Treasury, IRS Provide Guidance on Registration for Section 45Z Clean Fuel Production Tax Credits

The Department of the Treasury and the IRS on May 31 issued Notice 2024-49 regarding the Clean Fuel Production Tax Credit (PTC) under Internal Revenue Code Section 45Z, added by the Inflation Reduction Act of 2022. The notice describes the registration requirements and encourages clean fuel producers to apply for registration by July 15, 2024, to avoid a delay, as the IRS expects a large volume of applications by taxpayers wishing to benefit from this tax credit. The notice also states that it is the intention of the Department of the Treasury and the IRS to issue additional guidance on other aspects of Section 45Z at a later date. 

Background

The Section 45Z Clean Fuel PTC incentivizes the domestic production of sustainable aviation fuel (SAF) and non-SAF transportation fuel. Eligible clean fuels produced after December 31, 2024, and before January 1, 2028, are eligible for a PTC for each gallon (or gallon equivalent) of fuel produced by the taxpayer and sold to an unrelated person. 

Registration

Qualifying taxpayers must register as a producer of clean fuel under Section 4101. For eligible production starting January 1, 2025, the signed registration letter must be received back from the IRS on or before January 1, 2025, for the taxpayer to be eligible to claim the Section 45Z PTC. 

In anticipation of the January 1, 2025, production date, the IRS has indicated its intention to process completed applications that are received by July 15, 2024. Applications received after this date risk processing delays that may inhibit a taxpayer’s ability to claim a Section 45Z PTC upon the commencement of qualifying production.  

The notice provides an example that if a taxpayer receives a letter of registration from the IRS dated June 30, 2025, the taxpayer may not claim the Section 45Z PTC on fuel produced and sold before June 30, 2025, even if all other Section 45Z statutory requirements have been met. In this instance, the taxpayer can only claim the Section 45Z PTC for eligible clean fuel produced and sold on or after June 30, 2025.

Registration Process

Registration under Section 4101 is made via Form 637 Application for Registration (for Certain Excise Tax Activities). The guidance added two new activity letters applicable to Form 637:

• Activity Letter CN: For a producer of non-SAF transportation fuel
• Activity Letter CA: For a producer of SAF

The guidance noted the IRS is revising Form 637 to include the applicable activity letters. In the interim, a taxpayer may use the current Form 637 for registration.

Qualified Fuels

In consultation with the Department of Energy, the Department of the Treasury and the IRS expect the following fuels may qualify as non-SAF transportation fuels:

• Low-GHG biodiesel
• Low-GHG butanol
• Low-GHG diesel fuel
• Low-GHG dimethyl ether 
• Low-GHG ethanol 
• Low-GHG gasoline 
• Low-GHG hydrogen 
• Low-GHG liquified petroleum gas (LPG) 
• Low-GHG methanol
• Low-GHG natural gas 

Largely anticipated by those in the renewable gas industry, the guidance confirms low-GHG natural gas includes renewable natural gas. The gas must meet the specifications of ASTM International D8080-21 and have an emissions rate that is not greater than 50 kg of CO2e per mmBTU.

Additionally, the guidance in Appendix A identifies feedstocks and feedstock types associated with the varieties of fuel that may qualify as transportation fuel. These include but are not limited to agricultural residue, biogas, biomass, ethanol, industrial byproducts, and mixed organic waste. 

SAF Certification

For producers of SAF, a certification from an unrelated party demonstrating compliance with any general requirements, supply chain traceability, and information transmission established under CORSIA will be required. The Department of the Treasury noted that further guidance will be provided at a later date regarding the unrelated party certification. 

Key Notes

• Depending on the type of transportation fuel, a taxpayer producing eligible clean fuel under Section 45Z may have additional registration obligations under Section 4101. 
• In addition to the activity letters, applicants must provide additional detail for their planned qualified production. 

BDO will continue to monitor this and other Inflation Reduction Act notices issued by Treasury and the IRS and will provide further updates as guidance is released. BDO’s Business Incentives & Tax Credits and Excise Tax professionals can help U.S. businesses determine their eligibility under the Inflation Reduction Act and whether they meet the requirements necessary to benefit from clean energy tax incentives.