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bon dioxide as part of the manufacture of another product , is properly included within carbon capture equipment . Some commenters suggested such property be characterized as carbon capture equipment only if carbon capture , separation , or compression was its primary purpose , or that dual use property be excluded from the scope of carbon capture equipment .
There was a concern that carbon capture equipment would be defined to include property with more than one purpose or use , and a taxpayer would be required to own all of the carbon capture equipment associated with a project to qualify for the Section 45Q credit . Such a definition may make it burdensome for such a taxpayer to acquire property already in use at an industrial facility that may be owned by another taxpayer , or be subject to transfer restrictions under existing financing arrangements .
In the preamble to the final Treasury Regulations , however , the Treasury Department declined to adopt either the primary purpose test or exclude dual purpose property from the definition of carbon capture equipment . Instead , the final Treasury Regulations adopted the function based test , described above .
The Revenue Ruling Following on the finalization of the Treasury Regulations , the revenue ruling addresses some unanswered questions regarding the availability of the Section 45Q credit , as it relates to carbon oxide captured using carbon capture equipment added to a methanol plant by an investor in 2021 . The plant produces methanol from petroleum coke gasified with high temperature steam to create raw syngas . The syngas is purified in an acid gas removal ( AGR ) unit , which removes unwanted carbon dioxide and releases it into the atmosphere , and the purified gas is converted into methanol .
The AGR unit at the methanol plant was placed in service on Jan . 1 , 2017 . In 2021 , an investor purchased and installed new components of carbon capture equipment necessary to create a single process train . The investor did not acquire an ownership interest in the AGR unit .
In the revenue ruling , the IRS concluded that the AGR unit is carbon capture equipment as defined in the Treasury Regulations , regardless of whether it had any other purpose , because at least one of the functions of the AGR unit is to separate carbon dioxide . Accordingly , the revenue ruling confirmed that dual purpose or use property is properly treated as carbon capture equipment for purposes of Section 45Q .
The revenue ruling further stated that , although the investor did not own the AGR unit , the investor nevertheless could claim the Section 45Q credits , because it only is necessary to own at least one component of carbon capture equipment in a single process train of carbon capture equipment to claim the Section 45Q credits . As a result , the revenue ruling relieved taxpayers seeking Section 45Q credits from the requirement that they own dual purpose or use property at an existing facility , so long as they owned a single component of the carbon capture equipment .
Finally , the IRS concluded that , for purposes of determining eligibility for Section 45Q credits , a unit of carbon capture equipment will be considered originally placed in service for purposes of Section 45Q on the date that any person first places it in a condition or state of readiness and availability for the specifically designed function of capturing , processing , and preparing carbon oxide for transport . In the case of the methanol facility , that occurred in 2021 when the new components of carbon capture equipment were placed in service at the facility .
The revenue ruling also clarified that the placed-inservice date for carbon capture equipment for purposes of Section 45Q had no impact on the placed-in-service date of property for purposes of claiming depreciation deductions under Internal Revenue Code Sections 167 and 168 .
Having addressed , mostly favorably , a number of issues of concern , the revenue ruling should provide clarity for owners of carbon capture equipment recently installed , or yet to be installed , at gas processing facilities with gas separation equipment placed in service prior to Feb . 9 , 2018 , with respect to their ability to claim the increased Section 45Q credits .
This column does not necessarily reflect the opinion of The Bureau of National Affairs , Inc . or its owners .
Author Information Elizabeth McGinley , chair of Bracewell ’ s tax department , regularly advises clients on acquisitions , dispositions , restructurings , joint ventures , and debt and equity investments in the upstream and midstream oil and gas and conventional and renewable power industries . She represents both public and private energy companies as well as private equity funds . Liz is recognized by Chambers USA among America ’ s leading lawyers for tax ( 2012-2021 ). From Chambers USA : ‘‘ One of the sharpest and most comprehensive tax people we ’ ve ever worked with ; nothing gets by her . From a client ’ s perspective , I don ’ t know how you could ask for more ’’ ( 2018 ).
Don Lonczak provides U . S . and international tax advice on mergers and acquisitions , joint ventures and corporate spin-offs , public and private financings , bankruptcies , financial products , and private equity investments . He also has extensive experience structuring renewable energy projects eligible for the production tax credit ( PTC ) or investment tax credit ( ITC ).
Bloomberg Tax Insights articles are written by experienced practitioners , academics , and policy experts discussing developments and current issues in taxation . To contribute , please contact us at TaxInsights @ bloombergindustry . com .
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