The Department of the Treasury and the Internal Revenue Service have issued proposed regulations providing guidance on the clean fuel production credit enacted under the One, Big, Beautiful Bill. This credit—commonly referred to as the Section 45Z credit—represents a significant shift in how clean transportation fuel incentives are structured and administered.
While the credit primarily targets domestic fuel producers, the proposed regulations have important implications for nonprofit organizations that engage in taxable activities or participate in energy-related ventures.
Overview of the Clean Fuel Production Credit
The clean fuel production credit provides an income tax credit for clean transportation fuel produced domestically after December 31, 2024, and sold by December 31, 2029. To claim the credit, a taxpayer must meet specific eligibility requirements and be registered with the IRS using Form 637 at the time the fuel is produced.
The proposed regulations address:
- Eligibility criteria for domestic producers
- Rules for calculating the credit
- Registration and compliance requirements
- Administrative procedures for claiming the credit
Treasury and the IRS are inviting public comments and requests to speak at a scheduled public hearing as part of the rulemaking process.
Registration Requirement
A key requirement under the proposed regulations is that taxpayers must be registered with the IRS under Form 637 for certain excise tax activities. Registration must be in place at the time of production to be eligible for the credit. Failure to satisfy this requirement may disqualify otherwise eligible fuel from the credit.
Why This Matters for Nonprofits and Exempt Organizations
Although most exempt organizations will not directly claim the Section 45Z credit, the proposed regulations are still relevant for nonprofits that:
- Operate taxable subsidiaries involved in clean fuel production
- Participate in joint ventures or partnerships with for-profit energy companies
- Generate unrelated business taxable income (UBTI) from energy-related activities
- Are evaluating sustainability or clean energy initiatives with potential tax credit implications
In these contexts, understanding how the credit operates is important for structuring transactions, assessing tax exposure, and managing compliance risks.
Governance and Structuring Considerations
Nonprofits involved in energy projects must carefully evaluate:
- Whether activities are conducted within the exempt organization or through a taxable subsidiary
- How income and expenses are allocated for UBI purposes
- The impact of tax credits on joint venture agreements
- Board oversight and documentation related to new revenue-generating activities
The proposed regulations underscore the importance of aligning tax planning with governance and operational strategy, particularly where exempt and taxable activities intersect.
Opportunity to Comment
Treasury and the IRS have invited comments on the proposed regulations through the Federal e-Rulemaking Portal (REG-121244-23). Organizations with direct or indirect exposure to clean fuel production may wish to review the proposed rules and consider participating in the comment process.
Looking Ahead
As the regulations are finalized, additional guidance may further clarify eligibility, calculation methods, and administrative requirements. Organizations involved in energy-related activities should monitor developments closely and assess how these rules may affect future planning.
How TrimnerBeckham Can Help
TrimnerBeckham advises nonprofit organizations on complex tax compliance issues, including unrelated business income, subsidiary structures, joint ventures, and the tax implications of sustainability initiatives. We help organizations evaluate new opportunities while maintaining compliance with federal tax law and governance best practices.
