Aircraft Club April 2024 Sustainable aviation fuel credit: PwC

In brief

What happened?

The Inflation Reduction Act of 2022 added Section 40B, providing a tax credit for sustainable aviation fuel. The new credit applies to certain fuel mixtures containing sustainable aviation fuel and is effective for fuel sold or used after 2022 and before 2025. Recently, the IRS released Notice 2024-6, which provides a safe harbor for computing a fuel’s lifecycle greenhouse gas emissions reduction percentage and related certification requirements for purposes of the Section 40B tax credit.

Why is it relevant?

Notice 2024-6 provides guidance to taxpayers on the support of their credit claims and includes another method to determine a fuel’s emission reduction percentage. Previously, the IRS had issued Notice 2023-6, which provided guidance on Section 40B and related excise tax provisions.

Action to consider:

Beginning in 2025, Section 40B will be replaced by the Section 45Z clean fuel production credit. Notice 2024-6 provides helpful insight on what to expect in future guidance from the IRS on Section 45Z.

In detail

The sustainable aviation fuel credit is $1.25 for each gallon of sustainable aviation fuel in a qualified mixture. Sustainable aviation fuel must reduce lifecycle greenhouse gas emissions by at least 50%. A supplemental credit of $.01 applies for each percentage point by which the emissions reduction percentage of the sustainable aviation fuel exceeds 50%, for a maximum increase of $0.50.

A taxpayer may claim the Section 40B credit as a credit against Section 4081 excise tax. If the credit against excise tax exceeds a taxpayer’s excise tax liability for a quarter, then the overpayment potentially could be treated as a direct payment of the excise tax, a refundable income tax credit, or a nonrefundable income tax credit included in the general business credit.

Previously, the IRS issued Notice 2023-6, providing guidance on standards for sustainable aviation fuel, computation of the supplemental credit, procedures for claiming the credit, and certification and registration requirements. Notice 2023-6 also includes a safe harbor for calculating the lifecycle greenhouse gas emissions reduction percentage. See the PwC Insight IRS issues guidance on sustainable aviation fuel credit, requests comments for a detailed discussion.

Notice 2024-6, issued late in 2023, provides additional guidance on the sustainable aviation fuel credit, including methods and Renewable Fuel Standard program safe harbors used to qualify for and calculate the sustainable aviation fuel credit. See the PwC Insight IRS supplements guidance on sustainable aviation fuel tax credit.