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property with a maximum net output of service at a qualified facility on or after
no greater than 5 megawatts. the date the Bipartisan Budget Act of Procedure & Administration
In general, many of the amendments 2018 was enacted if (1) no taxpayer has
to the Sec. 48 ITC are effective for claimed a credit under Sec. 45Q for the Proposed regs. address
facilities placed in service after Dec. 31, equipment for any prior year; (2) the IRS Appeals’ review of tax
2021. For the Sec. 48 ITC related to facility where the equipment is placed controversies
stand-alone energy storage, qualified in service is located in an area affected Treasury and the IRS have proposed
biogas property, microgrid controllers, by a federally declared disaster after the regulations (REG-125693-19) to
or certain other technologies, however, capture equipment was originally placed clarify the types of federal tax con-
the Sec. 48 ITC is effective for property in service; and (3) the disaster resulted in troversies that may be appealed to the
placed in service after Dec. 31, 2022. the facility or equipment ceasing to oper- IRS Independent Office of Appeals
Implications: The inclusion of ate after it was originally placed in service. (Appeals). These regulations would
certain technologies under the Sec. Like the Sec. 45 PTC and the Sec. implement provisions in the Taxpayer
48 ITC, its extension through 2024, 48 ITC, the revised Sec. 45Q has similar First Act (TFA), P.L. 116-25, making
and the switchover to the technology- rules on reducing the credit when tax- access to Appeals generally available
neutral credit regime should be exempt bonds are used in financing the and entitling taxpayers to a written
positively received. For example, the facility. The amendments generally apply explanation in some circumstances
inclusion of stand-alone storage and (with certain exceptions) to facilities or when access is denied.
qualified biogas is a helpful develop- equipment placed in service after Dec.
ment, and renewable natural gas invest- 31, 2022. Referrals to Appeals
ments should benefit, as renewable Implications: The increased Appeals is the IRS’s independent dis-
natural gas often consists of 96% to 98% credit amount, the lowering of the an- pute resolution forum. Congress has
methane. Providing certainty and the nual capture amounts, the extension of taken steps to codify the administra-
ability to forecast investment decisions the beginning-of-construction deadline, tively created office in the IRS
and related returns is critical in capital- and the potential for some direct pay or Restructuring and Reform Act of 1998,
intensive industries. transferability should be well received in P.L. 105-206, and the TFA, specifically
the carbon capture, use, and sequestration at Sec. 7803(e). Sec. 7803(e)(3) speci-
Sec. 45Q carbon oxide marketplace, as many projects are de- fies that the function of Appeals is to
sequestration credits pending on an increased credit to become resolve federal tax controversies with-
Under prior law, eligible carbon oxide economically viable. out litigation, while Sec. 7803(e)(4)
sequestration credit projects were re- says that the resolution process “shall
quired to begin construction before Jan. Some final thoughts be generally available to all taxpayers”
1, 2026. The Inflation Reduction Act Now that the Inflation Reduction Act (emphasis added).
extends that beginning-of-construction has been enacted, the focus will turn to The proposed regulations define
deadline to Jan. 1, 2033, and decreases understanding the details of implement- “federal tax controversy” and, in ad-
the annual capture requirements. ing regulations and guidance as taxpay- dition, confirm that Appeals may
The Sec. 45Q carbon oxide seques- ers evaluate the legislation’s impact. continue to consider certain other
tration tax credit, which was increased Taxpayers should carefully analyze what administrative determinations that are
by the Inflation Reduction Act, is sub- the act’s changes mean from a capital al- not actual federal tax controversies,
ject to the two-tiered credit regime, location and deployment perspective, as such as the tax exemption or founda-
with a lower base rate and a higher well as how some of the changes could tion classification of particular orga-
bonus rate if the prevailing wage and impact current, pending, or potential nizations. The proposed regulations
apprenticeship requirements are met transactions and investments. Thought- also identify 24 types of cases that are
(similar to those described above). ful and detailed analysis, including excluded from Appeals consideration.
The Inflation Reduction Act allows quantitative analysis, will be essential
certain taxpayers to elect to have the to properly analyze the act’s potential Exclusions
12-year credit term begin on the first day impacts in this area. Under the proposed regulations, Ap-
of the first tax year in which a Sec. 45Q From Michael Bernier, CPA, Boston; peals would not consider appeals of (1)
tax credit is claimed if certain specific Dorian Hunt, CPA, Boston; Greg Mat- frivolous positions; (2) whistleblower
conditions are met. This applies to carbon lock, J.D., Houston; and Brian Murphy, awards; (3) issues settled by a closing
capture equipment originally placed in CPA, Boca Raton, Fla. agreement; (4) cases where Appeals

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