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Lowering A Corporation’s Effective Tax Rate With Tax Credits

Michael Korengold GOLD

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 

Solar Tax Credits are attractive to corporations because of their valuable return profiles and their beneficial impact on communities and the environment.

Return Characteristics

When an investor invests in a Solar Tax Credit, an investor receives the tax credit in year 1 and receives a return comprised of the following:

  • Tax credits
  • Depreciation benefits
  • Preferred cash returns
  • Exit payment proceeds

Not only will the corporation receive credit for their tax liability, they will also generate an additional return, thereby lowering the corporation’s effective tax rate.

ESG Characteristics

Social Impact: Tax credit investments are direct investments into solar projects, which produce clean, affordable energy to communities across the country and help to create jobs in rural and low-income communities.  Local communities can benefit from lower cost power generated through these projects.  Additionally, projects can create local jobs through construction and maintenance, often in rural areas.

Environmental Impact: Tax credit investments are direct investments into projects whose solar panels last over 20 years, meaning that our work each year will make a positive environmental impact for years to come. Solar projects provide communities with a clean and sustainable energy source and are a lower emission substitute over fossil-fueled utilities.

Have a question about tax credits? Contact Michael Korengold, J.D.


Michael Korengold

Michael Korengold

About Enhanced
Founded in 1999, Enhanced Capital (Enhanced) is a diversified, national asset manager that focuses on building sustainable communities. Enhanced invests in small businesses, renewable energy projects, historic real estate rehabilitation and affordable housing projects through federal and state incentive programs and other public policy investment strategies. Enhanced is a Registered Investment Adviser regulated by U.S. Securities Exchange Commission and a Community Development Entity (CDE). Enhanced has been awarded a total of $753m in New Market Tax Credits allocations, participating in state and local programs to make investments in low-income communities. Since inception, Enhanced has financed over $1.5B across hundreds of businesses and projects in the US that promote economic development and sustainability.
Enhanced’s Tax Credit group creates customized solutions for tax credit and mission-focused investors based on their investment needs, including CRA requirements, geographic footprint of investments, and investment product type. To date, our team has financed over $1.5B in tax credits, which includes $336M in clean energy projects that provide an economic return to our investors in addition to helping them fulfill their ESG and sustainability mandates.

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