When negotiating tax credits with a dealer, there are several common pitfalls to avoid, both generally and specifically related to tax credits. Here are some considerations:
General Pitfalls in Negotiating Incentives
- Inexperienced Counsel: Working with attorneys who lack expertise in local transactions can lead to misunderstandings of the legal frameworks and requirements for tax credits. Ensure you have counsel with experience in local incentives and tax laws.
- Falling Short on Project Requirements: Failure to meet all application and project requirements can lead to the loss of benefits or clawbacks. Pay attention to job creation, investment thresholds, and income-based hiring conditions.
- Unclear Approval Process: Understanding the approval process and timeline is crucial to avoid renegotiations with multiple stakeholders like city, county, or state decision-makers. Clarify the process with local economic development offices (EDOs).
- Misusing Grant Funds: Ensure that funds are used correctly according to the terms of the agreement to prevent allegations of misuse or fraud.
Specific Pitfalls in Tax Credits
- Complex Legal Structures: Tax credits often involve complex legal structures that can attract tax fraud schemes. Ensure that all parties involved are legitimate and that the structure complies with tax laws.
- Recapture Events: If a project fails to meet certain conditions (e.g., operational requirements), there might be a recapture event where tax credits are lost. This could lead to indemnity obligations from the project owner to the tax credit buyer.
Additional Considerations for Tax Credits
- Compliance with Tax Laws: Ensure that all tax credits are compliant with federal and state tax laws to avoid audits or penalties.
- Investment Scrutiny: Energy tax credits, for instance, are under scrutiny, and investors should be aware of regulatory changes and critical compliance factors.
In summary, negotiating tax credits requires careful attention to legal compliance, understanding the project requirements, clarity on approval processes, and awareness of potential financial risks like recapture events.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/what-are-the-common-pitfalls-to-avoid-when-negotiating-tax-credits-with-a-dealer/
