Guide · pass-through owners
When a partnership or S corporation sells the credit
Many projects sit in an LLC taxed as a partnership, or in an S corporation. The entity sells the credit, not the owners, and the cash reaches the owners as tax-exempt income. The regulations add useful flexibility, and one trap for tiered structures.
Verified · page reviewed 11 Oct 2026
The entity sells, not the owners
When a partnership or an S corporation holds the credit property directly, only the entity can make the transfer election. No partner or shareholder can sell their own share of that credit[1].
The entity also registers each property before it files[2] (see pre-filing registration), and the credit it sells is not passed through to the owners: the shares of credit reported to partners or shareholders should not include a credit the entity elected to transfer[3].
How the cash reaches the owners
The cash the entity receives is treated as tax-exempt income, which raises each owner’s basis in the usual way[1]. It is treated as received on the date the credit is determined, for an investment credit the date the property is placed in service[1].
- Partnership: each partner’s share of that income follows its share of the credit it would otherwise have been allocated[1].
- S corporation: each shareholder takes its pro rata share[1].
Selling only some partners’ shares
A partnership does not have to sell all of a credit. It can sell part of it and decide, in any way the partnership agreement sets out or the partners agree, how much of each partner’s share is sold and how much is kept[1]. Two limits apply: no partner can be allocated more credit than its own share, and each partner receives its proportionate share of the tax-exempt income from what was sold[1].
In practice, partners who can use credits against their own tax can keep theirs, and the others take cash. Check whether your agreement says who decides on a credit sale and how the proceeds are shared before you sign a term sheet.
Tiered structures: sell at the bottom
If a partnership is a partner in the partnership that owns the project, and receives an allocation of the credit, it is not an eligible taxpayer for that credit and cannot sell it[1]. The sale has to be made by the partnership that holds the property directly.
The deadline, and what an amended return can fix
The election is made on the entity’s own return for the year the credit is determined, with all the required documents attached, and that return must be filed by its due date including extensions[1]. An election cannot be made for the first time, or withdrawn, on an amended return or an administrative adjustment request. A numerical error in a properly made election can be corrected that way, but the original return must contain everything required, including the registration number[1].
When the partnership is the buyer
A partnership can also buy credits from an unrelated seller. The cash it pays is a non-deductible expenditure for basis purposes; it cannot resell the credit, but allocating the credit to its partners does not count as a resale[1]. Partners receive their share on Schedule K-1; the codes and lines are on Form 3800 for transfers.
Checklist for a partnership or S corporation seller
- Confirm the entity, not a partner, holds the property directly.
- Register each property in the entity’s name.
- Agree, in writing, which owners sell and which keep their share (partnerships).
- Record each owner’s share of the tax-exempt income.
- File the entity’s return on time with the election, the statement and the registration number; reporting is on Form 3468 or the credit’s own form, and Form 3800.