Tax Alert: Treasury, IRS Provide Regulations to Help Businesses Claim Credits for Carbon Capture
May 29, 2020
Tulsa Tax Attorney Matt Campbell shares this long awaited Tax Alert: Treasury, IRS Provide Regulations to Help Businesses Claim Credits for Carbon Capture
The Treasury Department and the Internal Revenue Service on May 28, 2020 issued proposed regulations to help businesses understand how legislation passed in 2018 may benefit those claiming carbon capture credits.
The proposed regulations provide guidance regarding two new credits for carbon oxide captured using equipment originally placed in service on or after February 9, 2018, allowing up to:
1.$50 per metric ton of qualified carbon oxide for permanent sequestration, and up to
2.$35 for Enhanced Oil Recovery purposes.
Neither of these new credits is subject to a limitation on the number of metric tons of qualified carbon oxide captured. The new law also expanded carbon capture to include “qualified carbon oxide,” a broader term than “qualified carbon dioxide.” Prior to the change in law, carbon capture was limited to a total of 75,000,000 metric tons of qualified carbon oxide.
Additionally, the proposed regulations address issues for which taxpayers had questions, including: procedures to determine adequate security measures for the geological storage of qualified carbon oxide, exceptions to the general rule for determining who the credit is attributable to, procedures for a taxpayer to make an election to allow third-party taxpayers to claim the credit, standards for measuring utilization of qualified carbon oxide and rules for credit recapture.
After the enactment of the Bipartisan Budget Agreement in February 2018, the IRS issued Notice 2019-32 requesting comments from taxpayers regarding the changes to the carbon capture credit in the new law. After carefully considering the comments, the IRS is issuing the proposed regulations to provide clarity. Earlier this year, the IRS issued other guidance regarding the definition of "beginning of construction" and providing a safe harbor for partnerships.
In Notice 2020-12, the IRS 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 carbon capture credit. This notice provides broad guidance in lieu of taxpayers requesting private letter rulings in this area.
In Revenue Procedure 2020-12, the IRS creates a safe harbor for the allocation rules for carbon capture partnerships similar to the safe harbors developed for partnerships receiving the wind energy production tax credit and the rehabilitation credit. The safe harbor simplifies the application of carbon capture credit rules to partnerships able to claim the credit.