Tax Firms Build Up Energy Teams in Wake of Tax-and-Climate Law

Tax and law firms are expanding to meet the growing demand of clean energy and corporate clients vying to get a piece of the billions of dollars of tax credits in the tax-and-climate law.

The Biden administration’s Inflation Reduction Act, or tax-and-climate law, was passed in August 2022 and offers dozens of tax credits for companies that want to help reduce greenhouse gas emissions.

Since the law’s passage, the IRS and Treasury Department have issued dozens of guidance on its provisions. Companies are leaning on tax professionals and lawyers to get the most out of these incentives—causing an explosion of interest in the already growing clean energy sector.

“It went from, ‘Here are your 20 clients that you deal with on a regular basis,’ to, ‘Here’s 200 clients,’” said Lauren Collins, a partner at Vinson & Elkins LLP. “People that are entirely new to this space, who have never done a tax credit deal but aren’t living under a rock, realize that this is something they should try to figure out.”

Firm Growth

The law, which includes tax credits that cover up to 70% of a project’s costs, creates a 10-year runway for some of the incentives. This provides certainty, for the first time, for clean energy projects that were previously hindered by tax credits that had sunset without extensions.

“The IRA has been amazing,” said Alexander Leff, a partner at Clifford Chance, an international law firm. He said it was beneficial “for working on really interesting projects and helping the proliferation of renewable energy and other pieces of infrastructure.”

The onslaught of guidance and developments in clean energy also means that clients now are coming in with multifaceted projects which would previously be focused on only one type of technology.

“What we’re seeing now are clients coming to us saying, ‘We are doing a single project that will include hydrogen, clean fuels, clean power,’ and that project includes multiple technologies, and we’ve got to be able to analyze and put all those pieces together,” said Amish Shah, a partner at Holland & Knight.

Baker Tilly, a tax and accounting firm, announced in March a partnership with Ever.green, a third-party marketplace to facilitate the buying and selling of tax credits. The law newly allows for tax credits to be sold or transferred on time to a third party. The partnership unites Baker Tilly’s advisory expertise with Ever.green’s market reach, both required to meet the exponential demand.

“Given the size and scope and reach of this act, and the sheer amount of tax credits that would be available, we felt there is value in having more of a transparent marketplace,” said Tom Unke, a partner and firm leader at Baker Tilly.

The transferability provision creates a new market for clean energy developers to sell credits to any corporate company that wants to offset some of its taxes—this has the potential to widen the pipeline of investments into renewable energy. The existing method, also known as tax equity, is almost tapped out and has considerable barriers to entry for smaller companies.

Another key provision in the law is direct pay, which allows organizations and governmental entities that are tax-exempt and typically cannot take advantage of credits to receive a cash refund in lieu of the credit.

“I don’t think anyone can understate how significant transferability and direct pay may be in the market, if it’s done right, to the extent we’re attracting transactions and investors outside of traditional tax equity,” Leff said.

To meet the client interest, firms are expanding internally to grow their clean energy expertise and resources. In 2021, Holland & Knight merged with Thompson & Knight to grow its energy practice and has since continued to add partners to the firm after the tax-and-climate law’s passage.

In June, Clifford Chance announced a new office in Houston to expand its energy work, given the city’s long-standing reputation as an energy transition capital. This plan has been in the works since before the law passed.

“This has become a significant part of our practice, and we are very much hiring in the space,” Leff said.