Key Takeaways
-
Treasury and the IRS have issued proposed regulations under Section 45Z that clarify how the clean fuel production credit is calculated, substantiated, and claimed, including detailed rules on emissions rates, certification, and recordkeeping.
-
The proposed regulations generally apply only to qualified fuel sales in taxable years ending after the rules are finalized, except for guidance on using the annual emissions rate table, which applies retroactively to taxable years ending on or after January 10, 2025.
-
Companion amendments to Sections 6417 and 6418 confirm that ownership of the fuel is not required to elect direct pay or transfer Section 45Z credits, expanding flexibility for taxpayers once the regulations are finalized.
The Treasury Department and the Internal Revenue Service issued last week proposed regulations for the clean fuel production credit under Section 45Z of the Internal Revenue Code (the “Code”). Section 45Z, which provides a tax credit for the production of “transportation fuel” suitable for vehicles and aircraft, was enacted by the Inflation Reduction Act in 2022 and amended by the One, Big, Beautiful Bill Act in 2025.
The recently promulgated proposed regulations would only apply to qualified sales under Section 45Z of the Code that occur in taxable years ending on or after the date that the regulations are finalized, with the exception of section 1.45Z-2(e) of the proposed regulations, which applies to qualified sales occurring in taxable years ending on or after January 10, 2025. This section of the proposed regulations sets forth guidance for using the applicable emissions rate table, which Section 45Z(b)(1)(B)(i) requires the IRS to publish annually, in calculating the amount of 45Z credit.
The Section 45Z proposed regulations includes rules for determining the amount and timing of the credit, special rules related to registered production in the United States, recordkeeping and substantiation requirements, procedures for certification of lifecycle greenhouse gas emissions rates, and procedures for claiming the clean fuel production credit. As mentioned above, with the exception of section 1.45Z-2(e) of the proposed regulations, the proposed regulations would only apply to qualified sales under Section 45Z of the Code that occur in taxable years ending on or after the date that the regulations are finalized.
Issued alongside the proposed regulations under Section 45Z of the Code are corresponding amendments to the regulations under Sections 6417 and 6418 of the Code. Such amendments would clarify that ownership is not a requirement for an elective payment election or a transfer election of credits, as applicable, under Section 45Z of the Code. These amendments apply for taxable years ending on or after the date that the regulations are finalized.
[View source.]
