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June 14, 2024
2024-1193

IRS outlines registration requirements for IRC Section 45Z clean fuel production credit

  • Taxpayers must apply for a letter of registration on Form 637, Application for Registration (for Certain Excise Tax Activities), which is being revised for these new procedures.
  • Taxpayers may apply for registration now with the current version of Form 637, following manual adjustments and information.
  • Producers of sustainable aviation fuel (SAF) must obtain certification from an unrelated party.
  • The IRS suggests that taxpayers apply for registration by July 15, 2024, to potentially receive an approved letter of registration by January 1, 2025, but does not guarantee any registration will be approved by a certain date.
 

In Notice 2024-49 (Notice), the IRS describes the requirements for obtaining a letter of registration for the IRC Section 45Z clean fuel production credit, which is necessary for the production of sustainable aviation fuels (SAF) and non-SAF low-emission fuels, starting on or after January 1, 2025. Taxpayers can apply for the letter of registration on Form 637, Application for Registration (for Certain Excise Tax Activities).

The Notice also includes an appendix identifying the primary feedstocks used to make transportation fuels that may be eligible for the IRC Section 45Z credit for purposes of applying for registration.

The IRS stated its intent to issue additional guidance on the IRC Section 45Z credit at a later date.

Background

The Inflation Reduction Act added the IRC Section 45Z clean fuel production credit for low-emission transportation fuel produced at qualified facilities (not including facilities for which an IRC Section 45V, 45Q or 48 (related to hydrogen) credit is available). The IRC Section 45Z credit is generally available for low-emission transportation fuel produced at a qualified facility in the United States after December 31, 2024.

The IRC Section 45Z credit equals the (1) the applicable amount per gallon (or gallon equivalent) for transportation fuel produced by the taxpayer at a qualified facility and sold in the manner described in IRC Section 45Z(a)(4) during the tax year multiplied by (2) the emissions factor for such fuel as determined under IRC Section 45Z(b).

The Notice states the Treasury Department and the IRS will later provide guidance on an emissions-rate table and provisional emissions-rate-petition procedures for transportation fuels that do not currently have emissions rates under IRC Section 45Z(b)(1)(b).

Only registered production in the United States, including its territories, is considered for the IRC Section 45Z credit. The IRC Section 45Z credit is subject to the two-tiered credit regime (with the higher amount being obtainable so long as the prevailing wage and apprenticeship requirements are met).

Letter-of-registration requirements

To claim the IRC Section 45Z credit for low-emission transportation fuel production after December 31, 2024, a taxpayer must have a signed letter of registration from the IRS dated on or before the date of production of the fuel. For example, a taxpayer receiving a letter of registration dated June 30, 2025, cannot claim the IRC Section 45Z credit for any transportation fuel produced and sold before that date.

For the production and sale of SAF, the taxpayer must also obtain certification from an unrelated party demonstrating (1) compliance with any general requirements, (2) supply chain traceability requirements, (3) information transmission requirements under the most recent Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), and (4) any other information the Secretary may require (for more information on the SAF, see Tax Alert 2024-0107). The Notice states that the Treasury Department and IRS will provide guidance on unrelated-party certification for claims of the IRC Section 45Z credit at a later time.

Taxpayers must apply for a letter of registration on Form 637, Application for Registration (for Certain Excise Tax Activities) under Activity Letter "CN" (for a producer of non-SAF transportation fuel), Activity Letter "CA" (for a producer of SAF), or both, as applicable. Currently, Form 637 does not have activity letters CN and CA. Until the IRS releases the new Form 637, taxpayers may write Activity Letter CN or CA, or both, on the current Form 637. Notice 2024-49 includes additional information that SAF and non-SAF transportation fuel producers should include in their application.

Producers of certain types of transportation fuel eligible for the IRC Section 45Z credit may have additional registration obligations under IRC Section 4101 and therefore may be required to be registered under additional activity letters.

Taxpayers that are not currently producing qualified transportation fuel but will do so "within a reasonable time after being registered" may apply for registration now.

Timing

The IRS stated that it intends to process complete applications for letters of registration received by July 15, 2024, which should allow taxpayers to receive their approved letters of registration by January 1, 2025. The IRS added that it intends to "quickly process applications received after July 15, 2024, but cautions that a taxpayer that applies for registration after that date is less likely to receive its registration by January 1, 2025." The IRS also stated that "in no event can the IRS guarantee that any application for registration will be processed by a certain date."

Receiving a letter of registration does not guarantee that the taxpayer is eligible to claim the credit, as other requirements must also be met.

In Section 3.03 of the Notice, the IRS listed the definitions of non-SAF transportation fuel that it anticipates will meet the emissions rate threshold, which is required to qualify for the credit. The Notice also includes Appendix A, which identifies primary feedstocks used to make transportation fuels that may be eligible for the IRC Section 45Z credit.

Implications

The ability to take the IRC Section 45Z credit on a taxpayer's federal income tax return depends on receiving an approved Form 637 registration for eligible products produced and sold after January 1, 2025. The IRS makes it clear in the Notice that registration applications sent after July 15, 2024, are less likely to be processed by the January 1, 2025 start of the credit. As this is a new registration, the IRS may have follow-up questions or clarifications, which may delay the receipt of an approved registration. Due to this, it is important to apply for registration as soon as possible.

In addition to the IRC Section 45Z requirements, taxpayers should assess if they have any additional registration needs under IRC Section 4101 related to fuel activities.

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Contact Information

For additional information concerning this Alert, please contact:

National Tax

Americas Power & Utilities Tax Group

Tax Credit Investment Advisory Services

Credits and incentives and sustainability

National Excise Tax

Published by NTD’s Tax Technical Knowledge Services group; Andrea Ben-Yosef, legal editor