SECTION 2. OVERVIEW

Section 13203 of Public Law 117-169, 136 Stat. 1818 (August 16, 2022), commonly known as the Inflation Reduction Act of 2022, added § 40B and amended §§ 38(b), 40A, 87, 4101(a), 6426, and 6427(e)(1), enacting a sustainable aviation fuel credit, effective for certain fuel mixtures containing sustainable aviation fuel sold or used after December 31, 2022, and prior to January 1, 2025.

The SAF credit is equal to the product of— (1) the number of gallons of sustainable aviation fuel in a qualified mixture, multiplied by (2) the sum of— (A) $1.25, plus (B) the applicable supplementary amount (as calculated under section 4.05 of this notice) with respect to such sustainable aviation fuel. See §§ 40B(a) and 6426(k). In general, the applicable supplementary amount increases the $1.25 base credit by $0.01 for each percentage point by which the lifecycle greenhouse gas emissions reduction percentage (as defined in section 3.01(4) of this notice) of the sustainable aviation fuel exceeds 50 percent. See section 3 of this notice for the requirements of sustainable aviation fuel and qualified mixtures; see section 4

of this notice for calculating the applicable supplementary amount and lifecycle greenhouse gas emissions reduction percentage.

For a claimant to qualify for the SAF credit, §§ 40B(f)(1) and 6426(k)(3) require the producer or importer of the sustainable aviation fuel to be registered with the IRS under § 4101. See section 5 of this notice for information on how a producer or importer may register; see section 6.02 of this notice for which party is the proper claimant.

A claimant who qualifies for the SAF credit may either: (1) claim an excise tax credit under § 6426(k), in which case the claimant first claims the SAF credit against its § 4081 excise tax liability for a particular quarter and, to the extent that the credit exceeds the claimant’s § 4081 excise tax liability for that quarter, the claimant may claim either a payment under § 6427(e)(1) or a refundable income tax credit under § 34(a)(3); or (2) claim a nonrefundable § 38 general business income tax credit under § 38(b)(35) and include the amount of the § 40B credit in gross income under § 87. See section 6 of this notice regarding the procedures for making a claim as well as the claim requirements.

Sections 40B and 6426(k) allow a SAF credit for the production of a qualified mixture which, broadly speaking, is a mixture of sustainable aviation fuel and kerosene. Section 40B(d)(1)(A) defines sustainable aviation fuel by reference to two American Society for Testing and Materials (ASTM) specifications: ASTM D7566 and certain Fischer Tropsch provisions of ASTM D1655 Annex A1. The referenced ASTM specifications describe two distinct processes to produce a qualified mixture. Generally, under ASTM D7566, a person produces a qualified mixture by mixing a synthetic blending component with kerosene. In contrast, under ASTM D1655 Annex A1, a person produces a qualified mixture by co-processing an appropriate feedstock with a petroleum feedstock during the production of kerosene that results in a qualified mixture, although no separate step of mixing a sustainable aviation fuel with kerosene occurs.

This notice primarily addresses the SAF credit requirements applicable to a qualified mixture produced under ASTM D7566. Treasury and the IRS, in consul

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that satisfies the requirements of section 3.01(2) through (4) of this notice, are referred to as SAF FT hydrocarbons .

(1) ASTM International specifications . For purposes of this notice, references to ASTM or ASTM International Standard are references to specifications published by ASTM International (formerly ASTM). For availability of ASTM specifications, see § 48.4081-1(d) of the Manufacturers and Retailers Excise Tax Regulations (26 CFR part 48).

(a) ASTM D7566 Annexes . The term ASTM D7566 Annexes means any of the annexes in ASTM D7566 that provide the specifications for a pathway to create a synthetic blending component that can be blended with ASTM D1655 kerosene (as defined in section 3.02(2)(a) of this notice) to make a qualified mixture.

(b) ASTM D1655 Annex A1 . The term ASTM D1655 Annex A1 means the Fischer Tropsch provisions of ASTM D1655 Annex A1 that are contained in section A1.2.2.2, which provides a pathway for producing a liquid fuel by co-processing up to five percent of FT hydrocarbons with petroleum to make a qualified mixture. For purposes of this notice, the term petroleum includes any conventionally sourced hydrocarbons permitted under ASTM D1655 Annex A1.

Liquid fuel produced under section A1.2.2.1 does not qualify for the SAF credit because section A1.2.2.1 defines a pathway for producing a liquid fuel from co-processing an applicable material (or materials derived from an applicable material) with a feedstock that is not biomass (for example, petroleum), which § 40B(d) (1)(B) excludes from the SAF credit. See section 3.01(2) of this notice.

(2) Not derived from co-processing ap- plicable materials . To qualify as sustainable aviation fuel, the liquid fuel must not be derived from co-processing an “applicable material” (or materials derived from an applicable material) with a feedstock that is not biomass (within the meaning of § 45K(c)(3) of the Code). Section 40B(d) (2)(A) defines the term applicable mate- rial for this purpose to mean (i) monoglycerides, diglycerides, and triglycerides, (ii) free fatty acids, and (iii) fatty acid esters. Section 45K(c)(3) defines the term biomass to mean any organic material other than (A) oil and natural gas (or any

product thereof), and (B) coal (including lignite) or any product thereof.

(3) Not derived from palm fatty acid distillates or petroleum . To qualify as sustainable aviation fuel, the liquid fuel must not be derived from palm fatty acid distillates or petroleum.

(4) Lifecycle greenhouse gas emissions reduction percentage . To qualify as sustainable aviation fuel, the liquid fuel must have been certified in accordance with § 40B(e) as having a lifecycle greenhouse gas emissions reduction percentage of at least 50 percent. Section 40B(e) defines the term lifecycle greenhouse gas emis- sions reduction percentage to mean, with respect to any sustainable aviation fuel, the percentage reduction in lifecycle greenhouse gas emissions achieved by such fuel as compared with petroleum-based jet fuel, as defined in accordance with (i) the most recent Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) that has been adopted by the International Civil Aviation Organization (ICAO) with the agreement of the United States and is set out in Annex 16 - Environmental Protection: Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) (2018), https://elibrary. icao.int/home/product-details/229739, and related documents, or (2) any similar methodology that satisfies the criteria under § 211(o)(1)(H) of the Clean Air Act (42 U.S.C. 7545(o)(1)(H)), as in effect on August 16, 2022. See section 4.04 of this notice for a safe harbor to calculate the lifecycle greenhouse gas emissions reduction percentage.

.02 Qualified mixture . (1) Requirements . Under § 40B(c), a qualified mixture means a mixture of sustainable aviation fuel and kerosene, but only if— (1) such mixture is produced by the taxpayer in the United States (defined in § 7701(a)(9) of the Code to mean the states and the District of Columbia); (2) such mixture is used by the taxpayer (or sold by the taxpayer for use) in an aircraft; (3) such sale or use is in the ordinary course of a trade or business of the taxpayer; and (4) the transfer of such mixture to the fuel tank of such aircraft occurs in the United States.

A qualified mixture may be produced by either mixing a SAF synthetic blending component with kerosene (to produce a

SAF qualified mixture; see section 3.02(2) of this notice) or by co-processing SAF FT hydrocarbons with petroleum to produce a co-processed liquid fuel (which is a SAF co-processed qualified mixture; see section 3.02(3) of this notice).

(2) SAF qualified mixture . A SAF qualified mixture means a mixture of a SAF synthetic blending component (within the meaning of section 3.01 of this notice) with ASTM D1655 kerosene (as defined in section 3.02(2)(a) of this notice) that meets the requirements of ASTM D7566 (as defined in section 3.02(2)(b) of this notice) and which may be regarded as ASTM D1655 compliant SAF.

(a) ASTM D1655 kerosene and ASTM D1655 compliant SAF . The term ASTM D1655 kerosene means petroleum-based kerosene that meets the specifications set forth in ASTM D1655 and does not include liquid fuel co-processed with FT hydrocarbons or the addition of a synthetic blending component.

The term ASTM D1655 compliant SAF means ASTM D1655 kerosene that has been blended with a SAF synthetic blending component described in a specific ASTM D7566 Annex and meets the batch specifications described in ASTM D7566, Table 1. It also means kerosene produced by co-processing SAF FT hydrocarbons with petroleum under ASTM D1655 Annex A1. Once the mixture meets those batch specifications or is produced under ASTM D1655 Annex A1, the mixture may be regarded as jet fuel under ASTM D1655. ASTM D1655 compliant SAF is fully fungible with ASTM D1655 kerosene.

The terms ASTM D1655 kerosene and ASTM D1655 compliant SAF are not ASTM designations, but rather are used in this notice to distinguish between two types of fuel (for federal excise tax purposes) that qualify as jet fuel under the ASTM D1655 specifications for jet fuel.

(b) ASTM D7566 . The term ASTM D7566 means the batch specifications set forth under ASTM D7566, Table 1, which includes the blending requirements for each synthetic blending component and the overall specifications and requirements for the blended mixture to be regarded as ASTM D1655 compliant SAF. Blending percentage requirements for various synthetic blending components

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with ASTM D1655 kerosene are listed in section 6 of ASTM D7566 and range from 10 to 50 percent. (3) SAF co-processed qualified mix- ture . A SAF co-processed qualified mix- ture means a co-processed liquid fuel that meets the requirements of ASTM D1655 Annex A1 (within the meaning of section 3.01(1)(b) of this notice) and in which the biomass used to create the FT hydrocarbons satisfies the requirements of section 3.01(2) through (4) of this notice. ASTM D1655 Annex A1 provides a pathway for producing a liquid fuel by co-processing FT hydrocarbons with petroleum that results in a qualified mixture if the producer uses SAF FT hydrocarbons. This process is functionally different from mixing two distinct products, such as a synthetic blending component and kerosene, to create a qualified mixture. Here, petroleum-based hydrocarbons and up to five percent of SAF FT hydrocarbons are processed together to produce kerosene, a portion of which was derived from sustainable sources. Before processing, neither the petroleum-based hydrocarbons nor the SAF FT hydrocarbons qualify as kerosene.

As a result, a SAF co-processed qualified mixture must be produced in the United States. A co-processed liquid fuel that is imported into the United States is ineligible for the SAF credit. The requirement that the SAF co-processed qualified mixture be produced in the United States is not met by mixing co-processed liquid fuel with additional ASTM D1655 kerosene or ASTM D1655 compliant SAF (as defined in section 3.02(2)(a) of this notice) in the United States.

Only the portion of the SAF co-processed qualified mixture attributable to the SAF FT hydrocarbons (derived from biomass) qualifies for the SAF credit. Conversely, no portion of the kerosene derived from a petroleum-based source in a SAF co-processed qualified mixture qualifies for the SAF credit.

.03 Taxation of sustainable aviation fu- els and qualified mixtures .

(1) In general . (a) Taxable fuel . Section 4081(a)(1) imposes an excise tax on certain removals, entries, and sales of taxable fuel. Section 4083(a) defines taxable fuel as gasoline, diesel fuel, and kerosene. The term kero-

sene, for the purpose of kerosene-type jet fuel, means any liquid covered by ASTM D1655 or military specification MIL– DTL–5624T (Grade JP–5) or MIL–DTL– 83133E (Grade JP–8). (b) Blended taxable fuel . Section 4081(b)(1) imposes an excise tax on taxable fuel removed or sold by the “blender” thereof, subject to certain credits provided in § 4081(b)(2). Section 48.4081-1(b) defines blender as any person that produces blended taxable fuel . Section 48.4081-1(c) (1)(i) generally defines the term blended taxable fuel as any taxable fuel that is produced outside the bulk transfer/terminal system by mixing (A) taxable fuel with respect to which tax has been imposed under § 4041(a)(1) or 4081(a) (other than taxable fuel for which a credit or payment has been allowed) and (B) any other liquid on which tax has not been imposed under § 4081.

(2) SAF synthetic blending component . A SAF synthetic blending component will not be treated as a taxable fuel for purposes of the excise tax imposed on taxable fuel under § 4081. A liquid fuel produced under the ASTM D7566 Annexes cannot, by definition, meet the specifications of ASTM D1655 until it is blended with kerosene. Accordingly, a SAF synthetic blending component is not treated as a taxable fuel for purposes of § 4081(a). However, the SAF synthetic blending component is taxable under § 4041(a) or (c) if it is used in a diesel-powered highway vehicle or a diesel-powered train, or as fuel in aviation.

(3) SAF qualified mixture . After a SAF qualified mixture is produced, the entire mixture is taxable under § 4081. The SAF qualified mixture is taxable under § 4081(a) if produced within the bulk transfer/terminal system. Alternatively, the SAF qualified mixture is taxable under § 4081(b) if it is produced with previously-taxed kerosene outside the bulk transfer/terminal system (subject to the credit for previously-taxed fuel under § 4081(b) (2)).

(4) Co-processed liquid fuel and SAF co-processed qualified mixture . Both co-processed liquid fuel and a SAF co-processed qualified mixture meet the specifications of ASTM D1655 and are therefore kerosene. As a result, any product produced under ASTM D1655 An

nex A1 is a taxable fuel for purposes of § 4081(a).