The IRS has released (Notice 2022-38, IRM 2022-39) the inflation adjustment factor for the IRC Section 45Q carbon sequestration credit for calendar year 2022. This factor applies to credits for carbon oxide captured by equipment originally placed in service before enactment of the Bipartisan Budget Act of 2018 (BBA) (February 9, 2018).

The inflation adjustment factor for calendar year 2022 is 1.2534. The IRC Section 45Q credit for calendar year 2022 is:

• $25.07 per metric ton of qualified carbon oxide under IRC Section 45Q(a)(1)
• $12.53 per metric ton of qualified carbon oxide under IRC Section 45Q(a)(2)

The Inflation Reduction Act amended IRC Section 45Q(g) so that the IRC Section 45Q credit in effect before the BBA only applies to qualified carbon oxide captured before the earlier of January 1, 2023, or a certain output of metric tons of qualified carbon oxide have been taken into account.

Notice 2022-38 clarified that 2022 is the last year taxpayers may claim the IRC Section 45Q credit under IRC Section 45Q(a)(1) and (2) for equipment placed in service before enactment of the BBA.

Implications

Taxpayers with facilities that were placed in service before the BBA's enactment must apply these new rates when calculating their tax credits for 2022. While there has been a large focus on the new credit levels in the IRA, those levels do not take effect until January 1, 2023.

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