IRS Provides Guidance on Clean Fuel Production Credit Registration

On Friday, the IRS issued guidance on the Clean Fuel Production Credit to clarify registration requirements for the two fuel categories for eligibility purposes. (IR 2024-153, 5/31/2024)

Background.

The Code Sec. 45Z Clean Fuel Production Credit under the Inflation Reduction Act (PL 117-169) incentivizes transportation fuel produced in the United States by the taxpayer at a qualified facility after December 31, 2024, and sold by the taxpayer to an unrelated person.

There are two types of Section 45Z fuel: sustainable aviation fuel (SAF) and non-SAF transportation fuel. Generally, the credit is determined by the applicable per-gallon amount for transportation fuel produced at a qualified facility and the emissions factor for that fuel type.

Registration requirements.  

Notice 2024-49, released May 31, emphasizes that in order for a taxpayer to claim the credit, they must first be a registered producer of clean fuel under Code Sec. 4101 at the time of production. The guidance also provides a suite of background information and related definitions. For SAF production, a taxpayer must provide certification from an unrelated party showing compliance with supply chain traceability, information transmission, and other requirements.

To be considered registered and eligible for the Section 45Z credit for production starting next year, the taxpayer needs a signed registration letter from the IRS dated before January 1, 2025. The IRS is encouraging taxpayers to apply for registration as soon as possible. Applications submitted by July 15, 2024, are more likely to be processed before January 1 than those submitted afterwards, but the agency said it cannot make any guarantees.

The IRS cautioned that a taxpayer’s receipt of a registration letter does not necessarily mean they are automatically eligible to claim the credit. For example, a taxpayer can be a registered clean fuel producer but still not produce eligible transportation fuel. Further, even if the fuel is 45Z-eligible, it must also be produced at a qualified facility, defined by Code Sec. 45Z(d)(4).

Taxpayers seeking registration must submit Form 637, Application for Registration (for Certain Excise Tax Activities). SAF fuel producers will use Activity Letter “CA” and non-SAF transportation fuel producers will use Activity Letter “CN.” The IRS said it is revising the form to add both Activity Letters. Taxpayers are advised to use the current Form 637 and write in the Activity Letters until the revised form is released. Taxpayers may apply for registration under both Activity Letters on the same Form 637.

The guidance provides additional instructions for other Activity Letters that should be selected depending on specific fuel types.

For more on the Clean Fuel Production Credit, see Checkpoint’s Federal Tax Coordinator ¶ L-17730.