Overview of Compliance Obligations
With the IRS’s proposed regulations under REG-121244-23, clean fuel producers must satisfy various compliance obligations related to registration, emissions documentation, recordkeeping, and entity-eligibility requirements. Missing any could result in penalties or loss of credit eligibility. (irs.gov)
Major Compliance Areas
-
Registration: Producers must register with the IRS under Section 4101 using Form 637 with the correct activity letter (CA or CN), effective at the time of production. Disregarded entities with EINs or qualified Subchapter S subsidiaries must file separately. (irs.gov)
-
Feedstock & Entity Restrictions: Fuel produced after December 31, 2025, must use eligible feedstocks (U.S., Mexico, Canada). Disallowed foreign or foreign-influenced entities cannot claim the credit. Ensure your corporate structure and ownership information are up to date. (irs.gov)
-
Emissions Rate Determination: Use approved emissions models and follow rules for excluding indirect land use change. For animal manure feedstocks, specific feedstock-based emissions rates may apply. Prohibited negative emissions unless allowed by statute. (irs.gov)
-
Documentation & Reporting:
- Maintain detailed records for feedstock origin, emissions calculations, certifications, and supporting technical data.
- If eligible for higher credit via prevailing wage/apprenticeship rules, file Form 7220.
- Submit Form 7218 per facility when claiming the credit. (irs.gov)
-
Public Comment Deadlines: Since these regulations are proposed, taxpayers and stakeholders should review the proposals closely and submit comments by April 6, 2026. Public hearings are scheduled (May 28, 2026) for additional input. (irs.gov)
Consequences of Non-Compliance
Failure to meet registration timing, feedstock eligibility, or emissions documentation may lead to:
- Disallowance or reduction of the claimed credit
- Penalties for misstatement under IRS rules
- Potential issues with audit or appeal
- Repayment obligations where statutory recital requires annual verification
Compliance Checklist
| Task | Responsibility | Deadline | Notes |
|---|---|---|---|
| Register facility using Form 637 | Entity CFO / Tax Lead | Before production begins | Disregarded entities/QSubs file separately |
| Identify eligible feedstock sources | Procurement / Supply Chain | Continuous | Keep documentation of sourcing |
| Determine emissions rate using approved model | Technical/Environmental Staff | Before filing credit claim | Follow regulations, exclude prohibited factors |
| Collect and retain certifications & records | Accounting / Legal | Ongoing | Prevailing wage/apprentice compliance if claiming higher amounts |
| File required IRS forms (7218, 7220) | Tax Department | With tax return or as specified | Separate per facility |
Good compliance planning not only protects against IRS challenges but enables producers to take full advantage of substantial tax credits now available under Section 45Z.