Compliance Checklist for Businesses Under the U.S. Clean Fuel Production Credit (Section 45Z)

Overview of Section 45Z: Major Changes

Section 45Z—clean fuel production credit—received significant updates under the OBBB:

• Extended duration until December 31, 2029 for credit claims. (irs.gov)
• Feedstock limited to materials grown/produced in the U.S., Mexico, or Canada. (irs.gov)
• Prohibited foreign entities (PFEs): facilities or eligible components using assistance from PFEs may lose credit eligibility; safe harbors provided temporarily. (irs.gov)
• Stricter rules on emissions rates: negative emissions generally banned except from animal manure; indirect land-use changes excluded. (irs.gov)

Key Compliance Requirements

1. Registration Clean fuel producers must register with IRS using Form 637. Without registration, credit cannot be claimed. (irs.gov)

2. Emissions Rate Certification Identify the proper model (e.g., CLEAN-FUEL credit emissions rate table, GREET, etc.), obtain valid emissions values. Animal manure pathways are special case. (irs.gov)

3. Prohibited Foreign Entity (PFE) Analysis Establish if any material assistance from PFEs is present in facility / components. Use interim safe harbors until forthcoming final rules. Prepare for documentation and ratio calculations. (irs.gov)

4. Recordkeeping & Ownership Attribution Maintain clear records of ownership, sales attribution, feedstock origin. Note that fuel sold through intermediaries may trigger broader eligibility rules. (irs.gov)

5. Emissions & Feedstock Geography Constraints Ensure no negative emissions unless from animal manure; verify feedstocks are from U.S./Canada/Mexico. Indirect land use changes excluded when calculating emissions. (irs.gov)

Action Plan for Businesses

• Audit your supply chain immediately: track origins of feedstocks and components. If any part may involve PFEs, engage legal/tax counsel.
• Register with Form 637 for 2024-2025 production as required. Missing registration losses claims.
• Implement robust emissions-recording systems. Even interim emissions tables matter until formal rules are published.
• Use Safe Harbor Provisions now: until final regulations are published, safe harbors under Notice 2026-15 provide temporary clarity on PFEs. (irs.gov)
• Train accounting and compliance staff to document attribution, ownership, entities involved, and to avoid prohibited assistance.

Penalties and Risks for Non-Compliance

• Claiming a credit without meeting feedstock or PFE rules may lead to denial of credit, repayment, penalties, interest.
• Poor documentation or misattributed ownership can attract audits.
• Operating before safe harbor periods close without alignment with final guidance is risky.

Example Scenario

GreenWorks Inc. produces clean transportation fuel using corn feedstock grown in the U.S. and component parts manufactured overseas. One part of its facility sources patented processing technology from a company owned by a foreign-controlled entity (PFE). Under the PFE rules, GreenWorks must calculate its material assistance cost ratio (MACR) using supplied interim guidance. If MACR falls below the threshold, GreenWorks could lose its credit — unless safe harbor applies and it can document everything.

Conclusion

Section 45Z now demands proactive compliance—feedstock provenance, emissions, and entity relationships matter. Companies in this space must act now: register, assess PFEs, track emissions, and build compliance systems. Failure to do so risks losing substantial credits under OBBB.