The IRS recently released guidance (Rev. Rul. 2021-13) clarifying that a taxpayer can claim a credit for carbon capture under Section 45Q even if the carbon capture property has dual uses and the taxpayer does not own all of the carbon capture equipment within a “single process train.”
Section 45Q provides a tax credit based on the metric tons of carbon oxides captured by a taxpayer using carbon capture equipment placed in service at a qualified facility and disposed of, injected or utilized in a specified manner. The credit is generally available at a higher rate for carbon oxides captured using carbon capture equipment placed in service on or after Feb. 9, 2018.
Revenue Ruling 2021-13 addresses the availability of the credit under Section 45Q for carbon oxides captured using carbon capture equipment added to a methanol plant by in 2021. In the ruling, the IRS concluded that the specific piece of equipment—an acid gas removal (AGR) unit—is carbon capture equipment as defined in the Section 45 regulations because even though the AGR had several functions, at least one of the functions was to separate carbon dioxide from a gas stream.
The IRS also concluded that even though the individual seeking the credit did not own the AGR unit, the individual could claim the credit because it is not necessary to own all of the carbon capture equipment within a “single process train” to earn the credit. The IRS noted that the person seeking the credit must own “at least one component of carbon capture equipment in a single process train of carbon capture equipment.”
The IRS additionally ruled that for Section 45Q eligibility and rate purposes, the relevant placed-in-service date is the “original placed-in-service date of the single process train.” Thus, equipment is considered placed in service for purposes of Section 45Q “on the date that any person first places it in a condition or state of readiness and availability for the specifically designed function of capturing, processing, and preparing carbon oxides for transport for disposal, injection, or utilization.” Because of this, under the facts in the ruling, the relevant date in service date occurred in 2021, when the newly added carbon capture equipment enabled the facility to capture, process, and prepare carbon oxides for transport for disposal, injection, or utilization, rather than release it into the atmosphere.
The ruling provides generous rules for claiming the Section 45Q credit based on dual use property or partial ownership of a carbon capture process change. Pertinent businesses should examine the ruling and determine whether their facilities qualify—or could qualify—for the credit going forward.
Dustin Stamper is a managing director in Grant Thornton’s Washington National Tax Office and leads the tax legislative affairs practice for the firm.
Washington DC, Washington DC
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