April 2, 2020 - Douglas Myser

IRS answers on carbon capture credits.  The Internal Revenue Service has issued guidance to help businesses understand how legislation passed in 2018 may benefit those claiming carbon capture credits. Today's guidance addresses the definition of "beginning of construction" and provides a sage harbor for partnership allocations of the credit. After the enactment of the Bipartisan Budget Agreement in February 2018, the IRS issued Notice 2019-32 (PDF) 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 guidance to provide clarity, especially regarding the definition of "Beginning of construction". In Notice 2020-12 (PDF), 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. IRS answers on carbon capture credits.

In Revenue Procedure 2020-12 (PDF), 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. The IRS anticipates issuing further guidance in the near future on issues ranging from secure geological storage to utilization to recapture of the credit for those claiming credits for carbon capture.

Section one-purpose, this revenue procedure establishes a safe harbor under which the Internal Revenue Service will treat partnerships as properly allocating, in accordance with section 704(b) of the Internal Revenue Code, the credit for carbon oxide sequestration under section 54Q of the Code. The Department of the Treasury and the IRS intend for the Safe Harbor to simplify the application of section 45Q to partnerships that are eligible to claim the Section 45Q Credit.

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