Johnson—IRC §45Z Clean Fuel Production Credit: What Changed, What Didn’t, and What Matters for Ethanol Producers

Presenter: Rebecca Johnson, Tax Manager, Christianson PLLP
Timing: Wednesday, Feb. 25, 2026 (4:00 pm - 5:00 pm)
Session: 45Z: Unlocking Opportunities, Navigating Uncertainty

Transcript

1. IRC §45Z Clean Fuel Production Credit What Changed, What Didn’t, and What Matters for Ethanol Producers Rebecca Johnson, Tax Manager February 25, 2026
2. The Basics • Consolidated historical fuel credits (2nd Gen/Cellulosic, BTC, SAF) • Note: Small Agri-Biodiesel Producer Credit was extended through 12/31/2027 • Fuel Produced & Sold: 1/1/2025 through 12/31/2029 • Value tied to GHG emissions (up to $1.00 per gallon) • Monetization Options: Direct Pay & Transferability (Sale) (50 CO2 e/mmBTU - Emissions Rate) 50 CO2 e/mmBTU $ Value = Produced & Sold (gal) X X Applicable Rate ($)
3. Prevailing Wage & Apprenticeship (PWA) Documentation • Copies of General Wage Determinations (Sam.gov) • Apply Early for Supplemental Wage Determinations • Valid for length or contract or 180 days • Have 30 days from issuance to comply without penalties • Tax Form 4255 and Form 7220: • By employer, contractor, subcontractor • By construction type and worker classification • EINs, total works, GWD/SWD, cash wages, fringe benefits, correction payments, penalties, etc. • Third Party Tracking, expect delays (reports, AUPs, sales)
4. What’s Happening Today? 5/31/24 IRS Notice 2024-49 Registration Requirements 7/15/24 Form 637 Due 1/1/25 45Z Effective Date 1/10/25 IRS Notice 2025-11 Emission Rate Table 1/10/25 IRS Notice 2025-10 Intent to Propose Regulations 1/15/25 USDA Feedstock CI Calculator 3/18/25 Comments Due: USDA Calculator 4/10/25 Public Comments Due: IRS / DOE 45ZCF- GREET 5/2025 Updated DOE GREET Model Issuance 2/4/26 Proposed Regulations Issued (REG-121244-23) 4/6/26 Comments Due on Proposed Regulations 5/28/26 @ 10am Public Hearing on Proposed Regulations TBD Final USDA FD-CIC TBD DOE GREET Model Update (Removal of ILUC, Inclusion of FD-CIC) TBD Final Regulations Issued 8/16/22 IRA Signed: Creation of 45Z Tax Credit 7/4/25 OBBA Signed: Extending and Modifying 45Z Tax Credit
5. Transition: from 2025 Intent to 2026 Proposed Regs • 2025 followed the playbook we had • Real-time decisions based on IRS intent-to-propose • Proposed regulations arrived after year-end • For 2025, you still have a choice: • Intent-to-propose guidance or proposed regulations • One framework, applied consistently • Market is already moving to proposed rules • Flexibility ends with final regulations
6. Anti-Stacking: Clarified, Not Rewritten • Disqualifying credits include: • §45Q (carbon capture) • §45V (clean hydrogen) • §48 ITC claimed in lieu of §45V (hydrogen-related ITC) • Still a facility-level rule: • Qualified facility defined to include carbon capture equipment • Ownership and credit claimant do not matter • Flexibility across tax years: • Eligibility alone does not trigger disqualification • “allowable” vs. “allowed” language • Facilities may switch credit regimes year-to-year • No stacking within the same taxable year
7. Qualifying Sales: Clarifications, Changes • Both denatured (ASTM D4806) and undenatured (ASTM D8651) ethanol may qualify • “Use in a trade or business” • Returns to the statutory standard • Buyer does not need to personally consume the fuel as transportation fuel • Eliminates the “use as a fuel” gloss from notice-stage guidance • Sales through marketers and intermediaries • Removes uncertainty for wholesalers, resellers, and distributors • Related-party sales followed by resale • Broader look-through approach adopted • Sales qualify if fuel is ultimately sold to an unrelated party in a qualifying transaction • Fuel sold for further processing • Upstream sale not disqualified solely because fuel becomes feedstock (e.g., ethanol → SAF) • Credit limitation shifts downstream to avoid double-crediting
8. Emissions & Modeling: Key Clarifications • Allows use of later-released GREET models within the same tax year • EAC incrementality • Shift from a facility placed-in-service to a first sub-50 CI production trigger • Indirect Land Use Change (ILUC) • Statutorily excluded for fuel produced after 12/31/2025 • Removes ILUC prospectively; residual uncertainty for certain 2025 fact patterns • Provisional Emissions Rate (PER) process • DOE validates the fuel-specific methodology (not the rate) • PER is determined by the IRS through the tax • Determine by Fuel Type/Methodology, not facility specifics • Negative emissions rates • Still waiting on Treasury to publish • Resolves treatment prospectively; limited clarity for early-year production
9. Farm-Level Carbon Intensity (Farm CI) • Proposed rules allow provisional CSA incorporation pending USDA’s final FD-CIC model • Scope: • Crops: Corn, Soybeans, Sorghum • Practices: tillage reduction, cover crops, fertilizer management • How CI is calculated • County-level emission factors by crop and practice • Farm-level CI = weighted average across fields • Non-CSA acres default to national averages • Documentation required • Field location, crop volumes, and practice evidence • CI benefit must be tracked through the supply chain
10. Documentation & Certification Burden Stayed Same • 637 Registration prior to production (“CN”) • “Pre-Registration” with IRS for sales • Prevailing Wage & Apprenticeship • Independent Verification for Safe Harbor • LCFS leads or ISO-accredited • Meter calibrations within 1 year of verification Changes • Certification signed under penalties of perjury using the 45ZCF-GREET model • Qualified sale documentation • Adds a purchaser-certificate • Specifies required content and representations • Obtained before or at the time of sale • Claims filed on Form 7218 • Certifications attached to original, amended, or AAR filings • Ownership or EIN changes Safe harbor • Continued claiming during §4101 re-registration • Original registration remains valid until replaced
11. Income & Expense Recognition • Timing: • GAAP: When reasonably estimable • Tax: On return in which credit is generated and transferred • Deductible: • Energy Attribute Credits (EACs) • Climate-Smart Ag (CSA) feedstock premiums • Emissions modeling and verification costs • CPA due diligence and technical substantiation • PWA tracking and AUPs • Nondeductible (IRC §265): • Broker or placement fees • Legal fees tied to transfer agreements • Tax credit insurance premiums • Facts-and-Circumstances matter • Costs associated with a sale are nondeductible even if the transfer does not go through
12. Key Takeaways & What’s Next  Confirm the rule set for 2025 filings  Lock reliance on intent-to-propose guidance or proposed regulations  Apply one framework consistently  Assume proposed-rule documentation standards  Collect all required certifications and timing-sensitive support  Do not rely on post-filing reconstruction  Separate costs at the source  Clearly track credit-generation vs. credit-monetization expenses  Prevent §265 deductibility issues  Align tax vs. financial reporting  Tax timing follows §6418, not GAAP  Expect and plan for book-tax differences  Set expectations with members  Verification/Calculation takes time  Monetization can be slow, document-heavy, and buyer-driven  Delays are structural — not a first-year anomaly  Prepare for 2026 now  Build systems assuming final regulations tighten processes  Documentation discipline is a permanent requirement
13. For more information rjohnson@christiansoncpa.com 320.441.5509 Rebecca Johnson Manager Creating Clients for Life christiansoncpa.com