Section 45Z Clean Fuel Production Credit

h the section 45Z credit, this preamble refers to the section 45V credit, the section 48(a)(15) election, and the section 45Q credit collectively as the “anti-stacking credits” and individually as an “anti-stacking credit.”

Section 45Z(d)(5)(A) defines “transportation fuel” as a fuel that meets four requirements. First, the fuel must be suitable for use as a fuel in a highway vehicle or aircraft. Second, the fuel must have a lifecycle GHG emissions rate (emissions rate) of not greater than 50 kilograms (kg) of CO 2 e per mmBTU. Section 45Z(d)(1) defines “mmBTU” to mean 1,000,000 British thermal units; section 45Z(d)(2) defines “CO 2 e” to mean, with respect to any GHG, the equivalent carbon dioxide (as determined based on relative global warming potential). Third, the fuel must

not be derived from coprocessing an applicable material (or materials derived from an applicable material) with a feedstock that is not biomass. Section 45Z(d)(5)(B)(i) defines “applicable material” to mean monoglycerides, diglycerides, and triglycerides; free fatty acids; and fatty acid esters. Section 45Z(d)(5)(B)(ii) defines “biomass” to have the same meaning as in section 45K(c)(3) of the Code, which provides that biomass means any organic material other than oil and natural gas (or any product thereof), and coal (including lignite) or any product thereof. Fourth, the fuel must not be produced from a fuel for which a section 45Z credit is allowable.

In the case of a taxpayer producing a transportation fuel that is SAF, section 45Z(f)(1)(A)(i)(II) requires the taxpayer to provide certification from an unrelated person

s any organic material other than oil and natural gas (or any product thereof), and coal (including lignite) or any product thereof. Fourth, the fuel must not be produced from a fuel for which a section 45Z credit is allowable.

In the case of a taxpayer producing a transportation fuel that is SAF, section 45Z(f)(1)(A)(i)(II) requires the taxpayer to provide certification from an unrelated person. 1 For this purpose, section 45Z(a)(3) defines “sustainable aviation fuel,” which these proposed regulations refer to as a “SAF transportation fuel,” to mean the non-kerosene portion of liquid fuel that is a transportation fuel, is sold for use in an aircraft, is not derived from palm fatty acid distillates or petroleum, and meets the requirements of either: (i) ASTM International Standard D7566 or (ii) the Fischer Tropsch (FT) provisions of ASTM International Standard D1655, Annex A1.

1 Both the preamble to the proposed regulations and the proposed regulations use the term “unrelated person” when describing the certification required by section 45Z(f)(1)(A)(i)(II). Section 45Z(f)(1)(A)(i)(II) refers to an “unrelated party,” which is synonymous with an unrelated person as used in section 45Z(a)(4) and (f)(3).

Section 45Z(a)(4) requires a taxpayer to sell transportation fuel to an unrelated person: (i) for use by such person in the production of a fuel mixture; (ii) for use by such person in a trade or business; or (iii) who sells such fuel at retail to another person and places such fuel in the fuel tank of such other person. Section 45Z(f)(3) provides that persons are treated as related to each other if they would be treated as a single employer under the regulations prescribed under section 52(b) of the Code. 2 Section 45Z(f)(3) further provides that if a corporation is a member of an affiliated group of corporations filing a consolidated return, such corporation is treated as selling fuel to an unrelated person if another member of the group sells the fuel to an unrelated person

ble if the taxpayer produces the transportation fuel at a qualified facility that satisfies the prevailing wage and apprenticeship (PWA) requirements.

Section 45Z(c)(1) provides that for calendar years beginning after 2024, the applicable amount must be adjusted by multiplying such amount by the inflation adjustment factor for the calendar year in which the sale of the transportation fuel occurs. Section 45Z(c)(2) provides that the inflation adjustment factor for the section 45Z credit is the inflation adjustment factor determined and published by the Secretary pursuant to section 45Y(c), determined by substituting “calendar year 2022” for “calendar year 1992” in section 45Y(c)(3). The inflation adjustment factor for purposes of section 45Z means, with respect to a calendar year, a fraction the numerator of which is the gross domestic product (GDP) implicit price deflator for the preceding calendar year and the denominator of which is the GDP implicit price deflator for the calendar year 2022. In this context, the term “GDP implicit price deflator” means the most recent revision of the implicit price deflator for the GDP as computed and published by the Department of Commerce before March 15 of the calendar year.

If any inflation-adjusted applicable amount is not a multiple of one cent, it must be rounded to the nearest multiple of one cent. Section 45Z(c)(1).

Section 45Z(f)(6)(A) provides that rules similar to the prevailing wage requirements of section 45(b)(7) apply. Section 45Z(f)(6)(B) provides a special rule for qualified facilities placed in service before January 1, 2025, under which such a facility need only satisfy prevailing wage requirements for any alteration or repair in taxable years beginning after December 31, 2024. Section 45Z(f)(7) provides that rules similar to the apprenticeship requirements of section 45(b)(8) apply. Section 1.45Z-3 provides additional rules on the PWA requirements under section 45Z.

2

ities placed in service before January 1, 2025, under which such a facility need only satisfy prevailing wage requirements for any alteration or repair in taxable years beginning after December 31, 2024. Section 45Z(f)(7) provides that rules similar to the apprenticeship requirements of section 45(b)(8) apply. Section 1.45Z-3 provides additional rules on the PWA requirements under section 45Z.

2. Emissions Factor and Emissions Rate

Under section 45Z(b)(1)(A), a transportation fuel's emissions factor measures the reduction in a fuel's emissions rate, expressed as kg of CO 2 e per mmBTU, relative to the statutory baseline emissions rate of 50 kg of CO 2 e per mmBTU, expressed as a fraction of the statutory baseline. Expressed mathematically, the emissions factor calculation is as follows:

(50 kg CO 2 e per mmBTU−emissions rate) ÷ 50 kg CO 2 e per mmBTU Under section 45Z(b)(2), any emissions factor determined under section 45Z(b)(1)(A) that is not a multiple of 0.1 must be rounded to the nearest multiple of 0.1.

A taxpayer determines a fuel's emissions rate by either using the annual emissions rate table published by the Secretary or obtaining a provisional emissions rate (PER) determination from the Secretary. See section 45Z(b)(1)(B) and (D). The emissions rate may not be less than zero for any transportation fuel produced after December 31, 2025, except for fuel derived from animal manure. See section 45Z(b)(1)(B)(v) and (b)(1)(E); section 70521(b) and (c)(1) of the OBBBA.

Section 45Z(b)(1)(B)(i) directs the Secretary, subject to section 45Z(b)(1)(B)(ii) through (v), to annually publish a table setting forth the emissions rates for similar types and categories of transportation fuels based on the amount of lifecycle GHG emissions as described in section 211(o)(1)(H) of the CAA-2022 for such fuels, expressed as kg of CO 2 e per mmBTU

nd (iii) provides the methods for determining emissions rates in each case.

Section 45Z(b)(1)(B)(ii) provides that for non-SAF transportation fuel, the lifecycle GHG emissions of such fuel must be based on the most recent determinations under the Greenhouse gases, Regulated Emissions, and Energy use in Transportation model developed by the ANL, or a successor model as determined by the Secretary.

Section 45Z(b)(1)(B)(iii) provides that for SAF transportation fuel, the lifecycle GHG emissions of such fuel is determined in accordance with: (i) the most recent CORSIA methodologies that have been adopted by the International Civil Aviation Organization (ICAO) with the agreement of the United States; or (ii) any methodology similar to the most recent CORSIA methodologies that satisfies the criteria under section 211(o)(1)(H) of the CAA-2022.

Section 45Z(b)(1)(B)(iv) provides that for transportation fuel produced after December 31, 2025, notwithstanding section 45Z(b)(1)(B)(i) through (iii), the emissions rate must be adjusted to exclude any emissions attributed to indirect land use change. See section 70521(c) of the OBBBA.

Section 45Z(b)(1)(B)(v) provides that for any transportation fuel derived from animal manure and produced after December 31, 2025, a distinct emissions rate must be provided with respect to such fuel based on the specific animal manure feedstock. Such an emissions rate may be less than zero. See section 70521(c) of the OBBBA.

In the case of any transportation fuel for which an emissions rate has not been established in the annual emissions rate table under section 45Z(b)(1)(B), a taxpayer producing such fuel may file a petition with the Secretary for determination of the PER with respect to such fuel. See section 45Z(b)(1)(D).

C

in such form and manner, and subject to such terms and conditions, as the Secretary may by regulations prescribe. Section 4101(a)(1) further provides that a section 4101 registration may be used only in accordance with regulations prescribed under section 4101. Section 4101(a)(5) requires reregistration under regulations prescribed by the Secretary in the event of certain changes in ownership.

A. Section 45Z Registration Requirement

Section 45Z(f)(1)(A)(i)(I) provides that no section 45Z credit shall be determined unless the taxpayer is registered as a producer of clean fuel under section 4101 at the time of production. Section 4101(a)(1) requires registration by “every person producing a fuel eligible for the clean fuel production credit (pursuant to section 45Z),” effective for transportation fuel produced after December 31, 2024. 3

3 See section 13704(b)(5) of the IRA, as amended by section 70521(i) of the OBBBA.

B. Denial, Revocation, or Suspension of Registration

Under section 4101(c), rules similar to the rules of section 4222(c) apply for purposes of denial, revocation, or suspension of registration under section 4101. Section 4222 generally requires registration for certain tax-free sales under section 4221. Section 4222(c) provides that under regulations prescribed by the Secretary, the registration of any person under section 4222 may be denied, revoked, or suspended if the Secretary determines: (i) that such person has used such registration to avoid the payment of any tax imposed by chapter 32 of the Code (chapter 32), or to postpone or in any manner to interfere with the collection of any such tax, or (ii) that such denial, revocation, or suspension is necessary to protect the revenue. The flush language of section 4222(c) provides that denial, revocation, or suspension under section 4222(c) is in addition to any penalty provided by law for any act or failure to act.

Section 48.4222(a)-1 provides rules for registration, including application instructions

ith the collection of any such tax, or (ii) that such denial, revocation, or suspension is necessary to protect the revenue. The flush language of section 4222(c) provides that denial, revocation, or suspension under section 4222(c) is in addition to any penalty provided by law for any act or failure to act.

Section 48.4222(a)-1 provides rules for registration, including application instructions. Section 48.4222(c)-1 provides rules for revocation or suspension of registration and authorizes the IRS in certain circumstances to revoke or temporarily suspend, upon written notice, the registration of any person under section 4222.

IV. Section 6417

Section 6417 permits an applicable entity to elect to treat an applicable credit determined with respect to the

applicable entity for the taxable year as a payment against Federal income taxes imposed by subtitle A of the Code equal to the amount of the credit. Section 6417(b)(9) provides that the 45Z credit is an applicable credit.

V. Section 6418

Section 6418 permits an eligible taxpayer to elect to transfer all or a portion of an eligible credit determined with respect to such taxpayer for any taxable year to an unrelated taxpayer. Section 6418(f)(1)(A)(viii) provides that the section 45Z credit is an eligible credit.

VI. Prior Guidance and Publications

A. Notice 2022-58 (Request for Feedback)

Notice 2022-58, 2022-47 I.R.B. 483 (released November 3, 2022), requested stakeholder feedback on questions arising under section 45Z that should be addressed in guidance.

B. Treasury Decision 9988 (Elective Payment Election Regulations)

The Treasury Department and the IRS published Treasury Decision 9988 in the Federal Register (89 FR 17546, March 11, 2024), which finalized regulations concerning the election to treat applicable credits as a payment of Federal income tax under section 6417 (Elective Payment Election Regulations)

should be addressed in guidance.

B. Treasury Decision 9988 (Elective Payment Election Regulations)

The Treasury Department and the IRS published Treasury Decision 9988 in the Federal Register (89 FR 17546, March 11, 2024), which finalized regulations concerning the election to treat applicable credits as a payment of Federal income tax under section 6417 (Elective Payment Election Regulations). The Elective Payment Election Regulations contain rules on section 6417 that apply with respect to an applicable credit, including the section 45Z credit. Section 1.6417-2(c)(4) requires an applicable entity or electing taxpayer to own the underlying eligible credit property except in the case of the advanced manufacturing production credit under section 45X.

C. Treasury Decision 9993 (Credit Transfer Election Regulations)

The Treasury Department and the IRS published Treasury Decision 9993 in the Federal Register (89 FR 34770, April 30, 2024), which finalized regulations concerning the transfer election with respect to eligible credits under section 6418 (Credit Transfer Election Regulations). The Credit Transfer Election Regulations contain rules on section 6418 that apply with respect to an eligible credit, including the section 45Z credit. Section 1.6418-2(d)(1) requires an eligible taxpayer to own the underlying eligible credit property except in the case of the advanced manufacturing production credit under section 45X.

D. Notice 2024-49 (Registration Requirement)

Notice 2024-49, 2024-26 I.R.B. 1781 (released May 31, 2024), provides guidance on the section 45Z registration requirements, including the time, form, and manner of registration. Section 3 of Notice 2024-49 also provides general definitions, initial definitions of SAF and non-SAF transportation fuels, and an initial, non-exclusive list of primary feedstocks, to help taxpayers applying for registration identify fuels and primary feedstocks that may qualify for the section 45Z credit. Notice 2025-10, 2025-6 I.R.B

rements, including the time, form, and manner of registration. Section 3 of Notice 2024-49 also provides general definitions, initial definitions of SAF and non-SAF transportation fuels, and an initial, non-exclusive list of primary feedstocks, to help taxpayers applying for registration identify fuels and primary feedstocks that may qualify for the section 45Z credit. Notice 2025-10, 2025-6 I.R.B. 682 (released January 10, 2025), discussed later in this Background section, modifies and supersedes these definitions, and replaces them with the definitions in the Appendix to Notice 2025-10.

E. Treasury Decision 9998 (PWA Regulations)

The Treasury Department and the IRS published Treasury Decision 9998 in the Federal Register (89 FR 53184, June 25, 2024), which finalized regulations concerning the PWA requirements under several sections of the Code (PWA Regulations), including section 45Z. Section 1.45Z-3 provides rules on the application of the PWA requirements to section 45Z. The preamble to the PWA Regulations contains a detailed discussion of the PWA requirements, including applicability dates and transition rules with respect to the section 45Z credit. These proposed regulations only address § 1.45Z-3 for context and to the extent necessary to clarify the rules herein. The PWA Regulations are otherwise outside the scope of this rulemaking.

F. Fact Sheet FAQs

A section 45Z Fact Sheet, FS-2024-25 (released July 10, 2024), provides answers to certain frequently asked questions (FAQs) on the section 45Z registration requirements. This Fact Sheet is available at https://www.irs.gov/newsroom/frequently-asked-questions-about-applying-for-registration-for-the-clean-fuel-production-credit-under-ss-45z.

G. Notice 2025-10 (Notice of Intent To Propose Rules)

Notice 2025-10 announced that the Treasury Department and the IRS intended to propose regulations (forthcoming proposed regulations) addressing the section 45Z credit

ations would amend §§ 1.6417-2(c), 1.6418-2(d), and 48.4101-1. The proposed amendments to §§ 1.6417-2(c)(4) and 1.6418-2(d)(1) would clarify that sections 45Z and 45(d)(3)(C) do not require a taxpayer to own the underlying eligible credit property. Proposed § 48.4101-1(a)(7) would provide that a letter of registration is not a determination of tax treatment under the Code or a determination letter. Proposed § 48.4101-1(a)(8) would provide rules for reregistration in the event of a change of ownership or a change of employer identification number (EIN).

II. Definitions

Proposed § 1.45Z-1 would provide definitions that apply for purposes of section 45Z and the proposed regulations. In addition, proposed § 1.45Z-1 would clarify key statutory terms as discussed in Parts II.A. through II.M. of this Explanation of Provisions. The definitions would also adopt the statutory language for the terms “applicable amount” (section 45Z(a)), “applicable material” (section 45Z(d)(5)(B)(i)), “biomass” (section 45Z(d)(5)(B)(ii) ( citing section 45K(c)(3))), “CO 2 e” (section 45Z(d)(2)), “emissions factor” (section 45Z(b)(1)(A)), “greenhouse gas (GHG)” (section 45Z(d)(3)), “lifecycle GHG emissions” (section 45Z(b)(1)(B)(i)), and “mmBTU” (section 45Z(d)(1)), and identify abbreviations used in the proposed regulations, such as “ASTM,” “Code,” U.S. Department of Energy (DOE), EPA, “Secretary,” IRS, “section 45Z credit,” and “section 45Z regulations.” Further, the definitions would specify the relevant CORSIA methodologies, define an emissions rate in accordance with section 45Z(b)(1), and define terms associated with the PER process ( see Part III.F.2. of this Explanation of Provisions).

A. 45ZCF-GREET Model

Proposed § 1.45Z-1(b)(1) would define “45ZCF-GREET model” as the model by that name developed by the ANL and published by the DOE for use in determining the amount of lifecycle GHG emissions for purposes of section 45Z

mple of the calculation of a gallon equivalent, respectively.

E. Producer and Taxpayer Treated as a Producer

1. In General

Proposed § 1.45Z-1(b)(26)(i) would generally define the term “producer” for purposes of section 45Z as the person that engages in the production of a transportation fuel. Proposed § 1.45Z-1(b)(26)(iii) would provide examples illustrating the application of the definition. Section 45Z requires the taxpayer to be registered as a producer of clean fuel but does not specify who

the producer is if the production process involves multiple persons and multiple steps. The proposed regulations would clarify this point.

2. Producer of Alternative Natural Gas

Proposed § 1.45Z-1(b)(26)(ii) would provide that the “producer” of alternative natural gas, including renewable natural gas (RNG), for purposes of section 45Z is the person that processes the untreated sources of alternative natural gas (processor) to remove water, carbon dioxide, and other impurities such that it is interchangeable with fossil natural gas. This definition would be consistent with the purpose of section 45Z because the processor is the most active participant in the production process, and section 45Z incentivizes production. The definition of “producer” would therefore exclude any person that removes conventional or alternative natural gas (CANG) from a pipeline, compresses it further after removal, and then sells such further-compressed CANG (compressor). Compression of CANG that is already interchangeable with fossil natural gas also would not meet the proposed definition of “production” (see Part II.F. of this Explanation of Provisions).

Several stakeholders have raised questions about who should be considered the producer of RNG for purposes of section 45Z

mary feedstock to produce a fuel that meets the same ASTM standard as the primary feedstock. The definition of “production” would also incorporate the rules in section 45Z(f)(1)(A)(ii) and (f)(1)(B) requiring production to occur in the United States.

The definition of “production” would further clarify that minimal processing would not qualify as production for purposes of the section 45Z credit. Minimal processing would generally include creating a fuel mixture or otherwise engaging in activities that do not result in a chemical transformation. However, with respect to CANG, production would include processing untreated sources of alternative natural gas to remove water, carbon dioxide, and other impurities such that it is interchangeable with fossil natural gas. Production of CANG would not include compressing CANG that is already interchangeable with fossil natural gas to a higher pressure.

Under the proposed regulations, the blending of a transportation fuel into another fuel to create a fuel mixture, regardless of whether the fuel mixture itself satisfies the requirements of section 45Z(d)(5)(A), would not constitute production of a transportation fuel because the blending process would constitute minimal processing. For example, the blending of ethanol and gasoline would not constitute production of a transportation fuel.

Further, importing fuel that is largely finished fuel and undergoes only minimal processing in the United States would not constitute production. Proposed § 1.45Z-1(b)(27)(ii) would provide examples of minimal processing, including instances in which the same person engages in production and subsequent blending.

In enacting section 45Z, Congress replaced fuel credits and payments that specifically incentivize blending (including the credits under sections 40B and 6426(k), and the payment under section 6427(e)) with the section 45Z production credit

1.45Z-1(b)(27)(ii) would provide examples of minimal processing, including instances in which the same person engages in production and subsequent blending.

In enacting section 45Z, Congress replaced fuel credits and payments that specifically incentivize blending (including the credits under sections 40B and 6426(k), and the payment under section 6427(e)) with the section 45Z production credit. Congress's shift from blending incentives to a production incentive demonstrates that Congress no longer intended to incentivize blending. Therefore, equating production with blending would be contrary to Congress's purpose in enacting section 45Z.

G. Qualified Facility

1. Facility

Proposed § 1.45Z-1(b)(18) would define a “facility,” as used in section 45Z(d)(4) and the proposed regulations, to mean a single production line that produces a transportation fuel and would include all components that function interdependently to produce a transportation fuel. The definition of “facility” would also clarify the treatment of indirect, post-production, and multipurpose equipment. The definition would, for instance, exclude CANG compression equipment from a facility because it is post-production equipment. The definition would include examples involving carbon capture equipment and SAF transportation fuel.

The proposed definition of “facility” is neutral as to geographic proximity of the components of the production line and focuses instead on interdependent pieces of equipment used to produce transportation fuel. This definition is consistent with how provisions of the Code under which similar tax credits are determined define “facility.” It is also consistent with stakeholders' requests that a facility be narrowly defined to minimize overlap with other credits and their concerns that physical boundaries may be inadequate

es instead on interdependent pieces of equipment used to produce transportation fuel. This definition is consistent with how provisions of the Code under which similar tax credits are determined define “facility.” It is also consistent with stakeholders' requests that a facility be narrowly defined to minimize overlap with other credits and their concerns that physical boundaries may be inadequate. Accordingly, the proposed definition considers that a section 45Z facility may be co-located with another credit-eligible facility, and that some production equipment may be located upstream or downstream from, or in a different building than, other equipment.

2. Qualified Facility

Proposed § 1.45Z-1(b)(28)(i) would incorporate the definitions of “qualified facility” in section 45Z(d)(4) and “facility” in proposed § 1.45Z-1(b)(18) and clarify that a “qualified facility” must satisfy the anti-stacking rules in section 45Z(d)(4)(B) and proposed § 1.45Z-4(b). Proposed § 1.45Z-1(b)(28)(ii) would define the term “anti-stacking credit” to mean any of the three credits listed in section 45Z(d)(4)(B).

H. Qualified Sale

The draft regulatory text in the Appendix to Notice 2025-10 used the term “qualifying sale.” The proposed regulations would instead use the term “qualified sale.” Proposed § 1.45Z-1(b)(29) would define a “qualified sale” as a sale of a transportation fuel in a manner described in section 45Z(a)(4). The definition would also: (i) clarify the term “sold for use in a trade or business” for purposes of section 45Z(a)(4)(B); (ii) incorporate the sale attribution rule in section 45Z(f)(3) if fuel is sold by another member of the taxpayer's consolidated group (as defined in § 1.1502-1(b) and (h),

respectively); and (iii) prescribe an additional sale attribution rule, as authorized by section 45Z(f)(3), for fuel sold by a related person if the taxpayer is not a member of a consolidated group

ouble crediting, the OBBBA amended section 45Z(d)(5) to exclude from the definition of a “transportation fuel” any fuel produced from a fuel for which a section 45Z credit is allowable. See section 70521(e) of the OBBBA. This statutory revision suggests that a sale for use as a primary feedstock to produce another fuel may qualify as a sale for use in a trade or business under section 45Z(a)(4)(B). The proposed regulations would align the definition of “sold for use in a trade or business” with the statutory language.

The proposed regulations would further define “sold for use in a trade or business” to exclude a sale of fuel to a reseller that subsequently sells the fuel at retail to another person and places the fuel in the tank of such other person. Such a sale (if made to an unrelated person) would be a qualified sale under section 45Z(a)(4)(C) and proposed § 1.45Z-1(b)(29)(i)(C). Therefore, inclusion of such sales in the definition of “sold for use in a trade or business,” which relates to section 45Z(a)(4)(B), would render section 45Z(a)(4)(C) superfluous.

As noted earlier, the proposed definition of “sold for use in a trade or business” gives meaning to section 45Z(a)(4)(A) and (C) and is consistent with a plain reading of section 45Z(a)(4)(B). The proposed definition is also consistent with the “suitable for use as a fuel in a highway vehicle or aircraft” language in section 45Z(d)(5)(A).

The draft regulatory text in the Appendix to Notice 2025-10 incorporated the sale attribution rule in section 45Z(f)(3) for fuel sold by another member of the taxpayer's consolidated group. Many stakeholders requested the adoption of a broader “look-through” rule for sales made through related intermediaries, so that a taxpayer would be treated as selling fuel to an unrelated person if a related person (for example, a related intermediary dealer or wholesaler) ultimately sold the fuel to an unrelated person

ons. Proposed § 1.45Z-1(b)(29)(iv) would provide that, for purposes of section 45Z, a taxpayer that is not a member of a consolidated group is treated as selling fuel to an unrelated person if a related person sells the fuel to the unrelated person. This rule would apply to all sales made by related persons except those specifically addressed in section 45Z(f)(3) and proposed § 1.45Z-1(b)(29)(iii).

Proposed § 1.45Z-1(b)(29)(v) would provide examples illustrating the definition of “qualified sale,” including the “sold for use in a trade or business” definition as it relates to section 45Z(a)(4)(B), the sale attribution rule for fuel sold by another member of a taxpayer's consolidated group, the sale attribution rule for fuel sold by a related person (other than another member of a taxpayer's consolidated group), and a sale made by a taxpayer that produces and subsequently blends a transportation fuel.

I. Transportation Fuel

1. In General

Proposed § 1.45Z-1(b)(34) would define “transportation fuel” as provided in section 45Z(d)(5)(A), and would also define associated terms. The proposed regulations would define the term “suitable for use as a fuel in a highway vehicle or aircraft” (suitable for use) to mean that the fuel has practical and commercial fitness for use as a fuel in a highway vehicle or aircraft, or may be blended into a fuel mixture that has practical and commercial fitness for use as a fuel in a highway vehicle or aircraft. The proposed definition of “suitable for use” is consistent with longstanding excise tax rules under § 48.4081-1(c)(2) of the Manufacturers and Retailers Excise Tax Regulations, with which the fuel industry is familiar.

The proposed regulations would also clarify that actual use as a fuel in a highway vehicle or aircraft is not required. For example, diesel fuel that has practical and commercial fitness for use as a fuel in a highway vehicle or

aircraft, but is ultimately used as marine fuel, would satisfy the “suitable for use” standard

lers Excise Tax Regulations, with which the fuel industry is familiar.

The proposed regulations would also clarify that actual use as a fuel in a highway vehicle or aircraft is not required. For example, diesel fuel that has practical and commercial fitness for use as a fuel in a highway vehicle or

aircraft, but is ultimately used as marine fuel, would satisfy the “suitable for use” standard. The proposed regulations would further provide that CANG is suitable for use once it is produced so that it is interchangeable with fossil natural gas and would require only minimal processing (for example, further compression or liquefaction) to meet the specifications of ASTM D8080. In addition, the proposed regulations would also provide that a fuel that does not require further processing and that may be blended with or used as a component of taxable fuel (within the meaning of section 4083 of the Code) is suitable for use.

The proposed regulations would define the term “produced from a fuel for which a section 45Z credit is allowable,” as used in section 45Z(d)(5)(A)(iv), to mean that a fuel has a primary feedstock that meets the definition of a transportation fuel under section 45Z (without regard to section 45Z(d)(5)(A)(iv)). This proposed rule would prevent double crediting by ensuring that only the first transportation fuel in a production chain qualifies for a section 45Z credit. See section 70521(e) of the OBBBA. Thus, if one fuel is used as a primary feedstock to produce a second fuel, and the first fuel qualifies as a transportation fuel for purposes of section 45Z, the second fuel would not qualify for a section 45Z credit. For instance, SAF produced from ethanol as a primary feedstock, and hydrogen produced from RNG as a primary feedstock, may not qualify as transportation fuel for purposes of section 45Z. However, a fuel could still qualify for a section 45Z credit if its production process uses a transportation fuel solely as a process fuel or other non-primary-feedstock input

tand the term “fuel” as referring to a liquid or gaseous substance that can be consumed to supply heat or power. As a result, the term “transportation fuel” under the proposed regulations would not include electricity.

Second, the anti-stacking rules in section 45Z(d)(4)(B) disallow receiving both a section 45Z credit and certain other credits with respect to the same facility for a taxable year. See proposed § 1.45Z-1(b)(28)(ii) (definition of anti-stacking credit); Part IV.B. of this Explanation of Provisions (discussion of anti-stacking rules).

The inclusion of the anti-stacking rules indicates that Congress understood the potential for activity at a particular facility to generate multiple credits for a taxable year and wished to foreclose that possibility. However, the section 45Y clean electricity production credit is not included in the anti-stacking rules, which indicates that the production of electricity is not eligible for the section 45Z credit. Thus, Congress's omission of the section 45Y credit from the anti-stacking rules suggests that Congress did not understand the term “fuel” to include electricity for purposes of section 45Z. Further, Notice 2025-10, which stated that the forthcoming proposed regulations intended to exclude electricity as a transportation fuel, was published approximately 6 months before the enactment of the OBBBA. Though the OBBBA amended certain aspects of section 45Z discussed in Notice 2025-10, including the definition of “transportation fuel,” the OBBBA did not amend or clarify the definition of “transportation fuel” to include electricity.

Third, the Code already provides a separate credit for clean electricity production under section 45Y. When Congress created the section 45Z credit, it also created the section 45Y credit. Generally, the section 45Y credit is not limited based on how the electricity is ultimately used

of section 45Z(a)(3).

L. Types and Categories of Transportation Fuel

Proposed § 1.45Z-1(b)(35) would define the term “type of transportation fuel” as a particular kind of fuel, and the term “category of transportation fuel” as the unique primary feedstock and pathway used to produce a type of transportation fuel. The definitions would clarify those terms as used in section 45Z(b)(1)(B)(i).

M. Unrelated Person

Consistent with section 45Z(f)(3), proposed § 1.45Z-1(b)(36) would define the term “unrelated person” as a person not related to the taxpayer. The term “unrelated party” has the same meaning as “unrelated person” for purposes of the certification required by section 45Z(f)(1)(A)(i)(II)(aa). The definition would also incorporate the related person definition in section 45Z(f)(3).

III. General Rules

Proposed § 1.45Z-2 would provide general rules regarding the section 45Z credit. The proposed regulations would incorporate and clarify the rules in section 45Z(a) through (c) regarding the amount of the credit, the credit calculation, the timing of the credit, emissions factors, and emissions rates (including the emissions rate table and the PER process).

A. Amount of Credit

Proposed § 1.45Z-2(a)(1) would incorporate and clarify the credit calculation rules in section 45Z(a)(1). Proposed § 1.45Z-2(a)(2) would provide that the volume of a liquid fuel is measured on the basis of gallons adjusted to ambient pressure and temperature of 1 atmosphere and 60 degrees Fahrenheit. The proposed rule would reference proposed § 1.45Z-1(b)(20)(ii) and (iii), respectively, for the determination of whether a fuel is liquid or non-liquid and the calculation of the gallon equivalent of a non-liquid fuel.

Proposed § 1.45Z-2(a)(3) would provide rules and examples for the calculation of the section 45Z credit

satisfies the PWA requirements. The base amount would otherwise apply in the case of any transportation fuel produced at a qualified facility that does not satisfy the PWA requirements.

Proposed § 1.45Z-2(a)(4)(iv) would implement the inflation adjustment mechanics for the applicable amount provided under section 45Z(c), including the inflation adjustment factor as provided in section 45Z(c)(2). In Notice 2025-37, the Treasury Department and the IRS published the section 45Z inflation adjustment factor for calendar year 2025. The section 45Z inflation adjustment factor for subsequent calendar years will also be published in the Internal Revenue Bulletin.

B. Timing of Credit

Proposed § 1.45Z-2(b)(1) would clarify that a taxpayer is eligible to claim the section 45Z credit only for the taxable year in which a qualified sale of a transportation fuel occurs, provided the taxpayer meets all other requirements to claim the credit. See section 45Z(a)(1)(A)(ii). Proposed § 1.45Z-2(b)(2) would incorporate the effective date in section 13704(c) of the IRA, which provides that section 45Z applies to transportation fuel produced after December 31, 2024.

Proposed § 1.45Z-2(b)(3)(i) would clarify that a transportation fuel may be produced in an earlier taxable year than the taxable year in which the qualified sale of the fuel occurs, but that a qualified sale may not occur before the date the fuel is produced. As a result, if a taxpayer sells transportation fuel before production, the qualified sale would occur on the date of production. Proposed § 1.45Z-2(b)(3)(ii) would provide that a qualified sale occurs at the time of the taxpayer's sale to the unrelated person, or if a related-person sale attribution rule applies, at the time of the related person's sale to the unrelated person.

C. Emissions Factor

Proposed § 1.45Z-2(c)(1) would incorporate the definition of “emissions factor” provided under section 45Z(b)(1)(A)

duction. Proposed § 1.45Z-2(b)(3)(ii) would provide that a qualified sale occurs at the time of the taxpayer's sale to the unrelated person, or if a related-person sale attribution rule applies, at the time of the related person's sale to the unrelated person.

C. Emissions Factor

Proposed § 1.45Z-2(c)(1) would incorporate the definition of “emissions factor” provided under section 45Z(b)(1)(A). Proposed § 1.45Z-2(c)(2) would incorporate the emissions factor rounding rule in section 45Z(b)(2) and provide an example.

D. Emissions Rate

Proposed § 1.45Z-2(d)(1) would incorporate the rules for determining the emissions rate of a transportation fuel in section 45Z(b)(1)(B) and (D). To determine an emissions rate for a fuel, a taxpayer would either use the applicable emissions rate table published by the Secretary or, if the applicable emissions rate table does not establish an emissions rate for the taxpayer's fuel, a PER determined by the Secretary.

Proposed § 1.45Z-2(d)(2) would incorporate section 70521(b) and (c)(1) of the OBBBA, which provide that for transportation fuel produced after December 31, 2025, the emissions rate cannot be less than zero, unless such fuel is derived from animal manure. Section 45Z(b)(1)(B)(v), which was added by section 70521(c)(1) of the OBBBA, provides that, notwithstanding that general rule, the Secretary “may provide an emissions rate that is less than zero” for a transportation fuel derived from an animal manure feedstock such as dairy, swine, or poultry manure. Proposed § 1.45Z-2(d)(2) would clarify that the limitation regarding negative emissions rates also applies to any transportation fuel used as a production input. The proposed rule would provide examples illustrating the negative-emissions-rate limitation and the effect of a negative emissions rate on the emissions factor calculation

animal manure feedstock such as dairy, swine, or poultry manure. Proposed § 1.45Z-2(d)(2) would clarify that the limitation regarding negative emissions rates also applies to any transportation fuel used as a production input. The proposed rule would provide examples illustrating the negative-emissions-rate limitation and the effect of a negative emissions rate on the emissions factor calculation.

Proposed § 1.45Z-2(d)(3) would incorporate the rule in section 45Z(b)(1)(B)(iv), which was added by section 70521(c)(1) of the OBBBA, that excludes emissions attributed to indirect land use changes for transportation fuel produced after December 31, 2025.

As discussed in Part III.E. and III.F. of this Explanation of Provisions, under proposed § 1.45Z-2(e)(2), the applicable emissions rate table would direct a taxpayer to use the allowed methodologies described in section 45Z(b)(1)(B)(ii) and (iii) and set out in proposed § 1.45Z-2(e)(3), and any PER

would be determined pursuant to section 45Z(b)(1)(D) and the procedures in proposed § 1.45Z-2(f).

E. Emissions Rate Table

1. In General

Proposed § 1.45Z-2(e) would incorporate the rules in section 45Z(b)(1)(B) regarding the annual publication of a table of emissions rates for similar types and categories of transportation fuels (emissions rate table), including the requirement in section 45Z(b)(1)(B)(i) that the emissions rate table be published “[s]ubject to” the requirements in section 45Z(b)(1)(B)(ii) through (v).

The Treasury Department and the IRS will annually publish an emissions rate table for each calendar year in the Internal Revenue Bulletin. The annual emissions rate table for calendar year 2025 was published in Notice 2025-11.

Proposed § 1.45Z-2(e)(2) would provide rules for identifying the applicable emissions rate table that a taxpayer must use in a given taxable year

he statute does not contemplate taxpayers locking in the use of old tables in later years. Additionally, the amount of the section 45Z credit depends in part on the emissions rate of the transportation fuel produced in a given taxable year. Accordingly, the emissions rate of a fuel is properly established using the emissions rate table in effect for the taxable year in which such fuel was produced. The beginning of construction date for the facility in which the fuel is produced has no significance with respect to emissions rates and is unrelated to the actual emissions associated with the production of transportation fuel after the facility is placed in service.

Proposed § 1.45Z-2(e)(2)(ii) would clarify that if a taxpayer produces a fuel for which the applicable emissions rate table establishes an emissions rate, the taxpayer must use the corresponding allowed methodologies, as specified in proposed § 1.45Z-2(e)(3), as provided in such table to determine the emissions rate for all such fuel produced during the taxpayer's taxable year.

Proposed § 1.45Z-2(e)(2)(iii)(A) would clarify that the applicable emissions rate table establishes the emissions rate for a fuel if the emissions rate table includes both the type and category of that fuel. Proposed § 1.45Z-2(e)(2)(iii)(B) would clarify that if an emissions rate table does not initially include a type or category of fuel, but an allowed methodology is updated to add such type or category of fuel during the calendar year, then that type or category of fuel is considered included in such emissions rate table.

The proposed regulations would generally require a taxpayer to use the latest annual emissions rate table (as opposed to prior annual tables) and would prevent the use of outdated modeling.

2

tegory of fuel, but an allowed methodology is updated to add such type or category of fuel during the calendar year, then that type or category of fuel is considered included in such emissions rate table.

The proposed regulations would generally require a taxpayer to use the latest annual emissions rate table (as opposed to prior annual tables) and would prevent the use of outdated modeling.

2. Allowed Methodologies

Proposed § 1.45Z-2(e)(3)(i) would provide that a taxpayer producing a fuel for which an emissions rate is established by the applicable emissions rate table must determine the fuel's emissions rate using the allowed methodologies described in proposed § 1.45Z-2(e)(3)(iv) and (v), as directed by the applicable emissions rate table.

Proposed § 1.45Z-2(e)(3)(ii) would require a taxpayer to use the first version of an allowed methodology that is publicly available in the taxable year of production and that includes the type and category of the taxpayer's fuel. However, if an updated version of an allowed methodology becomes publicly available after the first day of the taxable year of production (but still within such taxable year), then the taxpayer could choose to treat such updated version as the most recent version of such methodology. This choice would give a taxpayer the flexibility to choose the version of an allowed methodology to use with respect to taxable years for which an updated version of a methodology may be published during a taxpayer's taxable year of production. This would generally ensure that a taxpayer uses the latest modeling and benefits from favorable updates to a methodology, but would not penalize a taxpayer if a methodology is updated unfavorably during the taxable year.

The proposed regulations would address the requirement in section 45Z(b)(1)(B)(i) that the emissions rate table be published “[s]ubject to” the requirements in section 45Z(b)(1)(B)(ii) through (v)

y that, for a given type and category of SAF transportation fuel, a taxpayer must use the same methodology to calculate lifecycle GHG emissions associated with all stages of fuel feedstock production and distribution.

Section 45Z(b)(1)(B)(i) requires the emissions rate table to be based on the amount of lifecycle GHG emissions (as described in section 211(o)(1)(H) of the CAA-2022) for such fuels. Section 211(o)(1)(H) of the CAA-2022 defines lifecycle GHG emissions as the aggregate emissions from all stages of the fuel's production and use, including feedstock production and transportation, fuel production and distribution, and use of the finished fuel. This type of lifecycle analysis is referred to as “well-to-wheel” emissions analysis. As a result, for each type and category of transportation fuel, the 45ZCF-GREET model also uses “well-to-wheel” emissions to calculate lifecycle GHG emissions for all stages of fuel production, as well as emissions resulting from use of the fuel in transportation.

Section 70521(c)(1) of the OBBBA provides that for fuel produced after

December 31, 2025, notwithstanding the CAA reference in section 45Z(b)(1)(B)(i), the emissions rate of a transportation fuel shall exclude any emissions attributed to indirect land use change. See section 45Z(b)(1)(B)(iv).

3. 45ZCF-GREET Model

a. In General

Section 45Z(b)(1)(B)(ii) provides that in the case of non-SAF transportation fuel, the lifecycle GHG emissions of such fuel must be based on the most recent determinations under the Greenhouse gases, Regulated Emissions, and Energy use in Transportation model developed by the ANL, or a successor model (as determined by the Secretary). The DOE changed the name of the “Greenhouse gases, Regulated Emissions, and Energy use in Transportation” model to “Greenhouse gases, Regulated Emissions, and Energy use in Technologies” in 2020 and it is now generally referred to as the “GREET” model

ouse gases, Regulated Emissions, and Energy use in Transportation model developed by the ANL, or a successor model (as determined by the Secretary). The DOE changed the name of the “Greenhouse gases, Regulated Emissions, and Energy use in Transportation” model to “Greenhouse gases, Regulated Emissions, and Energy use in Technologies” in 2020 and it is now generally referred to as the “GREET” model.

The GREET model refers to a suite of models, the first version of which was released in 1995 and is now called the Research & Development Greenhouse gases, Regulated Emissions, and Energy use in Technologies (R&D GREET) model. Since 1995, the DOE maintained the GREET model to enable research regarding lifecycle analyses of hundreds of different methods of producing, delivering, and using energy. The R&D GREET model was not designed to be used for determining emissions rates for tax credits, including the section 45Z credit, but the current suite of GREET models includes different versions, some of which are designed to facilitate particular regulatory regimes.

As of February 4, 2026 the DOE's GREET website lists the following different versions of the GREET model: R&D GREET, 40BSAF-GREET, 45VH2-GREET, 45ZCF-GREET, CA-GREET4.0, and ICAO-GREET. See https://energy.gov/eere/greet. For purposes of the section 45Z credit, the phrase “most recent determinations under the Greenhouse gases, Regulated Emissions, and Energy use in Transportation model” in section 45Z(b)(1)(B)(ii) is best understood as referring to the most recent determinations under the 45ZCF-GREET model. As discussed in Part III.E.3.b. of this Explanation of provisions, the proposed regulations would also designate the 45ZCF-GREET as a successor model to the GREET model under section 45Z(b)(1)(B)(ii).

Some stakeholders have suggested that the R&D GREET model should be used for the section 45Z credit

y in section 45Z(b)(1)(B)(ii) to require use of the 45ZCF-GREET model as a successor model.

In drafting the proposed regulations, the Treasury Department and the IRS considered the statutory definition of the term “lifecycle greenhouse gas emissions” in section 211(o)(1)(H) of the CAA-2022 and the specific objectives of section 45Z. The Treasury Department and the IRS also consulted with the DOE. Accordingly, the proposed regulations would reflect that the 45ZCF-GREET model is a model specifically developed by the ANL as a derivative of and successor to the R&D GREET model to meet the requirements and objectives of section 45Z.

c. Most Recent Determinations Under GREET

Regardless of any determination by the Secretary of a successor model, the phrase “most recent determinations under the Greenhouse gases, Regulated Emissions, and Energy use in Transportation model” in section 45Z(b)(1)(B)(ii) can be understood to refer to determinations under the most recent version of the 45ZCF-GREET model.

As discussed in Part III.E.3.a. of this Explanation of Provisions, the 45ZCF-GREET model is tailored to the administration of the section 45Z credit and includes features that make it easy for taxpayers to use. Use of the most recent version of the 45ZCF-GREET model would also ensure that the pathways and approaches provided for determining “well-to-wheel” emissions for various fuel production processes are of sufficient methodological certainty to be appropriate for determining eligibility for a tax credit.

d. SAF Portion of 45ZCF-GREET Model as a Similar Methodology

The proposed regulations would allow taxpayers to use the 45ZCF-GREET model to determine emissions rates for SAF transportation fuel (SAF portion of 45ZCF-GREET model)

ll-to-wheel” emissions for various fuel production processes are of sufficient methodological certainty to be appropriate for determining eligibility for a tax credit.

d. SAF Portion of 45ZCF-GREET Model as a Similar Methodology

The proposed regulations would allow taxpayers to use the 45ZCF-GREET model to determine emissions rates for SAF transportation fuel (SAF portion of 45ZCF-GREET model). The SAF portion of the 45ZCF-GREET model is a “similar methodology” to CORSIA under section 45Z(b)(1)(B)(iii)(II) because, like the CORSIA fuel lifecycle methodologies, it evaluates the full fuel lifecycle, including all stages of fuel and feedstock production through to the end use of the finished fuel. The DOE worked with the Treasury Department and other Federal agencies to develop the 45ZCF-GREET model, including specifications for and limitations on background and foreground data, to satisfy the statutory requirements of section 45Z. Additionally, in the context of whether the R&D GREET model could be used to determine lifecycle GHG emissions for purposes of section 40B(e)(2), 5 the EPA identified certain necessary components of a lifecycle GHG analysis consistent with section 211(o)(1)(H) of the CAA-2022 that the R&D GREET model lacked. The EPA subsequently determined that the new 40BSAF-GREET 2024 model, created in 2024 for the now-expired SAF credit under section 40B, included the previously identified absent categories of emissions. 6 Similarly, the EPA found that the 45ZCF-GREET model includes the categories of emissions it previously identified as missing from the R&D GREET model, the lack of which made R&D GREET insufficient for calculating lifecycle GHG emissions for purposes of section 211(o)(1)(H) of the CAA-2022. 7

5 As in section 45Z(b)(1)(B)(iii)(II), section 40B(e)(2) requires that a methodology similar to CORSIA must also satisfy the criteria under section 211(o)(1)(H) of the CAA-2022. See also Notice 2024-37, 2024-21 I.R.B. 1191

missing from the R&D GREET model, the lack of which made R&D GREET insufficient for calculating lifecycle GHG emissions for purposes of section 211(o)(1)(H) of the CAA-2022. 7

5 As in section 45Z(b)(1)(B)(iii)(II), section 40B(e)(2) requires that a methodology similar to CORSIA must also satisfy the criteria under section 211(o)(1)(H) of the CAA-2022. See also Notice 2024-37, 2024-21 I.R.B. 1191.

6 See Letter from Joseph Goffman, Principal Deputy Assistant Administrator for the Office of Air and Radiation, U.S. Environmental Protection Agency, to Lily Batchelder, Assistant Secretary for Tax Policy, U.S. Department of Treasury (December 13, 2023) (EPA December 2023 Letter), available at https://home.treasury.gov/system/files/136/Final-EPA-letter-to-UST-on-SAF-signed.pdf.

7 See Letter from Joseph Goffman, Assistant Administrator for the Office of Air and Radiation, U.S. Environmental Protection Agency, to Aviva Aron-Dine, Deputy Assistant Secretary for Tax Policy, U.S. Department of Treasury (January 8, 2025) (EPA January 2025 Letter), available at https://home.treasury.gov/system/files/136/January-2025-EPA-letter-to-UST-on-45zcf-GREET-signed.pdf.

The 45ZCF-GREET model contains certain necessary components of a lifecycle GHG analysis consistent with section 211(o)(1)(H) of the CAA-2022 as applied for purposes of the section 45Z regulations. 8 The 45ZCF-GREET model is consistent with the requirements of section 45Z(b)(1)(B)(iii). Therefore, emissions rates for SAF transportation fuels calculated using the 45ZCF-GREET model would also be consistent with those requirements as applied for purposes of the section 45Z regulations. See section 45Z(b)(1)(B)(i).

8 The 45ZCF-GREET model includes significant indirect emissions from land use, crop production, and livestock. Due to the OBBBA, indirect emissions from land use, also known as induced or indirect land use change, will be excluded for purposes of transportation fuel produced after December 31, 2025

requirements as applied for purposes of the section 45Z regulations. See section 45Z(b)(1)(B)(i).

8 The 45ZCF-GREET model includes significant indirect emissions from land use, crop production, and livestock. Due to the OBBBA, indirect emissions from land use, also known as induced or indirect land use change, will be excluded for purposes of transportation fuel produced after December 31, 2025. See section 45Z(b)(1)(B)(iv); section 70521(c) of the OBBBA.

e. Other Aspects of 45ZCF-GREET Model

In the 45ZCF-GREET model, for purposes of accounting for emissions associated with hydrogen (as a production input), natural gas alternatives (as a production input or as the transportation fuel produced), electricity, and carbon capture and sequestration, rules similar to the rules under section 45V would apply unless otherwise specified by the 45ZCF-GREET model with respect to technical modeling issues or other technical differences. The proposed regulations would also clarify the similar rule for incrementality with respect to the use of energy attribute certificates in the 45ZCF-GREET model. See also § 1.45V-4(d).

In January 2025, the United States Department of Agriculture (USDA) published a beta version of the USDA Feedstock Carbon Intensity Calculator (USDA FD-CIC). The beta version of the USDA FD-CIC is undergoing testing, peer review, and public comment in preparation for the publication of a final version of USDA FD-CIC. Following publication of the final version of USDA FD-CIC, the Treasury Department and the IRS anticipate that a section 45Z-specific version of the Feedstock Carbon Intensity Calculator (FD-CIC) module will be included as an input to the DOE's 45ZCF-GREET model (45ZCF FD-CIC) used for calculating carbon intensity adjustments under section 45Z for feedstocks that are produced using certain agricultural practices. Such practices may include no till, reduced till, cover crops, and nutrient management

osed § 1.45Z-1(b), as either a type of fuel not included in the applicable emissions rate table, or a type of fuel included in the applicable emissions rate table but whose category is not included in the applicable emissions rate table.

Proposed § 1.45Z-1(b) would also define terms related to requesting an emissions value (EV) from the DOE, which would be a prerequisite to filing a PER petition. Proposed § 1.45Z-1(b)(15) would define the term “emissions value” or “EV” as the value setting forth the DOE's analytical assessment of the lifecycle GHG emissions associated with the fuel for which the EVR was made. Proposed § 1.45Z-1(b)(17) would define the term “EV applicant” as a taxpayer submitting an EVR for an eligible fuel to the DOE. Proposed § 1.45Z-1(b)(6) would define the term “calculated emissions value letter” or “CEVL” as the letter setting forth the emissions value and DOE control number that the DOE issues to an applicant whose EVR is completed.

3. Threshold Requirements

Proposed § 1.45Z-2(f)(2) would provide that the DOE and the IRS, respectively, will deny any EVR or PER petition for a type and category of fuel included in the applicable emissions rate table. The proposed rule would provide that a taxpayer may only request an emissions value, and subsequently a PER determination, for an eligible fuel. Because the section 45Z credit is computed for a type and category of fuel, the proposed rule would also clarify that the DOE and the IRS, respectively, will deny any EVR or PER petition based on a facility rather than a type or category of fuel.

4. Emissions Value Requests

Proposed § 1.45Z-2(f)(3) would describe the rules for requesting an EV from the DOE for an eligible fuel. Proposed § 1.45Z-2(f)(3)(i) would direct applicants to follow the guidance and procedures that the DOE will separately publish for EVRs, including the section 45Z EVR process instructions (Instructions)

based on a facility rather than a type or category of fuel.

4. Emissions Value Requests

Proposed § 1.45Z-2(f)(3) would describe the rules for requesting an EV from the DOE for an eligible fuel. Proposed § 1.45Z-2(f)(3)(i) would direct applicants to follow the guidance and procedures that the DOE will separately publish for EVRs, including the section 45Z EVR process instructions (Instructions). Proposed § 1.45Z-2(f)(3)(i) would also describe common assumptions for EVRs, including the well-to-wheel system boundary and certain accounting rules.

Proposed § 1.45Z-2(f)(3)(ii) would describe the information required by the DOE for an EVR. Proposed § 1.45Z-2(f)(3)(ii)(A) would generally require that an EV applicant provide all information required by the DOE's Instructions, including sections of a Class 3 Front-End Engineering and Design (FEED) study (or studies) or other indicator of project maturity, as determined by the DOE, and a completed Section 45Z EVR Form.

Proposed § 1.45Z-2(f)(3)(ii)(B) would provide that for an EVR for an eligible fuel that is a category of hydrogen, an EV applicant must first submit a section 45V Emissions Value Request Application in accordance with the process for a PER determination for the section 45V credit, as described in § 1.45V-4(c). The proposed rule would provide that the EV applicant must submit the letter obtained under the section 45V EVR process from the DOE stating the well-to-gate emissions value that the DOE determined with respect to the facility's hydrogen production pathway and the control number that the DOE assigned to the section 45V EVR Application. Once such applicant completes the section 45V EVR process and submits its EVR for purposes of section 45Z, the DOE may issue a CEVL, which would include an EV that fully accounts for the well-to-wheel emissions of such category of hydrogen

the deemed acceptance constitutes the Secretary's determination of the PER. As such, proposed § 1.45Z-2(f)(5)(ii) would clarify that a taxpayer may rely on the EV the DOE provides in a CEVL for purposes of calculating and claiming the section 45Z credit, provided that all information, representations, or other data the taxpayer provided to the DOE in support of the taxpayer's EVR are accurate.

G. Relation Back of Emissions Rates (Including PER)

Proposed § 1.45Z-2(g) would provide that when an emissions rate is first determined for a type and category of fuel, whether established in an applicable emissions rate table or by a PER determination, that emissions rate will relate back to January 1, 2025. The proposed rule would ensure that even if a taxpayer cannot determine the emissions rate for a type and category of fuel at the time of production, either because such type and category of fuel are not established in the applicable emissions rate table or because the Secretary has not determined a PER, such taxpayer may utilize a later-determined emissions rate for such fuel as of the date of production.

IV. Special Rules

Proposed § 1.45Z-4 would provide special rules with respect to the determination of a section 45Z credit. Generally, these rules would address the: (i) required registration at the time of production; (ii) anti-stacking rules; (iii) anti-abuse rules; (iv) attribution of production; (v) lack of ownership requirement; (v) foreign feedstocks and prohibited foreign entities; and (vi) specific recordkeeping and substantiation requirements.

A. Only Registered Production in the United States Taken Into Account

As provided in section 45Z(f)(1), proposed § 1.45Z-4(a) would provide that no section 45Z credit is determined with respect to any transportation fuel unless the taxpayer is registered as a producer of clean fuel (within the meaning of section 4101) at the time of production and the fuel is produced in the United States, which includes any territory of the United States

f the section 45Z credit, including situations in which a taxpayer produces and sells transportation fuel in a manner that is inconsistent with Congressional intent in enacting section 45Z. The Treasury Department and the IRS are also concerned about other potential abuse, such as circular production, credit churning or wasteful production with no intended use, and abuse of the anti-stacking rules.

Proposed § 1.45Z-4(c) would provide that the rules of section 45Z and the section 45Z regulations must be applied in a manner consistent with the purposes of section 45Z and the section 45Z regulations (and the regulations in under sections 6417 and 6418 related to the section 45Z credit), including incentivizing the domestic production and use of clean transportation fuel and ensuring that taxpayers do not circumvent the feedstock origin and anti-stacking rules. Therefore, the proposed rule would provide that no section 45Z credit is determined if the primary purpose of the production and sale of clean transportation fuel is to obtain the benefit of the section 45Z credit in a manner that is wasteful, such as discarding, disposing of, or destroying the transportation fuel without putting it to a productive use. The proposed rule would further provide that whether the production and sale of transportation fuel is consistent with the purposes of section 45Z and the section 45Z regulations (and the regulations in this chapter under sections 6417 and 6418 related to the section 45Z credit) is based on all facts and circumstances.

Section 45Z(e) delegates authority to the Secretary to issue guidance regarding implementation of section 45Z, including the determination of section 45Z credits. Therefore, the proposed regulations would provide general anti-abuse rules that are consistent with the three prongs of the section 45Z(a)(4) definition of “sale” (referred to as a “qualified sale” in these proposed regulations) that focus on post-production uses of transportation fuel

ry to issue guidance regarding implementation of section 45Z, including the determination of section 45Z credits. Therefore, the proposed regulations would provide general anti-abuse rules that are consistent with the three prongs of the section 45Z(a)(4) definition of “sale” (referred to as a “qualified sale” in these proposed regulations) that focus on post-production uses of transportation fuel.

The Treasury Department and the IRS request comments on the need for these or additional section 45Z anti-abuse rules. The Treasury Department and the IRS also request comments on the potentially abusive scenarios that should be covered by any anti-abuse rules.

D. Production Attributable to the Taxpayer and Section 761(a) Elections

Consistent with section 45Z(f)(2), proposed § 1.45Z-4(d) would provide rules for production attributable to the taxpayer. For a facility in which more than one person has an ownership interest (and the arrangement is not classified as a partnership for Federal tax purposes), proposed § 1.45Z-4(d)(1) would provide that production from the facility is allocated among those persons in proportion to their respective ownership interests in the gross sales from the facility. The proposed rule would further provide that each owner's respective allocable share of the section 45Z credit is based on each owner's allocable share of production, determined pursuant to section 45Z and these proposed regulations. Proposed § 1.45Z-4(d)(2) would provide an example of production attributable to the taxpayer. Proposed § 1.45Z-4(d)(3) would address instances in which a facility is owned pursuant to a valid section 761(a) election.

E. Facility Ownership Not Required

Credit eligibility under section 45Z is tied to production of a transportation fuel at a qualified facility and a subsequent qualified sale of the fuel. There is no statutory requirement that the producer of the transportation fuel own the qualified facility

)(3) would address instances in which a facility is owned pursuant to a valid section 761(a) election.

E. Facility Ownership Not Required

Credit eligibility under section 45Z is tied to production of a transportation fuel at a qualified facility and a subsequent qualified sale of the fuel. There is no statutory requirement that the producer of the transportation fuel own the qualified facility. Proposed § 1.45Z-4(e) would address situations in which the producer does not own the qualified facility at which it produces the transportation fuel, to ensure that production is attributed fairly and accurately in those situations.

Proposed § 1.45Z-4(e)(1) would clarify that a taxpayer is not required to own the qualified facility at which it produces transportation fuel for a section 45Z credit to be determined with respect to such fuel. If a taxpayer produces transportation fuel at a qualified facility owned by another person, proposed § 1.45Z-4(e)(2) would attribute that production to the taxpayer unless otherwise specified in the Code or the section 45Z regulations. In the case of a production arrangement under which multiple taxpayers produce transportation fuel at a facility that is not owned by all the taxpayers, production would be allocated among the taxpayers in proportion to their respective interests in the gross sales from that fuel, as determined under the applicable contract or other legal arrangement with respect to the fuel.

F. Foreign Feedstock and Prohibited Foreign Entity Restrictions

Consistent with section 45Z(f)(1)(A)(iii), as added by section 70521(a) of the OBBBA, proposed § 1.45Z-4(f)(1) would provide that transportation fuel that is produced after December 31, 2025, must be exclusively derived from a feedstock that was produced or grown in the United States, Mexico, or Canada

nt with respect to the fuel.

F. Foreign Feedstock and Prohibited Foreign Entity Restrictions

Consistent with section 45Z(f)(1)(A)(iii), as added by section 70521(a) of the OBBBA, proposed § 1.45Z-4(f)(1) would provide that transportation fuel that is produced after December 31, 2025, must be exclusively derived from a feedstock that was produced or grown in the United States, Mexico, or Canada.

Consistent with section 45Z(f)(8), as added by section 70521(k) of the OBBBA, proposed § 1.45Z-4(f)(2) would prohibit the determination of a section 45Z credit: (i) for taxable years beginning after July 4, 2025, if the taxpayer is a specified foreign entity; and (ii) for taxable years beginning after July 4, 2027, if the taxpayer is a foreign-influenced entity (other than a foreign-influenced entity that made certain payments to a specified foreign entity). See section 7701(a)(51)(B) and (D) for definitions of the terms specified foreign entity and foreign-influenced entity.

G. Specific Recordkeeping and Substantiation Requirements

In addition to the general recordkeeping requirements under section 6001 and § 1.6001-1, proposed § 1.45Z-4(g) would require a taxpayer claiming the section 45Z credit to maintain records sufficient to establish the taxpayer's eligibility for the section 45Z credit and the amount of the credit claimed. It would also provide two safe harbors: (i) for substantiating emissions rates with respect to non-SAF transportation fuel; and (ii) for substantiating qualified sales of transportation fuel.

The proposed recordkeeping and substantiation requirements are necessary to ensure the accuracy of reported emissions rates and because the amount of the section 45Z credit may depend on certain operational choices, such as use of certain types of feedstocks or fuels, or engaging in certain emissions-reduction practices like carbon capture and sequestration (which may vary from year to year).

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CO that are administrable for taxpayers and the IRS. The Treasury Department and the IRS request comments on, for instance, whether there are reliable methods that would indicate the geographic location where seeds originated or crops were grown as a precursor for use as cooking oil, which could be used to determine whether the foreign feedstock limitation in section 45Z(f)(1)(A)(iii) applies.

V. Procedures for Certification of Lifecycle Greenhouse Gas Emissions Rates

Proposed § 1.45Z-5 would provide rules for certification from an unrelated person of emissions rates for SAF transportation fuel (certification). The rules would describe the content, form, and manner of the required certification under section 45Z(f)(1)(A)(i)(II). Proposed § 1.45Z-5(b) through (f) would provide rules relating to the content of the certification. Proposed § 1.45Z-5(g) would describe the requirements for timely certification. Proposed § 1.45Z-5(h) would provide a model certification.

A. Requirements for Certifications

1. In General

In general, proposed § 1.45Z-5(b)(1) would provide that for each taxable year for which a taxpayer claims a section 45Z credit for SAF transportation fuel, the taxpayer must obtain a certification from an unrelated person and include such certification with the taxpayer's Form 7218, which is filed with the taxpayer's Federal income tax return or Federal information return, for each qualified facility at which the taxpayer produces SAF transportation fuel.

Proposed § 1.45Z-5(b)(2) would provide that the certification described in proposed § 1.45Z-5(b)(1) must be prepared by a qualified certifier (as defined in proposed § 1.45Z-5(b)(3)) and signed by the qualified certifier under penalty of perjury. Proposed § 1.45Z-5(b)(2) would further provide that the certification must include information that is in substantially the same form as the model certification provided in proposed § 1.45Z-5(h)

emissions data inputs and the operation, during the applicable taxable year, of the qualified facility that produced the SAF transportation fuel for which the section 45Z credit is claimed are accurately reflected in: (i) the number of gallons of SAF transportation fuel produced by the taxpayer that is entered on the Form 7218 with which the certification is included; and (ii) either the data the taxpayer input into the allowed methodology under proposed § 1.45Z-2(e)(3), or the data the taxpayer submitted in its PER petition and that was provided to the DOE in support of the taxpayer's request for the emissions value provided in the PER petition.

Proposed § 1.45Z-5(c)(2) would provide that, if a taxpayer submitted a PER petition, then the production statement must also specify the emissions value received from the DOE that was calculated using the data provided in support of the taxpayer's emissions value request.

Proposed § 1.45Z-5(c)(3) would provide that the production statement must specify the lifecycle GHG emissions rate and the amount of SAF transportation fuel produced by the taxpayer that are entered on the Form 7218 with which the certification is included.

3. Conflict Statement

Proposed § 1.45Z-5(d)(1) would provide that the conflict statement must state that: (i) the qualified certifier has not received a fee based to any extent on the value of any section 45Z credit that has been or is expected to be claimed by the taxpayer, and no arrangement has been made for such fee to be paid at any time in the future; (ii) the qualified certifier has not been a party to any transaction involving the sale of SAF transportation fuel the taxpayer produced or in which the taxpayer purchased primary feedstocks for the production of such SAF transportation fuel; (iii) the qualified certifier is unrelated to the taxpayer and is not an employee of the taxpayer; and (iv) the qualified certifier is not married to anyone who is related to, or an employee of, the taxpayer

to any transaction involving the sale of SAF transportation fuel the taxpayer produced or in which the taxpayer purchased primary feedstocks for the production of such SAF transportation fuel; (iii) the qualified certifier is unrelated to the taxpayer and is not an employee of the taxpayer; and (iv) the qualified certifier is not married to anyone who is related to, or an employee of, the taxpayer.

Proposed § 1.45Z-5(d)(2) would provide that if the qualified certifier 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 statements described in proposed § 1.45Z-5(d)(1) must also be made with respect to the partnership or the person that employs or engages the qualified certifier.

4. Qualified Certifier Statement

Proposed § 1.45Z-5(e) would provide that the qualified certifier statement must include: (i) the qualified certifier's name, address, and certifier identification number; (ii) the qualified certifier's qualifications to conduct the certification, including a description of the certification the qualified certifier received from the accrediting body; (iii) if the qualified certifier 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 certifier identification number of the partnership or the person that employs or engages the qualified certifier; (iv) the signature of the qualified certifier and the date of signature; and (v) a statement that the certification was conducted for Federal tax purposes.

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corporation, or partnership, or an independent contractor engaged by a person other than the taxpayer, the name, address, and certifier identification number of the partnership or the person that employs or engages the qualified certifier; (iv) the signature of the qualified certifier and the date of signature; and (v) a statement that the certification was conducted for Federal tax purposes.

5. Information on Taxpayer's Qualified Facility

Proposed § 1.45Z-5(f) would provide that the certification must include: (i) the location of the qualified facility; (ii) a description of the qualified facility, including its method of producing SAF transportation fuel; (iii) the type(s) of primary feedstock(s) used by the qualified facility to produce the SAF transportation fuel during the taxable

year of production; (iv) the amount(s) of primary feedstock(s) used by the qualified facility to produce the SAF transportation fuel during the taxable year of production; (v) the location(s) from which the qualified facility sourced the primary feedstock(s) used to produce the SAF transportation fuel during the taxable year of production; (vi) a list of the metering devices used to record any data used by the qualified certifier to support the production statement under proposed § 1.45Z-5(c), along with a statement that the qualified certifier has reason to believe 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 year prior to the time of observation; and (vii) confirmation that the emissions rate of the SAF transportation fuel produced during the taxable year of production is accurate to the higher of +/−5% or 2 kilograms of CO 2 e per mmBTU.

B. Qualified Certifier

Proposed § 1.45Z-5(b)(3) would provide rules regarding qualified certifiers for the allowed methodologies. A qualified certifier would be required to have the relevant active accreditation as of the date it provides a certification to a taxpayer

erification in accordance with the requirements of International Organization for Standardization (ISO) 14065; or (ii) as a verifier, lead verifier, or verification body under the California Air Resources Board Low Carbon Fuel Standard (CARB LCFS) program. Such ANAB and CARB LCFS verifiers are experienced with evaluating information similar to the information included in the 45ZCF-GREET model.

C. Timely Certification Required

Proposed § 1.45Z-5(g) would provide that a certification that includes all required information is valid with respect to a particular claim only if it is signed and dated by the qualified certifier no later than: (i) the due date, including extensions, of the Federal income tax return or Federal information return for the taxable year during which the SAF transportation fuel undergoing certification is sold in a qualified sale; or (ii) in the case of a section 45Z credit first claimed for the taxable year on an amended return or administrative adjustment request (AAR), the date on which the amended return or AAR is filed.

VI. Procedures for Filing a Claim for the Clean Fuel Production Credit

Proposed § 1.45Z-6 would describe the time and manner of filing a claim for the section 45Z credit and provide special rules for cases in which the taxpayer claiming the credit is not the registered producer of a transportation fuel. Under the proposed rule, a taxpayer claiming a section 45Z credit would either be the person registered as a producer of a transportation fuel at the time of production, or a person that would be treated as the registrant.

A. Time and Manner of Filing a Claim

In general, proposed § 1.45Z-6(a) would provide that a taxpayer claims the section 45Z credit on a completed Form 7218 included with the taxpayer's timely filed (including extensions) Federal income tax return or Federal information return for the taxable year for which the taxpayer claims the section 45Z credit

rson that would be treated as the registrant.

A. Time and Manner of Filing a Claim

In general, proposed § 1.45Z-6(a) would provide that a taxpayer claims the section 45Z credit on a completed Form 7218 included with the taxpayer's timely filed (including extensions) Federal income tax return or Federal information return for the taxable year for which the taxpayer claims the section 45Z credit. Under proposed § 1.45Z-6(a), a taxpayer would need to complete a separate Form 7218 for each qualified facility at which it produces a transportation fuel for which it is claiming a credit.

B. Proper Claimant

Proposed § 1.45Z-6(b)(1) would provide the general rule that only a taxpayer that is registered by the IRS as a producer of transportation fuel at the time of production may claim the section 45Z credit.

Proposed § 1.45Z-6(b)(2)(i) through (iii) would provide special rules for situations in which a person other than a registered producer of transportation fuel may claim the section 45Z credit. These special rules would generally apply to: (i) a taxpayer that owns an entity that is disregarded as an entity separate from its owner, as defined in § 301.7701-2(c)(2)(i) (disregarded entity); (ii) an S corporation (as defined in section 1361(a)(1)) that owns a qualified subchapter S subsidiary (QSub), as defined in section 1361(b)(3)(B); and (iii) an agent for a consolidated group, as defined in § 1.1502-77. The proposed rules are consistent with the section 45Z Fact Sheet FAQs but provide additional specificity and clarity.

Proposed § 1.45Z-6(b)(2)(i) would provide that in the case of a disregarded entity that produces transportation fuel and is registered as a producer of transportation fuel at the time of production, the taxpayer that owns the disregarded entity is treated as the registered producer for purposes of claiming the section 45Z credit

45Z Fact Sheet FAQs but provide additional specificity and clarity.

Proposed § 1.45Z-6(b)(2)(i) would provide that in the case of a disregarded entity that produces transportation fuel and is registered as a producer of transportation fuel at the time of production, the taxpayer that owns the disregarded entity is treated as the registered producer for purposes of claiming the section 45Z credit.

Proposed § 1.45Z-6(b)(2)(ii) would provide that in the case of a QSub that produces transportation fuel and is registered as a producer of transportation fuel at the time of production, the S corporation that owns the QSub is treated as the registered producer for purposes of claiming the section 45Z credit.

Proposed § 1.45Z-6(b)(2)(iii) would clarify that if a member of a consolidated group is registered as a producer of transportation fuel at the time of production, the agent for such consolidated group is treated as the registered producer for purposes of claiming the section 45Z credit.

VII. Section 4101 Registration

A. Section 4101 Registration Generally

Proposed § 1.4101-1 would provide rules for section 4101 registration for purposes of section 45Z, including rules addressing disregarded entities, QSubs, and members of a consolidated group, and the registration tests for purposes of section 45Z(f)(1)(A)(i)(I). The proposed rules are modeled after the longstanding registration rules in § 48.4101-1 of the Manufacturers and Retailers Excise Tax Regulations that apply for purposes of fuel excise taxes and credits. This registration requirement is distinct from the required pre-filing registration for a taxpayer that intends to make a section 6417 or section 6418 election, as provided by the Credit Transfer Election Regulations and the Elective Payment Election Regulations.

Proposed §§ 1.4101-1(a)(4) and 48.4101-1(a)(8) would provide rules for reregistration

a QSub's separate existence for Federal tax purposes) by adding proposed § 1.4101-1(a)(3)(iii) to the list of exceptions.

The Treasury Department and the IRS understand that many facilities that produce transportation fuel are owned by a disregarded entity. The proposed regulations would provide registration rules that would reflect this practice while also satisfying the statutory requirements. The proposed rules would be similar to and consistent with: (i) § 48.4101-1(a)(4), which provides that every business that has, or is required to have, a separate EIN is treated as a separate person for purposes of excise tax registration under section 4101; (ii) § 301.7701-2(c)(2)(v)(A)( 3 ), which provides that § 301.7701-2(c)(2)(i) (concerning certain wholly-owned entities) does not apply for purposes of registration under sections 4101, 4222, and 4412; and (iii) § 1.1361-4(a)(8)(i)(C), which provides that a QSub is treated as a separate corporation for purposes of registration under sections 4101, 4222, and 4412.

The separate entity rules would also align with other related tax provisions, including sections 45V and 45Q (for which anti-stacking provisions apply), and the elective payment and credit transfer election provisions of sections 6417 and 6418, which elections are generally made on a per-facility basis. Although the proposed rules are consistent with the making of a section 6417 or section 6418 election on a facility-by-facility basis, it is important to highlight the difference between these proposed registration rules and the rules for making an election under section 6417 or section 6418

election provisions of sections 6417 and 6418, which elections are generally made on a per-facility basis. Although the proposed rules are consistent with the making of a section 6417 or section 6418 election on a facility-by-facility basis, it is important to highlight the difference between these proposed registration rules and the rules for making an election under section 6417 or section 6418.

With respect to sections 6417 and 6418, if a taxpayer is the sole owner (directly or indirectly) of a disregarded entity for Federal income tax purposes and the disregarded entity directly holds the underlying applicable credit property, then the taxpayer (and not the disregarded entity) makes the section 6417 or section 6418 election, including completing the required pre-filing registration as part of making a section 6417 or section 6418 election. See §§ 1.6417-2(a)(1)(ii), 1.6417-5, 1.6418-2(a)(3)(i), and 1.6418-4. For example, if a taxpayer has two qualified facilities for purposes of section 45Z that are owned by separate disregarded entities, each disregarded entity (and not the taxpayer) must be registered as a producer of transportation fuel for purposes of the section 45Z credit. However, the taxpayer (and not either disregarded entity) would ultimately make any section 6417 or section 6418 election (including completing the section 6417 or section 6418 pre-filing registration process) with respect to any section 45Z credit determined with respect to each qualified facility.

Additionally, section 45Z(f)(1)(A)(i)(I) requires registration “under section 4101.” This language indicates that Congress meant for the existing § 48.4101-1 regulations to apply for purposes of the section 45Z credit, including the separate entity rules of § 48.4101-1(a)(4). The special procedures that apply with respect to a taxpayer that owns a disregarded entity or a QSub that is registered under proposed § 1.4101-1 and claims the section 45Z credit are discussed in Part VI.B. of this Explanation of Provisions.

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uch person's fuel production, the IRS had not yet approved the reregistration. The Treasury Department and the IRS recognize the urgency for a taxpayer to be issued a Letter of Registration for purposes of the section 45Z credit because, unlike other tax credits requiring section 4101 registration, section 45Z(f)(1)(A)(i)(I) requires that a

taxpayer be registered at the time of production.

E. Definitions

Proposed § 1.4101-1(b)(1) would define an “applicant” as a person that has applied for registration under proposed § 1.4101-1(d). The proposed definition is consistent with the definition of “applicant” in § 48.4101-1(b)(1).

Proposed § 1.4101-1(b)(2) would define “Letter of Registration” as a letter issued by the IRS to approve a registration required under section 4101. Under the proposed definition, a Letter of Registration would include the registrant's registration number and the effective date of the registration.

Proposed § 1.4101-1(b)(3) would define the phrase “penalized for a wrongful act” as cases in which a person has: (i) been assessed any penalty under chapter 68 of the Code (or similar provision of the law of any State) for fraudulently failing to file any return or pay any tax, and the penalty has not been wholly abated, refunded, or credited; (ii) been assessed any penalty under chapter 68 of the Code, such penalty has not been wholly abated, refunded, or credited, and the IRS determines that the conduct resulting in the penalty is part of a consistent pattern of failing to deposit, pay, or pay over a substantial amount of tax; (iii) been convicted of a crime under chapter 75 of the Code (or similar provision of the law of any State), or of conspiracy to commit such a crime, and the conviction has not been wholly reversed by a court of competent jurisdiction; (iv) been convicted, under the laws of the United States or any State, of a felony for which an element of the offense is theft, fraud, or the making of false statements, and the conviction has not been wholly reversed by a court

imilar provision of the law of any State), or of conspiracy to commit such a crime, and the conviction has not been wholly reversed by a court of competent jurisdiction; (iv) been convicted, under the laws of the United States or any State, of a felony for which an element of the offense is theft, fraud, or the making of false statements, and the conviction has not been wholly reversed by a court of competent jurisdiction; (v) been assessed any tax under section 4103 of the Code and the tax has not been wholly abated, refunded, or credited; or (vi) had its registration under section 4101, section 4222, section 4662, or section 4682 of the Code revoked. This proposed definition is similar to the definition of the phrase “penalized for a wrongful act” in § 48.4101-1(b)(4).

Proposed § 1.4101-1(b)(4) would define a “related person” for purposes of registration under section 4101 as a person that: (i) directly or indirectly exercises control over an activity of the applicant; (ii) owns, directly or indirectly, five percent or more of the applicant; (iii) is under a duty to assure the payment of a tax for which the applicant is responsible; (iv) is a member, with the applicant, of a group of organizations (as defined in § 1.52-1(b) of this chapter) that would be treated as a group of trades or businesses under common control for purposes of § 1.52-1; or (v) distributed or transferred assets to the applicant in a transaction in which the applicant's basis in the assets is determined by reference to the basis of the assets in the hands of the distributor or transferor. This proposed definition is consistent with the definition of “related person” in § 48.4101-1(b)(5).

Proposed § 1.4101-1(b)(5) would define a “registrant” as a person who has registered under section 4101 in accordance with proposed § 1.4101-1(f)(3) and whose registration has not been revoked or suspended. This proposed definition is consistent with the definition of “registrant” in § 48.4101-1(b)(6).

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e to claim a tax credit if it is not engaged in such an activity, and to ensure that an applicant has satisfied all of its tax obligations under the Code, similar to section 4222(c) and §§ 48.4222(a)-1 and 48.4222(c)-1. These tests are necessary to protect the revenue and to prevent applicants from using their registration to avoid payment of tax (by erroneously claiming an income tax credit).

1. Activity Test

Under proposed § 1.4101-1(e)(2), an applicant would meet the activity test only if the IRS determines that the applicant: (i) is, in the course of its trade or business, regularly engaged in the activity for which it is requesting registration; or (ii) is likely to be (because of such factors as the applicant's business experience, financial standing, or trade connections), in the course of its trade or business, regularly engaged in the activity for which it is requesting registration within 6 months after becoming registered under section 4101. Proposed § 1.4101-1(e)(2) is similar to § 48.4101-1(f)(2).

The purpose of the activity test is to prevent applicants that are not engaged in the activity required for the section 45Z credit from becoming registered under section 4101, which is a prerequisite to claiming the section 45Z credit. For example, if an applicant seeking registration for purposes of the section 45Z credit represents on its application for registration that it is not yet (or likely to be within 6 months) engaged in the activity of producing a

transportation fuel, such applicant would not be approved for registration because it fails the activity test.

2. Acceptable Risk Test

Under proposed § 1.4101-1(e)(3)(i), an applicant would meet the acceptable risk test only if neither the applicant nor a related person (as defined in proposed § 1.4101-1(b)(4)) has been penalized for a wrongful act

d. Additionally, for each tax credit that requires registration under section 4101, registration is one of multiple requirements for credit eligibility. A taxpayer must meet all of the statutory requirements for each credit and cannot rely solely on a Letter of Registration to prove entitlement to such credit because doing so would make the other requirements in the tax credit statutes superfluous. See, e.g., sections 40(b)(6)(E), 40A, 40B, 45Z, and 6426(k). Additionally, in the case of excise tax credits, courts have held that a Letter of Registration indicates only that the registrant is registered under section 4101 and is not a determination that the registrant is entitled to claim such credit. See Affordable Bio Feedstock, Inc. v. United States, 529 F. Supp. 3d 1298, 1304-07 (M.D. Fla. 2021), aff'd, 42 F.4th 1288 (11th Cir. 2022).

L. Adverse Actions by the IRS Against a Registrant

Proposed § 1.4101-1(i)(1) would provide that the IRS will revoke or suspend a registration if the IRS determines at any time that the registrant: (i) does not meet one or more of the registration tests under proposed § 1.4101-1(e) and has not corrected the deficiency within a reasonable period of time after notification by the IRS; (ii)

has used its registration to evade, or attempt to evade, the payment of any tax, or to postpone or in any manner to interfere with the collection of any such tax, or to make a fraudulent claim for a credit or payment; (iii) has aided or abetted another person in evading, or attempting to evade, payment of any tax, or in making a fraudulent claim for a credit or payment; or (iv) has sold, leased, or otherwise allowed another person to use its registration, except as otherwise provided in proposed § 1.45Z-6(b)(2)

ate the final regulations are published in the Federal Register . Proposed § 1.45Z-2(e) would apply to qualified sales occurring in taxable years ending on or after January 10, 2025. Proposed § 1.4101-1 and proposed § 48.4101-1(a)(7) and (8) would apply to persons producing transportation fuel in taxable years ending on or after the date the final regulations are published in the Federal Register . Proposed § 1.6417-2(c)(4) and (f), proposed § 1.6418-2(d)(1) and (g), and the proposed amendment to § 1.1361-4(a)(1) would apply to taxable years ending on or after the date the final regulations are published in the Federal Register . Taxpayers may rely on these proposed regulations until final regulations are published in the Federal Register , provided taxpayers follow them in their entirety and in a consistent manner.

Special Analyses

I. Regulatory Planning and Review

Executive Orders 12866 and 13563 direct agencies to assess costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility.

These proposed regulations have been designated by the Office of Management and Budget's (OMB) Office of Information and Regulatory Affairs (OIRA) as subject to review under Executive Order 12866 pursuant to the Memorandum of Agreement (July 4, 2025) between the Treasury Department and OMB regarding review of tax regulations. OIRA has determined that this proposed rulemaking is economically significant and subject to review under section 3(f) of Executive Order 12866 and section 1(c) of the Memorandum of Agreement. Accordingly, these proposed regulations have been reviewed by OMB.

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2866 pursuant to the Memorandum of Agreement (July 4, 2025) between the Treasury Department and OMB regarding review of tax regulations. OIRA has determined that this proposed rulemaking is economically significant and subject to review under section 3(f) of Executive Order 12866 and section 1(c) of the Memorandum of Agreement. Accordingly, these proposed regulations have been reviewed by OMB.

A. Need for Regulations

Section 45Z of the Internal Revenue Code provides an income tax credit for the production of clean transportation fuel, which is divided into two broad categories: sustainable aviation fuel (SAF) and non-SAF transportation fuel. The statute directs the Secretary of the Treasury or the Secretary's delegate (Secretary) to issue guidance regarding implementation of section 45Z, including the calculation of emissions rates and the annual publication of an emissions rate table. A taxpayer determines a transportation fuel's emissions rate by either using the annual emissions rate table or obtaining

a provisional emissions rate (PER) determination from the Secretary. The proposed regulations provide procedures for taxpayers to obtain a PER if the emissions rate table does not establish an emissions rate for the type and category of transportation fuel produced. The statute also authorizes the Secretary to issue guidance on taxpayer registration and certification for purposes of the section 45Z credit. The proposed regulations also clarify the meaning of several statutory terms, such as “gallon equivalent,” “suitable for use,” and “sold for use in a trade or business.”

Pursuant to section 6(a)(3)(B) of Executive Order 12866, the following qualitative analysis provides further details regarding the anticipated impacts of the proposed regulations. The statute, prior guidance, and proposed regulations are briefly summarized in Part I.B. of this Special Analyses. The economic analysis of these proposed regulations is described in Part I.C. of this Special Analyses. Specifically, Part I.C.1

SAF. Transportation fuel produced after December 31, 2025, must be exclusively derived from a feedstock that was produced or grown in the United States, Mexico, or Canada.

Following the statute, a taxpayer calculates the amount of the section 45Z credit by multiplying the applicable amount per gallon or gallon equivalent with respect to a transportation fuel by the emissions factor for that fuel. If a taxpayer produces the transportation fuel at a qualified facility that satisfies the prevailing wage and apprenticeship (PWA) requirements, the applicable amount is increased. A transportation fuel's emissions factor measures the reduction in a fuel's emissions rate relative to the statutory baseline emission rate, expressed as a fraction of the statutory baseline emission rate. The amount of the section 45Z credit is generally larger as the emissions rate of the transportation fuel approaches zero. Transportation fuel produced after December 31, 2025, cannot have an emissions rate of less than zero unless it is derived from animal manure.

The primary method for determining the emissions rate for non-SAF is the United States Department of Energy's (DOE) 45ZCF-GREET model. Producers of SAF have the option of using the 45ZCF-GREET model, the CORSIA Default methodology, or the CORSIA Actual methodology. Taxpayers can request a PER determination if the annually published emissions rate table does not establish an emissions rate for the type and category of transportation fuel produced. In January 2025, the United States Department of Agriculture (USDA) published a beta version of USDA Feedstock Carbon Intensity Calculator (FD-CIC) for testing, peer review, and public comment in preparation of a final version of USDA FD-CIC

R determination if the annually published emissions rate table does not establish an emissions rate for the type and category of transportation fuel produced. In January 2025, the United States Department of Agriculture (USDA) published a beta version of USDA Feedstock Carbon Intensity Calculator (FD-CIC) for testing, peer review, and public comment in preparation of a final version of USDA FD-CIC. Following publication of the final version of USDA FD-CIC, the Treasury Department anticipates that 45ZCF FD-CIC, a section 45Z-specific version of the FD-CIC module, will be included as an input to the DOE's 45ZCF-GREET model to be used for calculating carbon intensity adjustments under section 45Z for feedstocks that are produced using certain agricultural practices.

The Treasury Department and the IRS have issued several notices providing initial guidance on the section 45Z credit. Notice 2024-49 provided guidance on the section 45Z registration requirements, including the time, form, and manner of registration. Notice 2025-10 announced forthcoming proposed regulations addressing the section 45Z credit. These proposed regulations are the forthcoming proposed regulations announced in Notice 2025-10. Additionally, Notice 2025-11 provided guidance regarding methodologies for determining emissions rates under section 45Z and provided the initial emissions rate table.

The proposed regulations provide definitions and general rules on the section 45Z credit, such as on credit eligibility, credit amount, credit timing, and emissions rates. The statute directs taxpayers to use a gallon equivalent for non-liquid fuels but does not provide a baseline standard. The proposed rules define “gallon equivalent” to mean, with respect to any non-liquid fuel, the amount of such fuel that has the energy equivalent of a gallon of gasoline determined at the lower heating value

credit eligibility, credit amount, credit timing, and emissions rates. The statute directs taxpayers to use a gallon equivalent for non-liquid fuels but does not provide a baseline standard. The proposed rules define “gallon equivalent” to mean, with respect to any non-liquid fuel, the amount of such fuel that has the energy equivalent of a gallon of gasoline determined at the lower heating value. The higher heating value and lower heating value of a fuel refer to the amount of energy released during combustion, but they differ in how they account for the water produced. The higher heating value assumes that all water produced is condensed back into liquid, while the lower heating value assumes it remains as vapor, thus excluding the heat of vaporization from the total energy.

To qualify for the credit, the fuel must be suitable for use as a fuel in a highway vehicle or aircraft (suitable for use). The proposed regulations define suitable for use to mean that the fuel either has practical and commercial fitness for use as a fuel in a highway vehicle or aircraft or may be blended into a fuel mixture that has practical and commercial fitness for use as a fuel in a highway vehicle or aircraft. The rules clarify that actual use as a fuel in a highway vehicle or aircraft is not required.

In addition to being suitable for use, section 45Z(a)(4) requires a taxpayer to sell transportation fuel to an unrelated person: (i) for use by such person in the production of a fuel mixture; (ii) for use by such person in a trade or business; or (iii) who sells such fuel at retail to another person and places such fuel in the fuel tank of such other person. The proposed regulations would explicitly clarify that the term “sold for use in a trade or business” includes fuel sold to an unrelated person that subsequently resells the fuel in its trade or business

oduction of a fuel mixture; (ii) for use by such person in a trade or business; or (iii) who sells such fuel at retail to another person and places such fuel in the fuel tank of such other person. The proposed regulations would explicitly clarify that the term “sold for use in a trade or business” includes fuel sold to an unrelated person that subsequently resells the fuel in its trade or business.

The proposed PER process would require a taxpayer to submit an emissions value request (EVR) to the DOE to obtain an emissions value, which the taxpayer would use to file a petition requesting the determination of a PER. The proposed regulations also provide various special rules, including with respect to required registration, anti-stacking, production attribution, facility ownership, foreign feedstock limitation, and recordkeeping. Finally, the proposed regulations provide procedures for certification of emissions rates for SAF transportation fuel, filing procedures for claiming the section 45Z credit, and rules for registration.

C. Economic Analysis

1. Baseline

The Treasury Department and the IRS have assessed the benefits and the costs of these proposed regulations relative to a no-action baseline reflecting anticipated Federal-income-tax-related behavior in the absence of these regulations.

2. Affected Taxpayers

These proposed regulations could affect both domestic corporations and pass-through entities. The IRS Research, Applied Analytics, and Statistics Division estimates that there will be 260 facilities registering to produce transportation fuel. The Treasury Department and the IRS understand that, for many producers, each facility is owned by a disregarded entity. Each disregarded entity and qualified subchapter S subsidiary (QSub) that has an EIN and is a producer of transportation fuel for purposes of section 45Z would need to register as a producer of clean fuel for its owner to be eligible to claim the section 45Z credit

uid fuels, these proposed regulations must specify whether the equivalency is based on a lower heating value or a higher heating value of the baseline fuel, as the two types of heating values have different energy contents. The proposed regulations use a lower heating value rather than a higher heating value because it is a better representation of the useful energy provided by transportation fuel. To provide clarity and to ensure consistency across section 45Z claims, the proposed regulations provide the lower heating values of some common non-liquid fuels and an example for determining the number of gallon equivalents using the listed values.

Section 45Z requires a transportation fuel, in part, to be suitable for use as a fuel in a highway vehicle or aircraft but does not define the term “suitable for use.” The proposed regulations define “suitable for use” to mean: (i) that the fuel has practical and commercial fitness for use as a fuel in a highway vehicle or aircraft, or (ii) may be blended into a fuel mixture that has practical and commercial fitness for use as a fuel in a highway vehicle or aircraft. The proposed regulations further clarify that actual use as a fuel in a highway vehicle or aircraft is not required.

The definition of “suitable for use” in these proposed regulations is consistent with a plain reading of the statutory

language. Other options considered include defining “suitable for use” to require actual use as a fuel in a highway vehicle or aircraft. Such an interpretation would reduce the amount of fuel eligible for the credit and thus constrain the cost of the section 45Z credit. However, such an interpretation would not be consistent with a plain reading of the statutory language

ading of the statutory

language. Other options considered include defining “suitable for use” to require actual use as a fuel in a highway vehicle or aircraft. Such an interpretation would reduce the amount of fuel eligible for the credit and thus constrain the cost of the section 45Z credit. However, such an interpretation would not be consistent with a plain reading of the statutory language.

In addition to the suitable for use requirement, section 45Z(a)(4) requires a taxpayer to sell transportation fuel to an unrelated person: (i) for use by such person in the production of a fuel mixture; (ii) for use by such person in a trade or business; or (iii) who sells such fuel at retail to another person and places such fuel in the fuel tank of such other person. The proposed regulations explicitly clarify that the term “sold for use in a trade or business” includes fuel sold to an unrelated person that subsequently resells the fuel in its trade or business. The proposed definition responds to stakeholder concern that more restrictive definitions could prevent all fuel sales for resale, such as those to intermediary dealers or wholesalers, from qualifying for the section 45Z credit.

Stakeholders explained that, in the fuel industry, many producers sell to related or unrelated intermediaries, such as wholesalers or dealers, rather than directly to unrelated final purchasers. This common practice allows efficient distribution and the availability of biofuels across regions of the United States because resellers have the infrastructure, capacity, and expertise to deliver fuel where it is needed that producers do not. 12 The proposed regulatory definition promotes flexibility while maintaining adherence to the statutory language. The proposed regulatory definition reduces the costs to those producers who would need to alter their current distribution practices to take advantage of the tax credit and therefore creates an incentive for more clean fuel production

iver fuel where it is needed that producers do not. 12 The proposed regulatory definition promotes flexibility while maintaining adherence to the statutory language. The proposed regulatory definition reduces the costs to those producers who would need to alter their current distribution practices to take advantage of the tax credit and therefore creates an incentive for more clean fuel production.

12 See https://www.eia.gov/energyexplained/gasoline/where-our-gasoline-comes-from.php.

In considering the definition of “sold for use in a trade or business,” the Treasury Department and the IRS evaluated the potential for double crediting. To address that concern, the draft regulatory text in the Appendix to Notice 2025-10 defined the term “sold for use in a trade or business” to mean sold for use as a fuel in a trade or business within the meaning of section 162 of the Code. The draft term did not include a sale for blending or for further processing, including use as a primary feedstock to produce another fuel.

After the publication of Notice 2025-10, OBBBA amended section 45Z(d)(5)(A) to exclude from the definition of “transportation fuel” any fuel produced from a fuel for which a section 45Z credit is allowable. This revision indicates that a sale for use as a primary feedstock to produce another fuel may qualify as a sale for use in a trade or business under section 45Z(a)(4)(B). The OBBBA amendment thus eliminated the double-crediting potential of transportation fuel used for further processing, including use as a primary feedstock to produce another fuel. As a result, the proposed definition of “sold for use in a trade or business” in these proposed regulations responds to stakeholder feedback by removing the phrase “sold for use as a fuel” from the definition without the risk of double crediting for transportation fuels.

Many stakeholders have expressed the urgent need for guidance to clarify the scope and mechanics of the PER process

ther fuel. As a result, the proposed definition of “sold for use in a trade or business” in these proposed regulations responds to stakeholder feedback by removing the phrase “sold for use as a fuel” from the definition without the risk of double crediting for transportation fuels.

Many stakeholders have expressed the urgent need for guidance to clarify the scope and mechanics of the PER process. Proposed § 1.45Z-2(f) implements the statutory language regarding the PER process and provide this urgent guidance to taxpayers. The proposed regulations provide clarity to taxpayer requests for a PER determination by delineating the proper forms and how to file them, as well as describing the content required and explaining the manner and effect of a PER determination. In addition, the proposed regulations direct applicants to follow the DOE's published instructions as well as describe common assumptions and the information required by the DOE for an EVR. The proposed regulations also harmonize rules for eligible fuels that are a category of hydrogen by outlining the interaction between the PER processes for the section 45V credit and the section 45Z credit.

The certainty provided by these proposed regulations would foster consistent treatment across credit claimants, allow taxpayers producing eligible transportation fuel to make informed investment decisions, and facilitate commercial market transactions with respect to contracts between suppliers and buyers.

II. Paperwork Reduction Act

The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) (PRA) generally requires that a Federal agency obtain the approval of OMB before collecting information from the public, whether such collection of information is mandatory, voluntary, or required to obtain or retain a benefit. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number assigned by the OMB

(PRA) generally requires that a Federal agency obtain the approval of OMB before collecting information from the public, whether such collection of information is mandatory, voluntary, or required to obtain or retain a benefit. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number assigned by the OMB.

The collections of information in these proposed regulations contain reporting, third-party disclosure, and recordkeeping requirements that are necessary to ensure that the taxpayer qualifies for the clean fuel production credit. The collections will be used by the IRS for tax compliance purposes and by taxpayers to ensure the fuel qualifies for the credit.

The proposed regulations describe reporting and recordkeeping that are part of the registration requirements, as detailed in proposed § 1.4101-1(a), (d), (f), and (g). These collections are used to determine whether an applicant meets the requirements to be registered under section 4101, a requirement to qualify for the section 45Z credit. The registration requirements, including the Form 637, are already approved by the OMB under control number 1545-1835 with the PRA procedures under 5 CFR 1320.10. The proposed regulations are not creating or changing these already approved collections.

The collections of information in the proposed regulations describe reporting related to claiming the clean fuel production credit, as detailed in proposed § 1.45Z-6. The burden for these requirements is included with Form 7218 and its instructions. The Form 7218 and its instructions are already approved by OMB under the following control numbers: 1545-0123 for businesses, 1545-0074 for individuals, 1545-0047 for non-profit organizations, and 1545-0092 for trusts and estates with the PRA procedures under 5 CFR 1320.10. The proposed regulations are not creating or changing these already approved collections

describe third-party disclosure and recordkeeping requirements that provide safe harbor methods for the substantiation of emissions rates and qualified sales, as detailed in proposed § 1.45Z-4. The certificates described in the proposed regulations may be used to establish, in part, the taxpayer's eligibility for the section 45Z credit and the amount of the credit claimed on the taxpayer's return. The burden associated with these information collections will be included within the following OMB control numbers: 1545-0123 for businesses, 1545-0074 for individuals, 1545-0047 for tax-exempt organizations, and 1545-0092 for trusts and estates with the PRA procedures under 5 CFR 1320.10.

The collections of information in the proposed regulations include recordkeeping requirements related to claiming the section 45Z credit. A taxpayer would use these records to establish its eligibility for the section 45Z credit and the amount of the credit claimed. The recordkeeping requirements would include that taxpayers keep records about emissions rates, production, and sale. These recordkeeping requirements are considered general tax records under § 1.6001-1(e). For PRA purposes, general tax records are already approved by OMB under the following control numbers: 1545-0123 for businesses, 1545-0074 for individuals, 1545-0047 for non-profit organizations, and 1545-0092 for trusts and estates.

III. Regulatory Flexibility Act

The Regulatory Flexibility Act (5 U.S.C. 601 et seq. ) (RFA) imposes certain requirements with respect to Federal rules that are subject to the notice and comment requirements of section 553(b) of the Administrative Procedure Act (5 U.S.C. 551 et seq. ) and that are likely to have a significant economic impact on a substantial number of small entities

f the 45ZCF-GREET model and CORSIA methodologies to determine the lifecycle GHG emissions rates of transportation fuel, procedures for petitioning the Secretary for a PER determination, requirements for the certification of emissions rates for SAF transportation fuel, filing procedures for claiming a section 45Z credit, and rules for registration under section 4101 for purposes of section 45Z.

B. Affected Small Entities

The RFA directs agencies to provide a description of, and if feasible, an estimate of, the number of small entities that may be affected by the proposed regulations, if adopted. The Small Business Administration's Office of Advocacy estimates in its 2023 FAQs that 99.9 percent of American businesses meet the definition of a small business. The applicability of these proposed regulations does not depend on the size of the business, as defined by the Small Business Administration. As described more fully in the preamble to this proposed regulation and in this IRFA, sections 45Z, 4101, 6417, and 6418, and these proposed regulations may affect a variety of different businesses across several different industries. Because the potential credit claimants can vary widely and the credit first went into effect in 2025, it is difficult to estimate at this time the compliance costs and quantifiable burdens of these proposed regulations, if any, on small businesses. Although there is uncertainty as to the exact number of small businesses within this group, the current estimated number of taxpayers subject to these proposed regulations is 260 taxpayers of which 35 percent are small.

The Treasury Department and the IRS expect to receive more information on the impact on small businesses through comments on these proposed regulations and again after taxpayers start using the guidance and procedures provided in these proposed regulations to claim the section 45Z credit.

C. Impact of the Rules

The proposed regulations would provide rules for how taxpayers can claim the section 45Z credit

to use the updated emissions rate table. If the transportation fuel, pathway, or primary feedstock used by the taxpayer to produce such transportation fuel is not included in the applicable emissions rate table, the taxpayer must petition the Secretary for a PER. As part of the PER petition process, a taxpayer must apply to the DOE for an emissions value that it then uses to submit a PER petition.

To claim a section 45Z credit for SAF transportation fuel, in addition to determining the lifecycle GHG emissions rate of the fuel, a taxpayer must submit a certification from a qualified certifier attesting to the taxpayer's production of SAF transportation fuel, the amount of SAF transportation fuel sold by the taxpayer, certain general information about the qualified facility at which the SAF transportation fuel being certified was produced, conflicts of interest, the certifier's qualifications, and documentation necessary to substantiate the certification process. Additionally, a taxpayer would need to retain records sufficient to establish compliance with these proposed regulations for as long as may be relevant.

Although the Treasury Department and the IRS do not have sufficient data to determine precisely the likely extent of the increased costs of compliance, the estimated burden of complying with the recordkeeping and reporting requirements are described in Part II. of this Special Analyses regarding the PRA.

D. Alternatives Considered

The Treasury Department and the IRS considered alternatives to approaches taken in the proposed regulations. The proposed regulations were designed to minimize burdens for taxpayers while ensuring that the statutory requirements of section 45Z are met. Many of the compliance burdens in the proposed regulations are statutory requirements, but in an effort to reduce these burdens the Treasury Department and the IRS considered and included safe harbors for substantiation of emissions rates and substantiation of qualified sales to allow greater certainty for taxpayers

r taxpayers while ensuring that the statutory requirements of section 45Z are met. Many of the compliance burdens in the proposed regulations are statutory requirements, but in an effort to reduce these burdens the Treasury Department and the IRS considered and included safe harbors for substantiation of emissions rates and substantiation of qualified sales to allow greater certainty for taxpayers. Additionally, in providing rules related to the information required to be submitted to claim the section 45Z credit, the Treasury Department and the IRS considered whether the production and sale of SAF transportation fuel could be certified by an unrelated person without requiring the unrelated person to possess certain qualifications or conflict of interest characteristics. Such an option would, however, increase the opportunity for fraud or excessive payments under section 45Z.

Section 45Z(e) authorizes the IRS to issue guidance regarding implementation of the section 45Z credit and the determination of clean fuel production credits under section 45Z. As described in the preamble to these proposed regulations, these proposed rules carry out that Congressional intent, as the certification requirements allow the IRS to verify the taxpayer's entitlement to the section 45Z credit.

Comments are requested on the requirements in the proposed regulations, including specifically whether there are less burdensome alternatives that do not increase the risk of duplication, fraud, or improper payments under section 45Z.

E. Duplicative, Overlapping, or Conflicting Federal Rules

The proposed regulations would not duplicate, overlap, or conflict with any relevant Federal rules. As discussed previously, the proposed regulations would merely provide procedures and definitions to allow taxpayers to claim the section 45Z credit. The Treasury Department and the IRS invite comments on identifying and avoiding overlapping, duplicative, or conflicting requirements.

IV

al Rules

The proposed regulations would not duplicate, overlap, or conflict with any relevant Federal rules. As discussed previously, the proposed regulations would merely provide procedures and definitions to allow taxpayers to claim the section 45Z credit. The Treasury Department and the IRS invite comments on identifying and avoiding overlapping, duplicative, or conflicting requirements.

IV. Unfunded Mandates Reform Act

Section 202 of the Unfunded Mandates Reform Act of 1995 requires that agencies assess anticipated costs and benefits and take certain other actions before issuing a final rule that includes any Federal mandate that may result in expenditures in any one year by a State, local, or Tribal government, in the aggregate, or by the private sector, of $100 million (updated annually for inflation). These proposed regulations do not include any Federal mandate that may result in expenditures by State, local, or Tribal governments, or by the private sector, in excess of that threshold.

V. Executive Order 13132: Federalism

Executive Order 13132 (Federalism) prohibits an agency from publishing any rule that has federalism implications if the rule either imposes substantial direct compliance costs on State and local governments and is not required by statute, or preempts State law, unless the agency meets the consultation and funding requirements of section 6 of the Executive order. This proposed rule does not have federalism implications and does not impose substantial direct compliance costs on State and local governments or preempt State law within the meaning of the Executive order.

Comments and Public Hearing

Before these proposed amendments to the regulations are adopted as final regulations, consideration will be given to comments regarding the notice of proposed rulemaking that are submitted timely to the IRS as prescribed in the preamble under the ADDRESSES section. The Treasury Department and the IRS request comments on all aspects of the proposed regulations

order.

Comments and Public Hearing

Before these proposed amendments to the regulations are adopted as final regulations, consideration will be given to comments regarding the notice of proposed rulemaking that are submitted timely to the IRS as prescribed in the preamble under the ADDRESSES section. The Treasury Department and the IRS request comments on all aspects of the proposed regulations. All comments will be made available at https://www.regulations.gov or upon request. Once submitted to the Federal eRulemaking Portal, comments cannot be edited or withdrawn.

A public hearing with respect to this notice of proposed rulemaking has been scheduled for May 28, 2026, beginning at 10 a.m. ET, in the Auditorium at the Internal Revenue Building, 1111 Constitution Avenue NW, Washington, DC. Due to building security procedures, visitors must enter at the Constitution Avenue entrance. In addition, all visitors must present photo identification to enter the building. Because of access restrictions, visitors will not be admitted beyond the immediate entrance area more than 30 minutes before the hearing starts. Participants may alternatively attend the public hearing by telephone.

The rules of 26 CFR 601.601(a)(3) apply to the public hearing. Persons who wish to present oral comments at the public hearing must submit an outline of the topics to be discussed and the time to be devoted to each topic by April 6, 2026. A period of 10 minutes will be allotted to each person for making comments. An agenda showing the scheduling of the speakers will be prepared after the deadline for receiving outlines has passed. Copies of the agenda will be available free of charge at the public hearing. If no outline of the topics to be discussed at the public hearing is received by April 6, 2026, the public hearing will be cancelled. If the

public hearing is cancelled, a notice of cancellation of the public hearing will be published in the Federal Register

cycle greenhouse gas (GHG) emissions for purposes of section 45Z. Additional information about the 45ZCF-GREET model is available at https://www.energy.gov/eere/greet.

(2) Applicable amount. The term applicable amount means the applicable amount as described in section 45Z(a) and § 1.45Z-2(a)(4).

(3) Applicable material. The term applicable material means, pursuant to section 45Z(d)(5)(B)(i)—

(i) Monoglycerides, diglycerides, and triglycerides;

(ii) Free fatty acids; and

(iii) Fatty acid esters.

(4) ASTM. The term ASTM means the standards published by ASTM International, formerly known as the American Society for Testing and Materials. Additional information about ASTM International is available at https://www.astm.org/.

(5) Biomass. The term biomass means, pursuant to sections 45Z(d)(5)(B)(ii) and 45K(c)(3), any organic material other than—

(i) Oil and natural gas (or any product thereof); and

(ii) Coal (including lignite) or any product thereof.

(6) Calculated emissions value letter (CEVL). The term calculated emissions value letter or CEVL means the letter issued by the DOE to an emissions value (EV) applicant. A CEVL includes the EV that the DOE determined with respect to the fuel that is the subject of the EV applicant's emissions value request (EVR) and the control number that the DOE assigned to the EV applicant's EVR.

(7) Claim; Form 7218 —(i) Claim. The term claim means a completed Form 7218, Clean Fuel Production Credit, including all information and documentation that the form instructions and the section 45Z regulations require, that a taxpayer files with its Federal income tax return or Federal information return for the taxable year for which the section 45Z credit is determined. The term includes the making of an election under section 6417 or section 6418 and the regulations thereunder, as applicable, by an applicable entity or eligible taxpayer.

ion that the form instructions and the section 45Z regulations require, that a taxpayer files with its Federal income tax return or Federal information return for the taxable year for which the section 45Z credit is determined. The term includes the making of an election under section 6417 or section 6418 and the regulations thereunder, as applicable, by an applicable entity or eligible taxpayer.

(ii) Form 7218. The term Form 7218 means Form 7218, Clean Fuel Production Credit, and any successor form(s). See § 601.602 of this chapter.

(8) CO 2 e. The term CO 2 e means, with respect to any GHG, the equivalent carbon dioxide (as determined based on relative global warming potential). See section 45Z(d)(2).

(9) Code. The term Code means the Internal Revenue Code.

(10) CORSIA methodologies —(i) In general. The term CORSIA methodologies means the fuel lifecycle methodologies used under Volume IV of Annex 16 to the Chicago Convention, Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), which has been adopted by the International Civil Aviation Organization (ICAO) with the agreement of the United States. See section 45Z(b)(1)(B)(iii)(I). Additional information about CORSIA is available at https://www.icao.int/environmental-protection/CORSIA/Pages/default.aspx as of February 4, 2026.

(ii) CORSIA Default; CORSIA Actual. The term CORSIA Default means determinations from fuel pathways approved under the CORSIA Default Life Cycle Emissions Values for CORSIA Eligible Fuels lifecycle approach (CORSIA Default) with the agreement of the United States. The term CORSIA Actual means determinations from fuel pathways approved under the CORSIA Methodology for Calculating Actual Life Cycle Emissions Values lifecycle approach (CORSIA Actual) with the agreement of the United States. Additional information about CORSIA Default and CORSIA Actual is available at https://www.icao.int/environmental-protection/CORSIA/Pages/CORSIA-Eligible-Fuels.aspx.

tates. The term CORSIA Actual means determinations from fuel pathways approved under the CORSIA Methodology for Calculating Actual Life Cycle Emissions Values lifecycle approach (CORSIA Actual) with the agreement of the United States. Additional information about CORSIA Default and CORSIA Actual is available at https://www.icao.int/environmental-protection/CORSIA/Pages/CORSIA-Eligible-Fuels.aspx.

(iii) Agreement of the United States required. The terms CORSIA methodologies, CORSIA Default, and CORSIA Actual do not include any portion of or any approach within such methodologies to which the United States has not agreed. See section 45Z(b)(1)(B)(iii)(I).

(11) DOE. The term DOE means the United States Department of Energy.

(12) Eligible fuel —(i) In general. The term eligible fuel, for purposes of the provisional emissions rate procedures described in section 45Z(b)(1)(D) and § 1.45Z-2(f) and the associated definitions in this paragraph (b), means a fuel that, for the taxable year during which such fuel is produced, is either—

(A) A type of fuel not included in the applicable emissions rate table (as described in § 1.45Z-2(e)(2)); or

(B) If the type of fuel is included in the applicable emissions rate table, such fuel's category is not included in the applicable emissions rate table.

(ii) Other requirements. An eligible fuel must also meet the requirements of section 45Z(d)(5)(A)(i), (iii), and (iv).

(13) Emissions factor. The term emissions factor means the emissions factor as described in section 45Z(b)(1)(A) and § 1.45Z-2(c)(1).

(14) Emissions rate. The term emissions rate means the emissions rate for a transportation fuel as described in section 45Z(b)(1)(B) and (D) and § 1.45Z-2(d).

(15) Emissions value (EV). The term emissions value or EV means the value obtained from the DOE setting forth the DOE's analytical assessment of the lifecycle GHG emissions associated with the production of an eligible fuel using a particular primary feedstock and pathway.

ions rate means the emissions rate for a transportation fuel as described in section 45Z(b)(1)(B) and (D) and § 1.45Z-2(d).

(15) Emissions value (EV). The term emissions value or EV means the value obtained from the DOE setting forth the DOE's analytical assessment of the lifecycle GHG emissions associated with the production of an eligible fuel using a particular primary feedstock and pathway.

(16) EPA. The term EPA means the United States Environmental Protection Agency.

(17) EV applicant. The term EV applicant means a taxpayer submitting a request to the DOE for an emissions value for an eligible fuel for purposes of obtaining a provisional emissions rate (PER) determination as provided in section 45Z(b)(1)(D) and § 1.45Z-2(f).

(18) Facility —(i) In general. For purposes of the definition of qualified facility in section 45Z(d)(4) and paragraph (b)(28) of this section, the term facility means a single production line that produces a transportation fuel. For this purpose, a single production line includes all components that function interdependently to produce a transportation fuel through a process that results in the lifecycle GHG emissions rate used to determine the credit. Components function interdependently to produce a transportation fuel if the use of each component is dependent upon the use of each of the other components to produce a transportation fuel. A component that functions interdependently with other components to produce a transportation fuel need not be located in the same building as, or within a certain geographic proximity to, the other components. A facility includes carbon capture equipment if such carbon capture equipment contributes to the lifecycle GHG emissions rate of the transportation fuel for which the credit is determined. A single production line includes all steps of the production process from the processing of feedstock through to the transportation fuel that the taxpayer sells in a qualified sale.

y to, the other components. A facility includes carbon capture equipment if such carbon capture equipment contributes to the lifecycle GHG emissions rate of the transportation fuel for which the credit is determined. A single production line includes all steps of the production process from the processing of feedstock through to the transportation fuel that the taxpayer sells in a qualified sale.

(ii) Certain indirect production and post-production equipment. The term facility does not include—

(A) Equipment that is used to condition, such as equipment used to blend transportation fuel into a fuel mixture, pressurize a fuel for use in transportation, or transport a transportation fuel beyond the point of production; or

(B) Notwithstanding paragraph (b)(18)(iii) of this section, feedstock-related equipment (including production, purification, recovery, transportation, or transmission equipment) or electricity production equipment used to power the transportation fuel 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 a transportation fuel may be part of a facility if such components function interdependently with other components to produce a transportation fuel.

(iv) Examples. The following examples illustrate the definition of the term facility.

(A) Example 1. Effect of geographic proximity; carbon capture equipment. Z produces a transportation fuel at a 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 (b)(18)(ii)(B) of this section. One purpose of the equipment is to capture carbon oxides. Without the

carbon capture equipment, the facility could not produce a fuel that has an emissions rate that would qualify for the section 45Z credit

s 20,267 Btu per pound.

(B) The lower heating value of low-GHG dimethyl ether is 12,417 Btu per pound.

(C) The lower heating value of low-GHG hydrogen is 51,585 Btu per pound.

(D) The lower heating value of low-GHG liquefied CANG is 20,908 Btu per pound. For this purpose, low-GHG liquefied CANG is a non-liquid fuel at ambient pressure and temperature of 1 atmosphere and 60 degrees Fahrenheit.

(E) The lower heating value of low-GHG liquefied petroleum gas (LPG) (other than propane from hydroprocessed esters and fatty acids (HEFA)) is 19,873 Btu per pound. For this purpose, low-GHG LPG (other than propane from HEFA) is a non-liquid fuel at ambient pressure and temperature of 1 atmosphere and 60 degrees Fahrenheit.

(F) The lower heating value of low-GHG LPG (propane from HEFA) is 18,568 Btu per pound. For this purpose, low-GHG LPG (propane from HEFA) is a non-liquid fuel at ambient pressure and temperature of 1 atmosphere and 60 degrees Fahrenheit.

(v) Example. X produced 100,000 pounds of low-GHG compressed CANG. To determine the number of gallon equivalents of low-GHG compressed CANG that X produced, X must divide the lower heating value of low-GHG compressed CANG (20,267 Btu per pound), by the lower heating value of a gallon of gasoline (116,090 Btu). Rounded to 5 decimal places, on an energy equivalent basis, each pound of low-GHG compressed CANG is equal to 0.17458 gallon equivalents (20,267 Btu per lb. ÷ 116,090 Btu). Thus, X produced 17,458 gallon equivalents (0.17458 gallon equivalents × 100,000 lbs.) of low-GHG compressed CANG.

(21) Greenhouse gas (GHG). The term greenhouse gas, or GHG, has the same meaning given that term under section 211(o)(1)(G) of the Clean Air Act (CAA) (42 U.S.C. 7545(o)(1)(G)), as in effect on August 16, 2022. See section 45Z(d)(3).

meet the specifications of ASTM D6751 and that have an emissions rate that is not greater than 50 kilograms of CO 2 e per mmBTU.

(B) Low-GHG butanol. The term low-GHG butanol means any mixture of n-butyl, sec-butyl, and iso-butyl alcohols that meets the specifications of ASTM D7862 and that has an emissions rate that is not greater than 50 kilograms of CO 2 e per mmBTU.

(C) Low-GHG diesel fuel. The term low-GHG diesel fuel means liquid fuel, including renewable diesel, that meets the specifications of ASTM D975 and that has an emissions rate that is not greater than 50 kilograms of CO 2 e per mmBTU.

(D) Low-GHG dimethyl ether. The term low-GHG dimethyl ether, which includes renewable dimethyl ether, means a gaseous fuel that meets the specifications of ASTM D7901 and that has an emissions rate that is not greater than 50 kilograms of CO 2 e per mmBTU.

(E) Low-GHG ethanol. The term low-GHG ethanol means ethyl alcohol that is a liquid fuel that meets the specifications of ASTM D4806 for denatured fuel ethanol or ASTM D8651 for undenatured fuel ethanol for blending with gasoline and that has an emissions rate that is not greater than 50 kilograms of CO 2 e per mmBTU.

(F) Low-GHG gasoline. The term low-GHG gasoline, which includes renewable gasoline, means liquid fuel that meets the specifications of ASTM D4814 and that has an emissions rate that is not greater than 50 kilograms of CO 2 e per mmBTU.

(G) Low-GHG hydrogen. The term low-GHG hydrogen means any gaseous or liquid fuel that meets the requirements of the Society of Automotive Engineers

(SAE) J2719 standard and that has an emissions rate that is not greater than 50 kilograms of CO 2 e per mmBTU. Information about SAE standards is available at https://www.sae.org/standards.

(H) Low-GHG liquefied petroleum gas (LPG). The term low-GHG LPG, which includes low-GHG propane, means liquefied gases that meet the specifications of ASTM D1835 and that have an emissions rate that is not greater than 50 kilograms of CO 2 e per mmBTU

ons rate that is not greater than 50 kilograms of CO 2 e per mmBTU. Information about SAE standards is available at https://www.sae.org/standards.

(H) Low-GHG liquefied petroleum gas (LPG). The term low-GHG LPG, which includes low-GHG propane, means liquefied gases that meet the specifications of ASTM D1835 and that have an emissions rate that is not greater than 50 kilograms of CO 2 e per mmBTU.

(I) Low-GHG methanol. The term low-GHG methanol means a methyl alcohol that is a liquid fuel that meets the specifications of ASTM D1152 or ASTM D5797 and that has an emissions rate that is not greater than 50 kilograms of CO 2 e per mmBTU.

(J) Low-GHG conventional or alternative natural gas (CANG). The term low-GHG CANG, which includes renewable natural gas (RNG), means a pipeline-quality compressed or liquefied gas that is interchangeable with fossil natural gas, requires only minimal processing (for example, further compression or liquefaction), to meet the specifications of ASTM D8080, and that has an emissions rate that is not greater than 50 kilograms of CO 2 e per mmBTU.

(25) Prevailing wage and apprenticeship requirements (PWA requirements). The term prevailing wage and apprenticeship requirements or PWA requirements means the requirements described in section 45Z(f)(6) and (7) and § 1.45Z-3.

(26) Producer —(i) In general. Except as provided in paragraph (b)(26)(ii) of this section, the term producer means the person that engages in the production of a transportation fuel.

(ii) Alternative natural gas. With respect to alternative natural gas, including RNG, the term producer means the person that processes the untreated sources of alternative natural gas to remove water, carbon dioxide, and other impurities such that it is interchangeable with fossil natural gas.

section, the term producer means the person that engages in the production of a transportation fuel.

(ii) Alternative natural gas. With respect to alternative natural gas, including RNG, the term producer means the person that processes the untreated sources of alternative natural gas to remove water, carbon dioxide, and other impurities such that it is interchangeable with fossil natural gas.

(iii) Examples. The following examples illustrate the definition of the term producer.

(A) Example 1. SAF producer. X uses vegetable oil to make 10,000 gallons of a synthetic blending component via a HEFA production pathway described in ASTM D7566, Annex A2, that qualifies as a SAF transportation fuel. X sells the synthetic blending component to Y, a blender that makes a 20,000-gallon SAF blend, consisting of 50 percent synthetic blending component and 50 percent petroleum-based kerosene, that meets the requirements of ASTM D7566. X and Y are unrelated. X is the producer of the 10,000 gallons of synthetic blending component that it sold to Y. Y is not the producer of any of the 20,000 gallons of fuel that it blended because blending is not production.

(B) Example 2. RNG producer. X collects biogas from an anaerobic digester and processes it into RNG that qualifies as a transportation fuel. X sells 10,000 gallon equivalents of RNG to Y, a RNG wholesaler and distributer. X injects the 10,000 gallon equivalents of RNG into a pipeline. Y removes 10,000 gallon equivalents of CANG from the pipeline, further compresses it, and sells it to a municipality that uses it to fuel compressed natural gas buses. X and Y are unrelated. X is the producer of the 10,000 gallon equivalents of RNG. Y is not the producer because Y merely took a post-production transportation fuel and further compressed it.

l natural gas. Production of CANG does not include compressing CANG that is already interchangeable with fossil natural gas to a higher pressure. Production does not include instances in which a person uses a primary feedstock to produce a fuel that meets the same ASTM standard as the primary feedstock. Production must occur in the United States, which includes any territory of the United States.

(ii) Examples. The following examples illustrate the definition of the term production.

(A) Example 1. Minimal processing for stabilizing biodiesel; production in the United States. X, a domestic corporation, imports fatty acid methyl ester (FAME) from Canada that does not meet the ASTM D6751 specifications for biodiesel. After importation into the United States, X adds a stabilizing additive so that the FAME meets the specifications of ASTM D6751. The resulting fuel is ASTM-compliant biodiesel that qualifies as a transportation fuel. X has not produced the ASTM-compliant biodiesel, as X merely engaged in minimal processing by adding an additive to the imported FAME. Further, X did not produce the ASTM-compliant biodiesel in the United States, as X did not engage in substantial processing in the United States. Substantial processing, and thus production, occurred before X imported the FAME into the United States.

(B) Example 2. Minimal processing for dehydrating hydrous ethanol; production in the United States. Y, a domestic corporation, imports hydrous ethanol from Mexico into the United States. The hydrous ethanol has excessive water content and does not meet the ASTM D4806 specifications for ethanol. After importation into the United States, Y reduces the water content of the hydrous ethanol. The resulting fuel is ASTM-compliant anhydrous ethanol that qualifies as a transportation fuel. Y has not produced the ASTM-compliant anhydrous ethanol, as Y merely engaged in minimal processing by dehydrating the imported hydrous ethanol

nol that qualifies as a transportation fuel and then blends the ethanol with gasoline. Z has engaged in production of a transportation fuel with respect to the ethanol, notwithstanding Z's subsequent blending of the ethanol with gasoline. However, Z's blending, alone, does not constitute production, as Z engaged in minimal processing by blending the ethanol with gasoline to create a fuel mixture.

(28) Qualified facility —(i) In general. The term qualified facility means a facility (as defined in paragraph (b)(18) of this section) used to produce transportation fuel and excludes any

facility for which an anti-stacking credit is allowed under section 38 for the taxable year. See section 45Z(d)(4). For more information on the application of the anti-stacking rules, see § 1.45Z-4(b).

(ii) Anti-stacking credit. The term anti-stacking credit means any one of the following credits listed in section 45Z(d)(4)(B):

(A) The credit for production of clean hydrogen under section 45V (section 45V credit).

(B) The credit determined under section 46 to the extent that such credit is attributable to the energy credit determined under section 48 with respect to any specified clean hydrogen production facility for which an election is made under section 48(a)(15) (section 48(a)(15) election).

(C) The credit for carbon oxide sequestration under section 45Q (section 45Q credit).

(29) Qualified sale —(i) In general. The term qualified sale means a sale of transportation fuel in a manner described in section 45Z(a)(4). The term refers to a sale of transportation fuel by the taxpayer to an unrelated person if—

(A) The fuel is sold for use in the production of a fuel mixture by such person;

(B) The fuel is sold for use in a trade or business by such person; or

(C) Such person sells such fuel at retail to another person and places such fuel in the fuel tank of such other person.

person (other than another member of a consolidated group). Except in the case of a taxpayer described in paragraph (b)(29)(iii) of this section, and in accordance with section 45Z(f)(3), a taxpayer will be treated as selling fuel to an unrelated person if such fuel is sold to the unrelated person by a related person (within the meaning of section 45Z(f)(3) and paragraph (b)(36) of this section).

(v) Examples. The following examples illustrate the definition of the term qualified sale.

(A) Example 1. Qualified sale for use in a trade or business; ethanol to SAF. X produces ethanol and sells the ethanol to Y, an unrelated person. As part of its trade or business, Y uses the ethanol to produce a synthetic blending component under ASTM D7566, Annex A5 (ATJ-SPK). Y then blends the synthetic blending component with petroleum-based kerosene to make a sustainable aviation fuel mixture. X has made a qualified sale of the ethanol to Y under paragraphs (b)(29)(i)(B) and (b)(29)(ii) of this section because X sold the ethanol for use in Y's trade or business. See paragraphs (b)(34)(iii) and (b)(34)(iv)(B) of this section regarding the application of the definition of transportation fuel to Y's synthetic blending component.

(B) Example 2. Qualified sale for use in a trade or business; RNG. X produces RNG that qualifies as a transportation fuel and sells the RNG to Y, an unrelated intermediary wholesaler and distributor. X injects the RNG into a pipeline for resale and distribution by Y. Y's business consists of purchasing RNG from different producers, distributing it through a pipeline, and reselling it to customers who may be dealers, distributors, retailers, or end users of fuel. Y subsequently resells X's RNG as part of Y's business. X has made a qualified sale of the RNG to Y under paragraphs (b)(29)(i)(B) and (b)(29)(ii) of this section because X sold the RNG for use in Y's trade or business.

(C) Example 3. Qualified sale made through another member of consolidated group

section 7701(a)(11)(B).

(ii) IRS. The term IRS means the Internal Revenue Service.

(32) Section 45Z credit. The term section 45Z credit means the clean fuel production credit determined under section 45Z of the Code and the section 45Z regulations.

(33) Section 45Z regulations. The term section 45Z regulations means the regulations in this section, §§ 1.45Z-2 through 1.45Z-6, and 1.4101-1.

(34) Transportation fuel —(i) In general. The term transportation fuel means, pursuant to section 45Z(d)(5)(A), a fuel that—

(A) Is suitable for use as a fuel in a highway vehicle or aircraft;

(B) Has an emissions rate that is not greater than 50 kilograms of CO 2 e per mmBTU;

(C) Is not derived from coprocessing an applicable material (or materials derived from an applicable material) with a feedstock that is not biomass; and

(D) Is not produced from a fuel for which a section 45Z credit is allowable.

(ii) Suitable for use as a fuel in a highway vehicle or aircraft (suitable for use) —

(A) In general. A fuel is suitable for use as a fuel in a highway vehicle or aircraft (suitable for use) if the fuel has practical and commercial fitness for use as a fuel in a highway vehicle or aircraft, or may be blended into a fuel mixture that has practical and commercial fitness for use as a fuel in a highway vehicle or aircraft. A fuel may possess this practical and commercial fitness even though use in a highway vehicle or aircraft is not the fuel's predominant use. However, a fuel does not possess this practical and commercial fitness solely by reason of its possible or rare use as a fuel in a highway vehicle or aircraft. A fuel is suitable for use at the point at which no further production, refinement, or other step is necessary before the fuel may be sold in a qualified sale, except, as specified in paragraph (b)(34)(ii)(B) of this section, for CANG. To be considered suitable for use, a fuel need not actually be used as a fuel in a highway vehicle or aircraft.

(B) CANG

a fuel in a highway vehicle or aircraft. A fuel is suitable for use at the point at which no further production, refinement, or other step is necessary before the fuel may be sold in a qualified sale, except, as specified in paragraph (b)(34)(ii)(B) of this section, for CANG. To be considered suitable for use, a fuel need not actually be used as a fuel in a highway vehicle or aircraft.

(B) CANG. CANG is suitable for use once it is produced so that it is interchangeable with fossil natural gas and would require only minimal processing (for example, further compression or liquefaction) to meet the specifications of ASTM D8080.

(C) Fuels not requiring further processing. A fuel that does not require further processing and that may be blended with or used as a component of taxable fuel (within the meaning of section 4083 of the Code) is suitable for use.

(iii) Produced from a fuel for which a section 45Z credit is allowable. A fuel is produced from a fuel for which a section 45Z credit is allowable if a primary feedstock of the fuel meets the definition of a transportation fuel under paragraph (b)(34)(i) of this section, without regard to paragraph (b)(34)(i)(D) of this section.

(iv) Examples. The following examples illustrate the definition of the term transportation fuel.

(A) Example 1. Suitable for use. X produces diesel fuel that has practical and commercial fitness for use as a fuel in a highway vehicle or aircraft. The diesel fuel meets the description of low-GHG diesel fuel in paragraph (b)(24)(ii)(C) of this section, and no further production, refinement, or other step is necessary before the fuel may be sold in a qualified sale. X sells the diesel fuel to a purchaser that uses it as marine diesel fuel. X's diesel fuel satisfies the suitable for use standard under paragraph (b)(34)(ii) of this section, notwithstanding that the diesel fuel ultimately is not used in a highway vehicle or aircraft.

(B) Example 2. Produced from a fuel for which a section 45Z credit is allowable

before the fuel may be sold in a qualified sale. X sells the diesel fuel to a purchaser that uses it as marine diesel fuel. X's diesel fuel satisfies the suitable for use standard under paragraph (b)(34)(ii) of this section, notwithstanding that the diesel fuel ultimately is not used in a highway vehicle or aircraft.

(B) Example 2. Produced from a fuel for which a section 45Z credit is allowable. Y buys ethanol and uses it as a primary feedstock to produce a synthetic blending component under ASTM D7566, Annex A5 (ATJ-SPK). The ethanol meets the definition of a transportation fuel under paragraph (b)(34)(i) of this section. Under paragraph (b)(34)(iii) of this section, Y has produced the synthetic blending component from a fuel for which a section 45Z credit is allowable. Y's synthetic blending component is not a transportation fuel for purposes of section 45Z.

(35) Types and categories of transportation fuel. As used in section 45Z(b)(1)(B)(i), the term type of transportation fuel refers to a particular kind of transportation fuel. For example, ethanol is one type of transportation fuel. As used in section 45Z(b)(1)(B)(i), the term category of transportation fuel means the unique primary feedstock and pathway (also known as production process) used to produce a type of transportation fuel. For example, fermentation of U.S. corn starch is one category of ethanol.

(36) Unrelated person. The term unrelated person means a person not related to the taxpayer. The term has the same meaning as the term unrelated party for purposes of the certification required by section 45Z(f)(1)(A)(i)(II)(aa). Persons are treated as related to each other if such persons would be treated as a single employer under the regulations prescribed under section 52(b) of the Code. See section 45Z(f)(3).

son. The term unrelated person means a person not related to the taxpayer. The term has the same meaning as the term unrelated party for purposes of the certification required by section 45Z(f)(1)(A)(i)(II)(aa). Persons are treated as related to each other if such persons would be treated as a single employer under the regulations prescribed under section 52(b) of the Code. See section 45Z(f)(3).

(c) Applicability date. This section applies to qualified sales occurring in taxable years ending on or after [date of publication of final regulations in the Federal Register ].

§ 1.45Z-2 General rules. (a) Amount of credit— (1) In general. For purposes of section 38, the section 45Z credit for any taxable year, with respect to a given transportation fuel, is an amount equal to the product of—

(i) The applicable amount for such fuel;

(ii) The total gallons or gallon equivalents of such fuel that were—

(A) Produced by the taxpayer at a qualified facility; and

(B) Sold by the taxpayer in a qualified sale during the taxable year; and

(iii) The emissions factor for such fuel.

(2) Determination of whether fuel is liquid or non-liquid; measurement. Whether a fuel is liquid or non-liquid is determined according to § 1.45Z-1(b)(20)(ii). The volume of a liquid fuel is measured on the basis of gallons adjusted to ambient pressure and temperature of 1 atmosphere and 60 degrees Fahrenheit. The gallon equivalent of a non-liquid fuel is calculated according to § 1.45Z-1(b)(20)(iii).

etermination of whether fuel is liquid or non-liquid; measurement. Whether a fuel is liquid or non-liquid is determined according to § 1.45Z-1(b)(20)(ii). The volume of a liquid fuel is measured on the basis of gallons adjusted to ambient pressure and temperature of 1 atmosphere and 60 degrees Fahrenheit. The gallon equivalent of a non-liquid fuel is calculated according to § 1.45Z-1(b)(20)(iii).

(3) Calculation rules— (i) Rounding. If the amount of any section 45Z credit, as calculated under paragraph (a)(1) of this section, is not a multiple of one cent, a taxpayer must round such amount to the nearest cent. A taxpayer must round up any amount ending in 0.5 cents or more

and round down any amount ending in less than 0.5 cents.

(ii) Pro rata allocation required for sales of transportation fuel in co

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