IRS Introduces Carbon Capture Tax Safe Harbor and Digital Whistleblower Tool

The Internal Revenue Service (IRS) and the Department of the Treasury have announced new initiatives to assist businesses claiming carbon capture tax credits and to modernize the federal whistleblower reporting system. On December 19, 2023, they outlined a temporary safe harbor for taxpayers seeking to utilize the federal tax credit for carbon capture and sequestration under Section 45Q of the Internal Revenue Code.

The tax credit, which was recently expanded through legislation known as the One, Big, Beautiful Bill, applies to qualified carbon oxide captured and securely stored during the calendar year 2025. Under this new guidance, companies can claim the credit even if the Environmental Protection Agency (EPA) does not activate its electronic Greenhouse Gas Reporting Tool by June 10, 2026.

Details of the Safe Harbor Provision

This safe harbor provision allows affected taxpayers to submit an annual report to a qualified independent engineer or geologist. These professionals must certify that the carbon capture and storage activity complies with federal greenhouse gas reporting requirements that are in effect as of December 31, 2025.

According to the IRS and the Treasury, taxpayers can rely on this guidance until formal regulations are promulgated, including future rules governing measurement and verification standards. This initiative primarily impacts businesses involved in carbon capture projects that aim to claim the credit for activities conducted in 2025.

Digital Whistleblower System Overhaul

In addition to the carbon capture guidance, the IRS Whistleblower Office has introduced a new digital version of Form 211. This form is used by individuals to report tax noncompliance and to apply for whistleblower awards. The digital form allows tips to be submitted electronically, replacing the previous reliance on paper filings.

Acting Whistleblower Office Director Erick Martinez stated that the digital form aims to facilitate secure submissions from phones or computers, while also reducing errors and processing costs. Since 2007, whistleblowers have been instrumental in enforcing tax laws, leading to over $7.86 billion collected from cases tied to their information. During this period, the IRS has awarded more than $1.4 billion to whistleblowers.

Officials emphasized that this modernization effort is part of a broader strategy to enhance voluntary compliance by reinforcing the consequences of tax evasion while improving access to reporting tools. Although the IRS will continue to accept paper submissions of Form 211, it encourages taxpayers to utilize the new electronic filing option.

Both initiatives are effective immediately, reflecting the administration’s commitment to combining expanded tax incentives with enhanced enforcement and digital modernization across the federal tax system.