Tax Insurance in a Post-OBBB World
Tax insurance has become an increasingly common part of how clean energy tax credit deals get structured. The One Big Beautiful Bill (OBBB) narrowed and restructured several credit programs, and the deals still moving through the market now carry a different risk profile than they did a year ago. This shift has made tax insurance a more routine part of deal economics, rather than an occasional add-on.
What tax insurance covers
Tax insurance shifts specific tax risks in a transaction from the taxpayer to an insurer. In the tax credit market, that typically includes coverage for:
- Qualification risk: Whether a project meets the technical requirements to claim a credit in the first place.
- Recapture risk: Whether a credit already claimed could be clawed back if the underlying project later fails to meet its requirements.
- Timing risk: Whether a project meets beginning of construction (BOC) or placed-in-service deadlines.
If the Internal Revenue Service (IRS) later challenges the position, the policy responds instead of a buyer or investor absorbing the loss directly. Coverage typically includes the credit amount, interest, penalties and defense costs.
How the post-OBBB risk looks different
OBBB introduced an accelerated termination for the Section 45Y Production Tax Credit (PTC) and Section 48E Investment Tax Credit (ITC) for solar and wind projects, along with the Foreign Entity of Concern (FEOC) restrictions on the projects and buyers with ties to certain foreign entities. Both changes created new categories of risk that weren’t a part of underwriting diligence prior to the new framework.
For deals racing to meet the BOC deadline, documentation quality can now matter more directly to a project’s insurability. For FEOC, buyers of transferred credits need to confirm their own status as well as the project’s. This required confirmation has in many cases, made supply chain documentation, particularly for solar components with Chinese manufacturing ties, a bigger part of the underwriting conversation.
BOC deadline failures, placed-in-service misses and FEOC disqualification, among other scenarios, could each trigger a clawback. However, tax insurance can scope each of these scenarios into a separate policy.
Market adaptation
Underwriting capacity has generally tightened as deal volume has increased ahead of the BOC deadline though the market has not stopped writing new business. Newer products are also emerging in response to the current rules, including coverage scoped specifically to BOC qualification and to FEOC compliance questions, along with portfolio-level policies for platforms managing multiple projects at once.
Our approach
Foss & Company seeks to build tax insurance into deal structuring from early diligence rather than treating it as a step to revisit after the terms are set. That means identifying qualification, timing and FEOC exposure early enough to bring the right coverage to the table before a deal reaches signing.
Tax insurance doesn’t replace the need for strong legal and tax diligence. The quality of the underlying analysis can still shape the terms underwriters will offer. As a result, due diligence remains Foss & Company’s starting point on every deal.
Contact Foss & Company to learn more about how our team structures tax equity investments in the post-OBBB market.
For a closer look at how this is playing out in practice, listen to the our Tax Credits Today podcast episode on tax insurance in the post-OBBB world, featuring Kevin Haley and Bryen Alperin of Foss & Company and Jordan Tamchin and Yoni Tammam of CAC Specialty.
Forward-looking statements are based on current expectations and projections, subject to risks including changes in tax law, construction/completion risks, energy production variability, and market conditions that could cause actual results to differ materially. Foss & Company undertakes no obligation to update these statements.
This material is for general information only and is not tax or legal advice. Tax treatment depends on each investor’s specific circumstances; consult your own tax and legal advisors. Tax insurance does not eliminate investment risk — coverage is subject to policy terms and exclusions, and investors may still bear risk of loss. Nothing herein is an offer or recommendation to buy or sell any security