specified
credit portion to a transferee partnership
is treated as occurring on the first date
that the transferee partnership makes a
cash payment to the eligible taxpayer as
consideration for the specified credit
portion. If the transferee partnership
and eligible taxpayer have different
taxable years, the transfer of a specified
credit portion to a transferee partnership
is treated as occurring on the later of—
(A) The first date of the taxable year
that the transferee partnership takes the
specified credit portion into account
under section 6418(d); or
(B) The first date that the transferee
partnership makes a cash payment to
the eligible taxpayer for the specified
credit portion.
(v) Transferee partnerships in tiered
structures. If an upper-tier partnership
is a direct or indirect partner of a
transferee partnership and directly or
indirectly receives an allocation of a

PO 00000

Frm 00026

Fmt 4701

Sfmt 4702

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 upper-tier
partnership must determine each
partner’s distributive share of the
transferred specified credit portion in
accordance with paragraphs (b)(4)(iii)
and (iv) of this section and must report
the credits to its partners in accordance
with guidance.
(c) Rules applicable to S
corporations—(1) Pro rata shares of tax
exempt income amounts. 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. Tax
exempt income resulting from the
receipt of consideration for the transfer
of a specified credit portion by a
transferor S corporation is treated as
received or accrued, including for
purposes of section 1366, 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).
(2) S corporation as a transferee
taxpayer—(i) Eligibility under section
6418. 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 (transferee S corporation). A
transferee S corporation is subject to the
no additional transfer rule in § 1.6418–
2(c)(2), however, 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.
(ii) Treatment of a cash payment for
a transferred specified credit portion. 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.
(iii) Pro rata shares of transferred
specified credit portions. 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.
If the 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 sections 444 and
1378(b)) that the transferee S

E:\FR\FM\21JNP2.SGM

21JNP2

lotter on DSK11XQN23PROD with PROPOSALS2

Federal Register / Vol. 88, No. 118 / Wednesday, June 21, 2023 / Proposed Rules
corporation first makes a cash payment
as consideration to the eligible taxpayer
for the specified credit portion. If the
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.
(d) Transfer election by a partnership
or S corporation—(1) In general. A
partnership or S corporation may make
a transfer election to transfer a specified
credit portion under section 6418 if it
files an election in accordance with the
rules set forth in this paragraph (d). 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 corporation in the
taxable year for which the election is
made.
(2) Manner and due date of making a
transfer election. A transfer election for
a specified credit portion must be made
in the manner provided in § 1.6418–
2(b)(1) through (3). All documents
required in § 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 specific
credit portion was determined. 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. No transfer election may be
made or revised on an amended return
or by filing an administrative
adjustment request under section 6227
of the Code. There is no late-election
relief available under §§ 301.9100–1
through 301.9100–3 of this chapter for
a transfer election that is not timely
filed.
(3) Irrevocable election. A transfer
election by a partnership or S
corporation is irrevocable.
(e) Examples. The examples in this
paragraph (e) illustrate the application
of paragraphs (a)(6), (b), and (c) of this
section.
(1) Example 1. Transfer of all eligible
credits by a transferor partnership—(i)
Facts. A and B each contributed $150X
of cash to AB partnership for the
purpose of investing in energy property.
The partnership agreement provides
that A and B share equally in all items
of income, gain, loss, deduction, and
credit of AB partnership. AB
partnership invests $300X in an energy

VerDate Sep<11>2014

20:16 Jun 20, 2023

Jkt 259001

property in accordance with section 48
and places the energy property in
service on date X in year 1. As of the
end of year 1, AB partnership has $90X
of eligible credits under section 48 with
respect to the energy property. Before
AB partnership files its tax return for
year 1, AB partnership transfers the
$90X of eligible credits to an unrelated
transferee taxpayer, Transferee Taxpayer
X for $80X and executes a transfer
election statement with Transferee
Taxpayer X.
(ii) Analysis. Under § 1.6418–3(b)(1),
AB partnership allocates the tax exempt
income resulting from the transfer of the
specified credit portion proportionately
among the partners based on each
partner’s distributive share of the
otherwise eligible section 48 credit as
determined under §§ 1.46–3(f) and
1.704–1(b)(4)(ii). Under § 1.46–3(f)(2),
each partner’s share of the basis of the
energy property is determined in
accordance with the ratio in which the
partners divide the general profits (or
taxable income) of the partnership.
Under the AB partnership agreement, A
and B share partnership profits equally.
Thus, each partner’s share of the basis
of the energy property under § 1.46–3(f)
and distributive share of the otherwise
eligible credits under § 1.704–1(b)(4)(ii)
is 50 percent. The transfer made
pursuant to section 6418(a) causes AB
partnership’s eligible credits under
section 48 with respect to the energy
property to be reduced to zero, and the
consideration of $80X received by AB
partnership for the transferred specified
credit portion is treated as tax exempt
income. Because the tax exempt income
is allocated in the same proportion as
the otherwise eligible credit would have
been allocated, A and B will each be
allocated $40X of tax exempt income.
Each of partner A’s and partner B’s basis
in its partnership interest and capital
account will be increased by $40X. Also
in year 1, the basis in the energy
property held by AB partnership and
with respect to which the credit is
calculated is reduced under section
50(c)(3) by 50 percent of the amount of
the credit so determined, or $45. A’s
and B’s basis in their partnership
interests and capital accounts will be
appropriately adjusted to take into
account adjustments made to the energy
property under section 50(c)(5) and
§ 1.704–1(b)(2)(iv)(j). The tax exempt
income received or accrued by AB
partnership as a result of the transferred
specified credit portion is treated as
received or accrued, including for
purposes of section 705, as of date X in
year 1, which is the date the transferred

PO 00000

Frm 00027

Fmt 4701

Sfmt 4702

40521

specified credit portion was determined
with respect to AB partnership.
(2) Example 2. Recapture to a
transferor partnership—(i) Facts.
Assume the same facts as in paragraph
(e)(1)(i) of this section (Example 1),
except in year 3, within the recapture
period related to the energy property, A
reduces its proportionate interest in the
general profits of the partnership by 50
percent causing a recapture event to A
under § 1.47–6(a)(2). The energy
property is not disposed of by AB
partnership and continues to be energy
property with respect to AB partnership.
(ii) Analysis. AB partnership should
not provide notice of recapture to
Transferee Taxpayer X as a result of the
recapture event under § 1.47–6(a)(2)
with respect to A. Transferee Taxpayer
X is not liable for any recapture amount.
A, however, is subject to recapture as
provided in § 1.47–6(a)(2) and based on
its share of the basis (or cost) of the
energy property to which the eligible
credits were determined under § 1.46–
3(f)(2).
(3) Example 3. Transfer of a portion
of eligible credits by a transferor
partnership—(i) Facts. C and D each
contributed cash to CD partnership for
the purpose of investing in a qualified
wind facility. The partnership
agreement provides that until a flip
point, C is allocated 99 percent of all
items of income, gain, loss, deduction
and credit of CD partnership and D is
allocated the remaining 1 percent of
such items. After the flip point, C is
allocated 5 percent of all items of
income, gain, loss, deduction and credit
of CD Partnership and D is allocated 95
percent of such items. CD partnership
invests in a qualified wind facility and
places the facility in service in year 1.
CD partnership generates $100X of
credit under section 45(a) for year 1.
Before the due date for CD partnership’s
year 1 tax return (with extension), C and
D agree that D’s share of the eligible
credit will be transferred, and C will be
allocated its share of eligible credit. CD
partnership transfers $1X of the eligible
credit to an unrelated transferee
taxpayer for $1X. The flip point has not
been reached by the end of year 1.
(ii) Analysis. Under paragraph (b)(2)
of this section, CD partnership must first
determine each partner’s eligible credit
amount, which is equal to such
partner’s distributive share of the
otherwise eligible section 45(a) credit as
determined under § 1.704–1(b)(4)(ii).
Under § 1.704–1(b)(4)(ii), for an eligible
credit that is not an investment tax
credit, allocations of credit are deemed
to be in accordance with the partner’s
interest in the partnership if the credit
is allocated in the same proportion as

E:\FR\FM\21JNP2.SGM

21JNP2

lotter on DSK11XQN23PROD with PROPOSALS2

40522

Federal Register / Vol. 88, No. 118 / Wednesday, June 21, 2023 / Proposed Rules

the partners’ distributive share of the
receipts that give rise to the credit. The
CD partnership agreement provides that
until the flip point, C is allocated 99
percent of all items of income, gain,
loss, deduction and credit of CD
partnership and D is allocated the
remaining 1 percent of such items.
Assuming all requirements of the safe
harbor provided for in Revenue
Procedure 2007–65, 2007–2 CB 967 are
met, CD partnership’s allocations of the
otherwise eligible credits would be
respected as in accordance with section
704(b). Thus, partner C’s and partner D’s
distributive share of the otherwise
eligible credit is 99 percent and 1
percent, respectively. C and D have
agreed to sell D’s eligible credit amount
of $1X for full value and to allocate to
C its eligible credit amount of $99X. The
transfer made pursuant to section
6418(a) causes CD partnership’s eligible
credits under section 45(a) with respect
to the wind facility to be reduced to
$99X, and the consideration of $1X
received by CD partnership is treated as
tax exempt income. D is allocated $1X
of tax exempt income from the transfer
of the eligible credits, and C is allocated
$99X of eligible credits under section
45(a) with respect to the wind facility.
Neither C nor D is allocated more
eligible credits than its eligible credit
amount. Additionally, D is allocated an
amount of tax exempt income equal to
$1X × (1¥0)/1 and C is allocated none
of the tax exempt income. The
allocations of eligible credits and tax
exempt income are permissible
allocations under paragraph (b)(2) of
this section.
(4) Example 4. Upper-tier partnership
of a transferor partnership—(i) Facts. E,
F, and G each contributed $100X of cash
to EFG partnership for the purpose of
investing in an energy property. E, F,
and G are partnerships for Federal
income tax purposes. The partnership
agreement provides that E, F and G
share equally in all items of income,
gain, loss, and deduction of EFG
partnership. EFG partnership invests
$300X in an energy property in
accordance with section 48 and places
the energy property in service in year 1.
As of the end of year 1, EFG partnership
has $90X of eligible credits under
section 48 with respect to the energy
property. Before the due date for EFG
partnership’s year 1 tax return (with
extension), E, F and G agree that E’s
share of the eligible credits will be
transferred, and F and G will each be
allocated their shares of eligible credits
(or basis). EFG partnership transfers
$30X of the eligible credits to an
unrelated transferee taxpayer for $25X.

VerDate Sep<11>2014

20:16 Jun 20, 2023

Jkt 259001

Assuming the allocations to E, F and G
of the eligible credits and tax exempt
income resulting from the receipt of
cash for the transferred specified credit
portion are permissible allocations
under paragraph (b)(2) of this section, E
is allocated $25X of tax exempt income
from the transfer of the eligible credits
and F and G are each allocated $30X of
basis with respect to the energy
property.
(ii) Analysis. E must allocate the $25X
of tax exempt income to its partners as
if it had retained its share of the eligible
credits. Under § 1.46–3(f)(2), each
partner’s share of the basis of the section
48 energy property is determined in
accordance with the ratio in which the
partners divide the general profits (or
taxable income) of the partnership. The
E partnership agreement provides for
equal allocations of income, gain,
deduction, and loss to its partners, and
thus, E partnership must allocate the
otherwise eligible credits in the same
manner. Therefore, E partnership must
allocate the $25X of tax exempt income
equally among its partners. In
accordance with paragraph (b)(3)(i) of
this section, F and G do not qualify as
an eligible taxpayer for purposes of
section 6418 and thus, are not permitted
to make a transfer election for any
portion of the $30X of eligible credit
allocated to them by EFG partnership.
Under § 1.46–3(f)(2), each partner’s
share of the basis of the section 48
energy property is determined in
accordance with the ratio in which the
partners divide the general profits (or
taxable income) of the partnership. The
F and G partnership agreements provide
for equal allocations of income, gain,
deduction, and loss to its partners, and
F and G must allocate the basis from the
energy property to their partners in the
same manner.
(5) Example 5. Transferee
partnership—(i) Facts. Y and Z each
contributed $50X of cash to YZ
partnership for the purpose of
purchasing eligible section 45 credits
under section 6418. The partnership
agreement provides that all items of
income, gain, loss, deduction, and credit
are shared equally among Y and Z. The
partnership agreement also provides
that any nondeductible expenses used
to fund the purchase of any transferred
specified credit portion will be shared
equally among Y and Z. On date X in
year 1, YZ partnership qualifies as a
transferee taxpayer and makes a cash
payment of $80X to an eligible taxpayer
for $100X of a transferred specified
credit portion. The eligible credits will
be determined with respect to the
eligible taxpayer as of the end of year 1.

PO 00000

Frm 00028

Fmt 4701

Sfmt 4702

Both YZ partnership and the eligible
taxpayer are calendar year taxpayers.
(ii) Analysis. The cash payment of
$80X made by YZ partnership for the
transferred specified credit portion is
treated as a nondeductible expenditure
under section 705(a)(2)(B). Under
paragraph (b)(4)(iii) of this section, YZ
partnership must determine each
partner’s distributive share of the
transferred specified credit portion
based on such partner’s distributive
share of the nondeductible expenses for
the taxable year used to fund the
purchase of such transferred specified
credit portion. The YZ partnership
agreement provides that nondeductible
expenses used to fund the purchase of
any transferred specified credit portion
will be shared equally among Y and Z
and thus, the transferred specified credit
portion is also shared equally among Y
and Z. The transferred specified credit
portion is treated as an extraordinary
item under § 1.706–4(e)(2)(ix) that is
deemed to occur on date X in year 1. As
of date X in year 1, each of Y and Z are
allocated $40X of a section 705(a)(2)(B)
expenditure with respect to the cash
payment for the transferred specified
credit portion and $50X of transferred
section 45 credits.
(6) Example 6. Upper-tier partnership
of a transferee partnership—(i) Facts.
Assume the same facts as in paragraph
(e)(5)(i) of this section (Example 5),
except Y is a partnership for Federal tax
purposes, and Z is a corporation for
Federal tax purposes.
(ii) Analysis. In accordance with
paragraph (b)(4)(v) of this section, Y
does not qualify as an eligible taxpayer
for purposes of section 6418 for that
portion of the transferred specified
credit portion allocated to it by YZ
partnership. Under paragraph (b)(4)(iii)
of this section, Y must determine each
partner’s distributive share of the
transferred specified credit portion
based on such partner’s distributive
share of the nondeductible expenses for
the taxable year used to fund the
purchase of such transferred specified
credit portion. The Y partnership
agreement provides that all items of
income, gain, loss, deduction, and credit
are shared equally. The partnership
agreement also provides that any
nondeductible expenses used to fund
the purchase of any specified credit
portion are shared equally. Thus, the
transferred specified credit portion must
be shared equally among the partners of
Y.
(7) Example 7. Transferor S
corporation—(i) Facts. V and W each
contributed $150X of cash to an S
corporation for the purpose of investing
in energy property. The S corporation

E:\FR\FM\21JNP2.SGM

21JNP2

lotter on DSK11XQN23PROD with PROPOSALS2

Federal Register / Vol. 88, No. 118 / Wednesday, June 21, 2023 / Proposed Rules
invests $300X in an energy property in
accordance with section 48 and places
the energy property in service on date
X in year 1. As of the end of year 1, the
S corporation has $90X of eligible
credits under section 48 with respect to
the energy property. Before the due date
for S corporation’s year 1 tax return
(with extension), S corporation transfers
the $90X of eligible credits to an
unrelated transferee taxpayer for $80X.
(ii) Analysis. The transfer made
pursuant to section 6418(a) causes the S
corporation’s eligible credits under
section 48 with respect to the energy
property to be reduced to zero, and the
consideration of $80X received by the S
corporation for the transferred specified
credit portion is treated as tax exempt
income. Under paragraph (c)(1) of this
section, each of V and W must take into
account its pro rata share (as determined
under section 1377(a)) of any tax
exempt income resulting from the
receipt of consideration for the transfer
of the eligible credit, or $40X. Under
section 1367(a)(1)(A), each of the
shareholder’s basis in its stock will be
increased by $40X. Also in year 1, the
basis in the energy property with
respect to which the credit is calculated
is reduced under section 50(c)(3) by 50
percent of the amount of the credit so
determined, or $45. The tax exempt
income received or accrued by S
corporation as a result of the transfer of
the specified credit portion is treated as
received or accrued, including for
purposes of section 1366, as of date X
in year 1, which is the date the
transferred specified credit portion was
determined with respect to the
transferor S corporation.
(8) Example 8. Transferee S
corporation—(i) Facts. J and K each
contributed $50X of cash to S
corporation for the purpose of
purchasing eligible section 48 credits
under section 6418. At the beginning of
year 2, S corporation qualifies as a
transferee taxpayer and makes a cash
payment of $80X to an eligible taxpayer
for $100X of a transferred specified
credit portion. The transferred specified
credit portion was determined with
respect to the eligible taxpayer for
energy property placed in service in
year 1. Both S corporation and the
eligible taxpayer are calendar year
taxpayers.
(ii) Analysis. The cash payment of
$80X made by the S corporation for the
transferred specified credit portion is
treated as an expenditure described in
section 1367(a)(2)(D). Each of J and K
must take into account its pro rata share
(as determined under section 1377(a)) of
the transferred specified credit portion.
The transferred specified credit portion

VerDate Sep<11>2014

20:16 Jun 20, 2023

Jkt 259001

is deemed to arise for purposes of
sections 1366 and 1377 during year 2 of
the S corporation. For year 2, each of J
and K take into account $40X of a
section 1367(a)(2)(D) expenditure with
respect to the cash payment for the
transferred specified credit portion and
$50X of transferred section 48 credits.
(f) Applicability date. This section
applies to taxable years ending on or
after [DATE OF PUBLICATION OF
FINAL RULE].
§ 1.6418–4 Additional information and
registration.

(a) Pre-filing registration and election.
As a condition of, and prior to, any
specified credit portion being
transferred by an eligible taxpayer to a
transferee taxpayer pursuant to an
election under § 1.6418–2, or a specified
credit portion being transferred by a
partnership or S corporation pursuant to
§ 1.6418–3, the eligible taxpayer is
required to satisfy the pre-filing
registration requirements in paragraph
(b) of this section. An eligible taxpayer
that does not obtain a registration
number under paragraph (c)(1) of this
section, and report the registration
number on its return pursuant to
paragraph (c)(5) of this section, is
ineligible to make a transfer election for
a specified credit portion under
§ 1.6418–2 or § 1.6418–3, with respect to
the eligible credit determined with
respect to the specific eligible credit
property for which the eligible taxpayer
has failed to obtain and report a
registration number. However,
completion of the pre-filing registration
requirements and receipt of a
registration number does not, by itself,
mean the eligible taxpayer is eligible to
transfer any specified credit portion
determined with respect to the eligible
credit property.
(b) Pre-filing registration
requirements—(1) Manner of pre-filing
registration. Unless otherwise provided
in guidance, eligible taxpayers must
complete the pre-filing registration
process electronically through an IRS
electronic portal and in accordance with
the instructions provided therein.
(2) Pre-filing registration and election
for members of a consolidated group. A
member of a consolidated group is
required to complete pre-filing
registration to transfer any eligible
credit determined with respect to the
member. See § 1.1502–77 (providing
rules regarding the status of the
common parent as agent for its
members).
(3) Timing of pre-filing registration.
An eligible taxpayer must satisfy the
pre-filing registration requirements of
this paragraph (b) and receive a

PO 00000

Frm 00029

Fmt 4701

Sfmt 4702

40523

registration number under paragraph (c)
of this section prior to making a transfer
election under § 1.6418–2 or § 1.6418–3
for a specified credit portion on the
taxpayer’s return for the taxable year at
issue.
(4) Each eligible credit property must
have its own registration number. An
eligible taxpayer must obtain a
registration number for each eligible
credit property with respect to which a
transfer election of a specified credit
portion is made.
(5) Information required to complete
the pre-filing registration process.
Unless modified in future guidance, an
eligible taxpayer is required to provide
the following information to the IRS to
complete the pre-filing registration
process:
(i) The eligible taxpayer’s general
information, including its name,
address, taxpayer identification number,
and type of legal entity;
(ii) Any additional information
required by the IRS electronic portal,
such as information establishing that the
entity is an eligible taxpayer;
(iii) The taxpayer’s taxable year, as
determined under section 441;
(iv) The type of annual tax return(s)
normally filed by the eligible taxpayer,
or that the eligible taxpayer does not
normally file an annual tax return with
the IRS;
(v) The type of eligible credit(s) for
which the eligible taxpayer intends to
make a transfer election;
(vi) Each eligible credit property that
the eligible taxpayer intends to use to
determine a specified credit portion for
which the eligible taxpayer intends to
make a transfer election;
(vii) For each eligible credit property
listed in paragraph (b)(5)(vi) of this
section, any further information
required by the IRS electronic portal,
such as—
(A) The type of eligible credit
property;
(B) Physical location (that is, address
and coordinates (longitude and latitude)
of the eligible credit property);
(C) Any supporting documentation
relating to the construction or
acquisition of the eligible credit
property (such as State, Indian Tribal, or
local government permits to operate the
eligible credit property, certifications,
evidence of ownership that ties to a land
deed, lease, or other documented right
to use and access any land or facility
upon which the eligible credit property
is constructed or housed, and U.S. Coast
Guard registration numbers for offshore
wind vessels);
(D) The beginning of construction
date, and the placed in service date of
the eligible credit property; and

E:\FR\FM\21JNP2.SGM

21JNP2

lotter on DSK11XQN23PROD with PROPOSALS2

40524

Federal Register / Vol. 88, No. 118 / Wednesday, June 21, 2023 / Proposed Rules

(E) Any other information that the
eligible taxpayer believes will help the
IRS evaluate the registration request;
(viii) The name of a contact person for
the eligible taxpayer. The contact person
is the person whom the IRS may contact
if there is an issue with the registration.
The contact person must either:
(A) Possess legal authority to bind the
eligible taxpayer; or
(B) Must provide a properly executed
power of attorney on Form 2848, Power
of Attorney and Declaration of
Representative;
(ix) A penalties of perjury statement,
effective for all information submitted
as a complete application, and signed by
a person with personal knowledge of the
relevant facts that is authorized to bind
the registrant; and
(x) Any other information the IRS
deems necessary for purposes of
preventing duplication, fraud, improper
payments, or excessive payments under
this section that is provided in
guidance.
(c) Registration number—(1) In
general. The IRS will review the
registration information provided and
will issue a separate registration number
for each eligible credit property for
which the eligible taxpayer provided
sufficient verifiable information.
(2) Registration number is only valid
for one taxable year. A registration
number is valid to an eligible taxpayer
only for the taxable year in which the
credit is determined for the eligible
credit property for which the
registration is completed, and for a
transferee taxpayer’s taxable year in
which the eligible credit is taken into
account under § 1.6418–2(f).
(3) Renewing registration numbers. If
an election to transfer an eligible credit
will be made with respect to an eligible
credit property for a taxable year after a
registration number under this section
has been obtained, the eligible taxpayer
must renew the registration for that
subsequent taxable year in accordance
with applicable guidance, including
attesting that all the facts previously
provided are still correct or updating
any facts.
(4) Amendment of previously
submitted registration information if a
change occurs before the registration
number is used. As provided in
instructions to the pre-filing registration
portal, if specified changes occur with
respect to one or more applicable credit
properties for which a registration
number has been previously obtained,
but not yet used, an eligible taxpayer
must amend the registration (or may
need to submit a new registration) to
reflect these new facts. For example, if
the owner of a facility previously

VerDate Sep<11>2014

20:16 Jun 20, 2023

Jkt 259001

registered for a transfer election under
§ 1.6418–2 or § 1.6418–3 for eligible
credits determined with respect to that
facility and the facility undergoes a
change of ownership (incident to a
corporate reorganization or an asset
sale) such that the new owner has a
different employer identification
number (EIN) than the owner who
obtained the original registration, the
original owner of the facility must
amend the original registration to
disassociate its EIN from the eligible
credit property and the new owner must
submit separately an original
registration (or if the new owner
previously registered other credit
properties, must amend its original
registration) to associate the new
owner’s EIN with the previously
registered eligible credit property.
(5) Reporting of registration number
by an eligible taxpayer and a transferee
taxpayer—(i) Eligible taxpayer
reporting. As part of making a valid
transfer election under § 1.6418–2 or
§ 1.6418–3, an eligible taxpayer must
include the registration number of the
eligible credit property on the eligible
taxpayer’s return (as provided in
§ 1.6418–2(b) or § 1.6418–3(d)) for the
taxable year the specified credit portion
was determined. The IRS will treat an
election as ineffective if the eligible
taxpayer does not include a valid
registration number on the return.
(ii) Transferee taxpayer reporting. A
transferee taxpayer must report the
registration number received (as part of
the transfer election statement as
described in § 1.6418–2(b) or otherwise)
from a transferor taxpayer on the Form
3800, General Business Credit, as part of
the return for the taxable year that the
transferee taxpayer takes the transferred
specified credit portion into account.
The specified credit portion will be
disallowed to the transferee taxpayer if
the transferee taxpayer does not include
the registration number on the return.
(d) Applicability date. This section
applies to taxable years ending on or
after [DATE OF PUBLICATION OF
FINAL RULE].
§ 1.6418–5

Special rules.

(a) Excessive credit transfer tax
imposed—(1) In general. If any specified
credit portion that is transferred to a
transferee taxpayer pursuant to an
election in § 1.6418–2(a) or § 1.6418–3 is
determined to be an excessive credit
transfer (as defined in paragraph (b) of
this section), the tax imposed on the
transferee taxpayer by chapter 1
(regardless of whether such entity
would otherwise be subject to chapter 1
tax) for the taxable year in which such

PO 00000

Frm 00030

Fmt 4701

Sfmt 4702

determination is made will be increased
by an amount equal to the sum of—
(i) The amount of such excessive
credit transfer; and
(ii) An amount equal to 20 percent of
such excessive credit transfer.
(2) Taxable year of the determination.
The taxable year of the determination
for purposes of paragraph (a)(1) of this
section is the taxable year that includes
the determination and not the taxable
year when the eligible credit was
originally determined by the eligible
taxpayer, unless those are the same
taxable years.
(3) Payments related to excessive
credit transfer. Any payments made by
a transferee taxpayer to an eligible
taxpayer that directly relate to the
excessive credit transfer (as defined in
paragraph (b) of this section) are not
subject to section 6418(b)(2) or
§ 1.6418–2(e).
(4) Reasonable cause. Paragraph
(a)(1)(ii) of this section does not apply
if the transferee taxpayer demonstrates
to the satisfaction of the IRS that the
excessive credit transfer resulted from
reasonable cause. Determination of
reasonable cause will be made based on
the relevant facts and circumstances.
Generally, the most important factor is
the extent of the transferee taxpayer’s
efforts to determine that the amount of
specified credit portion transferred by
the eligible taxpayer to the transferee
taxpayer is not more than the amount of
the eligible credit determined with
respect to the eligible credit property for
the taxable year in which the eligible
credit was determined and has not been
transferred to any other taxpayer.
Circumstances that may indicate
reasonable cause can include, but are
not limited to, review of the eligible
taxpayer’s records with respect to the
determination of the eligible credit
(including documentation evidencing
eligibility for bonus credit amounts),
reasonable reliance on third party expert
reports, reasonable reliance on
representations from the eligible
taxpayer that the total specified credit
portion transferred (including portions
transferred to other transferee taxpayers
when an eligible taxpayer makes
multiple transfer elections with respect
to a single credit property) does not
exceed the total eligible credit
determined with respect to the eligible
credit property for the taxable year, and
review of audited financial statements
provided to the Securities and Exchange
Commission (and underlying
information), if applicable.
(5) Recapture events. A recapture
event under section 45Q(f)(4) or 50(a) is
not an excessive credit transfer.

E:\FR\FM\21JNP2.SGM

21JNP2

lotter on DSK11XQN23PROD with PROPOSALS2

Federal Register / Vol. 88, No. 118 / Wednesday, June 21, 2023 / Proposed Rules
(b) Excessive credit transfer defined—
(1) In general. The term excessive credit
transfer means, with respect to an
eligible credit property for which a
transfer election is made under
§ 1.6418–2 or § 1.6418–3 for any taxable
year, an amount equal to the excess of—
(i) The amount of the transferred
specified credit portion claimed by the
transferee taxpayer with respect to such
eligible credit property for such taxable
year; over
(ii) The amount of the eligible credit
that, without the application of section
6418, would be otherwise allowable
under the Code with respect to such
eligible credit property for such taxable
year.
(2) Multiple transferees treated as one.
All transferee taxpayers are considered
as one transferee for calculating whether
there was an excessive credit transfer
and the amount of the excess credit
transfer. If there was an excessive credit
transfer, then the amount of excessive
credit transferred to a specific transferee
taxpayer is equal to the total excessive
credit transferred multiplied by the
transferee taxpayer’s portion of the total
specified credit portions transferred to
all transferees. The rule in this
paragraph (b)(2) is applied on an eligible
credit property basis, as applicable.
(3) Examples. The following examples
illustrate the rules of this paragraph (b):
(i) Example I—No excessive credit
transfer. Taxpayer A claims $50 of an
eligible credit and transfers $50 of an
eligible credit to Transferee Taxpayer B
related to a single facility that was
expected to generate $100 of such
eligible credit. In a later year it is
determined that the facility only
generated $50 of such eligible credit.
There is no excessive credit transfer in
this case because the amount of the
eligible credit claimed by Transferee
Taxpayer B of $50 is equal to the
amount of the credit that would be
otherwise allowable with respect to
such facility for the taxable year the
transfer occurred. Taxpayer A is
disallowed the $50 of the eligible credit
claimed.
(ii) Example II—Excessive credit
transfer. Same facts as in paragraph
(b)(3)(i) of this section (Example I)
except that Taxpayer A transfers $80 of
the $100 of eligible credit to Transferee
Taxpayer B. Taxpayer A claims $20 of
the eligible credit and Transferee
Taxpayer B claims $80 of the eligible
credit. In this situation, there is a $30
excessive credit transfer because the
amount of the credit claimed by
Transferee Taxpayer B ($80) exceeds the
amount of credit otherwise allowable
with respect to the facility ($50) by $30.
Therefore, Transferee Taxpayer B’s tax

VerDate Sep<11>2014

20:16 Jun 20, 2023

Jkt 259001

is increased in the later year by $36,
which is equal to the amount of the
excessive credit transfer plus 20 percent
of the excessive credit transfer as
provided in paragraph (a) of this section
and section 6418(g)(2)(A). If Transferee
Taxpayer B can show reasonable cause
as provided in paragraph (a)(4) of this
section and section 6418(g)(2)(B), then
Transferee Taxpayer B will only have a
tax increase of $30. Taxpayer A is
disallowed the $20 of the eligible credit
claimed, and pursuant to paragraph
(a)(3) of this section the payments made
to Taxpayer A from Transferee Taxpayer
B that directly relate to the excessive
credit transfer are not subject to section
6418(b)(2) or § 1.6418–2(e).
(iii) Example III—Excessive credit
with multiple transferees. Same facts as
in paragraph (b)(3)(i) of this section
(Example I) except that Taxpayer A
transfers $45 of the eligible credit to
Transferee Taxpayer B and $35 of the
eligible credit to Transferee Taxpayer C.
Taxpayer A claims $20 of the eligible
credit, Transferee Taxpayer B claims
$45 of the eligible credit, and Transferee
Taxpayer C claims $35 of the eligible
credit. In this situation, because there
are multiple transferees, all transferees
are treated as one transferee for
determining the excessive credit transfer
amount under paragraph (b)(2) of this
section. There is a total excessive credit
transfer of $30 because the amount of
the credit claimed by the transferees in
total ($80) exceeds the amount of credit
otherwise allowable with respect to the
facility ($50) by $30. The excessive
credit transfer to Taxpayer B is equal to
($45/$80 * $30) = $16.88, and the
excessive credit transfer to Taxpayer C
is equal to ($35/$80 * $30) = $13.12.
Therefore, Transferee Taxpayer B and
Transferee Taxpayer C are subject to the
provisions in paragraph (a) of this
section. Transferee Taxpayer B’s and
Transferee Taxpayer C’s tax is increased
in the later year by the respective
excessive credit transfer amount and 20
percent of the excessive credit transfer
amount ($20.26 for Transferee Taxpayer
B and $15.74 for Transferee Taxpayer C)
as provided in paragraph (a) of this
section and section 6418(g)(2)(A). If
Transferee Taxpayer B or Transferee
Taxpayer C can show reasonable cause
as provided in paragraph (a)(4) of this
section and section 6418(g)(2)(B), then
the tax increase will only be $16.88 or
$13.12, respectively. Taxpayer A is
disallowed the $20 of eligible credit
claimed and pursuant to paragraph
(a)(3) of this section the payments made
to Taxpayer A that directly relate to the
excessive credit transfer are not subject
to section 6418(b)(2) or § 1.6418–2(e).

PO 00000

Frm 00031

Fmt 4701

Sfmt 4702

40525

(c) Basis reduction under section
50(c). In the case of any transfer election
under § 1.6418–2 or § 1.6418–3 with
respect to any specified credit portion
described in § 1.6418–1(c)(2)(ix) through
(xi), section 50(c) will apply to the
applicable investment credit property
(as defined in section 50(a)(6)(A)) as if
such credit was allowed to the eligible
taxpayer.
(d) Notification and impact of
recapture under section 50(a) or 49(b)—
(1) In general. In the case of any election
under § 1.6418–2 or § 1.6418–3 with
respect to any specified credit portion
described in § 1.6418–1(c)(2)(ix) through
(xi), if, during any taxable year, the
applicable investment credit property
(as defined in section 50(a)(6)(A)) 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)(A)), other than as
described in § 1.6418–3(a)(6), or has a
reduction in credit base causing
recapture under section 49, other than
as described in § 1.6418–3(a)(6), such
eligible taxpayer and the transferee
taxpayer must follow the notification
process in paragraph (d)(2) of this
section, with recapture impacting the
transferee taxpayer and eligible taxpayer
as described in paragraph (d)(3) of this
section.
(2) Notification requirements—(i)
Eligible taxpayer. The eligible taxpayer
must provide notice of the occurrence of
recapture to the transferee taxpayer.
This notice must provide all
information necessary for a transferee
taxpayer to correctly compute the
recapture amount (as defined under
section 50(c)(2)), and the notification
must occur in sufficient time to allow
the transferee taxpayer to compute the
recapture amount by the due date of the
transferee taxpayer’s return (without
extensions) for the taxable year in which
the recapture event occurs. The eligible
taxpayer and transferee taxpayer can
contract with respect to the form of the
notice and any specific time periods
that must be met, so long as the terms
of the contractual arrangement do not
conflict with the requirements of this
paragraph (d)(2)(i). Any additional
information that is required or other
specific time periods that must be met
may be prescribed by the IRS in
guidance issued with respect to this
notification requirement.
(ii) Transferee taxpayer. The
transferee taxpayer must provide notice
of the recapture amount (as defined in
section 50(c)(2)), if any, to the eligible
taxpayer. This must occur in sufficient
time to allow the eligible taxpayer to
calculate any basis adjustment with

E:\FR\FM\21JNP2.SGM

21JNP2

40526

Federal Register / Vol. 88, No. 118 / Wednesday, June 21, 2023 / Proposed Rules

lotter on DSK11XQN23PROD with PROPOSALS2

respect to the investment credit
property by the due date of the eligible
taxpayer’s return (without extensions)
for the taxable year in which the
recapture event occurs. The eligible
taxpayer and transferee taxpayer can
contract with respect to the form of the
notice and any specific time periods
that must be met, so long as the terms
of the contractual arrangement do not
conflict with the requirements of this
paragraph (d)(2)(ii). Any additional
information that is required or other
specific time periods that must be met
may be provided in guidance prescribed
by the IRS issued with respect to this
notification requirement.
(3) Impact of recapture—(i) Impact of
recapture on transferee. The transferee
taxpayer is responsible for any amount
of tax increase under section 50(a) upon
the occurrence of a recapture event.
(ii) Impact on eligible taxpayer. The
eligible taxpayer must increase the basis
of the investment credit property
(immediately before the event resulting
in such recapture) by an amount equal
to the recapture amount provided to the
eligible taxpayer by the transferee
taxpayer under paragraph (d)(2)(ii) of
this section and in accordance with
section 50.
(e) Notification and impact of
recapture under section 45Q(f)(4)—(1)
In general. In the case of any election
under § 1.6418–2 or § 1.6418–3 with

VerDate Sep<11>2014

20:16 Jun 20, 2023

Jkt 259001

respect to any specified credit portion
described in § 1.6418–1(c)(2)(iii), if,
during any taxable year, there is
recapture of any section 45Q credit
allowable with respect to any qualified
carbon oxide that ceases to be captured,
disposed of, or used as a tertiary
injectant in a manner consistent with
section 45Q, before the close of the
recapture period (as described in
§ 1.45Q–5(f)), such eligible taxpayer and
the transferee taxpayer must follow the
notification process in paragraph (e)(2)
of this section with recapture impacting
the transferee taxpayer as described in
paragraph (e)(3) of this section.
(2) Notification requirements. The
notification requirements for the eligible
taxpayer are the same as for an eligible
taxpayer that must report a recapture
event as described in paragraph (d)(2)(i)
of this section, except that the recapture
amount that must be computed is
defined in § 1.45Q–5(e).
(3) Impact of recapture. The transferee
taxpayer is responsible for any amount
of tax increase under section 45Q(f)(4)
and § 1.45Q–5 upon the occurrence of a
recapture event.
(f) Impact of an ineffective transfer
election by an eligible taxpayer. An
ineffective transfer election means that
no transfer of an eligible credit has
occurred for purposes of section 6418,
including section 6418(b). Section 6418
does not apply to the transaction and

PO 00000

Frm 00032

Fmt 4701

Sfmt 9990

the tax consequences are determined
under any other relevant provisions of
the Code. For example, an ineffective
election results if an eligible taxpayer
tries to elect to transfer a specified
credit portion, but the eligible taxpayer
did not register and receive a
registration number with respect to the
eligible credit property (or otherwise
satisfy the requirements for making a
transfer election under the section 6418
regulations) with respect to which the
specified credit portion was determined.
(g) Carryback and carryforward. A
transferee taxpayer can apply the rules
in section 39(a)(4) (regarding a 3-year
carryback period for unused current
year business credits) to a specified
credit portion to the extent the specified
credit portion is described in section
6417(b) (list of applicable credits, taking
into account any placed in service
requirements in section 6417(b)(2), (3),
and (5)).
(h) Applicability date. This section
applies to taxable years ending on or
after [DATE OF PUBLICATION OF
FINAL RULE].
Douglas W. O’Donnell,
Deputy Commissioner for Services and
Enforcement.
[FR Doc. 2023–12799 Filed 6–14–23; 11:15 am]
BILLING CODE 4830–01–P

E:\FR\FM\21JNP2.SGM

21JNP2