IRS Issues New Guidance On Sustainable Aviation Fuel Credit
| Jurisdiction | United States,Federal |
| Law Firm | Crowell & Moring |
| Subject Matter | Tax, Transport, Energy and Natural Resources, Energy Law, Oil, Gas & Electricity, Aviation, Income Tax |
| Author | Irina Pisareva and Christopher B. Younger |
| Published date | 17 January 2023 |
On December 19, 2022, the Treasury Department ("Treasury") and Internal Revenue Service ("IRS") issued Notice 2023-06 ("Notice") regarding the Sustainable Aviation Fuel ("SAF") tax credit ("SAF Tax Credit"). The SAF Tax Credit was created by the Inflation Reduction Act of 2022. It applies to a qualified fuel mixture containing sustainable aviation fuel for certain sales or uses in calendar years 2023 and 2024.
The SAF Tax Credit is $1.25 for each gallon of sustainable aviation fuel in a "qualified mixture." To qualify for the credit, the sustainable aviation fuel must have a minimum reduction of 50 percent in lifecycle greenhouse gas emissions. Additionally, there is a supplemental credit of one cent for each one percent that the lifecycle greenhouse gas emissions reduction exceeds 50 percent. The notice provides a safe harbor for calculating the lifecycle greenhouse gas emissions reduction percentage.
The Notice explains the requirements for fuel produced and either sold or used to be eligible for the SAF Tax Credit, the various methods in which a claimant may claim the SAF Tax Credit, and the IRS registration requirements that a taxpayer must complete to be eligible to claim the SAF Tax Credit.
The Notice explains that a claimant may choose between methods for claiming the SAF Tax Credit. One method for making such a claim is through the federal excise tax system. The second is a general business income tax credit that is nonrefundable and must be included in income. The Notice also clarifies what constitutes SAF and a qualified mixture.
The Notice also asks for public comments on various aspects of the statute, which will help Treasury and IRS in developing additional guidance. The deadline for submission of comments is February 17, 2023.
Sustainable Aviation Fuel Requirements
SAF may be categorized as either (i) an SAF synthetic blending component or (ii) a co-processed liquid fuel that was produced by co-processing petroleum with synthesized hydrocarbons derived from synthesis gas via the Fischer Tropsch process (FT hydrocarbons).
More specifically, under the Notice, SAF is the portion of liquid fuel that is not kerosene1 that:
(i) either meets the specifications of "ASTM D7566" (defined to mean the ASTM D7566 Annexes),2 or meets the specifications of ASTM D1655 Annex A1;3 and
(ii) satisfies the sustainability requirements detailed in the Notice.
The Notice provides that a liquid fuel that meets the specifications of one of the ASTM D7566 Annexes or meets the specifications of ASTM D1655 Annex A1, but does not meet sustainability requirements detailed in the Notice, is ineligible for the SAF Tax Credit.
Aviation fuel does not qualify for the SAF Tax Credit if it is:
- derived from co-processing an "applicable material" (or materials derived from an applicable material) with a feedstock that is not "biomass": 4
- derived from palm fatty acid distillates or petroleum.
Qualified Mixture
An SAF "qualified mixture" means a mixture of an SAF synthetic blending component with ASTM D1655 kerosene that meets the requirements of ASTM D7566 and which may be regarded as ASTM D1655 compliant SAF.7
A "qualified mixture" means a mixture of sustainable aviation fuel and kerosene, but only if such mixture is:
(1) produced by the taxpayer in the United States (defined in ' 7701(a)(9) of the Code to mean the states and the District of Columbia);
(2) used by the taxpayer (or sold by the taxpayer for use) in an aircraft in the ordinary course of a trade or business of the taxpayer; and
(3) transferred into the fuel tank of an aircraft in the United States.8
A qualified mixture may be produced by either mixing an SAF synthetic...
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