The Treasury Department and the Internal Revenue Service (IRS) recently released long-awaited proposed regulations regarding the carbon capture and sequestration tax credit provided under Section 45Q of the Internal Revenue Code (Section 45Q Credit). The proposed regulations, together with IRS guidance issued earlier this year, provide welcome certainty to developers and investors that have delayed moving forward with carbon capture projects due to questions regarding how to properly qualify for Section 45Q Credits, and how such credits may be recaptured.
In particular, the guidance clarifies how to timely begin construction of a project; how to contract for carbon oxide sequestration; acceptable carbon oxide storage standards; how to demonstrate carbon oxide utilization; when and how credits are recaptured; how to transfer credits; and when credits allocated through a partnership flip will be respected.
