Common Tax Credit Marketplace Challenges For Businesses And How To Solve Them

Instead of getting into project development themselves, businesses can now buy credits through a tax credit marketplace and use them against their tax liability. The opportunity is big, but the process isn’t as straightforward as it looks.

Such transactions come with some considerations. They can be legal, financial, and related to compliance. So, most buyers get confused the first time. The way to go here is understanding what common challenges you’re going to face. Plus, how to approach them to get a solution with lower risk.

Understanding How the Marketplace Actually Works

A tax credit marketplace connects credit generators, like renewable energy developers, with buyers looking to offset tax obligations. Transfers are made in accordance with federal rules, and the credits must be backed by the required documentation. This eligibility can be quite strict.

Key characteristics businesses often overlook:

• Credits are tied to specific projects and compliance histories
• Transferability does not eliminate IRS scrutiny
• Buyers inherit certain risks if the credits are later challenged

Knowing this from the outset prevents assumptions that buying credits is similar to purchasing a simple financial product.

Challenge 1: Assessing Credit Quality Beyond Price

One of the most common mistakes businesses make in a tax credit marketplace is focusing mainly on discount pricing. Lower pricing may reflect higher risk rather than better value.

Important quality indicators include:

• Strength of project documentation
• Clarity around eligibility under current tax rules
• Evidence of meeting compliance obligations

Solution:  Make a diligence checklist to review legal, tax, and technical documents before discussing pricing. Value should be based on certainty, not solely on cost.

Challenge 2: Understanding Recapture and Ongoing Compliance Risk

Many clean energy credits carry a recapture period. If the underlying project falls out of compliance during that time, part of the credit may be clawed back.

Risks that can trigger recapture include:

• Failure to meet prevailing wage and apprenticeship standards
• Changes in project ownership or operation
• Incomplete ongoing reporting

Solution: Ask for a clear compliance history and future compliance plan. Buyers should understand who is responsible for monitoring requirements after the transfer and whether indemnities are in place.

Challenge 3: Incomplete or Inconsistent Documentation

Documentation gaps are one of the biggest friction points in any tax credit marketplace transaction. Missing records can delay closing or reduce buyer confidence.

Common documentation issues:

• Unclear placed-in-service dates
• Missing cost segregation or engineering reports
• Inadequate proof of construction start

Solution: Request a comprehensive document package early in the process. Reviewing documentation in stages, rather than at the end, allows time to address gaps without disrupting timelines.

Challenge 4: Timing Mismatches With Tax Planning

Tax credits are only valuable if they can be used in the intended tax year. Delays in closing or uncertainty around transfer timing can disrupt corporate tax planning.

This becomes a challenge when:

• Transactions close late in the financial year
• IRS guidance affects filing positions
• Internal tax forecasts change

Solution: Align marketplace transactions and internal tax calendars together. This means involving both the finance and tax teams from the very start. What this does is ensure you get the credit right in time to match up with the expected liabilities.

Challenge 5: Navigating Complex Transfer Agreements

A tax credit marketplace does not come without its legal considerations. There are agreements involved that are made according to representations, warranties, and indemnities. Businesses that do not know about these end up underestimating their importance.

Critical parts of a transfer agreement:

• Scope of seller representations about compliance
• Indemnity caps and survival periods
• Payment timing linked to filing milestones

Solution: Engage advisors who understand credit transfer structures. Legal review should focus on how risk is allocated, not just on commercial terms.

Challenge 6: Evaluating Counterparty Reliability

The strength of the seller matters as much as the strength of the credit. If issues arise later, buyers need confidence that the counterparty can stand behind its obligations.

Questions businesses should consider:

• Does the seller have experience with similar transactions?
• Is the seller financially stable?
• Are there third-party reports supporting the project?

Solution: Conduct basic counterparty diligence alongside credit diligence. This may include financial statements, track record reviews, and reference projects.

Comparing Common Challenges and Practical Responses

Building an Internal Process for Marketplace Transactions

Businesses that approach a tax credit marketplace repeatedly benefit from establishing internal procedures rather than treating each transaction as entirely new.

A strong internal process often includes:

• A cross-functional review team (tax, finance, legal)
• Standardised diligence checklists
• Pre-defined risk tolerance thresholds
• Clear approval workflows

This structure improves efficiency and reduces the likelihood of last-minute surprises.

The Importance of Early Expert Involvement

External advisors are often brought in late, after commercial terms are already discussed. This can limit their ability to shape risk allocation effectively.

Early involvement helps with:

• Identifying deal-breaking issues before negotiations progress
• Structuring transactions in a tax-efficient manner
• Ensuring documentation aligns with IRS expectations

In a developing tax credit marketplace, early technical input often prevents costly revisions later.

Conclusion

Getting into a tax credit marketplace can be a smart move for managing tax liability. However, you need to be very careful with how you execute it. The challenge is not how you, as a business owner, are going to get credit; it’s more about understanding what risks you’re going to face and the jargon involved in it.

When you, as a company, look beyond comparing prices and invest with proper diligence, processes, and guidance, transactions like these become more manageable. If you have the right preparation at hand, you can use the transferred credits confidently and avoid the pitfalls that most first-time buyers encounter.