Tax Tip: Carbon Capture and Sequestration Guidance Needed

The carbon capture and sequestration guidance—CCS—space has received a lot of press in recent months.

Simply stated, Section 45Q defines CCS as involving the removal and safe storage of carbon dioxide from the air. Section 45Q then rewards owners of carbon capture equipment with a generous—up to $50 per ton—tax credit based upon annual tons removed and stored. Additionally, the House-enacted Build Back Better Act seeks to enhance the government’s incentives for investor participation.

To evaluate possible investment in this space, investors and tax advisors need the following additional guidance.

• When we read the—apparent—direct pay provisions of to-be-enacted Section 6417, we presume that Section 469—limiting passive losses and credits—will not apply. More clarity is required.
• Additionally, it’s essential to know whether these incentives will be subject to a minimum tax or other changes like those proposed affecting partnership taxation, as well as whether FASB-SEC will allow the low-income housing model for generally accepted accounting principles reporting.

Until we have further guidance, practitioners should be aware of the limited universe of investors able to take advantage of these environmental, social, and governance, or ESG, oriented incentives.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Lynn Loden is a managing director in charge of transaction services and tax advisory for Opportune LLP. He has over 40 years of corporate tax and accounting experience with major public accounting and similar professional services firms. He has advised both public and private companies in the oil and gas, oil field service, public utility, and service industries. He has significant experience in mergers and acquisitions, rollups, spinoffs, initial public offerings, special purpose acquisition companies (SPACs), lease and project finance, troubled debt restructurings, and bankruptcies.

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