Interested in the Section 45Z Clean Fuel Production Credit? Register with the IRS Now
There’s a new beneficial tax credit for companies producing clean fuel but you should act now if you want to claim it.
Clean fuel production credit background
The Inflation Reduction Act added Section 45Z, providing taxpayers with a credit for transportation fuel produced at a qualified facility within the United States and sold to an unrelated party for qualifying purposes. The 45Z credit replaces certain tax credits associated with various types of biofuels and alternative fuels.
Here are the basic rules:
- Generally, the 45Z credit is available for transportation fuel produced after December 31, 2024 and sold to unrelated parties on or before December 31, 2027.
- The base credit rate is $0.20 per gallon for transportation fuel — except for sustainable aviation fuel which is $0.35 per gallon — produced at a qualified facility.
- The base credit rate can be increased by a factor of five if certain prevailing wage and apprenticeship requirements are met.
- Taxpayers must meet various other requirements to qualify for the 45Z credit. Contact us for more details.
How to claim the clean fuel production credit
On June 1, the IRS issued initial guidance on claiming the credit. To claim the credit, companies must register with the IRS as a clean fuel producer using Form 637.
The IRS said companies seeking to claim a 45Z credit must have a signed registration letter from the IRS dated on or before January 1, 2025 to be eligible to claim the 45Z credit for production starting January 1, 2025. Failure to obtain a signed registration letter by this date could limit the amount of 45Z credit that can be claimed (i.e., 45Z credits would only be available for production and sale of transportation fuel that occurs on or after the date of the letter).
What companies should do now
Eligible taxpayers should complete the IRS registration process as soon as possible. Although the IRS is not guaranteeing when signed registration letters will be issued, the agency has indicated it intends to process completed applications for registration received by July 15, 2024 so eligible taxpayers can receive their signed letter of registration by January 1, 2025. Taxpayers who register after July 15, 2024 increase their chances of not receiving a signed registration letter by January 1, 2025.
Taxpayers should understand getting an IRS registration letter is procedural and does not certify the IRS’s approval of the taxpayer’s 45Z credit. In other words, the IRS can deny credits that don’t comply with Section 45Z even if a signed registration letter has been issued to the taxpayer.
How we can help
Time is of the essence to start the process to claim the 45Z credit. There are some complicated qualification rules along with the registration process, but we can help. Contact us for assistance.
Written by Mike Smith
