June 4, 2024

Treasury Department, IRS Issue Section 45Z Clean Fuel PTC Registration Guidance

Holland & Knight Alert
Nicole M. Elliott | Amish Shah | David H. Mann | Mary Kate Nicholson | Brad M. Seltzer | Roger David Aksamit | Joshua David Odintz | Kenneth W. Parsons | Daniel Graham Strickland | Bryan Marcelino | Rachel T. Provencher | Eli Brander | Lee S. Meyercord

Highlights

  • The U.S. Department of the Treasury and IRS released Notice 2024-49 on May 31, 2024, regarding the registration requirement and certain other limited guidance under Section 45Z of the Internal Revenue Code, which provides a production tax credit (PTC) for clean fuels produced after Dec. 31, 2024, and before Jan. 1, 2028.
  • As registration is a prerequisite for claiming the Section 45Z PTC, taxpayers should carefully review the notice.
  • Taxpayers should submit registrations no later than July 15, 2024, to help ensure the IRS has time to approve the registration prior to 2025.

The U.S. Department of the Treasury and IRS released Notice 2024-49 on May 31, 2024, regarding the registration requirement and certain other limited guidance under Section 45Z of the Internal Revenue Code. Section 45Z provides a production tax credit (PTC) for clean fuels produced after Dec. 31, 2024, and before Jan. 1, 2028. As registration is a prerequisite for claiming the Section 45Z PTC, taxpayers should carefully review the notice.

This Holland & Knight alert provides a summary of this guidance.

 

Holland & Knight Insight

Any taxpayer that may be seeking to claim the Section 45Z credit beginning in 2025 should register with the IRS as soon as possible, but no later than July 15, 2024, to obtain a signed registration letter before Jan. 1, 2025. A signed registration letter is required prior to production of clean fuels for entitlement to the Section 45Z credit.

The Registration Requirement

Under Section 45Z, no clean fuel PTC can be determined with respect to any transportation fuel unless the taxpayer is registered as a producer of clean fuel under Section 4101 at the time of production. A person is registered only if the IRS has issued a registration letter to the person and the registration has not been revoked or suspended.

This means that to be eligible to claim the Section 45Z PTC for production starting Jan. 1, 2025, a taxpayer must have a signed registration letter dated on or before Jan. 1, 2025.

In the notice, the IRS announced that it intends to process completed applications for registration received by July 15, 2024, such that an eligible taxpayer can receive its letter of registration by Jan. 1, 2025. Applications received after July 15, 2024, will be processed as quickly as possible, but a taxpayer who applies for registration after that date is less likely to receive its registration by Jan. 1, 2025.

How to Register

The application for registration is made on Form 637, "Application for Registration (for Certain Excise Tax Activities)," which is currently being revised by the IRS to add the new Activity Letters CA (Sustainable Aviation Fuel, or “SAF”) and CN (non-SAF). An applicant may apply for registration under more than one Activity Letter on a single Form 637. Until the revised Form 637 is released, applicants may use the current Form 637 by writing in Activity Letter "CN," Activity Letter "CA" or both, as applicable, and providing the required information:

For Non-SAF Transportation Fuel (CN):

  1. each type of non-SAF transportation fuel and the annual volume of each type of non-SAF transportation fuel the applicant produces; if a type of non-SAF transportation fuel the applicant produces is not described in Section 4.01(5)(A) of this notice, state "Other" and provide a description of the fuel
  2. the feedstock(s) and country of origin of each feedstock used to produce each type of non-SAF transportation fuel the applicant produces
  3. the location(s) and a description of the applicant's production facilities
  4. each production facility's annual fuel production capacity and whether the applicant's production facilities are operational and currently producing volumes of non-SAF transportation fuel
  5. the names and addresses of any person(s) acting for the applicant as an agent or broker in buying, selling or transporting any non-SAF transportation fuel
  6. the business entities to which the applicant sells non-SAF transportation fuel
  7. the business entities from or with which the applicant buys, trades, transfers or exchanges any non-SAF transportation fuel
  8. the annual volume of non-SAF transportation fuel the applicant buys, sells, trades, transfers or exchanges
  9. a statement indicating under which ASTM standard(s), SAE standard(s) or both, the applicant produces non-SAF transportation fuel

For SAF Transportation Fuel (CA):

  1. a statement indicating whether the applicant produces SAF under an ASTM D7566 Annex or ASTM D1655 Annex A1 and, if applicable, the specific ASTM D7566 Annex under which the SAF synthetic blending component is produced
  2. the feedstock(s) and country of origin of each feedstock used to produce the SAF the applicant produces
  3. the annual volume of SAF the applicant produces
  4. the location(s) and a description of the applicant's production facilities
  5. each production facility's annual fuel production capacity and whether the applicant's production facilities are operational and currently producing volumes of SAF
  6. the names and addresses of any person(s) acting for the applicant as an agent or broker in buying, selling or transporting any SAF
  7. the business entities to which the applicant sells SAF
  8. the business entities from or with which the applicant buys, trades, transfers or exchanges any SAF
  9. the annual volume of SAF the applicant buys, sells, trades, transfers or exchanges

The IRS will register taxpayers who are producing a clean fuel or who are likely to become so engaged within a reasonable time after becoming registered.

Depending on the type of transportation fuel being produced and sold, a person producing fuel eligible for Section 45Z may have additional registration obligations under Section 4101 and Section 48.4101-1 and thus may be required to be registered under other activity letters.

 

Holland & Knight Insight

Taxpayers should confirm that registration obligations under Section 4101 are complied with to ensure that the registration letter for Section 45Z is not delayed. Common activity letter registrations may include SA (Producers or Importers of SAF) or SB (Producers of Second Generation Biofuel).

Certain changes in entity ownership may also affect registration. Taxpayers should be mindful of all Section 4101 registration requirements to help ensure a timely received registration letter.

Certain changes in entity ownership may also affect registration. Taxpayers should be mindful of all Section 4101 registration requirements to ensure a timely received registration letter.

Qualification of Fuel

Section 45Z requires that the fuel be a "transportation fuel," which is statutorily defined as a fuel that 1) is suitable for use as a fuel in a highway vehicle or aircraft, 2) has an emissions rate that is not greater than 50 kilograms of CO2e per mmBTU and 3) is not derived from co-processing an applicable material (or materials derived from an applicable material) with a feedstock that is not biomass. With regard to the first requirement, the notice confirms through its inclusion of a definition of transportation fuel that there are no additional regulatory requirements being imposed on that definition.

 

Holland & Knight Insight

There was some concern expressed within the industry that IRS guidance would seek to limit the credit beyond what Congress specifically allowed by requiring fuels to actually be used as a fuel in a highway vehicle or in aircraft. The IRS, to its credit and consistent with the statute, has not done that here.

The notice makes clear that the qualification of a fuel as transportation fuel depends on the specific facts and circumstances, including the emissions rate of such fuel. However, the notice provides an appendix with feedstocks and feedstock types associated with the varieties of fuel that may qualify as transportation fuel under Section 45Z. The notice suggests that additional guidance may be provided regarding additional fuels (and the feedstocks for such fuels) that may be eligible for the Section 45Z PTC.

In addition to the appendix, the notice provides the following lists of non-SAF transportation fuels expected to qualify (and not qualify) for the credit to the extent that the emissions rate of such fuel is not greater than 50 kg of CO2e per mmBTU:

Expected to Qualify as Non-SAF Transportation Fuel

Not Expected to Qualify as Non-SAF Transportation Fuel


Low-GHG biodiesel (ATM D6751)

Low-GHG butanol (ASTM D7862)

Low-GHG diesel fuel (ASTM D975)

Low-GHG dimethyl ether (ASTM D7901)

Low-GHG ethanol (ASTM D4806)

Low-GHG gasoline (ASTM D4814)

Low-GHG hydrogen (SAE J2719)

Low-GHG LPG (ASTM D1835)

Low-GHG methanol (ASTM D5797)

Low-GHG natural gas (ASTM D8080-21)

Most fuels derived from palm fatty acid distillates, petroleum, natural gas and coal (including lignite)

 

Holland & Knight Insight

The inclusion of this list should be helpful in clarifying for the IRS officials charged with granting registrations that the "activity test" required for a registration is satisfied. In light of recent activities, two specific points are noted with regard to the fuels expected to qualify as non-SAF transportation fuels. First, the definition of "low-greenhouse gas (GHG) natural gas" in this notice specifically includes renewable natural gas (RNG). Second, although the definition of "low-GHG liquefied petroleum gas (LPG)" in the notice refers specifically only to "low-GHG propane," the definition states that it more broadly includes "low-GHG liquefied gasses that meet the specifications of ASTM International C1835." That specification includes a broader group of LPGs than propane stating that the "specification covers liquefied petroleum gases consisting of propane, propene (propylene), butane, and mixtures of these materials." In light of the government's prior position that butane is not an LPG for purposes of Section 6426(d)(2) and its seeming reversal of that position in more recent litigation, the limited reference to propane is curious, and subsequent guidance should confirm that LPGs for this purpose include butane.

Comments to the IRS

Taxpayers should carefully consider this notice, including a review of the fuels and feedstocks listed in the notice, and prepare to submit written comments in response to future guidance issued regarding Section 45Z. 

The Holland & Knight Energy Tax Team is available for questions regarding the guidance. To be sure you receive additional analysis from the team, please subscribe to our alerts


Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.


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