What Corporate Tax Teams Need to Know About ASU 2023-09 and Clean Energy Credits
If your organization has been buying transferable clean energy tax credits or is considering entering the market, there is an accounting standard change that your organization should be aware of before the next filing. ASU 2023-09, issued in December 2023 by the Financial Accounting Standards Board, is a significant revision to the way businesses disclose their income tax provisions in their financial statements. For tax professionals in the corporate tax community trying to navigate the increasing market of IRA tax credits, the timing of this standard could not be more relevant.
This is not simply a disclosure housekeeping item. This standard is changing the way your stakeholders, auditors, and investors expect to see effective tax rate disclosures, rate reconciliation, and tax credit purchases. Your team should be aware of this standard now, before mandatory adoption, to save time and effort later.
The standard is effective for public business entities in annual periods beginning after December 15, 2024. This means that if your organization is a calendar-year filer, the first year of adoption is the 2025 annual filing. If your organization is private, the effective date is one year later. Early adoption is permitted, and many large corporations have already done so.
What ASU 2023-09 Actually Changes
At its heart, ASU 2023-09 is about transparency. The problem for years for those who have complained about income tax disclosures is that the rate reconciliation table, the schedule that bridges the gap between the statutory tax rate and the actual tax rate a company reports, is not sufficiently granular to be helpful. Large and complex companies have been able to hide significant tax information in the footnotes of catch-all line items to which FASB agreed.
The new standard requires disaggregated disclosure of the effective tax rate reconciliation, with specific quantitative thresholds that determine when a line item must be broken out separately. It also requires disclosure of income taxes paid broken down by federal, state, and foreign jurisdictions.
For most corporate tax functions, the changes in the reconciliation are where the substance is. For companies under ASU 2023-09, the following must be disclosed separately if they meet the threshold of 5% of the income computed by multiplying pretax income by the statutory rate: state and local taxes, foreign tax effects, tax credits, changes in unrecognized tax benefits, the impact of cross-border provisions, and several others.
That tax credits category is where clean energy purchasing activity will show up clearly and explicitly for the first time.
Why This Matters for Clean Energy Credit Buyers
Since the IRA made transferability available under IRC Section 6418 in 2022, hundreds of corporations in manufacturing, retail, financial services, and technology have become buyers of transferable clean energy tax credits. Purchasing ITC or PTC credits at 90 to 95 cents on the dollar has become an ordinary aspect of tax planning for many of these businesses, which are putting tens of millions of dollars annually into the credit transfer market.
Under prior disclosure rules, this activity could be folded into a broad tax credits line in the rate reconciliation without detailed explanation. Under ASU 2023-09, that is no longer the case. If your clean energy credit purchases are large enough to cross the 5% threshold, they must be disclosed as a separate, quantified line item in your effective tax rate reconciliation.
- Investor relations teams must be prepared to explain the line item in simple, clear language
- Large clean energy credit purchases (e.g., $40M reducing effective tax rate by 3–4%) will attract analyst attention and questions
- External auditors will more closely scrutinize supporting documentation for these transactions
- Key documents (transferability transactions, IRS registration numbers, transfer election statements, tax credit insurance policies) must be well-organized and audit-ready
- New disclosure requirements create a strategic communication opportunity for companies
- Companies can clearly showcase how they are using clean energy credit transfers to reduce their effective tax rate
- Well-explained clean energy credit programs can positively influence ESG-focused institutional investors
- For ESG-conscious shareholders, such programs are seen as a value-add rather than a minor detail
What Corporate Tax Teams Should Do Now
The first step is an inventory. Map every transferable tax credit your organization has purchased or is considering purchasing, and estimate the impact on your effective tax rate reconciliation under the new disaggregation thresholds. If you are below the 5% threshold today but expect to scale your purchasing activity, model what that growth looks like under ASU 2023-09 disclosure requirements before you commit.
Second, engage your external auditors early. The documentation standards for transferable tax credit transactions are still being refined in practice, and different audit firms have taken different positions on what they need to feel comfortable signing off. The earlier you have that conversation, the fewer surprises you face at year-end.
The rate reconciliation narrative that explains your clean energy credit activity should be clear, accurate, and consistent with how you describe that activity in earnings calls and investor presentations.
Finally, if your organization has not yet established a formal policy for clean energy credit purchases, now is the time to build one. ASU 2023-09 will make your purchasing activity visible.
Conclusion
ASU 2023-09 arrives at a moment when corporate participation in the clean energy credit transfer market is growing rapidly. The IRA created a new asset class almost overnight, and corporate tax teams have been adapting on the fly. The new disclosure standard is a signal that this market has matured enough that regulators and standard-setters expect it to be accounted for transparently and systematically.
For those tax teams that have been working on transferable credit purchases behind the scenes, ASU 2023-09 will bring those activities into the foreground. The tax teams that are preparing will be in a good position when the first filings of this new standard come out. The teams that wait will have to explain a large and unexplained line item in their rate reconciliation table.
The clean energy credit market is not slowing down. Neither is the scrutiny around how companies account for it.