IRS Updates Its Reporting Requirements for Carbon Capture and Storage Tax Credits

Section 45Q of the Federal Tax Code provides a tax credit for carbon capture and storage (“CCS”) projects.  Eligible CCS owners can claim a base credit of $17 per metric ton of sequestered carbon dioxide (or $36 for direct‑air‑capture technology).  That credit can increase to $85 per metric ton (or $180 for direct‑air capture) if, among other things, CCS developers meet certain labor and apprenticeship requirements.  See 26 U.S.C. § 45Q.

On July 24, 2024, the Internal Revenue Service (“IRS”) released Notice 2024-60 (the “Notice”).  It clarifies the Lifecycle Analysis (“LCA”) reporting requirements for taxpayers to take advantage of this credit.  We summarize the basic elements and potential impacts of the Notice below.

LCA Submission Procedures

The Notice provides that taxpayers must conduct an LCA that demonstrates the amount of qualified carbon oxide the project stores and greenhouse gases the project reduces.  After completing the LCA, taxpayers must submit an “LCA Approval Request” to the IRS and Department of Energy (“DOE”). 

Taxpayers may submit LCA Approval Requests on a rolling basis.  They must mail the request to the IRS and send an email notification of the application to the DOE.  LCA Approval Requests must contain: (1) an LCA report, (2) supplemental information supporting the LCA data (e.g., production and maintenance schedules, throughput data and any deviations from the process outlined in a previous LCA report), (3) an “Independent Third-Party Statement” validating the LCA report, and (4), if a third party prepared the LCA report, the third-party’s LCA model.

When the IRS receives an LCA Approval Request, it reviews it for completeness.  The DOE performs a technical review. 

After approval, an LCA remains valid for the taxable year in which the IRS received it and through the next two taxable years.  Taxpayers may resubmit an LCA approval request if significant changes occur in their CCS processes.

LCA Report Requirements

The LCA report documents the LCA findings in a written form and has specific requirements.  Taxpayers must submit a separate LCA report for each qualified facility for which they seek section 45Q credits.  The reports must conform to International Organization for Standardization (“ISO”) and DOE documentation standards. 

Finally, the Notice lists specific requirements for the cover page of this LCA report.  The report must contain (1) the contact and identification information of the taxpayer, (2) the taxable year of submission, (3) an attestation of the various requirements the taxpayer must meet to qualify for the credit, and (4) a declaration the information contained in the document is true, correct and complete.

An independent third party must assess the LCA model and data according to ISO standards.  The verifier must include a statement of qualifications, proof of professional licensure, and an affidavit of independence.

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Attorneys at Baird Holm specialize in various subject matter areas including land use, environmental regulations and tax law.  They also have referrals for consultants who can help prepare LCA reports.  Please do not hesitate to contact us if you have questions about these new regulations or any related matter.

Hannes D. Zetzsche
Christopher G. Thorpe, Summer Associate