On The Hill

IRS Issues Guidance on Section 45Q Credit

On Wednesday (Feb. 19), the Internal Revenue Service (IRS) issued two new pieces of guidance on a credit for carbon oxide sequestration, known as the 45Q credit. In these, the IRS addresses the beginning of construction requirements for facilities and carbon capture equipment and partnership allocations of section 45Q credits.

By building upon previous guidance relating renewable energy production tax credits, investment tax credits, and historic rehabilitation tax credits, the guidance released Thursday (Feb. 20) aims to provide greater certainty to carbon capture investors and project developers. However, the IRS notes that it is “only part of a larger picture and regulatory scheme”.^[1] 

The IRS will release further proposed regulations to define key terms related to secure geologic storage, recapture, transfer of the section 45Q credit, and the measurement of qualified carbon oxides to provide additional clarity to taxpayers.

Click here to read the guidance summary.

Notice 2020-12 addresses the definition of “beginning of construction” for purposes of the carbon oxide sequestration credit under section 45Q. The Notice provides guidance to help businesses determine when construction has begun on a qualified facility or on carbon capture equipment that may be eligible for the section 45Q credit.

Revenue Procedure 2020-12 provides a safe harbor for partnerships to make valid allocations of the carbon oxide sequestration credit under section 45Q. The safe harbor is similar to those developed for partnerships receiving the wind energy production tax credit and the rehabilitation credit. The safe harbor simplifies the application of section 45Q credit rules to partnerships able to claim the credit.

References

^[1] Notice, Internal Revenue Service “Guidance Summary” 19 Feb. 2020