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I.R.S. Considering Change in Guidance for CO2 Recapture Credit, Sec. 45Q

In response to a letter from Senator Kay Hutchinson, the I.R.S. Associate Chief Counsel for Passthroughs and Special Entities, Curt Wilson, acknowledged that current guidance pertaining the carbon dioxide sequestration credit, contained in Notice 2009-83, ignores what Hutchinson considers to be a crucial element of the credit’s Congressional intent.

Specifically, the Notice defines an “industrial facility” as one that

1) Produces a CO2 stream from a fuel combustion source, a manufacturing process, or a fugitive CO2 emission source; and
2) Does not produce CO2 from CO2 production wells at natural CO2-bearing formations.

Hutchinson contended that Section 45Q was meant to apply to facilities that produce CO2 as a byproduct of their operation. Natural gas and oil are often found in CO2 bearing formations and a consequence of the Notice is that CO2 sequestered from natural gas and oil wells does not qualify for the credit. According to Hutchinson, only independent extraction of CO2 for its intrinsic economic value was meant to be excluded. Wilson stated that the I.R.S. is considering whether and how best to bring the Notice in line with the original intent of the statute.

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Contact our team today with any tax controversy concern you’re facing. We fight every day to protect the interests of the taxpayer, and we look forward to putting you in the best tax situation possible.

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