IRS expands and extends safe harbor for reporting storage of carbon oxide under § 45Q benefiting oil and gas projects

On August 14, 2026, the US Department of the Treasury (“Treasury”) and Internal Revenue Service (“IRS”) issued Notice 2026-50 (the “Notice”), providing interim guidance regarding the credit for carbon oxide sequestration under Section 45Q¹ (the “§ 45Q Credit”) by expanding and extending the safe harbor established under Notice 2026-1 for reporting amounts of qualifying carbon oxide stored in secure geological storage.

Background on the § 45Q Credit

Section 45Q provides a tax credit for the capture and disposal, use, or utilization of qualified carbon oxide. To be eligible for the § 45Q Credit, a taxpayer must begin construction of carbon capture equipment (or of an industrial facility or direct air capture facility the original plan and design of which includes installation of carbon capture equipment) before January 1, 2033. Taxpayers are eligible to claim the §45Q Credit during the 12-year period beginning on the date that the carbon capture equipment is placed in service. 

Under the One, Big, Beautiful Bill Act (the “OBBBA”),² for carbon capture facilities placed in service after July 4, 2025, the base credit amount is the same regardless of whether the taxpayer disposed of or undertakes use or utilization of the captured carbon oxide. The base credit rate is $17/metric ton ($36/metric ton for direct air capture) for tax years beginning in a calendar year after 2024 and before 2027 (indexed for 2025-inflation for any taxable year beginning in a calendar year after 2026) and is increased by five times if a taxpayer complies with the prevailing wage and apprenticeship requirements during the construction, alteration, and repair of the facility.

Reporting Obligations Under Existing Regulations

To qualify for the § 45Q Credit, a taxpayer must satisfy specific inter-agency reporting obligations depending on whether the qualified carbon oxide is disposed of in secure geological storage, used as a tertiary injectant in a qualified enhanced oil or natural gas recovery project (and disposed of by the taxpayer in secure geological storage), or utilized in a qualifying manner. For example, according to the Treasury Regulations under Section 45Q:³

• If the qualified carbon oxide is disposed of through permanent geological sequestration (and not used as a tertiary injectant in an EOR Project), then taxpayers are required to follow the reporting standards imposed by the Environmental Protection Agency (“EPA”) in subpart RR of 40 CFR part 98 (“subpart RR”), which generally requires facilities to report information on carbon oxide received for injection, develop and implement an EPA-approved site-specific monitoring, reporting, and verification plan (“MRV Plan”), and report the amount of carbon oxide geologically sequestered annually through the EPA’s electronic Greenhouse Gas Reporting Tool (“e-GGRT”) for verification; 
• If the qualified carbon oxide is used as a tertiary injectant in a qualified enhanced oil or natural gas recovery project (an “EOR Project”), then the taxpayer may either (i) self-certify to the IRS compliance with the subpart RR reporting requirements if the taxpayer was subject to such requirements, or (ii) obtain a certification from an independent engineer or geologist regarding the taxpayer’s compliance with the reporting requirements under CSA/ANSI ISO 27916:2019 (“ISO 27916:2019”); and
• If the qualified carbon oxide is utilized, then the taxpayer must prepare a lifecycle analysis (“LCA”) report, which quantifies how much carbon oxide was either captured and permanently isolated from the atmosphere or displaced from being emitted into the atmosphere, and such LCA report must receive pre-approval from the IRS in consultation with the Department of Energy (“DOE”).

EPA’s Proposal to Remove Subpart RR Reporting Requirements and the Subsequent Issuance of Notice 2026-1

In September 2025, the EPA issued proposed regulations to eliminate subpart RR reporting obligations for reporting years after 2024. If finalized, taxpayers claiming the credit for carbon oxide disposed of through permanent geological sequestration (and not used as a tertiary injectant in an EOR Project) would have no reporting standard available to them and taxpayers claiming the credit for carbon oxide used as a tertiary injectant in an EOR Project would be required to report in accordance with ISO 27916:2019 (even if the taxpayer had otherwise complied with subpart RR).

In response, the IRS published Notice 2026-1 on December 19, 2025, which provided a safe harbor for determining eligibility for the § 45Q Credit for qualified carbon oxide captured and disposed of through permanent geological sequestration (and not used as a tertiary injectant in an EOR Project) in 2025 in the event that the EPA failed to make available the e-GGRT by June 10, 2026. Taxpayers will be considered to have satisfied the reporting requirement in the Treasury Regulations if:

• The storage of carbon oxide is in compliance with the applicable requirements of subpart RR as in effect on December 31, 2025, and
• The taxpayer prepares and submits an annual report (that would have been required under subpart RR) to a qualified independent engineer or geologist that certifies the accuracy and completeness of the annual report under penalties of perjury. 

Notice 2026-50

Notice 2026-50 builds upon the safe harbor under Notice 2026-1 in three principal respects:

• First, it applies the safe harbor to qualified carbon oxide used as a tertiary injectant in an EOR Project, provided the taxpayer (i) complies with the applicable requirements of subpart RR in effect as of December 31, 2025, (ii) holds a valid EPA-approved MRV Plan, and (iii) in lieu of filing an annual report through e-GGRT, submits that report to a qualified independent engineer or geologist for certification. 
• Second, it applies the safe harbor for purposes of reporting whether a tax credit recapture event has occurred due to qualified carbon oxide leaking into the atmosphere in such reporting year.
• Third, it extends the application of the safe harbor to each year for which the EPA fails to make e-GGRT available by March 31 of the following year. 

Notice 2026-50 applies to secure geological storage occurring on or after January 1, 2025, and on or before December 31 of the calendar year in which Treasury and the IRS publish further interim guidance or proposed regulations under Section 45Q. 

Request for Comments and Future Guidance

Treasury and the IRS have indicated that further interim guidance and/or proposed regulations under Section 45Q are forthcoming. Treasury has specifically requested comments by October 30, 2026, regarding:

• The appropriate standard to be used in place of subpart RR to demonstrate compliance with Section 45Q for secure geological storage;
• Whether ISO 27914:2026 could be used as an alternative, including the verification methods set forth therein; and
• Whether there are other processes or methodologies that could serve as suitable alternatives to subpart RR if the EPA’s elimination of subpart RR is finalized.

_{1 All references are to the applicable section of the Internal Revenue Code of 1986, as amended.
2 Pub. L. 119-21.
3 Final Treasury Regulations under Section 45Q were issued in January 2021, which predates legislative updates to Section 45Q from the Inflation Reduction Act in 2022 and the OBBBA in 2025.}  

David Spiegel (White & Case, Associate, Chicago) contributed to the development of this publication.

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_{This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.}

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