IRS, Treasury to Consider Lawmakers' Comments on Carbon Dioxide Sequestration Credit

UIL: 45Q.00-00

Thank you for the letter dated August 25, 2011, from you and Representative James Lankford to Commissioner Shulman, on the application of the carbon dioxide (CO₂) sequestration credit under section 45Q of the Internal Revenue Code. Specifically, you asked for clarification of the term "qualified facility."

Generally, under section 45Q, a taxpayer can claim a credit of $20 per metric ton of qualified CO₂ that the taxpayer captures at a qualified facility, disposes of in secure geological storage, and does not use as a tertiary injectant. The credit is $10 per metric ton if a taxpayer uses the qualified CO₂ as a tertiary injectant in a qualified enhanced oil or natural gas recovery project. The term "qualified facility" refers to an industrial facility that the taxpayer owns and, at which, the taxpayer places the carbon capture equipment in service and captures at least 500,000 metric tons of CO₂ during the taxable year. Only CO₂ captured at an industrial facility qualifies for the credit.

On November 2, 2009, we issued Notice 2009-83 (see enclosed), which provides guidance to determine eligibility for the credit, including a definition of "industrial facility." Under this guidance, an industrial facility is a facility that meets the following two conditions. The facility:

We appreciate receiving your views in this matter. We understand the need for clarity in the application of section 45Q for a facility that processes natural gas produced from natural gas formations. We have shared your letter with the Office of the Assistant Secretary for Tax Policy of the Department of Treasury. We are working with officials at that office to give your views thorough and careful consideration in ensuring the appropriate interpretation of section 45Q.

I am sending a similar letter to your colleague. I hope this information is helpful. If you need further assistance on this matter, please contact * * * at * * *.

Thank you for the letter dated August 25, 2011, from you and Representative Dan Boren to Commissioner Shulman, on the application of the carbon dioxide (CO₂) sequestration credit under section 45Q of the Internal Revenue Code. Specifically, you asked for clarification of the term "qualified facility."

Generally, under section 45Q, a taxpayer can claim a credit of $20 per metric ton of qualified CO₂ that the taxpayer captures at a qualified facility, disposes of in secure geological storage, and does not use as a tertiary injectant. The credit is $10 per metric ton if a taxpayer uses the qualified CO₂ as a tertiary injectant in a qualified enhanced oil or natural gas recovery project. The term "qualified facility" refers to an industrial facility that the taxpayer owns and, at which, the taxpayer places the carbon capture equipment in service and captures at least 500,000 metric tons of CO₂ during the taxable year. Only CO₂ captured at an industrial facility qualifies for the credit.

On November 2, 2009, we issued Notice 2009-83 (see enclosed), which provides guidance to determine eligibility for the credit, including a definition of "industrial facility." Under this guidance, an industrial facility is a facility that meets the following two conditions. The facility:

We appreciate receiving your views in this matter. We understand the need for clarity in the application of section 45Q for a facility that processes natural gas produced from natural gas formations. We have shared your letter with the Office of the Assistant Secretary for Tax Policy of the Department of Treasury. We are working with officials at that office to give your views thorough and careful consideration in ensuring the appropriate interpretation of section 45Q.

I am sending a similar letter to your colleague. I hope this information is helpful. If you need further assistance on this matter, please contact * * * at * * *.