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Forbes Money Taxes Will The IRA Tax Credit Transfers Meet The Same Fate As Safe Harbor Leasing? Marie Sapirie Contributor Tax Notes Contributor Group Opinions expressed by Forbes Contributors are their own. Following Jun 8, 2023, 02:02pm EDT | Press play to listen to this article! Got it! Share to Facebook Share to Twitter Share to Linkedin USA flag, dollars and inscription inflation reduction act papers. getty This opinion piece puts the transferability component of the Inflation Reduction Act's (IRA, P.L. 117-169 ) energy tax credit changes into historical context. A musical accompaniment is necessary to properly set the stage. Since readers probably shouldn’t play YouTube clips at work, we’ll have to rely on memories here. It's 1924, and a group of young men in white shorts and white shirts embroidered with Union Jacks are running through the surf and getting spattered with mud on an overcast day in the United Kingdom. A synthesizer trumpet sounds, and then the pulsating notes of Vangelis’s famous title sequence in Chariots of Fire begin. Your recollection of the Academy Award-winning score will have to take it from there. The film was released in the United States in the fall of 1981, shortly after President Ronald Reagan took a victory lap after signing into law the massive tax cuts he promised on the campaign trail. The story in Chariots of Fire is told in flashbacks and section 6418 is something of a flashback too. The Economic Recovery Tax Act of 1981 (ERTA) holds many distinctions, including being one of the largest tax cuts in U.S. history, but one of its less-heralded innovations — and the one that is relevant to the implementation of the energy credits in the IRA — is that it introduced a safe harbor for leases so that taxpayers who could not use the depreciation and investment credits associated with owning qualified property could transfer those benefits to taxpayers who could use them. This of course is similar in purpose to the IRA’s section 6418, which allows taxpayers who don’t owe tax to sell their credits to someone who does. But history tells a rather chilling tale of what happened next. A year later, in the 1982 Tax Equity and Fiscal Responsibility Act, Congress made an abrupt turn that first reduced and then repealed safe harbor leasing. Can the ability to transfer credits in the IRA avoid a similar fate? The history of safe harbor leasing is similar to the development of transferability. The idea behind safe harbor leasing was to encourage investment in capital assets, just as transferability is supposed to encourage the development of clean energy technology. It did this by loosening the requirements for a sale and leaseback transaction to be treated as a lease for tax purposes (even if it isn’t one in substance) and by allowing taxpayers to elect safe harbor treatment, thereby enabling the more efficient transfer of tax benefits. Before the ERTA, tax benefits were transferred through leasing transactions. MORE FOR YOU New Emergency Google Chrome Security Update 0Day Exploit Confirmed Crypto Now Braced For Another SEC Bombshell That Could Create Chaos For The Price Of Bitcoin Ethereum BNB And XRP Elon Musk Is World s Richest Person Again As Tesla Stock Soars To 8 Month High The assistant secretary for tax policy, John Chapoton, explained, “Without these changes in the law, leasing transactions would still have increased greatly, but the user would have lost too much of the benefits through transaction costs.” (Richard J. Bronstein and Alan S. Waldenberg, “The Short Life and Lingering Death of Safe Harbor Leasing,” 69(12) Am. Bar Assoc. J. 1845 (Dec. 1983).) Of relevance to the IRA provision, the Reagan administration considered the possibility of allowing the sale of tax benefits, but it was considered administratively impossible to police, according to Bronstein and Waldenberg. The safe harbor leasing experiment didn’t always reduce the inefficiencies of leasing transactions. Bronstein and Waldenberg noted that lessors sought to protect themselves from the risk of the safe harbor leasing requirements not being met and disqualifying events such as bankruptcy, which resulted in “complex security arrangements, resulting in substantial transaction costs.” The revenue costs were substantial too. According to an IRS analysis , the value of safe harbor property leased during 1981 exceeded $22 billion. That represented 19,326 leases. Bronstein and Waldenberg pointed out that news stories reported on the use of purchased tax benefits by General Electric GE Co. that offset the company’s entire tax liability in 1981 and resulted in a refund for prior years of almost $90 million. In February 1982 then-Senate Finance Committee Chair Robert J. Dole, R-Kan., began a campaign to eliminate or limit the transfer of tax benefits through safe harbor leasing. Dole had been chair of the committee when the ERTA was passed. UNITED STATES - MARCH 01: Senator Majority Leader Bob Dole at Natl. Assn. of Counties. (Photo by ...
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