Corporate Tax Directors are in a unique position to add immense value by exploring ways to lower their corporation’s effective tax rate. Tax Directors must walk a fine line of getting this important mission accomplished or being too creative in taking unnecessary risks.
Insured Tax Credit Investments provide a practical option to lower a corporation’s effective tax rate with the downside covered by insurance.
How do Tax Credits work?
- Tax credit programs are government sponsored initiatives designed to encourage taxpayers to help finance solar projects, historic building redevelopment and affordable housing
- Corporate taxpayer repurposes tax payment reserves into qualifying tax credit projects
- Taxpayer receives tax credits, project cash flows and an exit payment
- Tax credit investors generate a return on their tax payments, thus boosting their after-tax income and lowering their effective tax rate
- Returns are predominantly uncorrelated with project performance – taxpayers earn the tax credits as long as the project maintains regulatory compliance.
- An insurance policy eliminates the compliance risk and, as such, allows a taxpayer to generate a yield on their tax payments without the risk of losing the tax credits
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