Compliance
Compliance Guide: Meeting the Proposed Regulations for Section 45Z Clean Fuel Credit
A practical compliance roadmap to navigate new documentation, registration, and emissions requirements under the IRS's proposed rules for clean fuel producers.
By NomadicTax Research Team • 5-8 min read • March 15, 2026
## 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](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))
## 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](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 & 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](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))
- **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](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))
- **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](https://www.irs.gov/instructions/i7218?utm_source=openai))
- **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](https://www.irs.gov/irb/2026-09_IRB?utm_source=openai))
## 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.