The risk of adverse tax treatment for a tax credit, such as the solar ITC or solar PTC can be reduced – or eliminated entirely – with tax credit insurance.
Tax credit insurance, also known as “tax equity insurance” or “tax liability insurance”, transfers the risk of a potential tax liability to an insurance company.
If the IRS or other tax authority disagrees with the intended tax treatment of a tax credit transaction, or a tax position you have taken in a particular tax year, tax credit insurance steps in.
A tax credit insurance policy allows you to to proceed with your investment while protecting you against tax recapture, possible fines, penalties, interest, legal contest costs and taxes due to federal or state tax authorities.
Tax credit insurance may be purchased on its own, or along with representations and warranties insurance. The former may broaden the coverage of the latter.
Tax credit insurance may be used to reduce risk in day to day corporate operations as well as business transactions and M&A including, but not limited to:
- Tax equity investments
- Solar investment tax credit (ITC) transactions
- Wind production tax credit (PTC) characterization
- Risk management in tax treatment of routine corporate business operations
- Historical tax treatment by a target entity in an M&A transaction
- Foreign tax credits
- Opportunity zone tax compliance
- REIT structures
Tax insurance may be used by renewable energy project developers and tax equity investors as a risk management tool to protect tax treatment of commercial and industrial solar, wind and energy storage projects.
Tax insurance provides comfort to lenders and regulatory, compliance and credit committees when managing corporate risk.