January 3, 2024
IRS outlines guidance on sustainable aviation fuel credit
In Notice 2024-6 (Notice), the IRS outlined guidance on the sustainable aviation fuel (SAF) credit under IRC Section 6426(k) and IRC Section 40B, which were created by the Inflation Reduction Act. The Notice specifies how to calculate the lifecycle-greenhouse-gas-emissions-percentage portion of the SAF credit, along with safe harbors for compliance. In addition, the Notice provides a new model certificate for taxpayers to use to substantiate their compliance with the fuel mixture requirements.
The IRA created new IRC Section 40B for SAFs sold or used after December 31, 2022, through December 31, 2024. The IRS released earlier guidance on the SAF credit in Notice 2023-6.
As explained in an accompanying release (IR-2023-240), the SAF credit equals the number of gallons of SAF in a qualified mixture multiplied by the sum of $1.25 and the "applicable supplementary amount." The applicable supplementary amount generally increases the $1.25 base credit by $0.01 for each percentage point by which the emissions reduction percentage of the SAF exceeds 50%, up to a total of $0.50, for a total credit of $1.75.
Under IRC Section 40B, the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) method and any similar method that meets certain requirements under the Clean Air Act can be used to determine the percentage reduction of lifecycle greenhouse emissions.
The Notice establishes safe harbors for taxpayers that use the EPA's Renewable Fuel Standard (RFS) program to calculate the emissions reduction percentage.
The Notice explains that the Argonne National Laboratory's current model of Greenhouse gases, Regulated Emissions, and Energy use in Transportation (GREET) and other GREET-based models do not satisfy the statutory requirements for the SAF credit.
According to the Notice, the Department of Energy is collaborating with other federal agencies to develop a modified version of the GREET model that taxpayers can use to calculate the emissions-percentage reduction for purposes of complying with the SAF credit. It is anticipated that the modified GREET model will be available in early 2024.
The Notice includes an Appendix with a "Model Certificate for SAF Synthetic Blending Component." Claims for the credit filed after December 15, 2023, must use a certificate that conforms with the model form.
The Notice should help taxpayers support their SAF-related tax credit claims by providing additional routes to determine the fuel's percentage reduction of lifecycle greenhouse emissions.