Proposed regs clarify carbon capture credits

Tax Hot Topics newsletterThe IRS has issued proposed regulations (REG-112339-19) to provide guidance on claiming carbon capture credits under Section 45Q. The proposed regulations come more than two years after Congress overhauled the incentive and offer much welcome clarification on several technical aspects.

The Bipartisan Budget Act significantly enhanced the credit for carbon captured using equipment placed into served on or after Feb. 9, 2018. It broadened the definition of carbon eligible and increased the maximum credit to $50 per metric ton for permanent sequestration and $35 per metric ton for Enhanced Oil Recovery purposes with no limit.

The IRS released Notice 2020-12 earlier this year providing guidance on determining when construction begins on a qualified facility or on carbon capture equipment. It also issued Rev. Proc. 2020-12 creating a safe harbor for the allocation rules for carbon capture partnerships. The proposed regulations are much more expansive, addressing several taxpayer questions regarding the credit including:
  • Definitions for carbon capture equipment and qualified facilities
  • Guidelines for contractually ensuring carbon capture and disposal, injection or utilization
  • Procedures for electing to allow another taxpayer to claim the credit
  • Standards for secure geological storage of carbon
  • Methods for determining carbon utilization
  • Rules for credit recapture

The proposed regulations are not effective until final, but taxpayers may rely on them for tax years beginning on or after Feb. 9, 2018, and before final regulations are issued so long as they do so entirely and consistently.
Dustin Stamper
Managing Director
Washington National Tax Office
T +1 202 861 4144

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