SECTION 6. FIVE PERCENT SAFE

HARBOR

.01 In general . Construction of a qualified facility or carbon capture equipment will be considered as having begun if:

(1) a taxpayer pays or incurs (within the meaning of § 1.461-1(a)(1) and (2) of the Income Tax Regulations) five percent or more of the total cost of the qualified facility or carbon capture equipment, and

(2) the taxpayer makes continuous efforts to advance towards completion of the qualified facility or carbon capture equipment (as determined under section 7.02 of this notice). .02 Total Cost of Qualified Facility or Carbon Capture Equipment . All costs properly included in the depreciable basis of a qualified facility or carbon capture equipment are taken into account to determine whether the Five Percent Safe Harbor has been met. Costs associated with Front-End Engineering and Design (FEED) activities or other approaches for front-end planning (e.g., the Front-End Loading (FEL) approach) common to projects of similar scope and complexity may also be considered when determining whether the Five Percent Safe Harbor has been met.

.03 Cost Overruns . (1) Single Project . If the total cost of a qualified facility or carbon capture equipment that is a single project (as described in section 8.01 of this notice) comprised of multiple qualified facilities or multiple units of carbon capture equipment exceeds its anticipated total cost, so that the amount a taxpayer actually paid or incurred with respect to the single project turns out to be less than five percent of the

Bulletin No. 2020–11 497 March 9, 2020

total cost of the single project at the time it is placed in service, the Five Percent Safe Harbor is not satisfied. However, the Five Percent Safe Harbor will be satisfied and the Section 45Q Credit may be claimed with respect to some, but not all, of the qualified facilities or units of carbon capture equipment comprising the single project as long as the total aggregate cost of those qualified facilities or units of carbon capture equipment that are eligible for the Section 45Q Credit is not more than twenty times greater than the amount the taxpayer paid or incurred.

(a) Example . In 2023, a taxpayer incurs $250,000 in costs to construct Project C, comprised of 5 separate direct air capture facilities that will be operated as a single project (as described in section 8.01 of this notice). The taxpayer anticipates that each direct air capture facility will cost $1,000,000 for a total cost for Project C of $5,000,000. Thereafter, the taxpayer makes continuous efforts to complete Project C. The taxpayer timely places all five of the direct air capture facilities that comprise Project C in service in 2026. At that time, the actual total cost of Project C amounts to $6,000,000, with each direct air capture facility costing $1,200,000. Although the taxpayer did not pay or incur five percent of the actual total cost of Project C in 2023, the taxpayer will be treated as satisfying the Five Percent Safe Harbor in 2023 with respect to 4 of the direct air capture facilities, as their actual total cost of $4,800,000 is not more than twenty times greater than the $250,000 in costs incurred by the taxpayer. Thus, the taxpayer may claim the Section 45Q Credit based on the amount of carbon oxide captured from 4 of the direct air capture facilities. However, if the taxpayer is able to demonstrate that the Physical Work Test was satisfied with respect to Project C prior to January 1, 2024, the taxpayer may claim the Section 45Q Credit based on the entire Project C.

(2) Single Qualified Facility or Unit of Carbon Capture Equipment . If the total cost of a single qualified facility or unit of carbon capture equipment, which is not part of a single project (as described in section 8.01 of this notice) comprised of multiple qualified facilities or units of carbon capture equipment and which cannot be separated into multiple qual

ified facilities or units of carbon capture equipment, exceeds its anticipated total cost so that the amount a taxpayer actually paid or incurred with respect to the single qualified facility or unit of carbon capture equipment as of an earlier year is less than five percent of the total cost of the single qualified facility or unit of carbon capture equipment at the time it is placed in service, then the taxpayer will not satisfy the Five Percent Safe Harbor with respect to any portion of the single qualified facility or unit of carbon capture equipment in such earlier year.

(a) Example . In 2023, a taxpayer incurs $250,000 in costs to construct Project D, a qualified facility. The taxpayer anticipates that the total cost of Project D will be $5,000,000. Thereafter, the taxpayer makes continuous efforts to complete Project D. The taxpayer places Project D in service in a later year. At that time, its actual total cost amounts to $6,000,000. Because Project D is a single qualified facility that is not a single project comprised of multiple qualified facilities, the taxpayer will not satisfy the Five Percent Safe Harbor as of 2023. However, the taxpayer may demonstrate that construction began in 2023 if the requirements of the Physical Work Test are satisfied.