Tax Planning
Tax Planning Tips for Claiming the Expanded Clean Fuel Production Credit
Leverage the OBBB updates to Section 45Z to maximize tax credits for clean fuel production while avoiding pitfalls around feedstock sourcing, emissions accounting, and registration.
By NomadicTax Research Team • 5-8 min read • March 15, 2026
## Understanding the Expanded Section 45Z
Under the **One, Big, Beautiful Bill (OBBB)**, Section 45Z’s clean fuel production credit has been significantly updated to incentivize clean transportation fuels produced domestically between January 1, 2025 and December 31, 2029. These changes include stricter feedstock sourcing rules, prohibited entity restrictions, and new emissions rate calculations. ([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 Planning Considerations
- **Feedstock sourcing matters**: For fuels produced after December 31, 2025, your feedstocks must originate from the U.S., Mexico, or Canada. Foreign feedstocks beyond those boundaries will disqualify the credit. ([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))
- **Entity restrictions**: Specified foreign entities are disallowed from claiming the credit. Ensure your entity structure avoids being a “specified foreign entity” or “foreign-influenced” entity under new definitions. ([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 accounting**: Negative emissions rates are generally prohibited except when fuel is derived from animal manure. Indirect land use change emissions must be excluded. Use the feedstock-specific emissions tables and models (e.g., 45ZCF-GREET) to compute correct lifecycle GHG 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))
- **Register early and correctly**: Registration is required via **Form 637** under Activity Letter CA (for SAF) or CN (non-SAF), at the time of production. Entity identity (including disregarded entities or QSubs) affects who must register. File the registration letter before production begins to avoid losing eligibility. ([irs.gov](https://www.irs.gov/credits-deductions/clean-fuel-production-credit?utm_source=openai))
- **Claiming and filing**: Claims are made via **Form 7218**, with separate forms required for each qualified facility. Producers meeting prevailing wage and apprenticeship requirements must also file Form 7220. ([irs.gov](https://www.irs.gov/instructions/i7218?utm_source=openai))
## Example Scenario
A biodiesel producer in Texas owns multiple facilities, each structured as a disregarded entity with its own EIN. Under the proposed rules, **each facility** must register via Form 637 and claim credits per facility using Form 7218. If using animal manure feedstock, negative emissions rates may apply, but only under specific rules, with exclusions for indirect land use changes. If the entity is partially foreign-owned, ensure that neither the producing entity nor its required attributing owners fall under disallowed entity definitions.
## Actionable Steps for Producers
1. Identify all facilities that produce or plan to produce fuel eligible under Section 45Z.
2. Audit your feedstock supply chain to confirm origin.
3. Review entity ownership to assess exposure to specified foreign entity rules.
4. Compute emissions rates using approved models; hire technical expertise if needed.
5. Register each facility via Form 637 **before production** begins.
6. Plan your accounting and record keeping early, including payrolls tied to prevailing wage/apprenticeship obligations.
Leveraging these provisions effectively can result in substantial tax savings, while missteps on registration, feedstock sourcing, or emissions disclosure can lead to denied credits or compliance risks.