Frequently Asked Questions

Section 6418 is enacted federal law, added to the Internal Revenue Code by the Inflation Reduction Act of 2022. The transfer mechanism itself is not in question — it's been used in real transactions since 2023, and the IRS has issued procedural guidance on how transfers must be registered and reported.

What is fact-specific is whether a particular credit, from a particular seller, actually qualifies under Section 45Q, and whether the transaction is structured cleanly enough to be respected as a transfer rather than something else. That depends on the underlying project's documentation and the deal's specific terms — which is exactly why independent due diligence matters more than the existence of the statute itself.

Both. Section 6418 does not restrict the transferee to a particular taxpayer type. An individual with sufficient federal income tax liability for the relevant year can acquire and use transferred credits, subject to the same considerations that apply to any buyer — registration verification, tax capacity, and the limitations discussed below.

The underlying mechanism is the same — Section 6418 does not create separate rules for corporate versus individual transferees. A C-corporation acquires the credit, pays cash consideration, and reports it as a general business credit under Section 38, the same as an individual buyer would.

What does differ is the surrounding process. A corporate buyer's tax department will typically want to confirm book-tax treatment alongside the federal income tax treatment, coordinate with outside counsel the same way it would for any other credit or incentive purchase, and document the transaction to a standard suitable for internal or audit-committee review. None of that changes the statutory analysis — it reflects how corporations generally run any tax-related purchase, regardless of the asset type.

It depends on who the buyer is, and the answer is now settled rather than open. Treasury and the IRS resolved this in the final regulations under Section 6418 (T.D. 9993, April 2024): Section 469 applies to transferee taxpayers, with no carve-out for credit transfers. But Section 469 itself only applies to certain taxpayer types in the first place — individuals, estates, trusts, closely held C corporations, and personal service corporations. It does not apply to widely held C corporations.

If the buyer is a widely held C-corporation — meaning it is not majority-owned by five or fewer individuals — Section 469 simply doesn't apply. The corporation can use a transferred credit to offset its general federal income tax liability from any source, without needing to demonstrate material participation in the underlying project. This is the most straightforward and favorable buyer profile for this transaction.

If the buyer is an individual, a closely held C-corporation, or a personal service corporation, Section 469 does apply, and a transferred credit is generally treated as a passive activity credit — usable only to offset the buyer's passive income, not ordinary income or most capital gains. A narrow exception exists for a transferee who already holds an ownership interest in the underlying trade or business at the time the credit-generating work was performed, but this does not describe most buyers evaluating a credit transfer specifically because they have no existing involvement in the project.

The practical takeaway: before assuming a transferred credit will offset a buyer's overall tax liability, confirm both the buyer's entity type and ownership structure, and — if the buyer is an individual or closely held corporation — whether they actually have passive income for the credit to offset. This single distinction does more to determine whether a specific transaction will work as advertised than almost any other fact pattern in the deal.

Under the Section 6418 framework, recapture risk generally runs to the credit generator, not the buyer — the statute and standard transaction documentation place that risk with the party that controlled the underlying project. That allocation should be confirmed in the specific purchase agreement for any transaction you're evaluating, including what financial protections (indemnification, replacement credits, refund terms) actually back that promise contractually, and whether the counterparty has the financial capacity to make good on it.

A contractual promise is only as strong as the party standing behind it. Ask for, and have counsel review, the actual indemnification language — not a summary of it.

The IRS has successfully challenged a number of syndicated conservation easement transactions, generally on the basis of inflated appraisals and economic substance issues. A Section 6418 credit transfer is structurally different: there's no appraisal-driven valuation dispute, no partnership allocation, and the credit's existence is verified through IRS pre-filing registration before any transfer occurs — a gatekeeping step that didn't exist in the easement cases.

That structural difference is meaningful, but it isn't a guarantee. The same general principle applies: a transaction's documentation and execution need to actually match what it claims to be. Ask for the registration number and verify it. Ask for the technical storage documentation and have it reviewed by someone qualified to evaluate it. The strength of any specific deal depends on those specifics, not on the existence of Section 6418 as a category.

Generally, the transferred credit is reported on Form 3800 (General Business Credit), referencing the IRS pre-filing registration number obtained by the seller. There is no Schedule K-1, no partnership return, and no separate disclosure statement required for a properly executed transfer — though your CPA should confirm current filing requirements, since procedural guidance in this area continues to develop.

The honest answer is: it depends on how the specific transaction is documented, and on facts that are particular to the seller and project, not facts that are true of Section 6418 generally. A buyer's realistic exposure includes:

• Cost of capital and professional fees during any IRS examination, even if the buyer ultimately prevails
• The possibility that contractual indemnification proves harder to collect than it looked on paper
• The Section 469 passive activity limitation — confirmed by T.D. 9993 — which means that for many individual buyers without passive income, the credit cannot offset W-2 or active income regardless of how the transaction is structured

We'd rather you ask these questions before closing than discover the answers during an audit.

Your own CPA or tax attorney — not ours, and not the seller's. The strength of this category depends on advisors doing independent verification, and we'd rather lose a deal to caution than gain one by skipping it.