On July 1, 2021, the Internal Revenue Service (IRS) issued Revenue Ruling 2021-13 (the “Revenue Ruling”) to clarify that a taxpayer may qualify for the carbon capture credit under section 45Q of the Internal Revenue Code of 1986, as amended (the “Code”), without owning every component of carbon capture equipment within a single process train. However, the taxpayer must (i) remain responsible for physically or contractually ensuring the capture and disposal, injection or utilization of the carbon oxide (“CO2”) captured by the qualified facility and (ii) own at least one component of carbon capture equipment in the single process train of carbon capture equipment. The Revenue Ruling also discusses the determination of the “placed-in-service” date for the components of such equipment, and explains the interplay between the “placed-in-service” date for the single process train that applies for purposes of claiming the section 45Q credit versus the various “placed-in-service” dates that will apply to separate components of the process train for depreciation purposes. The Revenue Ruling further clarifies recent guidance published under final regulations (T.D. 9944) on January 15, 2021 (the “Final Regulations”), as discussed in our client publication titled “IRS Issues Final Regulations on Section 45Q Carbon Capture Credits.”
The Revenue Ruling involves a plant (“Facility X”) that produces methanol from petroleum coke in a multistep industrial process involving an acid gas removal (AGR) unit. The AGR unit purifies raw synthesis gas (“syngas”) by removing unwanted components (including CO2) from the syngas stream before the purified syngas is converted to methanol. The CO2 separated from the syngas stream would be released into the atmosphere unless captured.
The AGR unit was placed in service on January 1, 2017, and, until 2021, it released all CO2 separated by the unit into the atmosphere. No taxpayer previously claimed a section 45Q credit with respect to the AGR unit. In 2021, a taxpayer (“Investor”) purchased and installed new components of carbon capture equipment alongside the AGR unit (the “new CCE components”). The AGR unit and the new CCE components, together, are considered a single process train that captures, processes and prepares the CO2 for transport. Investor did not own an interest in either the AGR unit or Facility X and sought guidance regarding eligibility for the section 45Q credit based on installation of the new CCE components alongside the AGR unit.
The Revenue Ruling provides guidance in four key areas:
 Unless otherwise indicated, all “section” references contained herein are to sections of the Code).
 Section 1.45Q-2(c).