Par. 5. Section 1.4101-1 is added to read as follows:
(a) In general —(1) Overview. This section provides rules relating to registration for purposes of the section 45Z credit. See sections 4101(a)(1) and 45Z(f)(1)(A)(i)(I).
(2) Letter of Registration required. A person is registered under section 4101 of the Code for purposes of the section 45Z credit only if the IRS has issued a Letter of Registration to the person under activity letter CN (in the case of a producer of transportation fuel which is not sustainable aviation fuel (non-SAF transportation fuel)), or activity letter CA (in the case of a producer of SAF transportation fuel), or such other activity letter(s) as the IRS may designate, and the registration has not been revoked or suspended. A person with a Letter of Registration from the IRS under any other activity letter is not registered under section 4101 for purposes of the section 45Z credit.
(3) Separate entity treatment— (i) In general. Each business unit that has, or is required to have, a separate employer identification number (EIN) is treated as a separate person for purposes of registration under this section. Thus, two business units (for example, a parent corporation and a subsidiary corporation), each of which has a different EIN, are two persons.
(ii) Disregarded entity. Section 301.7701-2(c)(2)(i) of this chapter (relating to certain wholly owned entities) does not apply for purposes of registration under this section. An entity that is disregarded as an entity separate from its owner for any purpose under § 301.7701-2 of this chapter and that has, or is required to have, an EIN is treated as a corporation (consistent with § 301.7701-2(c)(2)(v)(B) of this chapter) for purposes of registration under this section. Therefore, if such an entity produces transportation fuel, it must be registered as a producer of transportation fuel at the time of production for its owner to be eligible to claim the section 45Z credit for such fuel.
(iii) Qualified subchapter S subsidiary. A qualified subchapter S subsidiary as defined in section 1361(b)(3)(B) of the Code (QSub) is treated as separate from the S corporation that owns it for purposes of registration under this section. Therefore, a QSub that has an EIN and that produces transportation fuel must be registered as a producer of transportation fuel at the time of production in order for its S corporation owner to be eligible to claim the section 45Z credit for such fuel.
(4) Reregistration —(i) Reregistration in the event of change of ownership. As provided in section 4101(a)(5), a person is required to reregister under this section if after a transaction (or series of related transactions) more than 50 percent of ownership interests in, or assets of, such person are held by persons other than persons (or persons related thereto) who held more than 50 percent of such interests or assets before the transaction (or series of related transactions). Reregistration does not apply to a company whose stock is regularly traded on an established securities market.
(ii) Reregistration in the event of change of EIN. If a registrant changes its EIN, such registrant must reregister under this section using its new EIN.
(iii) Safe harbor. A person that is required to reregister as a producer of transportation fuel due to a change in ownership or EIN is eligible to claim a section 45Z credit (provided that all requirements of section 45Z are met) as of the date the IRS received the application for reregistration, even if, at the time of fuel production, the IRS has not yet approved the reregistration. Provided the registration tests for the reregistration are met, the original registration remains in effect until the IRS revokes that registration and issues a new one.
(b) Definitions —(1) Applicant. An applicant is a person that has applied for registration as described in paragraph (d) of this section.
(2) Letter of Registration. A Letter of Registration is a letter issued by the IRS to approve a registration required under section 4101. A Letter of Registration includes the registrant's registration number and the effective date of the registration.
(3) Penalized for a wrongful act. A person has been penalized for a wrongful act if the person has—
(i) Been assessed any penalty under chapter 68 of the Code (or similar provision of the law of any State) for fraudulently failing to file any return or pay any tax, and the penalty has not been wholly abated, refunded, or credited;
(ii) Been assessed any penalty under chapter 68 of the Code, and such penalty has not been wholly abated, refunded, or credited, and the IRS determines that the conduct resulting in the penalty is part of a consistent pattern of failing to deposit, pay, or pay over a substantial amount of tax;
(iii) Been convicted of a crime under chapter 75 of the Code (or similar provision of the law of any State), or of conspiracy to commit such a crime, and the conviction has not been wholly reversed by a court of competent jurisdiction;
(iv) Been convicted, under the laws of the United States or any State, of a felony for which an element of the offense is theft, fraud, or the making of false statements, and the conviction has not been wholly reversed by a court of competent jurisdiction;
(v) Been assessed any tax under section 4103 of the Code and the tax has not been wholly abated, refunded, or credited; or
(vi) Had its registration under section 4101, section 4222, section 4662, or section 4682 of the Code revoked.
(4) Related person. For purposes of registration under section 4101 and this section, a related person is a person that—
(i) Directly or indirectly exercises control over an activity of the applicant;
(ii) Owns, directly or indirectly, five percent or more of the applicant;
(iii) Is under a duty to assure the payment of a tax for which the applicant is responsible;
(iv) Is a member, with the applicant, of a group of organizations (as defined in § 1.52-1(b)) that would be treated as a group of trades or businesses under common control for purposes of § 1.52-1; or
(v) Distributed or transferred assets to the applicant in a transaction in which the applicant's basis in the assets is determined by reference to the basis of the assets in the hands of the distributor or transferor.
(5) Registrant. A registrant is a person that the IRS has, in accordance with paragraph (f)(3) of this section, registered under section 4101 and whose registration has not been revoked or suspended.
(c) Requirement to register —(1) In general. Every person producing a transportation fuel is required to register with the IRS in accordance with this section. See section 4101(a)(1).
(2) Consequences of failing to register. For the criminal penalty imposed for failure to register, see section 7232 of the Code. For the civil penalties imposed for failure to register or reregister, see sections 6719 and 7272 of the Code.
(d) Application instructions. Application for registration under section 4101 must be made on Form 637, Application for Registration (For Certain Excise Tax Activities), or such other form as the IRS may designate, in accordance with the instructions to such form. See § 601.602 of this chapter. An applicant for registration as a producer of non-SAF transportation fuel must apply for registration under activity letter CN, or such other activity letter as the IRS may designate. An applicant for registration as a producer of SAF transportation fuel must apply for registration under activity letter CA, or such other activity letter as the IRS may designate.
(e) Registration tests —(1) In general. The IRS will register an applicant only if the IRS determines that the applicant meets the following three tests (collectively, the registration tests):
(i) The activity test;
(ii) The acceptable risk test; and
(iii) The satisfactory tax history test.
(2) Activity test. An applicant meets the activity test only if the IRS determines that the applicant—
(i) Is, in the course of its trade or business, regularly engaged in the activity for which it is requesting registration; or
(ii) Is likely to be (because of such factors as the applicant's business experience, financial standing, or trade connections), in the course of its trade or business, regularly engaged in the activity for which it is requesting registration within 6 months after becoming registered under section 4101.
(3) Acceptable risk test —(i) In general. An applicant meets the acceptable risk test if neither the applicant nor a related person (as defined in paragraph (b)(4) of this section) has been penalized for a wrongful act. If an applicant or a related person has been penalized for a wrongful act, the IRS may nonetheless determine that an applicant meets the acceptable risk test based on consideration of the factors enumerated in paragraph (e)(3)(ii) of this section.
(ii) Factors to consider. In making the determination described in paragraph (e)(3)(i) of this section, the IRS may consider factors such as the following:
(A) The time elapsed since the applicant or related person was penalized for a wrongful act.
(B) The present relationship between the applicant and any related person that was penalized for any wrongful act.
(C) The degree of rehabilitation of the person penalized for any wrongful act.
(4) Satisfactory tax history test —(i) In general. An applicant meets the satisfactory tax history test only if the IRS determines that the applicant has a satisfactory tax history as described in paragraph (e)(4)(ii) of this section.
(ii) Satisfactory tax history. An applicant has a satisfactory tax history only if the Commissioner determines that the filing, deposit, and payment history for all Federal taxes of the applicant and any related person (as defined in paragraph (b)(4) of this section) supports the conclusion that the applicant will comply with its obligations under this section.
(f) Action on the application for registration by the IRS —(1) Review of application. The IRS may investigate the accuracy and completeness of any representations made by an applicant and request any additional relevant information from the applicant.
(2) Denial. If the IRS determines that an applicant does not meet all the registration tests described in paragraph (e) of this section, the IRS will notify the applicant, in writing, that its application for registration is denied and state the basis for the denial.
(3) Approval. If the IRS determines that an applicant meets all the registration tests described in paragraph (e) of this section, the IRS will register the applicant under section 4101 and issue the applicant a Letter of Registration that includes the effective date of the registration and the appropriate activity letter(s). A copy of an application for registration (Form 637) is not a Letter of Registration.
(g) Terms and conditions of registration —(1) Affirmative duties. Each applicant or registrant must—
(i) Make deposits, file returns, and pay taxes as required by the Code and the regulations;
(ii) Keep records sufficient to show production of a transportation fuel;
(iii) Notify the IRS of any change in the information the registrant submitted in connection with its application for registration or previously submitted under this paragraph (g)(1)(iii) within 10 days after the change occurs. Changes requiring IRS notification include, but are not limited to, changes in ownership, address, and business activities.
(2) Prohibited actions. An applicant or registrant may not—
(i) Sell, lease, or otherwise allow another person to use its registration, except as otherwise provided in § 1.45Z-6(b)(2); or
(ii) Make any false statement to the IRS in connection with a submission under section 4101.
(h) Effect of Letter of Registration. A Letter of Registration is not a determination of liability for tax, eligibility for a tax credit or deduction, or any other tax treatment under the Code. For example, a Letter of Registration issued under activity letter CN to a person producing a fuel is not a determination that such fuel is a transportation fuel under section 45Z(d)(5)(A) or that the facility at which the person produces such fuel is a qualified facility under section 45Z(d)(4). A Letter of Registration is also not a determination letter, as defined in § 601.201(a)(3) of this chapter.
(i) Adverse actions by the IRS against a registrant —(1) Mandatory revocation or suspension. The IRS will revoke or suspend the registration of any registrant if the IRS determines that the registrant, at any time—
(i) Does not meet one or more of the registration tests in paragraph (e) of this section and has not corrected the deficiency within a reasonable period of time after notification by the IRS;
(ii) Has used its registration to evade, or attempt to evade, the payment of any tax, or to postpone or in any manner to interfere with the collection of any such tax, or to make a fraudulent claim for a credit or payment;
(iii) Has aided or abetted another person in evading, or attempting to evade, payment of any tax, or in making a fraudulent claim for a credit or payment; or
(iv) Has sold, leased, or otherwise allowed another person to use its registration, except as otherwise provided in § 1.45Z-6(b)(2).
(2) Remedial action permitted in other cases. If the IRS determines that a registrant has, at any time, failed to comply with the terms and conditions of registration in paragraph (g) of this section, made a false statement to the IRS in connection with its application for registration (or reregistration) or for retention of registration, or otherwise used its registration in a manner that creates a significant risk of nonpayment or late payment of tax, then the IRS may revoke or suspend the registrant's registration.
(3) Action by the IRS to revoke or suspend a registration. If the IRS revokes or suspends a registration, the IRS will notify the registrant in writing and state the basis for the revocation or suspension and the activity letter(s) to which the revocation or suspension relates. The effective date of the revocation or suspension may not be earlier than the date on which the IRS notifies the registrant.
(j) Applicability date. This section applies to persons producing transportation fuel in taxable years ending on or after [date of publication of final regulations in the Federal Register ].