IRA Incentive Due Diligence: Your 48-Hour Framework
IRA tax credit deals have real financial risk. Miscalculated eligible basis, missing prevailing wage records, or undisclosed recapture exposure can cost millions. This structured 48-hour framework gives finance teams the tools to verify, calculate, and document any IRA credit deal from initial review to signed purchase agreement.
Why Due Diligence Matters
The IRS treats IRA tax credits as self-certified by the taxpayer — there is no government pre-approval process. This means buyers and sellers of transferred credits must do their own verification. The consequences of failure are severe:
- Recapture: The IRS can claw back ITC if the project fails to meet credit requirements during the 5-year recapture period.
- Audit exposure: Overstated eligible basis or fraudulent prevailing wage certifications can trigger penalties of 20-40% of the overstated amount.
- Credit disallowance: Missing documentation for bonus adders (energy community, domestic content) results in disallowance of those adders without penalty but with significant value loss.
- Transfer liability: In a credit transfer, the buyer is generally not liable for seller fraud, but must prove it exercised "reasonable diligence" to avoid being disallowed.
The 48-Hour Checklist
Project Classification & Credit Identification
- Identify technology type (solar PV, wind, storage, geothermal, CHP, etc.)
- Confirm applicable credit section (ITC §48, PTC §45, 45Q, 45V, 48C)
- Determine ITC vs. PTC election (both available for most technologies post-IRA)
- Map project GPS coordinates to energy community overlays (DOE interactive map)
- Map project census tract to low-income community categories (IRS LIC tool)
- Confirm project capacity (under 1MW AC for automatic prevailing wage satisfaction)
- Review project entity structure (LLC, C-corp, partnership)
Eligibility Verification
- Prevailing wage: Confirm construction contracts reference current DOL wage tables
- Prevailing wage: Collect certified payroll records from all contractors and subs
- Apprenticeship: Verify 15% of labor hours assigned to registered apprentices
- Apprenticeship: Confirm apprenticeship programs are registered with DOL or state agency
- Domestic content: Request manufacturer certifications for steel, iron, and manufactured products
- Domestic content: Apply 40% US-manufactured product threshold (50% for wind after 2026)
- Energy community: Obtain official census tract designation documentation
- Confirm placed-in-service date (or projected date) aligns with credit year
Credit Calculation & Value Modeling
- Determine eligible basis (total project cost minus ineligible items: land, interconnection line > 50 feet)
- Apply applicable bonus adders: +10% energy community, +10% domestic content, +10/20% low-income
- Model ITC: (eligible basis × credit rate) to determine gross credit value
- Model PTC alternative: Project 10-year kWh production × 2.75¢/kWh (inflation-adjusted)
- Compare ITC vs. PTC NPV at applicable discount rate
- Obtain transferability pricing indications from 2-3 broker/platforms
- Model tax equity yield and compare net developer proceeds
- Account for MACRS depreciation if tax equity path is under consideration
Recapture Risk Assessment
- Review project operating agreement for disposition restrictions
- Confirm no planned asset sales within 5-year ITC recapture period
- Review project debt covenants for change-of-control provisions
- Assess force majeure and operational risk (natural disaster, permitting revocation)
- Obtain term sheets from 2-3 tax credit insurance providers
- Quantify recapture insurance cost (typically 0.5-1.5% of insured credit amount)
- Identify any related-party transactions in eligible basis that could trigger IRS scrutiny
- Review state tax credit implications and any state recapture provisions
Documentation Checklist
- Engineer or independent certifier confirmation of placed-in-service date
- Cost segregation study or qualified appraisal supporting eligible basis
- Certified payroll records for all construction labor (prevailing wage proof)
- Apprenticeship hour logs and registered apprenticeship program certificates
- Domestic content certifications from equipment manufacturers (signed)
- DOE or census bureau documentation confirming energy community / LIC status
- Interconnection agreement confirming project capacity and point of interconnection
- Final project operating agreement and entity formation documents
- Draft Form 3468 (ITC) or Form 8835 (PTC) with supporting calculations
- Draft Form 3800 transfer election (if using transferability)
Red Flags That Kill Deals
These issues have derailed real IRA credit transactions. If you encounter any of them, pause and get qualified tax counsel involved before proceeding:
How IncentEdge Automates This Workflow
IncentEdge compresses the initial phases of this checklist into under 60 seconds. Enter your project location, technology type, capacity, and construction timeline, and IncentEdge automatically:
- Cross-references the project location against the DOE Energy Community map (brownfields, coal retirement, fossil fuel employment communities)
- Identifies applicable census tract categories for low-income community adders
- Calculates applicable credit rate with all stacked bonus adders
- Generates a structured due diligence checklist tailored to your specific project type
- Produces a shareable PDF report documenting the analysis for your deal file
Frequently Asked Questions
What is ITC recapture and how long does it last?
ITC recapture occurs when an ITC-eligible project is disposed of, ceases to qualify, or is transferred in a taxable transaction within 5 years of being placed in service. The recapture amount decreases by 20% per year: 100% in year 1, 80% in year 2, 60% in year 3, 40% in year 4, and 20% in year 5. After year 5, there is no recapture.
What documents are required for an IRA tax credit claim?
Required documentation includes: (1) engineer or third-party certification of placed-in-service date; (2) cost segregation study or qualified appraisal for eligible basis; (3) prevailing wage compliance records (certified payrolls, apprenticeship agreements); (4) domestic content certifications from equipment manufacturers; (5) energy community designation evidence (DOE maps, census tract data); (6) Form 3800 and applicable credit forms (e.g., Form 3468 for ITC).
What kills an IRA tax credit deal in due diligence?
Common deal killers include: (1) Missing prevailing wage payroll records with no ability to cure retroactively; (2) Equipment that does not qualify for domestic content due to foreign manufacturing (and no certification available); (3) Project entity structure that does not allow for clean credit transfer (existing tax equity investor with conflicting contractual rights); (4) IRS audit risk flags (related-party transactions in eligible basis, inflated cost certifications).
Can prevailing wage non-compliance be cured?
Yes, within limits. IRS Notice 2023-29 and the final Treasury regulations provide a correction mechanism: if a project discovers prevailing wage non-compliance, it can pay the shortfall to affected workers plus 3x interest within 180 days of IRS notification (or proactively before a notice is issued). The 5x multiplier is preserved if corrected proactively or within 30 days of an IRS inquiry.
How does IncentEdge help with IRA due diligence?
IncentEdge automates the initial classification, eligibility mapping, and credit calculation phases of IRA due diligence. Our platform cross-references project location against DOE energy community maps, SBA HUBZone data, and census tract low-income designations; calculates applicable bonus adders; and generates a structured due diligence report in under 60 seconds — replacing hours of manual research.
Scan your project with IncentEdge — it's free to start
Get your full due diligence checklist, credit calculation, and bonus adder analysis in under 60 seconds.
Start Your Free Analysis