Proposed regulations describe rules for an eligible taxpayer to make the Code Sec. 6418 election to transfer eligible credits to an unrelated person. In particular, the proposed regs:
- define several key terms,
- provide special rules for partnerships and S corporations,
- describe rules for excessive credit transfer and recapture events, and
- provide rules for a required pre-filing registration process, which are identical to rules provided as Temporary Regs in T.D. 9975.
The regs are proposed to apply to tax years ending on or after the date they are published in the Federal Register as final. However, taxpayers may rely on the proposed regs before that date, provided the taxpayers follow the proposed regulations in their entirety and in a consistent manner with respect to all elections made.
Comments are requested.
Definitions
The proposed regs would define several relevant terms, including eligible taxpayer, eligible credit, 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. The regs would also modify the definition of eligible credit property for several of the eligible credits.
Making the Transfer Election
The proposed regs 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, payments related to a transfer of eligible credits, and a transferred specified credit portion by the transferee taxpayer.
Partnerships and S Corporations
The proposed regs provide several detailed rules for transfers of eligible credits by transferor partnerships and S corporations; and for purchase of eligible credits by transferee partnerships and S corporations. The regs also provide special recapture rules and election rules for these pass-through entities.
Registration
The proposed regs require eligible taxpayers to 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. After the registration process is 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. An eligible taxpayer that does not obtain and report the registration number is ineligible to make a transfer election.
These registration rules are identical to temporary regulations provided in T.D. 9975. The IRS intends for the pre-filing registration process to occur through an IRS electronic portal.
Special Rules
Finally, the proposed regs 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, the mechanics for basis reduction and recapture notification, rules for ineffective elections, and rules for the carryback and carryforward of transferred eligible credits.
Comments Requested
The IRS requests comments on the proposed regulations. Comments may be submitted by mail or via the Federal eRulemaking Portal at https://www.regulations.gov (indicate IRS and REG-101610-23). All comments must be received by August 14, 2023. A public hearing is scheduled for August 23, 2023.
