The Inflation Reduction Act of 2022 has fundamentally transformed the tax credit transfer landscape, creating a complex multiparty environment that extends far beyond the traditional bilateral taxpayer-IRS relationship.
With the rapid adoption of tax insurance, today's tax credit transfers involve buyers, sellers, insurers and potentially others, all with distinct interests that must be carefully aligned years before any IRS audit begins. In “Tax Credit Sale Frenzy: Don’t Create a Prisoner’s Dilemma,” authored by Shirley Chin of WTW and originally published in Tax Notes® Federal and Tax Notes® International on September 2, 2024, we examine some critical taxpayer-side interests and considerations, and navigating the intricate procedural challenges that emerge in the audit process.
Key takeaways:
- Strategically structure audit control provisions: Carefully evaluate power of attorney arrangements and Form 2848 requirements. Tax credit buyers should think critically before granting sellers broad audit control rights and much more.
- Navigate seller participation strategically: Consider the strategic implications of seller presence during IRS examinations and structure agreements accordingly.
- Synchronize critical processes: If audited, you will simultaneously manage three distinct but interconnected processes: aligning taxpayer-side interests, engaging in strategic audit defense with the IRS on both substantive and procedural grounds and protecting your insurance claim to ensure policy collection rights.
- Engage with specialized expertise early: Work with a tax insurance broker who possesses substantive tax knowledge, procedural audit expertise and practical experience in multiparty insurance audits. These professionals should contribute meaningfully to help you and your advisers navigate IRS audits to closure with no change or successfully collect under your tax insurance policy.
Remain prepared with tax insurance considerations in mind
The tax credit transfer market presents both significant opportunities and complex procedural challenges that demand careful upfront planning. Equipping yourself with the right knowledge is key to structuring agreements that protect your interests throughout the audit process.
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