Clean Fuel Production Credit Under the One, Big, Beautiful Bill: What Business Owners and Investors Need to Know
Recent proposed regulations issued by the Treasury Department clarify how domestic producers can qualify for the clean fuel production credit under the One, Big, Beautiful Bill (OBBB). Often referred to as the 45Z credit, this federal incentive may create significant tax planning opportunities — but it also introduces compliance complexity.
At Velin & Associates, Inc., CPA Los Angeles, we are analyzing how these rules affect business owners, investors, and high-income professionals who may be exploring renewable energy production or related investments.
Whether you are a healthcare professional expanding into alternative investments, an online entrepreneur diversifying revenue streams, or a high-net-worth individual evaluating energy-sector opportunities, understanding these regulations is critical before claiming the credit
What Is 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
- Sold by December 31, 2029
- Produced by a taxpayer properly registered using Form 637
Registration must occur at the time of production. Failure to register properly can disqualify the credit entirely.
The proposed regulations offer guidance on:
- How to determine emissions rates
- How to calculate the credit amount
- Certification requirements
- Registration compliance
- Documentation standards
This guidance is designed to provide clarity — but it also raises planning considerations for businesses and investors.
Key Changes Under the One, Big, Beautiful Bill
The OBBB significantly modified the clean fuel production credit. The proposed regulations implement these changes, including:
- Extension Through 2029
The credit now applies to eligible fuel sold through December 31, 2029.
- Domestic Feedstock Limitation
Feedstocks must be grown or produced in the United States, Mexico, or Canada.
- Prohibited Foreign Entity Restrictions
Certain foreign entity involvement may disqualify eligibility.
- Broader Sale Attribution
Fuel sold through related intermediaries must now be included in credit determinations.
- Elimination of Special Sustainable Aviation Fuel Rate
The separate rate for sustainable aviation fuel has been removed.
- Anti-Abuse Provisions
New rules prevent double crediting of the same fuel.
- Restrictions on Negative Emissions Rates
Negative emissions rates are generally prohibited — except for fuels derived from animal manure.
- Feedstock-Specific Emissions Requirements
Animal manure-derived fuels require specific emissions rate calculations.
- Exclusion of Indirect Land Use Changes
Indirect land use changes are no longer included in emissions rate calculations.
These updates reflect Congress’s attempt to narrow eligibility, increase compliance controls, and prevent abuse.
Why This Matters for Our Clients
Many of our clients are not direct fuel producers — but they are investors, S-Corp owners, and high-income entrepreneurs who may participate in energy projects or joint ventures.
Federal credits like 45Z can reduce tax liability — but only when properly structured.
Let’s look at how this may apply in real-world scenarios.
Example 1: High-Net-Worth Investor Expanding into Renewable Energy
A high-income client in Los Angeles, currently operating multiple online businesses, is considering investing in a domestic clean fuel production venture.
Planning considerations include:
- Confirming Form 637 registration at production
- Verifying feedstock sourcing compliance
- Ensuring foreign ownership restrictions are not triggered
- Structuring ownership to properly allocate the credit
Without proactive review, the investment could generate income without qualifying for the credit due to technical noncompliance.
For high-income individuals subject to top marginal federal and California rates, proper structuring can significantly affect after-tax returns.
Example 2: Doctor or Dental Practice Owner Investing Through an S-Corp
A medical practice owner considers participating in a clean fuel production entity through their S-Corporation.
Issues to evaluate:
- How credit allocation flows through the entity
- Impact on basis and distributions
- Interaction with other federal credits
- California tax treatment coordination
- Documentation requirements
For healthcare professionals seeking long-term tax-efficient diversification, compliance and entity structuring must be addressed before investment.
Example 3: Online Entrepreneur or E-Commerce Business Owner
A Shopify store owner or Amazon seller explores vertical integration by investing in alternative fuel production for logistics and transportation.
Important considerations:
- Registration requirements at production
- Sale attribution rules if fuel moves through related entities
- Emissions certification documentation
- Anti-abuse provisions preventing duplicate credits
Creators and online entrepreneurs often operate multiple related entities. Under the broadened sale attribution rules, intercompany transactions must be carefully documented.
Example 4: Agricultural Operation with Manure-Derived Fuel
An agricultural investor exploring manure-based fuel production must consider:
- Feedstock-specific emissions rate requirements
- Negative emissions limitations
- Documentation and certification standards
Because manure-derived fuels receive unique treatment under the proposed rules, compliance errors could result in denied credits or penalties.
Compliance Risks to Avoid
The clean fuel production credit is not automatic. Risks include:
- Failure to register using Form 637
- Improper emissions calculations
- Ineligible feedstock sourcing
- Disqualified foreign entity involvement
- Double-crediting violations
- Insufficient documentation during IRS review
These issues can result in credit disallowance, penalties, and increased audit exposure.
Strategic Planning Considerations for 2026 and Beyond
For businesses and investors evaluating this credit, key planning questions include:
- Is the production entity properly registered?
- Are emissions calculations independently verified?
- Does ownership structure comply with foreign restrictions?
- Are sale transactions structured to comply with attribution rules?
- How does this credit integrate with broader federal and California tax strategy?
Because the credit applies to fuel produced after December 31, 2024, early structuring decisions matter.
Why Professional Review Is Critical
Federal energy credits intersect with:
- Corporate structuring
- Partnership allocations
- Basis calculations
- Multi-state tax coordination
- Audit risk management
- Long-term capital strategy
At Velin & Associates, Inc., Accounting Firm in Los Angeles, we approach credits like 45Z not as isolated line items, but as part of comprehensive tax planning.
We analyze:
- Entity structure
- Ownership allocation
- Compliance procedures
- Recordkeeping systems
- Interaction with other credits and deductions
- Long-term tax efficiency
For high-income individuals, healthcare professionals, online entrepreneurs, and business owners, proactive planning protects both savings and compliance.
The Bottom Line
The proposed regulations under the One, Big, Beautiful Bill provide more clarity — but they also narrow eligibility and increase compliance standards.
The clean fuel production credit may offer substantial federal tax savings. However, qualification depends on strict adherence to:
- Registration requirements
- Feedstock sourcing rules
- Emissions calculations
- Anti-abuse provisions
- Documentation standards
For Los Angeles business owners and investors, strategic tax planning is essential before claiming the credit. For more information about our tax planning services, contact us today: visit our website.
Velin & Associates, Inc
8159 Santa Monica Blvd STE 198/200 West Hollywood, CA 90046
323-902-1000
dmitriy@losangelescpa.org
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Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.