n-14-40.pdf

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Credit for Carbon Dioxide Sequestration
2014 Section 45Q Inflation Adjustment Factor

Notice 2014-40

SECTION 1. PURPOSE

This notice publishes the inflation adjustment factor for the credit for carbon
dioxide (CO
2
) sequestration under § 45Q of the Internal Revenue Code (§ 45Q credit)
for calendar year 2014. The inflation adjustment factor is used to determine the amount
of the credit allowable under § 45Q. This notice also publishes the aggregate amount of
qualified CO
2
taken into account for purposes of § 45Q.
SECTION 2. BACKGROUND
Section 45Q(a)(1) allows a credit of $20 per metric ton of qualified CO
2
that is
captured by the taxpayer at a qualified facility, disposed of by the taxpayer in secure
geological storage, and not used by the taxpayer as a tertiary injectant. Section
45Q(a)(2) allows a credit of $10 per metric ton of qualified CO
2
that is captured by the
taxpayer at a qualified facility, used by the taxpayer as a tertiary injectant in a qualified
enhanced oil or natural gas recovery project, and disposed of by the taxpayer in secure
geological storage.
Section 45Q(b)(1) defines the term “qualified carbon dioxide” as CO
2
captured
from an industrial source that would otherwise be released into the atmosphere as
industrial emission of greenhouse gas, and that is measured at the source of capture
and verified at the point of disposal or injection. Qualified CO
2
includes the initial

2
deposit of captured CO
2
used as a tertiary injectant but

does not include CO
2
that is re-
captured, recycled, or otherwise re-injected as part of the enhanced oil and natural gas
recovery process.
Section 45Q(c) defines the term “qualified facility” as an industrial facility that is
owned by the taxpayer, where carbon capture equipment is placed in service, and
where at least 500,000 metric tons of CO
2
is captured during the taxable year.
Section 45Q(d)(2) provides that the Secretary, in consultation with the
Administrator of the Environmental Protection Agency (EPA), the Secretary of Energy,
and the Secretary of the Interior, shall establish regulations for determining adequate
security measures for the geological storage of CO
2
under § 45Q(a)(1)(B) or (a)(2)(C)
such that the CO
2
does not escape into the atmosphere. See section 5 of Notice 2009-
83, 2009-2 C.B. 588, for procedures regarding secure geological storage.
Section 45Q(d)(5) allows the § 45Q credit to the person that captures and
physically or contractually ensures the disposal of or the use as a tertiary injectant of the
qualified CO
2
.
Under § 45Q(d)(7), for taxable years beginning in a calendar year after 2009, the
dollar amount contained in § 45Q(a) must be adjusted for inflation by multiplying such
dollar amount by the inflation adjustment factor for such calendar year determined
under § 43(b)(3)(B), determined by substituting “2008” for “1990.”
Section 43(b)(3)(B) defines the term “inflation adjustment factor” as, with respect
to any calendar year, a fraction the numerator of which is the GNP implicit price deflator
for the preceding calendar year and the denominator of which is the GNP implicit price

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deflator for 1990. For purposes of § 45Q(d)(7), with respect to 2014 calendar year, the
inflation adjustment factor is a fraction the numerator of which is the GNP implicit price
deflator for 2013 (106.710) and the denominator of which is the GNP implicit price
deflator for 2008 (99.229).
Section 45Q(e) provides that the § 45Q credit will apply with respect to qualified
CO
2
before the end of the calendar year in which the Secretary, in consultation with the
EPA, certifies that 75,000,000 metric tons of qualified CO
2
have been taken into account
in accordance with § 45Q(a).
SECTION 3. INFLATION ADJUSTMENT FACTOR
The inflation adjustment factor for calendar year 2014 is 1.0754. The § 45Q
credit for calendar year 2014 is $21.51 per metric ton of qualified CO
2
under
§ 45Q(a)(1) and $10.75 per metric ton of qualified CO
2
under § 45Q(a)(2).
SECTION 4. TAX CREDIT UTILIZATION
Section 6 of Notice 2009-83 requires taxpayers to file annual reports that provide
(among other information) the amounts (in metric tons) of qualified CO
2
for the taxable
year that has been taken into account for purposes of claiming the § 45Q credit. The
annual reports must be filed with the Service not later than the last day of the second
calendar month following the month during which the tax return on which the § 45Q
credit is claimed was due (including extensions).
Based on the annual reports filed with the Service as of June 1, 2014, the
aggregate amount of qualified CO
2
taken into account for purposes of § 45Q is
27,114,815 metric tons.

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SECTION 5. DRAFTING INFORMATION
The principal author of this notice is Jennifer Bernardini of the Office of Associate
Chief Counsel (Passthroughs & Special Industries). For further information regarding
this notice contact Ms. Bernardini on (202) 622-3110 (not a toll-free call).