Compliance
Compliance Checklist for Businesses Under the U.S. Clean Fuel Production Credit (Section 45Z)
The revamped clean fuel production credit introduces stricter compliance: feedstock limits, emissions testing, and reporting rules. Businesses must adapt fast.
By NomadicTax Research Team • 5-8 min read • March 17, 2026
## 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](https://www.irs.gov/newsroom/treasury-irs-issue-proposed-regulations-on-the-clean-fuel-production-credit-under-the-one-big-beautiful-bill?utm_source=openai))
- **Feedstock limited** to materials grown/produced in the U.S., Mexico, or Canada. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-issue-proposed-regulations-on-the-clean-fuel-production-credit-under-the-one-big-beautiful-bill?utm_source=openai))
- **Prohibited foreign entities (PFEs)**: facilities or eligible components using assistance from PFEs may lose credit eligibility; safe harbors provided temporarily. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-provide-guidance-for-certain-energy-tax-credits-regarding-material-assistance-provided-by-prohibited-foreign-entities-under-the-one-big-beautiful-bill?utm_source=openai))
- Stricter rules on emissions rates: negative emissions generally banned except from animal manure; indirect land-use changes excluded. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-issue-proposed-regulations-on-the-clean-fuel-production-credit-under-the-one-big-beautiful-bill?utm_source=openai))
## Key Compliance Requirements
1. **Registration**
Clean fuel producers must register with IRS using **Form 637**. Without registration, credit cannot be claimed. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-issue-proposed-regulations-on-the-clean-fuel-production-credit-under-the-one-big-beautiful-bill?utm_source=openai))
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](https://www.irs.gov/newsroom/treasury-irs-issue-proposed-regulations-on-the-clean-fuel-production-credit-under-the-one-big-beautiful-bill?utm_source=openai))
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](https://www.irs.gov/newsroom/treasury-irs-provide-guidance-for-certain-energy-tax-credits-regarding-material-assistance-provided-by-prohibited-foreign-entities-under-the-one-big-beautiful-bill?utm_source=openai))
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](https://www.irs.gov/newsroom/treasury-irs-issue-proposed-regulations-on-the-clean-fuel-production-credit-under-the-one-big-beautiful-bill?utm_source=openai))
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](https://www.irs.gov/newsroom/treasury-irs-issue-proposed-regulations-on-the-clean-fuel-production-credit-under-the-one-big-beautiful-bill?utm_source=openai))
## 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](https://www.irs.gov/newsroom/treasury-irs-provide-guidance-for-certain-energy-tax-credits-regarding-material-assistance-provided-by-prohibited-foreign-entities-under-the-one-big-beautiful-bill?utm_source=openai))
- **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.