§45Q — Credit for carbon oxide sequestration
Statute Text — 26 U.S.C. §45Q
For purposes of section 38, the carbon oxide sequestration credit for any taxable year is an amount equal to the sum of—
$20 per metric ton of qualified carbon oxide which is—
captured by the taxpayer using carbon capture equipment which is originally placed in service at a qualified facility before the date of the enactment of the Bipartisan Budget Act of 2018, and
disposed of by the taxpayer in secure geological storage and not used by the taxpayer as described in paragraph (2)(B),
$10 per metric ton of qualified carbon oxide which is—
captured by the taxpayer using carbon capture equipment which is originally placed in service at a qualified facility before the date of the enactment of the Bipartisan Budget Act of 2018, and
used by the taxpayer as a tertiary injectant in a qualified enhanced oil or natural gas recovery project and disposed of by the taxpayer in secure geological storage, or
utilized by the taxpayer in a manner described in subsection (f)(5), and
the applicable dollar amount (as determined under subsection (b)(1)) per metric ton of qualified carbon oxide which is—
captured by the taxpayer using carbon capture equipment which is originally placed in service at a qualified facility on or after the date of the enactment of the Bipartisan Budget Act of 2018, during the 12-year period beginning on the date the equipment was originally placed in service, and
disposed of by the taxpayer in secure geological storage and not used by the taxpayer as described in clause (ii) or (iii),
used by the taxpayer as a tertiary injectant in a qualified enhanced oil or natural gas recovery project and disposed of by the taxpayer in secure geological storage, or
utilized by the taxpayer in a manner described in subsection (f)(5).
Except as provided in subparagraph (B) or (C), the applicable dollar amount shall be an amount equal to—
for any taxable year beginning in a calendar year after 2024 and before 2027, $17, and
for any taxable year beginning in a calendar year after 2026, an amount equal to the product of $17 and the inflation adjustment factor for such calendar year determined under section 43(b)(3)(B) for such calendar year, determined by substituting “2025” for “1990”.
In the case of any qualified facility described in subsection (d)(2)(A) which is placed in service after December 31, 2022, the applicable dollar amount shall be an amount equal to the applicable dollar amount otherwise determined with respect to such qualified facility under subparagraph (A), except that such subparagraph shall be applied by substituting “$36” for “$17” each place it appears.
In the case of any qualified facility which is placed in service before
January 1, 2023
, if any additional carbon capture equipment is installed at such facility and such equipment is placed in service after
December 31, 2022
, the applicable dollar amount shall be an amount equal to the applicable dollar amount otherwise determined under this paragraph, except that subparagraph (B) shall be applied—
by substituting “before
January 1, 2023
” for “after
December 31, 2022
”, and
by substituting “the additional carbon capture equipment installed at such qualified facility” for “such qualified facility”.
The applicable dollar amount determined under subparagraph (A), (B), or (C) shall be rounded to the nearest cent.
In the case of a qualified facility placed in service before the date of the enactment of the Bipartisan Budget Act of 2018, for which additional carbon capture equipment is placed in service on or after the date of the enactment of such Act, the amount of qualified carbon oxide which is captured by the taxpayer shall be equal to—
for purposes of paragraphs (1)(A) and (2)(A) of subsection (a), the lesser of—
the total amount of qualified carbon oxide captured at such facility for the taxable year, or
the total amount of the carbon dioxide capture capacity of the carbon capture equipment in service at such facility on the day before the date of the enactment of the Bipartisan Budget Act of 2018, and
for purposes of paragraph (3)(A) of such subsection, an amount (not less than zero) equal to the excess of—
the amount described in clause (i) of subparagraph (A), over
the amount described in clause (ii) of such subparagraph.
For purposes of determining the carbon oxide sequestration credit under this section, a taxpayer may elect to have the dollar amounts applicable under paragraph (1) or (2) of subsection (a) apply in lieu of the dollar amount applicable under paragraph (3) of such subsection for each metric ton of qualified carbon oxide which is captured by the taxpayer using carbon capture equipment which is originally placed in service at a qualified facility on or after the date of the enactment of the Bipartisan Budget Act of 2018.
For purposes of this section—
The term “qualified carbon oxide” means—
any carbon dioxide which—
is captured from an industrial source by carbon capture equipment which is originally placed in service before the date of the enactment of the Bipartisan Budget Act of 2018,
would otherwise be released into the atmosphere as industrial emission of greenhouse gas or lead to such release, and
is measured at the source of capture and verified at the point of disposal, injection, or utilization,
any carbon dioxide or other carbon oxide which—
is captured from an industrial source by carbon capture equipment which is originally placed in service on or after the date of the enactment of the Bipartisan Budget Act of 2018,
would otherwise be released into the atmosphere as industrial emission of greenhouse gas or lead to such release, and
is measured at the source of capture and verified at the point of disposal, injection, or utilization, or
in the case of a direct air capture facility, any carbon dioxide which—
is captured directly from the ambient air, and
is measured at the source of capture and verified at the point of disposal, injection, or utilization.
The term “qualified carbon oxide” includes the initial deposit of captured carbon oxide used as a tertiary injectant. Such term does not include carbon oxide that is recaptured, recycled, and re-injected as part of the enhanced oil and natural gas recovery process.
For purposes of this section, the term “qualified facility” means any industrial facility or direct air capture facility—
the construction of which begins before
January 1, 2033
, and either—
construction of carbon capture equipment begins before such date, or
the original planning and design for such facility includes installation of carbon capture equipment, and
which—
in the case of a direct air capture facility, captures not less than 1,000 metric tons of qualified carbon oxide during the taxable year,
in the case of an electricity generating facility—
captures not less than 18,750 metric tons of qualified carbon oxide during the taxable year, and
with respect to any carbon capture equipment for the applicable electric generating unit at such facility, has a capture design capacity of not less than 75 percent of the baseline carbon oxide production of such unit, or
in the case of any other facility, captures not less than 12,500 metric tons of qualified carbon oxide during the taxable year.
For purposes of this section—
The term “applicable electric generating unit” means the principal electric generating unit for which the carbon capture equipment is originally planned and designed.
The term “baseline carbon oxide production” means either of the following:
In the case of an applicable electric generating unit which was originally placed in service more than 1 year prior to the date on which construction of the carbon capture equipment begins, the average annual carbon oxide production, by mass, from such unit during—
in the case of an applicable electric generating unit which was originally placed in service more than 1 year prior to the date on which construction of the carbon capture equipment begins and on or after the date which is 3 years prior to the date on which construction of such equipment begins, the period beginning on the date such unit was placed in service and ending on the date on which construction of such equipment began, and
in the case of an applicable electric generating unit which was originally placed in service more than 3 years prior to the date on which construction of the carbon capture equipment begins, the 3 years with the highest annual carbon oxide production during the 12-year period preceding the date on which construction of such equipment began.
In the case of an applicable electric generating unit which—
as of the date on which construction of the carbon capture equipment begins, is not yet placed in service, or
was placed in service during the 1-year period prior to the date on which construction of the carbon capture equipment begins,
the designed annual carbon oxide production, by mass, as determined based on an assumed capacity factor of 60 percent.
The term “capacity factor” means the ratio (expressed as a percentage) of the actual electric output from the applicable electric generating unit to the potential electric output from such unit.
Subject to subparagraph (B), the term “direct air capture facility” means any facility which uses carbon capture equipment to capture carbon dioxide directly from the ambient air.
The term “direct air capture facility” shall not include any facility which captures carbon dioxide—
which is deliberately released from naturally occurring subsurface springs, or
using natural photosynthesis.
The term “qualified enhanced oil or natural gas recovery project” has the meaning given the term “qualified enhanced oil recovery project” by section 43(c)(2), by substituting “crude oil or natural gas” for “crude oil” in subparagraph (A)(i) thereof.
The term “tertiary injectant” has the same meaning as when used within section 193(b)(1).
The credit under this section shall apply only with respect to qualified carbon oxide the capture and disposal, use, or utilization of which is within—
the United States (within the meaning of section 638(1)), or
a possession of the United States (within the meaning of section 638(2)).
The Secretary, in consultation with the Administrator of the Environmental Protection Agency, the Secretary of Energy, and the Secretary of the Interior, shall establish regulations for determining adequate security measures for the geological storage of qualified carbon oxide under subsection (a) such that the qualified carbon oxide does not escape into the atmosphere. Such term shall include storage at deep saline formations, oil and gas reservoirs, and unminable coal seams under such conditions as the Secretary may determine under such regulations.
Except as provided in subparagraph (B) or in any regulations prescribed by the Secretary, any credit under this section shall be attributable to—
in the case of qualified carbon oxide captured using carbon capture equipment which is originally placed in service at a qualified facility before the date of the enactment of the Bipartisan Budget Act of 2018, the person that captures and physically or contractually ensures the disposal, utilization, or use as a tertiary injectant of such qualified carbon oxide, and
in the case of qualified carbon oxide captured using carbon capture equipment which is originally placed in service at a qualified facility on or after the date of the enactment of the Bipartisan Budget Act of 2018, the person that owns the carbon capture equipment and physically or contractually ensures the capture and disposal, utilization, or use as a tertiary injectant of such qualified carbon oxide.
If the person described in subparagraph (A) makes an election under this subparagraph in such time and manner as the Secretary may prescribe by regulations, the credit under this section—
shall be allowable to the person that disposes of the qualified carbon oxide, utilizes the qualified carbon oxide, or uses the qualified carbon oxide as a tertiary injectant, and
shall not be allowable to the person described in subparagraph (A).
The Secretary shall, by regulations, provide for recapturing the benefit of any credit allowable under subsection (a) with respect to any qualified carbon oxide which ceases to be captured, disposed of, or used as a tertiary injectant in a manner consistent with the requirements of this section.
For purposes of this section, utilization of qualified carbon oxide means—
the fixation of such qualified carbon oxide through photosynthesis or chemosynthesis, such as through the growing of algae or bacteria,
the chemical conversion of such qualified carbon oxide to a material or chemical compound in which such qualified carbon oxide is securely stored, or
the use of such qualified carbon oxide for any other purpose for which a commercial market exists (with the exception of use as a tertiary injectant in a qualified enhanced oil or natural gas recovery project), as determined by the Secretary.
For purposes of determining the amount of qualified carbon oxide utilized by the taxpayer under paragraph (2)(B)(ii) or (3)(B)(iii) of subsection (a), such amount shall be equal to the metric tons of qualified carbon oxide which the taxpayer demonstrates, based upon an analysis of lifecycle greenhouse gas emissions and subject to such requirements as the Secretary, in consultation with the Secretary of Energy and the Administrator of the Environmental Protection Agency, determines appropriate, were—
captured and permanently isolated from the atmosphere, or
displaced from being emitted into the atmosphere,
For purposes of clause (i), the term “lifecycle greenhouse gas emissions” has the same meaning given such term under subparagraph (H) of section 211(o)(1) of the Clean Air Act (42 U.S.C. 7545(o)(1)), as in effect on the date of the enactment of the Bipartisan Budget Act of 2018, except that “product” shall be substituted for “fuel” each place it appears in such subparagraph.
through use of a process described in subparagraph (A).
For purposes of this section, in the case of an applicable facility, for any taxable year in which such facility captures not less than 500,000 metric tons of qualified carbon oxide during the taxable year, the person described in paragraph (3)(A)(ii) may elect to have such facility, and any carbon capture equipment placed in service at such facility, deemed as having been placed in service on the date of the enactment of the Bipartisan Budget Act of 2018.
For purposes of this paragraph, the term “applicable facility” means a qualified facility—
which was placed in service before the date of the enactment of the Bipartisan Budget Act of 2018, and
for which no taxpayer claimed a credit under this section in regards to such facility for any taxable year ending before the date of the enactment of such Act.
In the case of any taxable year beginning in a calendar year after 2009, there shall be substituted for each dollar amount contained in paragraphs (1) and (2) of subsection (a) an amount equal to the product of—
such dollar amount, multiplied by
the inflation adjustment factor for such calendar year determined under section 43(b)(3)(B) for such calendar year, determined by substituting “2008” for “1990”.
Rules similar to the rule under section 45(b)(3) shall apply for purposes of this section.
For purposes of subsection (a)(3), a person described in paragraph (3)(A)(ii) may elect, at such time and in such manner as the Secretary may prescribe, to have the 12–year period begin on the first day of the first taxable year in which a credit under this section is claimed with respect to carbon capture equipment which is originally placed in service at a qualified facility on or after the date of the enactment of the Bipartisan Budget Act of 2018 (after application of paragraph (6), where applicable) if—
no taxpayer claimed a credit under this section with respect to such carbon capture equipment for any prior taxable year,
the qualified facility at which such carbon capture equipment is placed in service is located in an area affected by a federally-declared disaster (as defined by section 165(i)(5)(A)) after the carbon capture equipment is originally placed in service, and
such federally-declared disaster results in a cessation of the operation of the qualified facility or the carbon capture equipment after such equipment is originally placed in service.
No credit shall be determined under subsection (a) for any taxable year beginning after the date of enactment of this paragraph if the taxpayer is—
a specified foreign entity (as defined in section 7701(a)(51)(B)), or
a foreign-influenced entity (as defined in section 7701(a)(51)(D), determined without regard to clause (i)(II) thereof).
In the case of any carbon capture equipment placed in service before the date of the enactment of the Bipartisan Budget Act of 2018, the credit under this section shall apply with respect to qualified carbon oxide captured using such equipment before the earlier of
January 1, 2023
, and the end of the calendar year in which the Secretary, in consultation with the Administrator of the Environmental Protection Agency, certifies that, during the period beginning after
October 3, 2008
, a total of 75,000,000 metric tons of qualified carbon oxide have been taken into account in accordance with—
subsection (a) of this section, as in effect on the day before the date of the enactment of the Bipartisan Budget Act of 2018, and
paragraphs (1) and (2) of subsection (a) of this section.
In the case of any qualified facility or any carbon capture equipment which satisfy the requirements of paragraph (2), the amount of the credit determined under subsection (a) shall be equal to such amount (determined without regard to this sentence) multiplied by 5.
The requirements described in this paragraph are that—
with respect to any qualified facility the construction of which begins on or after the date that is 60 days after the Secretary publishes guidance with respect to the requirements of paragraphs (3)(A) and (4), as well as any carbon capture equipment placed in service at such facility—
subject to subparagraph (B) of paragraph (3), the taxpayer satisfies the requirements under subparagraph (A) of such paragraph with respect to such facility and equipment, and
the taxpayer satisfies the requirements under paragraph (4) with respect to the construction of such facility and equipment,
with respect to any carbon capture equipment the construction of which begins on or after the date that is 60 days after the Secretary publishes guidance with respect to the requirements of paragraphs (3)(A) and (4), and which is installed at a qualified facility the construction of which began prior to such date—
subject to subparagraph (B) of paragraph (3), the taxpayer satisfies the requirements under subparagraph (A) of such paragraph with respect to such equipment, and
the taxpayer satisfies the requirements under paragraph (4) with respect to the construction of such equipment, or
the construction of carbon capture equipment begins prior to the date that is 60 days after the Secretary publishes guidance with respect to the requirements of paragraphs (3)(A) and (4), and such equipment is installed at a qualified facility the construction of which begins prior to such date.
The requirements described in this subparagraph with respect to any qualified facility and any carbon capture equipment placed in service at such facility are that the taxpayer shall ensure that any laborers and mechanics employed by the taxpayer or any contractor or subcontractor in—
the construction of such facility or equipment, and
with respect to any taxable year, for any portion of such taxable year which is within the period described in subsection (a)(3)(A), the alteration or repair of such facility or such equipment,
shall be paid wages at rates not less than the prevailing rates for construction, alteration, or repair of a similar character in the locality in which such facility and equipment are located as most recently determined by the Secretary of Labor, in accordance with subchapter IV of chapter 31 of title 40, United States Code. For purposes of determining an increased credit amount under paragraph (1) for a taxable year, the requirement under clause (ii) of this subparagraph is applied to such taxable year in which the alteration or repair of qualified facility occurs.
Rules similar to the rules of section 45(b)(7)(B) shall apply.
Rules similar to the rules of section 45(b)(8) shall apply.
The Secretary shall issue such regulations or other guidance as the Secretary determines necessary to carry out the purposes of this subsection, including regulations or other guidance which provides for requirements for recordkeeping or information reporting for purposes of administering the requirements of this subsection.
The Secretary may prescribe such regulations and other guidance as may be necessary or appropriate to carry out this section, including regulations or other guidance to—
ensure proper allocation under subsection (a) for qualified carbon oxide captured by a taxpayer during the taxable year ending after the date of the enactment of the Bipartisan Budget Act of 2018,
determine whether a facility satisfies the requirements under subsection (d)(1) during such taxable year, and
for purposes of subsection (d)(2)(B)(ii), adjust the baseline carbon oxide production with respect to any applicable electric generating unit at any electricity generating facility if, after the date on which the carbon capture equipment is placed in service, modifications which are chargeable to capital account are made to such unit which result in a significant increase or decrease in carbon oxide production.
Treasury Regulations
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Treas. Reg. §1.45Q-0Table of Contents
This section lists the captions contained in §§ 1.45Q-1 through 1.45Q-5.
(a) In general.
(b) Credit amount for carbon capture equipment originally placed in service before February 9, 2018.
(1) In general.
(2) Inflation adjustment.
(c) Credit amount for carbon capture equipment originally placed in service on or after February 9, 2018.
(d) Applicable dollar amount.
(1) Applicable dollar amount for any taxable year beginning in a calendar year after 2016 and before 2027 for qualified carbon oxide not used as a tertiary injectant or utilized.
(2) Applicable dollar amount for any taxable year beginning in a calendar year after 2026 for qualified carbon oxide not used as a tertiary injectant or utilized.
(3) Applicable dollar amount for any taxable year beginning in a calendar year after 2016 and before 2027 for qualified carbon oxide used as a tertiary injectant or utilized.
(4) Applicable dollar amount for any taxable year beginning in a calendar year after 2026 for qualified carbon oxide used as a tertiary injectant or utilized.
(e) Election to apply the $10 and $20 credit amounts in lieu of the applicable dollar amounts.
(f) Application of section 45Q for certain carbon capture equipment placed in service before February 9, 2018.
(g) Installation of additional carbon capture equipment.
(1) Allocation of section 45Q credits for facilities installing additional carbon capture equipment.
(2) Additional carbon capture equipment.
(3) New carbon capture equipment.
(4) Examples.
(i) Example 1.
(ii) Example 2.
(iii) Example 3.
(h) Eligibility for the section 45Q credit.
(1) Person to whom the section 45Q credit is attributable.
(i) Equipment placed in service before February 9, 2018.
(ii) Equipment placed in service on or after February 9, 2018.
(iii) Reporting.
(2) Contractually ensuring capture and disposal, injection, or utilization of qualified carbon oxide.
(i) Binding written contract.
(ii) Multiple binding written contracts permitted.
(iii) Contract provisions.
(iv) Pre-existing contracts.
(v) Reporting of contract information.
(vi) Relationship with election to allow section 45Q credit.
(3) Election to allow the section 45Q credit to another taxpayer.
(i) Example.
(ii) Time and manner of making election.
(iii) Annual election.
(iv) Required information.
(v) Requirements for section 45Q credit claimant.
(vi) Failure to satisfy reporting requirements.
(i) Applicability date.
(a) Qualified carbon oxide.
(b) Recycled carbon oxide.
(c) Carbon capture equipment.
(1) Use of carbon capture equipment.
(2) Carbon capture equipment components.
(3) Single process train.
(d) Industrial facility.
(1) Exclusion.
(2) Industrial source.
(3) Manufacturing process.
(4) Examples.
(i) Example 1.
(ii) Example 2.
(e) Electricity generating facility.
(f) Direct air capture facility.
(g) Qualified facility.
(1) Emissions and capture requirements.
(2) Examples.
(i) Example 1.
(ii) Example 2.
(iii) Example 3.
(iv) Example 4.
(v) Example 5.
(3) Annualization of first-year and last-year qualified carbon oxide emission and/or capture amounts.
(i) In general.
(ii) Calculation.
(iii) Consequences.
(4) Election for applicable facilities.
(i) Applicable facility.
(ii) Time and manner of making election.
(iii) Retroactive credit revocations.
(5) Retrofitted qualified facility or carbon capture equipment (80/20 Rule).
(h) Qualified enhanced oil or natural gas recovery project.
(1) Application of §§ 1.43-2 and 1.43-3.
(2) Required certification.
(3) Natural gas.
(4) Timely filing of petroleum engineer's certification.
(5) Carbon oxide injected in oil reservoir.
(6) Tertiary injectant.
(i) Section 45Q credit.
(j) Form 8933.
(k) Applicability date.
(a) In general.
(b) Requirements for secure geological storage.
(c) Documentation.
(d) Certification.
(e) Failure to submit complete documentation or certification.
(f) Applicability date.
(a) In general.
(b) Amount utilized.
(1) In general.
(2) Limitation.
(c) Lifecycle greenhouse gas emissions and lifecycle analysis (LCA).
(1) In general.
(2) LCA verification.
(3) Standards of adequate lifecycle analysis.
(4) Third-party independent review of LCA.
(5) Submission of the LCA.
(6) LCA review.
(d) Commercial market.
(e) Applicability date.
(a) Recapture event.
(b) Ceases to be disposed of in secure geological storage or used as a tertiary injectant.
(c) Leaked amount of qualified carbon oxide.
(d) Qualified carbon oxide subject to recapture.
(e) Recapture amount.
(f) Recapture period.
(g) Application of recapture.
(1) In general.
(2) Calculation.
(3) Multiple units.
(4) Multiple taxpayers.
(i) In general.
(ii) Partnerships.
(A) General rule.
(B) Terminated partnerships.
(5) Reporting.
(6) Examples.
(i) Example 1.
(ii) Example 2.
(iii) Example 3.
(iv) Example 4.
(v) Example 5.
(vi) Example 6.
(h) Recapture in the event of deliberate removal from storage.
(1) In general.
(2) Recycled qualified carbon oxide.
(i) Limited exceptions.
(j) Applicability date.
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Treas. Reg. §1.45Q-0(a)Recapture event.
Recapture event.
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Treas. Reg. §1.45Q-0(b)Ceases to be disposed of in secure geological storage or used as a tertiary injectant.
Ceases to be disposed of in secure geological storage or used as a tertiary injectant.
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Treas. Reg. §1.45Q-0(c)Leaked amount of qualified carbon oxide.
Leaked amount of qualified carbon oxide.
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Treas. Reg. §1.45Q-0(d)Qualified carbon oxide subject to recapture.
Qualified carbon oxide subject to recapture.
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Treas. Reg. §1.45Q-0(e)Recapture amount.
Recapture amount.
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Treas. Reg. §1.45Q-0(f)Recapture period.
Recapture period.
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Treas. Reg. §1.45Q-0(g)Application of recapture.
Application of recapture.
(1) In general.
(2) Calculation.
(3) Multiple units.
(4) Multiple taxpayers.
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Treas. Reg. §1.45Q-0(h)Recapture in the event of deliberate removal from storage.
Recapture in the event of deliberate removal from storage.
(1) In general.
(2) Recycled qualified carbon oxide.
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Treas. Reg. §1.45Q-0(i)Limited exceptions.
Limited exceptions.
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Treas. Reg. §1.45Q-0(j)Applicability date.
Applicability date.
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Treas. Reg. §1.45Q-0(k)Applicability date.
Applicability date.
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Treas. Reg. §1.45Q-0(v)Example 5.
Example 5.
(vi) Example 6.
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Treas. Reg. §1.45Q-1Credit for Carbon Oxide Sequestration
(a) In general. For purposes of section 38 of the Internal Revenue Code (Code), the carbon oxide sequestration credit is determined under section 45Q of the Code and this section (section 45Q credit). Generally, the amount of the section 45Q credit and the party that is eligible to claim the credit depend on whether the taxpayer captures qualified carbon oxide using carbon capture equipment originally placed in service at a qualified facility before February 9, 2018, or on or after February 9, 2018, and whether the taxpayer disposes of the qualified carbon oxide in secure geological storage without using it as a tertiary injectant in a qualified enhanced oil or natural gas recovery project (disposal), uses it as a tertiary injectant in a qualified enhanced oil or natural gas recovery project and disposes of it in secure geological storage (injection), or utilizes it in a manner described in section 45Q(f)(5) and § 1.45Q-4 (utilization). The section 45Q credit applies only with respect to qualified carbon oxide the capture and disposal, injection, or utilization of which is within the United States (within the meaning of section 638(1) of the Code) or a possession of the United States (within the meaning of section 638(2)).
(b) Credit amount for carbon capture equipment originally placed in service before February 9, 2018—(1) In general. For carbon capture equipment originally placed in service at a qualified facility before February 9, 2018, the amount of credit determined under section 45Q(a) and this section is the sum of—
(i) $20 per metric ton of qualified carbon oxide that is—
(A) Captured by the taxpayer at the qualified facility and disposed of by the taxpayer in secure geological storage, and
(B) Not used by the taxpayer as a tertiary injectant in a qualified enhanced oil or natural gas recovery project or utilized by the taxpayer in a manner described in section 45Q(f)(5) and § 1.45Q-4, and
(ii) $10 per metric ton of qualified carbon oxide that is—
(A) Captured by the taxpayer at the qualified facility and used by the taxpayer as a tertiary injectant in a qualified enhanced oil or natural gas recovery project, and disposed of by the taxpayer in secure geological storage, or
(B) Captured by the taxpayer at the qualified facility and utilized by the taxpayer in a manner described in section 45Q(f)(5) and § 1.45Q-4.
(2) Inflation adjustment. In the case of any taxable year beginning in a calendar year after 2009, there is substituted for each dollar amount contained in paragraphs (b)(1)(i) and (ii) of this section an amount equal to the product of—
(i) Such dollar amount, multiplied by
(ii) The inflation adjustment factor for such calendar year determined under section 43(b)(3)(B) for such calendar year, determined by substituting “2008” for “1990.”
(c) Credit amount for carbon capture equipment originally placed in service on or after February 9, 2018. For carbon capture equipment originally placed in service at a qualified facility on or after February 9, 2018, the amount of credit determined under section 45Q(a)(3) and (4) and this section is the sum of—
(1) The applicable dollar amount (as determined under paragraph (d)(1) and (2) of this section) per metric ton of qualified carbon oxide that is captured during the 12-year period beginning on the date the equipment was originally placed in service, and is—
(i) Disposed of by the taxpayer in secure geological storage, and
(ii) Not used by the taxpayer as a tertiary injectant in a qualified enhanced oil or natural gas recovery project or utilized by the taxpayer in a manner described in section 45Q(f)(5) and § 1.45Q-4; and
(2) The applicable dollar amount (as determined under paragraph (d)(3) and (4) of this section) per metric ton of qualified carbon oxide that is captured during the 12-year period beginning on the date the equipment was originally placed in service and is—
(i) Used by the taxpayer as a tertiary injectant in a qualified enhanced oil or natural gas recovery project and disposed of by the taxpayer in secure geological storage, or
(ii) Utilized by the taxpayer in a manner described in section 45Q(f)(5) and § 1.45Q-4.
(d) Applicable dollar amount. In general, the applicable dollar amount depends on whether section 45Q(a)(3) and paragraph (c)(1) of this section applies or section 45Q(a)(4) and paragraph (c)(2) of this section applies, and the calendar year in which the taxable year begins.
(1) Applicable dollar amount for any taxable year beginning in a calendar year after 2016 and before 2027 for qualified carbon oxide not used as a tertiary injectant or utilized. For purposes of section 45Q(a)(3) and paragraph (c)(1) of this section, the applicable dollar amount for each taxable year beginning in a calendar year after 2016 and before 2027 is:
(2) Applicable dollar amount for any taxable year beginning in a calendar year after 2026 for qualified carbon oxide not used as a tertiary injectant or utilized. For purposes of section 45Q(a)(3) and paragraph (c)(1) of this section, the applicable dollar amount for any taxable year beginning in any calendar year after 2026 is an amount equal to the product of $50 and the inflation adjustment factor for the calendar year determined under section 43(b)(3)(B) for the calendar year, determined by substituting “2025” for “1990.”
(3) Applicable dollar amount for any taxable year beginning in a calendar year after 2016 and before 2027 for qualified carbon oxide used as a tertiary injectant or utilized. For purposes of section 45Q(a)(4) and paragraph (c)(2) of this section, the applicable dollar amount for each taxable year beginning in a calendar year after 2016 and before 2027 is:
(4) Applicable dollar amount for any taxable year beginning in a calendar year after 2026 for qualified carbon oxide used as a tertiary injectant or utilized. For purposes of section 45Q(a)(4) and paragraph (c)(2) of this section, the applicable dollar amount for any taxable year beginning in any calendar year after 2026, is an amount equal to the product of $35 and the inflation adjustment factor for such calendar year determined under section 43(b)(3)(B) for such calendar year, determined by substituting “2025” for “1990.”
(e) Election to apply the $10 and $20 credit amounts in lieu of the applicable dollar amounts. For purposes of determining the carbon oxide sequestration credit under this section, a taxpayer may elect to have the dollar amounts applicable under section 45Q(a)(1) or (2) and paragraph (b) of this section apply in lieu of the dollar amounts applicable under section 45Q(a)(3) or (4) and paragraph (d) of this section for each metric ton of qualified carbon oxide which is captured by the taxpayer using carbon capture equipment which is originally placed in service at a qualified facility on or after February 9, 2018. The election must be made on a Form 8933 (as defined in § 1.45Q-2(j)), and applies to all metric tons of qualified carbon oxide captured by the taxpayer using carbon capture equipment which is originally placed in service at the qualified facility throughout the full 12-year credit period.
(f) Application of section 45Q for certain carbon capture equipment placed in service before February 9, 2018. In the case of any carbon capture equipment placed in service before February 9, 2018, the credits under section 45Q(a)(1) and (2) and paragraph (b)(1)(i) and (ii) of this section apply with respect to qualified carbon oxide captured using such equipment before the end of the calendar year in which the Secretary of the Treasury or his delegate, in consultation with the Administrator of the Environmental Protection Agency (EPA), certifies that, during the period beginning after October 3, 2008, a total of 75,000,000 metric tons of qualified carbon oxide have been taken into account in accordance with section 45Q(a), as in effect on February 8, 2018, and section 45Q(a)(1) and (2). In general, a taxpayer may not claim credits under section 45Q(a)(1) and (2) in taxable years after the year in which the 75,000,000 metric ton limit is certified with respect to carbon capture equipment placed in service before February 9, 2018. However, see § 1.45Q-2(g)(4) regarding the election for applicable facilities to treat certain carbon capture equipment as having been placed in service on February 9, 2018 (section 45Q(f)(6) election).
(g) Installation of additional carbon capture equipment. In general, the credit amounts for property placed in service before February 9, 2018, apply to a qualified facility at which carbon capture equipment was placed in service before February 9, 2018, subject to the limitations under paragraph (f) of this section. The same qualified facility may place additional carbon capture equipment in service on or after February 9, 2018. The additional carbon capture equipment is eligible to qualify for the section 45Q credit amounts for equipment placed in service on or after February 9, 2018.
(1) Allocation of section 45Q credits for facilities installing additional carbon capture equipment. In the case of a qualified facility placed in service before February 9, 2018, for which additional carbon capture equipment is placed in service on or after February 9, 2018, the amount of qualified carbon oxide which is captured by the taxpayer is equal to—
(i) For purposes of section 45Q(a)(1)(A) and (2)(A), and paragraphs (b)(1)(i) and (ii) of this section, the lesser of the total amount of qualified carbon oxide captured at such facility for the taxable year, or the total amount of the carbon dioxide capture capacity of the carbon capture equipment in service at such facility on February 8, 2018, and
(ii) For purposes of section 45Q(a)(3)(A) and (4)(A), and paragraphs (c)(1) and (2) of this section, an amount (not less than zero) equal to the excess of the total amount of qualified carbon oxide captured at such facility for the taxable year, over the total amount of the carbon dioxide capture capacity of the carbon capture equipment in service at such facility on February 8, 2018.
(2) Additional carbon capture equipment. A physical modification or equipment addition that results in an increase in the carbon dioxide capture capacity of existing carbon capture equipment constitutes the installation of additional carbon capture equipment. Increasing the amount of carbon dioxide captured without physically modifying existing carbon capture equipment or adding new equipment, for example, by merely operating the existing carbon capture equipment above the carbon dioxide capture capacity, does not constitute the installation of additional carbon capture equipment. For purposes of this section, the term carbon dioxide capture capacity means capture design capacity. Section 45Q credits attributable to qualified carbon oxide captured by additional carbon capture equipment that is placed in service on or after February 9, 2018, are not subject to the 75,000,000 metric ton limitation described in section 45Q(g) and paragraph (f) of this section.
(3) New carbon capture equipment. A physical modification or equipment addition with a cost that satisfies the 80/20 Rule provided in § 1.45Q-2(g)(5) constitutes the installation of new carbon capture equipment rather than the installation of additional carbon capture equipment.
(4) Examples. The following examples illustrate the rules of this paragraph (g):
(i) Example 1. Taxpayer X owns qualified facility QF. In 2017, X placed in service three units of carbon capture equipment—CC1, CC2, and CC3—to capture carbon dioxide emitted by QF. Each of CC1, CC2, and CC3 are capable of capturing 50,000 metric tons of carbon dioxide. In 2017, X entered into a binding written contract with Y to provide 80,000 metric tons of carbon dioxide annually for Y to dispose of in secure geological storage. X operates CC1 and CC2 to capture carbon dioxide pursuant to the binding written contract with Y, leaving CC3 idle. In 2020, X enters into a binding written contract with Z to provide 40,000 metric tons of carbon dioxide annually for Z to dispose of in secure geological storage. X operates CC3 to capture carbon dioxide pursuant to the binding written contract with Z. CC3 is not additional carbon capture equipment under paragraph (g)(2) of this section simply because it began operating CC3 in 2020. X merely increased the amount of carbon dioxide captured by existing carbon capture equipment. As a result, any section 45Q credits attributable to the carbon dioxide captured by CC3 and disposed of by Z are calculated under section 45Q(a)(1) and paragraph (b)(1)(i) of this section, and are subject to the 75,000,000 metric ton limitation described in section 45Q(g) and paragraph (f) of this section.
(ii) Example 2. Assume the same facts as in Example 1, except that in 2019, X physically modified CC3 to enable CC3 to capture 100,000 metric tons of carbon dioxide. The physical modification to upgrade CC3 does not satisfy the 80/20 Rule in § 1.45Q-2(g)(5). In 2020 X enters into a binding written contract with Z to provide 80,000 metric tons of carbon dioxide annually for Z to dispose of in secure geological storage. X operates CC3 to capture carbon dioxide pursuant to the binding written contract with Z. Because the physical modification to upgrade CC3 does not satisfy the 80/20 Rule, the physical modification to upgrade CC3 is considered the installation of additional carbon capture equipment under paragraph (g)(2) of this section, rather than new carbon capture equipment under paragraph (g)(3) of this section. As a result, any section 45Q credits attributable to the first 50,000 metric tons of carbon dioxide captured by CC3 and disposed of by Z are calculated under section 45Q(a)(1) and paragraph (b)(1)(i) of this section, and are subject to the 75,000,000 metric ton limitation described in section 45Q(g) and paragraph (f) of this section. Any section 45Q credits attributable to additional carbon dioxide captured by CC3 and disposed of by Z in excess of those first 50,000 metric tons are calculated under section 45Q(a)(4) and paragraph (c)(2) of this section, and are not subject to the 75,000,000 metric ton limitation described in section 45Q(g) and paragraph (f) of this section.
(iii) Example 3. Assume the same facts as in Example 2, except that the physical modification to CC3 satisfies the 80/20 Rule in § 1.45Q-2(g)(5). The physical modification to CC3 is considered the installation of new carbon capture equipment under paragraph (g)(3) of this section. As a result, any section 45Q credits attributable to carbon dioxide captured by CC3 and disposed of by Z are calculated under section 45Q(a)(4) and paragraph (c)(2) of this section, and are not subject to the 75,000,000 metric ton limitation described in section 45Q(g) and paragraph (f) of this section.
(h) Eligibility for the section 45Q credit. The following rules determine who may claim the section 45Q credit.
(1) Person to whom the section 45Q credit is attributable. In general, the person to whom the credit is attributable is the person who may claim the credit. Except as provided in paragraph (h)(3) of this section, the section 45Q credit is attributable to the following persons—
(i) Equipment placed in service before February 9, 2018. In the case of qualified carbon oxide captured using carbon capture equipment that is originally placed in service at a qualified facility before February 9, 2018, the section 45Q credit is attributable to the person that captures and physically or contractually ensures the disposal, injection, or utilization of such qualified carbon oxide.
(ii) Equipment placed in service on or after February 9, 2018. In the case of qualified carbon oxide captured using carbon capture equipment that is originally placed in service at a qualified facility on or after February 9, 2018, the section 45Q credit is attributable to the person that owns the carbon capture equipment and physically or contractually ensures the capture and disposal, injection, or utilization of such qualified carbon oxide. For each single process train of carbon capture equipment (as described in § 1.45Q-2(c)(3)), only one taxpayer will be considered the person to whom the credit is attributable under this paragraph (h)(1)(ii). That person will be the taxpayer who either physically ensures the capture and disposal, injection, or utilization of such qualified carbon oxide or contracts with others to capture and dispose, inject, or utilize such qualified carbon oxide.
(iii) Reporting. The taxpayer described in this paragraph (h)(1) as eligible to claim the section 45Q credit must claim the credit on a Form 8933, “Carbon Dioxide Sequestration Credit,” with the taxpayer's Federal income tax return or Form 1065, “U.S. Return of Partnership Income,” for each taxable year for which the taxpayer is eligible. The taxpayer must provide the name and location of the qualified facilities at which the qualified carbon oxide was captured. If the taxpayer is claiming the section 45Q credit on an amended Federal income tax return, an amended Form 1065, or an administrative adjustment request under section 6227 (AAR), as applicable, the taxpayer must state AMENDED RETURN FOR SECTION 45Q CREDIT at the top of the amended Federal income tax return, the amended Form 1065, or the AAR, as applicable. The amended Federal income tax return or the amended Form 1065 must be filed, in any event, not later than the applicable period of limitations on filing an amended Federal income tax return or Form 1065 is being filed. A BBA partnership may make a late election by filing an AAR on or before October 15, 2021, but in any event, not later than the period of limitations on filing an AAR under section 6227(c).
(2) Contractually ensuring capture and disposal, injection, or utilization of qualified carbon oxide. In the case of qualified carbon oxide captured using carbon capture equipment which is originally placed in service at a qualified facility on or after February 9, 2018, a taxpayer is not required to physically carry out the capture and disposal, injection, or utilization of qualified carbon oxide to claim the section 45Q credit if the taxpayer contractually ensures in a binding written contract that the party that physically carries out the capture, disposal, injection, or utilization of the qualified carbon oxide does so in the manner required under section 45Q, this section and §§ 1.45Q-2, 1.45Q-3, 1.45Q-4, and 1.45Q-5. A taxpayer may enter into a binding written contract with a general contractor that hires subcontractors to physically carry out the capture, disposal, injection, or utilization of the qualified carbon oxide, but the contract must bind the subcontractors to the requirements of this paragraph (h)(2). In the case of qualified carbon oxide captured using carbon capture equipment which is originally placed in service at a qualified facility before February 9, 2018, a taxpayer that contractually ensures the capture of the qualified carbon oxide is not eligible for the section 45Q credit. However, the taxpayer is not required to physically carry out the disposal, injection, or utilization of qualified carbon oxide to claim the section 45Q credit if the taxpayer contractually ensures in a binding written contract that the party that physically carries out the disposal, injection, or utilization of the qualified carbon oxide does so in the manner required under section 45Q, this section, and §§ 1.45Q-2, 1.45Q-3, 1.45Q-4, and 1.45Q-5.
(i) Binding written contract. A written contract is binding only if it is enforceable under State law against both the taxpayer and the party that physically carries out the capture, disposal, injection, or utilization of the qualified carbon oxide, or a predecessor or successor of either, and does not limit damages to a specified amount (for example, by use of a liquidated damages provision). For this purpose, a contractual provision that limits damages to an amount equal to at least five percent of the total contract price will not be treated as limiting damages to a specified amount. For additional guidance regarding the definition of a binding written contract, see § 1.168(k)-1(b)(4)(ii)(A)-(D).
(ii) Multiple binding written contracts permitted. A taxpayer may enter into multiple binding written contracts with multiple parties for the capture, disposal, injection, or utilization of qualified carbon oxide. A party that physically carries out the capture, disposal, injection, or utilization of qualified carbon oxide may enter into multiple binding written contracts with multiple parties that own carbon capture equipment or capture or contractually ensure the capture of qualified carbon oxide.
(iii) Contract provisions. Contracts ensuring the capture, disposal, injection, or utilization of qualified carbon oxide—
(A) Must include commercially reasonable terms and provide for enforcement of the party's obligation to perform the capture, disposal, injection, or utilization of the qualified carbon oxide;
(B) May, but are not required to, include long-term liability provisions, indemnity provisions, penalties for breach of contract, or liquidated damages provisions;
(C) May, but are not required to, include information including how many metric tons of qualified carbon oxide the parties agree to dispose of, inject, or utilize;
(D) May, but are not required to, include minimum quantities that the parties agree to dispose of, inject, or utilize;
(E) Must, in the case of qualified carbon oxide that is intended to be disposed of in secure geological storage and not used as a tertiary injectant in a qualified enhanced oil or natural gas recovery project, obligate the disposing party to comply with §§ 1.45Q-3(b)(1) and (c), and, in the case of a recapture event, promptly inform the capturing party of all information that is pertinent to the recapture (e.g., location of leak, leaked amount of qualified carbon oxide, dollar value of section 45Q credit attributable to leaked qualified carbon oxide);
(F) Must, for qualified carbon oxide that is intended to be used as a tertiary injectant in a qualified enhanced oil or natural gas recovery, obligate the disposing party to comply with § 1.45Q-3(b)(2) and (c), and in the case of a recapture event, promptly inform the capturing party of all information that is pertinent to recapture of the section 45Q credit as listed in § 1.45Q-5; and
(G) Must, for qualified carbon oxide that is intended to be utilized in a manner specified in § 1.45Q-4, obligate the utilizing party to comply with § 1.45Q-4.
(iv) Pre-existing contracts. If a taxpayer entered into a contract for the capture, disposal, injection, or utilization of qualified carbon oxide prior to January 13, 2021, and that contract does not satisfy all of the requirements of this paragraph (h)(2), the taxpayer must amend its existing contract or execute a new contract that satisfies all of the requirements of this paragraph (h)(2) by July 12, 2021.
(v) Reporting of contract information. The existence of each contract and the parties involved must be reported to the IRS annually. Each party to a contract must complete a signed Form 8933 (as defined in § 1.45-2(j)) and provide information required by the instructions to Form 8933. The party that contracts with the taxpayer claiming the credit must also provide that taxpayer with a signed Form 8933 in accordance with the instructions to Form 8933. The taxpayer claiming the credit must attach and file all other signed Forms 8933 received by each other party to the contract to its own signed Form 8933. Failure of the taxpayer claiming the credit to satisfy this reporting requirement in a taxable year will result in the inability of that taxpayer to claim the credit with respect to any qualified carbon oxide that is disposed of, injected, or utilized in that taxable year pursuant to that particular contract. In addition to any information stated as required on Form 8933, the report must include the following information—
(A) The name and taxpayer identification number of the taxpayer to whom the credit is attributable;
(B) The name and taxpayer identification number of each party with whom the taxpayer has entered into a contract to ensure the disposal, injection, or utilization of qualified carbon oxide;
(C) The date each contract to ensure the disposal, injection, or utilization of qualified carbon oxide was entered into;
(D) The number of metric tons of qualified carbon oxide each contracting party disposes of, injects, or utilizes on behalf of the contracting taxpayer each taxable year for reporting to the IRS; and
(E) For contracts for the disposal of qualified carbon oxide in secure geological storage or the use of qualified carbon oxide as a tertiary injectant in enhanced oil or natural gas recovery, the name of the operator, the field, unit, and reservoir, location by county and state, and identification number assigned to the facility by the EPA's electronic Greenhouse Gas Reporting Tool (e-GGRT ID number) for submission of the facility's 40 CFR part 98 annual reports.
(vi) Relationship with election to allow section 45Q credit. A taxpayer does not elect to allow all or a portion of the credit to any of the contracting parties merely by contracting with that party to ensure the disposal, injection, or utilization of qualified carbon oxide. Any election to allow all or a portion of the credit to be claimed by another party must be made separately pursuant to paragraph (h)(3) of this section.
(3) Election to allow the section 45Q credit to another taxpayer. The taxpayer described in paragraph (h)(1) of this section as the person to whom the section 45Q credit is attributable (electing taxpayer) may elect to allow the person that enters into a contract with the electing taxpayer to dispose of the qualified carbon oxide (disposer), utilize the qualified carbon oxide (utilizer), or use the qualified carbon oxide as a tertiary injectant (injector) to claim the credit (credit claimant) (section 45Q(f)(3)(B) election). However, the electing taxpayer may not elect or otherwise allow the section 45Q credit to a contractor or subcontractor that physically captures carbon oxide on behalf of the taxpayer. For purposes of this paragraph (h)(3), the disposer or injector that is eligible to be a credit claimant is the party that obtains the permit to dispose of the qualified carbon oxide in secure geological storage. In the case of an injector that is itself a joint venture (not a federal tax partnership), only those taxpayers that hold a working interest in the joint venture may be credit claimants. A credit claimant may not allow the section 45Q credit to a subcontractor that performs the disposal, utilization, or injection for the credit claimant. The electing taxpayer may not claim any section 45Q credits that are allowable to a credit claimant. An electing taxpayer may elect to allow a credit claimant to claim the full amount or a partial amount of section 45Q credits arising during the taxable year. An electing taxpayer may elect to allow a single credit claimant or multiple credit claimants to claim section 45Q credits in the same taxable year. If an electing taxpayer elects to allow multiple credit claimants to claim section 45Q credits, the maximum amount of section 45Q credits allowable to each credit claimant is proportional to the amount of qualified carbon oxide disposed of, utilized, or used as a tertiary injectant by the credit claimant. A credit claimant may receive allowances of section 45Q credits from multiple electing taxpayers in the same taxable year. In the case of an electing taxpayer with multiple qualified facilities, the electing taxpayer must make a separate election for each qualified facility.
(i) Example. Electing Taxpayer, E, captures 1,000,000 metric tons of qualified carbon oxide with carbon capture equipment that was placed in service in 2020. In 2021, E contracts with two companies, A and B, for the disposal of the qualified carbon oxide. E is eligible for a section 45Q credit at a rate of $22.68 per metric ton, for a total section 45Q credit of $22,680,000. E contractually ensures that A will dispose of 300,000 metric tons of qualified carbon oxide and that B will dispose of 700,000 metric tons of qualified carbon oxide. E may make a section 45Q(f)(3)(B) election to allow up to $6,804,000 of section 45Q credit to A and up to $15,876,000 of section 45Q credit to B, equal to the value of the number of metric tons each party has contracted to ensure disposal, multiplied by the credit value of the metric tons disposed of.
(ii) Time and manner of making election. The electing taxpayer makes a section 45Q(f)(3)(B) election by filing a statement of election containing the information described in paragraph (h)(3)(iv) of this section with the taxpayer's Federal income tax return or Form 1065 for each taxable year in which the credit arises. The section 45Q(f)(3)(B) election must be made in accordance with Form 8933 no later than the time prescribed by law (including extensions) for filing the Federal income tax return or Form 1065 for the year in which the credit arises. The election may not be filed with an amended Federal income tax return, an amended Form 1065, or an AAR, as applicable, after the prescribed date (including extensions) for filing the original Federal income tax return or Form 1065 for the year, with the exception of amended Federal income tax returns, amended Forms 1065, or AARs, as applicable, for any taxable year ending after February 9, 2018, and beginning on or before January 13, 2021. The amended Federal income tax return or the amended Form 1065 must be filed, in any event, not later than the applicable period of limitations on assessment for the taxable year for which the amended Federal income tax return or Form 1065 is being filed. A BBA partnership may make a late election by filing an AAR on or before October 15, 2021, but in any event, not later than the period of limitations on filing an AAR under section 6227(c).
(iii) Annual election. A section 45(Q)(f)(3)(B) election is only effective for the taxable year for which it is made. A new section 45Q(f)(3)(B) election must be made for each taxable year for which an electing taxpayer wishes to allow section 45Q credits to a credit claimant.
(iv) Required information. For the section 45Q(f)(3)(B) election to be valid under paragraph (h)(3)(ii) of this section, the election statement of the electing taxpayer must be made on Form 8933 and must indicate that an election is being made under section 45Q(f)(3)(B). The electing taxpayer must provide each credit claimant with a copy of the electing taxpayer's Form 8933. The electing taxpayer must, in addition to any information required on Form 8933 set forth the following information—
(A) The electing taxpayer's name, address, taxpayer identification number, location, and e-GGRT ID number(s) (if available) of each qualified facility where qualified carbon oxide was captured;
(B) The full amount of credit attributable to the taxpayer prior to the election and the corresponding metric tons of qualified carbon oxide;
(C) The name, address, and taxpayer identification number of each credit claimant, and the name and location and e-GGRT ID number(s) (if available) of:
(i) Each secure geological storage site where the qualified carbon oxide is disposed of or injected, or
(ii) Each site where the qualified carbon oxide is utilized;
(D) The dollar amount of section 45Q credits the taxpayer is allowing each credit claimant to claim and the corresponding metric tons of qualified carbon oxide; and
(E) The dollar amount of section 45Q credits retained by the electing taxpayer and the corresponding metric tons of qualified carbon oxide.
(v) Requirements for section 45Q credit claimant. For a section 45Q(f)(3)(B) election to be valid, the section 45Q credit claimant must include the following information on Form 8933—
(A) The name, address, taxpayer identification number of the credit claimant;
(B) The name, address, and taxpayer identification number of each taxpayer making an election under section 45Q(f)(3)(B) to allow the credit to the credit claimant;
(C) The name and location and e-GGRT ID number(s) (if available) of each qualified facility where qualified carbon oxide was captured;
(D) The name and location and e-GGRT ID number(s) (if available) of:
(i) Each secure geological storage site where the qualified carbon oxide is disposed of or injected, or
(ii) Each site where the qualified carbon oxide is utilized.
(E) The full dollar amount of section 45Q credits attributable to each electing taxpayer prior to the election and the corresponding metric tons of qualified carbon oxide;
(F) The dollar amount of section 45Q credits that each electing taxpayer is allowing the credit claimant to claim and the corresponding metric tons of qualified carbon oxide; and
(G) A copy of the electing taxpayer's Form 8933. The credit claimant must include this Form 8933 with its timely filed Federal income tax return or Form 1065 (including extensions). The election may not be filed with an amended Federal income tax return, an amended Form 1065, or an AAR, as applicable, after the prescribed date (including extensions) for filing the original Federal income tax return or Form 1065 for the year, with the exception of amended Federal income tax returns, amended Forms 1065, or AARs, as applicable, for any taxable year ending after February 9, 2018, and beginning on or before January 13, 2021. The amended Federal income tax return or the amended Form 1065 must be filed, in any event, not later than the applicable period of limitations on filing an amended Federal income tax return or Form 1065. In the case of a BBA partnership, the BBA partnership may make a late election by filing an AAR on or before October 15, 2021, but in any event, not later than the period of limitations on filing an AAR under section 6227(c).
(vi) Failure to satisfy reporting requirements. With respect to any section 45Q(f)(3)(B) election, the failure of an electing taxpayer or a credit claimant to satisfy the requirements in paragraph (h)(3)(iv) or (v) in a taxable year will result in the inability to claim the credit with respect to any qualified carbon oxide that is disposed of, injected, or utilized in that taxable year pursuant to that particular election.
(i) Applicability date. This section applies to taxable years beginning on or after January 13, 2021. Taxpayers may choose to apply this section for taxable years beginning on or after January 1, 2018, provided the taxpayer applies this section and §§ 1.45Q-2, 1.45Q-3, 1.45Q-4, and 1.45Q-5 in their entirety and in a consistent manner.
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Treas. Reg. §1.45Q-1(a)In general.
In general. For purposes of section 38 of the Internal Revenue Code (Code), the carbon oxide sequestration credit is determined under section 45Q of the Code and this section (section 45Q credit). Generally, the amount of the section 45Q credit and the party that is eligible to claim the credit depend on whether the taxpayer captures qualified carbon oxide using carbon capture equipment originally placed in service at a qualified facility before February 9, 2018, or on or after February 9, 2018, and whether the taxpayer disposes of the qualified carbon oxide in secure geological storage without using it as a tertiary injectant in a qualified enhanced oil or natural gas recovery project (disposal), uses it as a tertiary injectant in a qualified enhanced oil or natural gas recovery project and disposes of it in secure geological storage (injection), or utilizes it in a manner described in section 45Q(f)(5) and § 1.45Q-4 (utilization). The section 45Q credit applies only with respect to qualified carbon oxide the capture and disposal, injection, or utilization of which is within the United States (within the meaning of section 638(1) of the Code) or a possession of the United States (within the meaning of section 638(2)).
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Treas. Reg. §1.45Q-1(b)Credit amount for carbon capture equipment originally placed in service before February 9, 2018—(1) In general.
Credit amount for carbon capture equipment originally placed in service before February 9, 2018—(1) In general. For carbon capture equipment originally placed in service at a qualified facility before February 9, 2018, the amount of credit determined under section 45Q(a) and this section is the sum of—
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Treas. Reg. §1.45Q-1(c)Credit amount for carbon capture equipment originally placed in service on or after February 9, 2018.
Credit amount for carbon capture equipment originally placed in service on or after February 9, 2018. For carbon capture equipment originally placed in service at a qualified facility on or after February 9, 2018, the amount of credit determined under section 45Q(a)(3) and (4) and this section is the sum of—
(1) The applicable dollar amount (as determined under paragraph (d)(1) and (2) of this section) per metric ton of qualified carbon oxide that is captured during the 12-year period beginning on the date the equipment was originally placed in service, and is—
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Treas. Reg. §1.45Q-1(d)Applicable dollar amount.
Applicable dollar amount. In general, the applicable dollar amount depends on whether section 45Q(a)(3) and paragraph (c)(1) of this section applies or section 45Q(a)(4) and paragraph (c)(2) of this section applies, and the calendar year in which the taxable year begins.
(1) Applicable dollar amount for any taxable year beginning in a calendar year after 2016 and before 2027 for qualified carbon oxide not used as a tertiary injectant or utilized. For purposes of section 45Q(a)(3) and paragraph (c)(1) of this section, the applicable dollar amount for each taxable year beginning in a calendar year after 2016 and before 2027 is:
(2) Applicable dollar amount for any taxable year beginning in a calendar year after 2026 for qualified carbon oxide not used as a tertiary injectant or utilized. For purposes of section 45Q(a)(3) and paragraph (c)(1) of this section, the applicable dollar amount for any taxable year beginning in any calendar year after 2026 is an amount equal to the product of $50 and the inflation adjustment factor for the calendar year determined under section 43(b)(3)(B) for the calendar year, determined by substituting “2025” for “1990.”
(3) Applicable dollar amount for any taxable year beginning in a calendar year after 2016 and before 2027 for qualified carbon oxide used as a tertiary injectant or utilized. For purposes of section 45Q(a)(4) and paragraph (c)(2) of this section, the applicable dollar amount for each taxable year beginning in a calendar year after 2016 and before 2027 is:
(4) Applicable dollar amount for any taxable year beginning in a calendar year after 2026 for qualified carbon oxide used as a tertiary injectant or utilized. For purposes of section 45Q(a)(4) and paragraph (c)(2) of this section, the applicable dollar amount for any taxable year beginning in any calendar year after 2026, is an amount equal to the product of $35 and the inflation adjustment factor for such calendar year determined under section 43(b)(3)(B) for such calendar year, determined by substituting “2025” for “1990.”
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Treas. Reg. §1.45Q-1(e)Election to apply the $10 and $20 credit amounts in lieu of the applicable dollar amounts.
Election to apply the $10 and $20 credit amounts in lieu of the applicable dollar amounts. For purposes of determining the carbon oxide sequestration credit under this section, a taxpayer may elect to have the dollar amounts applicable under section 45Q(a)(1) or (2) and paragraph (b) of this section apply in lieu of the dollar amounts applicable under section 45Q(a)(3) or (4) and paragraph (d) of this section for each metric ton of qualified carbon oxide which is captured by the taxpayer using carbon capture equipment which is originally placed in service at a qualified facility on or after February 9, 2018. The election must be made on a Form 8933 (as defined in § 1.45Q-2(j)), and applies to all metric tons of qualified carbon oxide captured by the taxpayer using carbon capture equipment which is originally placed in service at the qualified facility throughout the full 12-year credit period.
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Treas. Reg. §1.45Q-1(f)Application of section 45Q for certain carbon capture equipment placed in service before February 9, 2018.
Application of section 45Q for certain carbon capture equipment placed in service before February 9, 2018. In the case of any carbon capture equipment placed in service before February 9, 2018, the credits under section 45Q(a)(1) and (2) and paragraph (b)(1)(i) and (ii) of this section apply with respect to qualified carbon oxide captured using such equipment before the end of the calendar year in which the Secretary of the Treasury or his delegate, in consultation with the Administrator of the Environmental Protection Agency (EPA), certifies that, during the period beginning after October 3, 2008, a total of 75,000,000 metric tons of qualified carbon oxide have been taken into account in accordance with section 45Q(a), as in effect on February 8, 2018, and section 45Q(a)(1) and (2). In general, a taxpayer may not claim credits under section 45Q(a)(1) and (2) in taxable years after the year in which the 75,000,000 metric ton limit is certified with respect to carbon capture equipment placed in service before February 9, 2018. However, see § 1.45Q-2(g)(4) regarding the election for applicable facilities to treat certain carbon capture equipment as having been placed in service on February 9, 2018 (section 45Q(f)(6) election).
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Treas. Reg. §1.45Q-1(g)Installation of additional carbon capture equipment.
Installation of additional carbon capture equipment. In general, the credit amounts for property placed in service before February 9, 2018, apply to a qualified facility at which carbon capture equipment was placed in service before February 9, 2018, subject to the limitations under paragraph (f) of this section. The same qualified facility may place additional carbon capture equipment in service on or after February 9, 2018. The additional carbon capture equipment is eligible to qualify for the section 45Q credit amounts for equipment placed in service on or after February 9, 2018.
(1) Allocation of section 45Q credits for facilities installing additional carbon capture equipment. In the case of a qualified facility placed in service before February 9, 2018, for which additional carbon capture equipment is placed in service on or after February 9, 2018, the amount of qualified carbon oxide which is captured by the taxpayer is equal to—
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Treas. Reg. §1.45Q-1(h)Eligibility for the section 45Q credit.
Eligibility for the section 45Q credit. The following rules determine who may claim the section 45Q credit.
(1) Person to whom the section 45Q credit is attributable. In general, the person to whom the credit is attributable is the person who may claim the credit. Except as provided in paragraph (h)(3) of this section, the section 45Q credit is attributable to the following persons—
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Treas. Reg. §1.45Q-1(i)Applicability date.
Applicability date. This section applies to taxable years beginning on or after January 13, 2021. Taxpayers may choose to apply this section for taxable years beginning on or after January 1, 2018, provided the taxpayer applies this section and §§ 1.45Q-2, 1.45Q-3, 1.45Q-4, and 1.45Q-5 in their entirety and in a consistent manner.
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Treas. Reg. §1.45Q-1(v)Requirements for section 45Q credit claimant.
Requirements for section 45Q credit claimant. For a section 45Q(f)(3)(B) election to be valid, the section 45Q credit claimant must include the following information on Form 8933—
(A) The name, address, taxpayer identification number of the credit claimant;
(B) The name, address, and taxpayer identification number of each taxpayer making an election under section 45Q(f)(3)(B) to allow the credit to the credit claimant;
(C) The name and location and e-GGRT ID number(s) (if available) of each qualified facility where qualified carbon oxide was captured;
(D) The name and location and e-GGRT ID number(s) (if available) of:
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Treas. Reg. §1.45Q-2Definitions for Purposes of §§ 1.45Q-1 through 1.45Q-5
(a) Qualified carbon oxide. The term qualified carbon oxide means—
(1) Any carbon dioxide which—
(i) Is captured from an industrial source by carbon capture equipment which is originally placed in service before February 9, 2018,
(ii) Would otherwise be released into the atmosphere as industrial emission of greenhouse gas or lead to such release, and
(iii) Is measured at the source of capture and verified at the point of disposal, injection, or utilization; or
(2) Any carbon dioxide or other carbon oxide which—
(i) Is captured from an industrial source by carbon capture equipment which is originally placed in service on or after February 9, 2018,
(ii) Would otherwise be released into the atmosphere as industrial emission of greenhouse gas or lead to such release, and
(iii) Is measured at the source of capture and verified at the point of disposal, injection, or utilization; or
(3) In the case of a direct air capture facility, any carbon dioxide that is captured directly from the ambient air and is measured at the source of capture and verified at the point of disposal, injection, or utilization.
(b) Recycled carbon oxide. The term qualified carbon oxide includes the initial deposit of captured carbon oxide used as a tertiary injectant. Qualified carbon oxide does not include carbon oxide that is recaptured, recycled, and re-injected as part of the enhanced oil or natural gas recovery process.
(c) Carbon capture equipment. In general, carbon capture equipment includes all components of property that are used to capture or process carbon oxide until the carbon oxide is transported for disposal, injection, or utilization. Except as described in paragraph (c)(2) of this section, carbon capture equipment generally does not include components of property used for transporting qualified carbon oxide for disposal, injection, or utilization. Carbon capture equipment that is originally placed in service at a qualified facility on or after February 9, 2018, may be owned by a taxpayer other than the taxpayer that owns the industrial facility at which the carbon capture equipment is placed in service.
(1) Use of carbon capture equipment. Carbon capture equipment is equipment used for the purpose of—
(i) Separating, purifying, drying, and/or capturing carbon oxide that would otherwise be released into the atmosphere from an industrial facility;
(ii) Removing carbon oxide from the atmosphere via direct air capture; or
(iii) Compressing or otherwise increasing the pressure of carbon oxide.
(2) Carbon capture equipment components. Carbon capture equipment generally includes components of property necessary to compress, treat, process, liquefy, pump or perform some other physical action to capture qualified carbon oxide. For purposes of this paragraph (c), carbon capture equipment includes a system of gathering and distribution lines that collect carbon oxide captured from a qualified facility or multiple qualified facilities that constitute a single project (as described in section 8.01 of Notice 2020-12, 2020-11 I.R.B. 495 (see § 601.601(d)(1) and (2)(ii) of this chapter)) for the purpose of transporting that carbon oxide away from the qualified facility or single project to a pipeline used to transport carbon oxide to or from one or more taxpayers and projects.
(3) Single process train. All components that make up an independently functioning process train capable of capturing, processing, and preparing carbon oxide for transport will be treated as a single unit of carbon capture equipment.
(d) Industrial facility. An industrial facility is a facility, including an electricity generating facility, that produces a carbon oxide stream from a fuel combustion source or fuel cell, a manufacturing process, or a fugitive carbon oxide emission source that, absent capture and disposal, injection, or utilization, would otherwise be released into the atmosphere as industrial emission of greenhouse gas or lead to such release.
(1) Exclusion. An industrial facility does not include a facility that produces carbon dioxide from carbon dioxide production wells at natural carbon dioxide-bearing formations or a naturally occurring subsurface spring. For purposes of section 45Q, a carbon dioxide production well at natural carbon dioxide-bearing formations or a naturally occurring subsurface spring means a well that contains 90 percent or greater carbon dioxide by volume (90 percent test).
(2) Exception for wells at natural carbon dioxide-bearing formations or a naturally occurring subsurface spring that contain a product other than carbon dioxide. A well meeting the 90 percent test will not be treated as a carbon dioxide production well at natural carbon dioxide-bearing formations or a naturally occurring subsurface spring if:
(i) The deposit contains a product, other than carbon oxide, that is commercially viable to extract and sell without taking into account the availability of a commercial market for the carbon oxide that is extracted or any section 45Q tax credit that might be available;
(ii) The taxpayer provides an attestation to paragraph (d)(2)(i) of this section from an independent registered engineer with experience in feasibility studies for extraction of gases from the subsurface;
(iii) A direct air capture facility (defined in section 45Q(e)(1)(A)) is not used to capture carbon oxide from the gas stream; and
(iv) Any carbon oxide extracted from the deposit is used as tertiary injectant in an enhanced oil or natural gas recovery project or as feedstock of a utilization project.
(2) Industrial source. An industrial source is an emission of carbon oxide from an industrial facility.
(3) Manufacturing process. A manufacturing process is a process involving the manufacture of one or more products, other than carbon oxide, that are intended to be sold at a profit, or are used for a commercial purpose (other than producing carbon oxide). All facts and circumstances with respect to the process and products are to be taken into account.
(4) Examples. The following examples illustrate the rules of paragraph (d) of this section:
(i) Example 1. A natural underground reservoir contains a gas that is comprised of 50 percent carbon dioxide and 50 percent methane by volume. The raw gas is not usable without the application of a separation process to create two gases that are primarily carbon dioxide and methane. Taxpayer B constructs processing equipment that separates the raw gas into carbon oxide and methane. The carbon dioxide is sold to a third party for use in a qualified enhanced oil recovery project. Some of the methane is used as fuel to power the processing equipment. The remainder of the methane is injected into the reservoir. The injection will increase the ultimate recovery of carbon dioxide. The injected methane can be produced later from the reservoir. At the end of the taxable year Taxpayer B has not secured a contract to sell methane and does not have any plans to use the methane for a commercial purpose other than producing carbon oxide. Because carbon dioxide is the only product manufactured that is intended to be sold at a profit or used for a commercial purpose, the separation process applied to the gases is not a manufacturing process within the meaning of paragraph (d)(3) of this section. The carbon dioxide captured by the process is not qualified carbon oxide.
(ii) Example 2. (A) A natural underground reservoir contains a gas that is comprised of 95 percent carbon dioxide and 5 percent helium by volume. The raw gas is not usable without the application of a separation process to create two gases that are primarily carbon dioxide and helium. Taxpayer C determines that the extraction of helium is economically viable even if there were no commercial market for carbon dioxide or any section 45Q credit. An independent registered engineer attests to Taxpayer C's determination. Taxpayer C constructs processing equipment that separates the raw gas into carbon dioxide and helium. The helium is sold to various customers for use in commercial and industrial applications. The carbon dioxide is sold to a third party for use in a qualified enhanced oil recovery project. Any carbon dioxide which the third party cannot accept is returned to the reservoir or vented in accordance with applicable permits.
(B) Because the extraction of helium is economically viable even if there were no commercial market for carbon dioxide or any section 45Q credit, the reservoir will not be considered a natural carbon dioxide-bearing formation or a naturally occurring subsurface spring within the meaning of paragraph (d)(1) and the separation process applied to the gases is a manufacturing process within the meaning of paragraph (d)(3). Taxpayer C may claim the section 45Q credit with respect to the carbon dioxide sold to the third party and which the third party uses in ad oil recovery project during the taxable year. Taxpayer C may not claim the section 45Q credit with respect to the carbon dioxide that is returned to the reservoir or vented.
(e) Electricity generating facility. An electricity generating facility is a facility described in section 45Q(d)(2)(A) or (B) of the Internal Revenue Code (Code) that is subject to depreciation under MACRS Asset Class 49.11 (Electric Utility Hydraulic Production Plant), 49.12 (Electric Utility Nuclear Production Plant), 49.13 (Electric Utility Steam Production Plant), or 49.15 (Electric Utility Combustion Turbine Production Plant).
(f) Direct air capture facility. A direct air capture facility means any facility that uses carbon capture equipment to capture carbon oxide directly from the ambient air. It does not include any facility that captures carbon dioxide (1) that is deliberately released from naturally occurring subsurface springs or (2) using natural photosynthesis.
(g) Qualified facility. A qualified facility means any industrial facility or direct air capture facility, the construction of which begins before January 1, 2026, and either at which construction of carbon capture equipment begins before that date, or the original planning and design for which includes installation of carbon capture equipment, and at which carbon capture equipment is placed in service that captures the requisite annual thresholds of carbon oxide described in paragraph (g)(1) of this section. See Notice 2020-12 (see § 601.601(d)(1) and (2)(ii) of this chapter), for guidance on the determination of when construction has begun on a qualified facility or on carbon capture equipment. For purposes of whether a facility satisfies the requisite annual carbon oxide capture thresholds described in paragraph (g)(1) of this section, a taxpayer may apply the rules of section 8.01 of Notice 2020-12 (see § 601.601(d)(1) and (2)(ii) of this chapter) to treat multiple facilities as a single facility.
(1) Emissions and capture requirements. The carbon capture equipment placed in service at the qualified facility must capture—
(i) In the case of a facility, other than a direct air capture facility, which emits not more than 500,000 metric tons of carbon oxide i the atmosphere during the taxable year, at least 25,000 metric tons of qualified carbon oxide during the taxable year which is utilized in a manner consistent with section 45Q(f)(5) and § 1.45Q-4 (section 45Q(d)(2)(A) facility);
(ii) In the case of an electricity generating facility which is not a section 45Q(d)(2)(A) facility (section 45Q(d)(2)(B) facility), not less than 500,000 metric tons of qualified carbon oxide during the taxable year; and
(iii) In the case of a direct air capture facility or other facility that is not a section 45Q(d)(2)(A) facility or a section 45Q(d)(2)(B) facility, at least 100,000 metric tons of qualified carbon oxide during the taxable year.
(2) Examples. The following examples illustrate the rules of paragraph (g) of this section:
(i) Example 1. During the taxable year, an ethanol plant emits 200,000 metric tons of carbon dioxide. Carbon capture equipment located at the facility captures 35,000 metric tons of carbon dioxide, all of which are utilized in a manner consistent with section 45Q(f)(5) and § 1.45Q-4. The ethanol plant is a qualified facility under section 45Q(d)(2)(C) and § 1.45Q-2(g)(1)(i) during the taxable year because it met the requirement to capture at least 25,000 metric tons of qualified carbon oxide during the taxable year which were utilized in a manner consistent with section 45Q(f)(5) and § 1.45Q-4.
(ii) Example 2. During the taxable year, an electricity generating facility emits 600,000 metric tons of carbon dioxide. Carbon capture equipment located at the facility captures a total of 450,000 metric tons of carbon dioxide. 50,000 metric tons of the captured carbon dioxide are utilized in a manner consistent with section 45Q(f)(5) and § 1.45Q-4, and 400,000 metric tons of the carbon dioxide are disposed of in secure geological storage. The electricity generating facility is not a qualified facility under section 45Q(d)(2)(B) during the taxable year because it did not capture at least 500,000 metric tons of qualified carbon oxide during the taxable year. Further, because the electricity generating facility emitted greater than 500,000 metric tons of carbon dioxide during the taxable year, but only captured 450,000 metric tons, it is not a qualified facility under section 45Q(d)(2)(A) and § 1.45Q-2(g)(1)(ii).
(iii) Example 3. During the taxable year, a cement manufacturing plant emits 110,000 metric tons of carbon dioxide. Carbon capture equipment located at the plant captures 100,000 metric tons of carbon dioxide. 10,000 metric tons of the amount captured are utilized in a manner consistent with section 45Q(f)(5) and § 1.45Q-4, and 90,000 metric tons of carbon dioxide, are disposed of in secure geological storage. The cement manufacturing plant is a qualified facility during the taxable year because the carbon capture equipment located at the plant met the requirement under section 45Q(d)(2)(C) and § 1.45Q-2(g)(1)(i) to capture at least 100,000 metric tons of qualified carbon oxide during the taxable year.
(iv) Example 4. Taxpayer X owns and operates three natural gas processing facilities (A, B, and C) that separate carbon dioxide from natural gas. A, B, and C are all located within several miles of each other. X installed carbon capture equipment by A, B, and C. Carbon dioxide captured by A, B, and C is collected via a single system of gathering and distribution lines for delivery to a transportation pipeline. X contracts with third-party Z for the use of carbon dioxide captured by A, B, and C as a tertiary injectant pursuant to a single contract. During the taxable year, equipment at A captures 30,000 metric tons of carbon dioxide, equipment at B captures 40,000 metric tons of carbon dioxide, and equipment at C captures 50,000 tons of carbon dioxide. All other factors listed in the single project rule in section 8.01 of Notice 2020-12 support the conclusion that A, B and C are a single facility. X may treat A, B, and C as a single facility under the rules of section 8.01 of Notice 2020-12 for purposes of determining whether the requirement under section 45Q(d)(2)(C) and § 1.45Q-2(g)(1)(i), to capture at least 100,000 metric tons of qualified carbon oxide during the taxable year is satisfied. If X treats A, B, and C as a single facility, the minimum capture requirement will be satisfied for the taxable year.
(3) Annualization of first-year and last-year qualified carbon oxide emission and/or capture amounts—(i) In general. For both the taxable year in which carbon capture equipment is placed in service at a qualified facility and the taxable year in which the 12-year period described in sections 45Q(a)(3)(A) and (4)(A) and § 1.45Q-1(c)(1) and (2) ends, annualization of the amount of qualified carbon oxide emitted and captured (or captured directly from the ambient air in the case of a direct air capture facility) is permitted to determine if the threshold requirements under paragraph (g)(1) of this section are satisfied. Such annualization may result in a facility being deemed to satisfy the threshold requirements under paragraph (g)(1) of this section for the year and may permit a taxpayer to claim section 45Q credits even though the amount of qualified carbon oxide emitted or captured in the first year or last year of the 12-year period is less than the threshold requirements under paragraph (g)(1) of this section.
(ii) Calculation. Annualization is only available for the taxable year in which the carbon capture equipment is placed in service at the qualified facility and the taxable year in which the 12-year period described in sections 45Q(a)(3)(A) and (4)(A) and § 1.45Q-1(c)(1) and (2) ends. Annualized amounts must be calculated by—
(A) Determining the amount of qualified carbon oxide emitted and captured (or captured directly from the ambient air in the case of a direct air capture facility) during the taxable year in which the carbon capture equipment was placed in service at the qualified facility or the taxable year in which the 12-year period described in sections 45Q(a)(3)(A) and (4)(A) and § 1.45Q-1(c)(1) and (2) ends,
(B) Dividing the amount of qualified carbon determined under paragraph (g)(3)(ii)(A) of this section by the number of days in the period either (I) beginning with the date on which the carbon capture equipment was placed in service at the qualified facility and ending with the last day of the taxable year containing that date, or (II) beginning with the first day of the taxable year in which the 12-year period described in sections 45Q(a)(3)(A) and (4)(A) and § 1.45Q-1(c)(1) and (2) ends and ending with the last day of that 12-year period; and
(C) Multiplying by 365.
(iii) Consequences. If the annualized amounts of qualified carbon oxide emitted and captured (or captured directly from the ambient air in the case of a direct air capture facility) as calculated under this formula meet the threshold requirements under paragraph (g)(1) of this section, the threshold requirements under paragraph (g)(1) of this section are deemed satisfied for the taxable year in which the carbon capture equipment was placed in service at the qualified facility or the taxable year in which the 12-year period described in sections 45Q(a)(3)(A) and (4)(A) and § 1.45Q-1(c)(1) and (2) ends. The taxpayer may be eligible for a section 45Q credit for that taxable year but must calculate the credit based on actual amounts of qualified carbon oxide captured and disposed of, injected, or utilized during the taxable year.
(4) Election for applicable facilities. In the case of an applicable facility, for any taxable year during which such facility captures not less than 500,000 metric tons of qualified carbon oxide, the taxpayer described in section 45Q(f)(3)(A)(ii) and § 1.45Q-1(h)(1)(ii) (that is, the person that owns the carbon capture equipment and physically or contractually ensures the capture and disposal, injection or utilization of such qualified carbon oxide), may elect to have such facility, and any carbon capture equipment placed in service at such facility, deemed as having been placed in service on February 9, 2018 (section 45Q(f)(6) election). For purposes of whether a facility satisfies the 500,000 metric ton qualified carbon oxide capture threshold, a taxpayer may apply the rules of section 8.01 of Notice 2020-12 to treat multiple facilities as a single facility.
(i) Applicable facility. An applicable facility means a qualified facility described in section 45Q(f)(6)(B) and § 1.45Q-2(g) that was placed in service before February 9, 2018, for which no taxpayer claimed a section 45Q credit for qualified carbon oxide captured at the facility for any taxable year ending before February 9, 2018.
(ii) Time and manner of making election. The taxpayer described § 1.45Q-1(h)(1) makes a section 45Q(f)(6) election by filing a statement of election with the taxpayer's income tax return for each taxable year in which the credit arises. The section 45Q(f)(6) election must be made in accordance with Form 8933 filed with the taxpayer's Federal income tax return for each taxable year in which the taxpayer makes the section 45Q(f)(6) election. The statement of election must, in addition to any information required on Form 8933, set forth the electing taxpayer's name, address, taxpayer identification number, location, and e-GGRT ID number(s) (if available) of the applicable facility.
(iii) Retroactive credit revocations. A taxpayer may not file an amended Federal income tax return, an amended Form 1065, or an AAR, as applicable, for any taxable year ending before February 9, 2018, to revoke a prior claim of section 45Q credits.
(5) Retrofitted qualified facility or carbon capture equipment (80/20 Rule). A qualified facility or carbon capture equipment may qualify as originally placed in service even if it contains some used components of property, provided the fair market value of the used components of property is not more than 20 percent of the qualified facility or carbon capture equipment's total value (that is, the cost of the new components of property plus the value of the used components of property) (80/20 Rule). In determining the value of the used components of property as compared to the new components, the general principles of Revenue Ruling 94-31 (see § 601.601(d)(2)(i)(a) and (ii) of this chapter), will apply. The relevant unit of retrofitted carbon capture equipment for purposes of the 80/20 Rule is an independently functioning process train. For purposes of the 80/20 Rule, the cost of a new qualified facility or carbon capture equipment includes all properly capitalized costs of the new qualified facility or carbon capture equipment. Solely for purposes of the 80/20 Rule, properly capitalized costs of a new qualified facility or carbon capture equipment may, at the option of the taxpayer, include the cost of new equipment for a pipeline (the cost of equipment for a new pipeline, not equipment used to repair an existing pipeline) owned and used exclusively by that taxpayer to transport carbon oxides captured by that taxpayer's qualified facility or carbon capture equipment that would otherwise be emitted into the atmosphere.
(h) Qualified enhanced oil or natural gas recovery project. The term qualified enhanced oil or natural gas recovery project has the same meaning as a qualified enhanced oil recovery project under section 43(c)(2) of the Code and § 1.43-2, by substituting crude oil or natural gas for crude oil in section 43(c)(2)(A)(i) and §§ 1.43-2 and 1.43-3.
(1) Application of §§ 1.43-2 and 1.43-3. For purposes of applying §§ 1.43-2 and 1.43-3 with respect to a qualified enhanced oil or natural gas recovery project, the term enhanced oil or natural gas recovery is substituted for enhanced oil recovery, and the term oil or natural gas is substituted for oil.
(2) Required certification. The qualified enhanced oil or natural gas recovery project must be certified under § 1.43-3, even if no credit related to enhanced oil or natural gas recovery is claimed for the taxable year. For purposes of a natural gas project—
(i) The petroleum engineer's certification under § 1.43-3(a)(3) and the operator's continued certification of a project under § 1.43-3(b)(3) must include an additional statement that the certification is for purposes of the section 45Q carbon oxide sequestration tax credit;
(ii) The petroleum engineer's certification must be attached to a Form 8933 and filed not later than the last date prescribed by law (including extensions) for filing the operator's or designated owner's Federal income tax return or Form 1065 for the first taxable year in which qualified carbon oxide is injected into the reservoir; and
(iii) The operator's continued certification of a project must be attached to a Form 8933 and filed not later than the last date prescribed by law (including extensions) for filing the operator's or designated owner's Federal income tax return or Form 1065 for taxable years after the taxable year for which the petroleum engineer's certification is filed but not after the taxable year in which injection activity ceases and all injection wells are plugged and abandoned.
(3) Natural gas. Natural gas has the same meaning as under section 613A(e)(2) of the Code.
(4) Timely filing of petroleum engineer's certification. For purposes of this paragraph (h), if a section 45Q credit is claimed on an amended Federal income tax return, an amended Form 1065, or an AAR, as applicable, the petroleum engineer's certification for a natural gas project will be treated as filed timely if it is attached to a Form 8933 that is submitted with such amended Federal income tax return, amended Form 1065, or AAR. With respect to a section 45Q credit that is claimed on a timely filed Federal income tax return or Form 1065 for a taxable year ending after December 31, 2017, and beginning on or before January 13, 2021, for which the petroleum engineer's certification for a natural gas project was not submitted, the petroleum engineer's certification for a natural gas project will be treated as filed timely if it is attached to an amended Form 8933 for such taxable year.
(5) Carbon oxide injected in oil reservoir. Carbon oxide that is injected into an oil reservoir that is not a qualified enhanced oil recovery project under section 43(c)(2) due to circumstances such as the first injection of a tertiary injectant occurring before 1991, or because a petroleum engineer's certification was not timely filed, cannot be treated as qualified carbon oxide, disposed of in secure geological storage, or utilized in a manner described in section 45Q(f)(5). This rule will not apply to an oil reservoir if—
(i) The reservoir has permanently ceased oil production;
(ii) The operator has obtained an Underground Injection Control Class VI permit; and
(iii) The operator complies with 40 CFR part 98 subpart RR.
(6) Tertiary Injectant. For purposes of section 45Q, a tertiary injectant is qualified carbon oxide that is injected into and stored in a qualified enhanced oil or natural gas recovery project and contributes to the extraction of crude oil or natural gas. The term tertiary injectant has the same meaning as used in section 193(b)(1) of the Code.
(i) Section 45Q credit. The term section 45Q credit means the carbon oxide sequestration credit determined under section 45Q of the Internal Revenue Code and § 1.45Q-1.
(j) Form 8933. The term Form 8933 means Form 8933, Carbon Oxide Sequestration Credit, any successor form(s), pursuant to instructions to any of the foregoing (see § 601.602 of this chapter), or other guidance. This definition of Form 8933 applies to this section and to §§ 1.45Q-1, 1.45Q-3, 1.45Q-4, and 1.45Q-5.
(k) Applicability date. This section applies to taxable years beginning on or after January 13, 2021. Taxpayers may choose to apply this section for taxable years beginning on or after January 1, 2018, provided the taxpayer applies this section and §§ 1.45Q-1, 1.45Q-3, 1.45Q-4, and 1.45Q-5 in their entirety and in a consistent manner.
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