Title 26—Internal Revenue--Volume 1
PART 1—INCOME TAXES
§ 1.45Q-5   Recapture of Credit.
(a) Recapture event. A recapture event occurs when qualified carbon oxide for which a section 45Q credit has been previously claimed ceases to be disposed of in secure geological storage (as described in § 1.45Q-3(b)), or used as a tertiary injectant during the recapture period. Recapture events are determined separately for each project involving the disposal or use of qualified carbon oxide as a tertiary injectant. A recapture event does not occur if some portion of qualified carbon oxide disposed of in the current year does not remain in secure storage at the end of the year. The amount of such carbon oxide that is securely stored in the current year is determined according to the applicable requirements of 40 CFR part 98 subpart RR or CSA/ANSI ISO 27916:2019.
(b) Ceases to be disposed of in secure geological storage or used as a tertiary injectant. Qualified carbon oxide for which a section 45Q credit has been previously claimed ceases to be disposed of in secure geological storage (as described in § 1.45Q-3(b)), or used as a tertiary injectant, if the leaked amount of qualified carbon oxide in the taxable year exceeds the amount of qualified carbon oxide securely stored in that same taxable year.
(c) Leaked amount of qualified carbon oxide. When a taxpayer that claimed a section 45Q credit with respect to qualified carbon oxide stored at a secure storage site, operator of the secure storage site, or regulatory agency with jurisdiction over the site determines that the qualified carbon oxide that was disposed of in secure geological storage has leaked to the atmosphere, the taxpayer or the party with whom the taxpayer contracted to ensure the secure geological storage of the qualified carbon oxide must quantify the metric tons of qualified carbon oxide that has leaked to the atmosphere pursuant to the requirements of 40 CFR part 98 subpart RR or CSA/ANSI ISO 27916:2019. The quantity determined pursuant to CSA/ANSI ISO 27916:2019 must be certified by a qualified independent engineer or geologist, including a statement that the quantity was determined in accordance with sound engineering principles in the same manner as required in § 1.45Q-3. The IRS will consider all available facts and circumstances, and may consult with the relevant regulatory agency with jurisdiction over such site, in verifying the amount of qualified carbon oxide that has leaked to the atmosphere. The verified amount is the leaked amount of qualified carbon oxide.
(d) Qualified carbon oxide subject to recapture. The quantity of recaptured qualified carbon oxide (in metric tons) subject to recapture is the amount by which the leaked amount of qualified carbon oxide exceeds the amount of qualified carbon oxide securely stored in the taxable year. The leaked amount of qualified carbon oxide shall be subtracted from the amount of qualified carbon oxide that is securely stored in the taxable year. If the leaked amount does not exceed the amount of qualified carbon oxide that is securely stored in the taxable year, then the taxpayer is entitled to a credit equal to the amount of qualified carbon oxide securely stored less the leaked amount in the taxable year, multiplied by the appropriate statutory credit rate.
(e) Recapture amount. The recapture amount is equal to the product of the quantity of recaptured qualified carbon oxide (in metric tons) subject to recapture and the appropriate statutory credit rate.
(f) Recapture period. The recapture period begins on the date of first injection of qualified carbon oxide for disposal in secure geological storage or use as a tertiary injectant for which a section 45Q credit was claimed. The recapture period ends on the earlier of three years after the last taxable year in which the taxpayer claimed a section 45Q credit or was eligible to claim a credit that it elected to carry forward or the date monitoring ends under the requirements of the standards described in § 1.45Q-3(b)(1) or (2).
(g) Application of recapture —(1) In general. Any recapture amount must be taken into account in the taxable year in which it is identified and reported. If the leaked amount of qualified carbon oxide does not exceed the amount of qualified carbon oxide securely stored in the taxable year reported, there is no recapture amount and no further adjustments to prior taxable years are needed. If the leaked amount of qualified carbon oxide does exceed the amount of qualified carbon oxide securely stored in the taxable year reported, then the taxpayer must add the recapture amount to the amount of tax due in the taxable year in which the recapture event occurs.
(2) Calculation. Recapture amounts are calculated on a last-in-first-out basis (LIFO), such that the leaked amount of qualified carbon oxide that exceeds the amount of qualified carbon oxide securely stored in the current taxable year will be deemed attributable first to the prior taxable year, then to taxable year before that, and then up to a maximum of the third preceding year.
(3) Multiple units. In the event of a recapture event in which the leaked amount of qualified carbon oxide had been captured from multiple units of carbon capture equipment that were not under common ownership, the recapture amount must be allocated on a pro rata basis among the multiple units of carbon capture equipment. All taxpayers that claimed a section 45Q credit with respect to one or more of such units of carbon capture equipment are responsible for adding the recapture amount to their amount of tax due in the taxable year in which the recapture event occurs.
(4) Multiple taxpayers —(i) In general. In the event of a recapture event involving a leaked amount of qualified carbon oxide that is deemed attributable to qualified carbon oxide for which multiple taxpayers claimed section 45Q credits (for example, if ownership of the carbon capture equipment was transferred, or if a taxpayer made an election under section 45Q(f)(3)(B) to allow one or more credit claimants to claim a portion of the section 45Q credit), the recapture amount must be allocated on a pro rata basis among the taxpayers that claimed the section 45Q credits.
(ii) Partnerships —(A) General rule. For purposes of paragraph (g)(4)(i) of this section, if a partnership is one of the multiple taxpayers that claimed section 45Q credit amounts, the partnership and not its partners will be the taxpayer to which the pro rata recapture amount must be allocated. The partnership must allocate its pro rata recapture amount among its partners under § 1.704-1(b)(4)(ii).
(B) Terminated partnerships. If a partnership described in paragraph (g)(4)(ii)(A) of this section terminates under section 708(b)(1) prior to a recapture event, the partners of that terminated partnership at the time the section 45Q credit was claimed will be the taxpayers to which the pro rata recapture amount must be allocated.
(5) Reporting. If a recapture event occurs during a project's recapture period, any taxpayer that claimed a section 45Q credit for that project must report the following information on a Form 8933 filed with that taxpayer's Federal income tax return or Form 1065 for the taxable year for which the recapture event occurred—
(A) The recapture amount (as defined in § 1.45Q-5(e));
(B) The leaked amount of qualified carbon oxide (in metric tons) (as defined in § 1.45Q-5(c));
(C) The statutory credit rate(s) at which the section 45Q credits were previously calculated; and
(D) A statement that describes how the taxpayer became aware of the recapture event, how the leaked amount was determined, and the identity and involvement of any regulatory agencies.
(6) Examples. The following examples illustrate the principles of this paragraph (g):
(i) Example 1. (A) A owns direct air capture Facility X. No other taxpayer has owned Facility X, and A has never allowed another taxpayer to claim any section 45Q credits with respect to qualified carbon oxide captured by Facility X. Facility X captured 100,000 metric tons of carbon dioxide in each of 2021, 2022, and 2023. All captured carbon dioxide was sold to B for use a tertiary injectant in a qualified enhanced oil recovery project. B provided contractual assurance that the carbon dioxide would be disposed of in secure geological storage. A claimed section 45Q credit amounts of $2,268,000 in 2021, $2,515,000 in 2022, and $2,761,000 in 2023 using the statutory rates in § 1.45Q-1(d)(3). In 2024, A captured and sold another 100,000 metric tons of carbon dioxide to B, which B used as a tertiary injectant in a qualified enhanced oil recovery project. In late 2024, B determined that 10,000 metric tons of qualified carbon dioxide injected during 2021 had leaked from the containment area of the reservoir and were released into the atmosphere.
(B) Because the leakage determined in 2024 (10,000 metric tons) did not exceed the presumed amount stored in 2024 (100,000 metric tons), a recapture event did not occur in 2024. B's actual storage in 2024 is 90,000 metric tons of qualified carbon oxide. A's section 45Q credit for 2024 is $2,706,300 (net 90,000 metric tons of qualified carbon oxide captured, disposed of in secure geological storage, and used as a tertiary injectant multiplied by the statutory credit rate for 2024 of $30.07).
(ii) Example 2. (A) Assume same facts as in Example 1. Additionally, in 2025, B determines that 190,000 metric tons of qualified carbon dioxide injected in 2021 and 2022 had leaked and were released into the atmosphere. No injection of carbon dioxide takes place in 2025.
(B) Because the leakage determined in 2025 (190,000 metric tons) exceeds the amount stored in 2025 (0 metric tons), a recapture event occurred in 2025. A's credit for 2025 is $0 because the net amount of carbon dioxide captured, disposed of in secure geological storage, and used as a tertiary injectant in 2025 was 0 metric tons. The 2025 recapture amount is calculated by multiplying the 190,000 metric tons of recaptured qualified carbon oxide by the appropriate statutory credit rate using the LIFO method. The first 90,000 metric tons of recaptured qualified carbon oxide is deemed attributable to 2024, and is recaptured at the 2024 statutory rate of $30.07 per metric ton. The remaining 100,000 metric tons of recaptured qualified carbon oxide are deemed attributable to 2023. The credits attributable to 2023 are recaptured at the 2023 statutory rate of $27.61 per metric ton. Thus, the total recapture amount is $5,467,300, and is added to A's tax due for 2025.
(iii) Example 3. (A) Assume the same facts as in Example 2, except that A sells Facility X to C on January 1, 2024. C sells 100,000 metric tons of carbon dioxide captured by Facility X to B for use as a tertiary injectant in a qualified enhanced oil recovery project. C claims a section 45Q credit in 2024 of $2,706,300 (net 90,000 metric tons of qualified carbon oxide captured, disposed of in secure geological storage, and used as a tertiary injectant multiplied by the statutory credit rate for 2024 of $30.07).
(B) The total recapture amount in 2025 is the same $5,467,300 as in Example 2, but is allocated between A and C. The first 90,000 metric tons of recaptured qualified carbon oxide are deemed attributable to 2024. The credits that are attributable to 2024 are recaptured at the 2024 statutory rate of $30.07 per ton (for a recapture amount of $2,706,300). Because C claimed that amount of section 45Q credit in 2024, a recapture amount of $2,706,300 is added to C's tax due for 2025. The remaining 100,000 metric tons of recaptured qualified carbon oxide are deemed attributable to 2023. The credits that are attributable to 2023 are recaptured at the 2023 statutory rate of $27.61 per ton (for a recapture amount of $2,761,000). Because A claimed that amount of section 45Q credit in 2023, a recapture amount of $2,761,000 is added to A's tax due for 2025.
(iv) Example 4. (A) Assume the same facts as in Example 2, except that in 2023, A made a section 45Q(f)(3)(B) election to allow B to claim one-half of the section 45Q credit for 2023. A and B each claimed $1,380,500 of section 45Q credit in 2023 (50,000 metric tons each multiplied by the 2023 statutory rate of $27.61).
(B) The total recapture amount in 2025 is the same $5,467,300 as in Example 2, but is allocated among A and B. The first 90,000 metric tons of recaptured qualified carbon oxide is deemed attributable to 2024. The section 45Q credit amounts attributable to 2024 are recaptured at the 2024 statutory rate of $30.07 per ton (for a recapture amount of $2,706,300). Because A claimed that amount of section 45Q credit in 2024, $2,706,300 is added to A's tax due for 2025. The remaining 100,000 metric tons of recaptured qualified carbon oxide is deemed attributable to 2023. The section 45Q credit amounts attributable to 2023 are recaptured at the 2023 statutory rate of $27.61 per ton (for a recapture amount of $2,761,000). Because A and B each claimed half of that amount ($1,380,500) of section 45Q credit in 2023, $1,380,500 is added to both A's and B's tax due for 2025. Thus, a recapture amount of $4,086,800 is added to A's tax due for 2025, and a recapture amount of $1,380,500 is added to B's tax due for 2025.
(v) Example 5. (A) Assume the same facts as in Example 2, except that the 100,000 metric tons of carbon dioxide sold to B in 2021, 2022, 2023, and 2024 for use as a tertiary injectant in a qualified enhanced oil recovery project were captured equally (50,000 metric tons per year) from qualified facilities owned by J and K. Neither J nor K made a section 45Q(f)(3)(B) election to allow B to claim the credit.
(B) Because the leakage determined in 2024 (10,000 metric tons) did not exceed the presumed amount stored in 2024 (100,000 metric tons) a recapture event did not occur in 2024. The total amount of section 45Q credit for 2024 is $2,706,300 (net 90,000 metric tons of qualified carbon oxide captured, disposed of in secure geological storage, and used as a tertiary injectant multiplied by the statutory credit rate for 2024 of $30.07). J and K may each claim half of this amount of section 45Q credit ($1,353,150) in 2024.
(C) The total recapture amount in 2025 is the same $5,467,300 as in Example 2, but is allocated between J and K. The section 45Q credit amounts relating to the first 90,000 metric tons of recaptured qualified carbon oxide are deemed attributable to 2024 and are recaptured at the 2024 statutory rate of $30.07 per ton (for a recapture amount of $2,706,300). Because J and K each claimed half of that amount ($1,353,150) of section 45Q credit in 2024, $1,353,150 is added to both J's and K's tax due for 2025. The section 45Q credit amounts relating to the remaining 100,000 metric tons of recaptured qualified carbon oxide are deemed attributable to 2023 and are recaptured at the 2023 statutory rate of $27.61 per ton (for a recapture amount of $2,761,000). Because J and K each claimed half of that amount ($1,380,500) of section 45Q credit in 2023, an additional $1,380,500 is added to both J's and Ks tax due for 2025. Thus, a total recapture amount of $2,733,650 is added to both J's and K's tax due for 2025.
(vi) Example 6. (A) M owns Industrial Facility Z. No other taxpayer has ever owned Z, and M has never allowed another taxpayer to claim any section 45Q credits with respect to qualified carbon oxide captured from Z. M captured 1,000,000 metric tons of carbon dioxide annually in each of 2017, 2018, 2019, 2020, 2021, 2022, 2023, 2024, and 2025. All captured carbon dioxide was sold to N for use a tertiary injectant in a qualified enhanced oil recovery project. N provided contractual assurance that the carbon dioxide would be sequestered in secure geological storage. M claimed section 45Q credit amounts of $12,830,000 in 2017, $15,209,000 in 2018, $17,760,000 in 2019, $20,220,000 in 2020, $22,680,000 in 2021, $25,150,000 in 2022, $27,610,000 in 2023, $30,070,000 in 2024, and $32,540,000 in 2025 using the statutory rates in § 1.45Q-1(d)(3). No injection of carbon oxides takes place in 2026. In 2026, N determined that 6,200,000 metric tons of qualified carbon dioxide previously injected had leaked from the containment area of the reservoir and were released into the atmosphere.
(B) Because the leakage determined in 2025 (6,200,000 metric tons) exceed the amount stored in 2026 (0 metric tons) a recapture event occurred in 2026. A's credit for 2026 is $0 because the net amount of carbon dioxide captured and used as a tertiary injectant in 2026 was 0 metric tons. The 2026 recapture amount is calculated by multiplying the 6,200,000 metric tons of recaptured qualified carbon oxide by the appropriate statutory credit rate using the LIFO method. The first 1,000,000 metric tons of recaptured qualified carbon oxide is deemed attributable to 2025, and is recaptured at the 2025 statutory rate of $32.54 per metric ton. The next 1,000,000 metric tons of recaptured qualified carbon oxide is deemed attributable to 2024, and is recaptured at the 2024 statutory rate of $30.07 per metric ton. The next 1,000,000 metric tons of recaptured qualified carbon oxide is deemed attributable to 2023, and is recaptured at the 2023 statutory rate of $27.16 per metric ton. The remaining 3,200,000 metric tons are not subject to recapture because of the three-year lookback limit in § 1.45Q-1(g)(2). Thus, the total recapture amount is $89,770,000, and is added to A's tax due for 2026.
(h) Recapture in the event of deliberate removal from storage —(1) In general. If qualified carbon oxide for which a credit has been claimed is deliberately removed from a secure geological storage site, then a recapture event would occur in the year in which the qualified carbon oxide is removed from the storage site pursuant to § 1.45Q-5(a).
(2) Recycled qualified carbon oxide. If qualified carbon oxide for which a credit has been claimed is recaptured, recycled, and reinjected as part of the enhanced oil and natural gas recovery project, that qualified carbon oxide will be considered recycled carbon oxide under section 45Q(c)(2). If recycled carbon oxide is reinjected into the same qualified enhanced oil or natural gas recovery project it was originally injected into, it will not be considered deliberately removed from a secure geological storage site for purposes of paragraph (h)(1) of this section. If recycled carbon oxide is reinjected into a different qualified enhanced oil or natural gas recovery project from the one it was initially injected into, or used for any other purpose, that qualified carbon oxide will be considered deliberately removed from a secure geological storage site for purposes of paragraph (h)(1) of this section.
(i) Limited exceptions. A recapture event is not triggered in the event of a loss of containment of qualified carbon oxide resulting from actions not related to the selection, operation, or maintenance of the storage facility, such as volcanic activity or terrorist attack.
(j) Applicability date. This section applies to taxable years beginning on or after January 13, 2021. Taxpayers may choose to apply this section for taxable years beginning on or after January 1, 2018, provided the taxpayer applies this section and §§ 1.45Q-1, 1.45Q-2, 1.45Q-3, and 1.45Q-4 in their entirety and in a consistent manner.
§ 1.45Q-6   Rules relating to the increased credit amount for prevailing wage and apprenticeship.
(a) In general. If the requirements in paragraph (b) of this section are satisfied with respect to any qualified facility or any carbon capture equipment placed in service at that facility, then the credit determined under section 45Q(a) is multiplied by five.
(b) Qualified facility and carbon capture equipment requirements. The requirements of this paragraph (b) are satisfied if any of the following requirements are met—
(1) With respect to a qualified facility within the meaning of section 45Q the construction of which begins on or after January 29, 2023, and any carbon capture equipment within the meaning of section 45Q placed in service at such facility, the taxpayer meets the prevailing wage requirements of section 45(b)(7) and § 1.45-7 with respect to the construction of such facility and equipment and with respect to the alteration or repair of such facility and equipment for any taxable year, for any portion of such taxable year that is within the period described in section 45Q(3)(A) or (4)(A) after the facility or equipment was originally placed in service, the apprenticeship requirements of section 45(b)(8) and § 1.45-8, and the recordkeeping and reporting requirements of § 1.45-12;
(2) With respect to any carbon capture equipment within the meaning of section 45Q the construction of which begins on or after January 29, 2023, and that is installed at a qualified facility the construction of which began prior to January 29, 2023, the taxpayer meets the prevailing wage requirements of section 45(b)(7) and § 1.45-7 with respect to the construction of such equipment and with respect to the alteration or repair of such equipment for any taxable year, for any portion of such taxable year that is within the period described in section 45Q(3)(A) or (4)(A) after the equipment was originally placed in service, the apprenticeship requirements of section 45(b)(8) and § 1.45-8, and the recordkeeping and reporting requirements of § 1.45-12; or
(3) Carbon capture equipment within the meaning of section 45Q the construction of which began prior to January 29, 2023, and such equipment is installed at a qualified facility the construction of which began prior to January 29, 2023.
(c) Applicability date. This section applies to qualified facilities and carbon capture equipment placed in service in taxable years ending after June 25, 2024, and the construction of which begins after June 25, 2024. Taxpayers may apply this section to qualified facilities and carbon capture equipment placed in service in taxable years ending on or before June 25, 2024, and qualified facilities and carbon capture equipment placed in service in taxable years ending after June 25, 2024, the construction of which begins before June 25, 2024, provided that taxpayers follow this section in its entirety and in a consistent manner.
§ 1.45R-0   Table of contents.
This section lists the table of contents for §§ 1.45R-1 through 1.45R-5.
(a) Definitions.
(1) Average premium.
(2) Composite billing.
(3) Credit period.
(4) Eligible small employer.
(5) Employee.
(6) Employer-computed composite rate.
(7) Exchange.
(8) Family member.
(9) Full-time equivalent employee (FTE).
(10) List billing.
(11) Net premium payments.
(12) Nonelective contribution.
(13) Payroll taxes.
(14) Qualified health plan QHP.
(15) Qualifying arrangement.
(16) Seasonal worker.
(17) SHOP dependent coverage.
(18) Small Business Health Options Program (SHOP).
(19) State.
(20) Tax-exempt eligible small employer.
(21) Tier.
(22) Tobacco surcharge.
(23) United States.
(24) Wages.
(25) Wellness program.
(b) Effective/applicability date.
(a) Eligible small employer.
(b) Application of section 414 employer aggregation rules.
(c) Employees taken into account.
(d) Determining the hours of service performed by employees.
(1) In general.
(2) Permissible methods.
(3) Examples.
(e) FTE calculation.
(1) In general.
(2) Example.
(f) Determining the employer's average annual wages.
(1) In general.
(2) Example.
(g) Effective/applicability date.
(a) In general.
(b) Average premium limitation.
(1) In general.
(2) Examples.
(c) Credit phaseout.
(1) In general.
(2) $25,000 dollar amount adjusted for inflation.
(3) Examples
(d) State credits and subsidies for health insurance.
(1) Payments to employer.
(2) Payments to issuer.
(3) Credits may not exceed net premium payment.
(4) Examples.
(e) Payroll tax limitation for tax-exempt eligible small employers.
(1) In general.
(2) Example.
(f) Two-consecutive-taxable year credit period limitation.
(g) Premium payments by the employer for a taxable year.
(1) In general.
(2) Excluded amounts.
(h) Rules applicable to trusts, estates, regulated investment companies, real estate investment trusts and cooperative organizations.
(i) Transition rule for 2014.
(1) In general.
(2) Example.
(j) Effective/applicability date.
(a) In general.
(b) Employers offering one QHP.
(1) Employers offering one QHP, self-only coverage, composite billing.
(2) Employers offering one QHP, other tiers of coverage, composite billing.
(3) Employers offering one QHP, self-only coverage, list billing.
(4) Employers offering one QHP, other tiers of coverage, list billing.
(5) Employers offering SHOP dependent coverage.
(c) Employers offering more than one QHP.
(1) QHP-by-QHP method.
(2) Reference QHP method.
(d) Tobacco surcharges and wellness program discounts.
(i) Tobacco surcharges.
(ii) Wellness programs.
(e) Special rules regarding employer compliance with applicable State and local law.
(f) Examples.
(g) Effective/applicability date.
(a) Claiming the credit.
(b) Estimated tax payments and alternative minimum tax (AMT) liability.
(c) Reduction of section 162 deduction.
(d) Effective/applicability date.
§ 1.45R-1   Definitions.
(a) Definitions. The definitions in this section apply to this section and §§ 1.45R-2, 1.45R-3, 1.45R-4, and 1.45R-5.
(1) Average premium. The term average premium means an average premium for the small group market in the rating area in which the employee enrolls for coverage. The average premium for the small group market in a rating area is determined by the Secretary of Health and Human Services.
(2) Composite billing. The term composite billing means a system of billing under which a health insurer charges a uniform premium for each of the employer's employees or charges a single aggregate premium for the group of covered employees that the employer then divides by the number of covered employees to determine the uniform premium.
(3) Credit period —(i) In general. The term credit period means, with respect to any eligible small employer (or any predecessor employer), the two-consecutive-taxable-year period beginning with the first taxable year beginning after 2013, for which the eligible small employer files an income tax return with an attached Form 8941, “Credit for Small Employer Health Insurance Premiums” (or files a Form 990-T, “Exempt Organization Business Income Tax Return,” with an attached Form 8941 in the case of a tax-exempt eligible employer). For a transition rule for 2014, see § 1.45R-3(i).
(ii) Examples. The following examples illustrate the provisions of paragraph (a)(3)(i) of this section:
(ii) Conclusion. Employer's taxable year 2016 is the first year of the credit period. Accordingly, Employer's two-year credit period is 2016 and 2017.
(ii) Conclusion. Employer's taxable year 2015 is the first year of the credit period. Accordingly, Employer's two-year credit period is 2015 and 2016 (and does not include 2017). Employer is entitled to a credit based on a partial year of SHOP Exchange coverage for Employer's taxable year 2015.
(4) Eligible small employer. (i) The term eligible small employer means an employer that meets the requirements set forth in § 1.45R-2.
(ii) For the definition of tax-exempt eligible small employer, see paragraph (a)(19) of this section.
(iii) A farmers' cooperative described under section 521 that is subject to tax pursuant to section 1381, and otherwise meets the requirements of this paragraph (a)(4) and § 1.45R-2, is an eligible small employer.
(5) Employee —(i) In general. Except as otherwise specifically provided in this paragraph (a)(5), the term employee means an individual who is an employee of the eligible small employer under the common law standard. See § 31.3121(d)-1(c).
(ii) Leased employees. For purposes of this paragraph (a)(5), the term employee also includes a leased employee (as defined in section 414(n)).
(iii) Certain individuals excluded. The term employee does not include independent contractors (including sole proprietors), partners in a partnership, shareholders owning more than two percent of an S corporation, and any owners of more than five percent of other businesses. The term employee also does not include family members of these owners and partners, including the employee-spouse of a shareholder owning more than two percent of the stock of an S corporation, the employee-spouse of an owner of more than five percent of a business, the employee-spouse of a partner owning more than a five percent interest in a partnership, and the employee-spouse of a sole proprietor, or any other member of the household of these owners and partners who qualifies as a dependent under section 152(d)(2)(H).
(iv) Seasonal workers. The term employee does not include seasonal workers unless the seasonal worker provides services to the employer on more than 120 days during the taxable year.
(v) Ministers. Whether a minister is an employee is determined under the common law standard for determining worker status. If, under the common law standard, a minister is not an employee, the minister is not an employee for purposes of this paragraph (a)(5) and is not taken into account in determining an employer's FTEs, and premiums paid for the minister's health insurance coverage are not taken into account in computing the credit. If, under the common law standard, a minister is an employee, the minister is an employee for purposes of this paragraph (a)(5), and is taken into account in determining an employer's FTEs, and premiums paid by the employer for the minister's health insurance coverage can be taken into account in computing the credit. Because the performance of services by a minister in the exercise of his or her ministry is not treated as employment for purposes of the Federal Insurance Contributions Act (FICA), compensation paid to the minister is not wages as defined under section 3121(a), and is not counted as wages for purposes of computing an employer's average annual wages.
(vi) Former employees. Premiums paid on behalf of a former employee with no hours of service may be treated as paid on behalf of an employee for purposes of calculating the credit (see § 1.45R-3) provided that, if so treated, the former employee is also treated as an employee for purposes of the uniform percentage requirement (see § 1.45R-4). For the treatment of terminated employees for purposes of determining employer eligibility for the credit, see § 1.45R-2(c).
(6) Employer-computed composite rate. The term employer-computed composite rate refers to a rate for a tier of coverage (such as employee-only, dependent or family) of a QHP that is the average rate determined by adding the premiums for that tier of coverage for all employees eligible to participate in the QHP (whether or not they actually receive coverage under the plan or under that tier of coverage) and dividing by the total number of such eligible employees. The employer-computed composite rate may be used in list billing to convert individual premiums for a tier of coverage into an employer-computed composite rate for that tier of coverage. See § 1.45R-4(b)(3).
(7) Exchange. The term Exchange means an exchange as defined in 45 CFR 155.20.
(8) Family member. The term family member is defined with respect to a taxpayer as a child (or descendant of a child); a sibling or step-sibling; a parent (or ancestor of a parent); a step-parent; a niece or nephew; an aunt or uncle; or a son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law or sister-in-law. A spouse of any of these family members is also considered a family member.
(9) Full-time equivalent employee (FTE). The number of full-time equivalent employees (FTEs) is determined by dividing the total number of hours of service for which wages were paid by the employer to employees during the taxable year by 2,080. See § 1.45R-2(d) and (e) for permissible methods of calculating hours of service and the method for calculating the number of an employer's FTEs.
(10) List billing. The term list billing refers to a system of billing under which a health insurer lists a separate premium for each employee based on the age of the employee or other factors.
(11) Net premium payments. The term net premium payments means, in the case of an employer receiving a State tax credit or State subsidy for providing health insurance to its employees, the excess of the employer's actual premium payments over the State tax credit or State subsidy received by the employer. In the case of a State payment directly to an insurance company (or another entity licensed under State law to engage in the business of insurance), the employer's net premium payments are the employer's actual premium payments. If a State-administered program (such as Medicaid or another program that makes payments directly to a health care provider or insurance company on behalf of individuals and their families who meet certain eligibility guidelines) makes payments that are not contingent on the maintenance of an employer-provided group health plan, those payments are not taken into account in determining the employer's net premium payments.
(12) Nonelective contribution. The term nonelective contribution means an employer contribution other than a contribution pursuant to a salary reduction arrangement under section 125.
(13) Payroll taxes. For purposes of section 45R, the term payroll taxes means amounts required to be withheld as tax from the employees of a tax-exempt eligible small employer under section 3402, amounts required to be withheld from such employees under section 3101(b), and amounts of tax imposed on the tax-exempt eligible small employer under section 3111(b).
(14) Qualified health plan or QHP. The term qualified health plan or the term QHP means a qualified health plan as defined in Affordable Care Act section 1301(a) (see 42 U.S.C. 18021(a)), but does not include a catastrophic plan described in Affordable Care Act section 1302(e) (see 42 U.S.C. 18022(e)).
(15) Qualifying arrangement. The term qualifying arrangement means an arrangement that requires an eligible small employer to make a nonelective contribution on behalf of each employee who enrolls in a QHP offered to employees by the employer through a SHOP Exchange in an amount equal to a uniform percentage (not less than 50 percent) of the premium cost of the QHP.
(16) Seasonal worker. The term seasonal worker means a worker who performs labor or services on a seasonal basis as defined by the Secretary of Labor, including (but not limited to) workers covered by 29 CFR 500.20(s)(1), and retail workers employed exclusively during holiday seasons. Employers may apply a reasonable, good faith interpretation of the term seasonal worker and a reasonable good faith interpretation of 29 CFR 500.20(s)(1) (including as applied by analogy to workers and employment positions not otherwise covered under 29 CFR 500.20(s)(1)).
(17) SHOP dependent coverage. The term SHOP dependent coverage refers to coverage offered through SHOP separately to any individual who is or may become eligible for coverage under the terms of a group health plan offered through SHOP because of a relationship to a participant-employee, whether or not a dependent of the participant-employee under section 152 of the Internal Revenue Code. The term SHOP dependent coverage does not include coverage such as family coverage, which includes coverage of the participant-employee.
(18) Small Business Health Options Program (SHOP). The term Small Business Health Options Program (SHOP) means an Exchange established pursuant to section 1311 of the Affordable Care Act and defined in 45 CFR 155.20.
(19) State. The term State means a State as defined in section 7701(a)(10), including the District of Columbia.
(20) Tax-exempt eligible small employer. The term tax-exempt eligible small employer means an eligible small employer that is exempt from federal income tax under section 501(a) as an organization described in section 501(c).
(21) Tier. The term tier refers to a category of coverage under a benefits package that varies only by the number of individuals covered. For example, employee-only coverage, dependent coverage, and family coverage would constitute three separate tiers of coverage.
(22) Tobacco surcharge. The term tobacco surcharge means any allowable differential that is charged for insurance in the SHOP Exchange that is attributable to tobacco use as the term tobacco use is defined in 45 CFR 147.102(a)(1)(iv).
(23) United States. The term United States means United States as defined in section 7701(a)(9).
(24) Wages. The term wages for purposes of section 45R means wages as defined under section 3121(a) for purposes of the Federal Insurance Contributions Act (FICA), determined without regard to the social security wage base limitation under section 3121(a)(1).
(25) Wellness program. The term wellness program for purposes of section 45R means a program of health promotion or disease prevention subject to the requirements of § 54.9802-1(f).
(b) Effective/applicability date. This section is applicable for periods after 2013. For rules relating to certain plan years beginning in 2014, see § 1.45R-3(i).
§ 1.45R-2   Eligibility for the credit.
(a) Eligible small employer. To be eligible for the credit under section 45R, an employer must be an eligible small employer. In order to be an eligible small employer, with respect to any taxable year, an employer must have no more than 25 full-time equivalent employees (FTEs), must have in effect a qualifying arrangement, and the average annual wages of the employer's FTEs must not exceed an amount equal to twice the dollar amount in effect under § 1.45R-3(c)(2). For purposes of eligibility for the credit for taxable years beginning in or after 2014, a qualifying arrangement is an arrangement that requires an employer to make a nonelective contribution on behalf of each employee who enrolls in a qualified health plan (QHP) offered to employees through a small business health options program (SHOP) Exchange in an amount equal to a uniform percentage (not less than 50 percent) of the premium cost of the QHP. Notwithstanding the foregoing, an employer that is an agency or instrumentality of the federal government, or of a State, local or Indian tribal government, is not an eligible small employer if it is not an organization described in section 501(c) that is exempt from tax under section 501(a). An employer does not fail to be an eligible small employer merely because its employees are not performing services in a trade or business of the employer. An employer located outside the United States (including an employer located in a U.S. territory) must have income effectively connected with the conduct of a trade or business in the United States, and otherwise meet the requirements of this section, to be an eligible small employer. For eligibility standards for SHOP related to foreign employers, see 45 CFR 155.710. Paragraphs (b) through (f) of this section provide the rules for determining whether the requirements to be an eligible small employer are met, including rules related to identifying and counting the number of the employer's FTEs, counting the employees' hours of service, and determining the employer's average annual FTE wages for the taxable year. For rules on determining whether the uniform percentage requirement is met, see § 1.45R-4.
(b) Application of section 414 employer aggregation rules. All employers treated as a single employer under section 414(b), (c), (m) or (o) are treated as a single employer for purposes of this section. Thus, all employees of a controlled group under section 414(b), (c) or (o), or an affiliated service group under section 414(m), are taken into account in determining whether any member of the controlled group or affiliated service group is an eligible small employer. Similarly, all wages paid to, and premiums paid for, employees by the members of the controlled group or affiliated service group are taken into account when determining the amount of the credit for a group treated as a single employer under these rules.
(c) Employees taken into account. To be eligible for the credit, an employer must have employees as defined in § 1.45R-1(a)(5) during the taxable year. All such employees of the eligible small employer are taken into account for purposes of determining the employer's FTEs and average annual FTE wages. Employees include employees who terminate employment during the year for which the credit is being claimed, employees covered under a collective bargaining agreement, and employees who do not enroll in a QHP offered by the employer through a SHOP Exchange.
(d) Determining the hours of service performed by employees —(1) In general. An employee's hours of service for a year include each hour for which an employee is paid, or entitled to payment, for the performance of duties for the employer during the employer's taxable year. It also includes each hour for which an employee is paid, or entitled to payment, by the employer on account of a period of time during which no duties are performed due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence (except that no more than 160 hours of service are required to be counted for an employee on account of any single continuous period during which the employee performs no duties).
(2) Permissible methods. In calculating the total number of hours of service that must be taken into account for an employee during the taxable year, eligible small employers need not use the same method for all employees, and may apply different methods for different classifications of employees if the classifications are reasonable and consistently applied. Eligible small employers may change the method for calculating employees' hours of service for each taxable year. An eligible small employer may use any of the following three methods.
(i) Actual hours worked. An employer may use the actual hours of service provided by employees including hours worked and any other hours for which payment is made or due (as described in paragraph (d)(1) of this section).
(ii) Days-worked equivalency. An employer may use a days-worked equivalency whereby the employee is credited with 8 hours of service for each day for which the employee would be required to be credited with at least one hour of service under paragraph (d)(1) of this section.
(iii) Weeks-worked equivalency. An employer may use a weeks-worked equivalency whereby the employee is credited with 40 hours of service for each week for which the employee would be required to be credited with at least one hour of service under paragraph (d)(1) of this section.
(3) Examples. The following examples illustrate the rules of paragraph (d) of this section:
(ii) Conclusion. Under this method of counting hours, Employee A must be credited with 2,080 hours of service (2,000 hours worked and 80 hours for which payment was made or due).
(ii) Conclusion. Under this method of counting hours, Employee B must be credited with 1,600 hours of service (8 hours for each day Employee B would otherwise be credited with at least 1 hour of service × 200 days).
(ii) Conclusion. Under this method of counting hours, Employee C must be credited with 2,040 hours of service (40 hours for each week during which Employee C would otherwise be credited with at least 1 hour of service × 51 weeks).
(ii) Conclusion. Employee D is a seasonal employee who worked for 120 days or less for Employer during the year. Employee D's hours are not counted when determining the hours of service of Employer's employees. Employee E works throughout most of the year and is not a seasonal employee. Employer counts Employee E's 350 hours of service during the year.
(e) FTE Calculation —(1) In general. The number of an employer's FTEs is determined by dividing the total hours of service, determined in accordance with paragraph (d) of this section, credited during the year to employees taken into account under paragraph (c) of this section (but not more than 2,080 hours for any employee) by 2,080. The result, if not a whole number, is then rounded to the next lowest whole number. If, however, after dividing the total hours of service by 2,080, the resulting number is less than one, the employer rounds up to one FTE.
(2) Example. The following example illustrates the provisions of paragraph (e) of this section:
(ii) Conclusion. The sole proprietor's FTEs equal 6 (13,520 divided by 2,080 = 6.5, rounded to the next lowest whole number).
(f) Determining the employer's average annual FTE wages —(1) In general. All wages paid to employees (including overtime pay) are taken into account in computing an eligible small employer's average annual FTE wages. The average annual wages paid by an employer for a taxable year is determined by dividing the total wages paid by the eligible small employer during the employer's taxable year to employees taken into account under paragraph (c) of this section by the number of the employer's FTEs for the year. The result is then rounded down to the nearest $1,000 (if not otherwise a multiple of $1,000). For purposes of determining the employer's average annual wages for the taxable year, only wages that are paid for hours of service determined under paragraph (d) of this section are taken into account.
(2) Example. The following example illustrates the provision of paragraphs (e) and (f) of this section:
(ii) Conclusion. The hours of service and wages of all employees are taken into consideration in determining whether the employer is an eligible small employer for purposes of the credit. Because the employer does not have fewer than 25 FTEs for the taxable year, the employer is not an eligible small employer for purposes of this section, even if fewer than 25 employees (or FTEs) enroll for coverage through the SHOP Exchange.
(g) Effective/applicability date. This section is applicable for periods after 2013. For transition rules relating to certain plan years beginning in 2014, see § 1.45R-3(i).
§ 1.45R-3   Calculating the credit.
(a) In general. The tax credit available to an eligible small employer equals 50 percent of the eligible small employer's premium payments made on behalf of its employees under a qualifying arrangement, or in the case of a tax-exempt eligible small employer, 35 percent of the employer's premium payments made on behalf of its employees under a qualifying arrangement. The employer's tax credit is subject to the following adjustments and limitations:
(1) The average premium limitation for the small group market in the rating area in which the employee enrolls for coverage, described in paragraph (b) of this section;
(2) The credit phaseout described in paragraph (c) of this section;
(3) The net premium payment limitation in the case of State credits or subsidies described in paragraph (d) of this section;
(4) The payroll tax limitation for a tax-exempt eligible small employer described in paragraph (e) of this section;
(5) The two-consecutive-taxable year-credit period limitation, described in paragraph (f) of this section;
(6) The rules with respect to the premium payments taken into account, described in paragraph (g) of this section;
(7) The rules with respect to credits applicable to trusts, estates, regulated investment companies, real estate investment trusts and cooperatives described in paragraph (h) of this section; and
(8) The transition relief for 2014 described in paragraph (i) of this section.
(b) Average premium limitation —(1) In general. The amount of an eligible small employer's premium payments that is taken into account in calculating the credit is limited to the premium payments the employer would have made under the same arrangement if the average premium for the small group market in the rating area in which the employee enrolls for coverage were substituted for the actual premium.
(2) Examples. The following examples illustrate the provisions of paragraph (b)(1) of this section:
(ii) Conclusion. The amount of premiums paid by Employer for purposes of computing the credit equals $19,500 ((6 × $2,000) plus (5 × $1,500)).
(ii) Conclusion. The amount of premiums paid by Employer for purposes of computing the credit equals $25,000 ((6 × $2,500) plus (5 × $2,000)).
(c) Credit phaseout —(1) In general. The tax credit is subject to a reduction (but not reduced below zero) if the employer's FTEs exceed 10 or average annual FTE wages exceed $25,000. If the number of FTEs exceeds 10, the reduction is determined by multiplying the otherwise applicable credit amount by a fraction, the numerator of which is the number of FTEs in excess of 10 and the denominator of which is 15. If average annual FTE wages exceed $25,000, the reduction is determined by multiplying the otherwise applicable credit amount by a fraction, the numerator of which is the amount by which average annual FTE wages exceed $25,000 and the denominator of which is $25,000. In both cases, the result of the calculation is subtracted from the otherwise applicable credit to determine the credit to which the employer is entitled. For an employer with both more than 10 FTEs and average annual FTE wages exceeding $25,000, the total reduction is the sum of the two reductions.
(2) $25,000 dollar amount adjusted for inflation. For taxable years beginning in a calendar year after 2013, each reference to “$25,000” in paragraph (c)(1) of this section is replaced with a dollar amount equal to $25,000 multiplied by the cost-of-living adjustment under section 1(f)(3) for the calendar year, determined by substituting “calendar year 2012” for “calendar year 1992” in section 1(f)(3)(B).
(3) Examples. The following examples illustrate the provisions of paragraph (c) this section. For purposes of these examples, no employer is a tax-exempt organization and no other adjustments or limitations on the credit apply other than those adjustments and limitations explicitly set forth in the example.
(ii) Conclusion. Employer's credit equals $36,000 (50% × $72,000).
(ii) Conclusion. The initial amount of the credit is determined before any reduction (50% × $96,000) = $48,000. The credit reduction for FTEs in excess of 10 is $6,400 ($48,000 × 2/15). The credit reduction for average annual FTE wages in excess of $25,000 is $9,600 ($48,000 × $5,000/$25,000), resulting in a total credit reduction of $16,000 ($6,400 + $9,600). Employer's total tax credit equals $32,000 ($48,000−$16,000).
(d) State credits and subsidies for health insurance —(1) Payments to employer. If the employer is entitled to a State tax credit or a premium subsidy that is paid directly to the employer, the premium payment made by the employer is not reduced by the credit or subsidy for purposes of determining whether the employer has satisfied the requirement to pay an amount equal to a uniform percentage (not less than 50 percent) of the premium cost. Also, except as described in paragraph (d)(3) of this section, the maximum amount of the credit is not reduced by reason of a State tax credit or subsidy or by reason of payments by a State directly to an employer.
(2) Payments to issuer. If a State makes payments directly to an insurance company (or another entity licensed under State law to engage in the business of insurance) to pay a portion of the premium for coverage of an employee enrolled for coverage through a SHOP Exchange, the State is treated as making these payments on behalf of the employer for purposes of determining whether the employer has satisfied the requirement to pay an amount equal to a uniform percentage (not less than 50 percent) of the premium cost of coverage. Also, except as described below in paragraph (d)(3) of this section, these premium payments by the State are treated as an employer contribution under this section for purposes of calculating the credit.
(3) Credits may not exceed net premium payment. Regardless of the application of paragraphs (d)(1) and (2) of this section, in no event may the amount of the credit exceed the amount of the employer's net premium payments as defined in § 1.45R-1(a)(11).
(4) Examples. The following examples illustrate the provisions of paragraphs (d)(1) through (3) of this section. For purposes of these examples, each employer is an eligible small employer that is not a tax-exempt organization and the eligible small employer's taxable year and plan year begin during or after 2014. No other adjustments or limitations on the credit apply other than those adjustments and limitations explicitly set forth in the example.
(ii) Conclusion. For purposes of calculating the credit, the amount of premiums paid by the employer is $80 per month (the premium payment by the Employer without regard to the subsidy from the State). The maximum credit is $40 ($80 × 50%).
(ii) Conclusion. For purposes of calculating the amount of the credit, the amount of premiums paid by Employer is $80 per month (the sum of Employer's payment and the State's payment). The maximum credit is $40 ($80 × 50%).
(ii) Conclusion. The maximum credit without adjustments or limitations is $35 ($70 × 50%). Employer's net premium payment is $20 (the amount actually paid by Employer excluding the State subsidy). Because the credit may not exceed Employer's net premium payment, the credit is $20 (the lesser of $35 or $20).
(e) Payroll tax limitation for tax-exempt eligible small employers —(1) In general. For a tax-exempt eligible employer, the amount of the credit claimed cannot exceed the total amount of payroll taxes (as defined in § 1.45R-1(a)(13)) of the employer during the calendar year in which the taxable year begins.
(2) Example. The following example illustrates the provisions of paragraph (e)(1) of this section. For purposes of this example, the eligible small employer's taxable year and plan year begin during or after 2014. No other adjustments or limitations on the credit apply other than those adjustments and limitations explicitly set forth in the example.
(ii) Conclusion. The initial amount of the credit is determined before any reduction: (35% × $80,000) = $28,000, and Employer's payroll taxes are $30,000. The total tax credit equals $28,000 (the lesser of $28,000 and $30,000).
(f) Two-consecutive-taxable-year credit period limitation. The credit is available to an eligible small employer, including a tax-exempt eligible small employer, only during that employer's credit period. For a transition rule for 2014, see paragraph (i) of this section. To prevent the avoidance of the two-year limit on the credit period through the use of successor entities, a successor entity and a predecessor entity are treated as the same employer. For this purpose, the rules for identifying successor entities under § 31.3121(a)(1)-1(b) apply. Accordingly, for example, if an eligible small employer claims the credit for the 2014 and 2015 taxable years, that eligible small employer's credit period will have expired so that any successor employer to that eligible small employer will not be able to claim the credit for any subsequent taxable years.
(g) Premium payments by the employer for a taxable year —(1) In general. Only premiums paid by an eligible small employer or tax-exempt eligible small employer on behalf of each employee enrolled in a QHP or payments paid to the issuer in accordance with paragraph (d)(2) of this section are counted in calculating the credit. If an eligible small employer pays only a portion of the premiums for the coverage provided to employees (with employees paying the rest), only the portion paid by the employer is taken into account. Premiums paid on behalf of seasonal workers may be counted in determining the amount of the credit (even though seasonal worker wages and hours of service are not included in the FTE calculation and average annual FTE wage calculation unless the seasonal worker works for the employer on more than 120 days during the taxable year). Subject to the average premium limitation, premiums paid on behalf of an employee with respect to any individuals who are or may become eligible for coverage under the terms of the plan because of a relationship to the employee (including through family coverage or SHOP dependent coverage) may also be taken into account in determining the amount of the credit. (However, premiums paid for SHOP dependent coverage are not taken into account in determining whether the uniform percentage requirement is met, see § 1.45R-4(b)(5).)
(2) Excluded amounts —(i) Salary reduction amounts. Any premium paid pursuant to a salary reduction arrangement under a section 125 cafeteria plan is not treated as paid by the employer for purposes of section 45R and these regulations. For this purpose, premiums paid with employer-provided flex credits that employees may elect to receive as cash or other taxable benefits are treated as paid pursuant to a salary reduction arrangement under a section 125 cafeteria plan.
(ii) HSAs, HRAs, and FSAs. Employer contributions to, or amounts made available under, health savings accounts, reimbursement arrangements, and health flexible spending arrangements are not taken into account in determining the premium payments by the employer for a taxable year.
(h) Rules applicable to trusts, estates, regulated investment companies, real estate investment trusts and cooperative organizations. Rules similar to the rules of section 52(d) and (e) and the regulations thereunder apply in calculating and apportioning the credit with respect to a trust, estate, a regulated investment company or real estate investment trusts or cooperative organization.
(i) Transition rule for 2014 —(1) In general. This paragraph (i) applies if as of August 26, 2013, an eligible small employer offers coverage for a health plan year that begins on a date other than the first day of its taxable year. In such a case, if the eligible small employer has a health plan year beginning after January 1, 2014 but before January 1, 2015 (2014 health plan year) that begins after the start of its first taxable year beginning on or after January 1, 2014 (2014 taxable year), and the employer offers one or more QHPs to its employees through a SHOP Exchange as of the first day of its 2014 health plan year, then the eligible small employer is treated as offering coverage through a SHOP Exchange for its entire 2014 taxable year for purposes of section 45R if the health care coverage provided from the first day of the 2014 taxable year through the day immediately preceding the first day of the 2014 health plan year would have qualified for a credit under section 45R using the rules applicable to taxable years beginning before January 1, 2014. If the eligible small employer claims the section 45R credit in the 2014 taxable year, the 2014 taxable year begins the first year of the credit period.
(2) Example. The following example illustrates the rule of this paragraph (i) of this section. For purposes of this example, it is assumed that the eligible small employer is not a tax-exempt organization and that no other adjustments or limitations on the credit apply other than those adjustments and limitations explicitly set forth in the example.
(ii) Conclusion. Employer may claim the credit at the 50% rate under section 45R for the entire 2014 taxable year using the rules under this paragraph (i) of this section. Accordingly, in calculating the credit, Employer may count premiums paid for the coverage from January 1, 2014 through June 30, 2014, as well as premiums paid for the coverage from July 1, 2014 through December 31, 2014. If Employer claims the credit for the 2014 taxable year, that taxable year is the first year of the credit period.
(j) Effective/applicability date. This section is applicable for periods after 2013. For transition rules relating to certain plan years beginning in 2014, see paragraph (i) of this section.
§ 1.45R-4   Uniform percentage of premium paid.
(a) In general. An eligible small employer must pay a uniform percentage (not less than 50 percent) of the premium for each employee enrolled in a qualified health plan (QHP) offered to employees by the employer through a small business health options program (SHOP) Exchange.
(b) Employers offering one QHP. An employer that offers a single QHP through a SHOP Exchange must satisfy the requirements of this paragraph (b).
(1) Employers offering one QHP, employee-only coverage, composite billing. For an eligible small employer offering employee-only coverage and using composite billing, the employer satisfies the requirements of this paragraph if it pays the same amount toward the premium for each employee receiving employee-only coverage under the QHP, and that amount is equal to at least 50 percent of the premium for employee-only coverage.
(2) Employers offering one QHP, other tiers of coverage, composite billing. For an eligible small employer offering one QHP providing at least one tier of coverage with a higher premium than employee-only coverage and using composite billing, the employer satisfies the requirements of this paragraph (b)(2) if it either—
(i) Pays an amount for each employee enrolled in that more expensive tier of coverage that is the same for all employees and that is no less than the amount that the employer would have contributed toward employee-only coverage for that employee, or
(ii) Meets the requirements of paragraph (b)(1) of this section for each tier of coverage that if offers.
(3) Employers offering one QHP, employee-only coverage, list billing. For an eligible small employer offering one QHP providing only employee-only coverage and using list billing, the employer satisfies the requirements of this paragraph (b)(3) if either—
(i) The employer pays toward the premium an amount equal to a uniform percentage (not less than 50 percent) of the premium charged for each employee, or
(ii) The employer converts the individual premiums for employee-only coverage into an employer-computed composite rate for self-only coverage, and, if an employee contribution is required, each employee who receives coverage under the QHP pays a uniform amount toward the employee-only premium that is no more than 50 percent of the employer-computed composite rate for employee-only coverage.
(4) Employers offering one QHP, other tiers of coverage, list billing. For an eligible small employer offering one QHP providing at least one tier of coverage with a higher premium than employee-only coverage and using list billing, the employer satisfies the requirements of this paragraph (b)(4) if it either—
(i) Pays toward the premium for each employee covered under each tier of coverage an amount equal to or exceeding the amount that the employer would have contributed with respect to that employee for employee-only coverage, calculated either based upon the actual premium that would have been charged by the insurer for that employee for employee-only coverage or based upon the employer-computed composite rate for employee-only coverage, or
(ii) Meets the requirements of paragraph (b)(3) of this section for each tier of coverage that it offers substituting the employer-computed composite rate for each tier of coverage for the employer-computed composite rate for employee-only coverage.
(5) Employers offering SHOP dependent coverage. If SHOP dependent coverage is offered through the SHOP Exchange, the employer does not fail to satisfy the uniform percentage requirement by contributing a different amount toward that SHOP dependent coverage, even if that contribution is zero. For treatment of premiums paid on behalf of an employee's dependents, see § 1.45R-3(g)(1).
(c) Employers offering more than one QHP. If an eligible small employer offers more than one QHP, the employer must satisfy the requirements of this paragraph (c). The employer may satisfy the requirements of this paragraph (c) in either of the following two ways:
(1) QHP-by-QHP method. The employer makes payments toward the premium with respect to each QHP for which the employer is claiming the credit that satisfy the uniform percentage requirement under paragraph (b) of this section on a QHP-by-QHP basis (so that the amounts or percentages of premium paid by the employer for each QHP need not be identical, but the payments with respect to each QHP must satisfy paragraph (b) of this section); or
(2) Reference QHP method. The employer designates a reference QHP and makes employer contributions in accordance with the following requirements—
(i) The employer determines a level of employer contributions for each employee such that, if all eligible employees enrolled in the reference QHP, the contributions would satisfy the uniform percentage requirement under paragraph (b) of this section, and
(ii) The employer allows each employee to apply an amount of employer contribution determined necessary to meet the uniform percentage requirement under paragraph (b) of this section either toward the reference QHP or toward the cost of coverage under any of the other available QHPs.
(d) Tobacco surcharges and wellness program discounts or rebates —(i) Tobacco surcharges. The tobacco surcharge and amounts paid by the employer to cover the surcharge are not included in premiums for purposes of calculating the uniform percentage requirement, nor are payments of the surcharge treated as premium payments for purposes of calculating the credit. The uniform percentage requirement is also applied without regard to employee payment of the tobacco surcharges in cases in which all or part of the employee tobacco surcharges are not paid by the employer.
(ii) Wellness programs. If a plan of an employer provides a wellness program, for purposes of meeting the uniform percentage requirement any additional amount of the employer contribution attributable to an employee's participation in the wellness program over the employer contribution with respect to an employee that does not participate in the wellness program is not taken into account in calculating the uniform percentage requirement, whether the difference is due to a discount for participation or a surcharge for nonparticipation. The employer contribution for employees that do not participate in the wellness program must be at least 50 percent of the premium (including any premium surcharge for nonparticipation). However, for purposes of computing the credit, the employer contributions are taken into account, including those contributions attributable to an employee's participation in a wellness program.
(e) Special rules regarding employer compliance with applicable State or local law. An employer will be treated as satisfying the uniform percentage requirement if the failure to otherwise satisfy the uniform percentage requirement is attributable solely to additional employer contributions made to certain employees to comply with an applicable State or local law.
(f) Examples. The following examples illustrate the provisions of paragraphs (a) through (e) of this section:
(ii) Conclusion. Employer's contributions of 60% of the premium for each tier of coverage satisfy the uniform percentage requirement.
(ii) Conclusion. Employer's contributions of 60% of the premium toward employee-only coverage and the same dollar amount toward the premium for family coverage satisfy the uniform percentage requirement, even though the percentage is not the same.
(ii) Conclusion. Employer's contributions of 60% (or $3,000) of the premiums for employee-only coverage and the same dollar amounts toward the premium for family coverage under Plan A, and of 50% (or $3,500) of the premium for employee-only of coverage and the same dollar amount toward the premium for family coverage under Plan B, satisfy the uniform percentage requirement on a QHP-by-QHP basis; therefore the employer's contributions to both plans satisfy the uniform percentage requirement.
(ii) Conclusion. Employer's contribution of 50% (or $2,500) toward the premium of each employee enrolled under Plan A or Plan B satisfies the uniform percentage requirement.
(ii) Conclusion. Employer satisfies the uniform percentage requirement because it offers and makes contributions based on an employer-calculated composite employee-only rate such that, to receive employee-only coverage, each employee must pay a uniform amount which is not more than 50% of the composite rate, and it allows employees to use the same employer contributions toward family coverage.
(ii) Conclusion. Employer satisfies the uniform percentage requirement because it offers and makes contributions based on a calculated employee-only and family rate such that, to receive either employee-only or family coverage, each employee must pay a uniform amount which is not more than 50% of the composite rate for coverage of that tier.
(ii) Conclusion. Employer satisfies the uniform percentage requirement because it offers and makes contributions based on the employer-calculated composite employee-only premium for the Plan X reference QHP such that, in order to receive employee-only coverage, each employee must pay a uniform amount which is not more than 50% of the employee-only composite premium of the reference QHP; it allows employees to use the same employer contributions toward family coverage in the reference QHP or coverage through another QHPs.
(ii) Conclusion. Employer's contribution of 100% toward the premium costs of employee-only coverage satisfies the uniform percentage requirement, even though Employer is only contributing 25% toward SHOP dependent coverage.
(ii) Conclusion. Employer satisfies the uniform percentage requirement because its failure to otherwise satisfy the uniform percentage requirement is attributable solely to compliance with the applicable State or local law.
(ii) Conclusion. Employer's contribution of 50% toward the premium costs of employee-only coverage satisfies the uniform percentage requirement. Tobacco surcharges are not factored into premiums when calculating the uniform percentage requirement.
(ii) Conclusion. Employer's contribution of 50% toward the premium costs of employee-only coverage for the two employees who do not participate in the wellness program and 55% toward the premium costs of employee-only coverage for three employees who participate in the wellness program satisfies the uniform percentage requirement because the additional 5% contribution due to the employees' participation in the wellness program is not taken into account. However, the additional 5% contributions are taken into account for purposes of calculating the credit.
(g) Effective/applicability date. This section is applicable for periods after 2013. For transition rules relating to certain plan years starting in 2014, see § 1.45R-3(i).
§ 1.45R-5   Claiming the credit.
(a) Claiming the credit. The credit is a general business credit. It is claimed on an eligible small employer's annual income tax return and offsets an employer's actual tax liability for the year. The credit is claimed by attaching Form 8941, “Credit for Small Employer Health Insurance Premiums,” to the eligible small employer's income tax return or, in the case of a tax-exempt eligible small employer, by attaching Form 8941 to the employer's Form 990-T, “Exempt Organization Business Income Tax Return.” To claim the credit, a tax-exempt eligible small employer must file a form 990-T with an attached Form 8941, even if a Form 990-T would not otherwise be required to be filed.
(b) Estimated tax payments and alternative minimum tax (AMT) liability. An eligible small employer may reflect the credit in determining estimated tax payments for the year in which the credit applies in accordance with the estimated tax rules as set forth in sections 6654 and 6655 and the applicable regulations. An eligible small employer may also use the credit to offset the employer's alternative minimum tax (AMT) liability for the year, if any, subject to certain limitations based on the amount of the employer's regular tax liability, AMT liability and other allowable credits. See section 38(c)(1), as modified by section 38(c)(4)(B)(vi). However, an eligible small employer, including a tax-exempt eligible small employer, may not reduce its deposits and payments of employment tax (that is, income tax required to be withheld under section 3402, social security and Medicare tax under sections 3101 and 3111, and federal unemployment tax under section 3301) during the year in anticipation of the credit.
(c) Reduction of section 162 deduction. No deduction under section 162 is allowed for the eligible small employer for that portion of the health insurance premiums that is equal to the amount of the credit under § 1.45R-2.
(d) Effective/applicability date. This section is applicable for periods after 2013. For rules relating to certain plan years beginning in 2014, see § 1.45R-3(i).
§§ 1.45U-1-1.45U-2   [Reserved]
§ 1.45U-3   Rules relating to the increased credit amount for prevailing wage.
(a) In general. If a qualified nuclear power facility satisfies the prevailing wage requirements of section 45(b)(7) and § 1.45-7 for any alteration or repair with respect to such qualified nuclear power facility within the meaning of section 45U(b)(1), and the recordkeeping and reporting requirements of § 1.45-12, then the amount of the zero-emission nuclear power production credit for the taxable year is equal to the credit amount determined under section 45U(a) multiplied by five.
(b) Qualifying Project Labor Agreement for a qualified nuclear power facility. For the purposes of section 45U and § 1.45-7(c)(6)(ii), in order to be a Qualifying Project Labor Agreement, such agreement must, at a minimum:
(1) Be a collective bargaining agreement with one or more labor organizations (as defined in 29 U.S.C. 152(5)) of which employees of the qualified nuclear power facility are members and such agreement establishes the terms and conditions of employment at the qualified nuclear power facility;
(2) Contain guarantees against strikes, lockouts, and similar job disruptions;
(3) Set forth effective, prompt, and mutually binding procedures for resolving labor disputes arising during the term of the collective bargaining agreement; and
(4) Contain provisions to pay wages at rates not less than the prevailing rates in accordance with subchapter IV of chapter 31 of title 40 of the United States Code.
(c) Applicability date. This section applies to alterations and repairs of qualified nuclear power facilities that are performed after June 25, 2024, for taxable years beginning after June 25, 2024. Taxpayers may apply this section to alterations and repairs of qualified nuclear power facilities that are performed prior to June 25, 2024 provided that taxpayers follow this section in its entirety and in a consistent manner.
§ 1.45V-0   Table of contents.
This section lists the captions contained in §§ 1.45V-1, 1.45V-2, and 1.45V-4 through 1.45V-6.
(a) Overview.
(b) Amount of credit.
(c) Determination of credit.
(d) Applicability date.
(a) Coordination with credit for carbon oxide sequestration.
(b) Anti-abuse rule.
(c) Recordkeeping.
(d) Applicability date.
(a) Overview.
(b) Use of the 45VH2-GREET Model.
(c) Provisional emissions rate (PER).
(d) Use of energy attribute certificates (EACs).
(e) Carbon capture and sequestration.
(f) Use of methane from certain sources to produce hydrogen.
(g) Applicability date.
(a) In general.
(b) Requirements for verification reports.
(c) Requirements for the production attestation.
(d) Requirements for the sale or use attestation.
(e) Requirements for the conflict attestation.
(f) Requirements for the qualified verifier statement.
(g) General information on the taxpayer's hydrogen production facility.
(h) Qualified verifier.
(i) Unrelated party.
(j) Requirements for taxpayers claiming both the section 45V credit and the section 45 credit or the section 45U credit.
(k) Timely verification report.
(l) Applicability date.
(a) Modification of an existing facility.
(b) Retrofit of an existing facility (80/20 Rule).
(c) Examples.
(d) Applicability date.
§ 1.45V-1   Credit for production of clean hydrogen.
(a) Overview—(1) In general. For purposes of section 38 of the Internal Revenue Code (Code), the clean hydrogen production credit is determined under section 45V of the Code, so much of sections 6417 and 6418 of the Code that relate to section 45V, and the section 45V regulations (as defined in paragraph (a)(17) of this section). Paragraphs (a)(2) through (17) of this section provide generally applicable definitions of terms that, unless otherwise provided, apply for purposes of section 45V, the section 45V regulations, and any provision of the Code or this chapter that expressly refers to any provision of section 45V or the section 45V regulations. Paragraph (b) of this section provides rules for determining the amount of the section 45V credit for any taxable year, which generally depends on the kilograms of qualified clean hydrogen produced during the taxable year and the emissions intensity of the process used to produce such hydrogen, as well as whether certain requirements, including the requirements under § 1.45V-3, are satisfied. Paragraph (c) of this section provides rules regarding the taxable year for which a section 45V credit is determined. See § 1.45V-2 for special rules, including rules to coordinate the section 45V credit with the credit for carbon oxide sequestration determined under section 45Q of the Code, an anti-abuse rule, and recordkeeping requirements. See § 1.45V-3 for rules relating to the increased credit amount for satisfying the prevailing wage and apprenticeship requirements. See § 1.45V-4 for procedures to determine lifecycle greenhouse gas (GHG) emissions rates for qualified clean hydrogen and § 1.45V-5 for procedures for verification of qualified clean hydrogen production and sale or use. See § 1.45V-6 for rules to determine the placed in service date for an existing facility that is modified or retrofitted to produce qualified clean hydrogen. See also § 1.48-15 for procedures to elect to treat any qualified property that is part of a specified clean hydrogen production facility as energy property for purposes of section 48 of the Code.
(2) Applicable amount —(i) In general. The term applicable amount means the amount equal to the applicable percentage of $0.60, provided that if any such amount is not a multiple of 0.1 cent, such amount is rounded to the nearest multiple of 0.1 cent.
(ii) Inflation adjustment. The $0.60 amount specified in section 45V(b)(1) and paragraph (a)(2)(i) of this section is adjusted annually by multiplying such amount by the inflation adjustment factor (as determined under section 45(e)(2) of the Code, determined by substituting “2022” for “1992” in section 45(e)(2)(B)) for the calendar year in which the qualified clean hydrogen is produced, provided that if any such amount as adjusted is not a multiple of 0.1 cent, such amount is rounded to the nearest multiple of 0.1 cent.
(3) Applicable percentage. The term applicable percentage means the percentage set forth in paragraphs (a)(3)(i) through (iv) of this section, which is determined according to the lifecycle GHG emissions rate of the process by which the qualified clean hydrogen is produced:
(i) In the case of any qualified clean hydrogen that is produced through a process that results in a lifecycle GHG emissions rate of not greater than 4 kilograms of carbon dioxide equivalent (CO2e) per kilogram of hydrogen, and not less than 2.5 kilograms of CO2e per kilogram of hydrogen, the applicable percentage is 20 percent.
(ii) In the case of any qualified clean hydrogen that is produced through a process that results in a lifecycle GHG emissions rate of less than 2.5 kilograms of CO2e per kilogram of hydrogen, and not less than 1.5 kilograms of CO2e per kilogram of hydrogen, the applicable percentage is 25 percent.
(iii) In the case of any qualified clean hydrogen that is produced through a process that results in a lifecycle GHG emissions rate of less than 1.5 kilograms of CO2e per kilogram of hydrogen, and not less than 0.45 kilograms of CO2e per kilogram of hydrogen, the applicable percentage is 33.4 percent.
(iv) In the case of any qualified clean hydrogen that is produced through a process that results in a lifecycle GHG emissions rate of less than 0.45 kilograms of CO2e per kilogram of hydrogen, the applicable percentage is 100 percent.
(4) Claim. With respect to the section 45V credit determined for qualified clean hydrogen produced by the taxpayer at a qualified clean hydrogen production facility, the term claim means the filing of a completed Form 7210, Clean Hydrogen Production Credit, or any successor form(s), with the taxpayer's Federal income tax return or annual information return for the taxable year in which the credit is determined, and includes the making of an election under section 6417 or 6418 and the regulations in this chapter under section 6417 or 6418, as applicable, with respect to such section 45V credit on the applicable entity's or eligible taxpayer's timely filed (including extensions) Federal income tax return or annual information return.
(5) Code. The term Code means the Internal Revenue Code.
(6) DOE. The term DOE means the U.S. Department of Energy.
(7) Facility —(i) In general. For purposes of the definition of qualified clean hydrogen production facility provided at section 45V(c)(3) and paragraph (a)(14) of this section, unless otherwise specified, the term facility means a single production line that is used to produce qualified clean hydrogen. For this purpose, a single production line includes all components of property that function interdependently to produce qualified clean hydrogen through a process that results in the lifecycle GHG emissions rate used to determine the credit. Components of property function interdependently to produce qualified clean hydrogen if the placing in service of each component is dependent upon the placing in service of each of the other components to produce qualified clean hydrogen. A facility includes carbon capture equipment if such carbon capture equipment contributes to the lifecycle GHG emissions rate of the process by which the qualified clean hydrogen for which the credit is determined is produced.
(ii) Treatment of certain indirect production and post-production equipment. The term facility does not include—
(A) Equipment that is used to condition or transport hydrogen beyond the point of production; or
(B) Notwithstanding paragraph (a)(7)(iii) of this section, feedstock-related equipment, including production, purification, recovery, transportation, or transmission equipment; or electricity production equipment used to power the hydrogen production process, including any carbon capture equipment associated with the electricity production process.
(iii) Multipurpose components. Components that have a purpose in addition to the production of qualified clean hydrogen may be part of a facility if such components function interdependently with other components to produce qualified clean hydrogen.
(iv) Example. The following example illustrates the definition of facility provided in this paragraph (a)(7).
(A) Facts. Taxpayer owns a hydrogen production facility that is equipped with carbon capture equipment (as defined in § 1.45Q-2(c)), as distinguished from the carbon capture equipment described in paragraph (a)(7)(ii)(B) of this section. One purpose of this equipment is the capture of carbon oxides. The facility produces hydrogen through a process that results in a lifecycle GHG emissions rate of less than 0.45 kilograms of CO2e per kilogram of hydrogen. Without the carbon capture equipment, the facility could not produce hydrogen through a process that results in a lifecycle GHG emissions rate of less than 0.45 kilograms of CO2e per kilogram of hydrogen. Taxpayer determines the section 45V credit using a lifecycle GHG emissions rate of less than 0.45 kilograms of CO2e per kilogram of hydrogen.
(B) Analysis. Because the carbon capture equipment is functionally interdependent with other components of property to produce qualified clean hydrogen through a process that results in the lifecycle GHG emissions rate that Taxpayer uses to determine the credit, the carbon capture equipment is part of the facility for purposes of section 45V(c)(3) and the section 45V regulations, along with all other components of property that function interdependently with the carbon capture equipment to produce such hydrogen.
(8) Hydrogen gas stream. The term hydrogen gas stream means a flow of gases that includes hydrogen, either alone or with one or more other gases.
(9) Lifecycle GHG emissions —(i) In general. Subject to section 45V(c)(1)(B) and paragraphs (a)(9)(ii) through(iv) of this section, and unless otherwise specified in the section 45V regulations, the term lifecycle GHG emissions has the meaning given the term lifecycle greenhouse gas emissions by 42 U.S.C. 7545(o)(1)(H), as in effect on August 16, 2022. For purposes of section 45V, lifecycle GHG emissions include emissions only through the point of production (well-to-gate), as determined under the 45VH2-GREET Model.
(ii) 45VH2-GREET Model. Unless otherwise specified in the section 45V regulations, for purposes of the section 45V credit, the term 45VH2-GREET Model means the latest publicly available version of 45VH2-GREET developed by Argonne National Laboratory and published by the DOE, as provided in the instructions to the latest version of Form 7210, Clean Hydrogen Production Credit, or any successor form(s), on the first day of the taxable year during which the qualified clean hydrogen for which the taxpayer is claiming the section 45V credit was produced. If a version of 45VH2-GREET becomes publicly available after the first day of the taxable year of production (but still within such taxable year), then the taxpayer may, in its discretion, treat such later version of 45VH2-GREET as the 45VH2-GREET Model.
(iii) Emissions through the point of production (well-to-gate). The term emissions through the point of production (well-to-gate) means the aggregate lifecycle GHG emissions related to hydrogen produced at a hydrogen production facility during the taxable year through the point of production. It includes emissions associated with growth, gathering, extraction, processing, and delivery of feedstocks to a hydrogen production facility. It also includes the emissions associated with the hydrogen production process, inclusive of the production of a mixed gas or impurity, and the electricity used by the hydrogen production facility and any capture and sequestration of carbon dioxide generated by the hydrogen production facility. Examples of emissions outside of the well-to-gate boundary generally include, but are not limited to, emissions from the liquefaction, storage, or transport of hydrogen.
(iv) Certain emissions related to purification treated as through point of production. If the taxpayer knows or has reason to know the purification of a hydrogen gas stream (that is, removal of a mixed gas or impurity) is necessary for a hydrogen gas stream to be productively used, or to be sold for productive use, any lifecycle GHG emissions relating to such purification (for example, emissions from electricity used in purification, or carbon dioxide that is separated from a hydrogen gas stream and then vented as part of purification) are treated as emissions through the point of production (well-to-gate). Additionally, if the taxpayer knows or has reason to know that a hydrogen gas stream contains less than 99 percent hydrogen and will be combusted without purification, any lifecycle GHG emissions relating to the purification needed to purify the hydrogen gas stream to contain 99 percent hydrogen are treated as emissions through the point of production (well-to-gate).
(v) Example. The following example illustrates the rule of paragraph (a)(9)(iv) of this section.
(A) Facts. Taxpayer is a C corporation that has a calendar year taxable year. In 2025, Taxpayer places Facility in service in the United States. Facility's hydrogen production process produces a hydrogen gas stream containing mixed gases or impurities, and the stream is subsequently sold to Customer without removing the mixed gases or impurities. Taxpayer knows or has reason to know that the purity of the hydrogen gas stream is materially different from what the Customer requires for productive use, and Customer will need to remove the mixed gases or impurities in order for the hydrogen gas stream to be productively used. Because Taxpayer refrains from removing the mixed gases or impurities at the hydrogen production facility, 45VH2-GREET reflects a lower lifecycle GHG emissions rate for the hydrogen production process than it would have reflected had the mixed gases or impurities been removed at Facility.
(B) Analysis. The Taxpayer has not accurately reflected well-to-gate emissions in 45VH2-GREET because the emissions associated with purification that was necessary for productive use have not been reflected. All lifecycle GHG emissions relating to the purification of the hydrogen gas stream to be productively used are emissions through the point of production (well-to-gate) and therefore must be taken into account as part of the emissions within the well-to-gate boundary.
(10) Mixed gas or impurity. The term mixed gas or impurity means a non-hydrogen gas that is part of a hydrogen gas stream.
(11) Process. The term process means the operations conducted by a facility to produce hydrogen (for example, electrolysis or steam methane reforming) during a taxable year using a primary feedstock. The term primary feedstock means a hydrogen-containing chemical that is transformed to produce hydrogen at a hydrogen production facility and has uniform or similar attributes distinguished by the source from which it is derived, if such source materially affects the lifecycle GHG emissions associated with use of the chemical to produce hydrogen.
(12) Productive use. The term productive use means, with respect to a hydrogen gas stream, a consumption of the hydrogen gas stream in a manner that generates positive economic value, which is determined without regard to the availability of the section 45V credit. The term productive use means, with respect to qualified clean hydrogen, a consumption of the qualified clean hydrogen in a manner that generates positive economic value, which is determined without regard to the availability of the section 45V credit.
(13) Qualified clean hydrogen —(i) In general. The term qualified clean hydrogen means hydrogen that is produced through a process that results in a lifecycle GHG emissions rate of not greater than 4 kilograms of CO2e per kilogram of hydrogen. Such term does not include any hydrogen unless the production and sale or use of such hydrogen is verified by an unrelated party in accordance with, and satisfying the requirements of, § 1.45V-5, and such hydrogen is produced—
(A) In the United States (as defined in section 638(1) of the Code) or a U.S. territory, which, for purposes of section 45V and the section 45V regulations, has the meaning of the term possession provided in section 638(2) of the Code;
(B) In the ordinary course of a trade or business of the taxpayer; and
(C) For sale or use.
(ii) For sale or use. The term for sale or use means for the primary purpose of making ready and available for sale or use. Storage of hydrogen following production does not disqualify such hydrogen from being considered produced for sale or use.
(14) Qualified clean hydrogen production facility. The term qualified clean hydrogen production facility means a facility—
(i) Owned by the taxpayer;
(ii) That produces qualified clean hydrogen; and
(iii) The construction of which begins before January 1, 2033.
(15) Secretary. The term Secretary means the Secretary of the Treasury or her delegate.
(16) Section 45V credit. The term section 45V credit means the credit for production of clean hydrogen determined under section 45V of the Code, so much of sections 6417 and 6418 of the Code that relate to section 45V, and the section 45V regulations.
(17) Section 45V regulations. The term section 45V regulations means this section, §§ 1.45V-2 through 1.45V-6, and the regulations in this chapter under sections 6417 and 6418 of the Code that relate to the section 45V credit.
(b) Amount of credit —(1) In general. The amount of the section 45V credit determined under section 45V(a) and the section 45V regulations for any taxable year is the product of the kilograms of qualified clean hydrogen produced by the taxpayer during such taxable year at a qualified clean hydrogen production facility during the 10-year period beginning on the date such facility was originally placed in service, multiplied by the applicable amount with respect to each process used to produce such hydrogen.
(2) Producer of qualified clean hydrogen. For purposes of section 45V(a)(1) and paragraph (b)(1) of this section, the term taxpayer means the taxpayer that owns the qualified clean hydrogen production facility at the time of the facility's production of hydrogen for which the section 45V credit is claimed, regardless of whether such taxpayer is treated as a producer under section 263A of the Code or under any other provision of law with respect to such hydrogen.
(3) Increased credit amount for qualified clean hydrogen production facilities. Pursuant to section 45V(e)(1), § 1.45V-3 provides rules that permit the amount of the section 45V credit determined under section 45V(a) and paragraph (b)(1) of this section to be multiplied by five if certain prevailing wages and apprenticeship requirements are met. See § 1.45V-3(a).
(c) Determination of credit. Subject to any applicable sections of the Code that may limit the section 45V credit amount, the section 45V credit for any taxable year of a taxpayer who produces qualified clean hydrogen and claims such credit is determined with respect to the qualified clean hydrogen produced by the taxpayer during that taxable year, regardless of whether the verification of the production and sale or use of that hydrogen occurs in a later taxable year. Although the section 45V credit is determined with respect to the taxable year in which the qualified clean hydrogen is produced, a taxpayer is not eligible to claim the section 45V credit with respect to the production of that hydrogen until all relevant verification requirements, and the verification itself, have been completed for both the production of the hydrogen and the sale or use of that hydrogen. Accordingly, although the sale or use of the hydrogen and the verification thereof may occur in a taxable year after the taxable year of production, the section 45V credit is properly claimed with respect to the taxable year of production and is subject to the general period of limitations for filing a claim for credit or refund under section 6511(a) and other applicable provisions of the Code.
(d) Applicability date. This section applies to taxable years beginning after December 26, 2023.
§ 1.45V-2   Special rules.
(a) Coordination with credit for carbon oxide sequestration. In the case of any qualified clean hydrogen produced at a qualified clean hydrogen production facility that includes carbon capture equipment for which a credit is allowed to any taxpayer under section 45Q of the Code (section 45Q credit) for the taxable year or any prior taxable year, no section 45V credit is allowed under section 45V of the Code. However, if the 80/20 Rule provided in § 1.45Q-2(g)(5) is satisfied with respect to such carbon capture equipment, and no new section 45Q credit has been allowed to any taxpayer for such carbon capture equipment, then the unit of carbon capture equipment (as defined in § 1.45Q-2(c)(3)) for which the 80/20 Rule is satisfied will not be treated as carbon capture equipment for which a section 45Q credit was allowed to any taxpayer for any prior taxable year for purposes of section 45V(d)(2) and this paragraph (a).
(b) Anti-abuse rule —(1) In general. The rules of section 45V of the Code (and so much of sections 6417 and 6418 of the Code related to the section 45V credit) and the section 45V regulations (as defined in § 1.45V-1(a)(17)) must be applied in a manner consistent with the purposes of section 45V and the section 45V regulations. A purpose of section 45V is to provide taxpayers an incentive to produce qualified clean hydrogen for a productive use. Accordingly, the section 45V credit is not allowable if the primary purpose of the sale or use of qualified clean hydrogen is to obtain the benefit of the section 45V credit in a manner that is wasteful, such as when a taxpayer claims the section 45V credit for qualified clean hydrogen that the taxpayer knows or has reason to know will, in excess of standard commercial practices, be vented, flared, used to produce heat or power that is then directly used to produce hydrogen, or otherwise used to produce hydrogen. For example, venting or flaring for safety or maintenance reasons in the ordinary course of business is a non-abusive commercial industry practice. While not abusive, such venting or flaring is also not a verifiable use under § 1.45V-5(d)(2)(ii), and therefore any such hydrogen that is vented or flared for safety reasons is not eligible for the section 45V credit. A determination of whether the sale or use of qualified clean hydrogen is inconsistent with the purposes of section 45V is based on all relevant facts and circumstances.
(2) Example. The following example illustrates the application of paragraph (b)(1).
(i) Example 1 —(A) Facts. Taxpayer is a C corporation that has a calendar year taxable year. In 2031, Taxpayer places Facility in service in the United States. Facility produces qualified clean hydrogen that qualifies for the highest applicable amount of the section 45V credit at a production cost of $2 per kilogram of hydrogen (assuming Taxpayer also claims the increased credit under section 45V(e), excluding any future inflation adjustment, the amount of the section 45V credit would be $3 per kilogram of qualified clean hydrogen). The cost of producing each kilogram of qualified clean hydrogen is less than the amount of the section 45V credit that would be available if Taxpayer qualified for the section 45V credit. In 2031, Taxpayer sells all the qualified clean hydrogen produced at Facility that year to Customer at a price that is well below the current market price. Taxpayer knows or reasonably expects that Customer will vent or flare the qualified clean hydrogen it purchased from Taxpayer, in excess of standard commercial practices. In addition, Taxpayer intends to obtain the benefit of the section 45V credit by claiming such credit itself or monetizing such credit through an election under section 6417 or 6418 of the Code.
(B) Analysis. Based on all the facts and circumstances, the primary purpose of Taxpayer's sale of qualified clean hydrogen is to obtain the benefit of the section 45V credit in a manner that is wasteful. Taxpayer is not eligible for the section 45V credit with respect to the qualified clean hydrogen that Taxpayer produced and sold in 2031 to Customer that is subsequently vented or flared by Customer.
(c) Recordkeeping. Consistent with section 6001 of the Code, a taxpayer claiming the section 45V credit for qualified clean hydrogen produced at a qualified clean hydrogen production facility must maintain and preserve records sufficient to establish the amount of the section 45V credit claimed by the taxpayer. At a minimum, those records must include records to substantiate the information required to be included in the verification report under § 1.45V-5, records establishing that the facility meets the definition of a qualified clean hydrogen production facility under section 45V(c)(3) and § 1.45V-1(a)(14), records of past credit claims under section 45Q by any taxpayer with respect to carbon capture equipment included at the facility, and records establishing the date the qualified clean hydrogen production facility was placed in service. If the requirements under section 45V(e) and § 1.45V-3(b) for the increased credit amount were satisfied, then the taxpayer must also maintain records in accordance with § 1.45-12. Taxpayers must also retain all raw data used for submission of a request for an emissions value to the DOE for at least six years after the due date (including extensions) for filing the Federal income tax return or information return to which the provisional emissions rate (PER) (as defined in § 1.45V-4(c)(1)) petition is ultimately attached.
(d) Applicability date. This section applies to taxable years beginning after December 26, 2023.
§ 1.45V-3   Rules relating to the increased credit amount for prevailing wage and apprenticeship.
(a) In general. If any qualified clean hydrogen production facility (as defined in section 45V(c)(3)) satisfies the requirements in paragraph (b) of this section, then the amount of the credit for producing qualified clean hydrogen determined under section 45V(a) with respect to qualified clean hydrogen described in section 45V(b)(2) is equal to the credit amount determined under section 45V(a) multiplied by five.
(b) Qualified clean hydrogen production facility requirements. A qualified clean hydrogen production facility satisfies the requirements ofthis paragraph (b) if it is one of thefollowing—
(1) A facility the construction of which began prior to January 29, 2023, and that meets the prevailing wage requirements of section 45(b)(7) and § 1.45-7 with respect to alterations or repairs of a qualified facility within the meaning of section 45V that occur after January 29, 2023 (to the extent applicable), and that meets the recordkeeping and reporting requirements of § 1.45-12; or
(2) A facility that meets the prevailing wage requirements of section 45(b)(7) and § 1.45-7, the apprenticeship requirements of section 45(b)(8) and § 1.45-8, and the recordkeeping and reporting requirements of § 1.45-12 with respect to the construction, alteration, or repair of a qualified facility within the meaning of section 45V.
(c) Applicability date. This section applies to qualified clean hydrogen production facilities placed in service in taxable years ending after June 25, 2024, and the construction of which begins after June 25, 2024. Taxpayers may apply this section to qualified clean hydrogen production facilities placed in service in taxable years ending on or before June 25, 2024, and qualified clean hydrogen production facilities placed in service in taxable years ending after June 25, 2024, the construction of which begins before June 25, 2024, provided that taxpayers follow this section in its entirety and in a consistent manner.
§ 1.45V-4   Procedures for determining lifecycle greenhouse gas emissions rates for qualified clean hydrogen.
(a) Overview —(1) In general. Except as provided in paragraph (a)(2) of this section, the amount of the section 45V credit is determined under section 45V(a) of the Code and § 1.45V-1(b) according to the lifecycle GHG emissions rate of each hydrogen production process conducted at a hydrogen production facility during the taxable year. The lifecycle GHG emissions rate of each process is determined under the 45VH2-GREET Model. In the case of any hydrogen production pathway, as described in paragraph (c)(2)(i) of this section, for which a lifecycle GHG emissions rate has not been determined under the 45VH2-GREET Model for purposes of section 45V, a taxpayer producing hydrogen via such a pathway may file a petition for a provisional emissions rate (PER) with the IRS for the Secretary's determination of the lifecycle GHG emissions rate with respect to such hydrogen.
(2) Lifecycle GHG emissions rate of hourly electricity consumption. In the case of a facility's use of electricity generated on or after January 1, 2030, for which the taxpayer acquires and retires a qualifying EAC (as defined in paragraph (d)(2)(vii) of this section) that represents electricity that is generated in the same hour (Coordinated Universal Time (UTC)) that the taxpayer's process uses electricity to produce hydrogen, the taxpayer may determine the lifecycle GHG emissions associated with the use of such electricity by the taxpayer's process during such hour using the attributes of such qualifying EAC rather than using an annual average of the lifecycle GHG emissions associated with the use of electricity in the taxpayer's process. If a taxpayer determines the lifecycle GHG emissions associated with the use of electricity on an hourly basis in the manner provided in this paragraph (a)(2), such taxpayer must determine the lifecycle GHG emissions associated with the use of electricity on an hourly basis for the entire taxable year. In the case of hydrogen produced at a facility using electricity for which the taxpayer does not acquire and retire qualifying EACs that represent electricity that is generated in the same hour that the taxpayer's hydrogen production facility uses electricity to produce hydrogen on or after January 1, 2030, the lifecycle GHG emissions rate of such hydrogen is determined using the regional annual average emissions rate of such electricity usage as reflected in 45VH2-GREET. The taxpayer may determine the lifecycle GHG emissions associated with the use of electricity on an hourly basis only if the annual average lifecycle GHG emissions rate of the hydrogen production process during the taxable year is not greater than 4 kilograms of carbon dioxide equivalent (CO2e) per kilogram of hydrogen for all hydrogen produced pursuant to that process during the taxable year.
(3) Examples. The following examples illustrate the application of paragraphs (a)(1) and (2) of this section.
(i) Example 1: Annual emissions accounting —(A) Facts. Taxpayer, which files its Federal income tax return based on the calendar year, owns a hydrogen production facility, Facility, that constantly produces hydrogen through electrolysis during all 24 hours of each day of taxable year 2031. Facility's only inputs are water and electricity. For the first 23 of the 24 hours of each day of 2031, Facility acquires and retires qualifying EACs that represent electricity that is generated in the same hour that the taxpayer's hydrogen production facility uses electricity to produce hydrogen. The qualifying EACs reflect electricity from wind power, a uniform source of zero-emission electricity depicted in 45VH2-GREET. During the last hour of each day in 2031, Facility sources electricity from a regional grid. During taxable year 2031, Taxpayer produces 2,402,145.12 kilograms of a hydrogen gas stream (an annual total of 2,302,055.74 kilograms produced during the first 23 hours of each day, and 100,089.38 kilograms produced during the remaining one hour of each day). To produce such a stream, Facility consumes 132,000 MWh of electricity. Of the 132,000 MWh of electricity consumed, 126,500 MWh of the electricity is from wind power, and 5,500 MWh of the electricity is from the regional electricity grid. On average, of the 2,402,145.12 kilograms produced, 99.99 percent by mol is pure hydrogen and 0.01 percent is water vapor (this translates to 99.9107 percent pure hydrogen and 0.0893 percent water vapor by mass). Thus, Facility produced an annual total of 2,400,000 kilograms of pure hydrogen by mass. In 2031, the Facility produces 10,000,000 kilograms of oxygen co-product. The pressure at which Facility produces the hydrogen gas stream is 300 psi.
(B) Analysis. To determine the annual average lifecycle GHG emissions rate of the process by which the 2,400,000 kilograms of pure hydrogen were produced in 2031, Taxpayer must account for the total amount of electricity consumed by Facility in taxable year 2031 (132,000 MWh), the annual average share of electricity that is from each source depicted in 45VH2-GREET (95.8333 percent wind power, 4.1667 percent regional electricity grid), the total amount of hydrogen gas stream produced in that year (2,402,145.12 kilograms), the average share of mixed gases in the hydrogen gas stream over the year (99.99 percent hydrogen by mol, 0.01 percent water by mol), the total amount of oxygen co-product produced in that year (10,000,000 kilograms); and the pressure at which the hydrogen gas stream is produced (300 psi). Assuming that, using these inputs, 45VH2-GREET reflects that the average annual lifecycle GHG emissions rate of the process by which the 2,400,000 kilograms of hydrogen were produced in 2031 not greater than 4 kilograms of CO2e per kilogram of hydrogen, then the hydrogen produced by Facility in 2031 is qualified clean hydrogen. Further, assuming that, using these inputs, 45VH2-GREET reflects that Facility produces hydrogen through a process that results in an annual lifecycle GHG emissions rate of less than 2.5 but not less 1.5 kilograms of CO2e per kilogram of hydrogen, the applicable percentage under section 45V(b)(2) is 25 percent. Accordingly, assuming all other requirements to claim the section 45V credit are met, and assuming prevailing wage and apprenticeship requirements under section 45V(e) are met, Taxpayer may claim the section 45V credit for the 2,400,000 kilograms of qualified clean hydrogen in the amount of $1,800,000 (2,400,000 kilograms of qualified clean hydrogen produced by Taxpayer at Facility during taxable year 2031 multiplied by $0.75 with respect to such hydrogen) (unadjusted for inflation).
(ii) Example 2: Hourly emissions accounting —(A) Facts. The facts are the same as in paragraph (a)(3)(i)(A) of this section ( Example 1 ), except that Taxpayer opts to determine the lifecycle GHG emissions rate of electricity used to produce hydrogen on an hourly basis pursuant to paragraph (a)(2) of this section.
(B) Analysis. To determine whether Taxpayer is eligible to use hourly accounting, Taxpayer must first complete an analysis on an annual basis, as described in Example 1. Assuming that the lifecycle GHG emissions rate associated with pure hydrogen production at Facility during the taxable year is not greater than 4 kilograms of CO2e per kilogram of hydrogen, Taxpayer is eligible to use hourly accounting. To determine the hourly lifecycle GHG emissions rate, Taxpayer must first determine the average share of mixed gases in the hydrogen gas stream over taxable year 2031 (99.99 percent hydrogen by mol, 0.01 percent water vapor by mol) and the average amount of oxygen co-product produced for every kilogram of hydrogen gas stream produced in taxable year 2031 (10,000,000 kilograms of oxygen divided by 2,402,145.12 kilograms of hydrogen gas stream equals 4.163 kilograms of oxygen per kilogram of hydrogen gas stream). Then, for each hour, Taxpayer must account for the following inputs in 45VH2-GREET: the total kilograms of hydrogen gas stream produced in that hour, the product of the annual average oxygen co-product rate (4.163 kilograms of oxygen co-product per kilogram of hydrogen gas stream) and the total kilograms of hydrogen gas stream produced in that hour, the average impurity content of the hydrogen gas stream produced in that hour, the total amount of electricity consumed in that hour, and the source of the electricity used in that hour, as depicted in 45VH2-GREET (for example, wind power, regional electricity grid). Assuming that, using these inputs, 45VH2-GREET reflects that the lifecycle GHG emissions rate of the process by which the hydrogen was produced in each hour of the first 23 hours of each day in taxable year 2031 is less than 0.45 kilograms of CO2e per kilogram of hydrogen, then for purposes of section 45V(b)(2), the applicable percentage for such hydrogen produced in each hour of the first 23 hours of each day of taxable year 2031 is 100 percent. For the hydrogen produced during the last hour of each day of taxable year 2031, assuming that 45VH2-GREET reflects that the lifecycle GHG emissions rate of the process exceeded 4 kilograms of CO2e per kilogram of hydrogen, the applicable percentage for such hydrogen is zero percent (that is, the hydrogen produced is not qualified clean hydrogen). Assuming all other requirements of section 45V are met, including the prevailing wage and apprenticeship requirements of section 45V(e), Taxpayer is entitled to a section 45V credit equal to $3 (not adjusted for inflation) per kilogram of qualified clean hydrogen produced in the first 23 hours of each day of taxable year 2031 and no credit for the hydrogen produced in the last hour of each day of taxable year 2031. As described in Example 1, in taxable year 2031, Taxpayer produced 2,400,000 kilograms of pure hydrogen by mass at a constant rate. Accordingly, during the first 23 hours of each day of taxable year 2031, Taxpayer produced 2,300,000 kilograms of pure hydrogen. Taxpayer may therefore claim a section 45V credit of $6,900,000 (2,300,000 kilograms of qualified clean hydrogen produced by Taxpayer during the first 23 hours of each day of taxable year 2031 at Facility multiplied by $3 with respect to such hydrogen).
(b) Use of the 45VH2-GREET Model —(1) In general. For each taxable year during the period described in section 45V(a)(1), a taxpayer claiming the section 45V credit determines the lifecycle GHG emissions rate of each hydrogen production process conducted at a hydrogen production facility under the 45VH2-GREET Model separately for each process. This determination is made following the close of each such taxable year and, subject to paragraph (a)(2) of this section, must include all of a process's hydrogen production during the taxable year. In using the 45VH2-GREET Model to calculate the lifecycle GHG emissions rate for purposes of determining the amount of the section 45V credit under section 45V(a) and § 1.45V-1(b), the taxpayer must accurately enter all information about its facility requested within the interface of 45VH2-GREET (as described in § 1.45V-1(a)(9)(ii)). Information regarding where taxpayers may access 45VH2-GREET and accompanying documentation will be included in the instructions to the Form 7210, Clean Hydrogen Production Credit, or any successor form(s).
(2) Beginning of construction safe harbor —(i) In general. A taxpayer may, in its discretion, make an irrevocable election effective for the remaining taxable years within the period described in section 45V(a)(1), to treat the latest version of 45VH2-GREET that was publicly available on the date when construction of the qualified clean hydrogen facility began as the 45VH2-GREET Model. In the case of a facility owned by the taxpayer that began construction prior to December 26, 2023, such taxpayer may, in its discretion, make an irrevocable election effective for the remaining taxable years within the period described in section 45V(a)(1), to treat the first publicly-available version of 45VH2-GREET (that is, the version of 45VH2-GREET released in December 2023) as the 45VH2-GREET Model. For purposes of this paragraph (b)(2), in the case of a facility that is modified to produce qualified clean hydrogen under section 45V(d)(4) and § 1.45V-6(a), or a facility that is retrofitted in a manner that entitles the facility to a new placed in service date under § 1.45V-6(b), the date when construction of the facility began is the date when construction of such modification or retrofit began. An election under this paragraph (b)(2)(i) relates to the version of 45VH2-GREET and does not alter any other rules provided in this section and in §§ 1.45V-1, -2, -3, -5, and -6.
(ii) Time and manner of making election. The taxpayer makes the election described in paragraph (b)(2)(i) of this section with respect to a qualified clean hydrogen production facility's hydrogen production process on Form 7210 or any successor form(s). The taxpayer must make the election by no later than the due date for filing its Federal income tax return or information return (including extensions) for a taxable period ending no later than December 31, 2025, or the due date for filing its Federal income tax return or information return (including extensions) for the taxable period in which such facility is placed in service, whichever due date is later.
(c) Provisional emissions rate (PER) —(1) In general. For purposes of section 45V(c)(2)(C) and paragraph (a) of this section, the term provisional emissions rate or PER means the lifecycle GHG emissions rate of the hydrogen produced through a process at a hydrogen production facility as determined by the Secretary under this paragraph (c).
(2) Rate not determined —(i) In general. For purposes of section 45V(c)(2)(C), a taxpayer may not file a petition for a PER unless a lifecycle GHG emissions rate has not been determined under the 45VH2-GREET Model with respect to hydrogen produced through a process by the taxpayer at a hydrogen production facility. A lifecycle GHG emissions rate has not been determined under the 45VH2-GREET Model with respect to hydrogen produced through a process by the taxpayer at a hydrogen production facility if either the feedstock used in such process or the facility's hydrogen production technology, together referred to as the facility's “hydrogen production pathway,” is not included in the 45VH2-GREET Model. If a taxpayer's request for an emissions value pursuant to paragraph (c)(5) of this section with respect to the hydrogen produced through a process by the taxpayer at a hydrogen production facility is pending at the time such facility's hydrogen production pathway becomes included in an updated version of 45VH2-GREET, the taxpayer's request for an emissions value will be automatically denied. In such case, the taxpayer must determine the lifecycle GHG emissions rate with respect to such hydrogen under paragraph (c)(2)(ii) of this section.
(ii) Subsequent inclusion in 45VH2-GREET. Notwithstanding the definition of the 45VH2-GREET Model provided at § 1.45V-1(a)(9)(ii), for the taxable year in which the hydrogen production facility's hydrogen production pathway is first included in an updated version of 45VH2-GREET, the updated version of 45VH2-GREET will be considered the 45VH2-GREET Model with respect to the hydrogen produced through a process by the taxpayer at the hydrogen production facility during such taxable year, and for purposes of section 45V(c)(2)(C), a lifecycle GHG emissions rate for such hydrogen will be considered to have been determined.
(3) Process for filing a PER petition. To file a PER petition with the Secretary, a taxpayer must submit a PER petition attached to the taxpayer's Federal income tax return (or information return) for the first taxable year of hydrogen production ending within the 10-year period described in section 45V(a)(1) for which the taxpayer claims the section 45V credit for hydrogen to which the PER petition relates and for which a lifecycle GHG emissions rate has not been determined, as defined under paragraph (c)(2)(i) of this section. A PER petition must contain the letter received from the DOE stating the emissions value the DOE determined with respect to the facility's hydrogen production pathway, and the control number the DOE assigned to the emissions value request application. If the taxpayer obtained more than one emissions value from the DOE, the PER petition must contain the emissions value setting forth the lifecycle GHG emissions rate of the hydrogen for which the section 45V credit is claimed on the Form 7210, Clean Hydrogen Production Credit, or any successor form(s), to which the PER petition is attached.
(4) PER determination. Upon the taxpayer's filing of its Federal income tax return (or information return) containing a PER petition in a manner consistent with paragraph (c)(3) of this section, the emissions value of the hydrogen determined by the DOE will be deemed accepted. The taxpayer may rely upon an emissions value provided by the DOE for purposes of calculating and claiming a section 45V credit, provided that any information, representations, or other data provided to the DOE in support of the request for an emissions value are accurate. The IRS's deemed acceptance of such emissions value is the Secretary's determination of the PER. However, the production, including the data the taxpayer submitted in the PER petition and the data provided to the DOE in support of the taxpayer's request for an emissions value, and sale or use of such hydrogen must be verified by an unrelated party under section 45V(c)(2)(B)(ii) and § 1.45V-5. Such verification and any information, representations, or other data provided to the DOE in support of the request for an emissions value are subject to later examination by the IRS.
(5) Department of Energy (DOE) emissions value request process (EVRP). An applicant that submits a request for an emissions value must follow the procedures specified by the DOE to request and obtain such emissions value. Emissions values will be evaluated using the same well-to-gate system boundary that is employed in 45VH2-GREET. Additionally, background data parameters in 45VH2-GREET will also be treated as background data (fixed values that an applicant cannot change) in the emissions value request process. Treatment of qualifying EACs and other sources of emissions addressed in the section 45V regulations will be consistently applied in the EVRP. An applicant may request an emissions value from the DOE only after a Class 3 front-end engineering and design (FEED) study or similar indication of project maturity, as determined by the DOE, such as project specification and cost estimation sufficient to inform a final investment decision, has been completed for the hydrogen production facility. The DOE may decline to review applications that are not responsive, including those applications that use a hydrogen production technology and feedstock already in 45VH2-GREET or applications that are incomplete. Applicants seeking a new emissions value for a given hydrogen production facility after the DOE has completed its analysis may reapply only if they wish to resubmit their application with new or revised technical information or clarifications related to the information previously submitted. Guidance and procedures for applicants to request and obtain an emissions value from the DOE will be published by the DOE.
(6) Effect of PER —(i) In general. A taxpayer may use a PER determined by the Secretary to calculate the amount of the section 45V credit under section 45V(a) and § 1.45V-1(b) with respect to qualified clean hydrogen produced at a qualified clean hydrogen production facility, provided—
(A) The lifecycle GHG emissions rate of such hydrogen has not been determined (for purposes of section 45V(c)(2)(C)) under the 45VH2-GREET Model;
(B) There are no material changes to the information about the taxpayer's hydrogen production process from the information provided to the DOE to obtain an emissions value pursuant to paragraph (c)(5) of this section; and
(C) All other requirements of section 45V are met.
(ii) Material change. For purposes of paragraph (c)(6)(i)(B) of this section, a material change means any change that would cause a qualified verifier (as defined in § 1.45V-5(h)) to be unable to complete a production attestation under section 45V(c)(2)(B)(ii) of the Code and § 1.45V-5(c).
(iii) Subsequent inclusion safe harbor —(A) In general. The taxpayer may, in its discretion, make an irrevocable election, effective for the remaining taxable years within the period described in section 45V(a)(1), to treat the first version of 45VH2-GREET that includes the taxpayer's qualified clean hydrogen production facility's hydrogen production pathway as the 45VH2-GREET Model.
(B) Time and manner of making election. The taxpayer makes the election described in paragraph (c)(6)(iii)(A) of this section with respect to a qualified clean hydrogen production facility on Form 7210 or any successor form(s). The taxpayer must make the election by no later than the due date for filing its Federal income tax return or information return (including extensions) for a taxable period ending no later than December 31, 2025, or the due date for filing its Federal income tax return or information return (including extensions) for the taxable period in which the taxpayer's qualified clean hydrogen production facility's hydrogen production pathway is first included in 45VH2-GREET, whichever due date is later.
(iv) Special rule for facilities that receive an emissions value prior to the beginning of construction. Notwithstanding the requirement of paragraph (c)(6)(i)(A) of this section, a taxpayer who received an emissions value from the DOE with respect to a qualified clean hydrogen production facility (pursuant to paragraph (c)(5) of this section) before the date when construction of the facility began, may, in its discretion, use the PER determined by the Secretary and the associated emissions value to calculate the amount of section 45V credit with respect to qualified clean hydrogen produced at the qualified clean hydrogen production facility for the entirety of the period described in section 45V(a)(1), provided that the taxpayer continues to satisfy the requirements of paragraphs (c)(6)(i)(B) and (C) of this section.
(v) Not an examination of books and records. The Secretary's PER determination is not an examination or inspection of books of account for purposes of section 7605(b) of the Code and does not preclude or impede the IRS (under section 7605(b) or any administrative provisions adopted by the IRS) from later examining a return or inspecting books or records with respect to any taxable year for which the section 45V credit is claimed. For example, the verification report submitted under section 45V(c)(2)(B)(ii) and § 1.45V-5 and any information, representations, or other data provided to the DOE in support of the request for an emissions value are still subject to examination. Further, a PER determination does not signify that the IRS has determined that the requirements of section 45V have been satisfied for any taxable year.
(d) Use of energy attribute certificates (EACs) —(1) In general. For purposes of the section 45V credit, if a taxpayer determines a lifecycle GHG emissions rate for hydrogen produced at a hydrogen production facility using the 45VH2-GREET Model or the Secretary determines a PER for hydrogen produced at a hydrogen production facility subject to a PER petition, then the taxpayer may treat such hydrogen production facility's use of electricity as being from a specific electricity generating facility rather than as electricity with the annual average lifecycle GHG emissions of the regional electricity grid (as represented in 45VH2-GREET) only if the taxpayer acquires and retires qualifying EACs (as defined in paragraph (d)(2)(vii) of this section) for each unit of electricity that the taxpayer claims from such source. For example, one megawatt-hour of electricity used to produce hydrogen would need to be matched with one megawatt-hour of qualifying EACs. Further, to satisfy this requirement, a taxpayer's acquisition and retirement of qualifying EACs must also be recorded in a qualified EAC registry or accounting system (as defined in paragraph (d)(2)(viii) of this section) so that the acquisition and retirement of such EACs may be verified by a qualified verifier (as defined in § 1.45V-5(h)). The requirements of this paragraph (d)(1) apply regardless of whether the electricity generating facility is grid connected, directly connected, or co-located with the hydrogen production facility.
(2) Definitions. For purposes of this section—
(i) Commercial operations date. The term commercial operations date or COD means the date on which a facility that generates electricity begins commercial operations.
(ii) Energy attribute certificate. The term energy attribute certificate (EAC) means a tradeable contractual instrument, issued through a qualified EAC registry or accounting system (as defined in paragraph (d)(2)(viii) of this section), that represents the energy attributes of a specific unit of energy produced. An EAC may be traded with or separately from the underlying energy it represents. An EAC can be retired by or on behalf of its owner, which is the party that has the right to claim the underlying attributes represented by an EAC. Renewable energy certificates (RECs) and other similar energy certificates issued through a registry or accounting system are forms of EACs.
(iii) Eligible EAC. The term eligible EAC means an EAC that represents electricity that is produced by an electricity generating facility that is registered on only one qualified EAC registry or accounting system and that, with respect to the electricity to which the EAC relates, provides, at a minimum, the information described in paragraphs (d)(2)(iii)(A) through (H) of this section—
(A) A description of the facility, including the technology and feedstock used to generate the electricity;
(B) The amount and units of electricity;
(C) The COD of the facility that generated the electricity;
(D) For electricity that is generated before January 1, 2030, the calendar year in which such electricity was generated;
(E) For electricity that is generated after December 31, 2029, the date and hour (including time zone, or in UTC) in which such electricity was generated;
(F) Other attributes required by 45VH2-GREET or in the determination of a PER to accurately determine the emissions associated with such electricity;
(G) For electricity generating sources that use carbon capture equipment, the placed in service date of such equipment; and
(H) The project identification number or assigned identifier.
(iv) Qualifying electricity decarbonization standard. A qualifying electricity decarbonization standard is a standard that—
(A) Contains a target that 100 percent of the State's retail sales of electricity from obligated entities be supplied by renewable, non-emitting, zero-emitting, or minimal-emitting sources, where obligated entities and eligible sources are defined by State policy, or a target for GHG emissions from the State's electricity sector that reflects an equivalent of such a retail sales target, by 2050 or earlier;
(B) Applies to the large majority of eligible electricity supplied to the state, as determined by the State; and
(C) Includes policies that would achieve the target, a requirement that the state develop a plan to achieve the standard, or a requirement that entities subject to the standard are required to develop such a plan.
(v) Qualifying GHG cap program. A qualifying GHG cap program is a legally binding program that meets the following minimum criteria—
(A) Creates a limitation (cap) on the quantity of GHG emissions from the electricity sector (either alone or along with other sectors) in a State through issuance of a limited number of allowances or other compliance instruments to covered entities for each compliance period;
(B) Includes annual obligations (even if part of multi-year compliance periods) under which an entity subject to the cap must provide information about such entity's GHG emissions and for which an entity must submit at least some compliance instruments to the State's regulatory authority;
(C) Includes a cap on GHG emissions from covered entities that generally declines over time from the cap on GHG emissions in effect in calendar year 2025 (or the first calendar year in which the cap is in effect, if later), with adjustments as appropriate for expansions in the scope of the cap;
(D) Applies to the large majority of in-state electricity sources of emissions that emit greater than 25,000 metric tons of CO2e in a calendar year;
(E) Applies to the large majority of out-of-state electricity supplied to the State and to emissions associated with those imports, including emissions that arise from entities that emit greater than 25,000 metric tons of CO2e in a calendar year;
(F) Generally ensures that the prices of allowances sold in a state-run auction cannot fall below $25 per metric ton of CO2e, adjusted for inflation from 2025 dollars using at a minimum the most recently available twelve-month value of the Consumer Price Index for All Urban Consumers (CPI-U), as published by the United States Bureau of Labor Statistics (BLS); and
(G) Generally ensures that the cap on greenhouse gas emissions cannot be exceeded for less than $90 per metric ton of CO2e, adjusted for inflation from 2025 dollars using at a minimum the most recently available twelve-month value of the CPI-U, as published by the BLS.
(vi) Merchant nuclear reactor. The term merchant nuclear reactor means a nuclear reactor that competes in a competitive electricity market through the sale of energy and, in some cases, other services and for which over 50 percent of the reactor and its electricity production does not receive cost recovery through rate regulation or public ownership with related retail rate recovery.
(vii) Qualifying EAC. The term qualifying EAC means an eligible EAC that meets the requirements of paragraph (d)(3) of this section and for which the satisfaction of those requirements has been verified by a qualified verifier (as defined in § 1.45V-5(h)).
(viii) Qualified EAC registry or accounting system. The term qualified EAC registry or accounting system means a tracking system that—
(A) Assigns a unique identification number to each EAC tracked by such system;
(B) Enables verification that only one EAC is associated with each unit of electricity;
(C) Verifies that each EAC is claimed and retired only once;
(D) Identifies the owner of each EAC; and
(E) Provides a publicly accessible view (for example, through an application programming interface) of all currently registered generators in the tracking system to prevent the duplicative registration of generators.
(ix) Region. The term region means a Region that corresponds to a Balancing Authority, as identified in the following table. Alaska, Hawaii, and each U.S. territory will be treated as separate regions. Future versions of this table may be provided as a safe harbor in guidance published in the Internal Revenue Bulletin.
Table 1 to Paragraph (d)(2)(ix)
(x) Qualifying nuclear reactor. The term qualifying nuclear reactor means, with respect to an EAC, a nuclear reactor—
(A) That is a merchant nuclear reactor, as defined in paragraph (d)(2)(vi) of this section, or is a nuclear reactor that is not co-located with any other operating nuclear reactor,
(B) For which the average annual gross receipts within the meaning of section 45U(b)(2)(A)(ii)(I) of the reactor are less than 4.375 cents per kilowatt hour, for any two of the calendar years 2017 through 2021, as determined with respect to any one owner of the reactor, and
(C) That either
( 1 ) Has a physical electrical connection with the hydrogen production facility which acquires and retires the EAC, which is on the reactor's side of a utility service meter before the reactor or the hydrogen production facility connect to a distribution or transmission system, or
( 2 ) Is the subject of a written binding contract, as defined in paragraph (d)(2)(xi) of this section, for a fixed term of at least 10 years beginning on the first date on which qualified EACs are acquired, under which the owner of the hydrogen production facility agrees to acquire and retire EACs from the nuclear reactor, and which manages the qualifying nuclear reactor's revenue risk.
(xi) Written binding contract. For purposes of this paragraph (d)(2)(xi), a contract is a written binding contract if it is enforceable under state law against the taxpayer or a predecessor and does not limit damages to a specified amount (for example, by use of a liquidated damages provision). For this purpose, a contractual provision that limits damages to an amount equal to at least five percent of the total contract price will not be treated as limiting damages to a specified amount. For additional guidance regarding the definition of a written binding contract, see § 1.168(k)-2(b)(5)(iii).
(xii) Qualifying State. The term qualifying State means a state which, as determined by the Secretary, has under its state law or regulations a qualifying electricity decarbonization standard as defined in paragraph (d)(2)(iv) of this section and a qualifying GHG cap program as defined in paragraph (d)(2)(v) of this section. For purposes of this rule, the District of Columbia, Commonwealth of Puerto Rico, Guam, the U.S. Virgin Islands, American Samoa, and the Commonwealth of the Northern Mariana Islands are treated as states.
(3) Qualifying EAC requirements. An eligible EAC meets the requirements of this paragraph (d)(3) if it meets the requirements of paragraphs (d)(3)(i) through (iii) of this section.
(i) Incrementality. An EAC meets the requirements of this paragraph (d)(3)(i) if it meets the requirements of paragraph (d)(3)(i)(A), (B), (C), or (D) of this section. Paragraph (d)(3)(i)(B)( 4 ) of this section provides an example that illustrates the application of paragraph (d)(3)(i)(B) of this section.
(A) In general. An EAC meets the requirements of this paragraph (d)(3)(i)(A) if the electricity generating facility that produced the unit of electricity to which the EAC relates has a COD that is no more than 36 months before the hydrogen production facility for which the EAC is retired was placed in service, or, if the electricity represented by the EAC is produced by an electricity generating facility that uses carbon capture and sequestration (CCS) technology, such technology has a placed in service date that is no more than 36 months before the hydrogen production facility for which the EAC is retired was placed in service.
(B) Uprates —( 1 ) In general. An EAC meets the requirements of this paragraph (d)(3)(i)(B) if the electricity represented by the EAC is produced by an electricity generating facility that had an uprate no more than 36 months before the hydrogen production facility with respect to which the EAC is retired was placed in service and such electricity is part of such electricity generating facility's uprated production. The term uprate means an increase in an electricity generating facility's rated nameplate capacity (in nameplate megawatts) or capacity measured by a standard other than nameplate capacity (specified capacity) meeting the requirements of the measurement standard described in paragraph (d)(3)(i)(B)( 3 ) of this section. The term pre-uprate capacity means the nameplate capacity or specified capacity of an electricity generating facility before an uprate. The term post-uprate capacity means the nameplate capacity or specified capacity of an electricity generating facility after an uprate. The term incremental generation capacity means the increase in an electricity generating facility's rated nameplate capacity or specified capacity from the pre-uprate capacity to the post-uprate capacity. The term uprated production rate means the incremental generation capacity (in nameplate megawatts) divided by the post-uprate capacity (in nameplate megawatts). The term uprated production means the uprated production rate of an electricity generating facility multiplied by its total generation output (in megawatt hours). An electricity generating facility's uprated production must be prorated to each hour of such facility's generation by multiplying the production for each hour or each year, consistent with the requirements in paragraph (d)(3)(ii) of this section, by the uprated production rate to determine the electricity to which the uprate relates.
( 2 ) Special rule for restarted facilities. For purposes of this paragraph (d)(3)(i)(B), a facility that is decommissioned or in the process of decommissioning and restarts can be considered to have increased nameplate or specified capacity from a base of zero if the following conditions are met:
( i ) The existing facility must have ceased operations;
( ii ) The existing facility must have a shutdown period of at least one calendar year during which it was not authorized to operate by its respective Federal regulatory authority (that is, the Federal Energy Regulatory Commission (FERC) or the Nuclear Regulatory Commission (NRC));
( iii ) The increased capacity of the restarted facility must be eligible to restart based on an operating license issued by either FERC or NRC; and
( iv ) The existing facility must not have ceased operations for the purpose of qualifying for the special rule for restarted facilities.
( 3 ) Measurement standard. For purposes of paragraph (d)(3)(i)(B)( 1 ) of this section, taxpayers must use one of the following measurement standards described in paragraph (d)(3)(i)(B)( 3 )( i ), ( ii ), or ( iii ) of this section to measure the capacity and change in capacity of a facility, except a taxpayer cannot use the measurement standard described in paragraph (d)(3)(i)(B)( 3 )( ii ) of this section if the taxpayer is able to use the measurement standard described in paragraph (d)(3)(i)(B)( 3 )( i ) of this section:
( i ) Modified or amended facility operating licenses from FERC or NRC, or related reports prepared by FERC or NRC as part of the licensing process;
( ii ) The International Standard Organization (ISO) conditions to measure the nameplate capacity of the facility consistent with the definition of nameplate capacity provided in 40 CFR 96.202; or
( iii ) A measurement standard prescribed by the Secretary in guidance published in the Internal Revenue Bulletin (see § 601.601 of this chapter).
( 4 ) Example. The following example illustrates the application of paragraph (d)(3)(i)(B) of this section.
( i ) Facts. Power Plant undergoes an uprate that expands its rated nameplate capacity from a pre-uprate capacity of 10 megawatts (MW) to a post-uprate capacity of 12 MW. After the uprate, its generation output increases to a total of 40,000 megawatt hours (MWh) for the year.
( ii ) Analysis. Power Plant's incremental generation capacity is 2 MW, its uprated production rate is 0.167 (2 MW divided by 12 MW), and its total uprated production for the year is 6,667 MWh (2 MW divided by 12 MW multiplied by 40,000 MWh). Two-twelfths (0.167) of each hour of Power Plant's production may be considered uprated production.
(C) Electricity produced in qualifying States. An EAC meets the requirements of this paragraph (d)(3)(i)(C) if the electricity represented by the EAC is produced by an electricity generating facility that is located in a qualifying State, as defined in paragraph (d)(2)(xii) of this section, and the hydrogen production facility acquiring and retiring such EAC is also located in a qualifying State.
(D) Electricity produced by certain nuclear facilities —( 1 ) In general. An EAC meets the requirements of this paragraph (d)(3)(i)(D) if the electricity represented by the EAC is produced by an electricity generating facility that is a qualifying nuclear reactor, as defined in paragraph (d)(2)(x).
( 2 ) For purposes of paragraph (d)(3)(i) of this section, only 200 megawatt hours of electricity per operating hour per qualifying nuclear reactor may be considered incremental, except that, if a qualifying nuclear reactor has integrated operations with one or more other qualifying nuclear reactors, the amount of electricity from those integrated reactors deemed incremental shall instead be subject to an aggregate limit of 200 megawatt hours per operating hour multiplied by the number of integrated nuclear reactors that have not permanently ceased operations.
( 3 ) A qualifying nuclear reactor is treated as having integrated operations with any other qualifying nuclear reactor if the reactors—
( i ) Are owned by the same or related taxpayers; and
( ii ) Transmit electricity generated by the reactors through the same point of interconnection or, if the reactors are not grid-connected, or are delivering electricity directly to an end user behind a utility meter, are able to support the same end user, or, if the reactors have multiple points of interconnection, are co-located with each another.
( 4 ) For purposes of paragraph (d)(3)(i)(D)( 3 )( i ) of this section, the term related taxpayers means members of a group of trades or businesses that are under common control (as defined in § 1.52-1(b)). Related taxpayers are treated as one taxpayer in determining whether a qualifying nuclear reactor has integrated operations.
( 5 ) In the case of a nuclear reactor that satisfies the definition of a qualifying nuclear reactor because it is the subject of a written binding contract as provided in paragraph (d)(2)(x)(C)( 2 ) of this section, the megawatt hours of electricity per hour per qualifying nuclear reactor that may be considered incremental are further limited to those megawatt hours of electricity for which the taxpayer acquires EACs from the nuclear reactor pursuant to the written binding contract.
(ii) Temporal matching —(A) In general. An EAC meets the requirements of this paragraph (d)(3)(ii) if the electricity represented by the EAC is generated in the same hour that the taxpayer's hydrogen production facility uses electricity to produce hydrogen.
(B) Transition rule. For EACs that represent electricity generated before January 1, 2030, the EAC will be considered generated in the same hour that the taxpayer's hydrogen production facility uses electricity to produce hydrogen as required in paragraph (d)(3)(ii)(A) of this section if the electricity represented by the EAC is generated in the same calendar year that the taxpayer's hydrogen production facility uses electricity to produce hydrogen.
(C) Use of energy storage. For purposes of meeting the requirements of paragraph (d)(3)(ii)(A) of this section, an EAC meets such requirements if the electricity represented by the EAC is discharged from a storage system in the same hour that the taxpayer's hydrogen production facility uses electricity to produce hydrogen. The storage system must be located in the same region as both the hydrogen production facility and the facility generating the stored electricity. To use the rule described in this paragraph (d)(3)(ii)(C), the volume of electricity use substantiated by each EAC representing stored electricity must account for storage-related efficiency losses. In addition, to use the rule described in this paragraph (d)(3)(ii)(C), EACs representing stored electricity must comprehensively address the storage of electricity by reflecting the energy attributes of the electricity generating facility that provided electricity to the storage facility, reflecting the temporal attributes regarding when the electricity is discharged from energy storage, and ensuring that paragraph (d)(2)(viii)(C) of this section relating to verification that each EAC is claimed and retired only once applies to EACs representing stored electricity.
(iii) Deliverability —(A) In general. An EAC meets the requirements of this paragraph (d)(3)(iii) if the electricity represented by the EAC is generated by a facility that is in the same region (as defined in paragraph (d)(2)(ix) of this section) as the hydrogen production facility. Whether the electricity generating source and the hydrogen production facility are located in the same region is determined by the balancing authority to which each is electrically interconnected, not the geographic location.
(B) Interregional delivery. For purposes of meeting the requirements of paragraph (d)(3)(iii)(A) of this section, an EAC meets such requirements if the electricity generation represented by the EAC has transmission rights from the generator location to the region in which the hydrogen production facility is located and that generation is delivered to ( i.e., scheduled and dispatched or settled in) such facility's region. Such delivery must be demonstrated on at least an hour-to-hour basis, with no direct counterbalancing reverse transactions, and must be verified with NERC E-tags or the equivalent. In addition, to use the rule described in this paragraph (d)(3)(iii)(B), the qualified EAC registry or accounting system for each eligible EAC representing delivered electricity must track such delivery. Finally, to use the rule described in this paragraph (d)(3)(iii)(B), in the case of electricity imported from Canada or Mexico, the electricity generator must provide an attestation to the hydrogen production facility for purposes of the verification process described in § 1.45V-5 that the use or attributes of the electricity represented by each EAC are not being claimed for any other purpose.
(e) Carbon capture and sequestration. For purposes of the section 45V credit, if a taxpayer determines a lifecycle GHG emissions rate for hydrogen produced at a hydrogen production facility using the 45VH2-GREET Model or the Secretary determines a PER for hydrogen produced at a hydrogen production facility subject to a PER petition, then carbon capture and sequestration may be taken into account only if the carbon capture occurs in the production of qualified clean hydrogen (for subsequent sequestration) or occurs in the production of electricity, fuel, or feedstock that is used by such facility to produce hydrogen and is captured and disposed of in secure geological storage, pursuant to section 45Q(f)(2) and any regulations established thereunder, or utilized in a manner described in section 45Q(f)(5) and any regulations established thereunder. Such carbon capture and sequestration that occurs in the production of qualified clean hydrogen (rather than in the production of electricity, fuel, or feedstock) may only be taken into account if the carbon capture equipment is part of the qualified clean hydrogen production facility.
(f) Use of methane from certain sources to produce hydrogen —(1) In general. The requirements provided by this paragraph (f) apply to a process (as defined in § 1.45V-1(a)(11)) that uses methane derived from biogas, renewable natural gas (RNG) derived from biogas, or fugitive sources of methane.
(2) Definitions. The following definitions apply for purposes of this paragraph (f):
(i) Alternative fate. The term alternative fate means a set of informed assumptions (for example, production processes, material outcomes, and market-mediated effects) used to estimate the emissions from the use or disposal of each feedstock were it not for the feedstock's new use due to the implementation of policy (that is, to produce hydrogen).
(ii) Biogas. The term biogas means gas containing methane that results from the decomposition of organic matter under anaerobic conditions.
(iii) Coal mine methane. The term coal mine methane means methane that is stored within coal seams and is liberated as a result of current or past mining activities. Liberated coal mine methane can be released intentionally by the mine for safety purposes, such as through mine degasification boreholes or underground mine ventilation systems, or it may leak out of the mine through vents, fissures, or boreholes. The term coal mine methane does not include methane removed from virgin coal seams (for example, coal bed methane).
(iv) Fugitive methane. The term fugitive methane means methane released from equipment leaks or venting during the extraction, processing, transformation, or delivery of fossil fuels and other gaseous fuels to the point of final use.
(v) Renewable natural gas. The term renewable natural gas (RNG) means biogas that has been upgraded to remove water, CO2, and other impurities such that it is interchangeable with fossil natural gas.
(vi) Gas energy attribute certificate. The term gas energy attribute certificate (gas EAC) means a tradeable contractual instrument, issued through and retired within a qualified gas EAC registry or accounting system (as defined in paragraph (f)(2)(ix) of this section), that represents the attributes of a specific unit of RNG or coal mine methane. A gas EAC may be traded with or separately from the underlying gas it represents. A gas EAC can be retired by or on behalf of its owner, which is the party that has the right to claim the underlying attributes represented by a gas EAC.
(vii) Eligible gas EAC. The term eligible gas EAC means a gas EAC that represents the quantity of RNG or coal mine methane that is produced by a producing facility that is registered on only one qualified gas EAC registry or accounting system (as defined in paragraph (f)(2)(ix) of this section) and that, with respect to the RNG or coal mine methane to which the gas EAC relates, provides, at a minimum, the following information:
(A) A description of the production facility, including the technology or practice and feedstock used to produce RNG or coal mine methane;
(B) The amount (and units) of RNG or coal mine methane;
(C) The month and year in which the RNG or coal mine methane is produced;
(D) The location at which the RNG or coal mine methane is injected into a natural gas pipeline (or the location of the production facility if directly used without injection into a natural gas pipeline);
(E) The source or sources of the gas that comprises the RNG or coal mine methane associated with each certificate as well as other attributes required by 45VH2-GREET, or in the determination of a PER, to determine the emissions associated with such RNG or coal mine methane; and
(F) A project identification number or assigned identifier.
(viii) Qualifying gas EAC. The term qualifying gas EAC means an eligible gas EAC that meets the requirements of paragraph (f)(4)(iii) of this section and for which the satisfaction of those requirements has been verified by a qualified verifier (as defined in § 1.45V-5(h)).
(ix) Qualified gas EAC registry or accounting system. The term qualified gas EAC registry or accounting system means an electronic tracking system that—
(A) Assigns a unique identification number to each certificate associated with RNG and coal mine methane tracked by such system;
(B) Requires independent verification of the source or sources of the gas that comprises the RNG or coal mine methane and any other factual considerations relevant to the lifecycle GHG emissions assessment for purposes of section 45V for tracking and verification purposes (self-reported data without independent verification are not allowed);
(C) Requires use of a revenue grade meter, with production volumes reported to the registry via an application programming interface (API) or with independent reporting to ensure accurate accounting for production volumes (self-reported data are not allowed);
(D) Enables verification that only one certificate is associated with each unit of RNG or coal mine methane;
(E) Verifies that each certificate is claimed and retired only once;
(F) Identifies the owner of each certificate and provides for documentation of the chain-of-custody of any transfers of certificates;
(G) Requires an attestation that a producer has not registered the RNG or coal mine methane with other registries;
(H) Provides a publicly accessible view (for example, through an application programming interface) of all currently registered RNG or coal mine methane production facilities in the tracking system to prevent the duplicative registration of such production facilities; and
(I) Requires verification of pipeline interconnection, if applicable.
(3) Considerations regarding the lifecycle greenhouse gas emissions associated with the production of hydrogen using methane from certain sources —(i) In general. For purposes of determining the lifecycle GHG emissions rate of a process (as defined § 1.45V-1(a)(11)) that uses methane derived from biogas, RNG, or fugitive methane to produce hydrogen, estimates of lifecycle GHG emissions must consider all the direct and significant indirect emissions from the hydrogen production process. Such determinations must consider the alternative fates of that methane, including avoided emissions and alternative productive uses of that methane; the risk that the availability of tax credits creates incentives resulting in the production of additional methane or otherwise induces additional emissions; and observable trends and anticipated changes in waste management and disposal practices over time as they are applicable to methane generation and uses.
(ii) Methane from landfill sources. For purposes of determining the lifecycle GHG emissions rate of a process (as defined § 1.45V-1(a)(11)) that uses methane derived from landfill sources, the alternative fate of such gas must be flaring using an efficiency determined by 45VH2-GREET.
(iii) Methane from wastewater sources. For purposes of determining the lifecycle GHG emissions rate of a process (as defined § 1.45V-1(a)(11)) that uses methane derived from wastewater sources, the alternative fate of such gas must assume flaring and use the flaring efficiency and other factors as determined by 45VH2-GREET, including accounting for the proportion of the gas typically used to heat the anaerobic digester.
(iv) Coal mine methane. For purposes of determining the lifecycle GHG emissions rate of a process (as defined § 1.45V-1(a)(11)) that uses coal mine methane, flaring of such gas must be used as the alternative fate.
(v) Methane from animal waste. For purposes of determining the lifecycle GHG emissions rate of a process (as defined § 1.45V-1(a)(11)) that uses methane derived from biogas sourced from animal waste, the emissions associated with producing and transporting such biogas to the point where it is fed into an upgrader must use an alternative fate derived from the national average of all animal waste management practices, which results in a carbon intensity score of -51 grams of CO2e per megajoule (MJ), where the MJ basis refers to the lower heating value of the methane contained in the biogas prior to upgrading.
(vi) Fugitive methane other than coal mine methane. For purposes of determining the lifecycle GHG emissions rate of a process (as defined § 1.45V-1(a)(11)) that uses fugitive methane other than coal mine methane, such as fugitive methane from oil and gas operations, productive use of such gas must be used as the alternative fate, which would result in emissions equivalent to the carbon intensity of using fossil natural gas.
(4) Use of gas EACs —(i) In general. Subject to paragraph (f)(4)(ii) of this section, for purposes of the section 45V credit, if a taxpayer determines a lifecycle GHG emissions rate for hydrogen produced at a hydrogen production facility using the 45VH2-GREET model or the Secretary determines a PER for hydrogen produced at a hydrogen production facility subject to a PER petition, then the taxpayer may treat such hydrogen production facility's use of RNG (as defined in paragraph (f)(2)(v) of this section) or coal mine methane (as defined in paragraph (f)(2)(iii) of this section) as being from a specific source of such gas rather than fossil natural gas only if the taxpayer acquires and retires qualifying gas EACs (as defined in paragraph (f)(2)(viii) of this section) for each unit of such gas that the taxpayer claims from such source. To satisfy this requirement, a taxpayer's acquisition and retirement of qualifying gas EACs must also be recorded in a qualified gas EAC registry or accounting system (as defined in paragraph (f)(2)(ix) of this section) so that the acquisition and retirement of such gas EACs may be verified by a qualified verifier (as defined in § 1.45V-5(h)). The requirements of this paragraph (f)(4) apply regardless of whether the source of the RNG or coal mine methane is connected to a pipeline network, directly connected to a hydrogen production facility, or co-located with the hydrogen production facility.
(ii) System readiness. Paragraph (f)(4)(i) of this section applies only if the Secretary determines that one or more electronic tracking systems meet the definition of a qualified gas EAC registry or accounting system (as defined in paragraph (f)(2)(ix) of this section). The Secretary may make this determination no earlier than January 1, 2027. Prior to the Secretary making a determination described in this paragraph (f)(4)(ii), a taxpayer using RNG or coal mine methane in a hydrogen production process must substantiate the use of such gas by maintaining a direct pipeline connection to a supplier of such gas or documentation of other physical methods of exclusive delivery of such gas. Prior to the Secretary making a determination described in this paragraph (f)(4)(ii), a taxpayer must ensure that attributes of the RNG or coal mine methane used in a hydrogen production process are not double counted by obtaining attestations from the RNG or coal mine methane producers that there has been and will be no double counting of such attributes. The taxpayer must provide such attestations to the taxpayer's qualified verifier (as defined in § 1.45V-5(h)).
(iii) Qualifying gas EAC requirements. An eligible gas EAC meets the requirements of this paragraph (f)(4)(iii) if it meets the requirements of paragraphs (f)(4)(iii)(A) and (B) of this section.
(A) Temporal matching. An eligible gas EAC meets the requirements of this paragraph (f)(4)(iii)(A) if the RNG or coal mine methane represented by the eligible gas EAC was injected into a pipeline described in paragraph (f)(4)(iii)(B) of this section in the same calendar month that the hydrogen production facility uses the RNG or coal mine methane in the production of hydrogen or, if the RNG or coal mine methane represented by the eligible gas EAC was delivered to the hydrogen production facility from the RNG or coal mine methane producer, through a direct pipeline connection or other physical method of exclusive delivery.
(B) Deliverability. An eligible gas EAC meets the requirements of this paragraph (f)(4)(iii)(B) if the RNG or coal mine methane represented by the eligible gas EAC is injected into a natural gas pipeline in the contiguous United States and the hydrogen production facility is also located in and connected to a natural gas pipeline in the contiguous United States. Alaska, Hawaii, and each U.S. territory are separate regions, such that an eligible gas EAC meets the requirements of this paragraph (f)(4)(iii)(B) if the RNG or coal mine methane represented by the eligible gas EAC is injected into a natural gas pipeline in one of these regions and the hydrogen production facility is located in and connected to a natural gas pipeline in the same region. An eligible gas EAC also meets the requirements of this paragraph (f)(4)(iii)(B) if the RNG or coal mine methane represented by the eligible gas EAC was delivered to the hydrogen production facility from the RNG or coal mine methane producer through a direct pipeline connection or other physical method of exclusive delivery.
(g) Applicability date. This section applies to taxable years beginning after December 26, 2023.
§ 1.45V-5   Procedures for verification of qualified clean hydrogen production and sale or use.
(a) In general. A verification report must be attached to a taxpayer's Form 7210, Clean Hydrogen Production Credit, or any successor form(s), with the taxpayer's Federal income tax return or information return for each qualified clean hydrogen production facility and for each taxable year in which the taxpayer claims the section 45V credit.
(b) Requirements for verification reports. A verification report specified in paragraph (a) of this section must be prepared by a qualified verifier under penalties of perjury and must contain—
(1) An attestation from the qualified verifier regarding the taxpayer's production of qualified clean hydrogen for sale or use, including an attestation that the inputs used to determine the lifecycle GHG emissions rate of the hydrogen production process are accurate (production attestation);
(2) An attestation from the qualified verifier regarding the amount of qualified clean hydrogen sold or used (sale or use attestation);
(3) An attestation from the qualified verifier regarding conflicts of interest (conflict attestation);
(4) Information regarding the qualified verifier, including documentation of the qualified verifier's qualifications (qualified verifier statement);
(5) Certain general information about the taxpayer's hydrogen production facility where the hydrogen production undergoing verification occurred;
(6) Any documentation necessary to substantiate the verification process given the standards and best practices prescribed by the qualified verifier's accrediting body and the circumstances of the taxpayer and the taxpayer's hydrogen production facility; and
(7) Any other information required by IRS forms or instructions.
(c) Requirements for the production attestation. The following requirements apply to the production attestation:
(1) The production attestation must be an attestation, made under penalties of perjury, that the qualified verifier performed a verification sufficient to determine that the operation, during the applicable taxable year, of the hydrogen production facility that produced the hydrogen for which the section 45V credit is claimed, any lifecycle GHG emissions data inputs, and any energy attribute certificates (EACs) applied pursuant to § 1.45V-4(d) for the purpose of accounting for such facility's emissions, are accurately reflected with reasonable assurance in—
(i) The amount of qualified clean hydrogen produced by the taxpayer that is claimed on the Form 7210, Clean Hydrogen Production Credit, or any successor form(s), to which the verification report is attached; and
(ii) Either—
(A) The data the taxpayer entered into the 45VH2-GREET Model to determine the lifecycle GHG emissions rate that is claimed on the Form 7210, Clean Hydrogen Production Credit, or any successor form(s), to which the verification report is attached; or
(B) The data the taxpayer submitted in the PER petition relating to the hydrogen for which the section 45V credit is claimed, and the data provided to the DOE in support of the taxpayer's request for the emissions value provided in the PER petition.
(2) If the production attestation attests that qualifying EACs were acquired and retired pursuant to § 1.45V-4(d), then the production attestation must confirm that the electricity generator or generators associated with such EACs were not registered on multiple qualifying EAC registries, or, in the event such generators are registered on multiple qualifying EAC registries, that each EAC undergoing verification from each such generator registered on multiple qualifying EAC registries is being issued by only one qualifying EAC registry.
(3) If the production attestation attests to the information specified in paragraph (c)(1)(ii)(B) of this section, then the production attestation must also specify the emissions value received from the DOE that was calculated using such data, expressed in kilograms of carbon dioxide equivalent (CO2e) per kilogram of hydrogen.
(4) The production attestation must specify the lifecycle GHG emissions rate(s) (expressed in kilograms of CO2e per kilogram of hydrogen) and the amount of qualified clean hydrogen produced by the taxpayer (expressed in kilograms), that are claimed on the Form 7210, Clean Hydrogen Production Credit, or any successor form(s), to which the verification report is attached.
(d) Requirements for the sale or use attestation —(1) In general. The sale or use attestation must be an attestation, made under penalties of perjury, that the qualified verifier performed a verification sufficient to determine that the amount of qualified clean hydrogen that is specified in the production attestation pursuant to paragraph (c)(1)(i) of this section, and that is claimed on the Form 7210, Clean Hydrogen Production Credit, or any successor form(s), to which the verification report is attached, has been sold, or has been used by a person who makes a verifiable use of such hydrogen.
(2) Verifiable use. For purposes of section 45V(c)(2)(B)(ii) of the Code and the section 45V regulations (as defined in § 1.45V-1(a)(17)), a person's verifiable use of the hydrogen specified in paragraph (d)(1) of this section can occur within or outside the United States. A verifiable use can be made by the taxpayer or a person other than the taxpayer. For example, a verifiable use includes a tolling arrangement pursuant to which a service recipient provides raw materials or inputs, such as water or electricity, to a toller (that is, a third-party service provider that owns a hydrogen production facility), and the toller produces hydrogen for the service recipient using the service recipient's raw materials or inputs in exchange for a fee. In such a case, use of the hydrogen by the service recipient would be a verifiable use. However, a verifiable use does not include—
(i) Use of hydrogen to generate heat or power that is then directly used in the production of more hydrogen (except when such heat or power is derived from a byproduct of hydrogen use); or
(ii) Venting or flaring of hydrogen.
(3) The following example illustrates the application of paragraph (d)(2) of this section.
(i) Example —(A) Facts. In 2025, Taxpayer A produces 100 kilograms of hydrogen through a process that results in an emissions rate of not greater than four kilograms of CO2e per kilogram of hydrogen produced. However, throughout the year, Taxpayer A feeds two kilograms of the hydrogen back into its facility's process train to replace what would otherwise be externally sourced energy inputs directly supplying the hydrogen production process. Taxpayer A also flares two kilograms of the hydrogen for testing and maintenance purposes. Taxpayer A puts 96 kilograms of the hydrogen to use in a separate facility that produces fertilizer. Additionally, Taxpayer A recovers waste heat from the fertilizer production process to generate electricity used to power both facilities.
(B) Analysis. Taxpayer A has made a verifiable use of 96 kilograms of qualified clean hydrogen and may claim the section 45V credit for that amount, assuming all other requirements for claiming the section 45V credit are met. The two kilograms of hydrogen that are flared have not been verifiably used, and therefore Taxpayer A may not determine the section 45V credit with respect to such two kilograms of hydrogen. The two kilograms of hydrogen that are directly supplied back into the hydrogen process have also not been verifiably used because the hydrogen is being consumed to produce heat or power that will then directly be used to produce more hydrogen. Consumption of hydrogen in this manner (to generate heat or power that is then directly used to produce hydrogen) is not a verifiable use under paragraph (d)(2) of this section.
(e) Requirements for the conflict attestation. The conflict attestation must include attestations, made under penalties of perjury, that—
(1) The qualified verifier has not received a fee based to any extent on the value of any section 45V credit that has been or is expected to be claimed by any taxpayer and no arrangement has been made for such fee to be paid at some time in the future;
(2) The qualified verifier has not been a party to any transaction in which the taxpayer sold qualified clean hydrogen it had produced or in which the taxpayer purchased inputs for the production of such hydrogen;
(3) The qualified verifier is not related, within the meaning of section 267(b) or 707(b)(1) of the Code, to, or an employee of, the taxpayer;
(4) The qualified verifier is not married to an individual described in paragraph (e)(3) of this section; and
(5) If the qualified verifier is acting in his or her capacity as a partner in a partnership, an employee of any person, whether an individual, corporation, or partnership, or an independent contractor engaged by a person other than the taxpayer, the attestations under paragraphs (e)(1) through (4) of this section must also be made with respect to the partnership or the person who employs or engages the qualified verifier.
(f) Requirements for the qualified verifier statement. The qualified verifier statement must include the following—
(1) The qualified verifier's name, address, and taxpayer identification number;
(2) The qualified verifier's qualifications to conduct the verification, including a description of the qualified verifier's education and experience and a photocopy of the qualified verifier's certificate received from their accrediting body;
(3) If the qualified verifier is acting in his or her capacity as a partner in a partnership, an employee of any person, whether an individual, corporation, or partnership, or an independent contractor engaged by a person other than the taxpayer, the name, address, and taxpayer identification number of the partnership or the person who employs or engages the qualified verifier;
(4) The signature of the qualified verifier and the date signed by the qualified verifier; and
(5) A statement that the verification was conducted for Federal income tax purposes.
(g) General information on the taxpayer's hydrogen production facility. The verification report must include the following information for the taxpayer's hydrogen production facility where the hydrogen production undergoing verification occurred:
(1) The location of the hydrogen production facility;
(2) A description of the hydrogen production facility, including its method of producing hydrogen;
(3) The type(s) of feedstock(s) used by the hydrogen production facility during the taxable year of production;
(4) The amount(s) of feedstock(s) used by the hydrogen production facility during the taxable year of production; and
(5) A list of the metering devices used to record any data used by the qualified verifier to support the production attestation under paragraph (c) of this section along with a statement that the qualified verifier is reasonably assured that the device(s) underwent industry-appropriate quality assurance and quality control, and the accuracy and calibration of the device has been tested in the last year.
(h) Qualified verifier. The term qualified verifier means any individual or organization with active accreditation—
(1) From the American National Standards Institute National Accreditation Board to conduct validation and verification in accordance with the requirements of ISO 14065:2020 and ISO 14064-3:2019; or
(2) As a verifier, lead verifier, or verification body under the California Air Resources Board Low Carbon Fuel Standard program.
(i) Unrelated party. For purposes of section 45V(c)(2)(B)(ii), the term unrelated party means a qualified verifier who meets the requirements of paragraph (e) of this section.
(j) Requirements for taxpayers claiming both the section 45V credit and the section 45 credit or the section 45U credit. In the case of a taxpayer who produces electricity for which either the section 45 or section 45U credit is claimed and the taxpayer or a related person uses such electricity to produce hydrogen for which the section 45V credit is claimed, the verification report must also contain attestations that the qualified verifier performed a verification sufficient to determine that—
(1) The electricity used to produce such hydrogen was produced at the relevant facility for which a section 45 or section 45U credit is claimed;
(2) The given amount of electricity (in kilowatt hours) used to produce such hydrogen at the relevant hydrogen production facility is reasonably assured of being accurate; and
(3) The electricity for which a section 45 or section 45U credit was claimed is represented by EACs that are acquired and retired in connection with the production of such hydrogen.
(k) Timely verification report. A verification report must be signed and dated by the qualified verifier no later than—
(1) The due date, including extensions, of the Federal income tax return or information return for the taxable year during which the hydrogen undergoing verification is produced; or
(2) In the case of a credit first claimed for the taxable year on an amended return or administrative adjustment request, the date on which the amended return or administrative adjustment request is filed.
(l) Applicability date. This section applies to taxable years beginning after December 26, 2023.
§ 1.45V-6   Rules for determining the placed in service date for an existing facility that is modified or retrofitted to produce qualified clean hydrogen.
(a) Modification of an existing facility —(1) In general. Under section 45V(d)(4) of the Code, in the case of an existing facility that—
(i) Was originally placed in service before January 1, 2023, and, prior to the modification described in this paragraph (a), did not produce qualified clean hydrogen, and after the date such facility was originally placed in service—
(A) Is modified to produce qualified clean hydrogen; and
(B) Amounts paid or incurred with respect to such modification are properly chargeable to the taxpayer's capital account for the facility,
(ii) Such facility will be deemed to have been originally placed in service as of the date the property required to complete the modification described in this paragraph (a) is placed in service.
(2) Modification requirements. For purposes of section 45V(d)(4) and paragraph (a)(1) of this section, an existing facility will not be deemed to have been originally placed in service as of the date the property required to complete the modification is placed in service unless the modification is made for the purpose of enabling the facility to produce qualified clean hydrogen and amounts paid or incurred with respect to the modification are properly chargeable to the taxpayer's capital account. A modification is made for the purpose of enabling the facility to produce qualified clean hydrogen if the facility could not produce hydrogen with a lifecycle GHG emissions rate that is less than or equal to 4 kilograms of carbon dioxide equivalent (CO2e) per kilogram of hydrogen but for the modification. For example, if a taxpayer solely pays or incurs capital expenses to modify existing components of a hydrogen production facility that are not necessary for the production of hydrogen with a lifecycle GHG emissions rate that is less than or equal to 4 kilograms of CO2e per kilogram of hydrogen, such modification does not entitle the facility to a new placed in service date. A modification does not include changing fuel inputs to the hydrogen production facility. For example, changing from using conventional natural gas to using renewable natural gas as a feedstock, is not a modification under this paragraph.
(3) Interaction with 80/20 Rule. An existing facility that satisfies the requirements of section 45V(d)(4) and paragraphs (a)(1) and (2) of this section is deemed to be originally placed in service as of the date that the property required to complete the modification described in section 45V(d)(4)(B) is placed in service regardless of whether such facility satisfies the requirements of paragraph (b) of this section.
(b) Retrofit of an existing facility (80/20 Rule). For purposes of section 45V(a)(1), a retrofitted hydrogen production facility may establish a new date on which it is considered originally placed in service, even though the facility contains some used components of property of a single production line, provided the fair market value of the used property is not more than 20 percent of the facility's total value, calculated by adding the cost of the new property to the value of the used property (80/20 Rule). For purposes of the 80/20 Rule, the cost of new property includes all properly capitalized costs of the new property included within the facility. If a facility satisfies the requirements of the 80/20 Rule, then the date on which such facility is considered originally placed in service for purposes of section 45V(a)(1) is the date on which the new property added to the facility is placed in service.
(c) Examples. The following examples illustrate the application of paragraphs (a) and (b) of this section:
(1) Example 1: Modification of an existing facility —(i) Facts. Facility X, a hydrogen production facility that was originally placed in service on January 1, 2018, could not produce qualified clean hydrogen as described in section 45V(c)(2). After January 1, 2023, Facility X was modified to produce qualified clean hydrogen, and all amounts paid or incurred with respect to such modifications were properly chargeable to the taxpayer's capital account for Facility X. The property required to complete the modification was placed in service on June 1, 2023.
(ii) Analysis. Under section 45V(d)(4) and paragraph (a) of this section, because Facility X was originally placed in service before January 1, 2023, and before the modification could not produce qualified clean hydrogen, it is deemed to be originally placed in service as of the date the property required to complete the modification is placed in service. Accordingly, for purposes of section 45V(a)(1) and (d)(4), Facility X is deemed to have been originally placed in service on June 1, 2023.
(2) Example 2: Modification of an existing facility; coordination with the section 45Q credit previously allowed —(i) Facts. The facts are the same as in paragraph (c)(1) of this section ( Example 1 ), except that taxpayer was allowed a section 45Q credit with respect to carbon capture equipment (CCE) included at Facility X before June 1, 2023.
(ii) Analysis. Under paragraph (a) of this section and § 1.45V-2(a), although Facility X is deemed to have been originally placed in service on June 1, 2023, because taxpayer had previously been allowed a section 45Q credit with respect to the CCE included at Facility X, no section 45V credit is allowable for qualified clean hydrogen produced at Facility X, despite the modification. The result would be the same if the section 45Q credit with respect to the CCE included at Facility X were allowed to a person other than the taxpayer.
(3) Example 3: Modification of an existing facility and coordination with section 45Q credit not previously allowed —(i) Facts. Facility Y, a hydrogen production facility that was originally placed in service on February 1, 2020, could not previously produce qualified clean hydrogen as described in section 45V(c)(2). On February 1, 2026, Facility Y was modified to produce qualified clean hydrogen by adding new CCE to allow Facility Y to capture, process, and prepare carbon dioxide for transport for disposal, injection, or utilization. All amounts paid or incurred with respect to such modifications were properly chargeable to the taxpayer's capital account for Facility Y. The property required to complete the modification of Facility Y was placed in service on February 1, 2026, and as a result, Facility Y, including the new CCE, is deemed to be originally placed in service on February 1, 2026, for purposes of sections 45V and 45Q. No section 45Q credit has been allowed to any taxpayer with respect to the new CCE located at Facility Y.
(ii) Analysis. Under paragraph (a) of this section and § 1.45V-2(a), because no section 45Q credit has been allowed to any taxpayer with respect to the new CCE located at Facility Y, a section 45V credit is allowable for the qualified clean hydrogen produced at Facility Y, assuming all other requirements of section 45V are met.
(4) Example 4: Retrofit of an existing facility (80/20 Rule) —(i) Facts. Facility Z, a hydrogen production facility that was originally placed in service on February 1, 2023, does not produce qualified clean hydrogen as described in section 45V(c)(2). On January 1, 2026, Facility Z was retrofitted to produce qualified clean hydrogen. After the retrofit, the cost of the new property included in Facility Z is greater than 80 percent of Facility Z's total value.
(ii) Analysis. Even though Facility Z does not satisfy the requirements of section 45V(d)(4) because Facility Z was not originally placed in service before January 1, 2023, under paragraph (b) of this section, Facility Z is deemed to be originally placed in service on January 1, 2026, because Facility Z meets the 80/20 Rule. Thus, a section 45V credit is allowable for qualified clean hydrogen produced at Facility Z during the 10-year period beginning on January 1, 2026, assuming all other requirements of section 45V are met.
(5) Example 5: Retrofit of an Existing Facility (80/20 Rule) and coordination with section 45Q credit previously allowed —(i) Facts. The facts are the same as in paragraph (c)(4) of this section ( Example 4 ), except that before the retrofit, Facility Z included CCE for which a section 45Q credit was allowed to a taxpayer.
(ii) Analysis. Under paragraph (b) of this section and § 1.45V-2(a), Facility Z is deemed to be originally placed in service on January 1, 2026, because Facility Z meets the 80/20 Rule. However, a section 45V credit is not allowable for qualified clean hydrogen produced at Facility Z during the 10-year period beginning on January 1, 2026, because a section 45Q credit has been allowed to a taxpayer with regard to the CCE included in Facility Z.
(d) Applicability date. This section applies to taxable years beginning after December 26, 2023.
§ 1.45X-0   Table of contents.
This section lists the major captions contained in §§ 1.45X-1 through 1.45X-4.
(a) Overview.
(b) Credit amount.
(c) Definition of produced by the taxpayer.
(d) Produced in the United States.
(e) Production and sale in a trade or business.
(f) Sale of integrated components.
(g) Interaction between sections 45X and 48C.
(h) [Reserved]
(i) Anti-abuse rule.
(j) Applicability date.
(a) In general.
(b) Definitions.
(c) Special rule for sale to related person.
(d) Related person election.
(e) Sales of integrated components to related person.
(f) Applicability date.
(a) In general.
(b) Solar energy components.
(c) Wind energy components.
(d) Inverters.
(e) Qualifying battery component.
(f) Phase out rule.
(g) Applicability date.
(a) In general.
(b) Definitions.
(c) Credit amount.
(d) Applicability date.