The New Marketplace For Clean Energy Credits

One of the hallmarks of the Inflation Reduction Act was monetizing Clean Energy Credits. These credits are created when a renewable energy source such as a solar, wind, or hydroelectric producer sends a megawatt to the energy grid.

Once these credits are created, they can be sold. The reason for this was that the newer companies doing this work generally aren’t profitable yet. As such, these credits wouldn’t do them much good until their companies mature and show consistent profits. What good is any tax credit in the short run if you’re losing money and don’t have to pay any taxes?

In order to help these fledgling companies along their path to maturity, Congress made these credits saleable. As such, you don’t need to be the entity creating the credits to take advantage of them.

A new exchange named Basis Climate, a New York Startup, has created an online digital exchange where these credits are now bought and sold. Now any Tom, Dick, or Harry can buy these credits at a discount, apply them to their tax returns, and save money on their taxes.

Herein lies the rub.

The way that we claim credits on a tax return is by filling out the appropriate forms. In order to explain the problem, let’s use the example of the Research and Development Credit.

When we do these, we know that they’re going to come under scrutiny. It’s easy to fill out a form and make a representation that you qualify for a credit when in fact you don’t. When completing these credits, I always write two or three pages of text going through the four qualifiers of the credit proving beyond a reasonable doubt that the taxpayer has a bonafide reason to claim and receive the credit.

Just like all of the other work that we do we don’t overstep, which is obvious in the writeup that accompanies these credits. As such, even though other practitioner’s R&D credits get audited all the time, I’ve never had one even questioned.

But here comes the Clean Energy Credits. These credits could have been sold or resold between traders a few dozen times before they’re claimed on a return.

How could any examiner possibly know that it was originally a bonafide transaction? How could that possibly be proven when Tom, Dick, or Harry have no connection whatsoever to the company that originally produced the energy?

It’s one thing to claim a credit on a company return where an examiner can be shown that the company actually is in a business where the credit is possible. It’s another thing altogether to claim credits that are at least one or two steps removed from its production source.

Let me leave you with this.

When the Inflation Reduction Act was passed and I read about the credits being saleable, bells and whistles went off in my head. My Brothers and Sisters, I’m telling you now that there’s going to be an enormous amount of fraud connected to this phenomenon.

Hucksters from coast to coast will begin forming LLC’s with believable names like “Energy This” or “Solar That”. They’ll put up fictitious websites with store bought pictures that look absolutely right, drawing in suckers like gnats to a flame.

It won’t happen for two or three years, because it’ll take at least that amount of time for these wannabe credits to be sold, claimed, and audited. But imagine what it would be like for you to be one of the fools who end up in this position.

The criminals who sold these bogus credits would probably be long gone before you even received the audit notice.

Basis Climate has stated that it will do everything necessary to verify that the credits sold on its exchange are actual bonafide transactions. I have absolutely no idea how they plan on accomplishing this feat given the volume they’ll be trading, but let’s suspend a little disbelief for a moment and say that it’s possible.

Even if they are real credits, they’re going to get looked at. The audit percentage on these is going to be extremely high. Unless they can come up with some way of proving that the credits are real when claimed on a tax return, I wouldn’t touch them with someone’s ten foot pole.

They’re just too risky.

We’re all going to get through this. Let’s get through it together.

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