February 24, 2020

IRS Issues First Batch of Long-Awaited Carbon Capture Tax Credit Guidance

On February 19, 2020, the US Internal Revenue Service (“IRS”) issued IRS Notice 2020-12 (the “Notice”) and Revenue Procedure 2020-12 (the “Revenue Procedure”) to address two key aspects of the carbon capture tax credit (the “Carbon Credit”) under section 45Q of the Internal Revenue Code of 1986 (the “Code”). Specifically, the Notice provides guidance with respect to the “start of construction” requirement under the Code, and the Revenue Procedure establishes a safe harbor under which partnership allocations of the Carbon Credit will be respected. Although the new guidance is largely similar to corresponding guidance issued with respect to the production tax credit for wind energy, the investment tax credit for solar energy and the historic rehabilitation tax credit, there are some notable differences that appear to reflect industry-specific concerns raised by stakeholders. This Legal Update provides background and further detail on the Notice and the Revenue Procedure.

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