The US Treasury Department and the Internal Revenue Service (IRS) have issued Notice 2026-50, expanding and extending a critical safe harbor for the federal Section 45Q carbon capture tax credit.
The guidance addresses growing regulatory uncertainty created by a US Environmental Protection Agency (EPA) proposal to eliminate key requirements under its Greenhouse Gas Reporting Program, including Subpart RR protocols for geologic sequestration.
Under existing regulations, tax credit eligibility relies on Subpart RR data to confirm that captured carbon dioxide is permanently stored underground.
The newly updated safe harbor preserves an alternative compliance pathway if the EPA’s electronic reporting system becomes unavailable, extending the measure beyond 2025 and expanding its coverage to include enhanced oil and gas recovery (EOR) projects.
Additionally, the guidance permits taxpayers to utilize the safe harbor when determining whether previously claimed tax credits must be recaptured due to potential atmospheric leakage.
Independent Verification Pathway Protects Carbon Capture Investments
To utilize the safe harbor, project operators must maintain an EPA-approved monitoring, reporting, and verification plan while adhering to Subpart RR standards as they existed on December 31, 2025.
If the EPA system is unavailable by March 31 following the reporting year, taxpayers can submit their annual verification reports to a certified state-registered independent engineer or geologist instead.
Industry representatives welcomed the interim solution, noting that it protects project economics and avoids costly operational disruptions for industrial facilities seeking 45Q incentives.
Relevant: GAO Report Reveals Delays And Oversight Gaps In 45Q Carbon Capture Tax Credit
Jessie Stolark, executive director of the Carbon Capture Coalition, expressed gratitude to Treasury and the IRS for providing taxpayers with operational certainty through the notice.
Looking toward a permanent framework, Treasury and the IRS are requesting public feedback on whether international standards, such as the recently updated ISO 27914:2026 for geological carbon storage, should formally replace Subpart RR, with public comments open through October 30.
Read more: 45Q Tax Credit Faces Growing Backlash Over Oil-Linked Carbon Capture
