- Congress enacts law funding most of government, including Treasury and the IRS, for remainder of the 2026 fiscal year.
- Continuing resolution funding the Department of Homeland Security will expire on Friday, February 13, likely leading to partial shutdown.
- Treasury and the IRS issue proposed regulations on Section 45Z Clean Fuel Production Tax Credit.
- No movement yet this year on tax legislation as tax practitioners await a possible Green Book.
On February 3, President Trump signed into law a bill providing funding for five of the six remaining appropriations categories of the federal government lasting through the end of the fiscal year. The bill also contains a continuing resolution funding the Department of Homeland Security for two weeks. The bill passed the House that day by a vote of 217-214, following a Senate vote on January 30 that passed 71-29.
The bill provides $11.2 billion of funding for the IRS for the fiscal year, but also retracts $11.7 billion of the IRS funding from the 2022 Inflation Reduction Act. The bill gives the IRS some flexibility over its funding, allowing the agency to repurpose five percent of the funding dedicated to modernization.
Funding for DHS is now scheduled to expire at midnight on Friday. The two political parties appear to be very far apart on a package of policy changes that would result in the DHS funding bill obtaining 60 votes in the Senate. It is possible that Congress will pass another CR funding DHS while negotiations continue, but as of now it appears DHS funding will lapse.
Tax legislation this year has so far taken a back seat to the appropriations process. There has been no progress on continuing negotiations over the Covid-era increased tax credits for Affordable Care Act health insurance premiums. It remains to be seen whether congressional Republicans try to enact a budget reconciliation bill this year. President Trump’s State of the Union address, scheduled for February 24, will likely outline the White House’s agenda for the coming year, including on tax issues. The White House is supposed to release a proposed budget for the upcoming fiscal year by the first Monday in February. However, the budget is late as is usually the case and may be released around the time of the State of the Union, as is more customary. The budget proposal usually contains a Green Book of legislative tax proposals from the Treasury Department. The first Trump administration did not release a Green Book, nor did Treasury issue a Green Book last year. Tax practitioners are eagerly waiting to see whether Treasury will issue a Green Book this time.
Proposed Regulations on Section 45Z Clean Fuel Production Tax Credit
On February 3, Treasury and the IRS issued proposed regulations under Section 45Z of the Code addressing the clean fuel production credit (REG-121244-23). The proposed regulations contain guidance on elective payments, credit transfers, qualified sales, and the determination of emissions rates. Section 45Z was added to the Code by the Inflation Reduction Act of 2022 and subsequently amended by the One Big Beautiful Bill Act in 2025. Section 45Z provides an income tax credit for clean transportation fuel that is produced domestically after December 31, 2024, and sold before January 1, 2030.
A taxpayer is eligible for the clean fuel production credit if it: (i) produces a transportation fuel that meets the applicable requirements relating to suitability for use, emissions rate, and coprocessing; (ii) produces the fuel at a qualified facility located in the United States or a U.S. territory; (iii) is registered as a producer of clean fuel under Section 4101 at the time of production; and (iv) sells the fuel to an unrelated person in a qualified sale during the taxable year. The credit is allowed for the taxable year in which the fuel is sold. Any fuel produced after December 31, 2025, must be exclusively derived from feedstock that was produced or grown in the United States, Mexico, or Canada. The credit is not available to a taxpayer that is a specified foreign entity for tax years beginning after July 4, 2025, or a foreign-influenced entity for tax years beginning after July 4, 2027.
The amount of the credit is determined by multiplying the applicable amount by the number of gallons (or gallon equivalents) of fuel produced by the taxpayer and sold in qualified sales during the taxable year and then multiplying that product by the emissions factor for the fuel. For fuel produced after December 31, 2025, the applicable amount is either $0.20 or $1.00 per gallon (or gallon equivalent). A taxpayer may claim the increased applicable amount if the fuel is produced at a qualified facility that satisfies the prevailing wage and apprenticeship requirements.
The emissions factor reflects the degree to which the fuel’s lifecycle greenhouse gas emissions rate is reduced relative to the statutory baseline. Taxpayers generally determine the emissions rate for a fuel by reference to the annual emissions rate table published by the Secretary, or by obtaining a provisional emissions rate determination from the Secretary.
The proposed regulations would establish the core definitional and administrative framework for Section 45Z by (among other things) defining key terms (including “fuel” and “gallon equivalent”), prescribing how taxpayers determine and substantiate lifecycle emissions rates, and implementing several statutory “special rules” (including anti-stacking rules for qualified facilities, production-attribution rules for facilities with multiple owners, and rules clarifying that the taxpayer need not own the facility to claim the credit). The proposed rules also address the procedural mechanics Treasury and the IRS expect to require for administration of the credit, including registration as a clean-fuel producer, certification concepts, claim-filing and substantiation expectations, and ongoing recordkeeping requirements.
Comments and public hearing requests are due by April 6. The hearing will be held on May 28 if there are requests to testify.