IRS issues proposed rules for the clean fuel production credit

The IRS and Treasury recently released proposed regulations on the clean fuel production credit, often called the §45Z credit, as amended by the One Big Beautiful Bill Act (OBBBA). If you saw the headline and wondered whether this applies to your clients, you’re not alone. Here’s a clear way to determine whether this guidance is relevant to your practice.

Who does this apply to?

This guidance is narrowly focused on domestic producers of clean transportation fuel.

It generally applies to businesses that:

• Produce qualifying clean transportation fuel in the United States and be registered with the IRS at the time of production
• Sell that fuel during the applicable credit window
• Are directly involved in fuel production, not just investment or resale

For most small tax practices, this will not affect most clients. However, it may come up for clients involved in clean fuel production or related energy operations. Although commonly referred to as the §45Z credit, it applies only to fuel produced by a registered producer and sold in a qualifying transaction.

What is the clean fuel production credit?

The clean fuel production credit is an income tax credit available for qualifying domestically produced clean transportation fuel. OBBBA significantly revised the credit, prompting the Treasury and IRS to issue proposed regulations to clarify how the updated rules work in practice.

The proposed regulations address:

• How the credit is calculated
• How emissions rates are determined
• Certification and registration requirements
• Several statutory changes made by OBBBA

The credit itself isn’t brand new, but it has been significantly revised, and these rules explain how those changes are implemented in practice. 

When does the credit apply?

Timing is critical for this credit, and the proposed rules clarify several key dates.

The credit generally applies to:

• Clean transportation fuel produced after Dec. 31, 2024
• Fuel sold through Dec. 31, 2029

Certain OBBBA changes apply to fuel produced after Dec. 31, 2025, including restrictions on feedstocks and limitations on emissions rates. For affected taxpayers, production dates and compliance timing are critical to evaluating eligibility, because different rule sets apply depending on the year the fuel is produced.

Where does location factor in?

Location plays a central role in eligibility.

Under OBBBA and the proposed regulations:

• Fuel must be produced domestically, including U.S. territories
• Eligible feedstocks must be grown or produced in the United States, Mexico or Canada
• Foreign feedstocks outside these countries are excluded

The rules also impose restrictions on foreign entities, further narrowing who can claim the credit. These provisions reinforce the incentive's domestic focus.

Why did the IRS issue this guidance?

OBBBA made substantive changes to the clean fuel production credit, but many of those changes required regulatory clarification to be workable.

Treasury and the IRS issued these proposed regulations to:

• Implement new statutory restrictions
• Clarify emissions rate calculations
• Address anti-abuse concerns, including double crediting
• Provide certainty around registration and other procedural requirements

Without this guidance, taxpayers and practitioners would be left guessing how to apply the revised law. The proposed rules are intended to bridge that gap before final regulations are issued.

How do taxpayers claim the credit?

Claiming the credit involves both pre-production compliance and return filing.

To claim the credit, taxpayers must:

• Be registered with the IRS at the time of production, which requires filing Form 637, Application for Registration (For Certain Excise Tax Activities)
• Meet emissions rates and certification requirements outlined in the proposed rules
• Eligible taxpayers generally claim the credit on their federal income tax return for the year of the qualified sale using Form 7218, Clean Fuel Production Credit

Opportunity to submit comments

Treasury and the IRS are also requesting public comments on the proposal by April 6, 2026; comment directly on the proposed rules’ Federal Register page, or use the Federal e-Rulemaking portal (indicate “IRS” and “REG-121244-23”). Tax professionals with affected clients may want to review the proposal closely to determine whether submitting comments is appropriate.

Most tax pros won’t need to fuel up on this one

For most practices, this guidance will fall into the “good to know” category rather than require any immediate action. Still, IRS releases like this often surface in client questions or online searches, even when they don’t apply directly.

Being able to explain quickly what the §45Z credit is and whether it applies to a client helps you respond with clarity and confidence.

NATP continues to monitor IRS guidance like this and break it down into plain language, so tax professionals can stay informed without having to dig through every IRS update.