[Federal Register Volume 85, Number 106 (Tuesday, June 2, 2020)]
[Proposed Rules]
[Pages 34050-34075]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-11907]



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Vol. 85

Tuesday,

No. 106

June 2, 2020

Part IV





 Department of the Treasury





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Internal Revenue Service





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26 CFR Part 1





Credit for Carbon Oxide Sequestration; Proposed Rule

  Federal Register / Vol. 85 , No. 106 / Tuesday, June 2, 2020 / 
Proposed Rules  

[[Page 34050]]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-112339-19]
RIN 1545-BP42


Credit for Carbon Oxide Sequestration

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document contains proposed regulations regarding the 
credit for carbon oxide sequestration under section 45Q of the Internal 
Revenue Code (Code). These proposed regulations will affect persons who 
physically or contractually ensure the capture and disposal of 
qualified carbon oxide, use of qualified carbon oxide as a tertiary 
injectant in a qualified enhanced oil or natural gas recovery project, 
or utilization of qualified carbon oxide in a manner that qualifies for 
the credit.

DATES: Written or electronic comments and requests for a public hearing 
must be received by August 3, 2020. Requests for a public hearing must 
be submitted as prescribed in the ``Comments and Requests for a Public 
Hearing'' section.

ADDRESSES: Commenters are strongly encouraged to submit public comments 
electronically. Submit electronic submissions via the Federal 
eRulemaking Portal at www.regulations.gov (indicate IRS and REG-112339-
19) by following the online instructions for submitting comments. Once 
submitted to the Federal eRulemaking Portal, comments cannot be edited 
or withdrawn. The IRS expects to have limited personnel available to 
process public comments that are submitted on paper through mail. Until 
further notice, any comments submitted on paper will be considered to 
the extent practicable. The Department of the Treasury (Treasury 
Department) and the IRS will publish for public availability any 
comment submitted electronically, and to the extent practicable on 
paper, to its public docket.
    Send paper submissions to: CC:PA:LPD:PR (REG-112339-19), Room 5203, 
Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, 
Washington, DC 20044.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Maggie Stehn of the Office of Associate Chief Counsel (Passthroughs & 
Special Industries) at (202) 317-6853; concerning submissions of 
comments and/or requests for a public hearing, Regina L. Johnson at 
(202) 317-5177 (not toll-free numbers).

SUPPLEMENTARY INFORMATION: 

Background

    This document contains proposed amendments to the Income Tax 
Regulations (26 CFR part 1) under section 45Q of the Code (proposed 
regulations).
    Section 45Q was enacted on October 3, 2008, by section 115 of 
Division B of the Energy Improvement and Extension Act of 2008, Public 
Law 110-343, 122 Stat. 3765, 3829, to provide a credit for the 
sequestration of carbon oxide. On February 17, 2009, section 45Q was 
amended by section 1131 of Division B of the American Recovery and 
Reinvestment Tax Act of 2009, Public Law 111-5, 123 Stat. 115, 325. 
Section 45Q was further amended on December 19, 2014, by section 
209(j)(1) of Division A of the Tax Increase Prevention Act of 2014, 
Public Law 113-295, 128 Stat. 4010, 4030, and most recently on February 
9, 2018, by section 41119 of Division D of the Bipartisan Budget Act of 
2018 (BBA), Public Law 115-123, 132 Stat. 64, 162, to encourage the 
construction and use of carbon capture and sequestration projects.
    On May 20, 2019, the IRS published Notice 2019-32, 2019-21 I.R.B. 
1187. The notice requested general comments on issues arising under 
section 45Q, as well as specific comments concerning secure geological 
storage, the measurement of qualified carbon oxide, the recapture of 
the benefit of the credit for carbon oxide sequestration, the types of 
utilization that qualify for the credit, the beginning of construction, 
partnership arrangements, definitions of terms, and other issues 
related to the credit. The IRS received 116 comments from industry 
participants, environmental groups, and other stakeholders.
    In response to comments submitted pursuant to Notice 2019-32, on 
March 9, 2020, the Treasury Department and the IRS published Revenue 
Procedure 2020-12, 2020-11 I.R.B. 511, and Notice 2020-12, 2020-11 
I.R.B. 495. Revenue Procedure 2020-12 provides a safe harbor under 
which the IRS will treat partnerships as properly allocating the 
section 45Q credit in accordance with section 704(b). Notice 2020-12 
provides guidance on the determination of when construction has begun 
on a qualified facility or on carbon capture equipment that may be 
eligible for the section 45Q credit. As requested by commenters, the 
safe harbor in Revenue Procedure 2020-12 and the rules in Notice 2020-
12 are similar to those provided in prior guidance.
    Pursuant to section 45Q(h), the Secretary of the Treasury or his 
delegate (Secretary) may prescribe such regulations and other guidance 
as may be necessary or appropriate to carry out section 45Q, including 
regulations or other guidance to (i) ensure proper allocation under 
section 45Q(a) for qualified carbon oxide captured by a taxpayer during 
the taxable year ending after the date of the enactment of the BBA, and 
(ii) determine whether a facility satisfies the requirements under 
section 45Q(d)(1).

Summary of Comments and Explanation of Provisions

1. General Credit Provisions

a. Credit Amount in General
    Section 45Q(a)(1) allows a credit of $20 per metric ton of 
qualified carbon oxide (i) 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 BBA (February 9, 
2018); (ii) disposed of by the taxpayer in secure geological storage; 
and (iii) neither used by the taxpayer as a tertiary injectant in a 
qualified enhanced oil or natural gas recovery project nor utilized in 
a manner described in section 45Q(f)(5).
    Section 45Q(a)(2) allows a credit of $10 per metric ton of 
qualified carbon oxide (i) captured by the taxpayer using carbon 
capture equipment which is originally placed in service at a qualified 
facility before February 9, 2018; and (ii) either (A) 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) utilized by the taxpayer in a manner 
described in section 45Q(f)(5).
    Section 45Q(a)(3) allows a credit of the applicable dollar amount 
(as determined under section 45Q(b)(1)) per metric ton of qualified 
carbon oxide (i) captured by the taxpayer using carbon capture 
equipment which is originally placed in service at a qualified facility 
on or after February 9, 2018, during the 12-year period beginning on 
the date the equipment was originally placed in service; (ii) disposed 
of by the taxpayer in secure geological storage; and (iii) neither used 
by the taxpayer as a tertiary injectant in a qualified enhanced oil or 
natural gas recovery project nor utilized in a manner described in 
section 45Q(f)(5).
    Section 45Q(a)(4) allows a credit of the applicable dollar amount 
(as determined under section 45Q(b)(1)) per

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metric ton of qualified carbon oxide (i) captured by the taxpayer using 
carbon capture equipment which is originally placed in service at a 
qualified facility on or after February 9, 2018, during the 12-year 
period beginning on the date the equipment was originally placed in 
service; and (ii) either (A) 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) 
utilized by the taxpayer in a manner described in section 45Q(f)(5).
    Section 45Q(b)(1)(A)(i)(I) and (ii)(I) provides that the applicable 
dollar amount for activities under section 45Q(a)(3) for any taxable 
year beginning in a calendar year (1) after 2016 and before 2027 is an 
amount equal to the dollar amount established by linear interpolation 
between $22.66 and $50 for each calendar year during such period, and 
(2) after 2026 is an amount equal to the product of $50 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.''
    Section 45Q(b)(1)(A)(i)(II) and (ii)(II) provides that the 
applicable dollar amount for activities under section 45Q(d)(4) for any 
taxable year beginning in a calendar year (1) after 2016 and before 
2027 is an amount equal to the dollar amount established by linear 
interpolation between $12.83 and $35 for each calendar year during such 
period, and (2) 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.'' Section 45Q(b)(1)(B) provides that the 
applicable dollar amount determined under section 45Q(b)(1)(A) is 
rounded to the nearest cent.
    Section 45Q(b)(2) provides a method to compute the amount of 
qualified carbon oxide captured at a qualified facility that was placed 
in service before February 9, 2018, and for which additional carbon 
capture equipment is placed in service on or after February 9, 2018. 
For purposes of section 45Q(a)(1)(A) and (2)(A), the amount of 
qualified carbon oxide that is captured by the taxpayer is equal to the 
lesser of (i) the total amount of qualified carbon oxide captured at 
such facility for the taxable year, or (ii) the total amount of the 
carbon dioxide capture capacity of the carbon capture equipment in 
service at such facility on February 8, 2018 (the day before the date 
of enactment of the BBA). For purposes of section 45Q(a)(3)(A) and 
(4)(A), the amount of qualified carbon oxide captured by the taxpayer 
is an amount (not less than zero) equal to the excess of (i) the total 
amount of qualified carbon oxide captured at such facility for the 
taxable year, over (ii) the total amount of the carbon dioxide capture 
capacity of the carbon capture equipment in service at such facility on 
February 8, 2018. These proposed regulations explain the difference 
between a physical modification or equipment addition that results in 
an increase in the carbon dioxide capture capacity of existing carbon 
capture equipment, which will be treated as newly placed in service, 
and a mere increase in the amount of carbon dioxide captured by 
existing carbon capture equipment, which will not be treated as newly 
placed in service.
    Pursuant to section 45Q(b)(3), a taxpayer may elect to have the 
dollar amounts applicable under section 45Q(a)(1) or (2) apply in lieu 
of the dollar amounts applicable under section 45Q(a)(3) or (4) 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. These 
proposed regulations provide that the election will apply to all metric 
tons of qualified carbon oxide captured by the taxpayer at the 
qualified facility for the full 12-year credit period.
    Section 45Q(f)(6)(A) provides that for any taxable year in which an 
applicable facility captures not less than 500,000 metric tons of 
qualified carbon oxide, the person described in section 
45Q(f)(3)(A)(ii) may elect to have such applicable facility, and any 
carbon capture equipment placed in service at such applicable facility, 
deemed as having been placed in service on February 9, 2018. The term 
``applicable facility'' means a qualified facility (i) which was placed 
in service before February 9, 2018, and (ii) for which no taxpayer 
claimed a section 45Q credit for any taxable year ending before 
February 9, 2018.
    Section 45Q(f)(7) provides that in the case of any taxable year 
beginning in a calendar year after 2009, there is substituted for each 
dollar amount contained in section 45Q(a)(1) and (2) 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.''
    Section 45Q(g) provides that in the case of any carbon capture 
equipment placed in service before February 9, 2018, the section 45Q 
credit applies with respect to qualified carbon oxide captured using 
such equipment before the end of the calendar year in which the 
Secretary, in consultation with the Administrator of the Environmental 
Protection Agency (EPA), certifies that a total of 75,000,000 metric 
tons of qualified carbon oxide have been taken into account in 
accordance with former section 45Q(a) (as in effect before February 9, 
2018) and sections 45Q(a)(1) and (2).
    These proposed regulations reflect the statutory provisions 
relating to credit amounts.
b. Contractually Ensuring Capture and Disposal, Injection, or 
Utilization of Qualified Carbon Oxide
    Section 45Q(f)(3)(A)(i) provides that 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, the section 45Q credit is attributable to the person that 
captures and physically or contractually ensures the disposal through 
secure geological storage (referred to as disposal), use for tertiary 
injection and disposal through secure geological storage (referred to 
as injection) or utilization in a manner consistent with section 
45Q(f)(5) (referred to as utilization).
    Section 45Q(f)(3)(A)(ii) provides that 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, 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.
    Commenters requested that the Treasury Department and the IRS 
clarify which contract provisions are necessary to contractually ensure 
the capture and disposal, injection, or utilization of qualified carbon 
oxide. Several commenters requested broad guidance on commercially 
reasonable terms rather than specifying exact language. One commenter 
requested guidance regarding the assurance of capture, remedies, 
guarantees, and the prevention of leakage.
    In response, the proposed regulations provide a framework for the 
types of contracts, terms, and reporting requirements that will 
demonstrate the contractual assurance of the capture and disposal, 
injection, or utilization of qualified carbon oxide. The proposed 
regulations provide that a taxpayer may

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enter into multiple contracts with multiple parties for the disposal, 
injection, or utilization of qualified carbon oxide. For example, a 
taxpayer that captures qualified carbon oxide may contract with one 
party to dispose of a portion of its captured qualified carbon oxide in 
a deep saline formation, with another party to use another portion of 
its captured qualified carbon oxide as a tertiary injectant in multiple 
enhanced oil recovery (EOR) sites, and with several parties to utilize 
the remaining portion of its captured qualified carbon oxide. The 
existence of each contract and the parties involved must be reported to 
the IRS on an annual basis on Form 8933, Carbon Oxide Sequestration 
Credit (or successor forms, or pursuant to instructions and other 
guidance). For contracts for the disposal of carbon oxide or use as a 
tertiary injectant in enhanced oil or natural gas recovery, the 
following information must be included: Identifying information (name 
of operator, field, unit and reservoir), the location (county and 
state) and the identification number assigned to the facility by the 
EPA's electronic Greenhouse Gas Reporting Tool (e-GGRT ID number). The 
e-GGRT ID number will allow the IRS to reconcile information with data 
reported to the EPA's Greenhouse Gas Reporting Program (GHGRP) and 
otherwise receive technical assistance from the EPA.
    The proposed regulations require taxpayers to contractually ensure 
the disposal, injection, or utilization of qualified carbon oxide in a 
binding written contract that includes commercially reasonable terms 
that provides for enforcement. The proposed regulations provide that 
taxpayers may include information regarding how much carbon oxide the 
parties agree to dispose of, inject, or utilize in their contracts. 
Contracts may also include various other specific provisions relating 
to enforcement, such as long-term liability provisions, indemnity 
provisions, or penalties for breach of contract or liquidated damages. 
While the proposed regulations require that the contract include a 
mechanism for enforcement, no specific enforcement-related provision, 
or other particular kind of enforcement provision, are mandated by 
these proposed regulations. This is consistent with allowing 
contracting parties to tailor their agreements to a wide variety of 
business needs and circumstances.
    Under the proposed regulations, a taxpayer does not elect to allow 
all or a portion of the section 45Q 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 another taxpayer must be made 
separately in the manner provided in these proposed regulations.
c. Election To Allow the Credit to Another Taxpayer
    Section 45Q(f)(3)(B) provides that a person that is entitled to 
claim the credit under section 45Q(f)(3)(A)(i) or section 
45Q(f)(3)(A)(ii) may elect to allow the person that disposes of the 
qualified carbon oxide, utilizes the qualified carbon oxide, or uses 
the qualified carbon oxide as a tertiary injectant to claim the credit 
(section 45Q(f)(3)(B) election).
    Commenters requested guidance regarding the section 45Q(f)(3)(B) 
election. Commenters generally sought to maximize the ability of the 
taxpayer to whom the section 45Q credit is attributable (electing 
taxpayer) to make the section 45Q credit allowable to one or more other 
taxpayers (credit claimants) pursuant to the section 45Q(f)(3)(B) 
election. Commenters also generally requested that guidance provide 
that section 45Q(f)(3)(B) elections may be made on an annual basis. One 
commenter requested that guidance provide for a broader range of 
permissible credit claimants, including an owner, operator, service 
company, supplier, partner, or tax equity or other project finance 
participant.
    One commenter suggested that the section 45Q(f)(3)(B) election 
should be made in the taxable year that the qualified carbon oxide is 
disposed of, utilized, or used as a tertiary injectant. The commenter 
recommended that the election procedures follow the procedures for 
making a section 338(h)(10) election. Further, commenters suggested 
that Forms 8933 should be filed by all parties to the section 
45Q(f)(3)(B) election with their respective tax returns for the taxable 
year in which the qualifying activity is completed.
    Other commenters suggested that a taxpayer should make a section 
45Q(f)(3)(B) election for a taxable year by attaching a statement to a 
timely filed income tax return (including extensions) for the taxable 
year. Further, commenters suggested that a taxpayer should be permitted 
to make a section 45Q(f)(3)(B) election for a portion of the section 
45Q credit. The portion allowed to a credit claimant would be specified 
in the electing taxpayer's annual election as a percentage of the total 
credit claimed.
    One commenter noted that when a taxpayer makes a section 
45Q(f)(3)(B) election, the electing taxpayer should no longer claim the 
section 45Q credit subject to the election. To ensure compliance with 
this rule, the commenter suggested that the guidance and the relevant 
tax forms (i.e., Form 8933) require coordination between the electing 
taxpayer and the credit claimant. For example, the credit claimant 
could be required to include a copy of the electing taxpayer's section 
45Q(f)(3)(B) election to allow the credit.
    In response to these comments, the proposed regulations provide 
guidance regarding who may make a section 45Q(f)(3)(B) election and the 
time and manner for making a section 45Q(f)(3)(B) election. The 
proposed regulations also provide that section 45Q(f)(3)(B) elections 
must be made on an annual basis no later than the time prescribed by 
law (including extensions) for filing the Federal income tax return or 
Form 1065 and may not be made on an amended Federal income tax return. 
However, a section 45Q(f)(3)(B) election may be made on an amended 
Federal income tax return, an amended Form 1065 or an administrative 
adjustment request under section 6227 of the Code (AAR), for any 
taxable year ending after February 9, 2018, but not for taxable years 
beginning after June 2, 2020.
    The proposed regulations also set forth information to be provided 
as part of a section 45Q(f)(3)(B) election, requiring both an electing 
taxpayer and a credit claimant to include a Form 8933 (or successor 
forms, or pursuant to instructions and other guidance) with its timely 
filed Federal income tax return or Form 1065, U.S. Return of 
Partnership Income (including extensions) as applicable. An electing 
taxpayer must provide each credit claimant with a copy of the electing 
taxpayer's Form 8933, and each credit claimant must attach that copy of 
the electing taxpayer's Form 8933 to its own Form 8933.
    The proposed regulations further provide that section 45Q(f)(3)(B) 
elections may be made for all or a portion of the available section 45Q 
credit and may be made for a single or multiple credit claimants. If an 
electing taxpayer elects to allow multiple credit claimants to claim 
section 45Q credits, the proposed regulations provide that 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. In 
addition, as provided in Revenue Procedure 2020-23, 2020-18 I.R.B.1 
(April 27, 2020), the exception applies regarding the time to

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file an amended return by a partnership subject to the centralized 
partnership audit regime enacted as part of the BBA (BBA partnership) 
for the 2018 and 2019 taxable years. The amended Federal income tax 
return or the amended Form 1065 must be filed, in no event, 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. In the case of a BBA partnership that chooses not to file an 
amended Form 1065 as permitted under Revenue Procedure 2020-23, the BBA 
partnership may make a late election by filing an AAR on or before 
October 15, 2021, but in no event, later than the applicable period of 
limitations on making adjustments under section 6235 for the reviewed 
year, as defined in Sec.  301.6241-1(a)(8) of the Procedure and 
Administration Regulations (26 CFR part 301).
d. Amended Returns
    Taxpayers may claim section 45Q credits on an amended Federal 
income tax return, an amended Form 1065, or an AAR, as applicable, for 
taxable years beginning on or after February 9, 2018, provided that the 
requirements described in the proposed regulations are satisfied. In 
addition, as provided in Revenue Procedure 2020-23, the exception 
applies regarding the time to file an amended return by a BBA 
partnership for the 2018 and 2019 taxable years. The amended Federal 
income tax return or the amended Form 1065 must be filed, in no event, 
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. In the case of a BBA partnership that chooses not 
to file an amended Form 1065 as permitted under Revenue Procedure 2020-
23, the BBA partnership may make a late election by filing an AAR on or 
before October 15, 2021, but in no event, later than the applicable 
period of limitations on making adjustments under section 6235 for the 
reviewed year, as defined in Sec.  301.6241-1(a)(8) of the Procedure 
and Administration Regulations (26 CFR part 301). However, section 
45Q(f)(3)(B) elections may not be made on amended returns for taxable 
years beginning after the date of issuance of these proposed 
regulations.

2. Definitions

a. Qualified Carbon Oxide
    Section 45Q(c) provides that ``qualified carbon oxide'' means (A) 
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; (B) 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 (C) in the case of a direct air 
capture facility, any carbon dioxide which (i) is captured directly 
from ambient air; and (ii) is measured at the source of capture and 
verified at the point of disposal, injection, or utilization.
    While ``qualified carbon oxide'' includes the initial deposit of 
captured carbon oxide used as a tertiary injectant, section 45Q(c)(2) 
provides that the term does not include carbon oxide that is 
recaptured, recycled, and re-injected as part of the qualified enhanced 
oil or natural gas recovery process. Additionally, section 45Q(f)(1) 
provides that the section 45Q credit apples 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)), or a possession of the United States (within the 
meaning of section 638(2)).
    Commenters suggested generally that the statutory definition of 
qualified carbon oxide is sufficient, and did not seek additional 
clarification. The Treasury Department and the IRS agree that the 
statutory definition of qualified carbon oxide is clear due to the 
broad acceptance and use of the term by industry participants, 
environmental groups, and stakeholders. Therefore, the proposed 
regulations generally conform to the statutory definition of qualified 
carbon oxide, including the provision that only qualified carbon oxide 
captured and disposed of, injected, or utilized within the United 
States or a possession of the United States is taken into account. 
Therefore, the proposed regulations generally conform to the statutory 
definition of qualified carbon oxide, including the provision that only 
qualified carbon oxide captured and disposed of, injected, or utilized 
within the United States or a possession of the United States is taken 
into account.
b. Carbon Capture Equipment
    Section 45Q does not define carbon capture equipment. One commenter 
suggested that carbon capture equipment be broadly defined as, ``any 
system that but for its presence and application, the carbon oxides 
captured at a qualifying industrial facility and on which a section 45Q 
credit is earned would have been vented into the atmosphere.'' Another 
commenter suggested that the definition allow for maximum flexibility 
to encompass a complete configuration of equipment including separate 
units, processing units, processing plants, pipe, buildings, pumps, 
compressors, meters, facilities, motors, fixtures, materials, and 
machinery, and all other improvements used for the purpose of: (1) 
Separating and/or capturing carbon dioxide that would otherwise be 
released into the atmosphere from a qualifying facility; (2) 
compressing or otherwise increasing the pressure of carbon dioxide; or 
(3) transporting, disposing, injecting, and/or utilizing qualified 
carbon oxide.
    Finally, some commenters suggested that the definition of carbon 
capture equipment should be limited to the equipment that functions to 
capture the carbon oxides from any industrial source. The commenters 
explained that once the carbon oxides are captured, equipment having a 
separate function such as compression, liquefaction, transportation, or 
pumping, should not be included in the definition of carbon capture 
equipment.
    The Treasury Department and the IRS agree that carbon capture 
equipment generally should be defined in terms of its functionality. 
The proposed regulations provide that 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. Further, the proposed regulations 
list specific items that are included in, or excluded from the 
definition of carbon capture equipment. Components of property related 
to the function of capturing carbon oxides, such as components of 
property necessary to compress, treat, process, liquefy, or pump carbon 
oxides, are included within the definition of carbon capture equipment. 
Components of property related to transporting carbon oxides for 
disposal, injection, or utilization are not included in the general 
definition.
c. Qualified Facility
    Section 45Q(d) provides that ``qualified facility'' means any 
industrial facility or direct air capture facility, the

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construction of which begins before January 1, 2024, and (i) the 
construction of carbon capture equipment begins before such date; or 
(ii) the original planning and design for such facility includes 
installation of carbon capture equipment. In addition, a qualified 
facility must capture: (i) In the case of a facility which emits not 
more than 500,000 metric tons of carbon oxide into the atmosphere 
during the taxable year, not less than 25,000 metric tons of qualified 
carbon oxide during the taxable year which is utilized in a manner 
described in section 45Q(f)(5) (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; 
or (iii) in the case of a direct air capture facility or any facility 
which is not a Section 45Q(d)(2)(A) Facility or a Section 45Q(d)(2)(B) 
Facility, not less than 100,000 metric tons of qualified carbon oxide 
during the taxable year.
    Some commenters requested that the proposed regulations incorporate 
the ``80/20 Rule'' set forth in Rev. Rul. 94-31, 1994-1 C.B. 16, which 
held that for section 45 purposes a facility that contains some used 
property would still qualify as originally placed in service, provided 
the fair market value of the used property is not more than 20 percent 
of the facility's total value. Commenters requested the inclusion of 
this rule because the section 45Q credit amounts depend on whether 
carbon capture equipment is placed in service before February 9, 2018, 
or on or after that date.
    The proposed regulations adopt the 80/20 Rule and provide that a 
qualified facility or carbon capture equipment may qualify as 
originally placed in service even though 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 (the cost of the new 
components of property plus the value of the used components of 
property). 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 owned 
and used exclusively by that taxpayer to transport carbon oxides 
captured from that taxpayer's qualified facility that would otherwise 
be emitted into the atmosphere.
d. Industrial Facility
    Section 45Q does not define the term ``industrial facility.'' 
Commenters suggested that an ``industrial facility'' should be defined 
as a facility that produces a carbon oxide stream from a fuel 
combustion source, 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. They also 
recommended that the term not include a facility that produces carbon 
dioxide through carbon dioxide production wells at natural carbon 
dioxide-bearing formations. This definition is consistent with the 
definition of industrial facility provided in section 3.03 of Notice 
2020-12. The proposed regulations adopt this definition.
e. Direct Air Capture Facility
    Section 45Q(e)(1) provides that the term ``direct air capture 
facility'' means any facility which uses carbon capture equipment to 
capture carbon dioxide directly from the ambient air, except the term 
does not include any facility which captures carbon dioxide that is 
deliberately released from naturally occurring subsurface springs or 
using natural photosynthesis.
    Generally, commenters did not request that the definition of 
``direct air capture facility'' be clarified. One commenter suggested 
that ``direct air capture facility'' include certain algae. Although 
section 45Q(f)(5)(A)(i) provides that photosynthesis or chemosynthesis 
is a permitted type of utilization of qualified carbon oxide, the 
statutory definition of a ``direct air capture facility'' excludes any 
facility that captures carbon dioxide using natural photosynthesis. 
Therefore, the proposed regulations do not adopt the commenter's 
suggestion.

3. Secure Geological Storage

    Section 45Q(f)(2) provides that the Secretary, in consultation with 
the Administrator of the EPA, the Secretary of Energy, and the 
Secretary of the Interior, must establish regulations for determining 
adequate security measures for the geological storage of qualified 
carbon oxide under section 45Q(a) such that the qualified carbon oxide 
does not escape into the atmosphere. Such term includes storage at deep 
saline formations, oil and gas reservoirs, and unminable coal seams 
under such conditions as the Secretary may determine under such 
regulations.
    Injection of carbon oxide into any underground reservoir, onshore 
or offshore under submerged lands within the territorial jurisdiction 
of States, requires the operator to comply with Underground Injection 
Control (UIC) program regulations and to obtain the appropriate UIC 
well permits. Under 40 CFR 146.5 (Classification of injection wells) 
Class II may be an appropriate UIC well permit for wells which inject 
fluids (including carbon dioxide) brought to the surface in connection 
with conventional oil or natural gas production and may be commingled 
with waste waters from gas plants that are an integral part of 
production operations, unless those fluids are classified as a 
hazardous waste at the time of injection, and for wells which inject 
fluids (including carbon oxides) for enhanced recovery of oil or 
natural gas. Class VI is an appropriate UIC well permit for wells that 
are not experimental in nature that are used for geologic sequestration 
of carbon dioxide beneath the lowermost formation containing an 
underground source of drinking water; or, for wells used for geologic 
sequestration of carbon dioxide that have been granted a waiver of the 
injection depth requirements pursuant to requirements at 40 CFR 146.95; 
or, for wells used for geologic sequestration of carbon dioxide that 
have received an expansion to the areal extent of an existing Class II 
enhanced oil recovery or enhanced gas recovery aquifer exemption 
pursuant to Sec. Sec.  146.4 and 144.7(d) of 40 CFR.
    Operators that inject carbon dioxide underground are also subject 
to the EPA's GHGRP requirements set forth at 40 CFR part 98. Under 40 
CFR part 98 subpart RR (Geologic Sequestration of Carbon Dioxide source 
category, referred to as subpart RR), certain facilities, including UIC 
Class VI wells, are required to report basic information on carbon 
dioxide received for injection, develop and implement an EPA-approved 
site-specific Monitoring, Reporting, and Verification Plan (MRV Plan), 
and report the amount of carbon dioxide geologically sequestered using 
a mass balance approach and annual monitoring activities. Under 40 CFR 
part 98 subpart UU (Injection of Carbon Dioxide source category, 
referred to as subpart UU), all other facilities that inject carbon 
dioxide underground such as for EOR or any other purpose, are required 
to report basic information on carbon dioxide received for injection. 
Facilities that conduct EOR are not required by 40 CFR part 98 to 
report under subpart RR unless (1) the owner

[[Page 34055]]

or operator chooses to opt into subpart RR or, (2) the facility holds a 
UIC Class VI permit for the well or group of wells used for EOR. Annual 
reports that are submitted under 40 CFR part 98 to the EPA's GHGRP 
undergo verification by the EPA, and non-confidential data from these 
reports are published on the EPA's website.
    Commenters noted that Form 8933 defines ``secure geological 
storage'' for purposes of section 45Q as requiring approval by the EPA 
of an MRV Plan. Thus, meeting the Form 8933 conditions would be 
achieved currently by receiving either (i) a UIC Class VI permit plus 
an EPA-approved MRV Plan, which UIC Class VI permit holders are already 
required to have because they are subject to subpart RR; or (ii) a UIC 
Class II permit plus an EPA-approved MRV Plan. The Form 8933 
requirement that UIC Class II permit holders receive an approved MRV 
Plan for purposes of the section 45Q credit creates an additional 
burden on such holders. Some commenters expressed concern that being 
required to opt into subpart RR may create a misalignment with state 
mineral property and natural resource conservation laws, as well as 
accepted industry practices and commercial arrangements. Therefore, the 
commenters generally requested that the Treasury Department and the IRS 
provide alternatives to opting into subpart RR for demonstrating secure 
geological storage for EOR projects.
    Many commenters suggested that a standard adopted by the 
International Organization for Standardization (ISO) and endorsed by 
the American National Standards Institute (ANSI), CSA/ANSI ISO 
27916:19, ``Carbon Dioxide Capture, Transportation and Geological 
Storage--Carbon Dioxide Storage Using Enhanced Oil Recovery 
(CO2-EOR),'' is a viable alternative to subpart RR for 
establishing secure geological storage for the use of qualified carbon 
oxide for EOR.
    The CSA/ANSI ISO 27916:19 standard was developed for the purpose of 
quantifying and documenting the total carbon dioxide that is stored in 
association with EOR. In general, reporting under CSA/ANSI ISO 27916:19 
uses mass balance accounting, has established reporting and 
documentation requirements, and includes requirements for documenting a 
monitoring program and a containment assurance plan.
    Some of the commenters advocating for the application of the CSA/
ANSI ISO 27916:19 standard emphasized the importance and need for 
public acceptance and input, transparent public filings, credible 
third-party audits and certifications, and government oversight and 
enforcement. For example, some commenters suggested that the proposed 
regulations require that all relevant documentation of the amount of 
qualified carbon oxide stored for purposes of the section 45Q credit be 
retained and made available for public review and the total quantity of 
qualified carbon oxide stored for long-term containment be reported 
annually. The Treasury Department and the IRS appreciate the importance 
of shared and open information in this context and encourage 
transparency. However, there is no statutory requirement in section 45Q 
for taxpayers, Federal agencies, or industry groups to pubicly display 
this information or otherwise make it available. In addition, the IRS 
is itself limited in what it can disclose because of the rules 
prohibiting the public disclosure of taxpayer information under section 
6103.
    Some commenters also requested that the Treasury Department and the 
IRS recognize the standards for secure geological storage required by 
government entities with regulatory primacy, and also recommended that 
states be allowed to certify the secure geological storage of qualified 
carbon oxide. The commenters noted that the EPA has approved primary 
enforcement authority (primacy) for UIC Class II wells for more than 
half the states. Primacy permits a state, tribe, or territory to 
implement and oversee its own EPA approved program. One commenter 
requested that the IRS clarify that a valid UIC Class VI permit issued 
under the authority of the EPA includes permits issued by a state that 
has received final approval from the EPA of its primacy application 
under section 1422 of the Safe Water Drinking Act to implement a Class 
VI UIC Program. The commenter also suggested that use of an accounting 
methodology consistent with the mass balance equation under subpart RR 
be adequate to establish secure geological storage.
    The Treasury Department and the IRS, in consultation with the EPA, 
DOE, and the Department of Interior (Interior Department), agree that 
providing CSA/ANSI ISO 27916:19 as an alternative for UIC Class II 
wells is a viable quantification methodology that is appropriate for 
these purposes. Both subpart RR and CSA/ANSI ISO 27916:19 require an 
assessment and monitoring of potential leakage pathways; quantification 
of inputs, losses and storage through a mass balance approach; and 
documentation of steps and approaches. Operators of UIC Class II wells 
that follow the CSA/ANSI ISO 27916:19 standard could elect to report to 
the EPA's GHGRP under subpart RR but would not be required to do so. 
Rather, they could continue to report to the EPA under subpart UU.
    The Treasury Department and the IRS, in consultation with the EPA, 
DOE, and the Interior Department, disagree with suggestions to allow 
the reporting rules promulgated by states as an alternative to subpart 
RR or CSA/ANSI ISO 27916:19. Reporting rules among states are not 
uniform and states may have different reporting requirements and 
different governing bodies to whom carbon dioxide injection projects 
are required to report. Adopting such rules would not promote 
uniformity, and would increase the administrative burden on the IRS 
significantly.
    Consequently, the proposed regulations allow the CSA/ANSI ISO 
27916:19 standard as an alternative to subpart RR for UIC Class II 
wells using qualified carbon oxide for EOR, but do not allow standards 
set by states as an alternative to subpart RR. In addition, the 
proposed regulations do not provide for an alternative to subpart RR 
reporting for UIC Class VI wells because all UIC Class VI wells are 
already subject to subpart RR reporting requirements. A taxpayer that 
reported volumes of carbon oxide to the EPA pursuant to subpart RR may 
self-certify the volume of carbon oxide claimed for purposes of section 
45Q. Alternatively, if a taxpayer determined volumes pursuant to CSA/
ANSI ISO 27916:19, the taxpayer may prepare documentation as outlined 
in CSA/ANSI 27916:2019 internally, but such documentation must be 
provided to a qualified independent engineer or geologist, who then 
must certify that the documentation provided, including the mass 
balance calculations as well as information regarding monitoring and 
containment assurance, is accurate and complete.

4. Utilization of Qualified Carbon Oxide

    Section 45Q(f)(5)(A) provides that ``utilization of qualified 
carbon oxide'' means (i) the fixation of such qualified carbon oxide 
through photosynthesis or chemosynthesis, such as through the growing 
of algae or bacteria; (ii) the chemical conversion of such qualified 
carbon oxide to a material or chemical compound in which such qualified 
carbon oxide is securely stored; or (iii) 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.

[[Page 34056]]

    Section 45Q(f)(5)(B) provides a methodology to determine the amount 
of qualified carbon oxide utilized by the taxpayer. Such amount is 
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 
EPA, determines appropriate, were (i) captured and permanently isolated 
from the atmosphere, or (ii) displaced from being emitted into the 
atmosphere, through use of a process described in section 45Q(f)(5)(A). 
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)(H)), as in effect on February 9, 
2018, except that ``product'' is substituted for ``fuel'' each place it 
appears in such subparagraph.
    Commenters generally sought guidance about the methodologies 
required to prepare an acceptable life cycle analysis (LCA) that 
demonstrates the amount of qualified carbon oxide utilized, as well as 
the boundaries required for the LCA.
    One commenter requested that guidance establish clear guidelines 
for the preparation of an LCA by applicants to demonstrate the net 
reduction or avoidance of carbon dioxide achieved through its 
utilization by the taxpayer. Because LCA requires selection of 
comparative data, the commenter recommended that the LCA undergo a 
review by a third party, determined by the IRS, to assess the 
reasonableness of the assumptions, factors and calculations used by the 
applicant.
    Other commenters suggested using the Greenhouse Gases, Regulated 
Emissions, and Energy Use in Transportation (GREET) model, or an 
adaptation of it adopted by the California Air Resources Board, to 
perform LCA of transportation fuels, and further suggested using both a 
basic method and a safe harbor method. The GREET model is a tool that 
examines the life-cycle impacts of vehicle technologies, fuels, 
products, and energy systems. It provides a transparent platform 
through which energy and vehicle producers, researchers, and regulators 
can evaluate energy and environmental effects of vehicle technologies 
and energy and product systems. For any given energy and vehicle 
system, GREET can calculate total energy consumption (non-renewable and 
renewable), emissions of air pollutants, emissions of greenhouse gases, 
and water consumption.
    One commenter suggested that the LCA, as reviewed by the relevant 
governmental agency, should determine whether any release of embodied 
qualified carbon oxide is possible for a specific utilization project. 
If so, the commenter recommended that recapture be addressed in the 
LCA. The commenter requested guidance regarding the types of LCA models 
that are appropriate, and recommended the GREET model.
    Another commenter suggested that the IRS should not adopt a 
specific methodology or approach to calculating lifecycle emissions. 
Instead, the commenter recommended that guidance make clear that models 
that are acceptable to the EPA will also be acceptable for purposes of 
section 45Q. The commenter suggested that the LCA model for section 45Q 
purposes should be one that is recognized by the EPA based on its use 
in the Renewable Fuel Standard or other program administered by the 
EPA. The commenter further recommended that if the capture and 
utilization of carbon oxides also generates other greenhouse gas 
detriments, such as an increase in emissions over the base case, those 
greenhouse gases caused by the utilization should be adjusted to 
account for the relative global warming potential. Similarly, if the 
capture and utilization of carbon oxides reduce greenhouse gas 
emissions over the base case, the commenter argued that those benefits 
should also be credited.
    One commenter sought guidance on the boundaries for LCA to 
determine displacement of carbon dioxide and recommended that lifecycle 
emissions include the entirety of the lifecycle.
    Several commenters expressed the view that an MRV Plan or any 
accredited LCA performed by a qualified firm as determined by the IRS 
could be suitable for establishing boundaries for lifecycle emissions 
for qualified carbon oxide utilization. Further, commenters suggested 
that there should be contractual proof to track the supply chain and 
ensure that the MRV Plan is followed according to the annual LCA.
    Some commenters suggested that guidance require EOR operators to 
provide a full lifecycle greenhouse gas emissions analysis that, like 
the requirements for utilization, includes all stages of product and 
feedstock production and distribution, from feedstock generation or 
extraction through the distribution and delivery and use of the 
finished product to the ultimate consumer. The commenters requested 
that the IRS make public all lifecycle emissions calculations.
    One commenter made the following suggestions. First, taxpayers 
should use an independent consulting firm or other similar independent 
entity to undertake the LCA. Second, taxpayers should insure that an 
LCA model is realistic and has been used widely by the LCA industry. 
Third, an LCA must be commercially available to anyone and must be able 
to be examined in any audit by the IRS. Fourth, taxpayers should use an 
LCA that compares a base case of making the product produced by 
utilization without carbon capture to the modeled utilization case 
using qualified carbon oxide to determine what greenhouse gases were 
displaced from being emitted into the atmosphere. Finally, taxpayers 
must use an LCA which models all ``greenhouse gases'' as defined in the 
Clean Air Act in determining the net impact of such greenhouse gases 
generated or reduced in utilization of qualified carbon oxide.
    One commenter suggested that the IRS should provide a safe harbor 
for taxpayers that retain a third-party firm to undertake the LCA. 
However, the commenter stated that while a safe harbor would be 
helpful, third-party verification should not be mandatory, as many 
taxpayers may have sufficient engineering expertise in-house and some 
smaller projects may not support the extra cost of third-party 
verification.
    In response to the commenters, the proposed regulations conform the 
definition of utilization to the statutory definition. The Treasury 
Department and the IRS, in consultation with the EPA and the DOE, 
concluded that the LCA must be in writing and either performed or 
verified by a professionally-licensed third party that uses generally-
accepted standard practices of quantifying the greenhouse gas emissions 
of a product or process and comparing that impact to a baseline. In 
particular, the analysis must contain documentation consistent with the 
International Organization for Standardization (ISO) 14044:2006, 
``Environmental management--Life cycle assessment--Requirements and 
Guidelines,'' as well as a statement documenting the qualifications of 
the third party. Although the section 45Q credit is only available with 
respect to qualified carbon oxides, all greenhouse gas emissions are 
taken into account under this analysis. The proposed regulations 
require a taxpayer to submit an LCA report to the IRS and the DOE. The 
LCA will be subject to a technical review by the DOE, and the IRS, in 
consultation with the DOE and the EPA, will determine whether to 
approve the

[[Page 34057]]

LCA. The Treasury Department and the IRS request comments on how to 
achieve consistency in boundaries and baselines so that similarly 
situated taxpayers will be treated consistently. The Treasury 
Department and the IRS are willing to consider issuing guidance on 
particular fact patterns.
    The proposed regulations do not define commercial markets or 
provide for Standards of Lifecycle Analysis. The Treasury Department 
and the IRS continue to study these issues and request comments.

5. Credit Recapture

    Section 45Q(f)(4) directs the Secretary to provide regulations for 
recapturing the benefit of any section 45Q credit allowable 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 section 45Q.
    Commenters sought guidance about the method for measuring the 
amount of leaked qualified carbon oxide subject to recapture (recapture 
amount), the method for calculating recapture, and the open period 
during which a recapture event may occur (recapture period).
    All of these issues require a definition of the recapture period. 
The proposed regulations provide that the recapture period begins on 
the date of the first injection of qualified carbon oxide for disposal 
in secure geological storage or use as a tertiary injectant and ends 
the earlier of five years after the last taxable year in which the 
taxpayer claimed a section 45Q credit or the date monitoring ends under 
subpart RR requirements or the CSA/ANSI ISO 27916:19 standard.
    For clarity we will describe two sub-portions of the recapture 
period, the ``post-credit-claiming period'' and the ``lookback 
period''. The ``post-credit-claiming period'' is the period after the 
end of the twelve year credit period during which a leak can result in 
recapture, whereas the ``lookback period'' is the portion of the 
recapture period during which the IRS can look back after a leakage 
event to recapture credits. Most commenters supported a lookback period 
of three to five years.
    Commenters generally suggested that if a recapture event occurs 
with respect to storage of qualified carbon oxide, then the taxpayer 
must add the recapture amount to the amount of tax due in the taxable 
year in which the recapture event occurs, as opposed to attributing the 
leak to past tax years and amending those returns.
    Commenters also suggested that a recapture event should occur when 
qualified carbon oxide, for which a section 45Q credit has been 
allowed, ceases to be stored in secure geological storage if the amount 
of leakage of qualified carbon oxide in a taxable year exceeds the 
amount of qualified carbon oxide stored in that same taxable year. In 
other words, they suggested that a leak would first offset the 
immediate tax year's claimed credits and then be an addition to tax, as 
opposed to auditing and amending past tax returns.
    One commenter stated that the standard for measuring recapture of 
the section 45Q credit should be the mass balance calculations that are 
used for determining the amount of qualified carbon oxide stored in 
secure geological storage. The commenter noted that these mass balance 
calculations effectively establish a last-in/first-out (LIFO) 
accounting method that assumes current year releases offset current 
year injections for the qualified carbon oxide that is in secure 
geological storage.
    Several commenters requested a safe harbor for recapture, providing 
that recapture will not apply so long as the injection operator is 
operating in compliance with any standards set by the Treasury 
Department and the IRS for secure geological storage of the qualified 
carbon oxide. These commenters asserted that if the injection operator 
is in compliance with the secure geological storage standards at the 
time of a release, any release or leakage of the qualified carbon oxide 
would be offset by current year injections of qualified carbon oxide. 
If the injection operator is not operating in compliance with the 
standards for secure geological storage at the time of the release, the 
commenters recommended that any recapture be calculated on a LIFO basis 
against previously taken section 45Q credits when the injection 
operator was in compliance with the secure geological storage 
standards.
    The proposed regulations do not provide a recapture safe harbor, 
but do limit the recapture period similar to the recapture provisions 
for investment credit property under section 50(a)(1). Specifically, 
the proposed regulations provide that any recapture amount will be 
accounted for in the taxable year that it is identified and reported. 
If, during the recapture period, a taxpayer, operator, or regulatory 
agency determines that qualified carbon oxide has leaked to the 
atmosphere, the taxpayer will have a recapture amount if the leaked 
amount of qualified carbon oxide exceeds the amount of qualified carbon 
dioxide disposed of in secure geological storage or used as a tertiary 
injectant in that taxable year. That excess amount of leaked qualified 
carbon oxide will be recaptured at a credit rate calculated on a LIFO 
basis (that is, the excess leaked qualified carbon oxide will be deemed 
attributable first to the first preceding year, then to second 
preceding year, and then up to the fifth preceding year) to simplify 
the calculation of the recapture amount.
    The taxpayer must add the amount of the recaptured section 45Q tax 
credit to the amount of tax due in the taxable year in which the 
recapture event occurs. Consistent with this five-year lookback period, 
the proposed regulations provide that the post-credit-claiming period 
ends the earlier of (i) five years after the last taxable year in which 
the taxpayer claimed a section 45Q credit or (ii) the date monitoring 
ends under the requirements of the subpart RR standard or the CSA/ANSI 
ISO 27916:19 standard.
    The proposed regulations also provide that in the event of a 
recapture event with respect to a secure geological storage location in 
which the stored qualified carbon oxide had been captured from more 
than one unit of carbon capture equipment that was not under common 
ownership, the recapture amount must be allocated among the taxpayers 
that own the multiple units of carbon capture equipment pro rata on the 
basis of the amount of qualified carbon oxide captured from each of the 
multiple units of carbon capture equipment.
    Similarly, the proposed regulations provide that in the event of a 
recapture event where the leaked amount of qualified carbon oxide is 
deemed attributable to qualified carbon oxide with respect to which 
multiple taxpayers claimed section 45Q credit amounts, the recapture 
amount is allocated on a pro rata basis among the taxpayers that 
claimed the section 45Q credits.
    The proposed regulations provide a limited exception to recapture 
in the event of a leakage of qualified carbon oxide resulting from 
actions not related to the selection, operation, or maintenance of the 
storage facility, such as volcanic activity or a terrorist attack. 
Finally, the proposed regulations provide that if qualified carbon 
oxide is deliberately removed from a secure storage site, a recapture 
event occurs in the year in which the qualified carbon oxide is removed 
from its original storage.
    As noted in section 4.08 of Revenue Procedure 2020-12, a taxpayer 
may obtain third-party recapture insurance to protect against 
recapture.
    The Treasury Department and the IRS request comments on how to 
apply the

[[Page 34058]]

recapture provisions to section 45Q credits that are carried forward to 
future taxable years due to insuffificent income tax liability in the 
current taxable year.

Effect on Other Documents

    Sections 1 through 5 of Notice 2009-83, 2009-2 C.B. 588, as 
modified by Notice 2011-25, 2011-1 C.B. 604, are obsoleted. The 
remaining sections of Notice 2009-83 provide reporting and 
recordkeeping requirements associated with the limitation on credits 
available under former section 45Q(a) (as in effect before February 9, 
2018) and sections 45Q(a)(1) and (2). After the end of the calendar 
year in which the Secretary, in consultation with the Administrator of 
the EPA, certifies that a total of 75,000,000 metric tons of qualified 
carbon oxide have been taken into account under former section 45Q(a) 
(as in effect before February 9, 2018) and sections 45Q(a)(1) and (2), 
the remaining sections of Notice 2009-83 will be obsoleted.

Proposed Effective/Applicability Date

    The regulations are proposed to apply to taxable years beginning on 
or after the date the Treasury decision adopting these regulations as 
final regulations is published in the Federal Register. However, 
taxpayers may choose to apply the final regulations for taxable years 
beginning on or after February 9, 2018, and before the date the 
Treasury decision adopting these regulations as final regulations is 
published in the Federal Register. See section 7805(b)(7). 
Alternatively, taxpayers may rely on these proposed regulations for 
taxable years beginning on or after February 9, 2018, and before the 
date the Treasury decision adopting these regulations as final 
regulations is published in the Federal Register, provided the 
taxpayers follow the proposed regulations in their entirety and in a 
consistent manner.

Statement of Availability for IRS Documents

    For copies of recently issued Revenue Procedures, Revenue Rulings, 
Notices, and other guidance published in the Internal Revenue Bulletin, 
please visit the IRS website at http://www.irs.gov.

Special Analyses

I. Regulatory Planning and Review--Economic Analysis

    Executive Orders 13563, 13771, and 12866 direct agencies to assess 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, of reducing costs, of harmonizing rules, and of promoting 
flexibility. The preliminary E.O. 13771 designation is deregulatory.
    These regulations have been designated by the Office of Management 
and Budget's Office of Information and Regulatory Affairs (OIRA) as 
economically significant under Executive Order 12866 pursuant to the 
Memorandum of Agreement (April 11, 2018) between the Treasury 
Department and the Office of Management and Budget regarding review of 
tax regulations.

A. Background and Overview

    Section 45Q was enacted on October 3, 2008, by section 115 of 
Division B of the Energy Improvement and Extension Act of 2008, Public 
Law 110-343, 122 Stat. 3765, 3829, to provide a credit for the 
sequestration of carbon dioxide. On February 17, 2009, section 45Q was 
amended by section 1131 of Division B of the American Recovery and 
Reinvestment Tax Act of 2009, Public Law 111-5, 123 Stat. 115, 325. 
Section 45Q was further amended on December 19, 2014, by section 
209(j)(1) of Division A of the Tax Increase Prevention Act of 2014, 
Public Law 113-295, 128 Stat. 4010, 4030, and most recently on February 
9, 2018, by section 41119 of Division D of the Bipartisan Budget Act of 
2018 (BBA), Public Law 115-123, 132 Stat. 64, 162.
    On May 20, 2019, the IRS published Notice 2019-32, 2019-21 I.R.B. 
1187. The notice requested general comments on issues arising under 
section 45Q, as well as specific comments concerning the secure 
geological storage and measurement of qualified carbon oxide, and the 
recapture of the benefit of the credit for carbon oxide sequestration. 
The IRS received 116 comments from industry members, environmental 
groups, and other stakeholders.
    In addition, the Treasury Department and the IRS published Revenue 
Procedure 2020-12, 2020-11 I.R.B. 511, and Notice 2020-12, 2020-11 
I.R.B. 495. Revenue Procedure 2020-12 provides a safe harbor under 
which the IRS will treat partnerships as properly allocating the 
section 45Q credit in accordance with section 704(b). Notice 2020-12 
provides guidance on the determination of when construction has begun 
on a qualified facility or on carbon capture equipment that may be 
eligible for the section 45Q credit.
    Section 45Q generally allows a credit of an amount per metric ton 
of qualified carbon oxide captured by the taxpayer using carbon capture 
equipment. This qualified carbon oxide must be captured according to 
the statute in one of three general manners. First, it may be disposed 
of in secure geological storage. This would occur if it were injected 
into a geologic formation, such as a deep saline formation, an oil and 
gas reservoir, or an unminable coal seam.
    Second, the qualified carbon oxide may be used as a tertiary 
injectant in a qualified enhanced oil or natural gas recovery project 
and disposed of in secure geological storage. 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.
    Third, the qualified carbon oxide may be ``utilized'' by fixing it 
through photosynthesis or chemosynthesis, converting it to a material 
or chemical compound in which it is securely stored, or using it for 
any other purpose for which a commercial market exists. ``Utilization'' 
generally means the qualified carbon oxide was captured and permanently 
isolated from the atmosphere, or displaced from being emitted into the 
atmosphere. Calculation of the amount utilized is based on an analysis 
of lifecycle greenhouse gas emissions.
    The amount of the credit depends on the date the carbon capture 
equipment is placed in service and whether the qualified carbon oxide 
is disposed of in secure storage, injected, or utilized. Different 
rules and credit amounts apply to qualified carbon oxide capture 
projects placed in service before and after the date the enactment of 
the BBA on February 9, 2018. Based on annual reports filed with the IRS 
as of May, 2019, the aggregate amount of qualified carbon oxide taken 
into account for purposes of section 45Q was 62,740,171 metric tons. 
This is an increase of 2,972,247 metric tons from the preceding 
year.\1\ According to data reported to the EPA's Greenhouse Gas 
Reporting Program (GHGRP), there were 65 enhanced oil recovery (EOR) 
projects operating in the U.S. in 2018. As of 2019, the National 
Petroleum Council, an oil and natural gas advisory committee to the 
Secretary of Energy, reports that there were 10 carbon capture, 
utilization, and storage projects in the United States. DOE models 
project that the section 45Q credit may

[[Page 34059]]

result in the sequestration of approximately 570 million metric tons of 
carbon oxides between 2018 and 2036.
---------------------------------------------------------------------------

    \1\ These data are available in Notice 2018-40, 2018-20 I.R.B. 
583, and Notice 2019-31, 2019-20 I.R.B. 1181.
---------------------------------------------------------------------------

B. Need for Regulation

    The proposed regulations provide guidance regarding the application 
of section 45Q. Section 45Q requires regulations for determining 
adequate security measures for the secure geological storage of 
qualified carbon oxide such that it does not escape into the 
atmosphere, standards for recapture of section 45Q credits, and 
standards for carbon oxide utilization.

C. Economic Analysis

1. Baseline
    The Treasury Department and the IRS have assessed the economic 
impacts of the final regulations relative to a no-action baseline 
reflecting anticipated Federal income tax-related behavior in the 
absence of these regulations.
2. Economic Rationale for Issuing Guidance for the 2018 BBA
    The Treasury Department and the IRS anticipate that the issuance of 
guidance pertaining to section 45Q will provide greater clarity in 
definitions than the alternative of having no further descriptions than 
the statute; more flexibility in methods to establish qualifications 
for the credit relative to prior guidance; and more transparency 
regarding business arrangements related to the section 45Q credit 
relative to the baseline. These features may lower compliance burden 
and increase economic investment by lowering regulatory barriers to 
entry, compared to a baseline of having only the statue and not the 
regulations.
3. Economic Analysis of Specific Provisions
    The final regulations embody certain regulatory decisions that 
reflect necessary regulatory discretion. These decisions specify more 
fully how the section 45Q credit is to be implemented.
i. Standard for Secure Geological Storage
a. Background
    Section 45Q(f)(2) provides that the Secretary, in consultation with 
the Administrator of the EPA, the Secretary of Energy, and the 
Secretary of the Interior, must establish regulations for determining 
adequate security measures for the secure geological storage of 
qualified carbon oxide under section 45Q such that qualified carbon 
oxide does not escape into the atmosphere. Such term includes storage 
at deep saline formations, oil and gas reservoirs, and unminable coal 
seams under such conditions as the Secretary may determine under such 
regulations.
    Under existing law, injection of carbon oxide into any underground 
reservoir requires the operator to comply with EPA's Underground 
Injection Control (UIC) program regulations and to obtain the 
appropriate UIC well permits. The UIC program is designed to protect 
underground sources of drinking water from underground injection. 
Operators that inject carbon dioxide underground are also subject to 
the EPA's GHGRP requirements set forth at 40 CFR part 98.
    Under 40 CFR part 98, facilities that inject carbon dioxide 
underground for long-term containment of carbon dioxide in subsurface 
geologic formations are specifically subject to 40 CFR part 98 subpart 
RR (Geologic Sequestration of Carbon Dioxide source category, referred 
to as subpart RR). Facilities that are subject to subpart RR, including 
UIC Class VI wells, are required to report basic information on carbon 
dioxide received for injection, develop and implement an EPA-approved 
site-specific Monitoring, Reporting, and Verification Plan (MRV Plans); 
and report the amount of carbon dioxide geologically sequestered using 
a mass balance approach and annual monitoring activities.
    Facilities that inject carbon dioxide underground for the purposes 
of enhanced oil (EOR) and gas recovery or any other purpose other than 
geologic sequestration are required to report basic information on 
carbon dioxide received for injection under 40 CFR part 98 subpart UU 
(Injection of Carbon Dioxide source category, referred to as subpart 
UU). At present, the EPA does not generally require facilities that 
conduct EOR to report under subpart RR. However, the owner or operator 
may voluntarily choose to opt in to subpart RR. For both subparts RR 
and UU, annual reports are submitted under 40 CFR part 98 to the EPA's 
GHGRP and undergo verification by the EPA. Non-confidential data from 
these reports are published on the EPA's website.
b. Comments Received
    Commenters noted that in order to qualify for section 45Q credits, 
IRS Form 8933 defines ``secure geological storage'' as requiring 
approval by the EPA of an MRV Plan under 40 CFR part 98 subpart RR. 
Thus, meeting the Form 8933 conditions would currently be achieved by 
receiving either (i) a UIC Class VI permit plus an EPA-approved MRV 
Plan, which UIC Class VI permit holders are already required to have 
because they are subject to subpart RR; or (ii) a UIC Class II permit 
plus an EPA-approved MRV Plan, which requires UIC Class II permit 
holders to opt in to subpart RR. In this manner, the Form 8933 
requirement that UIC Class II permit holders receive an approved MRV 
Plan creates an additional burden on such holders because- it requires 
them to opt in to subpart RR to receive section 45Q credits. In 
addition, some commenters expressed concern that a requirement that 
they opt in to subpart RR, in addition to being a supplementary 
requirement, may create a misalignment with state mineral property and 
natural resource conservation laws.
    Commenters supported the continued use of subpart RR, but most 
commenters sought an alternative method in addition to subpart RR. Many 
of these commenters considered the subpart RR requirements burdensome, 
for the reasons noted immediately above.
    Many commenters suggested that a standard adopted by the 
International Organization for Standardization (ISO) and endorsed by 
the American National Standards Institute (ANSI), CSA/ANSI ISO 27916:19 
standard, ``Carbon dioxide capture, transportation and geological 
storage--Carbon dioxide storage using enhanced oil recovery 
(CO2-EOR),'' (CSA/ANSI ISO 27916:19) is a viable alternative 
to subpart RR for establishing secure geological storage for the use of 
qualified carbon oxide for EOR.
    The CSA/ANSI ISO 27916:19 was developed for the purpose of 
quantifying and documenting the total carbon dioxide that is stored in 
association with carbon dioxide-EOR. In general, reporting under CSA/
ANSI ISO 27916:19 (i) uses mass balance accounting, (ii) has 
established reporting and documentation requirements, and (iii) 
includes requirements for documenting a monitoring program and a 
containment assurance plan. ANSI, a not-for-profit organization 
dedicated to supporting the U.S. voluntary standards and conformity 
assessment system, adopted the CSA/ANSI ISO 27916:19 standard in 2019.
c. Regulatory Alternatives and Analysis
    The Treasury Department and the IRS considered three options for 
defining standards for secure geological storage: (i) The requirements 
set forth in 40 CFR part 98 subpart RR; (ii) an election for the 
taxpayer to comply with either the subpart RR standards or the 
requirements set forth in CSA/ANSI ISO 27916:19 and (iii) other 
alternatives to

[[Page 34060]]

subpart RR, including allowing use of state programs.
    In evaluating option (ii), the Treasury Department and the IRS, in 
consultation with the EPA, the DOE, and the Interior Department, agree 
with commenters that CSA/ANSI ISO 27916:19 is a viable quantification 
methodology that is adequate for the intent and purpose of the statute. 
Both subpart RR and CSA/ANSI ISO 27916:19 require an assessment and 
monitoring of potential leakage pathways; quantification of inputs, 
losses and storage through a mass balance approach; and documentation 
of steps and approaches. Under option (ii), operators of UIC Class II 
wells that follow the CSA/ANSI ISO 27916:19 standard could elect to 
report under subpart RR but would not be required to do so. Rather, 
they could continue to report to the EPA under subpart UU.
    The Treasury Department and the IRS, in consultation with the EPA, 
the DOE, and the Interior Department, disagree with commenter 
suggestions to allow the reporting rules promulgated by states as an 
alternative to subpart RR or CSA/ANSI ISO 27916:19. Reporting rules 
among states are not uniform and states may have different reporting 
requirements and different governing bodies to whom carbon dioxide 
injection projects are required to report. The adoption of such rules 
by the Treasury Department and the IRS would substantially increase the 
administrative burden on the IRS. The Treasury Department and the IRS 
did not attempt to determine to what extent particular states' 
standards would fulfill the intent and purpose of the statute.
    The ability for taxpayers to elect to use the CSA/ANSI ISO 27916:19 
standard instead of subpart RR could yield economic differences in 
three ways. First, if the two standards are different in their costs of 
compliance, then allowing a choice allows EOR project operators to 
choose the less costly standard. This would reduce costs of compliance 
and regulatory burden. Second, to the extent that the difference in 
compliance costs between the two standards is high and that difference 
is a significant portion of start-up costs, then allowing a less 
expensive standard might lead to more investment and more new projects. 
Third, operators can use the option that best aligns with their project 
goals and timeframes. The Treasury Department and the IRS project that 
compliance costs for some taxpayers may be lower under the CSA/ANSI ISO 
27916:19 standard than under subpart RR. Some commenters stated that 
subpart RR may create a misalignment for UIC Class II wells with both 
state mineral property and natural resource conservation laws; and that 
such potential misalignment would be costly to taxpayers. This stated 
misalignment would not be implicated with the use of the ISO standards.
    The Treasury Department and the IRS recognize that the two 
standards differ in terms of who would be responsible for reviewing and 
approving a sequestration plan and for identifying leakage once a 
project is in place. In addition, the standards differ because unless 
otherwise required by law, the CSA/ANSI ISO 27916:19 standard does not 
require public reports of the amount of qualified carbon oxide 
sequestered, whereas the subpart RR standard does entail the public 
provision of such data. The Treasury Department and the IRS did not 
attempt to analyze the economic consequences of these differences.
    The Treasury Department and the IRS did not attempt to provide 
quantitative estimates of the difference in compliance costs between 
the CSA/ANSI ISO 27916:19 standard and a regulatory alternative of 
requiring only subpart RR because suitable data are not readily 
available at this level of detail. Further, the Treasury Department and 
IRS did not attempt to estimate the effects of compliance cost 
differences on investment or sequestration.
    The Treasury Department and the IRS solicit comments on these 
findings and particularly solicit data, models, or other evidence that 
could enhance the rigor with which the final regulations are developed.
ii. Credit Recapture
    Section 45Q(f)(4) requires the Treasury Department and the IRS to 
promulgate regulations to provide for the recapture of section 45Q 
credits in the event of leakage. ``Recapture'' refers to the repayment 
of the tax credits claimed, and not to the capturing of CO2 
that may have leaked from the project after being injected.
    In response to Notice 2019-32, 2019-21 I.R.B. 1187, several 
commenters requested clarification regarding credit recapture, 
including (i) when the tax would be due in relation to the year of a 
recapture event, (ii) how long the IRS can ``look back'' to recapture 
credits in the event of leakage (lookback period), and (iii) the length 
of time after ceasing to claim credits during which a leakage event 
would lead to recapture of credits.
    All of these issues require a definition of the recapture period. 
The proposed regulations provide that the recapture period begins on 
the date of the first injection of qualified carbon oxide for disposal 
in secure geological storage or use as a tertiary injectant and ends 
the earlier of five years after the last taxable year in which the 
taxpayer claimed a section 45Q credit or the date monitoring ends under 
subpart RR requirements or the CSA/ANSI ISO 27916:19 standard.
    For clarity we will describe two sub-portions of the recapture 
period, the ``post-credit-claiming period'' and the ``lookback 
period''. The ``post-credit-claiming period'' is the lesser of 5 years 
after the last taxable year in which the taxpayer claimed a section 45Q 
credit or the date monitoring ends under subpart RR requirements or the 
CSA/ANSI ISO 27916:19 standard. Depending on the project's individual 
requirements, the post-credit-claiming period is therefore between zero 
and five years. Whereas the ``lookback period'' is the portion of the 
recapture period during which the IRS can look back after a leakage 
event to recapture credits. Most commenters supported a lookback period 
of three to five years.
    A leakage event that leads to recapture of credits can occur any 
time during the recapture period. A leakage event that occurs after the 
recapture period would not lead to recapture of credits.
    The proposed regulations provide that any recapture amount will be 
accounted for in the taxable year that it is identified and reported. 
The amount of credits that can be recaptured in the event of leakage 
depends on the length of the lookback period and the amount of the 
leakage.
    If, during the recapture period, it is determined that qualified 
carbon oxide has leaked to the atmosphere, the taxpayer will have a 
recapture amount if the leaked amount of qualified carbon oxide exceeds 
the amount of qualified carbon dioxide disposed of in secure geological 
storage or used as a tertiary injectant in that taxable year. That 
excess amount of leaked qualified carbon oxide will be recaptured at a 
credit rate calculated on a LIFO basis (that is, such excess leaked 
qualified carbon oxide will be deemed attributable first to the first 
preceding year, then to second preceding year, and so forth up to five 
years) for ease of administration. The taxpayer must add the amount of 
the recaptured section 45Q tax credit to the amount of tax due in the 
taxable year in which the recapture event occurs. This rule applies 
regardless of whether the project injected qualified carbon oxide in 
the taxable year.
    In response to Notice 2019-32, commenters expressed concerns with 
how long the length of a lookback period after the project operator 
stops

[[Page 34061]]

claiming section 45Q credits (for example, if the project is finished 
or the period for claiming credits ends) that a leakage event can lead 
to recapture. Commenters were concerned that investors would deem the 
risk too high to invest if the end of the recapture period extended too 
long after the final year of claiming section 45Q credits. To address 
this concern the proposed regulations provide that the recapture period 
begins on the date of first injection of qualified carbon oxide for 
disposal in secure geological storage or use as a tertiary injectant 
and ends the earlier of three years after the last taxable year in 
which the taxpayer claimed a section 45Q credit or the date monitoring 
ends under subpart RR requirements or the CSA/ANSI ISO 27916:19 
standard.
    The Treasury Department and the IRS considered alternative 
specifications for the lookback period other than five years. Open-
ended or undefined lookback periods would increase the financial risk 
associated with the project and dissuade investors, particularly for 
projects for which the section 45Q credit would constitute a sizeable 
share of revenue. The proposed regulations, by allowing for a specific 
and finite lookback period, will encourage more investment in projects 
relative to an unspecified or infinite period. The Treasury Department 
and the IRS, in consultation with the EPA, the DOE, and the Interior 
Department, have determined that for the period after the lookback 
period, existing environmental regulations and standards will ensure 
integrity consistent with the intent and purpose of the statute.
    In examining possible lookback periods, the Treasury Department and 
the IRS have not developed a quantitative model to incorporate the 
costs of monitoring and the probability of leakage along with the tax 
administration burden involved in the lookback period.
    The Treasury Department and the IRS welcome comments on the length 
of the lookback period and particularly solicit data, models, or other 
evidence that could enhance the rigor with which the final regulations 
are developed.
iii. Utilization of Qualified Carbon Oxide
    Section 45Q(f)(5)(A) provides that ``utilization of qualified 
carbon oxide'' means (i) the fixation of such qualified carbon oxide 
through photosynthesis or chemosynthesis, such as through the growing 
of algae or bacteria; (ii) the chemical conversion of such qualified 
carbon oxide to a material or chemical compound in which such qualified 
carbon oxide is securely stored; or (iii) 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.
    Section 45Q(f)(5)(B) provides a methodology to determine the amount 
of qualified carbon oxide utilized by the taxpayer. Such amount is 
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 
EPA, determines appropriate, were (i) captured and permanently isolated 
from the atmosphere, or (ii) displaced from being emitted into the 
atmosphere, through use of a process described in section 45Q(f)(5)(A). 
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)(H)), as in effect on the date of 
enactment of the BBA on February 9, 2018, except that ``product'' is 
substituted for ``fuel'' each place it appears in such subparagraph.
    The term ``lifecycle greenhouse gas emissions'' means the aggregate 
quantity of greenhouse gas emissions (including direct emissions and 
significant indirect emissions such as significant emissions from land 
use changes), related to the full product lifecycle, including all 
stages of product and feedstock production and distribution, from 
feedstock generation or extraction through the distribution and 
delivery and use of the finished product to the ultimate consumer, 
where the mass values for all greenhouse gases are adjusted to account 
for their relative global warming potential.
    Commenters proposed multiple methods for the Treasury Department 
and the IRS to allow for calculating ``utilization'' of qualified 
carbon oxide. The proposed regulations provide clarifications 
regarding: (i) Standards for the lifecycle analysis (LCA) of emissions 
that were captured or displaced for purposes of section 45Q(f)(5)(B); 
and (ii) the agency with responsibility to review the LCA.
    The Treasury Department and the IRS, in consultation with the EPA 
and the DOE, have determined that the LCA must be in writing and either 
performed or verified by a professionally-licensed third party that 
uses generally-accepted standard practices of quantifying the 
greenhouse gas emissions of a product or process and comparing that 
impact to a baseline. In particular, the analysis must contain 
documentation consistent with the International Organization for 
Standardization (ISO) 14044:2006, ``Environmental management--Life 
cycle assessment--Requirements and Guidelines,'' as well as a statement 
documenting the qualifications of the third party.
    The proposed regulations require a taxpayer submit an LCA report to 
the IRS and the DOE prior to the taxpayer claiming the section 45Q 
credit. The LCA will be subject to a technical review by the DOE, and 
the IRS, in consultation with the DOE and the EPA, will determine 
whether to approve the LCA.
    The proposed regulations provide greater clarity and examples for 
calculating qualified carbon oxide utilization. This enhanced clarity 
should increase transparency and lower compliance burden. In addition, 
the proposed regulations allow for oversight of the LCA plans by a 
third party, the DOE, and the IRS (in consultation with the DOE and the 
EPA); evaluation and approval of the plans before the taxpayer claims 
the credit will potentially reduce taxpayer compliance costs and IRS 
administrative costs. Following industry-specific standards will also 
increase clarity in qualifying for the section 45Q credit.
    The proposed regulations provide an economic gain arising from 
enhanced clarity regarding the rules of the section 45Q credit within 
the context of the intent and purpose of the statute. The Treasury 
Department and the IRS project that this clarity will encourage 
additional investment in carbon oxide utilization projects relative to 
the no-action baseline. The Treasury Department and the IRS have not 
estimated this gain because we do not have readily available data or 
models to predict (i) the interpretations that taxpayers might have 
made in the absence of this guidance, and (ii) the effect of such 
guidance on the investment that taxpayers would make, relative to 
alternative regulatory approaches or the no-action baseline.
    The Treasury Department and the IRS solicit comments on the 
economic consequences of these decisions and particularly solicit data, 
models, or other evidence that could enhance the rigor with which the 
final regulations are developed.

II. Paperwork Reduction Act

    The collection of information in these proposed regulations with 
respect to section 45Q are in proposed Sec.  1.45Q-1(e), Sec.  1.45Q-
1(h)(3)(iv), Sec.  1.45Q-

[[Page 34062]]

1(h)(2)(v), and Sec.  1.45Q-2(h)(2), Sec.  1.45Q-3(d), and Sec.  1.45Q-
4(c)(1).
    The collection of information in proposed Sec.  1.45Q-1(e) is an 
election to have the dollar amounts applicable under Sec.  1.45Q-1(b) 
apply in lieu of the dollar amounts applicable under Sec.  1.45Q-1(d) 
for each metric ton of qualified carbon oxide that a taxpayer captures 
using carbon capture equipment which is originally placed in service at 
a qualified facility on or after February 9, 2018. A new section 
45Q(f)(3)(B) election must be made for each taxable year that the 
taxpayer wishes to allow a credit claimant to claim section 45Q 
credits. The election must be made on a Form 8933 (or successor forms, 
or pursuant to instructions and other guidance), and applies to all 
metric tons of qualified carbon oxide captured by the taxpayer at the 
qualified facility throughout the full 12-year credit period. The IRS 
is contemplating making additional changes to the Form 8933 to take 
these proposed regulations into account.
    The collection of information in proposed Sec.  1.45Q-1(h)(3)(iv) 
is an election that a taxpayer (electing taxpayer) eligible for the 
section 45Q credit may make to allow the person that disposes of the 
qualified carbon oxide, utilizes the qualified carbon oxide, or uses 
the qualified carbon oxide as a tertiary injectant to claim the credit 
(credit claimant). The electing taxpayer that makes the section 
45Q(f)(3)(B) election must file a statement of election containing the 
information described in Sec.  1.45Q-1(h)(3)(iv) with the electing 
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 (or successor forms, or pursuant to 
instructions and other guidance) no later than the time prescribed by 
law (including extensions) for filing the Federal income tax return 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 before taxable years beginning after the date of 
issuance of this proposed regulation. New section 45Q(f)(3)(B) 
elections must be made for each taxable year that the electing taxpayer 
wishes to allow credit claimants to claim section 45Q credits. The IRS 
is contemplating making additional changes to the Form 8933 to take 
these proposed regulations into account.
    The collection of information in proposed Sec.  1.45Q-1(h)(2)(v) 
requires that if a taxpayer enters into a binding written contract with 
a third party that physically carries out the disposal, injection, or 
utilization of qualified carbon oxide, the existence of each contract 
and the parties involved must be reported to the IRS annually on a Form 
8933 (or successor forms, or pursuant to instructions and other 
guidance) by each party to the contract, regardless of the party 
claiming the credit. The IRS is contemplating making additional changes 
to the Form 8933 to take these proposed regulations into account.
    The collection of information in proposed Sec.  1.45Q-2(h)(2) 
requires that a taxpayer that claims a section 45Q credit for qualified 
carbon oxide that is captured and then used as a tertiary injectant in 
a qualified enhanced oil or natural gas recovery project certify such 
qualified enhanced oil or natural gas recovery project as required 
under Sec.  1.43-3. This requires that the taxpayer obtain a petroleum 
engineer's certification under Sec.  1.43-3(a)(3) for each project that 
must be attached to a Form 8933 (or successor forms, or pursuant to 
instructions and other guidance) 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. 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 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 February 9, 2018 
and beginning before the date of issuance of this proposed regulation, 
for which the petroleum engineer's certification was not submitted, the 
petroleum engineer's certification will be treated as filed timely if 
it is attached to an amended Form 8933 for any taxable year ending 
after February 9, 2018, but not for taxable years beginning after June 
2, 2020. Additionally, the taxpayer is required to provide an 
operator's continued certification under Sec.  1.43-3(b)(3) for each 
project that must be attached to a Form 8933 (or successor forms, or 
pursuant to instructions and other guidance) 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. The IRS is contemplating making additional changes to the 
Form 8933 to take these proposed regulations into account.
    The collection of information in proposed Sec.  1.45Q-3(d) requires 
a taxpayer that claims a section 45Q credit for qualified carbon oxide 
that is captured and then used as a tertiary injectant in a qualified 
enhanced oil or natural gas recovery project to certify the volume of 
carbon oxide claimed for purposes of section 45Q. A taxpayer that 
reported volumes of carbon oxide to the EPA pursuant to subpart RR may 
self-certify the volume of carbon oxide claimed for purposes of section 
45Q. Alternatively, if the taxpayer determined volumes pursuant to CSA/
ANSI ISO 27916:19, a taxpayer may prepare documentation as outlined in 
CSA/ANSI 27916:2019 internally, but such documentation must be provided 
to a qualified independent engineer or geologist, who then must certify 
that the documentation provided, including the mass balance 
calculations as well as information regarding monitoring and 
containment assurance is accurate and complete. Taxpayers that capture 
carbon oxide giving rise to the section 45Q credit must file Form 8933 
(or successor forms, or pursuant to instructions and other guidance) 
with a timely filed tax return, including extensions. Taxpayers that 
dispose of, inject, or utilize qualified carbon oxide must also file 
Form 8933 (or successor forms, or pursuant to instructions and other 
guidance) with a timely filed F Federal income tax return or Form 1065, 
including extensions. The IRS is contemplating making additional 
changes to the Form 8933 to take these proposed regulations into 
account.
    The collection of information in proposed Sec.  1.45Q-4(c)(1) 
requires a taxpayer that utilizes qualified carbon oxide to measure the 
amount of carbon oxide captured and utilized through a combination of 
direct measurement and life cycle analysis (LCA). The measurement and 
written LCA report must be performed by or verified by an independent 
third party. The report must contain documentation consistent with the 
International Organization for Standardization (ISO) 14044:2006,

[[Page 34063]]

``Environmental management--Life cycle assessment--Requirements and 
Guidelines,'' as well as a statement documenting the qualifications of 
the third party, including proof of appropriate professional license or 
foreign equivalent, and an affidavit from the third-party stating that 
it is independent from the taxpayer. The taxpayer must submit the 
written LCA report to the IRS and the DOE. The LCA will be subject to a 
technical review by the DOE, and the IRS, in consultation with the DOE 
and the EPA, will determine whether to approve the LCA.
    For purposes of the Paperwork Reduction Act of 1995 (51087 U.S.C. 
3507(d)) (PRA), the reporting burden associated with proposed Sec.  
1.45Q-1(e), Sec.  1.45Q-1(h)(3)(iv), Sec.  1.45Q-1(h)(2)(v), Sec.  
1.45Q-2(h)(2), Sec.  1.45Q-3(d), and Sec.  1.45Q-4(c)(1) will be 
reflected in the IRS Paperwork Reduction Act Submission for the Form 
8933 (OMB control numbers 1545-0123 and 1545-2132). The IRS is 
anticipating making revisions to Form 8933 to take these proposed 
regulations into account. The Treasury Department and the IRS request 
comments on all aspects of information collection burdens related to 
the proposed regulations. In addition, when available, drafts of IRS 
forms are posted for comment at www.irs.gov/draftforms.
    The current status of the Paperwork Reduction Act submissions 
related to the section 45Q credit is provided in the following table. 
The section 45Q provisions are included in aggregated burden estimates 
for the OMB control numbers listed below which, in the case of 1545-
0123, represents a total estimated burden time, including all other 
related forms and schedules for corporations, of 3.157 billion hours 
and total estimated monetized costs of $58.148 billion ($2017). The 
burden estimates provided in the OMB control numbers are aggregate 
amounts that relate to the entire package of forms associated with the 
OMB control number, and will in the future include but not isolate the 
estimated burden of only the section 45Q requirements. These numbers 
are therefore unrelated to the future calculations needed to assess the 
burden imposed by the proposed regulations. No burden estimates 
specific to the proposed regulations are currently available. The 
Treasury Department has not estimated the burden, including that of any 
new information collections, related to the requirements under the 
proposed regulations. Those estimates would capture both changes made 
to section 45Q by the BBA and those that arise out of discretionary 
authority exercised in the proposed regulations. The Treasury 
Department and the IRS request comments on all aspects of information 
collection burdens related to the proposed regulations.
    When available, drafts of IRS forms are posted for comment at 
www.irs.gov/draftforms.

----------------------------------------------------------------------------------------------------------------
                 Form                         Type of filer          OMB No(s).                Status
----------------------------------------------------------------------------------------------------------------
Form 8933.............................  Business.................       1545-2132  Sixty-day notice published in
                                                                                    the Federal Register on 10/
                                                                                    21/19 (84 FR 56283). Public
                                                                                    comment period closed on 12/
                                                                                    20/19. Thirty-day notice
                                                                                    published in the Federal
                                                                                    Register on 1/31/20 (85 FR
                                                                                    5776). Public comment period
                                                                                    closed on 3/2/20. OIRA
                                                                                    approval is pending.
Form 8933.............................  Business (NEW Model).....       1545-0123  Sixty-day notice published in
                                                                                    the Federal Register on 9/30/
                                                                                    19 (84 FR 51718). Public
                                                                                    Comment period closed on 11/
                                                                                    29/19. Thirty-day notice
                                                                                    published in the Federal
                                                                                    Register on 12/19/19 (84 FR
                                                                                    69825). Public Comment
                                                                                    period closed on 1/21/20.
                                                                                    Approved by OIRA on 1/30/20.
                                       -------------------------------------------------------------------------
                                        Link: https://hs-www-federalregister-gov.tickly.io/documents/2019/10/21/2019-22844/proposed-collection-comment-request-for-form-8933.
----------------------------------------------------------------------------------------------------------------

III. Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes 
certain requirements with respect to Federal rules that are subject to 
the notice and comment requirements of section 553(b) of the 
Administrative Procedure Act (5 U.S.C. 551 et seq.) and that are likely 
to have a significant economic impact on a substantial number of small 
entities. Unless an agency determines that a proposal is not likely to 
have a significant economic impact on a substantial number of small 
entities, section 603 of the RFA requires the agency to present an 
initial regulatory flexibility analysis (IRFA) of the proposed rule. 
The Treasury Department and the IRS have not determined whether the 
proposed rule, when finalized, will likely have a significant economic 
impact on a substantial number of small entities. This determination 
requires further study. However, because there is a possibility of 
significant economic impact on a substantial number of small entities, 
an IRFA is provided in these proposed regulations. The Treasury 
Department and the IRS invite comments on both the number of entities 
affected and the economic impact on small entities.
    Pursuant to section 7805(f), this notice of proposed rulemaking has 
been submitted to the Chief Counsel of Advocacy of the Small Business 
Administration for comment on its impact on small business.

1. Need for and Objectives of the Rule

    The proposed regulations will provide greater clarity to taxpayers 
for purposes of claiming the section 45Q credit for the capture and 
disposal, injection, or utilization of qualified carbon oxide. The 
proposed rule is expected to encourage taxpayers to invest in carbon 
capture technologies. Thus, the Treasury Department and the IRS intend 
and expect that the proposed rule will deliver benefits across the 
economy that will beneficially impact various industries and reduce 
emissions of carbon oxides that would otherwise be released into the 
atmosphere as industrial emission of greenhouse gasses or lead to such 
release.

2. Affected Small Entities

    The Small Business Administration estimates in its 2018 Small 
Business Profile that 99.9 percent of United States businesses meet its 
definition of a small business. The applicability of these proposed 
regulations does not depend on the size of the business, as defined by 
the Small Business Administration. As described more fully in the 
preamble to this proposed regulation and in this IRFA, these rules may 
affect a variety of different businesses across serval different 
industries.
    The section 45Q credit incentivizes three different categories of 
activities related to captured carbon oxide. First, the section 45Q 
credit is available to taxpayers who capture carbon oxide and dispose 
of it in secure geological storage. This would occur if it were 
injected into a geological formation, such as a deep saline formation, 
an oil and gas reservoir, or an unminable coal

[[Page 34064]]

seam. The taxpayer claiming the credit for carbon oxide that is 
securely stored can be either the taxpayer who owns the capture 
equipment, or if an election is made, the taxpayer who disposes of the 
carbon oxide.
    Second, the section 45Q credit is also available for carbon oxide 
captured and used as a tertiary injectant in a qualified enhanced oil 
or natural gas recovery project and disposed of in secure geological 
storage. The taxpayer claiming the credit for carbon oxide that is used 
as a tertiary injectant in enhanced oil recovery projects can be either 
the taxpayer who owns the capture equipment, or if an election is made, 
the taxpayer who uses the carbon oxide as a tertiary injectant in a 
qualified enhanced oil or natural gas recovery project.
    And third, the section 45Q credit is available for carbon oxide 
``utilized'' by fixing it through photosynthesis or chemosynthesis, 
converted to a material or chemical compound in which it is securely 
stored, or used for any other purpose for which a commercial market 
exists. The taxpayer claiming the credit for utilization of carbon 
oxide can be either the taxpayer who owns the carbon capture equipment, 
or if an election is made, the taxpayer who utilizes the carbon oxide.
    Because the potential credit claimants in all three of these 
scenarios can vary, including potential tax equity investors from the 
financial services sector as credit claimants, it is difficult to 
estimate at this time the impact of these proposed regulations, if any, 
on small businesses.
    The Treasury Department and the IRS expect to receive more 
information on the impact on small businesses through comments on this 
proposed rule and again when taxpayers start to claim the section 45Q 
credit using the guidance and procedures provided in these proposed 
regulations.

3. Impact of the Rule

    The proposed regulations will allow taxpayers to plan investments 
and transactions based on the ability to claim the section 45Q credit. 
The increased use of the section 45Q credit may lead to increased 
investment in infrastructure to transport carbon dioxide, and increased 
development of carbon capture technologies. In addition, the increased 
use of the section 45Q credit will incentivize the development of 
technologies for utilization of carbon oxide. The recordkeeping and 
reporting requirements will increase for taxpayers that claim the 
section 45Q credit. This includes costs associated with the taxpayer 
filing the Form 8933, as well as required election statements and 
maintaining records to substantiate carbon capture of carbon oxide, 
disposal in secure geological storage, use as a tertiary injectant in a 
qualified enhanced oil or natural gas recovery project and disposal in 
secure geological storage, or utilization. Each taxpayer will be 
required to file a separate Form 8933 for each year that a section 45Q 
credit is claimed or that an election is made with respect to a section 
45Q credit. Although the Treasury Department and the IRS do not have 
sufficient data to determine precisely the likely extent of the 
increased costs of compliance, the estimated burden of complying with 
the recordkeeping and reporting requirements are described in the 
Paperwork Reduction Act section of the preamble.

4. Alternatives Considered

    As described in more detail in the Regulatory Impact Analysis of 
this preamble, the Treasury Department and the IRS considered 
alternatives to the proposed regulations. For example, in providing 
rules related to how to demonstrate secure geological storage in the 
case of tertiary injection and disposal through secure geological 
storage, the Treasury Department and the IRS considered whether to (i) 
require compliance with subpart RR, (ii) allow use of subpart RR or 
CSA/ANSI ISO 27916:19, or (iii) other alternatives to subpart RR 
including use of state programs. Commenters to Notice 2019-32, 2019-21 
I.R.B. 1187, consistently recommended CSA/ANSI ISO 27916:19 as a 
potential alternative to subpart RR. The Treasury Department and the 
IRS, in consultation with the DOE, the EPA and the Interior Department, 
agreed that, in the case of tertiary injection and disposal through 
secure geological storage, allowing the use of subpart RR or CSA/ANSI 
ISO 27916:19 would sufficiently demonstrate secure geological storage 
for purposes of the statutory requirement, without creating or imposing 
undue burdens on taxpayers.

5. Duplicative, Overlapping, or Conflicting Federal Rules

    The proposed rule would not duplicate, overlap, or conflict with 
any relevant Federal rules. As discussed above, the proposed rule would 
merely provide procedures and definitions to allow taxpayers to claim 
the section 45Q credit. The Treasury Department and the IRS invite 
input from interested members of the public about identifying and 
avoiding overlapping, duplicative, or conflicting requirements.

Comments and Requests for a Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any comments that are submitted timely 
to the IRS as prescribed in this preamble under the ADDRESSES heading. 
The Treasury Department and the IRS request comments on all aspects of 
the proposed regulations. Specifically, in section 4 of the Summary of 
Comments and Explanation of Provisions, the Treasury Department and the 
IRS request specific comments on how to achieve consistency in 
boundaries and baselines so that similarly situated taxpayers will be 
treated consistently. The Treasury Department and the IRS also request 
specific comments regarding the definition of commercial markets and 
standards for Lifecycle Analysis. Additionally, in section 5 of the 
Summary of Comments and Explanation of Provisions, the Treasury 
Department and the IRS request specific comments on how to apply the 
recapture provisions to section 45Q credits that are carried forward to 
future taxable years due to insuffificent income tax liability in the 
current taxable year.
    Any electronic comments submitted, and to the extent practicable 
any paper comments submitted, will be made available at 
www.regulations.gov or upon request. A public hearing will be scheduled 
if requested in writing by any person who timely submits electronic or 
written comments as prescribed in this preamble under the ``DATES'' 
heading. Requests for a public hearing are also encouraged to be made 
electronically. If a public hearing is scheduled, notice of the date 
and time for the public hearing will be published in the Federal 
Register. Announcement 2020-4, 2020-17 IRB 1, provides that until 
further notice, public hearings conducted by the IRS will be held 
telephonically. Any telephonic hearing will be made accessible to 
people with disabilities.

IV. Unfunded Mandates Reform Act

    Section 202 of the Unfunded Mandates Reform Act of 1995 requires 
that agencies assess anticipated costs and benefits and take certain 
other actions before issuing a final rule that includes any Federal 
mandate that may result in expenditures in any one year by a state, 
local, or tribal government, in the aggregate, or by the private 
sector, of $100 million in 1995 dollars, updated annually for 
inflation. In 2018, that threshold is approximately $150 million. This 
rule does not include any Federal mandate that may result in 
expenditures by state, local, or tribal

[[Page 34065]]

governments, or by the private sector in excess of that threshold.

V. Executive Order 13132: Federalism

    Executive Order 13132 (entitled Federalism) prohibits an agency (to 
the extent practicable and permitted by law) from promulgating any 
regulation that has federalism implications, unless the agency meets 
the consultation and funding requirements of section 6 of the Executive 
Order, if the rule either imposes substantial, direct compliance costs 
on state and local governments, and is not required by statute, or 
preempts state law. This proposed rule does not have federalism 
implications and does not impose substantial direct compliance costs on 
state and local governments or preempt state law within the meaning of 
the Executive Order.

Drafting Information

    The principal author of the proposed regulations is Maggie Stehn of 
the Office of Associate Chief Counsel (Passthroughs & Special 
Industries). However, other personnel from the Treasury Department and 
the IRS participated in the development of the proposed regulations.

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 is amended by adding 
entries in numerical order to read in part as follows:

    Authority: 26 U.S.C. 7805 * * *
* * * * *
    Section 1.45Q-1 also issued under 26 U.S.C. 45Q.
    Section 1.45Q-2 also issued under 26 U.S.C. 45Q(c), (d), and (e).
    Section 1.45Q-3 also issued under 26 U.S.C. 45Q(f)(2).
    Section 1.45Q-4 also issued under 26 U.S.C. 45Q(f)(5).
    Section 1.45Q-5 also issued under 26 U.S.C. 45Q(f)(4).
* * * * *
0
Par. 2. Sections 1.45Q-0, 1.45Q-1, 1.45Q-2, 1.45Q-3, 1.45Q-4, and 
1.45Q-5 are added to read as follows:


Sec.  1.45Q-0   Table of Contents.

    This section lists the captions contained in Sec. Sec.  1.45Q-1 
through 1.45Q-5.

Sec.  1.45Q-1 Credit for Carbon Oxide Sequestration.

    (a) In general.
    (b) Credit amount for carbon capture equipment originally placed 
in service before February 9, 2018.
    (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 disposal, injection, or utilization 
of qualified carbon oxide.
    (i) Binding written contract.
    (ii) Multiple binding written contracts permitted.
    (iii) Contract provisions.
    (iv) Reporting of contract information.
    (v) 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 credit claimant.
    (i) Applicability date.

Sec.  1.45Q-2 Definitions for Purposes of Sec. Sec.  1.45Q-1 through 
1.45Q-5.

    (a) Qualified carbon oxide.
    (b) Recycled carbon oxide.
    (c) Carbon capture equipment.
    (1) Use of carbon capture equipment.
    (2) Carbon capture equipment components.
    (3) Excluded components.
    (i) In general.
    (ii) Calculation.
    (iii) Consequences.
    (d) Industrial facility.
    (1) Exclusion.
    (2) Industrial source.
    (3) Manufacturing process.
    (4) Example.
    (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.
    (3) Annualization of first-year qualified carbon oxide emission 
and capture amounts.
    (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 Sec. Sec.  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 reservoirs.
    (6) Tertiary injectant.
    (i) Section 45Q credit.
    (j) Applicability date.

Sec.  1.45Q-3 Secure Geological Storage.

    (a) In general.
    (b) Requirements for secure geological storage.
    (c) Documentation.
    (d) Certification.
    (e) Failure to submit complete documentation or certification.
    (f) Applicability date.

Sec.  1.45Q-4 Utilization of Qualified Carbon Oxide.

    (a) In general.
    (b) Measurement.
    (c) Lifecycle greenhouse gas emissions and lifecycle analysis.
    (1) In general.
    (2) Measurement.
    (3) Approval of the LCA.
    (4) [Reserved]
    (d)-(e) [Reserved]
    (f) Applicability date.

Sec.  1.45Q-5 Recapture of Credit.

    (a) Recapture event.
    (b) Ceases to be captured, disposed of, or used as a tertiary 
injectant.
    (c) Leaked amount of qualified carbon oxide.
    (d) Recaptured qualified carbon oxide.
    (e) Recapture amount.
    (f) Recapture period.
    (g) Application of recapture.
    (1) In general.

[[Page 34066]]

    (2) Calculation.
    (3) Multiple units.
    (4) Multiple taxpayers.
    (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 intentional removal from storage.
    (i) Limited exceptions.
    (j) Applicability date.


Sec.  1.45Q-1   Credit 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. 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 Sec.  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. 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--
    (1) $20 per metric ton of qualified carbon oxide that is--
    (i) Captured by the taxpayer at the qualified facility and 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 Sec.  
1.45Q-4, and
    (2) $10 per metric ton of qualified carbon oxide that is--
    (i) 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
    (ii) Captured by the taxpayer at the qualified facility and 
utilized by the taxpayer in a manner described in section 45Q(f)(5) and 
Sec.  1.45Q-4.
    (3) 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) and (b)(2) 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 sections 
45Q(a)(3) and (4) and this section is the sum of--
    (1) The applicable dollar amount (as determined under paragraphs 
(d)(1) and (d)(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 sections 45Q(f)(5) and Sec.  
1.45Q-4; and
    (2) The applicable dollar amount (as determined under paragraphs 
(d)(3) and (d)(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 as 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 sections 
45Q(f)(5) and Sec.  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 whether the taxable year begins in a calendar year 
after 2016 and before 2027.
    (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:

------------------------------------------------------------------------
                                                            Applicable
                          Year                             dollar amount
------------------------------------------------------------------------
2017....................................................          $22.66
2018....................................................           25.70
2019....................................................           28.74
2020....................................................           31.77
2021....................................................           34.81
2022....................................................           37.85
2023....................................................           40.89
2024....................................................           43.92
2025....................................................           46.96
2026....................................................           50.00
------------------------------------------------------------------------

    (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:

------------------------------------------------------------------------
                                                            Applicable
                          Year                             dollar amount
------------------------------------------------------------------------
2017....................................................          $12.83
2018....................................................           15.29
2019....................................................           17.76
2020....................................................           20.22
2021....................................................           22.68
2022....................................................           25.15
2023....................................................           27.61
2024....................................................           30.07
2025....................................................           32.54
2026....................................................           35.00
------------------------------------------------------------------------

    (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

[[Page 34067]]

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, Carbon Oxide Sequestration 
Credit (or successor forms, or pursuant to instructions and other 
guidance), and applies to all metric tons of qualified carbon oxide 
captured by the taxpayer 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 (a)(2) and paragraphs (b)(1) and 
(b)(2) 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, 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 9, 2018, and 
section 45Q(a)(1) and (2). In general, a taxpayer may not claim credits 
under section 45Q(a)(1) and (a)(2) in taxable years after the year in 
which the 75,000,000 metric ton limit is reached with respect to carbon 
capture equipment placed in service before February 9, 2018. However, 
see Sec.  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.
    (g) Installation of additional carbon capture equipment. In 
general, a facility that placed carbon capture equipment in service 
before February 9, 2018, is entitled to the credit amounts for property 
placed in service before February 9, 2018, subject to the limitations 
under paragraph (f) of this section. The same 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) and (b)(2) 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 (c)(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. Merely increasing 
the amount of carbon dioxide captured by existing carbon capture 
equipment, even if it operated above the carbon dioxide capture 
capacity, does not constitute the installation of additional carbon 
capture equipment.
    (3) New carbon capture equipment. The cost of a physical 
modification or equipment addition with a cost that satisfies the 80/20 
Rule in Sec.  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 qualifying 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 enters into a binding written contract with Y to 
provide 100,000 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 50,000 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 Sec.  1.45Q-1(g)(2). 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 Sec.  
1.45Q-1(b)(1), and are subject to the 75,000,000 metric ton 
limitation described in section 45Q(g) and Sec.  1.45Q-1(f).
    (ii) Example 2. Assume the same facts as in Example 1, except 
that in 2019, X makes a physical modification to upgrade CC3 that 
results in the ability of CC3 to capture 100,000 metric tons of 
carbon dioxide. The physical modification to upgrade CC3 does not 
satisfy the 80/20 Rule in Sec.  1.45Q-2(g)(5). In 2020 X enters into 
a binding written contract with Z to provide 100,000 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 carbon dioxide capture 
capacity of CC3 was 50,000 metric tons of carbon dioxide before the 
physical modification and 100,000 metric tons of carbon dioxide 
after the physical modification, the physical modification to 
upgrade CC3 is considered the installation of additional carbon 
capture equipment under Sec.  1.45Q-1(g)(2). 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 Sec.  1.45Q-1(b)(1), and are subject to 
the 75,000,000 metric ton limitation described in section 45Q(g) and 
Sec.  1.45Q-1(f). 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 Sec.  1.45Q-1(c)(2), and are not subject to the 
75,000,000 metric ton limitation described in section 45Q(g) and 
Sec.  1.45Q-1(f).
    (iii) Example 3. Assume the same facts as in Example 2, except 
that the physical modification to upgrade CC3 satisfies the 80/20 
Rule in Sec.  1.45Q-2(g)(5). The physical modification to upgrade 
CC3 is considered the installation of new carbon capture equipment 
under Sec.  1.45Q-1(g)(2) and Sec.  1.45Q-1(g)(3). 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

[[Page 34068]]

Sec.  1.45Q-1(c)(2), and are not subject to the 75,000,000 metric 
ton limitation described in section 45Q(g) and Sec.  1.45Q-1(f).

    (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 Sec.  1.45Q-1(h)(3), 
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.
    (iii) Reporting. The taxpayer described in Sec.  1.45Q-1(h)(1) as 
eligible to claim the section 45Q credit must claim the credit on a 
Form 8933 (or successor forms, or pursuant to instructions and other 
guidance) with the taxpayer's Federal income tax return or Form 1065 
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 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. In 
addition, as provided in Revenue Procedure 2020-23, 2020-18 I.R.B. 749 
(see Sec.  601.601(d)(2)(i)(b) and (ii) of this chapter), the exception 
applies regarding the time to file an amended return by a BBA 
partnership for the 2018 and 2019 taxable years. The amended Federal 
income tax return or the amended Form 1065 must be filed, in no event, 
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. In the case of a BBA partnership that chooses not 
to file an amended Form 1065 as permitted under Revenue Procedure 2020-
23, the BBA partnership may make a late election by filing an AAR on or 
before October 15, 2021, but in no event, later than the applicable 
period of limitations on making adjustments under section 6235 for the 
reviewed year, as defined in Sec.  301.6241-1(a)(8) of the Procedure 
and Administration Regulations (26 CFR part 301).
    (2) Contractually ensuring disposal, injection, or utilization of 
qualified carbon oxide. A 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 and these 
regulations.
    (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 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.
    (ii) Multiple binding written contracts permitted. A taxpayer may 
enter into multiple binding written contracts with multiple parties for 
the disposal, injection, or utilization of qualified carbon oxide.
    (iii) Contract provisions. Contracts ensuring the 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 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 Sec. Sec.  1.45Q-3(b)(1) 
and 1.45Q-3(c), and, in the case of a recapture event, promptly inform 
the capturing party of all information that is pertinent to the 
recapture (i.e., location of leak, quantity of qualified carbon oxide 
leaked, dollar value of section 45Q credit attributable to leaked 
qualified carbon oxide) of section 45Q credits as listed in Sec.  
1.45Q-5;
    (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 Sec.  1.45Q-
3(b)(1) or (2) and Sec.  1.45Q-3(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 Sec.  
1.45Q-5; and
    (G) Must, for qualified carbon oxide that is intended to be 
utilized in a manner specified in Sec.  1.45Q-4, obligate the utilizing 
party to comply with Sec.  1.45Q-4.
    (iv) Reporting of contract information. The existence of each 
contract and the parties involved must be reported to the IRS annually 
on a Form 8933 (or successor forms, or pursuant to instructions and 
other guidance) by each party to the contract, regardless of the party 
claiming the credit. In addition to any information stated as required 
on Form 8933 (or successor forms, or pursuant to instructions and other 
guidance), 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 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
    (D) 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.

[[Page 34069]]

    (v) 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 Sec.  
1.45Q-1(h)(3).
    (3) Election to allow the section 45Q credit to another taxpayer. 
The taxpayer described in Sec.  1.45Q-1(h)(1) as eligible to claim 
section 45Q credits may elect to allow the person that disposes of the 
qualified carbon oxide, utilizes the qualified carbon oxide, or uses 
the qualified carbon oxide as a tertiary injectant to claim the credit 
(credit claimant). The taxpayer that makes the election (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.

    (i) Example. Electing Taxpayer, E, captures 100 metric tons of 
qualified carbon oxide with carbon capture equipment that was placed 
in service in 2017. E contracts with two companies, A and B, for the 
disposal of the qualified carbon oxide. The capture and disposal of 
the qualified carbon oxide makes E eligible for a section 45Q credit 
at a rate of $10 per metric ton, for a total section 45Q credit of 
$1,000. E contractually ensures that A will dispose of 30 metric 
tons of qualified carbon oxide and that B will dispose of 70 metric 
tons of qualified carbon oxide. E may make a section 45Q(f)(3)(B) 
election to allow up to $300 of section 45Q credit to A and up to 
$700 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 taxpayer described 
Sec.  1.45Q-1(h)(1) makes a section 45Q(f)(3)(B) election by filing a 
statement of election containing the information described in Sec.  
1.45Q-1(h)(3)(iv) 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 (or 
successor forms, or pursuant to instructions and other guidance) 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, but not for taxable years beginning after the date of issuance of 
this proposed regulation. In addition, as provided in Revenue Procedure 
2020-23, the exception applies regarding the time to file an amended 
return by a partnership subject to the centralized partnership audit 
regime enacted as part of the BBA (BBA partnership) for the 2018 and 
2019 taxable years. The amended Federal income tax return or the 
amended Form 1065 must be filed, in no event, 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. In the 
case of a BBA partnership that chooses not to file an amended Form 1065 
as permitted under Revenue Procedure 2020-23, the BBA partnership may 
make a late election by filing an AAR on or before October 15, 2021, 
but in no event, later than the applicable period of limitations on 
making adjustments under section 6235 for the reviewed year, as defined 
in Sec.  301.6241-1(a)(8) of the Procedure and Administration 
Regulations (26 CFR part 301).
    (iii) Annual election. A new section 45Q(f)(3)(B) election must be 
made annually.
    (iv) Required information. For the election to be valid, the 
election statement of the electing taxpayer on Form 8933 (or successor 
forms, or pursuant to instructions and other guidance) under Sec.  
1.45Q-1(h)(3)(ii) 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 (or successor 
forms, or pursuant to instructions and other guidance). The electing 
taxpayer must, in addition to any information required on Form 8933 (or 
successor forms, or pursuant to instructions and other guidance), 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 carbon oxide was captured;
    (B) The full amount of credit attributable to the taxpayer prior to 
the election;
    (C) The name, address, and taxpayer identification number of each 
credit claimant, and the location and e-GGRT ID number(s) (if 
available) of each secure geological storage facility where the 
qualified carbon oxide is disposed of or injected;
    (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 (or successor forms, or 
pursuant to instructions and other guidance) with its timely filed 
Federal income tax return or Form 1065 (including extensions)--
    (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 location and e-GGRT ID number(s) (if available) of each 
qualified facility where carbon oxide was captured;
    (D) The location and e-GGRT ID number(s) (if available) of each 
secure geological storage facility where the qualified carbon oxide is 
disposed of or injected;
    (E) The full dollar amount of section 45Q credits attributable to 
each electing taxpayer prior to the election and the corresponding 
metric tons of 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 carbon oxide; and
    (G) A copy of the electing taxpayer's Form 8933 (or successor 
forms, or pursuant to instructions and other guidance).

[[Page 34070]]

    (i) Applicability date. This section applies to taxable years 
beginning after [date final regulations are published in the Federal 
Register]. Taxpayers may choose to apply this section for taxable years 
beginning on or after February 9, 2018, provided the taxpayer applies 
this section and Sec. Sec.  1.45Q-2, 1.45Q-3, 1.45Q-4, and 1.45Q-5 in 
their entirety and in a consistent manner.


Sec.  1.45Q-2   Definitions for Purposes of Sec. Sec.  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.
    (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. Components of carbon capture equipment include, 
but are not limited to, absorbers, compressors, conditioners, cooling 
towers, dehydration equipment, dehydration systems, electrostatic 
filtration, engines, filters, fixtures, glycol contractors, heat 
exchangers, liquefaction equipment, lube oil systems, machinery, 
materials, membranes, meters, monitoring equipment, motors, mounting 
equipment, pipes, power generators and regenerators, pressure vessels 
and other vessels, processing equipment, processing plants, processing 
units, pumps, reboilers, recycling units, scrubbers, separation 
vessels, solvent pumps, sorbent vessels, specially designed flue gas 
ducts, support structures, tracking equipment, treating equipment, 
turbines, water wash equipment, and other carbon oxide related 
equipment.
    (3) Excluded components. Components of carbon capture equipment do 
not include pipelines, branch lines, or land and marine transport 
vessels used for transporting captured qualified carbon oxide for 
disposal, injection, or utilization. However, a gathering and 
distribution system that collects carbon oxide captured from a 
qualified facility or multiple facilities that constitute a single 
project (as described in section 8.01 of Notice 2020-12, 2020-11 I.R.B. 
495 (see Sec.  601.601(d)(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 from 
multiple taxpayers or projects is carbon capture equipment.
    (d) Industrial facility. An industrial facility is a 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, 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. A deposit of natural gas that contains less than 10 
percent carbon dioxide by volume is not a natural carbon dioxide-
bearing formation. For other deposits, whether a well is producing from 
a natural carbon dioxide-bearing formation is based on all the facts 
and circumstances.
    (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 products, other than carbon oxide, that 
are intended to be sold at a profit, or are used for a commercial 
purpose. All facts and circumstances with respect to the process and 
products are to be taken into account.
    (4) Example. The following example illustrates the rules of 
paragraph (a) and (d)(3) of this section:

    (i) 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 qualified 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 
the taxpayer has not secured a contract to sell methane and does not 
have any plans to use the methane for a commercial purpose. 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). The carbon dioxide captured by the 
process is not qualified carbon oxide.

    (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) and 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 that is deliberately released from 
naturally

[[Page 34071]]

occurring subsurface springs or using natural photosynthesis.
    (g) Qualified facility. A qualified facility means any industrial 
facility, electricity generating facility, or direct air capture 
facility, the construction of which begins before January 1, 2024, 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, 2020-11 I.R.B. 495 (see Sec.  
601.601(d)(2)(ii) of this chapter), for guidance on the determination 
of when construction has begun on a qualified facility or on carbon 
capture equipment.
    (1) Emissions and capture requirements. The 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 
into 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 Sec.  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 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. 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 Sec.  
1.45Q-4. The ethanol plant is a qualified facility 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 Sec.  1.45Q-4.
    (ii) Example 2. During the taxable year an electricity 
generating facility emits 600,000 metric tons of carbon dioxide. 
Equipment located at the facility captures 50,000 metric tons of 
carbon dioxide, all of which are utilized in a manner consistent 
with section 45Q(f)(5) and Sec.  1.45Q-4, and 400,000 metric tons of 
carbon dioxide, all of which are properly disposed of in secure 
geological storage. The total amount of carbon dioxide captured 
during the taxable year is 450,000 metric tons. The electricity 
generating facility is not a qualified facility during the taxable 
year because it did not meet the requirement to capture not less 
than 500,000 metric tons of qualified carbon during the taxable 
year.
    (iii) Example 3. During the taxable year, a cement manufacturing 
plant emits 110,000 metric tons of carbon dioxide. Equipment located 
at the plant captures 10,000 metric tons of carbon dioxide, all of 
which are utilized in a manner consistent with section 45Q(f)(5) and 
Sec.  1.45Q-4, and 90,000 metric tons of carbon dioxide, all of 
which are properly disposed of in secure geological storage. The 
total amount of carbon dioxide captured during the taxable year is 
100,000 metric tons. The cement manufacturing plant is a qualified 
facility during the taxable year because it met the requirement to 
capture at least 100,000 metric tons of qualified carbon oxide 
during the taxable year.

    (3) Annualization of first-year qualified carbon oxide emission and 
capture amounts--(i) In general. For the year in which carbon capture 
equipment is placed in service at a qualified facility, annualization 
of the amount of qualified carbon oxide emitted and captured 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 its first year is less than the threshold 
requirements under paragraph (g)(1) of this section.
    (ii) Calculation. Annualization is only be available for the first 
year in which the carbon capture equipment is placed in service at the 
qualified facility. Annualized amounts must be calculated by--
    (A) Determining the amount of qualified carbon oxide emitted and 
captured during the taxable year in which the carbon capture equipment 
was placed in service at the qualified facility,
    (B) Dividing the amount of qualified carbon emitted or captured by 
the number of days in the tax year 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; and
    (C) Multiplying by 365.
    (iii) Consequences. If the annualized amounts of qualified carbon 
oxide emitted and captured 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. 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 person described in section 45Q(f)(3)(A)(ii) and Sec.  1.45Q-
1(h)(1), 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).
    (i) Applicable facility. An applicable facility means a qualified 
facility described in section 45Q(f)(6) and Sec.  1.45Q-2(g)(4)(i) 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 
Sec.  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 (or successor forms, or 
pursuant to instructions and other guidance) with the taxpayer's income 
tax return for the 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 (or successor forms, or pursuant to 
instructions and other guidance), 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,

[[Page 34072]]

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 (the cost of the new components of property 
plus the value of the used components of property) (80/20 Rule). 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 owned and 
used exclusively by that taxpayer to transport carbon oxides captured 
from that taxpayer's qualified facility 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 qualified enhanced oil recovery project under section 
43(c)(2) of the Code and Sec.  1.43-2, by substituting crude oil or 
natural gas for crude oil in section 43(c)(2)(A)(i) and Sec. Sec.  
1.43-2 and 1.43-3.
    (1) Application of Sec. Sec.  1.43-2 and 1.43-3. For purposes of 
applying Sec. Sec.  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 Sec.  1.43-3. For purposes 
of a natural gas project--
    (i) The petroleum engineer's certification under Sec.  1.43-3(a)(3) 
and the operator's continued certification of a project under Sec.  
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 (or successor forms, or pursuant to instructions and other 
guidance) 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 (or successor forms, or pursuant to 
instructions and other guidance) 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 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 
February 9, 2018 and beginning before the date of issuance of this 
proposed regulation, for which the petroleum engineer's certification 
was not submitted the petroleum engineer's certification will be 
treated as filed timely if it is attached to an amended Form 8933 for 
any taxable year ending after February 9, 2018, but not for taxable 
years beginning after the date of issuance of these proposed 
regulations.
    (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 permanently ceased oil production;
    (ii) The operator has obtained an EPA UIC 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 within 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 Sec.  1.45Q-1.
    (j) Applicability date. This section applies to taxable years 
beginning after [date final regulations are published in the Federal 
Register]. Taxpayers may choose to apply this section for taxable years 
beginning on or after February 9, 2018, provided the taxpayer applies 
this section and Sec. Sec.  1.45Q-1, 1.45Q-3, 1.45Q-4, and 1.45Q-5 in 
their entirety and in a consistent manner.


Sec.  1.45Q-3  Secure Geological Storage.

    (a) In general. To qualify for the section 45Q credit, a taxpayer 
must either physically or contractually dispose of captured qualified 
carbon oxide in secure geological storage in the manner provided in 
Sec.  1.45Q-3(b) or utilize qualified carbon oxide in a manner 
conforming with section 45Q(f)(5) of the Internal Revenue Code and 
Sec.  1.45Q-4. Secure geological storage includes, but is not limited 
to, storage at deep saline formations, oil and gas reservoirs, and 
unminable coal seams.
    (b) Requirements for secure geological storage. For purposes of the 
section 45Q credit, qualified carbon oxide is considered disposed of by 
the taxpayer in secure geological storage such that the qualified 
carbon oxide does not escape into the atmosphere if the qualified 
carbon oxide is--
    (1) Stored, and not used as a tertiary injectant in a qualified 
enhanced oil or natural gas recovery project, in compliance with 
applicable requirements under 40 CFR part 98 subpart RR; or
    (2) Used as a tertiary injectant in a qualified enhanced oil or 
natural gas recovery project and stored in compliance with applicable 
requirements under 40 CFR part 98 subpart RR, or the International 
Organization for Standardization (ISO) standards endorsed by the 
American National Standards Institute (ANSI) under CSA/ANSI ISO 
27916:19, Carbon dioxide capture, transportation and geological 
storage--Carbon dioxide storage using enhanced oil recovery 
(CO2-EOR).
    (3) Injected into a well that complies with applicable Underground 
Injection Control regulations onshore or offshore under submerged lands 
within the territorial jurisdiction of States.
    (c) Documentation. Documentation must be filed in accordance with 
Form 8933 (or successor forms, or pursuant to instructions and other 
guidance).
    (d) Certification. For qualified enhanced oil or natural gas 
recovery

[[Page 34073]]

projects in which the taxpayer reported volumes of carbon oxide to the 
EPA pursuant to 40 CFR part 98 subpart RR, the taxpayer may self-
certify the volume of carbon oxide claimed for purposes of section 45Q. 
For qualified enhanced oil or natural gas recovery projects in which 
the taxpayer determined volumes pursuant to CSA/ANSI ISO 27916:19, a 
taxpayer may prepare documentation as outlined in CSA/ANSI 27916:19 
internally, but such documentation must be provided to a qualified 
independent engineer or geologist, who then must certify that the 
documentation provided, including the mass balance calculations as well 
as information regarding monitoring and containment assurance, is 
accurate and complete. Certifications must be made annually. For any 
leaked amount of qualified carbon oxide (as defined in Sec.  1.45Q-
5(c)) that is determined pursuant to CSA/ANSI ISO 27916:19, the 
certification must also include a statement that the quantity was 
determined in accordance with sound engineering principles. Taxpayers 
that capture qualified carbon oxide giving rise to the section 45Q 
credit must file Form 8933 (or successor forms, or pursuant to 
instructions and other guidance) with a timely filed Federal income tax 
return or Form 1065, including extensions or for the purpose of this 
rule, amendments to Federal income tax returns, Forms 1065, or on AARs, 
as applicable. Taxpayers that dispose of, inject, or utilize qualified 
carbon oxide must also file Form 8933 (or successor forms, or pursuant 
to instructions and other guidance) with a timely filed Federal income 
tax return or Form 1065, including extensions or for the purpose of 
this rule, amendments to Federal income tax returns, Forms 1065, or on 
AARs, as applicable. If the volume of carbon oxide certified and 
reported is a negative amount, see Sec.  1.45Q-5 for rules regarding 
recapture.
    (e) Failure to submit complete documentation or certification. No 
section 45Q credit is allowed for any taxable year for which the 
taxpayer (including credit claimants) has failed to timely submit 
complete documentation and certification that is required by this 
regulation or Form 8933 (or successor forms, or pursuant to 
instructions and other guidance). The credit will be allowed only for a 
taxable year for which complete documentation and certification has 
been timely submitted. Certifications for each taxable year must be 
submitted by the due date of the federal income tax return or Form 1065 
on which the section 45Q credit is claimed, including extensions. If a 
section 45Q credit is claimed on an amended Federal income tax return, 
an amended Form 1065, or an AAR, as applicable, certifications may also 
be submitted with such amended Federal income tax return, amended Form 
1065, or AAR. If a section 45Q credit was claimed on a timely filed 
Federal income tax return or Form 1065 for a taxable year ending after 
February 9, 2018, and beginning before the date of issuance of this 
proposed regulation, for which certifications were not submitted, such 
certifications may be submitted with an amended Federal income tax 
return, an amended Form 1065, or an AAR, as applicable, for the taxable 
year in which the section 45Q credit was claimed.
    (f) Applicability date. This section applies to taxable years 
beginning after [date final regulations are published in the Federal 
Register]. Taxpayers may choose to apply this section for taxable years 
beginning on or after February 9, 2018, provided the taxpayer applies 
this section and Sec. Sec.  1.45Q-1, 1.45Q-2, 1.45Q-4, and 1.45Q-5 in 
their entirety and in a consistent manner.


Sec.  1.45Q-4   Utilization of Qualified Carbon Oxide.

    (a) In general. For purposes of this section, utilization of 
qualified carbon oxide means--
    (1) The fixation of qualified carbon oxide through photosynthesis 
or chemosynthesis, such as through the growing of algae or bacteria,
    (2) The chemical conversion of such qualified carbon oxide to a 
material or chemical compound in which such qualified carbon oxide is 
securely stored, or
    (3) 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 of the Treasury or his 
delegate.
    (b) Measurement. For purposes of determining the amount of 
qualified carbon oxide utilized by the taxpayer under Sec.  1.45Q-
1(b)(2)(ii) and (c)(2)(ii), such amount is equal to the metric tons of 
qualified carbon oxide which the taxpayer demonstrates, based upon an 
analysis of lifecycle greenhouse gas emissions (LCA), were--
    (1) Captured and permanently isolated from the atmosphere 
(isolated), or
    (2) Displaced from being emitted into the atmosphere through use of 
a process described in paragraph (a) of this section (displaced).
    (c) Lifecycle greenhouse gas emissions and lifecycle analysis--(1) 
In general. For purposes of paragraph (b) of this section, the term 
lifecycle greenhouse gas emissions means the aggregate quantity of 
greenhouse gas emissions (including direct emissions and significant 
indirect emissions such as significant emissions from land use changes) 
related to the full product lifecycle, including all stages of product 
and feedstock production and distribution, from feedstock generation or 
extraction through the distribution and delivery and use of the 
finished product to the ultimate consumer, where the mass values for 
all greenhouse gases are adjusted to account for their relative global 
warming potential according to Table A-1 of 40 CFR part 98 subpart A.
    (2) Measurement. The taxpayer measures the amount of carbon oxide 
captured and utilized through a combination of direct measurement and 
LCA. The measurement and written LCA report must be performed by or 
verified by an independent third-party. The report must contain 
documentation consistent with the International Organization for 
Standardization (ISO) 14044:2006, ``Environmental management--Life 
cycle assessment--Requirements and Guidelines,'' as well as a statement 
documenting the qualifications of the third-party, including proof of 
appropriate U.S. or foreign professional license, and an affidavit from 
the third-party stating that it is independent from the taxpayer.
    (3) Approval of the LCA. The taxpayer must submit the written LCA 
report required by paragraph (c)(1) of this section to the IRS and the 
Department of Energy (DOE). The LCA will be subject to a technical 
review by the DOE, and the IRS, in consultation with the DOE and the 
Environmental Protection Agency, will determine whether to approve the 
LCA.
    (4) [Reserved]
    (d)-(e) [Reserved]
    (f) Applicability date. This section applies to taxable years 
beginning after [date final regulations are published in the Federal 
Register]. Taxpayers may choose to apply this section for taxable years 
beginning on or after February 9, 2018, provided the taxpayer applies 
this section and Sec. Sec.  1.45Q-1, 1.45Q-2, 1.45Q-3, and 1.45Q-5 in 
their entirety and in a consistent manner.


Sec.  1.45Q-5   Recapture of Credit.

    (a) Recapture event. A recapture event occurs when qualified carbon 
oxide for which a section 45Q credit has been claimed ceases to be 
captured, disposed of, or used as a tertiary injectant during

[[Page 34074]]

the recapture period. Recapture events are determined separately for 
each project involving capture, disposal, or use of qualified carbon 
oxide as a tertiary injectant.
    (b) Ceases to be captured, disposed of, or used as a tertiary 
injectant. Qualified carbon oxide ceases to be captured, disposed of, 
or used as a tertiary injectant if the leaked amount of qualified 
carbon oxide in the taxable year exceeds the amount of qualified carbon 
oxide disposed of in secure geological storage or used as a tertiary 
injectant in that same taxable year.
    (c) Leaked amount of qualified carbon oxide. When a taxpayer, 
operator, or regulatory agency determines that qualified carbon oxide 
has leaked to the atmosphere, the taxpayer must quantify the metric 
tons of qualified carbon oxide that has leaked to the atmosphere 
pursuant to the requirements of 40 CFR part 98 subpart RR or CSA/ANSI 
ISO 27916:19. The quantity determined pursuant to CSA/ANSI ISO 27916:19 
must be certified by a qualified independent engineer or geologist, 
including a statement that the quantity was determined in accordance 
with sound engineering principles. The Internal Revenue Service will 
consider all available facts, and may consult with the relevant 
regulatory agency, in verifying the amount of qualified carbon oxide 
that has leaked to the atmosphere. That amount is the leaked amount of 
qualified carbon oxide.
    (d) Recaptured qualified carbon oxide. The quantity of recaptured 
qualified carbon oxide (in metric tons) is the amount by which the 
leaked amount of qualified carbon oxide exceeds the amount of qualified 
carbon oxide disposed of in secure geological storage or used as a 
tertiary injectant in the taxable year.
    (e) Recapture amount. The recapture amount is equal to the product 
of the quantity of recaptured qualified carbon oxide (in metric tons) 
and the appropriate statutory credit rate.
    (f) Recapture period. The recapture period begins on the date of 
first injection of qualified carbon oxide for disposal in secure 
geological storage or use as a tertiary injectant. The recapture period 
ends on the earlier of five years after the last taxable year in which 
the taxpayer claimed a section 45Q credit or the date monitoring ends 
under the requirements of the standards described in Sec.  1.45Q-
3(b)(1) or (b)(2).
    (g) Application of recapture. (1) In general. Any recapture amount 
must be taken into account in the taxable year in which it is 
identified and reported. If the leaked amount of qualified carbon oxide 
does not exceed the amount of qualified carbon oxide disposed of in 
secure geological storage or used as a tertiary injectant in the 
taxable year reported, there is no recapture amount and no further 
adjustments to prior taxable years are needed. The taxpayer must add 
the recapture amount to the amount of tax due in the taxable year in 
which the recapture event occurs.
    (2) Calculation. Recapture amounts are to be calculated on a last-
in-first-out basis (LIFO), such that the leaked amount of qualified 
carbon oxide that exceeds the amount of qualified carbon oxide disposed 
of in secure geological storage or used as a tertiary injectant in the 
current taxable year will be deemed attributable first to the prior 
taxable year, then to taxable year before that, and then up to a 
maximum of the fifth preceding year.
    (3) Multiple Units. In the event of a recapture event in which the 
leaked qualified carbon oxide had been captured from multiple units of 
carbon capture equipment that were not under common ownership, the 
recapture amount must be allocated on a pro rata basis among the 
multiple units of carbon capture equipment. Each taxpayer that claimed 
a section 45Q credit with respect to one or more of such units of 
carbon capture equipment is responsible for adding the recapture amount 
to their amount of tax due in the taxable year in which the recapture 
event occurs.
    (4) Multiple Taxpayers. In the event of a recapture event where the 
leaked amount of qualified carbon oxide is deemed attributable to 
qualified carbon oxide with respect to which multiple taxpayers claimed 
section 45Q credit amounts (for example, if ownership of the carbon 
capture equipment was transferred, or if a taxpayer made an election 
under section 45Q(f)(3)(B) of the Internal Revenue Code to allow one or 
more credit claimants to claim a portion of the section 45Q credit), 
the recapture amount must be allocated on a pro rata basis among the 
taxpayers that claimed the section 45Q credits with respect to the 
qualified carbon oxide that the leaked qualified carbon oxide is deemed 
attributable to.
    (5) Reporting. If a recapture event occurs during a project's 
recapture period, any taxpayer that claimed a section 45Q credit for 
that project must report the following information on a Form 8933 (or 
successor forms, or pursuant to instructions and other guidance) filed 
with that taxpayer's Federal income tax return or Form 1065 for the 
taxable year for which the recapture event occurred--
    (i) The recapture amount (as defined in Sec.  1.45Q-5(e));
    (ii) The quantity of leaked qualified carbon oxide (in metric tons) 
(as defined in Sec.  1.45Q-5(c));
    (iii) The statutory credit rate at which the section 45Q credits 
were originally calculated; and
    (iv) A statement that describes how the taxpayer became aware of 
the recapture event, how the leaked amount was determined, and the 
identity and involvement of any regulatory agencies.
    (6) Examples. The following examples illustrate the principles of 
this paragraph (g):

    (i) Example 1. (A) A owns direct air capture Facility X. No 
other taxpayer has owned Facility X, and A has never allowed another 
taxpayer to claim any section 45Q credits with respect to qualified 
carbon oxide captured by Facility X. Facility X captured 100,000 
metric tons of carbon dioxide in each of 2021, 2022, and 2023. All 
captured carbon dioxide was sold to B for use a tertiary injectant 
in a qualified enhanced oil recovery project. B provided contractual 
assurance that the carbon dioxide would be sequestered in secure 
geological storage. A claimed section 45Q credit amounts of 
$2,268,000 in 2021, $2,515,000 in 2022, and $2,761,000 in 2023 using 
the statutory rates in Sec.  1.45Q-1(d)(3). In 2024, A captured and 
sold another 100,000 metric tons of carbon dioxide to B, which B 
used as a tertiary injectant in a qualified enhanced oil recovery 
project. In late 2024, B determined that 10,000 metric tons of 
carbon dioxide injected during 2021 had leaked from the containment 
area of the reservoir and will eventually migrate to the atmosphere.
    (B) Because the leakage determined in 2024 (10,000 metric tons) 
did not exceed the amount stored in 2024 (100,000 metric tons), a 
recapture event did not occur in 2024. A's section 45Q credit for 
2024 is $2,706,300 (net 90,000 metric tons of qualified carbon oxide 
captured and used as a tertiary injectant multiplied by the 
statutory credit rate for 2024 of $30.07).
    (ii) Example 2. (A) Assume same facts as in Example 1. 
Additionally, in 2025, B determines that 190,000 metric tons of 
carbon dioxide injected in 2021 and 2022 have leaked and will 
eventually migrate to the atmosphere. No injection of carbon dioxide 
takes place in 2025.
    (B) Because the leakage determined in 2025 (190,000 metric tons) 
exceeds the amount stored in 2025 (0 metric tons), a recapture event 
occurred in 2025. A's credit for 2025 is $0 because the net amount 
of carbon dioxide captured and used as a tertiary injectant in 2025 
was 0 metric tons. The 2025 recapture amount is calculated by 
multiplying the 190,000 metric tons of recaptured qualified carbon 
oxide by the appropriate statutory credit rate using the LIFO 
method. The first 90,000 metric tons of recaptured qualified carbon 
oxide is deemed attributable to 2024, and is recaptured at the 2024 
statutory rate of $30.07 per metric ton. The remaining 100,000 
metric tons of recaptured qualified carbon oxide are deemed 
attributable to 2023. The credits attributable to 2023 are 
recaptured at the

[[Page 34075]]

2023 statutory rate of $27.61 per metric ton. Thus, the total 
recapture amount is $5,467,300, and is added to A's tax due for 
2025.
    (iii) Example 3. (A) Assume the same facts as in Example 2, 
except that A sells Facility X to C on January 1, 2024. C sells 
100,000 metric tons of carbon dioxide captured by Facility X to B 
for use as a tertiary injectant in a qualified enhanced oil recovery 
project. Thus, C claims a section 45Q credit in 2024 of $2,706,300 
(net 90,000 metric tons of qualified carbon oxide captured and used 
as a tertiary injectant multiplied by the statutory credit rate for 
2024 of $30.07).
    (B) The total recapture amount in 2025 is the same $5,467,300 as 
in Example 2, but is allocated between A and C. The first 90,000 
metric tons of recaptured qualified carbon oxide are deemed 
attributable to 2024. The credits that are attributable to 2024 are 
recaptured at the 2024 statutory rate of $30.07 per ton (for a 
recapture amount of $2,706,300). Because C claimed that amount of 
section 45Q credit in 2024, a recapture amount of $2,706,300 is 
added to C's tax due for 2025. The remaining 100,000 metric tons of 
recaptured qualified carbon oxide are deemed attributable to 2023. 
The credits that are attributable to 2023 are recaptured at the 2023 
statutory rate of $27.61 per ton (for a recapture amount of 
$2,761,000). Because A claimed that amount of section 45Q credit in 
2023, a recapture amount of $2,761,000 is added to A's tax due for 
2025.
    (iv) Example 4. (A) Assume the same facts as in Example 2, 
except that in 2023 A made a section 45Q(f)(3)(B) election to allow 
B to claim one-half of the section 45Q credit for 2023. A and B each 
claimed $1,380,500 of section 45Q credit in 2023 (50,000 metric tons 
each multiplied by the 2023 statutory rate of $27.61).
    (B) The total recapture amount in 2025 is the same $5,467,300 as 
in Example 2, but is allocated among A and B. The first 90,000 
metric tons of recaptured qualified carbon oxide is deemed 
attributable to 2024. The section 45Q credit amounts attributable to 
2024 are recaptured at the 2024 statutory rate of $30.07 per ton 
(for a recapture amount of $2,706,300). Because A claimed that 
amount of section 45Q credit in 2024, $2,706,300 is added to A's tax 
due for 2025. The remaining 100,000 metric tons of recaptured 
qualified carbon oxide is deemed attributable to 2023. The section 
45Q credit amounts attributable to 2023 are recaptured at the 2023 
statutory rate of $27.61 per ton (for a recapture amount of 
$2,761,000). Because A and B each claimed half of that amount 
($1,380,500) of section 45Q credit in 2023, $1,380,500 is added to 
both A's and B's tax due for 2025. Thus, a recapture amount of 
$4,086,800 is added to A's tax due for 2025, and a recapture amount 
of $1,380,500 is added to B's tax due for 2025.
    (v) Example 5. (A) Assume the same facts as in Example 2, except 
that the 100,000 metric tons of carbon dioxide sold to B in 2021, 
2022, 2023, and 2024 for use as a tertiary injectant in a qualified 
enhanced oil recovery project were captured equally (50,000 metric 
tons per year) from qualified facilities owned by J and K. Neither J 
nor K made a section 45Q(f)(3)(B) election to allow B to claim the 
credit.
    (B) Because the leakage determined in 2024 (10,000 metric tons) 
did not exceed the amount used as a tertiary injectant in 2024 
(100,000 metric tons) a recapture event did not occur in 2024. The 
total amount of section 45Q credit for 2024 is $2,706,300 (net 
90,000 metric tons of qualified carbon oxide captured and used as a 
tertiary injectant multiplied by the statutory credit rate for 2024 
of $30.07). J and K may each claim half of this amount of section 
45Q credit ($1,353,150) in 2024.
    (C) The total recapture amount in 2025 is the same $5,467,300 as 
in Example 2, but is allocated between J and K. The section 45Q 
credit amounts relating to the first 90,000 metric tons of 
recaptured qualified carbon oxide are deemed attributable to 2024 
and are recaptured at the 2024 statutory rate of $30.07 per ton (for 
a recapture amount of $2,706,300). Because J and K each claimed half 
of that amount ($1,353,150) of section 45Q credit in 2024, 
$1,353,150 is added to both J's and K's tax due for 2025. The 
section 45Q credit amounts relating to the remaining 100,000 metric 
tons of recaptured qualified carbon oxide are deemed attributable to 
2023 and are recaptured at the 2023 statutory rate of $27.61 per ton 
(for a recapture amount of $2,761,000). Because J and K each claimed 
half of that amount ($1,380,500) of section 45Q credit in 2023, an 
additional $1,380,500 is added to both J's and Ks tax due for 2025. 
Thus, a total recapture amount of $2,733,650 is added to both J's 
and K's tax due for 2025.
    (vi) Example 6. (A) M owns Industrial Facility Z. No other 
taxpayer has ever owned Z, and M has never allowed another taxpayer 
to claim any section 45Q credits with respect to qualified carbon 
oxide captured from Z. M captured 1,000,000 metric tons of carbon 
dioxide annually in each of 2017, 2018, 2019, 2020, 2021, 2022, 
2023, 2024, and 2025. All captured carbon dioxide was sold to N for 
use a tertiary injectant in a qualified enhanced oil recovery 
project. N provided contractual assurance that the carbon dioxide 
would be sequestered in secure geological storage. M claimed section 
45Q credit amounts of $12,830,000 in 2017, $15,209,000 in 2018, 
$17,760,000 in 2019, $20,220,000 in 2020, $22,680,000 in 2021, 
$25,150,000 in 2022, $27,610,000 in 2023, $30,070,000 in 2024, and 
$32,540,000 in 2025 using the statutory rates in Sec.  1.45Q-
1(d)(3). No injection of carbon oxides takes place in 2026. In 2026, 
N determined that 6,200,000 metric tons of carbon dioxide previously 
injected had leaked from the containment area of the reservoir and 
will eventually migrate to the atmosphere.
    (B) Because the leakage determined in 2025 (6,200,000 metric 
tons) exceed the amount stored in 2026 (0 metric tons) a recapture 
event occurred in 2026. A's credit for 2026 is $0 because the net 
amount of carbon dioxide captured and used as a tertiary injectant 
in 2026 was 0 metric tons. The 2026 recapture amount is calculated 
by multiplying the 6,200,000 metric tons of recaptured qualified 
carbon oxide by the appropriate statutory credit rate using the LIFO 
method. The first 1,000,000 metric tons of recaptured qualified 
carbon oxide is deemed attributable to 2025, and is recaptured at 
the 2025 statutory rate of $32.54 per metric ton. The next 1,000,000 
metric tons of recaptured qualified carbon oxide is deemed 
attributable to 2024, and is recaptured at the 2024 statutory rate 
of $30.07 per metric ton. The next 1,000,000 metric tons of 
recaptured qualified carbon oxide is deemed attributable to 2024, 
and is recaptured at the 2023 statutory rate of $27.16 per metric 
ton. The next 1,000,000 metric tons of recaptured qualified carbon 
oxide is deemed attributable to 2022, and is recaptured at the 2022 
statutory rate of $25.15 per metric ton. The next 1,000,000 metric 
tons of recaptured qualified carbon oxide is deemed attributable to 
2021, and is recaptured at the 2021 statutory rate of $22.68 per 
metric ton. The remaining 1,200,000 metric tons are not subject to 
recapture because of the five-year lookback limit in Sec.  1.45Q-
1(g)(2). Thus, the total recapture amount is $138,050,000, and is 
added to A's tax due for 2026.

    (h) Recapture in the event of intentional removal from storage. If 
qualified carbon oxide for which a credit has been claimed is 
deliberately removed from a secure geological storage site, then a 
recapture event would occur in the year in which the qualified carbon 
oxide is removed from the storage site pursuant to Sec.  1.45Q-5(a).
    (i) Limited exceptions. A recapture event is not triggered in the 
event of a loss of containment of qualified carbon oxide resulting from 
actions not related to the selection, operation, or maintenance of the 
storage facility, such as volcanic activity or terrorist attack.
    (j) Applicability date. This section applies to taxable years 
beginning after [date final regulations are published in the Federal 
Register]. Taxpayers may choose to apply this section for taxable years 
beginning on or after February 9, 2018, provided the taxpayer applies 
this section and sections 1.45Q-1, 1.45Q-2, 1.45Q-3, and 1.45Q-4 in 
their entirety and in a consistent manner.

Sunita Lough,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2020-11907 Filed 5-29-20; 11:15 am]
BILLING CODE 4830-01-P