IRS Provides Certainty on 45Q Amid EPA Reporting Changes

On December 19, 2025, the IRS delivered a little holiday cheer in the form of IRS notice 2026-01 (the “45Q Safe Harbor Notice”), which addressed uncertainty created by the Environmental Protection Agency’s (“EPA”) announcement to amend the Greenhouse Gas Reporting Program (“GHGRP”) and remove program obligations for most source categories, including reporting obligations under subpart RR of 40 CFR part 98 (“Subpart RR”).¹ However, satisfying reporting obligations under Subpart RR is a critical eligibility requirement for certain taxpayers to qualify for the carbon oxide sequestration credit available under Internal Revenue Code Section 45Q (the “45Q Credit”), and many taxpayers were concerned that EPA’s proposed changes to Subpart RR could make qualifying for the 45Q Credit de facto impossible.

As background, taxpayers who capture and dispose of qualified carbon oxides (“COs”) in secure geological storage (and do not use such COs as a tertiary injectant in an enhanced oil recovery or natural gas recovery projects) must comply with the requirements of Subpart RR.² Importantly, for such taxpayers, the amount of disposed COs reported under Subpart RR determines the amount of COs that can qualify for the 45Q Credit. However, as noted above, the EPA intends to remove the reporting obligations under Subpart RR, and the EPA may not launch the e-GGRT (i.e., the EPA’s greenhouse gas reporting tool for Subpart RR) for 2025 before the U.S. federal income tax return filing deadlines.

Pursuant to the 45Q Safe Harbor Notice, taxpayers will be deemed to satisfy the requirements related to Subpart RR for reporting year 2025 if (i) such storage is in compliance with the applicable requirements of subpart RR as in effect on December 31, 2025, and (ii) instead of submitting the annual report generally required by Subpart RR for reporting year 2025 through the e-GGRT, the taxpayer prepares and submits the annual report to an independent engineer or geologist, who certifies such annual report. This annual report must contain the information and documentation, including mass balance accounting calculations and monitoring and containment assurance, that would have been required under Subpart RR as in effect on December 31, 2025.³

The 45Q Safe Harbor Notice will be inapplicable if, on or before June 10, 2026, the EPA issues a new e-GGRT for filers to submit information required under Subpart RR for reporting year 2025.

For questions on the 45Q Safe Harbor Notice or other matters relating to the 45Q Credit, please reach out to the authors of this alert.

¹ FN on EPA’s announcement: On September 16, 2025 (later corrected on September 22, 2025), the EPA issued a proposed rule 2025-17923 whereby the EPA proposed to amend the GHGRP and remove program obligations for most source categories, including Subpart RR.

² See, Treas. Reg. 1.45Q-3(b)(1)(ii) or 1.45Q-2(h)(5)(iii), as applicable, and 1.45Q-3(d)

³ To rely on the 45Q Safe Harbor Notice, a taxpayer must complete all documentation and obtain independent engineer or geologist certification by the time it timely files its relevant U.S. federal income tax return.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.