IRS expands safe harbor for Section 45Q carbon sequestration credit

What happened? 

Treasury and the IRS on August 14 issued Notice 2026-50, which expands and extends the safe harbor originally provided in Notice 2026-1 for claiming the carbon oxide sequestration credit under Section 45Q. The updated guidance expands the safe harbor to projects that capture qualified carbon oxide for use as a tertiary injectant in a qualified enhanced oil or natural gas recovery project (EOR project) and later subject that qualified carbon oxide to secure geological storage, addresses credit recapture determinations, and extends the applicability date of the safe harbor until further guidance is published. 

The EPA’s proposed elimination of Subpart RR reporting—the framework that the Section 45Q regulations adopted to verify secure geological storage—threatened to strand billions of dollars in planned and operating carbon capture projects. Notice 2026-50 provides more certainty for these projects by preserving the existing compliance pathway for Section 45Q credit claims until a permanent replacement standard is established. 

Companies that claim the Section 45Q credit should review the expanded safe harbor provided in Notice 2026-50 and evaluate their ability to satisfy the independent certification requirements by the time they file their tax returns. Written comments on potential alternative standards for verifying secure geological storage are due October 30, 2026, offering companies an opportunity to shape the permanent compliance framework that will replace Subpart RR for purposes of the Section 45Q credit.