On Feb. 19, 2020, the IRS released Notice 2020-12 and Revenue Procedure 2020-12 (together, the “Carbon Guidance”) which provide highly anticipated clarity on the Internal Revenue Code Section 45Q credit for carbon oxide sequestration. The Carbon Guidance provides details on determining when construction has begun on an eligible project, and valid partnership allocations (including a permissible partnership flip structure), which in each case are very similar rules to those applicable or relied upon in solar and wind tax credit tax equity transactions.

This article provides a useful summary of the background and requirements for Section 45Q credit qualification; and the Carbon Guidance, including the “Physical Work Test” and the “5% Safe Harbor” as relates to establishing commencement of construction on a qualified facility or carbon capture equipment.

Read the full GT Alert, “Summary of Guidance on Section 45Q Carbon Tax Credits Under 2020 Notice and Revenue Procedure.”