Taxpayers Get Answers on 45Q Questions With IRS Guidance

bloombergindustry . com

Reproduced with permission . Published September 01 , 2021 . Copyright � 2021 The Bureau of National Affairs , Inc . 800- 372-1033 . For further use , please visit https :// www . bloombergindustry . com / copyright-and-usage-guidelines-copyright /

BY ELIZABETH L . MCGINLEY AND DON J . LONCZAK

The Internal Revenue Service released helpful guidance in Revenue Ruling 2021-13 , regarding the scope of carbon capture equipment and the requirement that a taxpayer own the carbon capture equipment to qualify for carbon sequestration credits under Internal Revenue Code Section 45Q .

Specifically , the revenue ruling provides guidance on three important topics : s whether dual use property is properly treated as carbon capture equipment for purposes of Section 45Q ; s the degree of ownership of carbon capture equipment necessary to claim the credit provided by Section 45Q ; and s the determination of the placed-in-service date for purposes of determining the eligibility for credits under Section 45Q . The guidance generally has been viewed as favorable to taxpayers .

Overview of Section 45Q Section 45Q , enacted in 2008 and expanded in 2018 , provides a tax credit based on the metric tons of carbon oxide captured by a taxpayer using carbon capture equipment placed in service at a qualified facility and disposed of , injected , or utilized ( the Section 45Q credit ). Section 45Q credits generally are available at a higher rate for carbon oxide captured using carbon capture equipment placed in service on or after Feb . 9 , 2018 , than if it were placed in service prior to such date . In the case of carbon oxide captured using carbon capture equipment that was originally placed in service

Elizabeth McGinley is chair of Bracewell LLP ’ s tax department and Don J . Lonczak is a partner . on or after Feb . 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 . In this regard , applicable Treasury Regulations under Section 45Q provide that for each single process train of carbon capture equipment , only one taxpayer will be considered the person to whom the credit is attributable . That person is the taxpayer who either physically or contractually ensures the capture and disposal , injection , or utilization of such qualified carbon oxide .

The Treasury Regulations also provide a definition of carbon capture equipment that broadly 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 , carbon capture equipment is equipment used for the purpose of : s separating , purifying , drying , and / or capturing carbon oxide that would otherwise be released into the atmosphere from an industrial facility ; s removing carbon oxide from the atmosphere via direct air capture ; or s compressing or otherwise increasing the pressure of carbon oxide . All components that make up an independently functioning process train capable of capturing , processing , and preparing carbon oxide for transport will be treated as a single unit of carbon capture equipment ( a single process train ).

Taxpayer Comments on the Scope of Carbon Capture Equipment Prior to the finalization of the Treasury Regulations , commenters had requested that the Treasury Department clarify whether property that has more than one purpose or use , such as equipment incorporated into an industrial facility that separates car-