Storing Up Certainty: IRS Expands the 45Q Safe Harbor

On August 14, 2026, the Internal Revenue Service (“IRS”) issued its Notice 2026-50 (the “2026 45Q SH Notice”), which expands and extends IRS Notice 2026-01, published in December 2025 (the “2025 45Q SH Notice”).¹ The 2026 45Q SH Notice provides welcome clarity and certainty on reporting requirements for the carbon oxide sequestration credit available under Internal Revenue Code Section 45Q (the “45Q Credit”) for taxpayers that use carbon oxides (“COs”) in qualified enhanced oil or natural gas recovery (“EOR”) projects, and extends that clarity to reporting years beyond 2025.

Background

In late 2025, the Environmental Protection Agency (“EPA”) proposed an amendment to the Greenhouse Gas Reporting Program (“GHGRP”) that would remove program obligations for most source categories, including reporting obligations under subpart RR of 40 C.F.R. part 98 (“Subpart RR”).² Subpart RR requires taxpayers to comply with certain reporting obligations that are provided through the EPA’s e-GGRT reporting tool. As of the date of this alert, the EPA has not launched the e-GGRT for reporting years 2025 or 2026. However, certain taxpayers (i.e., taxpayers that sequester COs but do not use them for EOR) are required to comply with Subpart RR to qualify for the 45Q Credit. Other taxpayers (i.e., taxpayers that use COs in EOR) have historically used Subpart RR reporting to qualify for the 45Q Credit instead of alternative verification methods.

2026 45Q SH Notice

The 2026 45Q SH Notice modifies and amplifies the 2025 45Q SH Notice in three principal respects. First, it extends the safe harbor beyond the 2025 reporting year, applying it to secure geological storage occurring on or after January 1, 2025, through the end of the calendar year in which the Department of the Treasury and the IRS publish further interim guidance or proposed regulations addressing the measurement, reporting, and verification requirements under Section 45Q. Second, it expands the safe harbor to cover qualified COs used as a tertiary injectant in EOR, which the 2025 45Q SH Notice did not previously address. Third, it permits taxpayers to rely on a safe harbor (the “2026 Safe Harbor”) to determine the amount of qualified COs securely stored, and the amount that has leaked into the atmosphere, for purposes of the 45Q recapture rules.

Under this 2026 Safe Harbor, a taxpayer will be deemed to satisfy the requirements related to Subpart RR for a reporting year in which the e-GGRT is unavailable (i.e., if the EPA does not launch the e-GGRT by March 31 of the following calendar year)³ so long as (i) CO sequestration or use is in compliance with the applicable requirements of Subpart RR as in effect on December 31, 2025; (ii) the taxpayer received an EPA-approved Monitoring, Reporting, and Verification (“MRV”) plan applicable to the dates of such sequestration or use; and (iii) instead of submitting the annual report generally required by Subpart RR through the e-GGRT, the taxpayer prepares and submits the annual report to an independent engineer or geologist, who certifies such annual report prior to filing its tax return. The 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, and the report must, in accordance with Subpart RR as in effect on December 31, 2025, determine (i) the quantity of qualified COs securely stored for the calendar year and (ii) the quantity, if any, of qualified COs that leaked into the atmosphere during that reporting year.

The IRS also requested comments on the appropriate standard to replace Subpart RR for demonstrating compliance with Section 45Q for secure geological storage, including whether the International Organization for Standardization’s standard 27914:2026 (published in March 2026) could serve as an alternative. Comments are due by October 30, 2026.

For questions on Notice 2026-50, the 2026 45Q SH Notice, or other matters relating to the 45Q Credit, please reach out to the authors of this alert.

¹See our prior coverage of the 2025 45Q SH Notice here.

²On 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.

³The 2026 Safe Harbor does not apply for a given reporting year if the EPA launches the e-GGRT for that year by March 31 of the following calendar year. Separately, the EPA has finalized a rule extending the Subpart RR annual reporting deadline for reporting year 2025 to October 30, 2026.

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.