Government probe finds companies claiming carbon capture tax credit didn’t follow EPA requirements

The vast majority of money claimed through a clean air tax credit over the past decade were done by companies that had not been properly complying with its requirement, according to an internal government watchdog. 

The section 45Q tax credit incentivizes the use of still-developing technology to remove carbon from the atmosphere. One way it’s used is in oil recovery, making it controversial among those who oppose fossil fuel extraction.

In a report released Thursday, the Treasury Department’s Inspector General for Tax Administration determined that 10 entities had claimed more than $1 million each between tax years 2010 and 2019, and that their combined claims made up 99.9 percent of credits given. 

The watchdog found that about 87 percent of claims from these 10 taxpayers, or $893,935,025, were made while they were not in compliance with credit requirements from the Environmental Protection Agency (EPA). 

It listed as an example failure to submit a monitoring, reporting and verification (MRV) plan, which helps the EPA verify that carbon dioxide is actually sequestered. The report also said that only three of the 10 entities in question currently have EPA-approved MRV plans. 

The investigation said that the IRS has taken action against four of the 10 taxpayers. 

The probe was undertaken following a request by Sen. Bob Menendez (D-N.J.), who said in a statement that the results point to an “apparent failure of the fossil fuel industry to act in good faith.”

In a letter to IRS Commissioner Charles Rettig, Menendez said the IRS should take enforcement actions against those who were not in compliance. 

He specifically called on the service to audit every taxpayer that has claimed more than $10,000 in credits and retroactively deny those that did not comply with requirements. 

An IRS spokesperson declined to comment on whether it would be taking additional actions, citing taxpayer privacy. 

The EPA plays an accounting role in implementation of 45Q credits, but is not responsible for compliance, according to the environmental agency. 

Brad Crabtree, the director of the Carbon Capture Coalition, which promotes the use of carbon capture technology, said in a statement that the problems identified with the “old 45Q program cannot be allowed to taint the new and reformed 45Q program,” referring to legislation passed in 2018 that changed and expanded the program.