Tax Credit Purchase and Sale Agreement

What a good one includes

• A precise definition of the specific tax credits being sold, including their statutory origin, tax year, and exact dollar face value.
• A detailed payment structure outlining the price per dollar of credit, escrow arrangements, and the exact timing of fund disbursements.
• Comprehensive seller representations certifying that the credits are valid, unencumbered, not previously claimed, and fully transferable under applicable law.
• Strong indemnification and clawback provisions that protect the buyer by requiring the seller to make the buyer whole if the credits are reduced or disallowed upon audit.
• A clear mechanism addressing credit recapture risks, often backed by a parent company guarantee or tax insurance policy requirements.
• Specific conditions precedent to closing, such as the receipt of required state or federal tax agency transfer approvals and tax opinion letters.

Common mistakes to avoid

• Failing to include a robust indemnity or recapture clause, leaving the buyer entirely exposed if the tax credit is later audited and invalidated by the authorities.
• Overlooking the specific filing deadlines and regulatory approval processes required by state or federal authorities to legally complete the transfer.
• Neglecting to define the exact timing of the purchase price payment relative to when the credit is actually claimed or acknowledged by the tax agency.
• Omitting a clear mechanism for handling tax audits, which can lead to disputes over who controls the defense of the credit before the IRS or state department of revenue.

Frequently asked questions