Firm Supplements Prior Comments on Carbon Capture Equipment

March 24, 2021

Acting Chief Counsel William Paul
Associate Chief Counsel Holly Porter (Passthroughs and Special Industries)
Senior Counsel David Selig (Passthroughs and Special Industries, Branch 6)
Internal Revenue Service
1111 Constitution Ave, N. W.
Washington, D.C. 20224

Re: Section 45Q — definition of “carbon capture equipment”

Dear Mr. Paul, Ms. Porter and Mr. Selig:

We are writing with respect to the issue raised in our letter to you dated January 13, 2021, regarding the application of the regulations promulgated under section 45Q to separation units (frequently referred to variously as Selexol, Rectisol or Puresol units) and the issue of required ownership of “carbon capture equipment” (CCE) in order to obtain the credits.

Pursuant to subsequent discussions that we have had with industry participants with respect to this issue, we thought it would be helpful to supplement and clarify our prior letter as you consider how to address the issue of the required ownership of CCE for purposes of determining eligibility for the credit and attribution of the credit to the taxpayer owning CCE.

It is clear that the final regulations, by their plain language, include separation units in the definition of CCE. We do not believe that it is necessary to interpret, nor do we advocate interpreting, the definition of CCE as excluding separation units, and we are not of the view that separation units, by themselves, cannot or can never be CCE. For example, we consider the final regulations to allow a taxpayer that owns a separation unit (which may not be connected to other components of CCE) and that also physically or contractually ensures the disposal, utilization, or use as a tertiary injectant of the resulting separated CO2 to be eligible for the credit.

That said, for the reasons we explained in our prior letter regarding the practical problems associated with ownership of a unit that is part of a larger industrial facility, we do advocate that tax credit claimants not be required to own every component of CCE in a CO2 process train as long as they own a portion of that CCE. Because, pursuant to the final regulations, only one taxpayer is allowed to claim the section 45Q credits attributable to a single process train, we recommend the IRS clarify, through guidance, that such taxpayer may be a person who (i) owns only a portion of the CCE that is included in such train and (ii) physically or contractually ensures the capture and disposal, injection, or utilization of all or a portion of the qualified carbon oxide attributable to such train.

Respectfully Submitted,
Baker Botts, L.L.P.

By:
Barbara de Marigny