The Inflation Reduction Act, signed by President Biden, has expanded tax credits for clean energy, providing corporations with a new opportunity to reduce their tax bills. Under the new law, corporations can spend $910,000 to purchase clean-energy tax credits and save $1 million on their taxes. However, tax advisers argue that individual Americans should also have access to these tax credits.
The Act created a system for green-energy companies to sell their unused tax credits. Proposed Treasury Department rules allow corporations to buy and use these credits, but individuals are generally excluded. Supporters of the change argue that opening the market to individual buyers, particularly wealthy individuals, would increase demand for tax credits and provide more funds for companies investing in green technology.
Several tax advisers, including accounting firm Baker Tilly, have requested that the Treasury Department allow individual buyers to participate in the tax-credit market. The Solar Energy Industries Association has also made the same argument. However, concerns about fraud and fraudulent transactions have been raised, as a wide-open market could be more challenging for the Internal Revenue Service to regulate.
The Treasury Department released proposed rules in June and is currently accepting comments. They have scheduled a public hearing for August 23. Final rules will be determined at a later date. The Treasury anticipates sufficient interest in the tax-credit market to meet the economic and climate objectives of the Inflation Reduction Act.
The Act was designed to support clean-energy projects and address the issue that tax subsidies only benefit entities that owe taxes. Before the Act, project developers had to go through a complex process known as tax equity to provide tax breaks to investors, primarily banks and insurance companies. Lawmakers considered providing direct funding to companies generating tax credits, regardless of their tax liability, but ultimately chose to expand the tax credit system.
