Here at Clocktower, we get a lot of calls and emails from people who ask, “I’ve got tax credits to sell. How do I sell them?” These are interesting requests for us, since all we do is work in Tax Credits, and the term has a very specific meaning to us. So our first question to the requester is always, “What type of tax credits do you have to sell?”
Often, the response is “I don’t know.” That is not a good sign, and it likely signals that what the person possesses are not tax credits, but rather tax loss carryforwards. These are the results of losses generated by an operating business, and oft times the owner is made aware that they have been carrying these losses forward, with no hope of the enterprise ever turning a profit sufficient to utilize the losses to offset earned income. The law does not permit these losses to be “sold,” but could potentially be monetized through the sale of the enterprise that owns the losses. This sale should be for business purposes, purchased by an entity with a business interest in the enterprise, and not solely for tax purposes. If the losses are accrued by and to an individual, however, then there is no way to monetize them.
The better answer is when the caller knows what credits they have earned and can describe to us if they are State or Federal tax credits, and in what amounts. No Federal Tax Credits can be “sold”; they can only be monetized through the allocation of tax attributes within a partnership or LLC. Further, some of these credits, like Historic Rehabilitation tax credits, vest on a day certain – in this case, the day the historic building was rehabbed and placed into service for tax purposes. Once that date passes, the credits can never be transferred or redistributed to other entities that were not in the ownership on that given day. But in the remaining cases, there may be some continuing tax credits that can be monetized through a re-syndication of the ownership. Not easily done, and it may be costly – but not impossible.
Finally, if the caller possesses State tax credits, by statute, some of these can be simply sold to new buyers, while others may require re-syndication as described above. Some state re-syndication rules may be more flexible than Federal rules. For example, the State may allow a re-allocation of tax credits beyond the placed-in-service date, up until the end of the year of placement in service. In the best-case scenario, the caller possesses fully transferable State tax credits that have a lengthy use or carryforward period and can be sold easily through a simple purchase and sale agreement.
All of this may sound Greek to an inexperienced holder of tax credits, but we at Clocktower have over 30 years of experience working solely in this area. So to answer – “How do I sell my tax credits?” – call Clocktower and be prepared to explain what you possess.
To schedule a meeting or site visit with a Clocktower associate, or a phone call or Zoom session, please call President Jeff Jacobson at (978) 823-0200, or email him at JJacobson@ClocktowerTC.com.