Is solar tax equity legit? How to tell a sound solar tax deal from a risky one
By the Tax Field Guide editorial team. Published 2026-10-26. Facts checked 2026-10-26. Related strategies: Solar Investment Credits, Purchased Energy Credits.
Education only; not tax, legal or investment advice. Tax rules change, and how they apply depends on your facts. No outcome is guaranteed.
The short answer: the solar investment tax credit is written into the tax code, and a deal that follows the rules is generally fine.1 The IRS scrutiny level we assign to solar credits is Yellow/Orange: generally fine when the deal follows the rules, with specific red-flag patterns that draw IRS challenges.2 The problems come from how particular deals are structured and sold.
What has gone wrong before
- DC Solar. Investors bought mobile solar generators to claim credits and depreciation. IRS Criminal Investigation describes it as a billion-dollar Ponzi scheme in which investors never took possession of the generators.3
- Solar lens programs. In United States v. RaPower-3, the government obtained an injunction against promoters who sold "solar lenses" to individuals for credits and depreciation, and the Tenth Circuit affirmed in 2020.8
- Passive investors claiming active treatment. The Tax Court has rejected solar investors' material participation claims, leaving the credits passive (see material participation).4
The three red flags
- Zero-down or no-money-out-of-pocket pitches. If the credit seems to pay for the whole investment, ask what you are actually at risk for. The credit base can be limited where financing is non-recourse.5
- 0% or below-market seller financing. Financing that would never be offered in an arm's-length deal suggests the price is set for tax purposes rather than market value.
- Equipment valued well above suggested retail or market price. The credit is a percentage of basis, so an inflated price inflates the credit. If the IRS reduces the basis, the credit shrinks, and penalties can follow.
These flags apply equally when you buy a credit from a developer: the buyer inherits the project's basis risk and can owe a 20% penalty on an excessive credit transfer.6
Questions to ask any promoter
- Who is the operator, and what independent evidence shows the equipment exists and produces power?
- How was the price set? Is there an independent appraisal or cost report, and how does it compare with retail?
- How much cash do I pay, and is any financing recourse?
- Is my credit passive, and how much passive income do I have?
- When did construction begin, and when will the project be placed in service?7
- Has the firm or its principals faced IRS, SEC or state enforcement? Check the sponsor's page on our sponsor directory, where we show evidence scores and public-record flags.
Related reading
To check who is making a pitch, see how to find and vet a tax mitigation advisor.
Common questions
Is solar tax equity a scam?
No, the credit is legitimate and many projects are financed this way. Some promoted programs have been fraudulent or have had credits disallowed. Watch for zero-down pitches, below-market seller financing and inflated equipment prices.
What red flags should I look for in a solar tax credit deal?
Three common ones: zero-down or no-money-out-of-pocket pitches; 0% or below-market seller financing; and equipment valued well above suggested retail or market price.
Education only; not tax, legal or investment advice. Talk to a qualified professional before acting.
Sources
- 26 U.S.C. §48E, https://www.law.cornell.edu/uscode/text/26/48E
- Tax Field Guide, solar investment tax credit strategy page, https://taxfieldguide.com/strategies/S08
- IRS Criminal Investigation, DC Solar sentencing, https://www.irs.gov/compliance/criminal-investigation/dc-solar-accountant-is-last-to-be-sentenced-for-the-dc-solar-billion-dollar-ponzi-scheme
- Summary of Strieby v. Commissioner, T.C. Memo. 2025-28, https://www.currentfederaltaxdevelopments.com/blog/2025/4/3/navigating-the-murky-waters-of-investment-tax-credits-and-passive-activity-rules-a-deep-dive-into-strieby-v-commissioner
- 26 U.S.C. §49, https://www.law.cornell.edu/uscode/text/26/49
- 26 U.S.C. §6418, https://www.law.cornell.edu/uscode/text/26/6418
- United States v. RaPower-3, No. 18-4119 (10th Cir. 2020), https://www.ca10.uscourts.gov/sites/ca10/files/opinions/010110355337.pdf
- IRS, Working Families Tax Cuts provisions page, https://www.irs.gov/newsroom/working-families-tax-cuts