Title 26, Internal Revenue CodeRelease 119-110
§6418 Transfer of Certain Credits
Title 26 › Subtitle F — Procedure and Administration › CHAPTER 65 — ABATEMENTS, CREDITS, AND REFUNDS › Subchapter B — Rules of Special Application › § 6418
Summary
Allows a qualifying taxpayer to sell all or part of certain clean-energy and related tax credits to an unrelated buyer. The buyer, not the seller, then uses the credit on its tax return. The buyer must pay cash. The cash the seller gets is not treated as taxable income to the seller. The buyer cannot deduct that payment. The buyer claims the credit in its first tax year that ends with or after the seller’s year when the credit was earned. The seller’s choice to sell must be made by the tax return due date (including extensions), but not earlier than 180 days after this rule was created, and the choice cannot be changed later. A buyer cannot buy the same credit piece twice. If a partnership or S corporation sells a credit tied to property it owns, the money received is treated as tax-exempt income for partners or shareholders, and each partner’s share is based on their share of the credit. Partners or shareholders cannot separately sell credits for the same property. The rule covers 12 types of eligible credits, including renewable electricity, carbon capture, zero-emission nuclear, clean hydrogen, advanced manufacturing, clean electricity and clean fuel production and investment credits, energy and certain biodiesel credits. It does not apply to credit carryforwards or carrybacks. The tax agency can require registrations or information to stop fraud. If a buyer claims more credit than allowed, the buyer will owe an extra tax equal to the excess plus 20% unless they show reasonable cause. Some credits can’t be sold for progress expenditures or to certain foreign entities. The Treasury will issue rules to explain how this works.
Full Legal Text
Title 26, §6418
Internal Revenue Code, Source: USLM XML via OLRC
(a)In general
In the case of an eligible taxpayer which elects to transfer all (or any portion specified in the election) of an eligible credit determined with respect to such taxpayer for any taxable year to a taxpayer (referred to in this section as the “transferee taxpayer”) which is not related (within the meaning of section 267(b) or 707(b)(1)) to the eligible taxpayer, the transferee taxpayer specified in such election (and not the eligible taxpayer) shall be treated as the taxpayer for purposes of this title with respect to such credit (or such portion thereof).
(b)Treatment of payments made in connection with transfer
With respect to any amount paid by a transferee taxpayer to an eligible taxpayer as consideration for a transfer described in subsection (a), such consideration—
(1)shall be required to be paid in cash,
(2)shall not be includible in gross income of the eligible taxpayer, and
(3)with respect to the transferee taxpayer, shall not be deductible under this title.
(c)Application to partnerships and S corporations
(1)In general
In the case of any eligible credit determined with respect to any facility or property held directly by a partnership or S corporation, if such partnership or S corporation makes an election under subsection (a) (in such manner as the Secretary may provide) with respect to such credit—
(A)any amount received as consideration for a transfer described in such subsection shall be treated as tax exempt income for purposes of section 705 and 1366, and
(B)a partner’s distributive share of such tax exempt income shall be based on such partner’s distributive share of the otherwise eligible credit for each taxable year.
(2)Coordination with application at partner or shareholder level
In the case of any facility or property held directly by a partnership or S corporation, no election by any partner or shareholder shall be allowed under subsection (a) with respect to any eligible credit determined with respect to such facility or property.
(d)Taxable year in which credit taken into account
In the case of any credit (or portion thereof) with respect to which an election is made under subsection (a), such credit shall be taken into account in the first taxable year of the transferee taxpayer ending with, or after, the taxable year of the eligible taxpayer with respect to which the credit was determined.
(e)Limitations on election
(1)Time for election
An election under subsection (a) to transfer any portion of an eligible credit shall be made not later than the due date (including extensions of time) for the return of tax for the taxable year for which the credit is determined, but in no event earlier than 180 days after the date of the enactment of this section. Any such election, once made, shall be irrevocable.
(2)No additional transfers
No election may be made under subsection (a) by a transferee taxpayer with respect to any portion of an eligible credit which has been previously transferred to such taxpayer pursuant to this section.
(f)Definitions
For purposes of this section
(1) Eligible credit
(2)Eligible taxpayer
The term “eligible taxpayer” means any taxpayer which is not described in section 6417(d)(1)(A).
(g)Special rules
For purposes of this section
(1) Additional information
(2)Excessive credit transfer
(A)In general
In the case of any portion of an eligible credit which is transferred to a transferee taxpayer pursuant to subsection (a) which the Secretary determines constitutes an excessive credit transfer, the tax imposed on the transferee taxpayer by chapter 1 (regardless of whether such entity would otherwise be subject to tax under such chapter) for the taxable year in which such determination is made shall be increased by an amount equal to the sum of— (i)
(ii)an amount equal to 20 percent of such excessive credit transfer.
(B)Reasonable cause
Subparagraph (A)(ii) shall not apply if the transferee taxpayer demonstrates to the satisfaction of the Secretary that the excessive credit transfer resulted from reasonable cause.
(C)Excessive credit transfer defined
For purposes of this paragraph, the term “excessive credit transfer” means, with respect to a facility or property for which an election is made under subsection (a) for any taxable year, an amount equal to the excess of— (i)
(ii)the amount of such credit which, without application of this section, would be otherwise allowable under this title with respect to such facility or property for such taxable year.
(3)Basis reduction; notification of recapture
In the case of any election under subsection (a) with respect to any portion of an eligible credit described in clauses (ix) through (xi) of subsection (f)(1)(A)—
(A)subsection (c) of section 50 shall apply to the applicable investment credit property (as defined in subsection (a)(7) of such section) as if such eligible credit was allowed to the eligible taxpayer, and
(B)if, during any taxable year, the applicable investment credit property (as defined in subsection (a)(7) of section 50) is disposed of, or otherwise ceases to be investment credit property with respect to the eligible taxpayer, before the close of the recapture period (as described in subsection (a)(1) of such section)—
(i)such eligible taxpayer shall provide notice of such occurrence to the transferee taxpayer (in such form and manner as the Secretary shall prescribe), and
(ii)the transferee taxpayer shall provide notice of the recapture amount (as defined in subsection (c)(2) of such section), if any, to the eligible taxpayer (in such form and manner as the Secretary shall prescribe).
(4)Prohibition on election or transfer with respect to progress expenditures
This section shall not apply with respect to any amount of an eligible credit which is allowed pursuant to rules similar to the rules of subsections (c)(4) and (d) of section 46 (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990).
(5)Prohibition on transfer of credits to specified foreign entities
With respect to any eligible credit described in clause (iii), (iv), (vi), (vii), (viii), or (xi) of subsection (f)(1)(A), an eligible taxpayer may not elect to transfer any portion of such credit to a taxpayer that is a specified foreign entity (as defined in section 7701(a)(51)(B)).
(h)Regulations
The Secretary shall issue such regulations or other guidance as may be necessary to carry out the purposes of this section, including regulations or other guidance providing rules for determining a partner’s distributive share of the tax exempt income described in subsection (c)(1).
Legislative History
Notes & Related Subsidiaries
Editorial Notes
References in Text
The date of the enactment of this section, referred to in subsec. (e)(1), is the date of enactment of Pub. L. 117–169, which was approved Aug. 16, 2022. The date of the enactment of the Revenue Reconciliation Act of 1990, referred to in subsec. (g)(4), is the date of enactment of title XI of Pub. L. 101–508, which was approved Nov. 5, 1990.
Prior Provisions
A prior section 6418, acts Aug. 16, 1954, ch. 736, 68A Stat. 801;
May 29, 1956, ch. 342, § 21(b), 70 Stat. 221;
May 24, 1962, Pub. L. 87–456, title III, § 302(c), 76 Stat. 77; Nov. 8, 1965, Pub. L. 89–331, § 9(b), 79 Stat. 1278; Oct. 4, 1976, Pub. L. 94–455, title XIX, § 1906(b)(13)(A), 90 Stat. 1834, authorized refund of taxes paid on sugar used as livestock feed, for distillation or production of alcohol, or in certain cases where sugar was exported, prior to repeal by Pub. L. 101–508, title XI, § 11801(c)(22)(B)(i), Nov. 5, 1990, 104 Stat. 1388–528. For provisions that nothing in repeal by Pub. L. 101–508 be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to Nov. 5, 1990, for purposes of determining liability for tax for periods ending after Nov. 5, 1990, see section 11821(b) of Pub. L. 101–508, set out as a note under section 45K of this title.
Amendments
2025—Subsec. (f)(1)(A)(xii). Pub. L. 119–21, § 70521(j)(2), added cl. (xii). Subsec. (g)(3). Pub. L. 119–21, § 70513(b)(3)(B)(ii), substituted “subsection (a)(7)” for “subsection (a)(5)” in subpars. (A) and (B). Subsec. (g)(5). Pub. L. 119–21, § 70512(h), added par. (5).
Statutory Notes and Related Subsidiaries
Effective Date
of 2025 AmendmentAmendment by section 70512(h) of Pub. L. 119–21 applicable to taxable years beginning after
July 4, 2025, see section 70512(l)(1) of Pub. L. 119–21, set out in a note under section 45 of this title. Amendment by section 70513(b)(3)(B)(ii) of Pub. L. 119–21 applicable to taxable years beginning after
July 4, 2025, see section 70513(g)(1) of Pub. L. 119–21, set out in a note under section 48 of this title. Amendment by section 70521(j)(2) of Pub. L. 119–21 applicable to fuel sold or used after
June 30, 2025, see section 70521(j)(3) of Pub. L. 119–21, set out as a note under section 40A of this title.
Effective Date
Section applicable to taxable years beginning after Dec. 31, 2022, see section 13801(g) of Pub. L. 117–169, set out as a note under section 6417 of this title.
Reference
Citations & Metadata
Citation
26 U.S.C. § 6418
Title 26, Internal Revenue Code
Last Updated
Sep 22, 2026
Release point: 119-110