Treasury, IRS Propose Regulations for IRC Section 45Z Clean Fuel Credit

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The U.S. Department of the Treasury and the Internal Revenue Service (IRS) have released proposed regulations under Section 45Z of the Internal Revenue Code of 1986, providing comprehensive guidance on the clean fuel production credit (CFPC). The regulations clarify that sales through intermediaries can be treated as qualified sales, eligible for the CFPC. The regulations also introduce detailed procedures for obtaining emission rates, registering as a producer of transportation fuel, and maintaining necessary records for the CFPC.

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The U.S. Treasury and IRS Release Proposed Regulations on Clean Fuel Production Credit

The U.S. Department of the Treasury and the Internal Revenue Service (IRS) have published proposed regulations under Section 45Z of the Internal Revenue Code of 1986, offering guidance on the clean fuel production credit (CFPC). The CFPC was introduced by the Inflation Reduction Act of 2022 and modified by the One, Big, Beautiful Bill Act of 2025 (OBBBA). The proposed regulations outline numerous changes from the draft regulations released last year.

Overview of CFPC and IRC Section 45Z

IRC Section 45Z provides a tax credit (the CFPC) for clean transportation fuel produced in the U.S. after December 31, 2024, and sold before December 31, 2029. This credit replaces a range of previous tax credits for fuels like biodiesel, renewable diesel, alternative fuels, and sustainable aviation fuel (SAF). To qualify, a taxpayer must perform several actions, including producing a qualifying fuel at a U.S. facility, registering as a producer, meeting greenhouse gas emissions thresholds, and selling the fuel in a qualified sale during the taxable year.

The proposed regulations include several key clarifications and amendments. The changes include definitions of “qualified sales,” regulations around sales to related persons, details on fuel and transportation fuel definitions, and rules around emissions rates.

Key Takeaways from the Proposed Regulations

Under the proposed regulations, sales through intermediaries may count as “qualified sales” eligible for the CFPC. The regulations also include procedures for obtaining “provisional emissions rates,” for registering as a producer of transportation fuel, and for substantiating claims of the CFPC.

The regulations also outline changes made by the OBBBA. These changes include a prohibition on the use of emissions rates below zero, restrictions on foreign feedstocks, and prohibited foreign entities. The proposed regulations also make clear that “use in a trade or business” does not necessitate the use of the sold fuel as a transportation fuel. Additionally, if a third-party marketer or other entity resells the fuel in its trade or business, the sale may be treated as a “qualified sale.”

Public Responses and Regulations Timeline

Comments, requests to speak, and outlines of speaking topics related to the Proposed Regulations are due by April 6, 2026. A public hearing is scheduled for May 28, 2026.

The proposed regulations may be relied upon by taxpayers prior to finalization, provided they are applied consistently and in their entirety. The regulations are expected to provide clarity for taxpayers producing or investing in clean transportation fuels.

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