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The IRS released three frequently asked questions (FS-2024-25) addressing how disregarded entities should apply for the registration necessary for claiming the IRC Section 45Z clean fuel production credit.

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.

To claim the IRC Section 45Z credit, a taxpayer must have a signed letter of registration from the IRS dated on or before the date of production of the fuel. In Notice 2024-49, the IRS described the requirements for obtaining the letter of registration (see Tax Alert 2024-1193). Taxpayers can apply for the letter of registration on Form 637, Application for Registration (for Certain Excise Tax Activities).

FAQs

The three FAQs released July 10, 2024, clarify which entities must apply for registration:

• Each business unit that has, or must have, a separate employer identification number (EIN) and produces clean fuel is treated as a separate person for registration purposes and must separately apply for registration using Form 637
• A disregarded entity that produces clean fuel is not treated as such for purposes of registering for the IRC Section 45Z credit and must separately apply for registration using Form 637
• The owner of a disregarded entity that is registered for the IRC Section 45Z credit under Notice 2024-49 may claim the credit using the registration number of the disregarded entity, even if the owner is not registered

Implications

Taxpayers are only considered registered for the IRC Section 45Z credit once they have the signed letter from the IRS; no tax credits can be generated before the date the letter is signed. As the tax credit is effective starting on January 1, 2025, taxpayers should begin the registration process if they have not already done so. The requirement that a disregarded entity must register may catch some taxpayers off guard as a disregarded entity is typically ignored for tax purposes and any of its requirements fall on the entity's regarded owner. As such, it is important that taxpayers pay attention to the specific entities that need to register in order to avoid future complications. Certain producers of eligible clean fuel under IRC Section 45Z may have further registration requirements under IRC Section 4101 (the federal excise tax on taxable fuel imposed by IRC Sections 4041(a)(1) and 4081).