The IRS issued Revenue Ruling 2021-13 on July 1, 2021, which provides additional guidance regarding the section 45Q carbon capture, utilization and storage (CCUS) credit. More specifically, the ruling concludes that:
Relevant facts in the ruling
The facts involve a methanol plant that produces methanol from petroleum coke. The process for producing methanol involves the following steps:
The AGR unit was placed in service on January 1, 2017 and, since that time, the CO2 separated by the AGR has been released into the atmosphere and no section 45Q credits have been claimed.
The taxpayer purchased and installed new components of carbon capture equipment in 2021 necessary to create a single process train capable of capturing, processing, and preparing for transport the CO2. The taxpayer did not acquire any ownership interest in the methanol plant, including the AGR unit.
Summary of applicable rules
Under Treas. Reg. section 1.45Q-2(c), carbon capture equipment generally includes all components of property that are used to capture or process carbon oxide until the carbon oxide is transported for disposal, injection or utilization. Further:
Finally, under section 45Q(f)(3)(A)(ii) and Treas. Reg. §1.45Q-1(h)(1)(ii), the section 45Q credit is available to the person that owns the carbon capture equipment and physically or contractually ensures the capture and disposal, injection, or utilization of such qualified carbon oxide. The final regulations provide that for each single process train of carbon capture equipment, only one taxpayer will be considered the person to whom the credit is attributable.
Conclusions in ruling
In the ruling, the IRS reached the following conclusions:
Eversheds Sutherland Observations: As a preliminary matter, it is encouraging to see the IRS continue to issue guidance on matters requiring clarity to promote the growth of carbon capture, utilization and storage in the US, as Congress intended through the 2018 changes to section 45Q.
This guidance provides substantial flexibility in determining the person to whom the credit is allocated by clarifying that a taxpayer needs to own only one component of carbon capture equipment in a single train of carbon capture equipment to be the person that is entitled to the section 45Q credit. Although this conclusion may have been inferred from the final regulations, the explicit ruling provides very helpful confirmation.
With regard to the placed in service date ruling, the IRS again took a very practical approach in confirming that the 12-year period for claiming the credit began after the additional carbon capture equipment was installed, since that was the time when the single process train was ready and available for the capture, process and preparation of carbon oxide for transport for disposal, injection, or utilization, without revising the applicable placed in service date rules for depreciation purposes.