The 45Z tax credit creates substantial financial incentives for farmers and biofuel producers adopting sustainable practices. Recent IRS Guidance calls on prospective applicants to apply before July 15th to receive its first fruits. Accordingly, the following is a hands-on guide to walk you through the application process and help you reap your maximum, expedited payout.

1. Understand Eligibility Requirements

Before applying, verify your eligibility for the 45Z tax credit. Feedstocks cultivated by farmers must be suitable for manufacturing renewable fuels, such as ethanol, biodiesel, and sustainable aviation fuel (SAF). Consequently, qualifying crops include corn, soy, wheat, sugarcane, among others. See Appendix A of the IRS’ most recent guidance (May 31, 2024, as of this article) for a complete list of accepted feedstocks. 45Z only applies to feedstocks and production within the United States and her territories.

• Sustainable Practices: Additionally, farmers should undertake practices that lower Carbon Intensity (CI) Scores: reduce fertilizer usage, adopt cover cropping, and practice no-till farming. The results will favor them not only in the short term (higher 45Z payouts) but in the long term, too, as ethanol plants will prioritize them in subsequent contracts.

2. Gather the Needed Documents

Accurate record-keeping is required for the application. You will need to submit detailed records of your farming practices and feedstock production, such as:

• Crop production data
• Sustainable practice implementation records
• Energy and emissions data

Luckily, if this seems like a tall order, there are third-party providers who can handle this step for you. We wrote a previous article about these bona fide lifesavers that can be found here.

3. Fill Out the Application Form

Once you have your documentation in order, complete the 45Z tax credit application form — otherwise known as Form 637. Among other minutiae, this includes:

• Personal and farm/plant identification details
• Description of your farming practices
• Documentation of your CI Score

More specific instructions may be found on page five.

4. Submit Your Application

Submit your completed application along with all supporting documentation to the appropriate tax authority. Ensure you follow the specific submission guidelines to avoid any delays.

5. Review and Approval Process

After submission, your application will undergo a review process to verify the information provided. Be prepared to respond to any additional requests for information or clarification from the reviewing authority.

6. Receive Your Tax Credit

If your application is approved, you will receive your tax credit which can then be applied to your tax return. The amount you receive will depend on your CI Score and the volume of eligible feedstock processed. Alternatively, some farmers may have a deal in the form of a premium paid directly by the ethanol plant. Irrespective, the result is more money in your pocket.

Common Pitfalls and How to Avoid Them

• Incomplete Documentation: Ensure all your records are complete and accurate. It is better to oversubmit than undersubmit.
• Misunderstanding Eligibility: Double-check that your farming/processing practices and crops/feedstocks meet the eligibility criteria. Some farmers/producers may have a lower-than-average CI Score even without changing current practices. This must be certified.
• Late Submission: Be aware of submission deadlines and plan accordingly. The IRS will process submissions after July 15, but there is no guarantee that your payouts will be issued on schedule (i.e., after December 31, 2024).

For more on everything 45Z and biofuels, stay tuned to 45z.org.