Key insights
- Recently issued guidance under Section 45Z was welcomed by clean fuel producers and the tax credit transfer market.
- The proposed regulations add clarity for buyers and sellers in the already-booming Section 45Z market.
- Organizations and their advisors can now have more confidence from a due diligence perspective when transacting these valuable credits.
Act now to take advantage of energy tax credits.
The newly proposed regulations under Section 45Z provide timely clarity for a fast growing clean fuel production credit transfer market.
As buyer demand increases and transactions accelerate, understanding the nuances of Section 45Z is critical. The new guidance helps define what qualifies as a valid sale, how intermediary transactions are treated, and what buyers need to confirm before purchasing credits.
For both buyers and sellers, the proposed rules reduce uncertainty and help de risk transactions. By better aligning Section 45Z transferability with Section 6418, the regulations support smoother credit sales, clearer diligence expectations, and more predictable outcomes across the market.
Clean fuel production credit transfer implications
Issuing proposed regulations is a major development for the booming tax credit transfer market created under the Inflation Reduction Act, where Section 45Z is quickly becoming a buyer’s favorite due to its lack of recapture and favorable pricing.
Since Section 45Z is a production credit, it can provide buyers and sellers with steady tax savings and cash flow throughout the year when transacted on a quarterly basis. Buyers are eager to time credit purchases around their quarterly estimated tax payments for immediate cash tax savings and increased internal rates of return.
Interested in clean energy tax credits? Learn the Prevailing Wage and Apprenticeship (PWA) requirements.
Section 45Z due diligence snapshot
Purchasing clean energy credits is still a relatively new opportunity; however, tested legal and tax due diligence workflows have been adopted, albeit with some nuances given the special circumstances of these transactions.
The due diligence process for a Section 45Z transaction should include an in-depth technical focus on:
- Confirming seller/facility eligibility and required registrations
- Assessing prevailing wage and apprenticeship applicability/compliance
- Validating lifecycle analysis and emissions calculations
- Verifying feedstock sourcing
- Metering, production log, or output verification
- Validating base and bonus credit amounts
While many of these items were already being covered during due diligence prior to the proposed regulations, fully assessing eligibility and risk was difficult due to ambiguity in the Section 45Z statute and IRS guidance.
Now with the proposed rules, parties should have more confidence when they transact thanks to:
- Clearer “qualified sale” rules that may reduce buyer disallowance risk
- Greater flexibility for intermediary sales, strengthening buyer confidence that credits are valid
- Explicit alignment of the Section 6418 transfer regulations to address ownership, production, and facility‑use concepts specific to fuel production, reducing technical mismatches that could otherwise jeopardize transferred credits
- Clear and detailed emissions‑rate methodologies, improving audit defensibility and comparability across transactions
- Clarification of feedstock issues, allowing buyers to clearly diligence eligibility upfront rather than face retroactive disallowance risk
How CLA can help with clean fuel production credit transfers
CLA’s renewable energy practice facilitates tax credit transactions for energy developers, corporate taxpayers, and high-wealth individuals. With more than 80 credit transactions completed, our team understands the ins and outs of the transfer market and how to seamlessly execute credit purchases.