Businesses who wish to reduce their tax burden by improving their environmental practices now have updated guidance and regulations for claiming carbon capture credits. In the following post, Optima Tax Relief reviews the new federally issued standards.
The Internal Revenue Service and the Treasury Department released new regulations for businesses that seek guidance on the 2018 legislation on carbon capture credits. The publication offers detailed information on new carbon oxide sequestration credits that can be applied when businesses use equipment acquired and put into use after February 8th, 2018. The legislation allows credits of up to:
- $50 credit per metric ton of permanent qualified carbon oxide sequestration
- $35 for participation in Enhanced Oil Recovery
There is no metric ton limitation for captured carbon oxide. In addition to the new credits, the new law also expands upon the type of carbon qualified for capture. Instead of “qualified carbon dioxide,” the new law includes “qualified carbon oxide.” The previous version of the law limited the amount of qualified carbon oxide capture to 75 million metric tons.
Previous Carbon Capture Credit Guidance
The IRS released Notice 2019-32 after the Bipartisan Budget Agreement was enacted in February 2018. The notice was issued to encourage feedback from taxpayers concerning the details about credits for carbon capture. The new regulations are a response to the comments provided by taxpayers, and are designed to clarify the law’s provisions. The IRS also offered clarification on other areas of the credit earlier in the year in Notice 2020-32. The publication issued guidelines for determining when construction must have begun on a qualified facility or carbon capture equipment in order to be eligible for the credit. The purpose of the notice was to avoid having to provide individual rulings to taxpayers.
Additionally, Revenue Procedure 2020-12 defines the safe harbor rules for carbon capture partnerships. The rules were written based upon those that apply to safe harbor partnerships that receive wind energy and rehabilitation tax credits. The goal of safe harbor is to streamline the process of applying carbon capture credit rules to qualified partnerships. Both the IRS and the Treasury Department request taxpayer comments concerning safe harbor requirements.
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