Treasury Expands Safe Harbor for 45Q Carbon-Capture Credit
New interim guidance extends the safe harbor for claiming carbon-capture tax credits, expands it to enhanced oil and gas recovery projects, and clarifies its use for recapture calculations.
The U.S. Department of the Treasury and the IRS issued Notice 2026-50, significantly expanding and extending an interim safe harbor for taxpayers claiming the Section 45Q tax credit for carbon capture and sequestration. The guidance responds to continued uncertainty caused by the EPA's proposal to remove certain reporting obligations (under Subpart RR) and its failure to launch its electronic reporting tool for the 2025 reporting year.
Sophisticated counsel should note three key changes. The relief is now extended to carbon oxide used as a tertiary injectant in qualified enhanced oil or natural gas recovery projects. The notice also confirms that taxpayers can rely on the safe harbor to determine amounts subject to recapture. Finally, the safe harbor's availability is extended beyond calendar year 2025, now applying to any year the EPA's reporting tool is not launched by March 31 of the following year, until further guidance is issued. This provides crucial planning certainty for clients developing and financing long-term carbon-capture projects.
Taxpayers may rely on the notice for secure geological storage occurring on or after January 1, 2025, but must obtain certification from an independent engineer or geologist. Counsel should monitor for forthcoming proposed regulations which may modify this interim relief.