Case Study: Food Manufacturer Cuts Taxes $2.2M by Buying Tax Credits

  • Impacts of financial decisions
  • 2/28/2024
Young Caucasian serious supervisor evaluating quality of food in food plant
Organization: A fast-growing Latin food manufacturer with six facilities Need: Tax savings to invest back into a high-growth market segment Outcome: $2.2 million in tax savings plus future savings opportunities

Understanding the situation

A fast-growing Latin food manufacturer with six facilities was seeking working capital to invest back into developing its people and operations in a high-growth market segment.

Significant tax credits and incentives are available, but it can be complex for business owners to navigate the many rules. The Inflation Reduction Act (IRA)-related opportunity to buy credits to reduce federal taxes is no exception. The credits available for purchase are generated by a seller who cannot take advantage of a credit, and instead sells it on an exchange.

Curious about potential Inflation Reduction Act tax savings?

Consult an Advisor

Exploring the challenge

CLA is the manufacturer’s longtime tax advisor and presented the IRA tax credit opportunity to the company.

Because the company’s six entities operate as C corporations, the manufacturer can buy IRA credits and use them in three ways:

  • Reduce 2023 federal taxes
  • Reduce 2024 federal taxes
  • Overbuy credits in 2023 and carry them back up to three years

As there can be risk involved in these transactions, the buyer or seller can purchase insurance in the event there is a recapture.

CLA introduced the manufacturer to the Inflation Reduction Act credits to help the company free up cash to reinvest at a time when it was growing quickly.

Achieving results

The manufacturer’s 2023 tax savings is substantial. On the company’s estimated federal tax bill of $28 million, the tax savings are estimated to be $2.2 million.

The manufacturer was also delighted to obtain this opportunity sooner versus later as the available credits are limited in supply, which could eventually push prices up.

And the company’s IRA opportunities don’t end there. The owners are working with CLA to help with another IRA program allowing their nonprofit family foundation to tap into refundable credits for green energy investment initiatives.

While this program is significant in tax history in nonprofit and state and local government sectors, for-profit companies may benefit from these same refundable credits.

Contact Us

Curious about potential Inflation Reduction Act tax savings? Complete the form below to connect with CLA.

Experience the CLA Promise