SECTION 9. TRANSFER OF

QUALIFIED FACILITY OR CARBON CAPTURE EQUIPMENT

.01 In general . The definition of a qualified facility provided in § 45Q(d) requires that the construction of the facility begin before January 1, 2024, and either construction of carbon capture equipment begins before such date or the original planning and design for such facility includes installation of carbon capture equipment.

There is no statutory requirement that the taxpayer that places the facility in service also be the taxpayer that begins construction of the facility. Thus, except as provided in section 9.03 of this notice, a fully or partially developed facility may be transferred without losing its qualification under the Physical Work Test or the Five Percent Safe Harbor for purposes of § 45Q.

For example, a taxpayer may acquire a qualified facility or carbon capture equipment (that consists of more than just tangible personal property) from an unrelated developer that had begun construction of the qualified facility or carbon capture equipment prior to January 1, 2024, and thereafter the taxpayer may complete the qualified facility or carbon capture equipment and place it in service. The work performed or amount paid or incurred prior to January 1, 2024, by the unrelated transferor developer may be taken into account for purposes of determining whether the qualified facility or carbon capture equipment satisfies the Physical Work Test or Five Percent Safe Harbor.

(1) Example . In August 2023, a developer acquires a parcel of land on which it intends to build and operate Project K, a qualified facility that will include carbon capture equipment. The developer contributes the land to its wholly-owned limited liability company (LLC), which is disregarded as an entity separate from its owner for federal tax purposes, to hold and develop Project K . In November 2023, the developer incurs 5 percent of the total cost of Project K and thereafter maintains continuous efforts to advance towards the completion of Project K. In April 2024, to finance the development of Project K, the developer sells 95 percent of the interests in LLC to a group of investors who are not related to the developer, and the developer does not contribute the sales proceeds to LLC.

Under Rev. Rul. 99-5, 1999-1 C.B. 434, the developer is treated as selling 95 percent of each of the assets of LLC to the investors, and immediately thereafter the developer and investors are treated as contributing their respective 5 percent and 95 percent interests in those assets to LLC, which is now a partnership and the owner of Project K for federal tax purposes. In October 2026, LLC places

Project K in service. Because Project K satisfies the Five Percent Safe Harbor in November 2023 and assuming Project K otherwise satisfies the requirements of the Section 45Q Credit, the LLC is eligible to claim the Section 45Q Credit with respect to Project K.

(2) Example . In 2025, a taxpayer acquires an unfinished qualified facility (that consists of land and components of an industrial facility and components of carbon capture equipment) from an unrelated developer that had begun construction of the qualified facility in 2022, and thereafter the taxpayer completes the development of that qualified facility and places it in service in 2028. The work performed or the amounts paid or incurred by the unrelated developer prior to the taxpayer’s acquisition of the qualified facility may be taken into account by the taxpayer for purposes of determining when the qualified facility satisfies the Physical Work Test or the Five Percent Safe Harbor.

.02 Relocation of components of a Qualified Facility or Carbon Capture Equipment by taxpayer . A taxpayer may begin construction of a qualified facility or carbon capture equipment with the intent to develop the qualified facility or carbon capture equipment at a certain site, and thereafter transfer components of the qualified facility or carbon capture equipment to a different site, complete its development, and place it in service. The work performed or amount paid or incurred prior to the site transfer by such a taxpayer may be taken into account for purposes of determining whether the qualified facility or carbon capture equipment satisfies the Physical Work Test or the Five Percent Safe Harbor.

.03 Transfers of components of a Qual- ified Facility or Carbon Capture Equip- ment between unrelated parties .

(1) In general . In the case of a transfer consisting solely of tangible personal property (including contractual rights to such property under a binding written contract) to a transferee not related (within the meaning of § 197(f)(9)(C) and § 1.1972(h)(6) of the Income Tax Regulations) to the transferor, any work performed or amount paid or incurred by the transferor with respect to such transferred property will not be taken into account with respect to the transferee for purposes of the Phys

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ical Work Test or the Five Percent Safe Harbor.

(2) Example . Developer D intends to develop and operate carbon capture equipment at Facility L, an industrial facility owned and operated by a different taxpayer. Prior to January 1, 2024, Developer D pays or incurs $60,000 to have CO2 compressors that will be used in the capture of carbon oxide manufactured off-site pursuant to a binding written contract. Thereafter Developer D incurs no further development costs and engages in no further development activity with respect to the carbon capture equipment. In January 2024, Developer D sells the CO2 compressors to Developer E, a party unrelated to Developer D. Developer E is developing and intends to operate carbon capture equipment at Facility M, an industrial facility located on a parcel of land owned by Developer E. Developer E incorporates the CO2 compressors acquired from Developer D into the carbon capture equipment to be used at Facility M. In October 2028, Developer E places the carbon capture equipment in service at Facility M. The total cost of the carbon capture equipment at Facility M is $1,000,000.

Amounts paid or incurred by Developer D prior to January 1, 2024, for the CO2 compressors will not be taken into account for purposes of satisfying the Five Percent Safe Harbor with respect to the carbon capture equipment at Facility M. However, if without regard to the CO2 compressors, Developer E has otherwise satisfied the Physical Work Test or the Five Percent Safe Harbor with respect to the carbon capture equipment at Facility M, Developer E will be considered to have begun construction on Facility M for purposes of the Section 45Q Credit.