The Treasury Department and the IRS have released guidance providing a safe harbor for taxpayers claiming the tax credit for carbon capture and sequestration under IRC § 45Q. The guidance creates a backup reporting method for qualified carbon oxide captured and disposed of in secure geological storage during calendar year 2025, in the event the Environmental Protection Agency (EPA) discontinues its electronic reporting tool. (Notice 2026-1; IR 2025-122, 12/19/2025)
Background
Section 45Q provides a tax credit for capturing and sequestering qualified carbon oxide to incentivize the reduction of greenhouse gas emissions. The credit amount and rules vary depending on when the carbon capture equipment was placed in service and how the captured carbon oxide is used.
For equipment placed in service before February 9, 2018, the credit is $20 per metric ton for carbon oxide disposed of in secure geological storage and $10 per metric ton for carbon oxide used in a qualified enhanced oil or natural gas recovery (EOR) project or utilized in other approved ways. For equipment placed in service on or after that date, the credit is available for a 12-year period. The credit was recently expanded and modified by the One Big Beautiful Bill Act (OBBBA).
The regulatory framework for claiming the credit was established in final regulations (T.D. 9944) issued in January 2021. Those rules provide standards for determining what constitutes secure geological storage, define carbon capture equipment, and outline procedures for taxpayers to make an election allowing third parties to claim the credit. The regulations also provide guidance on recapture, establishing a three-year lookback period after the initial storage or injection.
Under these rules, credits must be repaid if stored carbon oxide leaks into the atmosphere during that period. To qualify for the credit, taxpayers must demonstrate secure geological storage in compliance with rules set by the EPA.
New Safe Harbor for 2025
Notice 2026-1 establishes a conditional safe harbor specifically for “Calendar Year 2025 Secure Geological Storage.” The safe harbor applies only if the EPA does not launch its electronic Greenhouse Gas Reporting Tool for the 2025 reporting year by June 10, 2026. If the tool is available by that date, taxpayers must follow the standard EPA reporting process.
If the safe harbor is triggered, a taxpayer can satisfy the § 45Q verification requirements by preparing a substitute annual report. This report must contain all the information and documentation that would have been required under subpart RR as it existed on December 31, 2025, including details such as mass balance accounting calculations and information on monitoring and containment assurance.
Instead of submitting this report to the EPA, the taxpayer must provide it to a qualified independent engineer or geologist who is duly registered or certified in any state. That professional must then provide a certification, made under penalties of perjury, stating that:
- the capture and disposal process complied with subpart RR requirements as of year-end 2025, and
- the annual report is accurate and complete.
The certification must also include an affidavit from the professional confirming their independence from the taxpayer (and from the credit claimant, if different).
The notice specifies that this documentation and certification process must be completed before the taxpayer files the relevant tax return (such as Form 8933, Carbon Oxide Sequestration Credit), on which the credit is claimed. Taxpayers must retain this documentation and certification in their books and records.
Treasury and the IRS intend to issue future regulations for measurement and verification standards for years after 2025. Taxpayers may rely on Notice 2026-1 until those new regulations are issued.
For more on the § 45Q credit for carbon oxide sequestration, see Checkpoint’s Federal Tax Coordinator 2d ¶ L-18400. For related reporting requirements, see Federal Tax Coordinator 2d ¶ L-18415.
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