SECTION 9. DRAFTING

INFORMATION

The principal authors of this notice are Jennifer Golden, Danielle Mayfield, Camille Edwards Bennehoff, and Andrew Clark of the Office of Associate Chief Counsel (Passthroughs & Special Industries). For questions regarding this notice, contact Ms. Golden, Ms. Mayfield, Ms. Edwards Bennehoff, or Mr. Clark at (202) 317-6855 (not a toll-free number).

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Appendix – Draft Text of Forthcoming Proposed Regulations

§1.45Z-1 Clean fuel production credit; definitions.

and CORSIA Actual is available at https:// www.icao.int/environmental-protection/ CORSIA/Pages/CORSIA-Eligible-Fuels. aspx.

(10) DOE . The term DOE means the United States Department of Energy.

(11) Emissions factor . The term emis- sions factor means the emissions factor as described in section 45Z(b)(1)(A) and §1.45Z-2(c)(1).

(12) Emissions rate . The term emis- sions rate means the emissions rate for a transportation fuel as described in §1.45Z2(d). (13) EPA . The term EPA means the United States Environmental Protection Agency.

(14) Facility —(i) In general. For purposes of the definition of qualified facility provided in section 45Z(d)(4) and paragraph (b)(24) of this section, the term facility means a single production line that is used to produce a transportation fuel. For this purpose, a single production line includes all components that function interdependently to produce a transportation fuel through a process that results in the lifecycle greenhouse gas emissions rate used to determine the credit. Components function interdependently to produce a transportation fuel if the use of each component is dependent upon the use of each of the other components to produce a transportation fuel. A component that functions interdependently with other components to produce a transportation fuel need not be located within the same building as, or within a certain geographic proximity to, the other components. A facility includes carbon capture equipment if such carbon capture equipment contributes to the lifecycle greenhouse gas emissions rate of the process by which the transportation fuel for which the credit is determined is produced. A single production line includes all steps of the production process from the processing of feedstock through to the transportation fuel that is sold by the taxpayer in a qualifying sale.

(ii) Certain indirect production and post-production equipment. The term facility does not include—

(A) Equipment that is used to condition, such as equipment used to blend transportation fuel into a fuel mixture, pressurize a fuel for use in transportation,

(a) Overview . For purposes of section 38 of the Code, the section 45Z clean fuel production credit is determined under section 45Z of the Code and the section 45Z regulations. This section provides an overview and definitions that apply for purposes of section 45Z and the section 45Z regulations. Section 1.45Z-2 provides general rules for determining the amount and timing of the section 45Z credit, including rules on the emissions factor and the emissions rate for transportation fuels. Section 1.45Z-3 provides rules relating to the increased credit amount for satisfying prevailing wage and apprenticeship requirements. Section 1.45Z-4 provides rules on required registration (under section 4101 of the Code and §1.4101-1 of this chapter), anti-stacking, production attribution, facility ownership, and recordkeeping and substantiation. Section 1.45Z-5 provides procedures for the certification of emissions rates. Section 1.45Z-6 provides procedures for filing a claim for the section 45Z credit. Section 1.4101-1 provides the rules for registration under section 4101.

(b) Definitions . The definitions in this section apply for purposes of section 45Z and the section 45Z regulations.

(1) 45ZCF-GREET model . The term 45ZCF-GREET model means the model by that name developed by the Argonne National Laboratory and published by the DOE for use in determining the amount of lifecycle greenhouse gas emissions for purposes of section 45Z.

(2) Applicable amount. The term applicable amount means the applicable amount as described in section 45Z(a)(2) and (a)(3)(A) and §1.45Z-2(a)(4).

(3) Applicable material. As provided in section 45Z(d)(5)(B)(i), the term appli- cable material means—

(i) monoglycerides, diglycerides, and triglycerides,

(ii) free fatty acids, and (iii) fatty acid esters.

(4) ASTM . The term ASTM means the standards published by ASTM International, formerly known as the American Society for Testing and Materials. Additional information about ASTM International is available at https://www.astm. org/.

(5) Biomass. As provided in section 45Z(d)(5)(B)(ii) (citing section 45K(c) (3) of the Code), the term biomass means any organic material other than (i) oil and natural gas (or any product thereof), and (ii) coal (including lignite) or any product thereof.

(6) Claim; Form 7218 . The term claim means a completed Form 7218, Clean Fuel Production Credit (including any other required documentation that the relevant form instructions and the section 45Z regulations require), filed with the taxpayer’s Federal income tax return or Federal information return for the taxable year in which the section 45Z credit is determined. The term Form 7218 means Form 7218, Clean Fuel Production Credit, and any successor form(s). See §601.602 Statement of Procedural Rules of this chapter.

(7) CO2e . As provided in section 45Z(d)(2), the term CO2e means, with respect to any greenhouse gas, the equivalent carbon dioxide (as determined based on relative global warming potential).

(8) Code. The term Code means the Internal Revenue Code.

(9) CORSIA program— (i) In general . As provided in section 45Z(b)(1)(B)(iii) (I), the term CORSIA program means the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) program which has been adopted by the International Civil Aviation Organization with the agreement of the United States. Additional information about the ­CORSIA program is available at https://www.icao. int/environmental-protection/CORSIA/ Pages/default.aspx.

(ii) CORSIA Default or CORSIA Actual . The term CORSIA Default or CORSIA Actual means determinations from fuel pathways approved under the CORSIA Default Life Cycle Emissions Values for CORSIA Eligible Fuels lifecycle approach (CORSIA Default) or the CORSIA Methodology for Calculating Actual Life Cycle Emissions Values lifecycle approach (CORSIA Actual). Additional information about CORSIA Default

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or transport a transportation fuel beyond the point of production; or

(B) Notwithstanding paragraph (b) (14)(iii) of this section, feedstock-related equipment (including production, purification, recovery, transportation, or transmission equipment) or electricity production equipment used to power the transportation fuel production process, including any carbon capture equipment associated with the electricity production process.

(iii) Multipurpose components. Components that have a purpose in addition to the production of a transportation fuel may be part of a facility if such components function interdependently with other components to produce a transportation fuel.

(iv) Examples. The following examples illustrate the definition of facility.

(A) Example 1 . Effect of geographic proximity; carbon capture equipment . Z produces a transportation fuel at a facility that is equipped with carbon capture equipment (as defined in §1.45Q-2(c)), as distinguished from the carbon capture equipment described in paragraph (b)(14)(ii)(B) of this section. One purpose of the equipment is to capture carbon oxides. Without the carbon capture equipment, the facility could not produce a fuel that has an emis

sions rate that is not greater than 50 kilograms of CO2e per mmBTU. Because the carbon capture equipment functions interdependently with other components to produce the transportation fuel, the carbon capture equipment is part of the facility under paragraph (b)(14)(i) of this section. The analysis in this example is the same regardless of the geographic distance between the carbon capture equipment and the rest of the components comprising the facility. A component that functions interdependently with other components to produce a transportation fuel need not be located within the same building as, or within a certain geographic proximity to, the other components.

(B) Example 2. Single production line with com- ponents functioning interdependently; SAF trans- portation fuel . X produces SAF transportation fuel that is a synthetic blending component that meets the requirements of ASTM D7566, Annex A2, at its facility. X sells the SAF transportation fuel to an unrelated person, Y, a blender, that blends it with kerosene to create a fuel mixture that qualifies as jet fuel under ASTM 7566. X uses equipment and components that function interdependently to produce the SAF transportation fuel that is sold to Y. X’s equipment and components constitute a facility for section 45Z purposes. As described in paragraph (b) (14)(ii)(A) of this section, Y’s equipment and components used to make a transportation fuel mixture are blending equipment and not a facility for section 45Z purposes. (15) Fuel . The term fuel means any liquid or gaseous substance that can be con

sumed to supply heat or power. Therefore, for purposes of section 45Z, the term fuel does not include electricity.

(16) Gallon equivalent —(i) In general. The term gallon equivalent means, with respect to any non-liquid fuel, the amount of such fuel that has the energy equivalent of a gallon of gasoline, which refers to the amount of such fuel having a Btu content of 116,090 (lower heating value).

(ii) Non-liquid fuel. A fuel is considered non-liquid if it is in a gaseous state at ambient pressure and temperature of 1 atmosphere and 60 degrees Fahrenheit, respectively.

(iii) Calculation . For a given non-liquid fuel, the gallon equivalent of such fuel is equal to that fuel’s lower heating value divided by the lower heating value of a gallon of gasoline. Expressed mathematically: Gallon equivalent = lower heating value of given fuel (measured in Btu) ÷ lower heating value of a gallon of gasoline (116,090 Btu). Such gallon equivalent must be rounded to 5 decimal places. The lower heating value of some non-liquid fuels are provided below:

(iv) Example . A produced 100,000 pounds of low-GHG compressed CANG at a qualified facility and sold it in a qualifying sale. To determine the number of gallon equivalents for which A is eligible to claim the section 45Z credit, A must divide the lower heating value of lowGHG compressed CANG, 20,267 Btu per pound, by the lower heating value of a gallon of gasoline, 116,090 Btu. Rounded to 5 decimal places, on an energy equivalence basis, each pound of low-GHG com

pressed CANG is equal to 0.17458 gallon equivalents. As such, A is eligible to claim the section 45Z credit for 17,458 gallon equivalents of low-GHG compressed CANG.

(17) Greenhouse gas (GHG) . As provided in section 45Z(d)(3), the term greenhouse gas, or GHG, has the same meaning given that term under section 211(o)(1)(G) of the Clean Air Act (42 U.S.C. 7545(o)(1)(G)), as in effect on August 16, 2022.

(18) Lifecycle greenhouse gas emis- sions . The term lifecycle greenhouse gas emissions means the lifecycle greenhouse gas emissions as described in section 211(o)(1)(H) of the Clean Air Act (42 U.S.C. 7545(o)(1)(H)), as in effect on August 16, 2022.

(19) mmBTU . As provided in section 45Z(d)(1), the term mmBTU means 1,000,000 British thermal units. (20) Non-SAF transportation fuel —(i) In general . The term non-SAF transpor-

1 Low-GHG liquified CANG is a non-liquid fuel at ambient pressure and temperature of 1 atmosphere and 60 degrees Fahrenheit.

2 Low-GHG LPG (other than propane from HEFA) is a non-liquid fuel at ambient pressure and temperature of 1 atmosphere and 60 degrees Fahrenheit.

3 Low-GHG LPG (propane from HEFA) is a non-liquid fuel at ambient pressure and temperature of 1 atmosphere and 60 degrees Fahrenheit.

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tation fuel means any transportation fuel that is not a SAF transportation fuel.

(ii) Low-GHG non-SAF fuels . This paragraph provides a list of non-SAF fuels that may qualify as a transportation fuel, as well as descriptions for such fuels. A listed non-SAF fuel that meets the applicable description in this paragraph (b)(20) (ii) must also meet all the other applicable requirements under section 45Z and the section 45Z regulations to qualify as a transportation fuel.

(A) Low-GHG biodiesel. The term low-GHG biodiesel means the monoalkyl esters of long chain fatty acids that meet the specifications of ASTM D6751 and that have an emissions rate that is not greater than 50 kilograms of CO2e per mmBTU.

(B) Low-GHG butanol. The term low- GHG butanol means any mixture of n-butyl, sec-butyl, and iso-butyl alcohols that meets the specifications of ASTM D7862 and that has an emissions rate that is not greater than 50 kilograms of CO2e per mmBTU.

(C) Low-GHG diesel fuel. The term low-GHG diesel fuel means liquid fuel, including renewable diesel, that meets the specifications of ASTM D975 and that has an emissions rate that is not greater than 50 kilograms of CO2e per mmBTU. (D) Low-GHG dimethyl ether. The term low-GHG dimethyl ether, which includes renewable dimethyl ether, means a gaseous fuel that meets the specifications of ASTM D7901 and that has an emissions rate that is not greater than 50 kilograms of CO2e per mmBTU.

(E) Low-GHG ethanol. The term low- GHG ethanol means ethyl alcohol that is a liquid fuel that meets the specifications of ASTM D4806 for denatured fuel ethanol for blending with gasoline and that has an emissions rate that is not greater than 50 kilograms of CO2e per mmBTU.

(F) Low-GHG gasoline. The term low- GHG gasoline, which includes renewable gasoline, means liquid fuel that meets the specifications of ASTM D4814 and that has an emissions rate that is not greater than 50 kilograms of CO2e per mmBTU.

(G) Low-GHG hydrogen. The term low-GHG hydrogen means any gaseous or liquid fuel that meets the requirements of the Society of Automotive Engineers (SAE) J2719 standard and that has an

emissions rate that is not greater than 50 kilograms of CO2e per mmBTU. Information about SAE standards is available at https://www.sae.org/standards.

(H) Low-GHG liquefied petroleum gas (LPG). The term low-GHG LPG, which includes low-GHG propane, means liquefied gases that meet the specifications of ASTM D1835 and that have an emissions rate that is not greater than 50 kilograms of CO2e per mmBTU.

(I) Low-GHG methanol. The term low- GHG methanol means a methyl alcohol that is a liquid fuel that meets the specifications of ASTM D1152 or ASTM D5797 and that has an emissions rate that is not greater than 50 kilograms of CO2e per mmBTU.

(J) Low-GHG conventional or alterna- tive natural gas (CANG). The term low- GHG conventional or alternative natural gas (CANG), which includes renewable natural gas (RNG), means a pipeline-quality compressed or liquefied gas that meets the specifications of ASTM D8080, except for the compression requirements, and that has an emissions rate that is not greater than 50 kilograms of CO2e per mmBTU.

(21) Prevailing wage and apprentice- ship requirements. The term prevailing wage and apprenticeship requirements or PWA requirements means the requirements described in section 45Z(f)(6) and (7) and §1.45Z-3.

(22) Producer —(i) In general. Except as provided in paragraph (b)(22)(ii), the term producer means the person that engages in the production of a transportation fuel.

(ii) Alternative natural gas . With respect to alternative natural gas, including RNG, the term producer means the person that processes the alternative natural gas (processor) to remove water, carbon dioxide, and other impurities such that it is interchangeable with fossil natural gas.

(iii) Examples. The following examples illustrate the definition of producer.

(A) Example 1. SAF producer . X uses vegetable oil to make 10,000 gallons of a synthetic blending component via a hydroprocessed esters and fatty acids (HEFA) production pathway described in ASTM D7566, Annex A2, that qualifies as a SAF transportation fuel. X sells the synthetic blending component to Y, a blender that makes a 20,000-gallon SAF blend consisting of 50 percent synthetic

blending component and 50 percent petroleum-based kerosene that meets the requirements of ASTM D7566. X and Y are unrelated. X is the producer for the 10,000 gallons of synthetic blending component that it sold to Y. Y is not the producer for any of the 20,000 gallons of fuel that it blended, because blending is not production.

(B) Example 2. RNG producer . R collects biogas from an anaerobic digester and processes it into RNG that qualifies as a transportation fuel. R sells 10,000-gallon equivalents of RNG to W, a RNG wholesaler and distributer. R injects the 10,000-gallon equivalents of RNG into a pipeline. W removes 10,000-gallon equivalents of CANG from the pipeline, further compresses it and sells it to a municipality that uses it to fuel compressed natural gas buses. R and W are unrelated. R is the producer of the 10,000-gallon equivalents of RNG. W is not the producer because W merely took a post-production transportation fuel and further compressed it. Further, W’s compression equipment does not constitute a facility (as defined in paragraph (b)(14) of this section), as the equipment was used solely to condition, pressurize, or transport a transportation fuel beyond the point of production.

(23) Production —(i) In general. The term production means all steps and processes used to make a transportation fuel. Production begins with the processing of primary feedstock(s) and ends with a transportation fuel ready to be sold in a qualifying sale. Production must involve substantial processing by the producer to create a transportation fuel. Production does not include instances in which a person engages in minimal processing, such as blending a fuel mixture or otherwise engaging in activities that do not result in a chemical transformation. Production does not include instances where a person uses a primary feedstock to produce a fuel that meets the same ASTM standard as the primary feedstock. Production must occur in the United States.

(ii) Examples . The following examples illustrate the definition of production.

(A) Example 1 . Minimal processing when stabi- lizing biodiesel; production in the United States . X, a domestic corporation, imports fatty acid methyl ester (FAME) that does not meet the ASTM D6751 specifications for biodiesel. After importation into the United States, X adds a stabilizing additive so that the FAME meets the specifications of ASTM D6751. The resulting fuel is ASTM-compliant biodiesel that qualifies as a transportation fuel. X then sells the ASTM-compliant biodiesel to an unrelated person for use as a fuel in that person’s trade or business. X has not produced the ASTM-compliant biodiesel, as X merely engaged in minimal processing by adding an additive to the imported FAME. Further, the ASTM-compliant biodiesel sold by X was not produced in the United States, as X did not engage in substantial processing in the United States. Substantial processing, and thus production,

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occurred before X imported the FAME into the United States.

(B) Example 2 . Minimal processing when dehy- drating hydrous ethanol; production in the United States . Y, a domestic corporation, imports hydrous ethanol into the United States. The hydrous ethanol has excessive water content and does not meet the ASTM D4806 specifications for ethanol. After importation into the United States, Y reduces the water content of the hydrous ethanol. The resulting fuel is ASTM-compliant anhydrous ethanol that qualifies as a transportation fuel. Y then sells the ASTM-compliant anhydrous ethanol to an unrelated person for use in the production of a gasoline blend. Y has not produced the ASTM-compliant anhydrous ethanol, as Y merely engaged in minimal processing by dehydrating the imported hydrous ethanol. Further, the ASTM-compliant anhydrous ethanol sold by Y was not produced in the United States, as Y did not engage in substantial processing in the United States. Substantial processing, and thus production, occurred before Y imported the hydrous ethanol into the United States.

(24) Qualified facility —(i) In general . As provided in section 45Z(d)(4), the term qualified facility means a facility (as defined in paragraph (b)(14) of this section) used for the production of transportation fuel and excludes any facility for which an anti-stacking credit is allowed under section 38 for the taxable year. See §1.45Z-4(b) for more information on the application of the anti-stacking rules.

(ii) Anti-stacking credit . The term anti-stacking credit means any one of the following credits:

(A) The credit for production of clean hydrogen under section 45V (section 45V credit).

(B) The credit determined under section 46 to the extent that such credit is attributable to the energy credit determined under section 48 with respect to any specified clean hydrogen production facility for which an election is made under section 48(a)(15) (section 48(a)(15) election). (C) The credit for carbon oxide sequestration under section 45Q (section 45Q credit).

(25) Qualifying sale —(i) In general . As provided in section 45Z(a)(4), the term qualifying sale means a sale of transportation fuel by the taxpayer to an unrelated person if—

(A) The fuel is sold for use in the production of a fuel mixture by such person,

(B) The fuel is sold for use in a trade or business by such person, or

(C) Such person sells such fuel at retail to another person and places such fuel in the fuel tank of such other person.

(ii) Sold for use in a trade or business. The term sold for use in a trade or busi- ness means sold for use as a fuel in a trade or business within the meaning of section 162 of the Code. The term does not include a sale for blending or for further processing, including use as a primary feedstock to produce another fuel.

(iii) Sale by another member of a con- solidated group . In the case of a corporation that is a member of an affiliated group of corporations filing a consolidated return (that is, a member of a consolidated group (as defined in §1.1502-1(b) and (h))), such corporation will be treated as selling fuel to an unrelated person if such fuel is sold to the unrelated person by another member of such consolidated group.

(iv) Example. Qualifying sale related to ethanol to SAF production . A produces 12,000 gallons of ethanol. A sells the ethanol to B. A and B are unrelated. B uses the 12,000 gallons of ethanol to produce 4,500 gallons of a synthetic blending component under ASTM 7566, Annex A5 (ATJ-SPK). B then blends the 4,500 gallons of synthetic blending component with petroleum-based kerosene. B’s resulting 9,000-gallon SAF blend is 50 percent synthetic blending component and 50 percent kerosene and meets the requirements of ASTM D7566. B sells the SAF blend to an unrelated person for use in an aircraft in a trade or business under section 162.

A, the producer of the 12,000 gallons of ethanol, is not eligible to claim a section 45Z credit for the 12,000 gallons of ethanol that it sold to B. A sold the ethanol to B for use as a primary feedstock to produce another fuel, which paragraph (b)(25)(ii) of this section excludes from the definition of sold for use in a trade or business, and the sale is not otherwise a qualifying sale. B is the producer of the 4,500 gallons of ATJ-SPK, the synthetic blending component, that it made and sold as part of the SAF blend. Assuming all other requirements of the section 45Z credit are met, B is eligible to claim a section 45Z credit for the 4,500 gallons of synthetic blending component because it sold such fuel for use in an aircraft in a trade or business within the meaning of section 162.

(26) SAF transportation fuel —(i) In general . The term SAF transportation fuel

means sustainable aviation fuel (SAF) as defined in section 45Z(a)(3)(B). That term means the non-kerosene portion of any liquid fuel that is a transportation fuel, is sold for use in an aircraft, and:

(A) meets the requirements of— (1) ASTM D7566, or (2) the Fischer Tropsch provisions of ASTM D1655, Annex A1; and

(B) is not derived from palm fatty acid distillates or petroleum.

(ii) Synthetic blending component . The term synthetic blending component means the SAF portion of a fuel mixture described in ASTM D7566 that meets the specifications of one of the ASTM D7566 Annexes and is not derived from palm fatty acid distillates or petroleum.

(iii) Sold for use in an aircraft. A synthetic blending component sold to a person that blends the fuel into a fuel mixture described in ASTM D7566 is sold for use in an aircraft.

(iv) FT hydrocarbons . The term FT hydrocarbons means the Fischer Tropsch hydrocarbons that are derived from biomass, used to produce jet fuel described in section A1.2.2.2 of ASTM D1655, Annex A1, and not derived from palm fatty acid distillates or petroleum.

(v) 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-compliant kerosene.

(vi) 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 coprocessing up to five percent of FT hydrocarbons with petroleum to make a liquid fuel that qualifies as jet fuel. For purposes of this definition, the term petroleum includes any conventionally sourced hydrocarbons permitted under ASTM D1655, Annex A1. Liquid fuel produced in accordance with section A1.2.2.1 of ASTM D1655, Annex A1 does not qualify for the section 45Z credit because section A1.2.2.1 defines a pathway for producing a liquid fuel from coprocessing an applicable material (or materials derived therefrom) with a non-biomass feedstock.

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(27) Secretary; IRS —(i) Secretary . The term Secretary means the Secretary of the Treasury or her delegate.

(ii) IRS . The term IRS means the Internal Revenue Service.

(28) Section 45Z credit . The term sec- tion 45Z credit means the clean fuel production credit determined under section 45Z of the Code and the section 45Z regulations.

(29) Section 45Z regulations . The term section 45Z regulations means the regulations in this section, §§1.45Z-2 through 1.45Z-6, and §1.4101-1. (30) Taxpayer . The term taxpayer means the person that is registered as the producer of a clean fuel under section 4101 (or that is treated as the registrant for purposes of filing a claim for the section 45Z credit). See §1.45Z-6, Procedures for filing a claim for clean fuel production credit .

(31) Transportation fuel —(i) In gen- eral. As provided in section 45Z(d)(5)(A), the term transportation fuel means a fuel that—

(A) Is suitable for use as a fuel in a highway vehicle or aircraft,

(B) Has an emissions rate that is not greater than 50 kilograms of CO2e per mmBTU, and

(C) Is not derived from coprocessing an applicable material (or materials derived from an applicable material) with a feedstock that is not biomass.

(ii) Suitable for use as a fuel in a highway vehicle or aircraft (suitable for use) —(A) A fuel is suitable for use if the fuel either has practical and commercial fitness for use as a fuel in a highway vehicle or aircraft, or may be blended into a fuel mixture that has practical and commercial fitness for use as a fuel in a highway vehicle or aircraft. A fuel may possess this practical and commercial fitness even though use in a highway vehicle or aircraft is not the fuel’s predominant use. However, a fuel does not possess this practical and commercial fitness solely by reason of its possible or rare use as a fuel in a highway vehicle or aircraft. A fuel is suitable for use at the point at which no further production, refinement, or other step is necessary before the fuel is ready to be sold in a qualifying sale, except, as specified in paragraph (b)(31)(ii)(B) of this section, for CANG. To be considered

suitable for use, a fuel need not actually be used as a fuel in a highway vehicle or aircraft.

(B) CANG is suitable for use once it is produced such that if further compressed it would meet the specifications of ASTM D8080.

(C) A fuel that does not require further processing and that may be blended with or used as a component of taxable fuel (within the meaning of section 4083 of the Code) is suitable for use.

(32) United States . As provided in section 45Z(f)(1)(B), the term United States includes any territory of the United States.

(33) Unrelated person . As provided in section 45Z(f)(3), the term unrelated person means a person not related to the taxpayer. Persons will be treated as related to each other if such persons would be treated as a single employer under the regulations prescribed under section 52(b) of the Code.

(c) Applicability date . This section applies to qualifying sales occurring on or after the date proposed regulations are published in the Federal Register .

§1.45Z-2 General rules.

(a) Amount of credit . For purposes of section 38 of the Code, the section 45Z credit is determined under section 45Z of the Code and the section 45Z regulations.

(1) In general . The amount of the section 45Z credit for any taxable year is an amount equal to the product of—

(i) The applicable amount per gallon or gallon equivalent (as defined in §1.45Z1(b)(16)) with respect to any transportation fuel which is—

(A) Produced by the taxpayer at a qualified facility, and

(B) Sold by the taxpayer in a qualifying sale during the taxable year, and

(ii) The emissions factor for such fuel. (2) Fuel measurement . The volume of a liquid fuel is measured on the basis of gallons adjusted to ambient pressure and temperature of 1 atmosphere and 60 degrees Fahrenheit. The gallon equivalent of a non-liquid fuel is calculated according to §1.45Z-1(b)(16).

(3) Rounding . As provided in section 45Z(a)(5), if the amount of any section 45Z credit is not a multiple of 1 cent, a taxpayer must round such amount to the

nearest cent. A taxpayer must round up any amount ending in 0.5 cents or higher, and round down any amount ending in less than 0.5 cents.

(4) Applicable amount —(i) In general . The term applicable amount means the base amount described in paragraph (a) (4)(ii) of this section or the alternative amount described in paragraph (a)(4)(iii) of this section. The applicable amount is subject to inflation adjustment. See section 45Z(c).

(ii) Base amount . As provided in section 45Z(a)(2)(A) and (a)(3)(A)(i), in the case of any transportation fuel produced at a qualified facility that does not satisfy the prevailing wage and apprenticeship requirements, the term base amount means—

(A) For non-SAF transportation fuel, 20 cents subject to inflation adjustment for calendar years beginning after 2024; and

(B) For SAF transportation fuel, 35 cents subject to inflation adjustment for calendar years beginning after 2024.

(iii) Alternative amount . As provided in section 45Z(a)(2)(B) and (a)(3)(A)(ii), in the case of any transportation fuel produced at a qualified facility that satisfies the prevailing wage and apprenticeship requirements, the term alternative amount means—

(A) For non-SAF transportation fuel, $1.00 subject to inflation adjustment for calendar years beginning after 2024; and

(B) For SAF transportation fuel, $1.75 subject to inflation adjustment for calendar years beginning after 2024.

(5) Inflation adjustment —(i) In gen- eral . As provided in section 45Z(c)(1), for calendar years beginning after 2024, the base amount and the alternative amount for both non-SAF and SAF transportation fuel (that is, the $0.20, $0.35, $1.00, and $1.75 amounts described in paragraphs (a) (4)(ii) and (iii) of this section), will each be adjusted by multiplying such amount by the inflation adjustment factor for the calendar year in which the sale of the transportation fuel occurs. If an inflation adjusted amount is not a multiple of 1 cent, such amount will be rounded to the nearest multiple of 1 cent.

(ii) Inflation adjustment factor . As provided in section 45Z(c)(2), the term infla- tion adjustment factor means the inflation adjustment factor determined and pub

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lished by the Secretary pursuant to section 45Y(c) of the Code, determined by substituting “calendar year 2022” for “calendar year 1992” in section 45Y(c)(3). Accordingly, the inflation adjustment factor for purposes of section 45Z means, with respect to a calendar year, a fraction the numerator of which is the GDP implicit price deflator for the preceding calendar year and the denominator of which is the GDP implicit price deflator for the calendar year 2022. In this context, the term GDP implicit price deflator means the most recent revision of the implicit price deflator for the gross domestic product as computed and published by the Department of Commerce before March 15 of the calendar year. See section 45Y(c)(3).

(iii) Publication of inflation adjustment factor. The Secretary will publish guidance in the Internal Revenue Bulletin (see §601.601 of this chapter) no more frequently than annually that will provide the inflation adjustment factor.

(b) Qualifying sale after production required . For transportation fuel produced during or after 2025, a taxpayer is eligible to claim the section 45Z credit only for the taxable year in which the qualifying sale of that fuel occurs, provided the taxpayer meets all other requirements to claim the credit. However, such qualifying sale must occur before the termination date provided in section 45Z(g) (or as otherwise provided by Congress). A taxpayer may produce a transportation fuel in an earlier taxable year than the taxable year in which the qualifying sale of such fuel occurs. However, a qualifying sale may take place no earlier than the date the fuel is produced. Transportation fuel produced before 2025 is ineligible for the section 45Z credit. (c) Emissions factor —(1) In general . As provided in section 45Z(b)(1)(A), the emissions factor of a transportation fuel is an amount equal to the quotient of—

(i) An amount equal to— (A) 50 kilograms of CO2e per mmBTU, minus

(B) The emissions rate for such fuel, divided by

(ii) 50 kilograms of CO2e per mmBTU. (2) Rounding —(i) In general . As provided in section 45Z(b)(2), if the emissions factor for a transportation fuel is not a multiple of 0.1, a taxpayer must round

such amount to the nearest multiple of 0.1. A taxpayer must round up if the digit in the hundredths place is a 5 or higher, and round down if the digit in the hundredths place is less than 5.

(ii) Example . Y produces a transportation fuel with an emissions rate of 21.25 kilograms of CO2e per mmBTU. The emissions factor for Y’s fuel is initially calculated as follows: (50 – 21.25) ÷ 50 = 0.575. Because 0.575 is not a multiple of 0.1, Y must round it to the nearest multiple of 0.1. Thus, the emissions factor for Y’s fuel is 0.6. If Y’s initial calculation had instead resulted in an emissions factor of 0.54, Y would have been required to round the emissions factor down to 0.5.

(d) Emissions rate . The emissions rate for a transportation fuel is such fuel’s lifecycle greenhouse gas emissions rate expressed as kilograms of CO2e per mmBTU, based on the amount of lifecycle greenhouse gas emissions of such fuel (determined pursuant to section 45Z(b) (1)(B) through (D) and paragraph (e) of this section), the applicable emissions rate table published by the Secretary, and, in the case of any transportation fuel for which an emissions rate has not been established in the applicable emissions rate table, any provisional emissions rate (PER) determined by the Secretary with respect to such fuel.

(e) Emissions rate table —(1) In gen- eral . As provided in section 45Z(b)(1)(B) (i), the Secretary will annually publish a table that sets forth the emissions rate for similar types and categories of transportation fuels (emissions rate table) based on the lifecycle greenhouse gas emissions for such fuels, expressed as kilograms of CO2e per mmBTU, which a taxpayer must use for purposes of section 45Z. A taxpayer must use the applicable emissions rate table as specified in paragraph (e)(2) of this section (applicable emissions rate table).

(2) Applicable emissions rate table (i) In general . A taxpayer that produces a type and category of transportation fuel that is established in the emissions rate table for the taxable year in which the taxpayer produces such fuel must use the emissions rate table to determine the emissions rate for such fuel for all of the taxpayer’s production of such fuel during the taxable year. See paragraph (f)(1) of

this section for additional discussion of types and categories of transportation fuel in the applicable emissions rate table.

(ii) Emissions rate table updated during taxable year . If, during the taxable year of production, the Secretary publishes an updated emissions rate table that adds a type and/or category of fuel produced by the taxpayer, the taxpayer must use such table to determine the emissions rate for such fuel(s).

(3) Allowed methodologies for emis- sions rate table —(i) Methodologies for non-SAF transportation fuel generally . If a type and category of non-SAF transportation fuel is established in the applicable emissions rate table, a taxpayer producing such type and category of fuel must determine the fuel’s emissions rate using the 45ZCF-GREET model, as directed by the applicable emissions rate table.

(ii) 45ZCF-GREET model as a succes- sor model . For purposes of section 45Z(b) (1)(B)(ii), the 45ZCF-GREET model is a successor model (as determined by the Secretary).

(iii) Methodologies for SAF transpor- tation fuels . If a type and category of SAF transportation fuel is established in the applicable emissions rate table, a taxpayer producing such type and category of fuel must determine the fuel’s emissions rate using the most recent version of CORSIA Default or CORSIA Actual or the 45ZCFGREET model, as directed by the applicable emissions rate table. A taxpayer may choose, for each type and category of SAF transportation fuel that it produces, which of these methodologies to use. For each type and category of SAF transportation fuel, a taxpayer must use the same methodology to calculate lifecycle greenhouse gas emissions associated with all stages of fuel feedstock production and distribution. See §1.45Z-5, Procedures for certification of lifecycle greenhouse gas emissions rates, for information on how to certify these methodologies.

(iv) Use of the most recent version of methodology . A taxpayer must use the most recent version of a methodology allowed under paragraphs (e)(3)(i) and (iii) of this section ( allowed methodology ) that is publicly available on the first day of the taxable year during which the taxpayer produced the transportation fuel for which the section 45Z credit is claimed. If

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a version of an allowed methodology adds a type or category of fuel after the first day of a taxable year, taxpayers must use such version of the allowed methodology for such new type or category of fuel for the entire taxable year. If an updated version of an allowed methodology becomes publicly available after the first day of the taxable year of production (but still within such taxable year), then the taxpayer may, in its discretion, treat such updated version as the most recent version of such methodology.

(v) Additional instructions on method- ologies. A taxpayer must use an allowed methodology in accordance with the applicable emissions rate table, accurately enter all information requested by such methodology, and follow all publicly available instructions for the use of such methodology.

(vi) Accounting for certain emissions in 45ZCF-GREET model. In the 45ZCFGREET model, for purposes of accounting for emissions associated with hydrogen (as a production input), natural gas alternatives (as a production input or as the transportation fuel produced), electricity, and carbon capture and sequestration, rules similar to the rules under section 45V apply. (f) Provisional emissions rate (PER) (1) In general . If the applicable emissions rate table does not establish the type and category of transportation fuel produced by a taxpayer, such taxpayer may file a petition with the Secretary for determination of the emissions rate for such fuel. See section 45Z(b)(1)(D). A taxpayer requesting a PER is referred to as an “applicant.” An applicant may use the PER process if the transportation fuel that it is producing is (1) a novel type of fuel not established in the applicable emissions rate table, or (2) if the type of fuel is established in the emissions rate table, but such fuel is produced using a pathway or primary feedstock not established in the applicable emissions rate table. For non-SAF transportation fuels, an applicant may not request a PER for a type and category of transportation fuel if the pathway or primary feedstock is established in the applicable emissions rate table, even if the applicant disagrees with the underlying assumptions (that is, background data) or calculation approach used by the

most recent 45ZCF-GREET model. For SAF transportation fuels, an applicant may not request a PER for a type and category of transportation fuel if the pathway or primary feedstock is established in the applicable emissions rate table, even if the applicant disagrees with the underlying assumptions or calculation approach used by the allowed methodology used to determine emissions rates for the applicable emissions rate table (including the 45ZCF-GREET model and the CORSIA program).

(2) Procedures for requesting a PER . An applicant seeking a PER must follow the latest procedures for obtaining a PER as published by the Secretary in the section 45Z regulations and in the Internal Revenue Bulletin (see §601.601 of this chapter), including the process for obtaining an emissions value from the DOE that is used by the applicant to request a PER determination. For purposes of the section 45Z PER process, an emissions value is a value obtained from the DOE setting forth the DOE’s analytical assessment of the lifecycle greenhouse gas emissions rate associated with the production of a type of transportation fuel using a particular primary feedstock and pathway.

(g) New e missions rates (including PER) apply on January 1, 2025 . The emissions rate for any new type or category of fuel established on the applicable emissions rate table or determined through the PER process will apply on January 1, 2025, regardless of when the Treasury Department and the IRS publish guidance establishing an emissions rate or PER procedures.

(h) Credit not allowed for production before January 1, 2025 . The section 45Z credit is not allowed for fuel produced before January 1, 2025.

(i) Applicability date . This section applies to qualifying sales occurring on or after the date proposed regulations are published in the Federal Register, except that paragraph (e) of this section applies to taxable periods ending on or after Jan- uary 10, 2025 .

§1.45Z-4 Special Rules.

(a) Registered production in the United States required —(1) In general . As provided in section 45Z(f)(1)(A)(i)(I) and (ii), no section 45Z credit shall be deter

mined with respect to any transportation fuel unless the taxpayer is registered as a producer of clean fuel under section 4101 of the Code at the time of production and such fuel is produced in the United States.

(2) Registration rules and procedures . The registration rules in §1.4101-1 apply for purposes of the section 45Z credit. A taxpayer will be considered registered as a producer of clean fuel under section 4101 at the time of production if, at such time, the taxpayer is registered in accordance with section 4101, §1.4101-1, and any applicable guidance published in the Internal Revenue Bulletin (see §601.601 of this chapter).

(b) Anti-stacking rules —(1) In general . This paragraph provides rules for determining if an anti-stacking credit has been allowed for a taxable year with respect to a facility. Such determination impacts whether the facility is a qualified facility as provided in section 45Z(d)(4)(B).

(2) Application of anti-stacking rules on a taxable-year and per-facility basis (i) In general . The determination of whether a facility is a qualified facility is made separately for each taxable year and each facility. Whether a facility is a qualified facility for a given taxable year depends on whether the facility produced transportation fuel sold during that taxable year and whether an anti-stacking credit was allowed for that taxable year with respect to the facility. A facility may be a qualified a facility in one taxable year but not in another taxable year. If a taxpayer produces transportation fuel at multiple facilities, the determination of whether such fuel was produced at a qualified facility is made separately for each facility.

(ii) Section 48(a)(15) election . A section 48(a)(15) election is irrevocable, and if made, will permanently disqualify a facility from being a qualified facility under section 45Z for the taxable year of the election and all subsequent taxable years.

(3) Carbon capture equipment at a facility . In the case of any transportation fuel produced at a facility that includes carbon capture equipment for which the section 45Q credit is allowed for the taxable year, such facility is not a qualified facility, and no section 45Z credit will be determined with respect to such facility for such taxable year.

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(4) Examples . The following examples illustrate the application of the anti-stacking rules. For purposes of these examples, X, Y, and Z are all C corporations and unrelated calendar-year taxpayers, unless otherwise stated.

(i) Example 1: Interaction of section 45Z and section 45V credits; transportation fuel and quali- fied clean hydrogen produced at the same facility by persons with the same taxable year . During 2025 and 2026, X produces a transportation fuel at a facility and sells such fuel in a qualifying sale. X is otherwise eligible to claim the section 45Z credit with respect to the facility. During 2025 and 2026, Y produces qualified clean hydrogen, as defined in section 45V(c)(2), at the same facility. Y is allowed a section 45V credit with respect to the facility for 2025, but not for 2026. No other person is allowed a section 45V credit with respect to the facility for 2025 or 2026. Because Y is allowed a section 45V credit with respect to the facility for 2025, such facility is not a qualified facility for section 45Z purposes for 2025. Thus, X is not eligible to claim a section 45Z credit with respect to the facility for 2025. The result in this example would be the same if a person other than Y is allowed the section 45V credit with respect to the facility for 2025. A separate analysis is conducted for 2026. Because no section 45V credit is allowed with respect to the facility for 2026, the facility is a qualified facility for section 45Z purposes for 2026. Therefore, X is eligible to claim a section 45Z credit with respect to the facility for 2026.

(ii) Example 2: Interaction of section 45Z and section 45V credits; transportation fuel and quali- fied clean hydrogen produced at the same facility by persons with different taxable years . During 2025, X produces a transportation fuel at a facility and sells such fuel in a qualifying sale. X is otherwise eligible to claim the section 45Z credit with respect to the facility. During 2025, Y produces qualified clean hydrogen, as defined in section 45V(c)(2), at the same facility. Y has a taxable year of October 1 to September 30. Y is allowed a section 45V credit with respect to the facility for its taxable year of October 1, 2024, to September 30, 2025, but not for its taxable year of October 1, 2025, to September 30, 2026. No other person is allowed a section 45V credit with respect to the facility for any portion of 2025. Such facility is not a qualified facility for section 45Z purposes for the period in 2025 for which Y is allowed a section 45V credit (that is, January 1 through September 30, 2025). However, such facility is a qualified facility for section 45Z purposes for the period in 2025 for which no section 45V credit is allowed with respect to the facility (that is, October 1 through December 31, 2025). Thus, X is eligible to claim a section 45Z credit with respect to the facility for 2025, but only for the period during which the facility is a qualified facility (that is, October 1 through December 31, 2025).

(iii) Example 3: Interaction of section 45Z credit and section 48(a)(15) election . During 2025, X produces a transportation fuel at a facility and sells such fuel in a qualifying sale. During 2025, X also produces qualified clean hydrogen, as defined in section 45V(c)(2), at the same facility, which is a specified clean hydrogen production facility, as defined in sec

tion 48(a)(15)(C). X is otherwise eligible to claim the section 45Z credit and to make a section 48(a) (15) election with respect to the facility. For 2025, X makes an election under section 48(a)(15) to treat the facility as energy property for purposes of the energy credit under section 48, which credit then forms part of the investment credit under section 46 that is allowed to X. Because the transportation fuel and the qualified clean hydrogen are produced at the same facility, and X is allowed a section 46 credit attributable to a section 48(a)(15) election with respect to the facility for 2025, such facility is not a qualified facility for section 45Z purposes for 2025. Because a section 48(a)(15) election is irrevocable, the facility also will not be a qualified facility for section 45Z purposes for any subsequent taxable year. Thus, X is not eligible to claim the section 45Z credit with respect to the facility for 2025 or for any subsequent taxable year.

(iv) Example 4: Interaction of section 45Z and section 45Q credits; transportation fuel produced at a facility that includes carbon capture equip- ment . During 2025 and 2026, X produces a transportation fuel at a facility and sells such fuel in a qualifying sale. X is otherwise eligible to claim the section 45Z credit with respect to the facility. The facility includes carbon capture equipment. Y owns and uses the carbon capture equipment at the facility to capture carbon oxide. During 2025, Y utilizes or disposes of the carbon oxide in a manner that qualifies for the section 45Q credit. Y is allowed a section 45Q credit with respect to the facility for 2025, but not for 2026. No other person is allowed a section 45Q credit with respect to the facility for 2025 or 2026. Because Y is allowed a section 45Q credit with respect to the facility for 2025, such facility is not a qualified facility for section 45Z purposes for 2025. Thus, X is not eligible to claim a section 45Z credit with respect to the facility for 2025. The result in this example would be the same if a person other than Y utilizes or disposes of the carbon oxide and is allowed a section 45Q credit with respect to the facility for 2025. A separate analysis is conducted for 2026. Because no section 45Q credit is allowed with respect to the facility for 2026, the facility is a qualified facility for section 45Z purposes for 2026. Therefore, X is eligible to claim a section 45Z credit with respect to the facility for 2026.

(c) Production attributable to the tax- payer —(1) In general . Except as provided in paragraph (d)(2) of this section, in the case of a facility in which more than one person has an ownership interest (and the arrangement is not classified as a partnership for Federal tax purposes), production from the facility is allocated among such persons in proportion to their respective ownership interests in the gross sales from such facility. See section 45Z(f)(2). In the case of such an allocation, the amount of each person’s section 45Z credit is determined pursuant to section 45Z(a) and the section 45Z regulations based on each person’s allocable share of production.

(2) Example . A, B, and C, all calendar year taxpayers, each own an interest in Facility, which is a qualified facility. A has a 45 percent ownership interest in Facility, B has a 35 percent ownership interest in Facility, and C has a 20 percent ownership interest in Facility. Gross sales from Facility are allocated among A, B, and C in proportion to their ownership interests. During 2025, Facility produced 10 million gallons of transportation fuel. A, B, and C will each determine the amount of their section 45Z credit for 2025 based on their allocable share of the 10 million gallons of transportation fuel produced at Facility during 2025. Thus, A will determine the amount of its section 45Z credit based on 4.5 million gallons, B will determine the amount of its section 45Z credit based on 3.5 million gallons, and C will determine the amount of its section 45Z credit based on 2 million gallons.

(3) Section 761(a) election . If a facility is owned through an unincorporated organization that has made a valid election under section 761(a) of the Code, each member’s undivided ownership interest in the facility will be treated as a separate facility owned by such member.

(d) No requirement of facility owner- ship —(1) In general . A taxpayer is not required to own the qualified facility at which the taxpayer produces transportation fuel in order for a section 45Z credit to be determined with respect to such fuel.

(2) Application of production attribu- tion rules if taxpayer does not own facil- ity . If a taxpayer produces transportation fuel at a facility owned by another person, production of such fuel will be attributed to the taxpayer unless otherwise specified in the Code or in the section 45Z regulations. In the case of a production arrangement under which multiple taxpayers produce transportation fuel at a facility that is not owned by all such taxpayers, the production of such transportation fuel will be allocated among the taxpayers in proportion to their respective interests in the gross sales from such fuel, as determined under the applicable contract or other legal arrangement with respect to such fuel.

(e) Recordkeeping and substantia- tion —(1) In general . A taxpayer claiming the section 45Z credit must keep records sufficient to establish the taxpayer’s eligibility for the section 45Z credit and the

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amount of the credit claimed. At a minimum, those records must include records establishing that each fuel produced is a transportation fuel, records on the primary feedstock(s) used to produce each fuel, records establishing that each fuel meets any additional specifications for the type of fuel under §1.45Z-1(b)(20) and §1.45Z1(b)(26), records substantiating how the emissions rate for each fuel was determined (including, if applicable, the specific type(s) and category(ies) under the applicable emissions rate table), records relating to any fuel testing obtained by the taxpayer, records establishing that each facility used to produce fuel is a qualified facility, records establishing the date each facility was placed in service, records establishing that each fuel was sold in a qualifying sale, and records establishing any unrelated party certification and substantiating the information therein. If a taxpayer is claiming an increased credit amount based on a qualified facility satisfying the prevailing wage and apprenticeship requirements, the taxpayer must also maintain records in accordance with §1.45-12. A taxpayer must also keep all information, including raw data, used for or related to any petition for a PER.

(2) Safe harbor for substantiation of emissions rate . A taxpayer may substantiate the emissions rate for a non-SAF transportation fuel that was determined using the 45ZCF-GREET model by obtaining certification with respect to such fuel substantially in the form and manner described in §1.45Z-5 for certifying a SAF transportation fuel emissions rate determined using the 45ZCF-GREET model and attaching such certification to its Form 7218 for the taxable year in which it claims a section 45Z credit for such fuel. To qualify for this emissions rate substantiation safe harbor, a taxpayer must provide the qualified certifier with all information necessary to determine the emissions rate for a nonSAF transportation fuel using the 45ZCFGREET model, including all information the taxpayer entered into 45ZCF-GREET, the specific type and category under the applicable emissions rate table for such fuel, and all other applicable information described in §1.45Z-5. The Secretary may provide other methods through which a taxpayer may substantiate the emissions rate for a non-SAF transportation fuel. The

Secretary will describe any such methods in guidance published in the Internal Revenue Bulletin or in IRS forms, instructions, or publications. See §601.601 of this chapter.

(f) Applicability date . This section applies to qualifying sales occurring on or after the date proposed regulations are published in the Federal Register .

§1.45Z-5 Procedures for certification of lifecycle greenhouse gas emissions rates.

(a) In general . This section provides rules on unrelated party certification for SAF transportation fuel pursuant to section 45Z(f)(1)(A)(i)(II) of the Code.

(b) Certification requirements —(1) In general . A taxpayer must attach a certification to the taxpayer’s Form 7218 (as provided in the Form 7218 instructions), which is filed with the taxpayer’s Federal income tax return or Federal information return, for each qualified facility at which the taxpayer produces SAF transportation fuel and for each taxable year in which the taxpayer claims the section 45Z credit.

(2) A certification specified in this paragraph (b) must be prepared by a qualified certifier under penalties of perjury and must contain—

(i) A statement from the qualified certifier regarding the production of SAF transportation fuel, including that the inputs used to determine the lifecycle greenhouse gas emissions rate of the production process are accurate (production statement);

(ii) A statement from the qualified certifier regarding the amount of SAF transportation fuel sold (sale statement);

(iii) A statement from the qualified certifier regarding conflicts of interest (conflict statement);

(iv) Information regarding the qualified certifier, including documentation of the qualified certifier’s qualifications (qualified certifier statement);

(v) Certain general information about the qualified facility at which the SAF transportation fuel production undergoing certification occurred;

(vi) Any documentation necessary to substantiate the certification process given the standards and best practices prescribed by the qualified certifier’s accrediting

body and the circumstances of the taxpayer and the qualified facility; and

(vii) Any other information or documentation required by applicable IRS tax forms or instructions.

(3) Qualified certifier . (i) For taxpayers using CORSIA Default or CORSIA Actual to determine the emissions rate for SAF transportation fuel, the term qualified certifier means any individual or organization with active accreditation from International Sustainability and Carbon Certification, Roundtable on Sustainable Biomaterials, or other sustainability certification scheme approved by the International Civil Aviation Organization.

(ii) For taxpayers using the 45ZCFGREET model to determine the emissions rate for SAF transportation fuel, the term qualified certifier means any individual or organization with active accreditation—

(A) From the American National Standards Institute National Accreditation Board to conduct validation and verification in accordance with the requirements of ISO 14065; or

(B) As a verifier, lead verifier, or verification body under the California Air Resources Board Low Carbon Fuel Standard program.

(iii) Qualified certifiers are qualified to provide certification only for the associated methodologies identified in this paragraph (b)(3). A qualified certifier must have active accreditation for the associated methodology as of the date it provides a certification to a taxpayer. A taxpayer must use the qualified certifier identified in this paragraph (b)(3) for the identified emissions rate methodology used by the taxpayer.

(c) Requirements for the production statement . The requirements set forth in this paragraph (c) apply to the production statement.

(1) The production statement must be a statement that the qualified certifier performed a certification sufficient to determine that any lifecycle greenhouse gas emissions data inputs and the operation, during the applicable taxable year, of the qualified facility that produced the SAF transportation fuel for which the section 45Z credit is claimed are accurately reflected in—

(i) The number of gallons of SAF transportation fuel produced by the taxpayer

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that is entered on the Form 7218 to which the certification is attached; and

(ii) Either— (A) The data the taxpayer entered into the methodology under §1.45Z-2(e)(3) (iii) the taxpayer selected to determine the lifecycle greenhouse gas emissions rate that is entered on the Form 7218 to which the certification is attached; or

(B) The data the taxpayer submitted in a provisional emissions rate (PER) petition relating to the SAF transportation fuel for which the section 45Z credit is claimed, including data provided to the DOE in support of the taxpayer’s request for the emissions value provided in the PER petition.

(2) If the production statement includes the information specified in paragraph (c) (1)(ii)(B) of this section, then the production statement must also specify the emissions value received from the DOE that was calculated using such data, expressed in kilograms of CO2e per mmBTU.

(3) The production statement must specify the lifecycle greenhouse gas emissions rate (expressed in kilograms of CO2e per mmBTU) and the amount of SAF transportation fuel produced by the taxpayer (expressed in gallons), that are entered on the Form 7218 to which the certification is attached.

(d) Requirements for the sale statement . The sale statement must state that the qualified certifier performed a certification sufficient to determine that the number of gallons of SAF transportation fuel that is specified in the production statement pursuant to paragraph (c)(1) of this section, and that is entered on the Form 7218 to which the certification is attached, has been sold in a qualifying sale.

(e) Requirements for the conflict state- ment —(1) In general . The conflict statement must state that—

(i) The qualified certifier has not received a fee based to any extent on the value of any section 45Z credit that has been or is expected to be claimed by the taxpayer and no arrangement has been made for such fee to be paid at any time in the future;

(ii) The qualified certifier has not been a party to any transaction involving the sale of SAF transportation fuel the taxpayer produced or in which the taxpayer purchased primary feedstocks for the production of such SAF transportation fuel;

(iii) The qualified certifier is not related, within the meaning of section 267(b) or 707(b)(1) of the Code, to the taxpayer, or an employee of, the taxpayer; and

(iv) The qualified certifier is not married to anyone who is related to, or an employee of, the taxpayer.

(2) Additional attestations required in certain circumstances . If the qualified certifier is acting in his or her capacity as a partner in a partnership, an employee of any person, whether an individual, corporation, or partnership, or an independent contractor engaged by a person other than the taxpayer, the attestations under paragraphs (e)(1)(i) through (iv) of this section must also be made with respect to the partnership or the person that employs or engages the qualified certifier.

(f) Requirements for the qualified certi- fier statement . The qualified certifier statement must include the items set forth in this paragraph (f).

(1) The qualified certifier’s name, address, and certifier identification number (ex. CARB LCFS Verifier Executive Order Number);

(2) The qualified certifier’s qualifications to conduct the certification, including a description of the certification the qualified certifier received from the accrediting body;

(3) If the qualified certifier is acting in his or her capacity as a partner in a partnership, an employee of any person, whether an individual, corporation, or partnership, or an independent contractor engaged by a person other than the taxpayer, the name, address, and certifier identification number of the partnership or the person that employs or engages the qualified certifier;

(4) The signature of the qualified certifier and the date of signature; and

(5) A statement that the certification was conducted for Federal tax purposes.

(g) General information on qualified facility . The certification must include the information set forth in this paragraph (g) for the qualified facility at which the SAF transportation fuel production undergoing certification occurred:

(1) The location of the qualified facility;

(2) A description of the qualified facility, including its method of producing SAF transportation fuel;

(3) The type(s) of primary feedstock(s) used by the qualified facility to produce SAF transportation fuel during the taxable year of production;

(4) The amount(s) of primary feedstock(s) used by the qualified facility during the taxable year of production;

(5) The locations from which primary feedstock(s) used by the qualified facility during the taxable year of production are sourced;

(6) A list of the metering devices used to record any data used by the qualified certifier to support the production statement under paragraph (c) of this section along with a statement that the qualified certifier is reasonably assured that the device(s) underwent industry-appropriate quality assurance and quality control, and the accuracy and calibration of the device has been tested in the last year prior to the time of observation; and

(7) Confirmation that the emissions rate is accurate to the higher of +/-5% or 2 grams of CO2e per mmBTU.

(h) Timely certification —(1) In gen- eral . A certification must be signed and dated by the qualified certifier no later than—

(i) The due date, including extensions, of the Federal income tax return or Federal information return for the taxable year during which the SAF transportation fuel undergoing certification is sold; or

(ii) In the case of a credit first claimed for the taxable year on an amended return or administrative adjustment request, the date on which the amended return or administrative adjustment request is filed.

(2) Certification in a year other than the year of sale . A taxpayer may obtain a certification with respect to a SAF transportation fuel in a different taxable year than the taxable year in which the qualifying sale of such fuel occurs.

(i) Applicability date . This section applies to qualifying sales occurring on or after the date proposed regulations are published in the Federal Register .

§1.45Z-6 Procedures for filing a claim for the clean fuel production credit.

(a) Time and manner of filing a claim . To claim the section 45Z credit, a taxpayer must file a completed Form 7218

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with the taxpayer’s timely filed (including extensions) Federal income tax return or Federal information return for the taxable year in which the taxpayer claims the section 45Z credit. A taxpayer must file a separate Form 7218 for each qualified facility at which transportation fuel for which the taxpayer is claiming the section 45Z credit is produced. A taxpayer must complete Form 7218 in accordance with the instructions to that form. A taxpayer must include with its Form 7218 any applicable certification required by §1.45Z-5.

(b) Special rules if producer is not credit claimant —(1) Producer that is a disregarded entity or a qualified sub- chapter S subsidiary . If an entity that is disregarded as an entity separate from its owner within the meaning of §301.7701-2(c)(2)(i) of this chapter (disregarded entity) or a qualified subchapter S subsidiary within the meaning of section 1361(b)(3)(B) (QSub) produces transportation fuel that is eligible for the section 45Z credit, the owner of such disregarded entity or QSub will be treated as registered as a producer of clean fuel under section 4101 for purposes of claiming the section 45Z credit. The producer’s registration number (within the meaning of section 45Z(f)(1)(A)(i)(I) and §1.4101-1) of a disregarded entity or a QSub will be attributed to its owner. The owner of a disregarded entity or QSub that claims and is allowed a section 45Z credit with respect to transportation fuel produced by such disregarded entity or QSub must satisfy the recordkeeping requirements in §1.45Z-4(e).

(2) Producer that is a member of a con- solidated group . If a member of a consolidated group (as defined in §1.1502-1(b) and (h), respectively) produces transportation fuel that is eligible for the section 45Z credit, such member is the person eligible to claim the section 45Z credit. The member must satisfy all requirements under section 45Z (for example, the recordkeeping requirements in §1.45Z-4(e)). For rules regarding the status of the common parent as generally the agent for members of its consolidated group, see §1.1502-77. The agent of a consolidated group, when filing a Form 7218 to claim the section 45Z credit, must use the producer’s reg

istration number (within the meaning of section 45Z(f)(1)(A)(i)(I) and §1.4101-1) of the member that produced the transportation fuel.

(c) Applicability date . This section applies to qualifying sales occurring on or after the date proposed regulations are published in the Federal Register .

§1.4101-1 Registration

(a) In general . This section provides rules relating to registration for purposes of the section 45Z credit.

(1) Letter of Registration required . A person is registered under section 4101 of the Code only if the IRS has issued a Letter of Registration to the person and the registration has not been revoked or suspended.

(2) Separate entity treatment— (i) In general . Each business unit that has, or is required to have, a separate employer identification number is treated as a separate person. Thus, two business units (for example, a parent corporation and a subsidiary corporation), each of which has a different employer identification number, are two persons.

(ii) Disregarded entity . Section 301.7701-2(c)(2)(i) of this chapter (relating to certain wholly owned entities) does not apply for purposes of registration under this section. An entity that is disregarded as an entity separate from its owner for any purpose under §301.7701-2 of this chapter and that has, or is required to have, an employer identification number is treated as a corporation (consistent with §301.7701-2(c) (2)(v)(B) of this chapter) for purposes of registration under this section. Therefore, an entity that is treated as a corporation, that has an employer identification number, and that is a producer of transportation fuel for purposes of the section 45Z credit must register as a producer of clean fuel in order to be eligible to claim the section 45Z credit.

(iii) Qualified subchapter S subsidiary . Section 1.1361-4(a)(1)(i) (providing that a corporation that is a qualified subchapter S subsidiary as defined in section 1361(b) (3)(B) (QSub) is not treated as a separate corporation) does not apply for purposes of registration under this section. Therefore, a QSub that has an employer iden

tification number and that is a producer of transportation fuel for purposes of the section 45Z credit must register as a producer of clean fuel to be eligible to claim the section 45Z credit.

(3) Reregistration —(i) Reregistration in the event of change of ownership . As provided in section 4101(a)(5), a person is required to reregister under this section if after a transaction (or series of related transactions) more than 50 percent of ownership interests in, or assets of, such person are held by persons other than persons (or persons related thereto) who held more than 50 percent of such interests or assets before the transaction (or series of related transactions). Reregistration does not apply to a company whose stock is regularly traded on an established securities market, but such companies are required to notify the IRS about the change in ownership.

(ii) Reregistration in the event of change of employer identification number . If a registrant changes its employer identification number, such registrant must reregister under this section using its new employer identification number.

(iii) Safe harbor for purposes of section 45Z credit . A person that is approved for reregistration is eligible to claim a section 45Z credit (provided that all requirements of section 45Z are met) as of the date the IRS received the application for reregistration, even if, at the time of fuel production, the IRS has not yet approved the reregistration.

(b) Definitions —(1) Applicant . An applicant is a person that has applied for registration under paragraph (d) of this section.

(2) Letter of registration. A Letter of Registration is a letter issued by the IRS to confirm approval of a registration required under section 4101 and this section. A Let- ter of Registration includes the registrant’s registration number and the effective date of the registration.

(3) Penalized for a wrongful act . A person has been penalized for a wrongful act if the person has—

(i) Been assessed any penalty under chapter 68 of the Code (or similar provision of the law of any State) for fraudulently failing to file any return or pay any tax, and the penalty has not been wholly abated, refunded, or credited;

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(ii) Been assessed any penalty under chapter 68 of the Code, such penalty has not been wholly abated, refunded, or credited, and the IRS determines that the conduct resulting in the penalty is part of a consistent pattern of failing to deposit, pay, or pay over a substantial amount of tax;

(iii) Been convicted of a crime under chapter 75 of the Code (or similar provision of the law of any State), or of conspiracy to commit such a crime, and the conviction has not been wholly reversed by a court of competent jurisdiction;

(iv) Been convicted, under the laws of the United States or any State, of a felony for which an element of the offense is theft, fraud, or the making of false statements, and the conviction has not been wholly reversed by a court of competent jurisdiction;

(v) Been assessed any tax under section 4103 of the Code and the tax has not been wholly abated, refunded, or credited; or

(vi) Had its registration under section 4101, 4222, 4662, or 4682 of the Code revoked.

(4) Related person . A related person is a person that—

(i) Directly or indirectly exercises control over an activity of the applicant;

(ii) Owns, directly or indirectly, five percent or more of the applicant;

(iii) Is under a duty to assure the payment of a tax for which the applicant is responsible;

(iv) Is a member, with the applicant, of a group of organizations (as defined in §1.52-1(b)) that would be treated as a group of trades or businesses under common control for purposes of §1.52-1; or

(v) Distributed or transferred assets to the applicant in a transaction in which the applicant’s basis in the assets is determined by reference to the basis of the assets in the hands of the distributor or transferor.

(5) Registrant . A registrant is a person that the IRS has, in accordance with paragraph (f)(3) of this section, registered under section 4101 and whose registration has not been revoked or suspended.

(c) Requirement to register —(1) In general . Every person intending to claim a section 45Z credit with respect to the production of a fuel eligible for the section

45Z credit is required to register with the IRS under this section.

(2) Consequences of failing to regis- ter . For the criminal penalty imposed for failure to register, see section 7232 of the Code. For the civil penalty imposed for failure to register or reregister, see section 7272 of the Code. For the civil penalty imposed for failure to register or reregister under section 4101, see section 6719 of the Code.

(d) Application instructions . Application for registration under section 4101 must be made in accordance with the instructions for Form 637, Application for Registration (For Certain Excise Tax Activities), or such other form as the Commissioner may designate. See §601.602 of this chapter.

(e) Registration tests —(1) In general. The IRS will register an applicant only if the IRS determines that the applicant meets the following three tests (collectively, the registration tests):

(i) The activity test of paragraph (e)(2) of this section.

(ii) The acceptable risk test of paragraph (e)(3) of this section.

(iii) The satisfactory tax history test of paragraph (e)(4) of this section.

(2) Activity test —(i) In general . An applicant meets the activity test of this paragraph (e)(2) only if the IRS determines that the applicant—

(A) Is, in the course of its trade or business, regularly engaged in the activity for which they are requesting registration; or

(B) Is likely to be (because of such factors as the applicant’s business experience, financial standing, or trade connections), in the course of its trade or business, regularly engaged in the activity for which they are requesting registration, within a reasonable time after becoming registered under section 4101.

(ii) Example 1 . Reasonable time standard; pro- duction to begin more than 6 months after registra- tion . An applicant submits a Form 637 requesting to become registered as a producer of fuel that may be eligible for the section 45Z credit, stating in its application that it will not be able to produce such fuel for at least three years from the date of the application. Such applicant is not likely to be, in the course of its trade or business, regularly engaged as a producer of transportation fuel within a reasonable time (6 months) after becoming registered under section 4101. (iii) Example 2 . Reasonable time standard; pro- duction to begin within 6 months of registration . An

applicant submits a Form 637 requesting to become registered as a producer of fuel that may be eligible for the section 45Z credit, stating in its application that it will be able to produce such fuel within six months after it becomes registered. Such applicant is likely to be, in the course of its trade or business, regularly engaged as a producer of transportation fuel within a reasonable time after becoming registered under section 4101.

(3) Acceptable risk test —(i) In gen- eral . An applicant meets the acceptable risk test of this paragraph (e)(3) if neither the applicant nor a related person has been penalized for a wrongful act. If an applicant or a related person has been penalized for a wrongful act, the IRS may nonetheless determine that an applicant meets the acceptable risk test based on consideration of the factors enumerated in paragraph (e) (3)(ii) of this section.

(ii) Factors to consider . In making the determination described in paragraph (e) (3)(i) of this section, the IRS may consider factors such as the following:

(A) The time elapsed since the applicant or related person was penalized for a wrongful act.

(B) The present relationship between the applicant and any related person that was penalized for any wrongful act.

(C) The degree of rehabilitation of the person penalized for any wrongful act.

(4) Satisfactory tax history test —(i) In general . An applicant meets the satisfactory tax history test of this paragraph (e)(4) only if the IRS determines that the applicant has a satisfactory tax history as described in paragraph (e)(4)(ii) of this section.

(ii) Satisfactory tax history . An applicant has a satisfactory tax history only if the Commissioner determines that the filing, deposit, and payment history for all Federal taxes of the applicant and any related person support the conclusion that the applicant will comply with its obligations under this section.

(f) Action on the application by the IRS —(1) Review of application . The IRS may investigate the accuracy and completeness of any representations made by an applicant and request any additional relevant information from the applicant.

(2) Denial . If the IRS determines that an applicant does not meet all of the registration tests described in paragraph (e) of this section, the IRS will notify the applicant, in writing, that its application for

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registration is denied and state the basis for the denial.

(3) Approval. If the IRS determines that an applicant meets all of the registration tests described in paragraph (e) of this section, the IRS will register the applicant under section 4101 and issue the applicant a Letter of Registration containing the effective date of the registration. The effective date of a registration under this section is the effective date provided in the Letter of Registration. A copy of an application for registration (Form 637) is not a Letter of Registration.

(g) Terms and conditions of registra- tion —(1) Affirmative duties . Each applicant or registrant must—

(i) Make deposits, file returns, and pay taxes as required by the Code and the regulations;

(ii) Keep records sufficient to show eligibility for the section 45Z credit;

(iii) Notify the IRS of any change in the information the registrant submitted in connection with its application for registration, or previously submitted under this paragraph (g)(1)(iii), within 10 days after the change occurs. Changes requiring IRS notification include, but are not limited to, changes in ownership, address, and business activities.

(2) Prohibited actions . A registrant or applicant may not—

(i) Sell, lease, or otherwise allow another person to use its registration, or

(ii) Make any false statement to the IRS in connection with a submission under section 4101.

(h) Effect of Letter of Registration . A Letter of Registration is not a determination of liability for tax, eligibility for a tax credit or deduction, or any other tax treatment under the Code. For example, a Letter of Registration issued to a registrant producing a fuel that may be eligible for the section 45Z credit is not a determination that the fuel that the registrant produces is a transportation fuel under section 45Z(d)(5)(A) or that the facility at which the registrant produces such fuel is a qualified facility under section 45Z(d)(4). A Letter of Registration is also not a deter

mination letter, as defined in §601.201(a) (3) of this chapter.

(i) Adverse actions by the IRS against a registrant —(1) Mandatory revocation or suspension . The IRS will revoke or suspend the registration of any registrant if the IRS determines that the registrant, at any time—

(i) Does not meet one or more of the registration tests under paragraph (e) of this section and has not corrected the deficiency within a reasonable period of time after notification by the IRS;

(ii) Has used its registration to evade, or attempt to evade, the payment of any tax, or to postpone or in any manner to interfere with the collection of any such tax, or to make a fraudulent claim for a credit or payment;

(iii) Has aided or abetted another person in evading, or attempting to evade, payment of any tax, or in making a fraudulent claim for a credit or payment; or

(iv) Has sold, leased, or otherwise allowed another person to use its registration.

(2) Remedial action permitted in other cases . If the IRS determines that a registrant has, at any time, failed to comply with the terms and conditions of registration under paragraph (g) of this section, made a false statement to the IRS in connection with its application for registration or retention of registration, or otherwise used its registration in a manner that creates a significant risk of nonpayment or late payment of tax, then the IRS may revoke or suspend the registrant’s registration.

(3) Action by the IRS to revoke or sus- pend a registration . If the IRS revokes or suspends a registration, the IRS will notify the registrant in writing and state the basis for the revocation or suspension. The effective date of the revocation or suspension may not be earlier than the date on which the IRS notifies the registrant.

(j) Applicability date . This section applies to persons producing transportation fuel on or after the date proposed regulations are published in the Federal Register .

Section 45Z Clean Fuel Production Credit; Emissions Rates; Request for Comments