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Notice 2026-1 (the Notice) provides important guidance under Section 45Q of the Internal Revenue Code of 1986, as amended (the Code), for taxpayers claiming that carbon oxides are stored in secure geological storage following the Environmental Protection Agency's (the EPA) proposal to eliminate reporting obligations under Subpart RR. The Notice establishes a safe harbor (the Safe Harbor) for eligibility for Code Section 45Q credits for carbon oxide that is captured and disposed of in secure geological storage and not used as a tertiary injectant in a qualified enhanced oil or gas recovery project during calendar year 2025. The Safe Harbor is available if the EPA does not launch the electronic Greenhouse Gas Reporting Tool (the e-GGRT) for filers to prepare and submit information required under Subpart RR for reporting year 2025 by June 10, 2026.
The New Verification Process
Taxpayers may use the Safe Harbor to satisfy the requirements of Treasury Regulations Sections 1.45Q-3(b)(1)(ii) or 1.45Q-2(h)(5)(ii), as applicable (the Subpart RR Requirements), and 1.45Q-3(d) (the Certification Requirements) for qualified carbon oxides captured and disposed of in secure geological storage during the 2025 calendar year if the EPA does not launch the e-GGRT for reporting year 2025 by June 10, 2026.
Under the Safe Harbor, such storage will be considered to have satisfied the Subpart RR Requirements if (i) such storage is in compliance with the applicable requirements of Subpart RR as in effect on December 31, 2025, and (ii) the taxpayer prepares and submits all of the information and documentation, including mass balance accounting calculations and monitoring and containment assurance, that would have been required under Subpart RR as in effect on December 31, 2025 (the Annual Report) to an independent engineer or geologist, who certifies the Annual Report, in the manner specified in the Notice (instead of submitting the Annual Report through the e-GGRT).
The Certification Requirements will be deemed to be satisfied if the taxpayer (i) submits the Annual Report for reporting year 2025 to a qualified independent engineer or geologist registered or certified in any State, and (ii) the qualified independent engineer or geologist certifies that (a) the capture and disposal described in Treasury Regulations Section 1.45Q-3(b)(1) or 1.45Q-2(h)(5), as applicable, is in compliance with Subpart RR as in effect on December 31, 2025, and (b) the information and documentation contained in the Annual Report for reporting year 2025 is accurate and complete based upon the requirements under Subpart RR as in effect on December 31, 2025. The certification must contain an affidavit from the certifying engineer or geologist stating that he or she is independent from the taxpayer (and if an election under Code Section 45Q(f)(3)(B) has been made, the affidavit must state that he or she is independent from both the electing taxpayer and the credit claimant). The certification must be made under penalties of perjury.
Strategic Recommendations for Taxpayers
The Safe Harbor is a welcomed development, but taxpayers should take steps to ensure compliance now. We recommend that taxpayers:
- Engage Experts Early: Begin to identify and engage qualified independent engineers or geologists. As June 10, 2026 approaches, their services likely will be in high demand.
- Strengthen Internal Documentation: Ensure data collection and record-keeping processes are able to generate a Subpart RR-compliant report without the aid of the e-GGRT.
- Review Project Agreements: Examine contracts with investors, offtakers, service providers and other relevant parties to determine the rights and obligations of the parties with respect to this new certification process for the 2025 calendar year, and make any amendments necessary to reflect the new process.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
