[Federal Register Volume 88, Number 240 (Friday, December 15, 2023)]
[Proposed Rules]
[Pages 86844-86868]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-27498]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-107423-23]
RIN 1545-BQ85
Section 45X Advanced Manufacturing Production Credit
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking and public hearing.
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SUMMARY: This document contains proposed regulations to implement the
advanced manufacturing production credit established by the Inflation
Reduction Act of 2022 to incentivize the production of eligible
components within the United States. Eligible components include
certain solar energy components, wind energy components, inverters,
qualifying battery components, and applicable critical minerals. The
proposed regulations would affect eligible taxpayers who produce and
sell eligible components and intend to claim the benefit of an advanced
manufacturing production credit, including by making elective payment
or credit transfer elections. This document also provides notice of a
public hearing on the proposed regulations.
DATES: Written or electronic comments must be received by February 13,
2024.
A public hearing on this proposed regulation has been scheduled for
February 22, 2024, at 10 a.m. ET. Requests to speak and outlines of
topics to be discussed at the public hearing must be received by
February 13, 2024. If no outlines are received by February 13, 2024,
the public hearing will be cancelled.
Requests to attend the public hearing must be received by 5 p.m. ET
on February 20, 2024. The public hearing will be made accessible to
people with disabilities. Requests for special assistance during the
public hearing must be received by 5 p.m. ET on February 16, 2024.
ADDRESSES: Commenters are strongly encouraged to submit public comments
electronically via the Federal eRulemaking Portal at https://www.regulations.gov (indicate IRS and REG-107423-23) by following the
online instructions for submitting comments. Requests for a public
hearing must be submitted as prescribed in the ``Comments and Public
Hearing'' section. Once submitted to the Federal eRulemaking Portal,
comments cannot be edited or withdrawn. The Department of the Treasury
(Treasury Department) and the IRS will publish for public availability
any comments submitted to the IRS's public docket. Send paper
submissions to: CC:PA:01:PR (REG-107423-23), Room 5203, Internal
Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC
20044.
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
Mindy Chou, John Deininger, or Alexander Scott at (202) 317-6853 (not a
toll-free number); concerning submissions of comments or the public
hearing, Vivian Hayes at (202) 317-6901 (not a toll-free number) or by
email to [email protected] (preferred).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed amendments to the Income Tax
Regulations (26 CFR part 1) to implement section 45X of the Internal
Revenue Code (Code). Section 45X was added to the Code on August 16,
2022, by section 13502(a) of Public Law 117-169, 136 Stat. 1818, 1971,
commonly referred to as the Inflation Reduction Act of 2022 (IRA).
Section 13502(c) of the IRA provides that section 45X applies to
components produced and sold after December 31, 2022.
I. Overview of Section 45X
Section 45X(a)(1) provides that, for purposes of the general
business credit under section 38 of the Code, the advanced
manufacturing production credit (section 45X credit) for any taxable
year is an amount equal to the sum of the credit amounts determined
under section 45X(b) with respect to each eligible component, as
defined in section 45X(c)(1), which is produced by the taxpayer, and
during the taxable year, sold by such taxpayer to an unrelated person.
Section 45X(a)(2) provides that any eligible component produced and
sold by the taxpayer is taken into account only if the production and
sale is in a trade or business of the taxpayer.
Section 45X(a)(3) provides rules regarding the sale of components
to an unrelated person, and generally provides a special rule that, for
purposes of section 45X(a), treats a taxpayer as selling a component to
an unrelated person if that component is sold to the unrelated person
by a person related to the taxpayer. Under section 45X(a)(3)(B), if a
taxpayer makes an election in the form and manner prescribed by the
Secretary of the Treasury or her delegate (Secretary), a sale of
components by the taxpayer to a related person will be treated as if
made to an unrelated person for purposes of section 45X(a) (Related
Person Election). As a condition of, and prior to, a taxpayer making
the Related Person Election, the Secretary may require such information
or registration as the Secretary deems necessary for purposes of
preventing duplication, fraud, or any improper or excessive credit
amount.
Section 45X(b)(1)(A) through (M) and section 45X(b)(2) set forth
the credit amounts for each type of eligible component, which amounts,
except for purposes of determining the credit amount for any applicable
critical mineral, are subject to phase out rules set forth in section
45X(b)(3). For any eligible component (except applicable critical
minerals) sold after December 31, 2029, the credit amount for such
component equals the product of the amount determined under section
45X(b)(1) for such component multiplied by the applicable phase out
percentage under section 45X(b)(3)(B)(i) through (iv). In the case of
an eligible component sold during calendar year 2030, 2031, and 2032,
the phase out percentages are 75 percent, 50 percent, and 25 percent,
respectively. In the case of an eligible component sold after December
31, 2032, the phase out percentage is zero percent. Thus, current law
provides no section 45X credit after 2032 for eligible components other
than for applicable critical minerals.
Section 45X(b)(4) provides capacity limitations used to compute the
credit amount for eligible battery cells and battery modules under
sections 45X(b)(1)(K)(ii) and (L)(ii). To compute the credit for these
eligible components, section 45X(b)(4)(A) provides that the capacity
determined with respect to a battery cell or battery module must not
exceed a capacity-to-power-ratio of 100:1. Section 45X(b)(4)(B) defines
the term ``capacity-to-power-ratio'' as the ratio of the capacity of a
battery cell or battery module to the maximum discharge amount of such
cell or module.
Section 45X(c)(1)(A) defines the term ``eligible component'' to
mean any solar energy component, any wind energy component, any
inverter described in section 45X(c)(2)(B) through (G), any
[[Page 86845]]
qualifying battery component, and any applicable critical mineral.
Section 45X(c)(1)(B) clarifies that the term ``eligible component''
does not include any property that is produced at a facility if the
basis of any property that is part of such facility is taken into
account for purposes of the qualifying advanced energy project credit
allowed under section 48C after August 16, 2022 (the date of enactment
of the IRA).
Section 45X(c)(2)(A) generally defines an ``inverter'' as an end
product that is suitable to convert direct current (DC) electricity
from one or more solar modules or certified distributed wind energy
systems into alternating current (AC) electricity. Section 45X(c)(2)(B)
through (G) define the following different types of eligible inverters:
central inverter, commercial inverter, distributed wind inverter,
microinverter, residential inverter, and utility inverter.
Section 45X(c)(3)(A) defines a ``solar energy component'' as a
solar module, photovoltaic cell, photovoltaic wafer, solar grade
polysilicon, torque tube, structural fastener, or polymeric backsheet.
Section 45X(c)(3)(B) defines these different types of eligible solar
energy components as well as the term ``solar tracker.''
Section 45X(c)(4)(A) defines a ``wind energy component'' as blades,
nacelles, towers, offshore wind foundations, and related offshore wind
vessels. Section 45X(c)(4)(B) defines these different types of eligible
wind energy components.
Section 45X(c)(5)(A) defines a ``qualifying battery component'' as
electrode active materials, battery cells, and battery modules. Section
45X(c)(5)(B) defines these different types of qualifying battery
components.
Section 45X(c)(6) provides the following list of 50 minerals that
if converted or purified to specified purities are considered an
``applicable critical mineral'' for purposes of the section 45X credit:
aluminum, antimony, arsenic, barite, beryllium, bismuth, cerium,
cesium, chromium, cobalt, dysprosium, erbium, europium, fluorspar,
gadolinium, gallium, germanium, graphite, hafnium, holmium, indium,
iridium, lanthanum, lithium, lutetium, magnesium, manganese, neodymium,
nickel, niobium, palladium, platinum, praseodymium, rhodium, rubidium,
ruthenium, samarium, scandium, tantalum, tellurium, terbium, thulium,
tin, titanium, tungsten, vanadium, ytterbium, yttrium, zinc, and
zirconium.
Section 45X(d) provides special rules that are applicable to the
section 45X credit. Section 45X(d)(1) provides that persons are treated
as related to each other if they would be treated as a single employer
under the regulations prescribed under section 52(b) of the Code.
Section 52(b) generally provides that trades or businesses that are
partnerships, trusts, estates, corporations, or sole proprietorships
under common control are members of a controlled group and are treated
as a single employer. See Sec. 1.52-1(b). Section 52(b) requires the
regulations under section 52(b) to be based on principles similar to
the principles that apply for purposes of section 52(a), which
generally provides that corporations that are members of a controlled
group of corporations are treated as a single employer. Section 52(a)
provides that a controlled group of corporations is defined with
reference to section 1563(a) of the Code. Section 52(b) and Sec. 1.52-
1 provide rules similar to those under section 52(a), but with certain
modifications to account for different types of ownership interests.
Section 45X(d)(2) provides that sales of eligible components are
taken into account under section 45X only for eligible components that
are produced within the United States (including continental shelf
areas described in section 638(1) of the Code), or a U.S. territory
(including continental shelf areas described in section 638(2)). (For
purposes of this document, the term ``U.S. territory'' has the meaning
of the term ``possession'' as defined in section 638(2).) Section
45X(d)(3) directs the Secretary to promulgate regulations adopting
rules similar to the rules of section 52(d) to apportion credit amounts
between estates or trusts and their beneficiaries on the basis of the
income of the estates or trusts allocable to each, and to pass-thru any
apportioned credit amounts to the beneficiaries. Section 45X(d)(4)
provides that for purposes of the section 45X credit, a person is
treated as having sold an eligible component to an unrelated person if
such component is integrated, incorporated, or assembled into another
eligible component that is sold to an unrelated person.
II. Notice 2022-47
On October 24, 2022, the Treasury Department and the IRS published
Notice 2022-47, 2022-43 I.R.B. 312. The notice requested general
comments on issues arising under section 45X, as well as specific
comments concerning: (1) definitions (including the definitions of
eligible components); (2) the Related Person Election; (3) capacity-to-
power ratios for battery cells or battery modules; (4) credit amount
for components used in systems of varying capacity; (5) offshore wind
vessels; (6) applicable critical minerals; and (7) apportionment and
pass-thru of credit amounts to beneficiaries of estates or trusts. The
Treasury Department and the IRS received over 300 comments from
industry participants and other stakeholders. The Treasury Department
and the IRS appreciate the commenters' interest and engagement on these
issues. These comments have been carefully considered in the
preparation of these proposed regulations.
III. Notices 2023-18 and 2023-44
On March 6, 2023, the Treasury Department and the IRS published
Notice 2023-18, 2023-10 I.R.B. 508, to establish the qualifying
advanced energy projects program (section 48C(e) program). On June 20,
2023, the Treasury Department and the IRS published Notice 2023-44,
2023-25 I.R.B. 924, to provide additional guidance on the section
48C(e) program, including rules for the interaction between sections
45X and 48C. The rules regarding the interaction between sections 45X
and 48C provided in Notices 2023-18 and 2023-44 have been incorporated
into these proposed regulations and upon finalization of this
rulemaking, section 5.05 of Notice 2023-18 and section 3 of Notice
2023-44 will be superseded.
Explanation of Provisions
I. Overview of Proposed Regulations
Consistent with section 45X(a)(1), these proposed regulations would
provide that for purposes of section 38, the section 45X credit for any
taxable year is an amount equal to the sum of the credit amounts
determined under section 45X(b) with respect to each eligible
component, as defined in section 45X(c), produced by the taxpayer, and,
during the taxable year, sold by that taxpayer to an unrelated person.
Consistent with section 45X(a)(2), only eligible components that are
produced and sold in a trade or business of the taxpayer are taken into
account for purposes of the section 45X credit.
These proposed regulations are organized into four sections,
proposed Sec. Sec. 1.45X-1 through 1.45X-4. Proposed Sec. 1.45X-1
would provide general rules applicable to the section 45X credit,
including the definition of the term ``produced by the taxpayer'' for
both primary and secondary production. Primary production involves
producing an eligible component using non-recycled materials while
secondary production involves producing an eligible component using
recycled
[[Page 86846]]
materials. Proposed Sec. 1.45X-2 would provide rules for sales to
unrelated persons through a person related to the taxpayer, including
the rules for a taxpayer to make an election to treat sales of eligible
components to related persons (Related Person Election) as if made to
unrelated persons. Proposed Sec. 1.45X-3 would provide definitions and
credit amounts for certain eligible components, including solar energy
components, wind energy components, inverters, and qualifying battery
components, and phase-out rules. Proposed Sec. 1.45X-4 would provide
definitions and credit amounts for applicable critical minerals that
are eligible components.
II. General Rules Applicable to the Advanced Manufacturing Production
Credit
A. Overview
Proposed Sec. 1.45X-1(a) would provide an overview of the general
rules regarding the advanced manufacturing production credit under
section 45X.
B. Credit Amount
Proposed Sec. 1.45X-1(b) would explain how to calculate the amount
of the credit provided under section 45X for any taxable year.
C. Definition of Produced by the Taxpayer
Proposed Sec. 1.45X-1(c) would define the term ``produced by the
taxpayer'' for both primary and secondary production. Proposed Sec.
1.45X-1(c)(1) would provide the general definition of the term.
Proposed Sec. 1.45X-1(c)(1)(i) would state that partial transformation
that does not result in a substantial transformation of inputs into a
complete and distinct eligible component is not included in the
definition of ``produced by the taxpayer.'' Proposed Sec. 1.45X-
1(c)(1)(ii) would state that neither minor assembly of constituent
inputs nor superficial modification of a final eligible component are
included in the definition of ``produced by the taxpayer.'' Proposed
Sec. 1.45X-1(c)(1)(iii) would provide examples illustrating the
definition of ``produced by the taxpayer.'' Proposed Sec. 1.45X-
1(c)(2) would provide a special rule for applying the definition of
``produced by the taxpayer'' for solar grade polysilicon, electrode
active materials, and applicable critical minerals.
Proposed Sec. 1.45X-1(c)(3)(i) would state that the taxpayer
claiming a section 45X credit with respect to an eligible component
must be the person that performs the actual production activities that
bring about a substantial transformation resulting in the eligible
component and that sells such eligible component to an unrelated
person. Proposed Sec. 1.45X-1(c)(3)(ii)(A) would provide that if the
production of an eligible component is performed in whole or in part
subject to a contract that is a contract manufacturing arrangement,
then the party to such contract that may claim the section 45X credit
with respect to such eligible component, provided all other
requirements in section 45X are met, is the taxpayer that performs the
actual production activities that bring about a substantial
transformation resulting in the eligible component. This proposed rule
is intended to provide an administrable rule that provides taxpayers
clarity and certainty in determining which taxpayer may claim the
section 45X credit in a contract manufacturing arrangement.
Proposed Sec. 1.45X-1(c)(3)(ii)(B) would define the term
``contract manufacturing arrangement'' to mean any agreement providing
for the production of an eligible component if the agreement is entered
into before the production of the eligible component to be delivered
under the contract is completed. Proposed Sec. 1.45X-1(c)(3)(ii)(B)
would further provide that a routine purchase order for off-the-shelf
property is not treated as a contract manufacturing arrangement for
purposes of proposed Sec. 1.45X-1(c)(3). Proposed Sec. 1.45X-
1(c)(3)(ii)(B) would also provide that an agreement will be treated as
a routine purchase order for off-the-shelf property if the contractor
is required to make no more than de minimis modifications to the
property to tailor it to the customer's specific needs, or if at the
time the agreement is entered into, the contractor knows or has reason
to know that the contractor can satisfy the agreement out of existing
stocks or normal production of finished goods. This definition of the
term ``routine purchase order'' is based on the definition found in
Sec. 1.263A-2(a)(1)(ii)(B)(2)(ii). The Treasury Department and the IRS
request comments on whether this definition should be further clarified
or modified.
Proposed Sec. 1.45X-1(c)(3)(iii) would explain the special rule
allowing parties to a contract manufacturing arrangement to agree on
which party to the contract will claim the section 45X credit for
eligible components produced subject to such contract. Proposed Sec.
1.45X-1(c)(3)(iv) would explain the certification requirements for the
special rule. Proposed Sec. 1.45X-1(c)(3)(v) would provide examples
illustrating the application of the special rule.
Proposed Sec. 1.45X-1(c)(4)(i) would explain the requirements for
the timing of production and sale of eligible components. Proposed
Sec. 1.45X-1(c)(4)(ii) would provide an example illustrating the
application of these requirements.
D. Produced in the United States
Proposed Sec. 1.45X-1(d)(1) would state that sales are taken into
account for purposes of the section 45X credit only for eligible
components produced within the United States, as defined in section
638(1) of the Code, or a United States territory, which for purposes of
section 45X has the meaning of the term ``possession'' provided in
section 638(2) of the Code. Proposed Sec. 1.45X-1(d)(2) would clarify
that constituent elements, materials and subcomponents used in the
production of eligible components are not subject to the domestic
production rule. It would also be permissible for elements, materials,
and subcomponents used in the production of eligible components to be
recycled rather than newly created elements, materials, and
subcomponents.
E. Production and Sale in a Trade or Business
Proposed Sec. 1.45X-1(e) would state that an eligible component
must be produced and sold in a trade or business of the taxpayer, with
the term ``trade or business'' defined as a trade or business within
the meaning of section 162 of the Code.
F. Integrated, Incorporated, or Assembled
Proposed Sec. 1.45X-1(f)(1) would state that a taxpayer is treated
as having produced and sold an eligible component to an unrelated
person if such component is integrated, incorporated, or assembled into
another eligible component that is then sold to an unrelated person.
This proposed rule would further define the term ``integrated,
incorporated, or assembled'' to mean the production activities by which
eligible components that are constituent elements, materials, or
subcomponents are substantially transformed into another complete and
distinct eligible component functionally different from that which
would result from mere assembly or superficial modification of the
eligible components used as elements, materials or subcomponents and
other elements, materials or subcomponents. Proposed Sec. 1.45X-
1(f)(2)(i) would clarify that a taxpayer may claim a section 45X credit
for each eligible component the taxpayer produces and sells to an
unrelated person, including any eligible component the taxpayer
produces that was used as a constituent element,
[[Page 86847]]
material, or subcomponent and integrated, incorporated, or assembled
into another complete and distinct eligible component or another
complete and distinct product that the taxpayer also produces and sells
to an unrelated person. Proposed Sec. 1.45X-1(f)(2)(ii) would provide
an example of the credit eligibility of a sale of a product with
incorporated eligible components to an unrelated person.
G. Interaction Between Sections 48C and 45X
Proposed Sec. 1.45X-1(g)(1) would, consistent with section
45X(c)(1)(B), provide that for purposes of section 45X, an eligible
component must be produced at a section 45X facility and does not
include any property (produced property) that is produced at a facility
if the basis of any property that is part of the production unit that
produces the produced property is eligible property that is included in
a section 48C facility and is taken into account for purposes of a
credit allowed under section 48C (section 48C credit) after August 16,
2022. Proposed Sec. 1.45X-1(g)(2)(i) would define a section 45X
facility to include all tangible property that comprises an
independently functioning production unit that produces one or more
eligible components. Proposed Sec. 1.45X-1(g)(2)(ii) would provide
that a production unit is comprised of the tangible property that
substantially transforms material inputs to complete the production
process of an eligible component. Proposed Sec. 1.45X-1(g)(3)(i) would
define a section 48C facility to include all eligible property included
in a qualifying advanced energy project for which a taxpayer receives
an allocation of section 48C credits and claims such credits after
August 16, 2022. Proposed Sec. 1.45X-1(g)(3)(ii) would define eligible
property included in a section 48C facility. Proposed Sec. 1.45X-
1(g)(4) would provide examples to illustrate the application of these
rules.
H. Pass-Thru From Estates and Trusts
The Treasury Department and the IRS intend to provide rules
addressing how the section 45X credit applies in the case of pass-thru
from estates and trusts. The Treasury Department and the IRS request
comments on how such rules should be implemented and whether there are
any special considerations for estates and trusts claiming the section
45X credit. Proposed Sec. 1.45X-1(h) is reserved for this purpose.
I. Anti-Abuse Rule
Proposed Sec. 1.45X-1(i)(1) provides a general anti-abuse rule
that would make the section 45X credit unavailable in extraordinary
circumstances in which, based on a consideration of all the facts and
circumstances, the primary purpose of the production and sale of an
eligible component is to obtain the benefit of the section 45X credit
in a manner that is wasteful, such as discarding, disposing of, or
destroying the eligible component without putting it to a productive
use.
In cases where the cost of producing certain eligible components is
less than the amount of the section 45X credit that would be available,
the Treasury Department and the IRS are concerned that taxpayers may
have an incentive to produce such components solely for the purpose of
exploiting the section 45X credit in a manner that is inconsistent with
a purpose of section 45X, which is to provide an incentive to produce
eligible components that contribute to the development of secure and
resilient supply chains. Producing and selling eligible components with
the primary purpose of obtaining the benefit of the section 45X credit
in a wasteful manner would not satisfy the requirement for the eligible
component to be produced and sold in a trade or business of the
taxpayer under section 45X(a)(2) in certain circumstances. Proposed
Sec. 1.45X-1(i)(2) would provide an example illustrating this anti-
abuse rule.
III. Sale to An Unrelated Person
Proposed Sec. 1.45X-2(a) would state the general rule that the
amount of the section 45X credit for any taxable year is equal to the
sum of the credit amounts determined under section 45X(b) (and
described in Sec. Sec. 1.45X-3 and 1.45X-4) with respect to each
eligible component that is produced by the taxpayer and, during the
taxable year, sold by the taxpayer to an unrelated person (as defined
in section 45X(a)(3) and described in Sec. 1.45X-2(b)(3)).
A. Definitions
Section 45X(d)(1) provides that persons are treated as related to
each other if such persons would be treated as a single employer under
the regulations prescribed under section 52(b). Proposed Sec. 1.45X-
2(b) would provide definitions of the terms ``person,'' ``related
person,'' and ``unrelated person'' for purposes of the section 45X
credit.
B. Special Rule for Sale to Related Person
Section 45X(a)(3)(A) provides a special rule for purposes of
section 45X that a taxpayer is treated as selling components to an
unrelated person if such component is sold to such person by a person
related to the taxpayer. Proposed Sec. 1.45X-2(c) would provide this
rule and an example to illustrate its application.
C. Related Person Election
Section 45X(a)(3)(B)(i) provides that at the election of the
taxpayer (in such form and manner as the Secretary may prescribe), a
sale of components by such taxpayer to a related person is treated as
if made by the taxpayer to an unrelated person for purposes of section
45X(a) (Related Person Election). Thus, the Related Person Election is
only available if an eligible component is sold by a taxpayer to a
related person. The Related Person Election is not available if a
taxpayer does not actually sell the eligible component to another
person, for example, if an eligible component is transferred between a
person and an entity that is not regarded as separate from the person
under Sec. 301.7701-3 of the Procedure and Administration Regulations
(26 CFR part 301) or between divisions of a single corporation. Section
45X(a)(3)(B)(ii) provides that as a condition of, and prior to, any
election described in clause (i), the Secretary may require such
information or registration as the Secretary deems necessary for
purposes of preventing duplication, fraud, or any improper or excessive
amount determined under section 45X(a)(1).
Proposed Sec. 1.45X-2(d)(1) would provide that the Related Person
Election must be made in the form and manner prescribed in guidance.
The term ``guidance'' is defined as guidance published in the Federal
Register or Internal Revenue Bulletin, as well as administrative
guidance such as forms, instructions, publications, or other guidance
on the IRS.gov website. See Sec. Sec. 601.601 and 601.602 of the
Statement of Procedural Rules (26 CFR part 601). For members of a
consolidated group (as defined in Sec. 1.1502-1(h)), the election is
made by each member, in the manner set forth in proposed Sec. 1.45X-
2(d)(4)(i). In addition, if a member of a consolidated group sells
eligible components to another member of the group, the selling member
may make the Related Person Election to claim the section 45X credit in
the taxable year of sale. Proposed Sec. 1.45X-2(d)(1) would also
provide that as a condition of, and prior to, a taxpayer making a
Related Person Election, the Secretary may require such information or
registration as the Secretary deems necessary for purposes of
preventing duplication, fraud, or any improper or excessive credit
amount determined under section 45X(a)(1).
Proposed Sec. 1.45X-2(d)(2) would provide the time and manner for
a
[[Page 86848]]
taxpayer to make the Related Person Election. Proposed Sec. 1.45X-
2(d)(2)(i) would state that a taxpayer must make an affirmative Related
Person Election annually in the form and manner prescribed in guidance
(currently Form 7207, Advanced Manufacturing Production Credit, and its
instructions), and filed with the taxpayer's timely filed original
Federal income tax return, including extensions. Proposed Sec. 1.45X-
2(d)(2)(i) would also provide that the Related Person Election will be
applicable to all sales of eligible components to related persons by
the taxpayer for each trade or business that the taxpayer engages in
during the taxable year that resulted in a credit claim and for which
the taxpayer has made the Related Person Election. Proposed Sec.
1.45X-2(d)(2)(ii) would provide the required information to make a
Related Person Election.
Proposed Sec. 1.45X-2(d)(3) would describe the scope and effect of
the Related Person Election and provide that a separate Related Person
Election must be made with respect to related person sales made by a
taxpayer in each eligible trade or business of the taxpayer. Proposed
Sec. 1.45X-2(d)(3) would also provide that a Related Person Election
applies to all sales to related persons (including between members of
the same consolidated group, notwithstanding the rules provided in
Sec. 1.1502-13) of eligible components produced by the taxpayer during
the taxable year for which that election is made and is irrevocable for
that taxable year. Additionally, proposed Sec. 1.45X-2(d)(3) would
provide that a Related Person Election applies solely for purposes of
the section 45X credit, the provisions of proposed Sec. Sec. 1.45X-1
through 1.45X-4, and so much of sections 6417 and 6418 and the
regulations under sections 6417 and 6418 related to the section 45X
credit.
Proposed Sec. 1.45X-2(d)(3)(ii) and (iii) would apply the
provisions of proposed Sec. 1.45X-2(d)(2) and (d)(3)(i) to
consolidated groups and partnerships. Proposed Sec. 1.45X-2(d)(3)(ii)
would apply the provisions of proposed Sec. 1.45X-2(d)(2) and
(d)(3)(i) to consolidated groups by providing that for a trade or
business of a consolidated group (as defined in Sec. 1.1502-1(h)), a
Related Person Election is made by the agent for the group on behalf of
the member claiming the section 45X credit and filed with the group's
timely filed original Federal income tax return, including extensions,
with respect to each trade or business that the consolidated group
conducts. See Sec. 1.1502-77 (providing rules regarding the status of
the common parent as agent for its members). A separate election must
be filed on behalf of each member claiming the section 45X credit, and
each election must include the name and employer identification number
(EIN) of the agent for the group and the member on whose behalf the
form is being filed.
Proposed Sec. 1.45X-2(d)(3)(iii) would apply the provisions of
proposed Sec. 1.45X-2(d)(2) and (d)(3)(i) to partnerships by stating
that an election for a partnership must be filed with the partnership's
timely filed original Federal income tax return, including extensions,
with respect to each trade or business that the partnership conducts.
Additionally, proposed Sec. 1.45X-2(d)(3)(iii) provides that an
election by a partnership does not apply to any trade or business
conducted by a partner outside the partnership.
Proposed Sec. 1.45X-2(d)(4) would provide an anti-abuse rule for
the Related Person Election that is necessary for preventing
duplication, fraud, or any improper or excessive amount of the section
45X credit. This anti-abuse rule would make the Related Person Election
unavailable in extraordinary cases where a taxpayer seeks to use the
Related Person Election to exploit the section 45X credit in an
improper and wasteful manner or sell defective components to a related
person. Proposed Sec. 1.45X-2(d)(4)(i) would provide that a Related
Person Election may not be made if the taxpayer fails to provide the
information required by proposed Sec. 1.45X-2(d)(2) with respect to
the relevant eligible components, the taxpayer provides information
that shows such components were put to an improper use or were
defective, or such components were actually put to an improper use or
were defective.
Proposed Sec. 1.45X-2(d)(4)(ii) would provide that an eligible
component is put to an improper use if it is so used by the related
person to which the eligible component is sold. The term ``improper
use'' would mean a use that is wasteful, such as discarding, disposing
of, or destroying the eligible component without putting it to a
productive use.
As discussed previously, in cases in which the cost of producing
certain eligible components may be less than the amount of the section
45X credit that is available, the Treasury Department and the IRS are
concerned that taxpayers may have an incentive to produce such
components solely for the purpose of exploiting the section 45X credit
without putting such components to a productive use. In such cases, the
Related Person Election would remove an important safeguard against the
improper and wasteful production of eligible components that an
unrelated-person-sale requirement would provide. The Treasury
Department and the IRS request comments on this definition of the term
``improper use'' and whether any clarifications to its scope are
necessary.
Proposed Sec. 1.45X-2(d)(4)(iii) would provide that an eligible
component is ``defective'' if it does not meet the requirements of
section 45X. The Treasury Department and the IRS are concerned that the
Related Person Election may be used by taxpayers to claim a credit for
eligible components that are defective, not capable of being used for
its intended purpose, do not meet the requirements for the section 45X
credit, and therefore are not eligible for the section 45X credit. For
example, a taxpayer that mass produces a large quantity of an eligible
component may find that some of those components are defective, cannot
be used for its intended purposes, and are not eligible for the section
45X. Such components could also be difficult to sell to an unrelated
person because they are defective. In such cases, the Related Person
Election would remove an important safeguard against improper credit
claims for defective components that an unrelated-person-sale
requirement would provide. The Treasury Department and the IRS request
comments on the definition of the term ``defective components'' and
whether clarifications to its scope are necessary.
D. Related Person Sale of Integrated Components
Section 45X(d)(4) provides that for purposes of section 45X, a
person is treated as having sold an eligible component to an unrelated
person if such component is integrated, incorporated, or assembled into
another eligible component that is sold to an unrelated person. See
part II.F of this Explanation of Provisions for rules applicable to
eligible components that are integrated, incorporated or assembled into
other eligible components and sold to an unrelated person.
Proposed Sec. 1.45X-2(e)(1) would provide that a taxpayer that
produces and then sells an eligible component to a related person who
then integrates, incorporates, or assembles the taxpayer's eligible
component into another complete and distinct eligible component that is
subsequently sold to an unrelated person may claim a section 45X credit
in the taxable year of the sale to the unrelated person. Proposed
[[Page 86849]]
Sec. 1.45X-2(e)(2) would provide examples to illustrate the treatment
of sales of multiple incorporated eligible components to related and
unrelated persons if the taxpayer makes the Related Person Election.
Proposed Sec. 1.45X-2(e)(3)(i) would provide that if a taxpayer
makes the Related Person Election and produces and sells an eligible
component to a related person who then integrates, incorporates, or
assembles the taxpayer's eligible component into another complete and
distinct eligible component that is subsequently sold to an unrelated
person, the taxpayer's sale of the eligible component to the related
person would be treated as if made to an unrelated person in the
taxable year in which the sale to the related person occurs. Proposed
Sec. 1.45X-2(e)(3)(ii) would provide an example to illustrate the
treatment of sales of multiple integrated eligible components to
related and unrelated persons with a Related Person Election.
IV. Eligible Components
For solar energy components, wind energy components, inverters, and
qualifying battery components, proposed Sec. 1.45X-3 would provide
definitions, rules for determining the credit amount, and documentation
requirements. Proposed Sec. 1.45X-3 would also provide rules for
applying the phase out of the section 45X credit. Proposed Sec. 1.45X-
4 would provide such information for applicable critical minerals
(other than rules for applying the phase out which do not apply to
applicable critical minerals).
A. Eligible Components Generally
Proposed Sec. 1.45X-3(a) defines the term ``eligible component''
as any solar energy component, any wind energy component, any inverter,
any qualifying battery component, and any applicable critical mineral.
B. Solar
Proposed Sec. 1.45X-3(b) would define the term ``solar energy
component'' as a solar module, photovoltaic cell, photovoltaic wafer,
solar grade polysilicon, torque tube, structural fastener, or polymeric
backsheet. Proposed Sec. 1.45X-3(b) would clarify the definition of
each type of solar energy component.
Proposed Sec. 1.45X-3(b) would also clarify the calculation of the
credit amount for each type of solar energy component. Proposed Sec.
1.45X-3(b)(1)(ii) and (b)(5)(ii) would require the capacity of a solar
module or photovoltaic cell to be determined by the nameplate capacity
in direct current watts using Standard Test Conditions, as defined by
the International Electrotechnical Commission.
Proposed Sec. 1.45X-3(b) would also require taxpayers to maintain
specific documentation with respect to certain solar energy components.
For example, for structural fasteners to be eligible for the section
45X credit, section 45X(c)(3)(B)(vii)(II) provides that structural
fasteners must be used (1) to connect the mechanical and drive system
components of a solar tracker to the foundation of such solar tracker,
(2) to connect torque tubes to drive assemblies, or (3) to connect
segments of torque tubes to one another. Proposed Sec. 1.45X-
3(b)(8)(iii) would require taxpayers to document that a structural
fastener meets this use requirement with a bill of sale, or other
similar documentation that explicitly describes such use. Proposed
Sec. 1.45X-3(b)(7)(iii) would apply similar documentation rules to
torque tubes because section 45X(c)(3)(B)(vii)(I)(aa) requires a torque
tube to be ``part of a solar tracker'' to be eligible for the section
45X credit.
C. Wind
Proposed Sec. 1.45X-3(c) would define the term ``wind energy
component'' as a blade, nacelle, tower, offshore wind foundation, or
related offshore wind vessel. Proposed Sec. 1.45X-3(c) would clarify
the definition of each type of wind energy component.
Proposed Sec. 1.45X-3(c)(4)(i) would clarify the definition of the
term ``related offshore wind vessel.'' Section 45X(c)(4)(B)(iv) defines
the term ``related offshore wind vessel'' as any vessel that is
purpose-built or retrofitted for purposes of the development,
transport, installation, operation, or maintenance of offshore wind
energy components. Proposed Sec. 1.45X-3(c)(4)(i) would clarify that a
vessel is purpose-built for development, transport, installation,
operation, or maintenance of offshore wind energy components if it is
built to be capable of performing such functions and it is of a type
that is commonly used in the offshore wind industry. Proposed Sec.
1.45X-3(c)(4)(i) would further clarify that a vessel is retrofitted for
development, transport, installation, operation, or maintenance of
offshore wind energy components if such vessel was incapable of
performing such functions prior to being retrofitted, the retrofit
causes the vessel to be capable of performing such functions, and the
retrofitted vessel is of a type that is commonly used in the offshore
wind industry.
Proposed Sec. 1.45X-3(c) would also clarify the calculation of the
credit amount for each type of wind energy component. The credit amount
for a blade, nacelle, tower, or offshore wind foundation is based on
the total rated capacity of the completed wind turbine for which such
component is designed. Proposed Sec. 1.45X-3(c)(6) would define
``total rated capacity of the completed wind turbine'' as, for the
completed wind turbine for which a blade, nacelle, offshore wind
foundation, or tower was manufactured and sold, the nameplate capacity
at the time of sale as certified to the relevant national or
international standards, such as International Electrotechnical
Commission (IEC) 61400, or ANSI/ACP 101-1-2021, the Small Wind Turbine
Standard. Certification of the turbine to such standards must be
documented by a certificate issued by an accredited certification body.
The total rated capacity of a wind turbine must be expressed in watts.
For a related offshore wind vessel, the credit amount is equal to
10 percent of the sales price of the vessel. The sales price of the
vessel does not include the price of maintenance or other services that
may be sold with the vessel. Proposed Sec. 1.45X-3(c)(4)(ii) would
confirm that, for a related offshore wind vessel with respect to which
a Related Person Election (as discussed in part III.C of this
Explanation of Provisions) has been made, the effect of the election is
limited to allowing the related person sale to qualify for a credit
under section 45X (despite the fact that it is not actually between
unrelated persons) and, therefore, the election does not also treat the
sale price as an arm's length price that was determined between
uncontrolled taxpayers for purposes of section 482 of the Code and the
regulations thereunder.
For blades, nacelles, offshore wind foundations, or towers,
proposed Sec. 1.45X-3(c)(7) would require a taxpayer to document the
turbine model for which such component is designed and the total rated
capacity of the completed wind turbine in technical documentation
associated with the sale of such component.
D. Inverters
Proposed Sec. 1.45X-3(d) would define the term ``inverter'' as an
end product that is suitable to convert DC electricity from one or more
solar modules or certified distributed wind energy systems into AC
electricity. An end product is suitable to convert DC electricity from
one or more solar modules or certified distributed wind energy systems
into AC electricity if, in the form sold by the manufacturer, it is
able to connect with such modules or systems and convert DC electricity
to
[[Page 86850]]
AC electricity from such connected source. For purposes of section 45X,
the term inverter includes a central inverter, commercial inverter,
distributed wind inverter, microinverter, or residential inverter.
Proposed Sec. 1.45X-3(d) would clarify the definition of each of these
types of inverters.
Section 45X(c)(2) requires certain types of inverters be ``suitable
to'' or ``suitable for'' a statutorily required use or application to
be considered an eligible component. For example, section 45X(c)(2)(B)
requires a central inverter to be ``suitable for large utility-scale
systems.'' Proposed Sec. 1.45X-3(d)(2)(i) would clarify that an
inverter is suitable for large utility-scale systems if, in the form
sold by the manufacturer, it is capable of serving as a component in a
large utility-scale system and meets the core engineering
specifications for such application.
Proposed Sec. 1.45X-3(d)(5) would clarify that a direct current
optimized inverter system (DC optimized inverter system) may qualify as
a microinverter. Proposed Sec. 1.45X-3(d)(5)(i) would define a
microinverter as an inverter that is suitable to connect with one solar
module, has a rated output of 120 or 240 volt single-phase power, or
208 or 480 volt three-phase power, and has a capacity, expressed on an
AC watt basis, that is not greater than 650 watts. Proposed Sec.
1.45X-3(d)(5)(iii)(A) would clarify that an inverter is suitable to
connect to one solar module if, in the form sold by the manufacturer,
it is capable of connecting to one or more solar modules and regulating
the DC electricity from each module independently before that
electricity is converted into alternating current electricity. Proposed
Sec. 1.45X-3(d)(5)(iii)(B) would provide that a DC optimized inverter
system is an inverter that is comprised of an inverter connected to
multiple DC optimizers that are each designed to connect to one solar
module.
Proposed Sec. 1.45X-3(d)(5)(iv)(B) would clarify how to determine
the credit amount for a DC optimized inverter system that qualifies as
a microinverter. For a DC optimized inverter system to qualify as a
microinverter, the inverter must meet the requirements of section
45X(c)(2)(E) and a taxpayer must produce and sell the inverter and the
DC optimizers in the DC optimized inverter system together as a single
end product.
Proposed Sec. 1.45X-3(d)(5) would clarify that, similar to a DC
optimized inverter system, a multi-module inverter may also qualify as
a microinverter. The term ``multi-module inverter'' means an inverter
that is comprised of an inverter with independent connections and DC
optimizing components for two or more modules. Proposed Sec. 1.45X-
3(d)(5)(iv)(C) would provide that the credit amount for a multi-module
inverter that qualifies as a microinverter is equal to the product of
11 cents multiplied by the total alternating current capacity of the DC
optimizers in the multi-module inverter when paired with the inverter
in the multi-module inverter.
Proposed Sec. 1.45X-3(d) would also clarify the calculation of the
credit amount for each type of inverter. In general, the credit amount
for each type of inverter would be equal to the product of the
inverter's total rated capacity and the amount prescribed in section
45X(b)(2)(B) for such inverter.
Proposed Sec. 1.45X-3(d) would generally require taxpayers to
document whether an inverter is suitable to or suitable for a
statutorily required use or application, the inverter's rated output,
and the inverter's capacity, as applicable, in a specification sheet,
bill of sale, or other similar documentation.
E. Battery Components
Proposed Sec. 1.45X-3(e)(1) would define the term ``qualifying
battery component'' as electrode active materials, battery cells, or
battery modules. Proposed Sec. 1.45X-3(e)(2)(i)(A) would define the
term ``electrode active materials'' to include cathode electrode
materials, anode electrode materials, and electrochemically active
materials that contribute to the electrochemical processes necessary
for energy storage. In general, electrode active materials are
materials that are capable of being used within a battery for energy
storage. Proposed Sec. 1.45X-3(e)(2)(i)(A) would also provide that the
following materials in a battery or vehicle would not qualify for the
section 45X credit as an electrode active material: battery management
systems, terminal assemblies, cell containments, gas release valves,
module containments, module connectors, compression plates, straps,
pack terminals, bus bars, thermal management systems, and pack jackets.
Proposed Sec. 1.45X-3(e)(2)(i)(B) would define ``cathode electrode
materials'' to mean the materials that comprise the cathode of a
commercial battery technology, such as binders, and current collectors
(that is, cathode foils). Proposed Sec. 1.45X-3(e)(2)(i)(C) would
define ``anode electrode materials'' to mean the materials that
comprise the anode of a commercial battery technology, including anode
foils. Proposed Sec. 1.45X-3(e)(2)(i)(D) would define
``electrochemically active materials that contribute to the
electrochemical processes necessary for energy storage'' to mean the
battery-grade materials that enable the electrochemical storage within
a commercial battery technology. In addition to the list of
electrochemically active materials provided in section 45X(c)(5)(B)(i)
(solvents, additives, and electrolytic salts), these may include
electrolytes, catholytes, anolytes, separators, and metal salts and
oxides. Proposed Sec. 1.45X-3(e)(2)(i)(E) would also include an
example illustrating this concept. Proposed Sec. 1.45X-3(e)(2)(i)(F)
would define ``battery-grade materials'' to mean the processed
materials found in a final battery cell or an analogous unit, or the
direct battery-grade precursors to those processed materials.
Proposed Sec. 1.45X-3(e)(2)(v) would clarify that a taxpayer may
claim only one section 45X credit with respect to a material that
qualifies as both an electrode active material and an applicable
critical mineral.
F. Production Costs Incurred
Proposed Sec. 1.45X-3(e)(2)(ii) would provide that for an
electrode active material the credit amount is equal to 10 percent of
the costs incurred by the taxpayer with respect to production of such
materials. Proposed Sec. 1.45X-3(e)(2)(iii) would also provide the
definition of purified and converted with respect to electrode active
materials. Proposed Sec. 1.45X-3(e)(2)(iv) would clarify that the
costs incurred for purposes of determining the credit amount includes
costs as defined in Sec. 1.263A-1(e) that are paid or incurred within
the meaning of section 461 of the Code by the taxpayer for the
production of an electrode active material only. Thus, production costs
with respect to an electrode active material would not include any
costs incurred after the production of the electrode active material.
For example, the costs to incorporate the electrode active material
into a battery component would not be taken into account as costs
incurred in producing the electrode active material. These proposed
regulations apply section 263A and the regulations under section 263A
(section 263A regulations) solely to identify the types of costs that
are includible in production costs incurred for purposes of computing
the amount of the section 45X credit, but do not apply section 263A or
the section 263A regulations for any other purposes, such as to
determine whether a taxpayer is engaged in production activities.
Direct material costs as defined in Sec. 1.263A-1(e)(2)(i)(A), or
indirect material costs as defined in Sec. 1.263A-1(e)(3)(ii)(E), and
any costs related to the extraction or acquisition of raw
[[Page 86851]]
materials would not be taken into account as production costs. A wide
range of costs that are attributable to the production of an electrode
active material would be taken into account as a cost incurred in
producing the electrode active material, including, but not limited to,
labor, electricity used in the production of the electrode active
material, storage costs, depreciation or amortization, recycling, and
overhead. However, the cost of acquiring the raw material used to
produce the electrode active material, the cost of materials used for
conversion, purification, or recycling of the raw material, and other
material costs related to the production of the electrode active
material would not be taken into account.
The Treasury Department and the IRS seek to appropriately provide a
credit for the costs associated with production activities that add
value to the electrode active material and are conducted by the
taxpayer that produces the electrode active material. Merely purchasing
raw materials may enable a taxpayer to produce an electrode active
material but it is not by itself an activity that adds value. Excluding
material costs would also mitigate the risk of crediting the same costs
multiple times. For example, if material costs are included in
production costs for electrode active materials, the costs of producing
an applicable critical mineral that is later incorporated into an
electrode active material could be credited more than once, and such
material costs could make up a significant share of the cost of
producing the electrode active material.
The Treasury Department and the IRS recognize that a wide range of
costs are incurred in the production of electrode active materials. The
Treasury Department and the IRS request comments on this proposed rule
for determining the costs incurred with respect to the production of
electrode active materials, specifically whether and how extraction and
other similar value-added activities in the production of raw materials
used in electrode active materials should be taken into account. The
Treasury Department and the IRS welcome an assessment of the magnitude
of extraction costs and other direct and indirect material costs
relative to the overall costs incurred in the production of an
electrode active material, and the extent to which these costs are
incurred by the taxpayer that also produces the electrode active
material and add value to the electrode active material. The Treasury
Department and the IRS also welcome comments on how extraction should
be defined for this purpose, and whether it should be defined
consistent with proposed Sec. 1.30D-3(c)(8).
The Treasury Department and the IRS are considering including in
production costs the costs of extraction and other similar value-added
activities in the production of raw materials used in electrode active
materials. However, such costs would only be included if the IRS could
effectively administer such an approach and there are sufficient
assurances that adopting such an approach would pose a limited risk of
(i) crediting the same production costs multiple times and (ii)
increasing other forms of fraud, waste, and abuse. The Treasury
Department and the IRS request comments on whether and to what extent
including these costs might raise such risks.
The Treasury Department and the IRS intend for the production cost
incurred rules in proposed Sec. 1.45X-3(e)(2) to apply to a credit
claimant in a contract manufacturing arrangement. The Treasury
Department and the IRS request comments on whether the proposed rules
need further clarification or modification as applied to contract
manufacturing arrangements.
G. Battery Cells and Modules
Proposed Sec. 1.45X-3(e)(3) and (4) would provide definitions,
rules for measuring capacity, and documentation requirements for
battery cells and battery modules. Proposed Sec. 1.45X-3(e)(4)(i)
would define a ``battery module'' as a module, in the case of a module
using battery cells, with two or more battery cells that are configured
electrically, in series or parallel, to create voltage or current, as
appropriate, to a specified end use, or a module with no battery cells,
and, in each case, with an aggregate capacity of not less than 7
kilowatt-hours (or, in the case of a module for a hydrogen fuel cell
vehicle, not less than 1 kilowatt-hour). Proposed Sec. 1.45X-
3(e)(4)(i)(A) would define a ``module using battery cells'' as a module
with two or more battery cells that are configured electrically, in
series or parallel, to create voltage or current (as appropriate), to a
specified end use, meaning an end-use configuration of battery
technologies. An end-use configuration is the product that ultimately
serves a specified end use. It is the collection of interconnected
cells, configured to that specific end-use and interconnected with the
necessary hardware and software required to deliver the required energy
and power (voltage and current) for that use. As applied to batteries
commonly used in electric vehicles, proposed Sec. 1.45X-3(e)(4)(i)(A)
would permit a credit for the production and sale of the battery pack
in the electric vehicle, but it would not permit a credit for the
production of a module that is not the end-use configuration. The
Treasury Department and the IRS request comments on this proposed
interpretation of the phrase ``to a specified end use'' in section
45X(c)(5)(B)(iii)(I)(aa).
Proposed Sec. 1.45X-3(e)(4)(i)(B) would define the term ``module
with no battery cells'' as a product with a standardized manufacturing
process and form that is capable of storing and dispatching useful
energy, that contains an energy storage medium that remains in the
module (for example, it is not consumed through combustion), and that
is not a custom-built electricity generation or storage facility. This
proposed definition would allow battery technologies such as flow
batteries and thermal batteries to be eligible for the section 45X
credit, but it would not permit technologies that do not meet this
definition such as standalone fuel storage tanks or fuel tanks
connected to engines or generation systems to qualify as a module with
no battery cells.
Proposed Sec. 1.45X-3(e) would clarify how capacity must be
determined for battery cells and battery modules. Proposed Sec. 1.45X-
3(e)(3)(ii) would provide that taxpayers must measure the capacity of a
battery cell in accordance with a national or international standard,
such as IEC 60086-1 (Primary Batteries), or an equivalent standard.
Taxpayers can reference the United States Advanced Battery Consortium
(USABC) Battery Test Manual for additional guidance. Proposed Sec.
1.45X-3(e)(4)(ii)(A) would provide that, for modules using battery
cells, taxpayers must measure the capacity of a module using battery
cells with a testing procedure that complies with a national or
international standard published by a recognized standard setting
organization. The capacity of a battery module using battery cells may
not exceed the total capacity of the battery cells in the module.
Proposed Sec. 1.45X-3(e)(4)(ii)(B) would provide that, for modules
with no battery cells, taxpayers must measure the capacity using a
testing procedure that complies with a national or international
standard published by a recognized standard setting organization. If no
such standard applies to a type of module with no battery cells,
taxpayers must measure the capacity of such module as the Secretary may
prescribe in regulations or other guidance. The Treasury Department and
the IRS request comments on what recognized national or international
standards are currently available for measuring capacity of modules
with no battery cells and
[[Page 86852]]
whether further guidance may be required.
H. Phase Out
Proposed Sec. 1.45X-3(f) would provide the rules for the phase out
of the section 45X credit. In the case of any eligible component that
is not an applicable critical mineral and is sold after December 31,
2029, the amount of the section 45X credit determined with respect to
such eligible component would be equal to the product of the amount
determined under proposed Sec. 1.45X-3 with respect to such eligible
component, multiplied by the phase out percentage. Proposed Sec.
1.45X-3(f)(2) would provide the phase out percentages. The phase out
percentage would be equal to 75 percent for eligible components sold
during calendar year 2030; 50 percent for eligible components sold
during calendar year 2031; 25 percent for eligible components sold
during calendar year 2032, and zero percent for eligible components
sold after calendar year 2032. The phase out percentages would be
determined based on the year the eligible component is sold rather than
the year in which the eligible component is produced by the taxpayer.
Proposed Sec. 1.45X-3(f)(3) would clarify that the phase out rules
described in proposed Sec. 1.45X-3(f) do not apply to applicable
critical minerals as defined in proposed Sec. 1.45X-4(b).
V. Applicable Critical Minerals
A. In General
Section 45X(c)(6) defines applicable critical minerals that are
eligible components for purposes of the section 45X credit. Congress
enacted section 45X to incentivize the domestic production of eligible
components, including certain applicable critical minerals, that are
vital to strengthening the country's renewable energy and energy
storage supply chains. In addition, Congress amended section 30D in the
IRA to provide that section 30D credit eligibility and credit amount is
based in part on the sourcing of applicable critical minerals contained
in the battery of new clean vehicles from secure and resilient supply
chains, with applicable critical minerals defined by cross-reference to
section 45X(c)(6). See section 30D(d)(7)(A) and (e)(1). The Treasury
Department and the IRS interpret the applicable critical minerals
described in section 45X(c)(6) through this lens.
Proposed Sec. 1.45X-4(b) adopts, with some clarifications, the
definitions of applicable critical minerals provided in section
45X(c)(6). In particular, section 45X(c)(6)(N) provides that the term
``graphite'' means graphite (both natural and synthetic) that is
purified to a minimum purity of 99.9 percent graphitic carbon by mass.
Some stakeholders have questioned whether this definition could be
interpreted to refer to a particular crystalline structure of carbon,
that is, 99.9 percent carbon in a graphitic form. After consulting with
experts at the Department of Energy, U.S. Geological Survey, and
Department of the Interior, the Treasury Department and the IRS are
unaware of a current application in the energy sector for graphite that
is at least 99.9 percent carbon in the graphitic form. However,
graphite that is at least 99.9 percent carbon by mass is used in
electric vehicle batteries to facilitate the electrochemical processes
necessary for energy storage, as well as in other energy sector
applications. Consistent with the general intent of section 45X,
proposed Sec. 1.45X-4(b)(14) would clarify that the term ``99.9
percent graphitic carbon by mass'' means graphite that is 99.9 percent
carbon by mass. This interpretation reflects that various forms of
matter are 99.9 percent carbon, such as carbon black, so the word
``graphitic'' is providing additional clarification regarding the
particular application of the carbon. This interpretation provides an
incentive for the domestic production of the type of graphite that is
used in the renewable energy and energy storage industry, including
both synthetic and natural graphite for use in electric vehicle
batteries. This interpretation also supports the secure supply chain
objectives expressed by Congress in amendments to section 30D that
cross-reference the section 45X definition of applicable critical
minerals.
Section 45X(c)(6)(A) provides that aluminum that is converted from
bauxite to a minimum purity of 99 percent alumina by mass or purified
to a minimum purity of 99.9 percent aluminum by mass, qualifies as an
applicable critical mineral. Some stakeholders have requested
clarification whether commercial grade aluminum that is 99.7 percent
aluminum by mass may qualify as an applicable critical mineral under
section 45X(c)(6)(A).
Section 45X(c)(6)(A) should be interpreted in light of the dynamics
of the aluminum industry and the role that critical materials like
aluminum play in the renewable energy and energy storage industry.
Aluminum oxide, commonly known as alumina, is a form of aluminum that
is referred to in section 45X(c)(6)(A)(i). Proposed Sec. 1.45X-4(b)(1)
would interpret section 45X(c)(6)(A) to mean aluminum, including
commodity-grade aluminum, described in section 45X(c)(6)(A)(i) and
(ii). Proposed Sec. 1.45X-4(b)(1) would define ``commodity-grade
aluminum'' as aluminum that has been produced directly from aluminum
that is described in proposed Sec. 1.45X-4(b)(1)(i) or (ii) and is in
a form that is sold on international commodity exchanges, which would
include commercial grade aluminum that is 99.7 percent aluminum by
mass.
Proposed Sec. 1.45X-4(b)(1) clarifies that the term ``commodity-
grade aluminum'' is limited to primary production of unwrought forms by
specifying that commodity-grade aluminum must be ``produced directly''
from certain forms of aluminum. The Treasury Department and the IRS
currently understand that the ability to ascertain and substantiate the
process or processes used in an earlier point in the lifecycle of
feedstock aluminum for secondary production is limited. Such
limitations would pose significant substantiation and administrability
issues if secondary production were permitted for commodity-grade
aluminum under proposed Sec. 1.45X-4(b)(1). Excluding secondary
production would also avoid significant administrability challenges
that would arise if the process or processes used at previous points in
the lifecycle of feedstock aluminum used in secondary production had to
be verified to determine eligibility for the section 45X credit.
The Treasury Department and the IRS request comments on this
interpretation of section 45X(c)(6)(A).
B. Credit Amount
Section 45X(b)(1) generally provides the credit amount determined
with respect to any eligible component, including any eligible
component it incorporates, subject to the credit phase out provided at
section 45X(b)(3). Section 45X(b)(3)(C) provides that the credit phase
out does not apply with respect to any applicable critical mineral.
Section 45X(b)(1)(M) provides that in the case of any applicable
critical mineral, the credit amount is an amount equal to 10 percent of
the costs incurred by the taxpayer with respect to production of such
mineral.
Proposed Sec. 1.45X-4(c)(1) would provide that for an applicable
critical mineral the credit amount is equal to 10 percent of the costs
incurred by the taxpayer with respect to production of such materials.
Proposed Sec. 1.45X-4(c)(2) would provide definitions of production
processes for applicable critical minerals. Proposed Sec. 1.45X-
1(c)(2)(i)
[[Page 86853]]
would provide that for purposes of section 45X, the term ``conversion''
means a chemical transformation from one species to another. Proposed
Sec. 1.45X-1(c)(2)(ii) would provide that for purposes of section 45X,
the term ``purification'' means increasing the mass fraction of a
certain element.
C. Production Costs Incurred
Proposed Sec. 1.45X-4(c)(3) would clarify that the costs incurred
for purposes of determining the credit amount includes costs as defined
in Sec. 1.263A-1(e) that are paid or incurred within the meaning of
section 461 of the Code by the taxpayer for the production of an
applicable critical mineral only. Thus, production costs with respect
to an applicable critical mineral would not include any costs incurred
after the production of the applicable critical mineral. For example,
the costs to incorporate the applicable critical mineral into another
product would not be taken into account as costs incurred in producing
the applicable critical mineral. These proposed regulations apply
section 263A and the section 263A regulations solely to identify the
types of costs that are includible in production costs incurred for
purposes of computing the credit amount, but do not apply section 263A
or the section 263A regulations for any other purposes, such as to
determine whether a taxpayer is engaged in production activities.
Direct or indirect materials costs as defined in Sec. 1.263A-
1(e)(2)(i)(A) and (e)(3)(ii)(E), respectively, and any costs related to
the extraction or acquisition of raw materials would not be taken into
account as production costs. A wide range of costs that are
attributable to the production of an applicable critical mineral would
be taken into account as a cost incurred in producing the applicable
critical mineral, including, but not limited to, labor, electricity
used in the production of the applicable critical mineral, storage
costs, depreciation or amortization, recycling, and overhead. However,
the cost of acquiring the raw material used to produce the applicable
critical mineral, the cost of materials used for conversion,
purification, or recycling of the raw material, and other material
costs related to the production of the applicable critical mineral
would not be taken into account.
The Treasury Department and the IRS seek to appropriately provide a
credit for the costs associated with production activities that add
value to the applicable critical mineral and are conducted by the
taxpayer that produces the applicable critical mineral. Merely
purchasing raw materials may enable a taxpayer to produce an applicable
critical mineral but it is not by itself an activity that adds value.
Excluding material costs would also mitigate the risk of crediting the
same costs multiple times. For example, if material costs are included
in production costs for an applicable critical mineral, the costs of
producing an applicable critical mineral that is later incorporated
into another applicable critical mineral could be credited more than
once, and such material costs could make up a significant share of the
cost of producing the applicable critical mineral. This might be the
case if, for instance, Taxpayer 1 produces Applicable Critical Mineral
1 and then sells it to Taxpayer 2 who uses it to create Applicable
Critical Mineral 2. The cost of producing Applicable Critical Mineral 1
would be credited twice if material costs are included in production
costs, once by Taxpayer 1 for the initial production of Applicable
Critical Mineral 1 and then again by Taxpayer 2 because Taxpayer 2
would include its cost of purchasing Applicable Critical Mineral 1 in
its production costs for Applicable Critical Mineral 2.
The Treasury Department and the IRS recognize that a wide range of
costs are incurred in the production of applicable critical minerals.
The Treasury Department and the IRS request comments on this proposed
rule for determining the costs incurred with respect to the production
of applicable critical minerals, specifically whether and how
extraction and other similar value-added activities in the production
of raw materials used in applicable critical minerals should be taken
into account. The Treasury Department and the IRS welcome an assessment
of the magnitude of extraction costs and other direct and indirect
material costs relative to the overall costs incurred in the production
of an applicable critical mineral, and the extent to which these costs
are incurred by the taxpayer that also produces the applicable critical
mineral and add value to the applicable critical mineral. The Treasury
Department and the IRS also welcome comments on how extraction should
be defined, and whether it should be defined consistent with proposed
Sec. 1.30D-3(c)(8).
The Treasury Department and the IRS are considering including in
production costs the costs of extraction and other similar value-added
activities in the production of raw materials used in applicable
critical minerals. However, such costs would only be included if the
IRS could effectively administer such an approach and there are
sufficient assurances that adopting such an approach would pose a
limited risk of (i) crediting the same production costs multiple times
and (ii) increasing other forms of fraud, waste, and abuse. The
Treasury Department and the IRS request comments on whether and to what
extent including these costs might raise such risks.
Proposed Sec. 1.45X-4(c)(3) would also provide that the rules
regarding ownership and property produced under a contract with a
taxpayer under Sec. 1.263A-2(a)(1)(ii) that are used to determine
whether a taxpayer is engaged in production or resale activities for
purposes of section 263A do not apply for purposes of determining the
taxpayer that is engaged in production activities for purposes of
section 45X and the section 45X regulations.
D. Substantiation
Proposed Sec. 1.45X-4(c)(4) would require the taxpayer to document
that their product meets the criteria for an applicable critical
mineral as described in section 45X(c)(6) with a certificate of
analysis (COA) provided by the taxpayer to the person to which the
taxpayer sold the applicable critical mineral. The Treasury Department
and the IRS request comments on this substantiation requirement,
including whether a similar requirement should be applied to electrode
active materials.
VI. Substantiation Required Under Section 6001
Section 6001 of the Code provides that every person liable for any
tax imposed by the Code, or for the collection thereof, must keep such
records as the Secretary may from time to time prescribe. Section
1.6001-1(a) provides that any person subject to income tax must keep
such permanent books of account or records as are sufficient to
establish the amount of gross income, deductions, credits, or other
matters required to be shown by such person in any return of such tax.
Section 1.6001-1(e) provides that the books and records required by
Sec. 1.6001-1 must be retained so long as the contents thereof may
become material in the administration of any internal revenue law.
Various provisions under proposed Sec. Sec. 1.45X-1 through 1.45X-4
would require taxpayers to maintain specific documentation regarding
certain eligible components that are produced by a taxpayer. These
requirements would be part of the general recordkeeping requirements
[[Page 86854]]
under section 6001 and the regulations under section 6001.
Severability
If any provision in this proposed rulemaking is held to be invalid
or unenforceable facially, or as applied to any person or circumstance,
it shall be severable from the remainder of this rulemaking, and shall
not affect the remainder thereof, or the application of the provision
to other persons not similarly situated or to other dissimilar
circumstances.
Effect on Other Documents
Section 5.05 of Notice 2023-18 and section 3 of Notice 2023-44,
which relate to the interaction between sections 45X and 48C, will be
superseded upon the publication in the Federal Register of a Treasury
Decision addressing the interaction between sections 45X and 48C.
Proposed Applicability Dates
Each of proposed Sec. Sec. 1.45X-1 through 1.45X-4 is proposed to
apply to eligible components for which production is completed and
sales occur after December 31, 2022, and during taxable years ending on
or after the date of publication of the final regulations in the
Federal Register.
Special Analyses
I. Regulatory Planning and Review--Economic Analysis
Pursuant to the Memorandum of Agreement, Review of Treasury
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory
actions issued by the IRS are not subject to the requirements of
section 6 of Executive Order 12866, as amended. Therefore, a regulatory
impact assessment is not required.
II. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) (PRA)
generally requires that a Federal agency obtain the approval of the
Office of Management and Budget (OMB) before collecting information
from the public, whether such collection of information is mandatory,
voluntary, or required to obtain or retain a benefit. The collections
of information in these proposed regulations contain reporting and
recordkeeping requirements that are required to validate eligibility to
claim a section 45X credit. These collections of information would
generally be used by the IRS for tax compliance purposes and by
taxpayers to facilitate proper reporting and compliance. The general
recordkeeping requirements mentioned within these proposed regulations
are considered general tax records under Sec. 1.6001-1(e). Specific
certification statements under Sec. 1.45X-1(c)(3) are considered
general tax records and are required for the IRS to validate the
taxpayer that may claim a section 45X credit. For PRA purposes, general
tax records are already approved by OMB under 1545-0074 for
individuals, 1545-0123 for business entities, and under 1545-0092 for
trust and estate filers.
These proposed regulations also provide reporting requirements
related to making the Related Person Election as described in Sec.
1.45X-2(d) and calculating the section 45X credit amount as described
in Sec. 1.45X-1. The Related Person Election will be made by taxpayers
with Forms 1040, 1041, 1120-S, 1065, and 1120, on Form 7207 (or any
successor forms); and credit calculations will be made on Form 3800 and
supporting forms including Form 7207 (and any successor forms). These
forms are approved under 1545-0074 for individuals, 1545-0123 for
business entities, 1545-2306 for trust and estate filers of Form 7207,
and 1545-0895 for trust and estate filers of Form 3800. These proposed
regulations are not changing or creating new collection requirements
not already approved by OMB or will be approved under 5 CFR 1320.10 by
OMB.
III. Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes
certain requirements with respect to Federal rules that are subject to
the notice and comment requirements of section 553(b) of the
Administrative Procedure Act (5 U.S.C. 551 et seq.) and that are likely
to have a significant economic impact on a substantial number of small
entities. Unless an agency determines that a proposal is not likely to
have a significant economic impact on a substantial number of small
entities, section 603 of the RFA requires the agency to present an
initial regulatory flexibility analysis (IRFA) of the proposed rule.
The Treasury Department and the IRS have not determined whether the
proposed rule, when finalized, will likely have a significant economic
impact on a substantial number of small entities. This determination
requires further study. However, because there is a possibility of
significant economic impact on a substantial number of small entities,
an IRFA is provided in these proposed regulations. The Treasury
Department and the IRS invite comments on both the number of entities
affected and the economic impact on small entities.
Pursuant to section 7805(f) of the Code, this notice of proposed
rulemaking has been submitted to the Chief Counsel of the Office of
Advocacy of the Small Business Administration for comment on its impact
on small business.
A. Need for and Objectives of the Rule
The proposed regulations would provide greater clarity to taxpayers
that intend to claim a section 45X credit. The proposed regulations
would provide necessary definitions, the time and manner to make the
Related Person Election and rules regarding the determination of credit
amounts. The Treasury Department and the IRS intend and expect that
giving taxpayers guidance that allows them to claim the section 45X
credit will beneficially impact various industries. In particular, the
section 45X credit encourages the domestic production of eligible
components and incentivizes taxpayers to invest in clean energy
projects that generate eligible credits.
B. Affected Small Entities
The RFA directs agencies to provide a description of, and if
feasible, an estimate of, the number of small entities that may be
affected by the proposed rules, if adopted. The Small Business
Administration's Office of Advocacy estimates in its 2023 Frequently
Asked Questions that 99.9 percent of American businesses meet its
definition of a small business. The applicability of these proposed
regulations does not depend on the size of the business, as defined by
the Small Business Administration.
As described more fully in the preamble to this proposed regulation
and in this IRFA, section 45X and these proposed regulations may affect
a variety of different entities across several different clean energy
industries as multiple types of eligible components are provided for
under the statute and manufacturers may produce more than one type.
Although there is uncertainty as to the exact number of small
businesses within this group, the current estimated number of
respondents to these proposed rules is 13,450 taxpayers. The estimated
total annual reporting burden and estimated average annual burden per
respondent will be computed when Form 7207 and the instructions to Form
7207 are updated to reflect these proposed regulations.
The Treasury Department and the IRS expect to receive more
information on the impact on small businesses through comments on this
proposed rule and after taxpayers start to claim the section 45X credit
using the guidance and
[[Page 86855]]
procedures provided in these proposed regulations.
C. Impact of the Rules
The proposed regulations provide rules for how taxpayers can claim
the section 45X credit. Taxpayers that claim the section 45X credit
will have administrative costs related to reading and understanding the
rules as well as recordkeeping and reporting requirements because of
the Related Person Election, computation of the section 45X credit and
tax return requirements. The costs will vary across different-sized
entities and across the type of production activities in which such
entities are engaged.
The Related Person Election allows a taxpayer to make an
irrevocable election annually with their Federal income tax return by
providing the information required on Form 7207 (or any successor
form), including, for example, the name, EIN of the taxpayer; a
description of the taxpayer's trade or business; the name, address and
EINs of all related persons; a list of the eligible components that are
sold, and the intended purpose of the eligible components sold by the
related person. To make the Related Person Election and claim the
section 45X credit, the taxpayer must file an annual Federal income tax
return. The reporting and recordkeeping requirements for that Federal
income tax return would be required for any taxpayer that is claiming a
general business credit, regardless of whether the taxpayer was making
a Related Person Election under section 45X.
D. Alternatives Considered
The Treasury Department and the IRS considered alternatives to the
proposed regulations. For example, the Treasury Department and the IRS
considered whether to impose certain pre-return filing requirements as
a condition of making the Related Person Election as authorized in
section 45X(a)(3)(B)(ii) to prevent duplication, fraud, or improper or
excessive credits. The proposed regulations were designed to minimize
burdens for taxpayers while ensuring that the IRS has sufficient
information to determine eligibility for the section 45X credit. The
Treasury Department and the IRS determined that requiring registration
before a taxpayer makes the Related Person Election is unnecessary at
this time. The proposed regulations would allow taxpayers to make an
irrevocable Related Person Election annually with their Federal income
tax return by providing the information required on Form 7207 (or any
successor form), which would provide the IRS with sufficient
information to assist in preventing duplication, fraud, or the claiming
of improper or excessive credits if eligible components are produced
and then sold to related persons.
Comments are requested on the requirements in the proposed
regulations, including specifically, whether there are less burdensome
alternatives that ensure the IRS has sufficient information to
administer the advanced manufacturing production credit.
E. Duplicative, Overlapping, or Conflicting Federal Rules
The proposed rule would not duplicate, overlap, or conflict with
any relevant Federal rules. As discussed above, the proposed rule would
merely provide procedures and definitions to allow taxpayers to claim
the section 45X credit. The Treasury Department and the IRS invite
input from interested members of the public about identifying and
avoiding overlapping, duplicative, or conflicting requirements.
IV. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA)
requires that agencies assess anticipated costs and benefits and take
certain other actions before issuing a final rule that includes any
Federal mandate that may result in expenditures in any one year by a
State, local, or Indian Tribal government, in the aggregate, or by the
private sector, of $100 million (updated annually for inflation). This
proposed rule does not include any Federal mandate that may result in
expenditures by State, local, or Indian Tribal governments, or by the
private sector in excess of that threshold.
V. Executive Order 13132: Federalism
Executive Order 13132 (Federalism) prohibits an agency from
publishing any rule that has federalism implications if the rule either
imposes substantial, direct compliance costs on State and local
governments, and is not required by statute, or preempts State law,
unless the agency meets the consultation and funding requirements of
section 6 of the Executive order. This proposed rule does not have
federalism implications and does not impose substantial direct
compliance costs on State and local governments or preempt State law
within the meaning of the Executive order.
VI. Executive Order 13175: Consultation and Coordination With Indian
Tribal Governments
Executive Order 13175 (Consultation and Coordination With Indian
Tribal Governments) prohibits an agency from publishing any rule that
has Tribal implications if the rule either imposes substantial, direct
compliance costs on Indian Tribal governments, and is not required by
statute, or preempts Tribal law, unless the agency meets the
consultation and funding requirements of section 5 of the Executive
order. This proposed rule does not have substantial direct effects on
one or more federally recognized Indian tribes and does not impose
substantial direct compliance costs on Indian Tribal governments within
the meaning of the Executive order.
Comments and Public Hearing
Before these proposed amendments to the regulations are adopted as
final regulations, consideration will be given to comments regarding
the notice of proposed rulemaking that are submitted timely to the IRS
as prescribed in this preamble under the ADDRESSES section. The
Treasury Department and the IRS request comments on all aspects of the
proposed regulations. All comments will be made available at https://www.regulations.gov. Once submitted to the Federal eRulemaking Portal,
comments cannot be edited or withdrawn.
A public hearing with respect to this notice of proposed rulemaking
has been scheduled for February 22, 2024, beginning at 10 a.m. ET, in
the Auditorium at the Internal Revenue Building, 1111 Constitution
Avenue NW, Washington, DC. Due to building security procedures,
visitors must enter at the Constitution Avenue entrance. In addition,
all visitors must present photo identification to enter the building.
Because of access restrictions, visitors will not be admitted beyond
the immediate entrance area more than 30 minutes before the hearing
starts. Participants may alternatively attend the public hearing by
telephone.
The rules of 26 CFR 601.601(a)(3) apply to the public hearing.
Persons who wish to present oral comments at the public hearing must
submit an outline of the topics to be discussed and the time to be
devoted to each topic by February 13, 2024. A period of 10 minutes will
be allotted to each person for making comments. An agenda showing the
scheduling of the speakers will be prepared after the deadline for
receiving outlines has passed. Copies of the agenda will be available
free of
[[Page 86856]]
charge at the public hearing. If no outline of the topics to be
discussed at the public hearing is received by February 13, 2024, the
public hearing will be cancelled. If the public hearing is cancelled, a
notice of cancellation of the public hearing will be published in the
Federal Register.
Individuals who want to testify in person at the public hearing
must send an email to [email protected] to have your name added to
the building access list. The subject line of the email must contain
the regulation number REG-107423-23 and the language TESTIFY In Person.
For example, the subject line may say: Request to TESTIFY In Person at
Hearing for REG-107423-23.
Individuals who want to testify by telephone at the public hearing
must send an email to [email protected] to receive the telephone
number and access code for the public hearing. The subject line of the
email must contain the regulation number REG-107423-23 and the language
TESTIFY Telephonically. For example, the subject line may say: Request
to TESTIFY Telephonically at Hearing for REG-107423-23.
Individuals who want to attend the public hearing in person without
testifying must also send an email to [email protected] to have
your name added to the building access list. The subject line of the
email must contain the regulation number REG-107423-23 and the language
ATTEND In Person. For example, the subject line may say: Request to
ATTEND Hearing In Person for REG-107423-23. Requests to attend the
public hearing must be received by 5 p.m. ET on February 20, 2024.
Individuals who want to attend the public hearing by telephone
without testifying must also send an email to [email protected] to
receive the telephone number and access code for the public hearing.
The subject line of the email must contain the regulation number REG-
107423-23 and the language ATTEND Hearing Telephonically. For example,
the subject line may say: Request to ATTEND Hearing Telephonically for
REG-107423-23. Requests to attend the public hearing must be received
by 5 p.m. ET on February 20, 2024.
Public hearings will be made accessible to people with
disabilities. To request special assistance during a public hearing
please contact the Publications and Regulations Branch of the Office of
Associate Chief Counsel (Procedure and Administration) by sending an
email to [email protected] (preferred) or by telephone at (202)
317-6901 (not a toll-free number) and must be received by 5 p.m. ET on
February 16, 2024.
Statement of Availability of IRS Documents
Guidance cited in this preamble is published in the Internal
Revenue Bulletin and is available from the Superintendent of Documents,
U.S. Government Publishing Office, Washington, DC 20402, or by visiting
the IRS website at https://www.irs.gov.
Drafting Information
The principal authors of these proposed regulations are Mindy Chou,
John Deininger and Alexander Scott, Office of the Associate Chief
Counsel (Passthroughs and Special Industries). However, other personnel
from the Treasury Department and the IRS participated in their
development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, the Treasury Department and the IRS propose to amend
26 CFR part 1 as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 is amended by adding
entries in numerical order for Sec. Sec. 1.45X-1 through 1.45X-4 to
read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.45X-1 also issued under 26 U.S.C. 45X.
Section 1.45X-2 also issued under 26 U.S.C. 45X(b) and (d) and
1502.
Section 1.45X-3 also issued under 26 U.S.C. 45X(b) and (c).
Section 1.45X-4 also issued under 26 U.S.C. 45X(b) and (c).
* * * * *
0
Par. 2. Sections 1.45X-0 through 1.45X-4 are added to read as follows:
Sec.
* * * * *
1.45X-0 Table of contents.
1.45X-1 General rules applicable to the advanced manufacturing
production credit.
1.45X-2 Sale to unrelated person.
1.45X-3 Eligible components.
1.45X-4 Applicable critical minerals.
* * * * *
Sec. 1.45X-0 Table of contents.
This section lists the captions contained in Sec. Sec. 1.45X-1
through 1.45X-4.
Sec. 1.45X-1 General rules applicable to the advanced manufacturing
production credit.
(a) Overview.
(b) Credit amount.
(c) Definition of produced by the taxpayer.
(d) Produced in the United States.
(e) Production and sale in a trade or business.
(f) Sale of integrated components.
(g) Interaction between sections 45X and 48C.
(h) [Reserved]
(i) Anti-abuse rule.
(j) Severability.
(k) Applicability date.
Sec. 1.45X-2 Sale to unrelated person.
(a) In general.
(b) Definitions.
(c) Special rule for sale to related person.
(d) Related person election.
(e) Sales of integrated components to related person.
(f) Severability.
(g) Applicability date.
Sec. 1.45X-3 Eligible components.
(a) In general.
(b) Solar energy components.
(c) Wind energy components.
(d) Inverters.
(e) Qualifying battery component.
(f) Phase out rule.
(g) Severability.
(h) Applicability date.
Sec. 1.45X-4 Applicable critical minerals.
(a) In general.
(b) Definitions.
(c) Credit amount.
(d) Severability.
(e) Applicability date.
Sec. 1.45X-1 General rules applicable to the advanced manufacturing
production credit.
(a) Overview--(1) In general. This section provides general rules
regarding the advanced manufacturing production credit determined under
section 45X of the Code (section 45X credit). Paragraph (a)(2) of this
section provides definitions of certain terms that apply for purposes
of section 45X and the section 45X regulations (defined in paragraph
(a)(2)(xiv) of this section). Paragraphs (b) through (j) of this
section provide the basic rules regarding the section 45X credit,
including the definition of the term produced by the taxpayer, and
rules to determine the taxpayer that produces an eligible component and
whether such taxpayer is entitled to claim a section 45X credit in
contract manufacturing arrangements; where the production of eligible
components must occur; the treatment of integrated, incorporated or
assembled eligible components; and the interaction between sections 45X
and 48C of the Code. See Sec. 1.45X-2 for rules regarding sales to
unrelated persons, sales to related persons, and the Related Person
Election, including rules regarding the time, place, and manner of
making the
[[Page 86857]]
Related Person Election. See Sec. 1.45X-3 for the definitions of all
eligible components (except applicable critical minerals) and the
credit amounts available for each of these eligible components,
including certain phase-out percentages. See Sec. 1.45X-4 for the
definitions of applicable critical minerals and the rules regarding the
determination of the credit amount for applicable critical minerals.
(2) Generally applicable definitions. This paragraph (a)(2)
provides definitions of terms that apply for purposes of section 45X
and the section 45X regulations.
(i) Applicable critical mineral. The term applicable critical
mineral means any of the minerals that are listed in section 45X(c)(6)
and defined in Sec. 1.45X-4(b).
(ii) Code. The term Code means the Internal Revenue Code.
(iii) Contract manufacturing arrangement. The term contract
manufacturing arrangement is defined in paragraph (c)(3)(ii)(B) of this
section.
(iv) Electrode active materials. The term electrode active
materials is defined in Sec. 1.45X-3(e)(2).
(v) Eligible component. The term eligible component is defined in
section 45X(c)(1)(A) and described in Sec. Sec. 1.45X-3 and 1.45X-4.
(vi) Eligible taxpayer. The term eligible taxpayer is defined in
paragraph (c)(3) of this section.
(vii) Guidance. The term guidance means guidance published in the
Federal Register or Internal Revenue Bulletin, as well as
administrative guidance such as forms, instructions, publications, or
other guidance on the IRS.gov website. See Sec. Sec. 601.601 and
601.602 of this chapter.
(viii) IRA. The term IRA means Public Law 117-169, commonly known
as the Inflation Reduction Act of 2022.
(ix) IRS. The term IRS means the Internal Revenue Service.
(x) Produced by the taxpayer. The term produced by the taxpayer is
defined in paragraph (c) of this section, and the related terms
production activities and production process have the meaning given
those terms in paragraph (c) of this section.
(xi) Related person. The term related person is defined in Sec.
1.45X-2(b)(2).
(xii) Related Person Election. The term Related Person Election is
defined in Sec. 1.45X-2(d)(1).
(xiii) Secretary. The term Secretary means the Secretary of the
Treasury or her delegate.
(xiv) Section 45X regulations. The term section 45X regulations
means the provisions of this section, Sec. Sec. 1.45X-2 through 1.45X-
4, and the regulations in this chapter under sections 6417 and 6418 of
the Code that relate to the section 45X credit.
(xv) Unrelated person. The term unrelated person is defined in
section 45X(a)(3) and described in Sec. 1.45X-2(b)(3).
(b) Credit amount. Except as otherwise provided in section
45X(b)(3) and Sec. 1.45X-3(f), for purposes of section 38 of the Code,
the amount of the section 45X credit for any taxable year is equal to
the sum of the credit amounts provided under section 45X(b) and
described in Sec. Sec. 1.45X-3 and 1.45X-4 with respect to each
eligible component that is produced by the taxpayer and, within the
taxable year, sold by the taxpayer to an unrelated person. See Sec.
1.45X-2 for rules regarding sales of eligible components to related
persons that may be treated as if sold to unrelated persons for
purposes of section 45X(a).
(c) Definition of produced by the taxpayer--(1) In general. The
term produced by the taxpayer means a process conducted by the taxpayer
that substantially transforms constituent elements, materials, or
subcomponents into a complete and distinct eligible component that is
functionally different from that which would result from mere assembly
or superficial modification of the elements, materials, or
subcomponents.
(i) Partial transformation. The term produced by the taxpayer does
not include partial transformation that does not result in substantial
transformation of constituent elements, materials, or subcomponents
into a complete and distinct eligible component as described in this
paragraph (c)(1).
(ii) Mere assembly or superficial modification. The term produced
by the taxpayer does not include minor assembly of two or more
constituent elements, materials, or subcomponents, or superficial
modification of the final eligible component, if the taxpayer does not
also engage in the process resulting in a substantial transformation
described in this paragraph (c)(1).
(iii) Examples. The following examples illustrate the application
of this paragraph (c)(1).
(A) Example 1. Taxpayers X, Y, and Z each produce one of three
sections of a wind tower that together make up the wind tower. No
taxpayer has produced an eligible component within the meaning of
section 45X(a)(1)(A) because no taxpayer has produced all sections of
the wind tower.
(B) Example 2. Same facts as paragraph (c)(1)(iii)(A) of this
section (Example 1), but taxpayers X, Y, and Z instead form Partnership
XYZ. Partnership XYZ produces all three sections of the wind tower.
Partnership XYZ has produced an eligible component within the meaning
of section 45X(a)(1)(A).
(C) Example 3. Taxpayer V puts the external casing on a battery
module (within the meaning of Sec. 1.45X-3(e)(4)(i)(A)) that already
had cells, battery management systems, and other components integrated
into it. Taxpayer V has engaged in minor assembly and has not produced
an eligible component within the meaning of section 45X(a)(1)(A).
(D) Example 4. Taxpayer U purchases two finished halves of a wind
turbine nacelle and combines them into a single nacelle. Taxpayer U has
engaged in minor assembly and has not produced an eligible component
within the meaning of section 45X(a)(1)(A).
(E) Example 5. Taxpayer T purchases a dry cell battery and fills
the electrolyte of the battery. Taxpayer T has engaged in minor
assembly and has not produced an eligible component within the meaning
of section 45X(a)(1)(A).
(F) Example 6. Taxpayer W purchases a prefabricated wind turbine
blade and applies paint and finishes. Taxpayer W has engaged in
superficial modification of the blade and has not produced an eligible
component within the meaning of section 45X(a)(1)(A).b
(2) Special rule for certain eligible components. For solar grade
polysilicon, electrode active materials, and applicable critical
minerals, the term produced by the taxpayer means processing,
conversion, refinement, or purification of source materials, such as
brines, ores, or waste streams, to derive a distinct eligible
component.
(3) Eligible taxpayer--(i) In general. Except as otherwise provided
in paragraph (c)(3)(iii) of this section, a taxpayer claiming a section
45X credit with respect to an eligible component must be the taxpayer
that directly performs the production activities that bring about a
substantial transformation resulting in the eligible component, and
must sell such eligible component to an unrelated person.
(ii) Contract manufacturing arrangement--(A) In general. If the
production of an eligible component is performed in whole or in part
pursuant to a contract that is a contract manufacturing arrangement,
then, provided the other requirements of section 45X are met, the party
to such contract that may claim the section 45X credit with respect to
such eligible component is the party that performs the actual
production activities that bring about a substantial transformation
resulting in the eligible component.
[[Page 86858]]
(B) Contract manufacturing arrangement defined. The term contract
manufacturing arrangement means any agreement (or agreements) providing
for the production of an eligible component if the agreement is entered
into before the production of the eligible component to be delivered
under the contract is completed. A routine purchase order for off-the-
shelf property is not treated as a contract manufacturing arrangement
for purposes of this paragraph (c)(3). An agreement will be treated as
a routine purchase order for off-the-shelf property if the contractor
is required to make no more than de minimis modifications to the
property to tailor it to the customer's specific needs, or if at the
time the agreement is entered into, the contractor knows or has reason
to know that the contractor can satisfy the agreement out of existing
stocks or normal production of finished goods.
(iii) Special rule for contract manufacturing arrangements. If an
eligible component is produced by a taxpayer pursuant to a contract
manufacturing arrangement, the parties to such agreement may determine
by agreement the party that may claim the section 45X credit. If a
taxpayer enters into contract manufacturing arrangements with multiple
fabricators to produce an eligible component, the parties to such
agreements may determine by agreement the party that may claim the
section 45X credit. The IRS will not challenge the agreement of the
parties provided all the parties submit signed certification statements
(as described in paragraph (c)(3)(iv) of this section) indicating that
all parties agree as to the party that may claim the section 45X
credit.
(iv) Certification statement requirements. A certification
statement indicating that all parties to a contract manufacturing
arrangement agree as to the party that will claim the section 45X
credit must include--
(A) All required information set forth in guidance; and
(B) A properly signed penalty of perjury statement.
(v) Examples. The following examples illustrate the application of
this paragraph (c)(3).
(A) Example 1: Contract manufacturing with sale. Taxpayers X, Y and
Z are unrelated C corporations that have calendar year taxable years.
In 2024, pursuant to a contract manufacturing arrangement as described
in paragraph (c)(3)(ii)(B) of this section, X hires Y to produce a
solar module. The contract is a tolling arrangement and provides that Y
will produce the solar module according to X's designs and
specifications and using the materials and subcomponents that X
provides. X and Y enter an agreement providing that X is the sole party
that may claim a section 45X credit for the production and sale of the
solar module, and X and Y each sign a certification statement as
described in paragraph (c)(3)(iv) of this section reflecting this
agreement. In 2025, Y produces and delivers the solar module to X, and
in 2026, X sells the solar module to Z. X may claim a section 45X
credit in taxable year 2026 for the solar module it sold to Z provided
all other requirements of section 45X are met and the certification
statements signed by X and Y meet the requirements described in
paragraph (c)(3)(iv) of this section and are properly submitted by X.
Similarly, Y could claim a section 45X credit if the agreement between
X and Y had designated Y as the sole party that could claim a section
45X credit for the production and sale of the solar module provided all
other requirements of section 45X are met and the certification
statements signed by X and Y meet the requirements described in
paragraph (c)(3)(iv) of this section and are properly submitted by Y.
(B) Example 2: Contract manufacturing with no sale. Assume the
facts are the same as in paragraph (c)(3)(v)(A) of this section
(Example 1), except that X does not sell the solar module and instead X
uses it to generate electricity for use in X's trade or business.
Because there has been no sale, neither X nor Y may claim a section 45X
credit for the solar module regardless of whether X and Y submit signed
certification statements described in paragraph (c)(3)(iv) of this
section.
(C) Example 3: Multiple contract manufacturing arrangements.
Taxpayers V, W, X, Y and Z are unrelated C corporations that have
calendar year taxable years. In 2024, pursuant to three separate
contract manufacturing arrangements as described in paragraph
(c)(3)(ii)(B) of this section, V hires W, X, and Y to produce the
bottom, middle and top segments, respectively, of a single wind tower
that V designed. W, X, Y and V enter into an agreement providing that V
is the sole party that may claim a section 45X credit for the
production and sale of the wind tower, and W, X, Y and V each sign a
certification statement as described in paragraph (c)(3)(iv) of this
section reflecting this agreement. In 2024, W and X both produce and
deliver their respective wind tower segments to the installation site,
and in 2025, Y produces and delivers its wind tower segment to the
installation site. In 2026, V sells the completed wind tower to Z. V
may claim a section 45X credit in taxable year 2026 for the wind tower
it sold to Z provided all other requirements of section 45X are met and
the certification statements signed by V, W, X and Y meet the
requirements described in paragraph (c)(3)(iv) of this section and are
properly submitted by V. Similarly, W or X or Y could be the party that
could claim a section 45X credit if the agreement between V, W, X and Y
had designated W or X or Y as the sole party that could claim a section
45X credit for the production and sale of the wind tower provided all
other requirements of section 45X are met and the certification
statements signed by V, W, X and Y meet the requirements described in
paragraph (c)(3)(iv) of this section and are properly submitted by the
party designated as the sole party that could claim a section 45X
credit.
(4) Timing of production and sale--(i) In general. Production of
eligible components for which a taxpayer is claiming a section 45X
credit may begin before December 31, 2022. Production of eligible
components must be completed, and sales of eligible components must
occur, after December 31, 2022.
(ii) Example. Taxpayer X has a calendar year taxable year. Taxpayer
X begins production of a related offshore wind vessel (as defined in
section 45X(4)(B)(iv) and described in Sec. 1.45X-3(c)(4)) in January
2022. Production is completed in December 2024 and the sale to an
unrelated person occurs in 2025. Taxpayer X is eligible to claim the
section 45X credit in 2025, assuming that all other requirements of
section 45X are met.
(d) Produced in the United States--(1) In general. Sales are taken
into account for purposes of the section 45X credit only for eligible
components that are produced within the United States, as defined in
section 638(1) of the Code, or a United States territory, which for
purposes of section 45X and the section 45X regulations has the meaning
of the term possession provided in section 638(2).
(2) Subcomponents. Constituent elements, materials, and
subcomponents used in the production of eligible components are not
subject to the domestic production requirement provided in paragraph
(d)(1) of this section.
(e) Production and sale in a trade or business. An eligible
component produced and sold by the taxpayer is taken into account for
purposes of the section 45X credit only if the production and sale are
in a trade or business (within the meaning of section 162 of the Code)
of the taxpayer.
[[Page 86859]]
(f) Sale of integrated components--(1) In general. For purposes of
the section 45X credit, section 45X(d)(4) provides that a taxpayer is
treated as having produced and sold an eligible component to an
unrelated person if such component is integrated, incorporated, or
assembled into another eligible component that is then sold to an
unrelated person.
(i) Integrated, incorporated, or assembled. The term integrated,
incorporated, or assembled means the production activities by which an
eligible component that is a constituent element, material, or
subcomponent is substantially transformed into another complete and
distinct eligible component that is not solar grade polysilicon, an
electrode active material, or an applicable critical mineral. The term
integrated, incorporated, or assembled does not mean the mere assembly
or superficial modification of an eligible component used as an
element, material, or subcomponent and other elements, materials, or
subcomponents that results in a distinct product.
(ii) Special rule for eligible components resulting in solar grade
polysilicon, electrode active materials, or applicable critical
minerals. For solar grade polysilicon, electrode active material, and
applicable critical minerals, the term integrated, incorporated, or
assembled means the production activities in which an eligible
component is processed, converted, refined, or purified to derive a
distinct eligible component that is solar grade polysilicon, an
electrode active material, or an applicable critical mineral. The term
integrated, incorporated, or assembled does not mean mere assembly or
superficial modification of an eligible component used as an element,
material, or subcomponent and other elements, materials, or
subcomponents that results in a distinct product.
(2) Application--(i) In general. A taxpayer may claim a section 45X
credit for each eligible component the taxpayer produces and sells to
an unrelated person, including any eligible component the taxpayer
produces that was used as a constituent element, material, or
subcomponent and integrated, incorporated, or assembled into another
complete and distinct eligible component or another complete and
distinct product (that is not itself an eligible component) that the
taxpayer also produces and sells to an unrelated person.
(ii) Example: Sale of product with incorporated eligible components
to unrelated person. In 2022, X, a domestic corporation that has a
calendar year taxable year, begins production of electrode active
materials (EAMs) that are completed in 2023 and incorporated into
battery cells that X also produces. In 2024, X incorporates those
battery cells into battery modules (within the meaning of Sec. 1.45X-
3(e)(4)(i)(A)) and integrates the battery modules into electric
vehicles. X sells the electric vehicles to Z, an unrelated person, in
2024. X may claim a section 45X credit for the EAMs, the battery cells,
and the battery modules in 2024.
(g) Interaction between sections 45X and 48C--(1) In general. For
purposes of the section 45X credit, consistent with section
45X(c)(1)(B), an eligible component--
(i) Must be produced by a section 45X facility; and
(ii) Does not include any property (produced property) that is
produced at a facility if the basis of any property that is part of the
production unit (within the meaning of paragraph (g)(2)(ii) of this
section) that produces the produced property--
(A) Is eligible property that is included in a section 48C
facility; and
(B) Is taken into account for purposes of the credit allowed under
section 48C (section 48C credit) after August 16, 2022.
(2) Section 45X facility--(i) In general. A section 45X facility
includes all tangible property that comprises an independently
functioning production unit that produces one or more eligible
components.
(ii) Production unit. The production unit is the tangible property
that substantially transforms the material inputs to complete the
production process of an eligible component.
(3) Section 48C facility--(i) In general. A section 48C facility
includes all eligible property included in a qualifying advanced energy
project for which a taxpayer receives an allocation of section 48C
credits under the allocation program established under section 48C(e)
and claims such credits after August 16, 2022.
(ii) Eligible property. Eligible property is property that--
(A) Is necessary for the production or recycling of property
described in section 48C(c)(1)(A)(i), re-equipping an industrial or
manufacturing facility described in section 48C(c)(1)(A)(ii), or re-
equipping, expanding, or establishing an industrial facility described
in section 48C(c)(1)(A)(iii);
(B) Is tangible personal property, or other tangible property (not
including a building or its structural components), but only if such
property is used as an integral part of the qualified investment credit
facility; and
(C) With respect to which depreciation (or amortization in lieu of
depreciation) is allowable.
(4) Examples. The following examples illustrate the application of
this paragraph (g):
(i) Example 1: Two independent production units--(A) Facts.
Taxpayer owns and operates a manufacturing site that contains
Production Unit A and Production Unit B, each of which function
independently and are arranged in serial fashion. Photovoltaic wafers
produced by Production Unit A are utilized in Production Unit B to
manufacture photovoltaic cells. Taxpayer was allocated a section 48C
credit under the section 48C(e) program for a section 48C facility that
includes Production Unit A and subsequently placed the section 48C
facility and Production Unit A in service in taxable year 2026.
Taxpayer claimed a section 48C credit for Production Unit A for taxable
year 2026.
(B) Analysis. Production Unit A is eligible property that is
include in Taxpayer's section 48C facility. Therefore, Production Unit
A cannot qualify as a section 45X facility under section 45X(c)(1)(B)
and paragraph (g)(2) of this section. Production Unit B, however, is
tangible property that comprises an independently functioning
production unit that produces eligible components. Production Unit B
can be treated as a section 45X facility because the tangible property
comprising Production Unit B is not eligible property that is included
in a section 48C facility.
(ii) Example 2: Single production unit--(A) Facts. Taxpayer owns
and operates two manufacturing sites. Manufacturing Site 1 includes
tangible property that forms ingots from polysilicon to partially
produce photovoltaic wafers. Manufacturing Site 2 completes the
production process of the photovoltaic wafers. Taxpayer was allocated a
section 48C credit under the section 48C(e) program for tangible
property that is used to produce the ingots at Manufacturing Site 1.
(B) Analysis. Manufacturing Site 1 and Manufacturing Site 2
comprise a single production unit. As a result, Taxpayer may not claim
the section 45X credit for the photovoltaic wafers it produced at
Manufacturing Site 1 and Manufacturing Site 2 because Taxpayer claimed
the section 48C credit for the tangible property that was used to
produce the ingots at Manufacturing Site 1, which is part of a single
production unit.
[[Page 86860]]
(iii) Example 3: Independent production units and production of
subcomponent--(A) Facts. Taxpayer owns and operates two manufacturing
sites. Manufacturing Site 1 contains Production Unit A and Production
Unit B, which are arranged in parallel fashion and each produce
photovoltaic cells. Manufacturing Site 2 contains Production Unit C and
Production Unit D, which are arranged in serial fashion. Production
Unit C produces photovoltaic cells. Production Unit D produces solar
modules, in part, by combining the photovoltaic cells produced by
Production Units A, B and C. Taxpayer was allocated a section 48C
credit under the section 48C(e) program for a section 48C facility that
includes Production Unit C. Subsequently, Taxpayer places the section
48C facility and Production Unit C in service in taxable year 2026.
Taxpayer claimed a section 48C credit for Production Unit C in taxable
year 2026.
(B) Analysis. Production Units A and B each comprise a single
production unit that produces eligible components. Production Units A
and B can be treated as a section 45X facility because the tangible
property comprising Production Units A and B are not eligible property
that is included in a section 48C facility. Production Unit C cannot
qualify as a section 45X facility under section 45X(c) because
Production Unit C is eligible property that is included in a section
48C facility. Production Unit D is tangible property that comprises an
independently functioning production unit that produces eligible
components utilizing subcomponents produced by Taxpayer in a separate,
independently functioning production unit. Therefore, Production Unit D
can be treated as a section 45X facility because the tangible property
comprising Production Unit D is not eligible property that is included
in a section 48C facility.
(iv) Example 4: Two independent production units manufacturing
under a contract manufacturing arrangement--(A) Facts. X is hired by Y
to manufacture photovoltaic cells. X owns and operates a manufacturing
site that contains Production Unit A and Production Unit B. Production
Unit A and Production Unit B function independently and are arranged in
serial fashion. Photovoltaic wafers produced by Production Unit A are
utilized in Production Unit B to manufacture photovoltaic cells. X was
allocated a section 48C credit under the section 48C(e) program for a
section 48C facility that includes Production Unit A and subsequently
placed the section 48C Facility and Production Unit A in service in
taxable year 2026. X claimed a section 48C credit for Production Unit A
in taxable year 2026.
(B) Analysis. Production Unit A is eligible property that is
included in X's section 48C facility. Therefore, Production Unit A
cannot qualify as a section 45X facility under section 45X(c)(1)(B) and
paragraph (g)(2) of this section and X does not qualify for a section
45X credit with respect to Production Unit A. Production Unit B is,
however, tangible property that comprises an independently functioning
production unit that produces eligible components. Production Unit B
can be treated as a section 45X facility by X, the party who produces
the eligible components, because the tangible property comprising
Production Unit B is not eligible property that is included in a
section 48C facility.
(v) Example 5: Two independent production units manufacturing under
a contract manufacturing arrangement--(A) Facts. Assume the facts are
the same as in paragraph (g)(4)(iv) of this section (Example 4), except
that Y owns Production Units A and B and hires X to operate Production
Units A and B to produce the eligible components.
(B) Analysis. Production Unit A is eligible property that is
included in Y's section 48C facility. Y claimed a section 48C credit
for Production Unit A in taxable year 2026. Therefore, Production Unit
A cannot qualify as a section 45X facility under section 45X(c)(1)(B)
and paragraph (g)(2) of this section and X does not qualify for a
section 45X credit with respect to Production Unit A. Production Unit
B, however, is tangible property that comprises an independently
functioning production unit that produces eligible components.
Production Unit B can be treated as a section 45X facility by X (and
not Y) because the tangible property comprising Production Unit B is
not eligible property that is included in a section 48C facility.
(h) [Reserved]
(i) Anti-abuse rule--(1) In general. The rules of section 45X and
the section 45X regulations must be applied in a manner consistent with
the purposes of section 45X and the section 45X regulations (and the
regulations in this chapter under sections 6417 and 6418 related to the
section 45X credit). A purpose of section 45X and the section 45X
regulations (and the regulations in this chapter under sections 6417
and 6418 related to the section 45X credit) is to provide taxpayers an
incentive to produce eligible components in a manner that contributes
to the development of secure and resilient supply chains. Accordingly,
the section 45X credit is not allowable if the primary purpose of the
production and sale of an eligible component is to obtain the benefit
of the section 45X credit in a manner that is wasteful, such as
discarding, disposing of, or destroying the eligible component without
putting it to a productive use. A determination of whether the
production and sale of an eligible component is inconsistent with the
purposes of section 45X and the section 45X regulations (and the
regulations in this chapter under sections 6417 and 6418 related to the
section 45X credit) is based on all facts and circumstances.
(2) Example--(i) Facts. Taxpayer is engaged in the activity of
producing and selling multiple units of Eligible Component 1 (EC1).
Taxpayer engages in no other activities. The cost of producing each
unit of EC1 is less than the amount of the section 45X credit that
would be available if each EC1 qualified for the section 45X credit.
Taxpayer sells some of its units of EC1 to related persons and makes a
Related Person Election pursuant to section 45X(a)(3)(B)(i). Taxpayer
also sells some of its units of EC1 to unrelated persons. Taxpayer
sells all units of EC1 at an amount equal to cost plus a markup to
reflect an anticipated accommodation fee and establishes corresponding
accounts receivable at the time of the respective sales. In addition,
Taxpayer knows or reasonably expects that after acquiring the units of
EC1, the related and unrelated transferees will not resell the units of
EC1 or use them in their trades or businesses. Taxpayer intends to
obtain the benefit from the section 45X credit by claiming such credits
itself or monetizing such credits through an election under sections
6417 or 6418. Taxpayer eliminates the aforementioned accounts
receivable at the time it claims the section 45X credit or receives
related payments attributable to the section 45X credit, and further
makes payments to the related and unrelated transferees as
accommodation fees computed as a percentage of such benefits.
(ii) Analysis. Based on all of the facts and circumstances in
paragraph (i)(2)(i) of this section, the primary purpose of Taxpayer's
production and sale of EC1 is to obtain the benefit of the section 45X
credit in a manner that is wasteful and will not be treated as the
production and sale of eligible components in a trade or business of
Taxpayer for purposes of section 45X(a)(1) and (2). Taxpayer is not
eligible for the section 45X credit with respect to units of EC1 that
it produced and sold. See sections 6417(d)(6)
[[Page 86861]]
(excessive payments) and 6418(g)(2) (excessive credit transfer).
(j) Severability. The provisions of this section are separate and
severable from one another. If any provision of this section is stayed
or determined to be invalid, it is the agencies' intention that the
remaining provisions shall continue in effect.
(k) Applicability date. This section applies to eligible components
for which production is completed and sales occur after December 31,
2022, and during a taxable year ending on or after [date of publication
of final regulations in the Federal Register].
Sec. 1.45X-2 Sale to unrelated person.
(a) In general. The amount of the section 45X credit for any
taxable year is equal to the sum of the credit amounts determined under
section 45X(b) (and described in Sec. Sec. 1.45X-3 and 1.45X-4) with
respect to each eligible component that is produced by the taxpayer
and, during the taxable year, sold by the taxpayer to an unrelated
person. Applicable Federal income tax principles apply to determine
whether a transaction is in substance a sale (or the provision of a
service, or some other disposition). See Sec. 1.45X-1(d) and (e) for
additional requirements relating to sales.
(b) Definitions. This paragraph (b) provides definitions of terms
that apply for purposes of this section.
(1) Person. The term person means an individual, a trust, estate,
partnership, association, company or corporation, as provided in
section 7701(a)(1) of the Code. For purposes of this section, an entity
disregarded as separate from a person (for example, under Sec.
301.7701-3 of this chapter) is not a person.
(2) Related person. The term related person means a person who is
related to another person if such persons would be treated as a single
employer under the regulations in this chapter under section 52(b) of
the Code.
(3) Unrelated person. The term unrelated person means a person who
is not a related person as defined in paragraph (b)(2) of this section.
(c) Special rule for sale to related person--(1) In general. For
purposes of section 45X(a), a taxpayer is treated as selling an
eligible component to an unrelated person if such component is sold to
such person by a person who is a related person with respect to the
taxpayer.
(2) Example. X and Y are members of a group of trades or businesses
under common control under section 52(b), and thus are related persons
under section 45X(d)(1). Each of X and Y has a calendar year taxable
year. Z is an unrelated person. X is in the trade or business of
producing and selling solar modules. X produces and sells solar modules
to Y in 2023. Y sells the solar modules to Z in 2024. X may claim a
section 45X credit for the sale of the solar modules in 2024, the
taxable year of X in which Y sells the solar modules to Z.
(d) Related person election--(1) Availability of election--(i) In
general. In such form and manner as the Secretary may prescribe, a
taxpayer may make an election under section 45X(a)(3)(B) (Related
Person Election), to treat a sale of eligible components by such
taxpayer to a related person as if made to an unrelated person. As a
condition of, and prior to, a taxpayer making a Related Person Election
(as described in paragraph (d)(2) of this section), the Secretary may
require such information or registration as the Secretary deems
necessary for purposes of preventing duplication, fraud, or any
improper or excessive credit amount determined under section 45X(a)(1).
(ii) Members of a consolidated group. A Related Person Election is
made by a member of a consolidated group (as defined in Sec. 1.1502-
1(h)) in the manner described in paragraph (d)(3)(ii) of this section.
A member of a consolidated group that sells eligible components in an
intercompany transaction (as defined in Sec. 1.1502-13(b)(1)) may make
the Related Person Election to claim the section 45X credit in the year
of the intercompany sale. For the treatment of the selling member's
gain or loss from that sale, see Sec. 1.1502-13.
(2) Time and manner of making election--(i) In general. A taxpayer
must make an affirmative Related Person Election annually on the
taxpayer's timely filed original Federal income tax return, including
extensions in such form and in such manner as may be prescribed in
Internal Revenue Service forms or instructions or in publications or
guidance published in the Internal Revenue Bulletin. See Sec. 601.601
of this chapter. The Related Person Election will be applicable to all
sales of eligible components to related persons by the taxpayer for
each trade or business that the taxpayer engages in during the taxable
year that resulted in a credit claim and for which the taxpayer has
made the Related Person Election.
(ii) Required information. For all sales of eligible components to
related persons, the taxpayer must provide all required information set
forth in guidance. Such information may include, for example, the
taxpayer's name, employer identification number (EIN), a description of
the taxpayer's trade or business (including principal business activity
code); the name(s) and EINs of all related persons; a listing of the
eligible components that are sold; and the intended purpose of any
sales of eligible components to or from related persons.
(3) Scope and effect of election--(i) In general. A separate
Related Person Election must be made with respect to related person
sales made by a taxpayer for each eligible trade or business of the
taxpayer. The election applies only to such trade or business for which
the Related Person Election is made. An election under this section
applies to all sales to related persons (including between members of
the same consolidated group) of eligible components produced by the
taxpayer during the taxable year with respect to each trade or business
for which the Related Person Election is made and is irrevocable for
the taxable year for which the election is made. An election under
paragraph (d)(2)(i) of this section applies solely for purposes of the
section 45X credit and the section 45X regulations (and the regulations
in this chapter under sections 6417 and 6418 related to the section 45X
credit).
(ii) Application to consolidated groups. For a trade or business of
a consolidated group, a Related Person Election must be made by the
agent for the group on behalf of the members claiming the section 45X
credit and filed with the group's timely filed original Federal income
tax return, including extensions, with respect to each trade or
business that the consolidated group conducts. See Sec. 1.1502-77
(providing rules regarding the status of the common parent as agent for
its members). A separate election must be filed on behalf of each
member claiming the section 45X credit, and each election must include
the name and EIN of the agent for the group and the member on whose
behalf the election is being made.
(iii) Application to partnerships. The Related Person Election for
a partnership must be made on the partnership's timely filed original
Federal income tax return, including extensions, with respect to each
trade or business that the partnership conducts. The election applies
only to such trade or business for which the Related Person Election is
made. An election by a partnership does not apply to any trade or
business conducted by a partner outside the partnership.
(4) Anti-abuse rule--(i) In general. A Related Person Election may
not be made if, with respect to the eligible components relevant to
such election, the taxpayer fails to provide the information described
in paragraph
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(d)(2) of this section, provides information described in paragraph
(d)(2) of this section that shows that such components are described in
paragraph (d)(4)(ii) or (iii) of this section, or such components are
described in paragraph (d)(4)(ii) or (iii) of this section.
(ii) Improper use. For purposes of this paragraph (d)(4) the term
improper use means a use that is wasteful, such as discarding,
disposing of, or destroying the eligible component without putting it
to a productive use by the related person to which the eligible
component is sold.
(iii) Defective components. The term defective component means a
component that does not meet the requirements of section 45X and the
section 45X regulations.
(e) Sales of integrated components to related person--(1) In
general. For purposes of section 45X and the section 45X regulations
(and the regulations in this chapter under sections 6417 and 6418
related to the section 45X credit), a taxpayer that produces and then
sells an eligible component to a related person, who then integrates,
incorporates, or assembles the taxpayer's eligible component into
another complete and distinct eligible component that is subsequently
sold to an unrelated person, may claim a section 45X credit (or make an
election under section 6417 or 6418) with respect to the taxable year
in which the related person's sale to the unrelated person occurs.
(2) Examples. The following examples illustrate the rules provided
in paragraph (e)(1) of this section.
(i) Example 1: Sales of multiple incorporated eligible components
to related persons. X and Y are C corporations that are members of a
group of trades or businesses under common control under section 52(b),
and thus are related persons under section 45X(d)(1) and paragraph
(b)(2) of this section. Each of X and Y has a calendar year taxable
year. Z is an unrelated person. X and Y are in the trade or business of
producing and selling photovoltaic wafers and cells. X produces and
sells photovoltaic wafers to Y in 2023. Y incorporates the photovoltaic
wafers into photovoltaic cells and sells the photovoltaic cells to Z in
2024. X may claim a section 45X credit for the sale of the photovoltaic
wafers in 2024, the taxable year of X in which Y sells the photovoltaic
cells to Z.
(ii) Example 2: Sales of multiple incorporated eligible components
to related and unrelated persons. W, X, and Y are domestic C
corporations that are members of a group of trades or businesses under
common control under section 52(b), and thus are related persons under
section 45X(d)(1) and paragraph (b)(2) of this section. Each of W, X,
and Y has a calendar year taxable year. W produces electrode active
materials (EAMs) and sells the EAMs to X in 2023. In 2024, X
incorporates the EAMs into battery cells that it produces and sells the
battery cells to Y. In 2025, Y incorporates the battery cells into
battery modules (within the meaning of Sec. 1.45X-3(e)(4)(i)(A)) that
it produces and sells the battery modules to Z, an unrelated person. W
may claim a section 45X credit for EAMs sold to X, X may claim a
section 45X credit for the battery cells sold to Y, and Y may claim a
section 45X credit for the battery modules sold to Z in 2025, the
taxable year of each of W, X, and Y in which the battery modules are
sold to Z.
(3) Special rules applicable to related person election--(i) In
general. If a taxpayer makes a valid Related Person Election under
section 45X(a)(3)(B)(i) and paragraph (d)(1) of this section, and the
taxpayer produces and then sells an eligible component to a related
person, who then integrates, incorporates, or assembles the taxpayer's
eligible component into another complete and distinct eligible
component that is subsequently sold to an unrelated person, the
taxpayer's sale of the eligible component to the related person is
treated (solely for purposes of the section 45X credit and the section
45X regulations, and the regulations in this chapter under sections
6417 and 6418 related to the section 45X credit) as if made to an
unrelated person in the taxable year in which the sale to the related
person occurs.
(ii) Example: Sales of multiple integrated eligible components to
related and unrelated persons with a related person election. W, X, and
Y are domestic C corporations that are members of a group of trades or
businesses under common control and thus are related persons under
section 45X(d)(1) and paragraph (b)(2) of this section. Each of W, X,
and Y has a calendar year taxable year. W produces electrode active
materials (EAMs) and sells the EAMs to X in 2023. W makes a valid
Related Person Election under paragraph (d)(1) of this section in 2023
with regard to the sale. In 2024, X incorporates the EAMs into battery
cells that it produces and sells the battery cells to Y. X makes a
valid Related Person Election under paragraph (d)(1) of this section in
2024 with regard to the sale. In 2025, Y incorporates the battery cells
into battery modules that it produces and sells the battery modules to
Z, an unrelated person. W may claim a section 45X credit for the sale
of the EAMs in 2023 because the sale to X is treated as if made to an
unrelated person solely for purposes of section 45X(a). X may claim a
section 45X credit for the sale of the battery cells in 2024 because
the sale to Y is treated as if made to an unrelated person solely for
purposes of section 45X(a). Y may claim a section 45X credit for the
sale of battery modules in 2025 because Z is an unrelated person.
(f) Severability. The provisions of this section are separate and
severable from one another. If any provision of this section is stayed
or determined to be invalid, it is the agencies' intention that the
remaining provisions shall continue in effect.
(g) Applicability date. This section applies to eligible components
for which production is completed and sales occur after December 31,
2022, and during a taxable year ending on or after [date of publication
of the final regulations in the Federal Register].
Sec. 1.45X-3 Eligible components.
(a) In general. For purposes of the section 45X credit, eligible
component means any solar energy component (as defined in paragraph (b)
of this section), any wind energy component (as defined in paragraph
(c) of this section), any inverter (as defined in paragraph (d) of this
section), any qualifying battery component (as defined in paragraph (e)
of this section), and any applicable critical mineral (as defined in
Sec. 1.45X-4(b)). See paragraph (f) of this section for certain phase-
out rules applicable to eligible components other than applicable
critical minerals.
(b) Solar energy components. Solar energy component means a solar
module, photovoltaic cell, photovoltaic wafer, solar grade polysilicon,
torque tube, structural fastener, or polymeric backsheet, each as
defined in this paragraph (b).
(1) Photovoltaic cell--(i) Definition. Photovoltaic cell means the
smallest semiconductor element of a solar module that performs the
immediate conversion of light into electricity that is either a thin
film photovoltaic cell or a crystalline photovoltaic cell.
(ii) Credit amount. For a photovoltaic cell, the credit amount is
equal to the product of 4 cents multiplied by the capacity of such
photovoltaic cell. The capacity of each photovoltaic cell is expressed
on a direct current watt basis. Capacity is the nameplate capacity in
direct current watts using Standard Test Conditions, as defined by the
International Electrotechnical Commission. In the case of a tandem
[[Page 86863]]
technology produced in serial fashion, such as a monolithic
multijunction cell composed of two or more sub-cells, capacity must be
measured at the point of sale at the end of the single cell production
unit. In the case of a four-terminal tandem technology produced by
mechanically stacking two distinct cells or interconnected layers,
capacity must be measured for each cell at each point of sale.
(iii) Substantiation. The taxpayer must document the capacity of a
photovoltaic cell in a bill of sale or design documentation, such as an
International Electrotechnical Commission certification (for example,
IEC 61215 or IEC 60904).
(2) Photovoltaic wafer--(i) Definition. Photovoltaic wafer means a
thin slice, sheet, or layer of semiconductor material of at least 240
square centimeters that comprises the substrate or absorber layer of
one or more photovoltaic cells. A photovoltaic wafer must be produced
by a single manufacturer by forming an ingot from molten polysilicon
(for example, Czochralski method) and then subsequently slicing it into
wafers, forming molten or evaporated polysilicon into a sheet or layer,
or depositing a thin-film semiconductor photon absorber into a sheet or
layer (that is, thin-film deposition).
(ii) Credit amount. For a photovoltaic wafer, the credit amount is
$12 per square meter.
(3) Polymeric backsheet--(i) Definition. Polymeric backsheet means
a sheet on the back of a solar module that acts as an electric
insulator and protects the inner components of such module from the
surrounding environment.
(ii) Credit amount. For a polymeric backsheet, the credit amount is
40 cents per square meter.
(4) Solar grade polysilicon--(i) Definition. Solar grade
polysilicon means silicon that is suitable for use in photovoltaic
manufacturing and purified to a minimum purity of 99.999999 percent
silicon by mass.
(ii) Credit amount. For solar grade polysilicon, the credit amount
is $3 per kilogram.
(5) Solar module--(i) Definition. Solar module means the connection
and lamination of photovoltaic cells into an environmentally protected
final assembly that is--
(A) Suitable to generate electricity when exposed to sunlight; and
(B) Ready for installation without an additional manufacturing
process.
(ii) Credit amount. For a solar module, the credit amount is equal
to the product of 7 cents multiplied by the capacity of such module.
The capacity of each solar module is expressed on a direct current watt
basis. Capacity is the nameplate capacity in direct current watts using
Standard Test Conditions, as defined by the International
Electrotechnical Commission.
(iii) Substantiation. The taxpayer must document the capacity of a
solar module in a bill of sale or design documentation, such as an
International Electrotechnical Commission certification (for example,
IEC 61215 or IEC 61646).
(6) Solar tracker. Solar tracker means a mechanical system that
moves solar modules according to the position of the sun and to
increase energy output. A torque tube (as defined in paragraph (b)(7)
of this section) or structural fastener (as defined in paragraph (b)(8)
of this section) are solar tracker components that are eligible
components for purposes of the section 45X credit.
(7) Torque tube--(i) Definition. Torque tube means a structural
steel support element (including longitudinal purlins) that--
(A) Is part of a solar tracker;
(B) Is of any cross-sectional shape;
(C) May be assembled from individually manufactured segments;
(D) Spans longitudinally between foundation posts;
(E) Supports solar panels and is connected to a mounting attachment
for solar panels (with or without separate module interface rails); and
(F) Is rotated by means of a drive system.
(ii) Credit amount. For a torque tube, the credit amount is 87
cents per kilogram.
(iii) Substantiation. The taxpayer must document that a torque tube
is part of a solar tracker with a specification sheet, bill of sale, or
other similar documentation that explicitly describes its application
as part of a solar tracker.
(8) Structural fastener--(i) Definition. Structural fastener means
a component that is used--
(A) To connect the mechanical and drive system components of a
solar tracker to the foundation of such solar tracker;
(B) To connect torque tubes to drive assemblies; or
(C) To connect segments of torque tubes to one another.
(ii) Credit amount. For a structural fastener, the credit amount is
$2.28 per kilogram.
(iii) Substantiation. The taxpayer must document that a structural
fastener is used in a manner described in paragraph (b)(8)(i)(A), (B),
or (C) of this section with a bill of sale or other similar
documentation that explicitly describes such use.
(c) Wind energy components. Wind energy component means a blade,
nacelle, tower, offshore wind foundation, or related offshore wind
vessel, each as defined in this paragraph (c).
(1) Blade--(i) Definition. Blade means an airfoil-shaped blade that
is responsible for converting wind energy to low-speed rotational
energy.
(ii) Credit amount. For a blade, the credit amount is equal to the
product of 2 cents multiplied by the total rated capacity of the
completed wind turbine for which the blade is designed.
(2) Offshore wind foundation--(i) Definition. Offshore wind
foundation means the component (including transition piece) that
secures an offshore wind tower and any above-water turbine components
to the seafloor using--
(A) Fixed platforms, such as offshore wind monopiles, jackets, or
gravity-based foundations; or
(B) Floating platforms and associated mooring systems.
(ii) Credit amount. For a fixed offshore wind foundation platform,
the credit amount is equal to the product of 2 cents multiplied by the
total rated capacity of the completed wind turbine for which the fixed
offshore wind foundation platform is designed. For a floating offshore
wind foundation platform, the credit amount is equal to the product of
4 cents multiplied by the total rated capacity of the completed wind
turbine for which the floating offshore wind foundation platform is
designed.
(3) Nacelle--(i) Definition. Nacelle means the assembly of the
drivetrain and other tower-top components of a wind turbine (with the
exception of the blades and the hub) within their cover housing.
(ii) Credit amount. For a nacelle, the credit amount is equal to
the product of 5 cents multiplied by the total rated capacity of the
completed wind turbine for which the nacelle is designed.
(4) Related offshore wind vessel--(i) Definition. Related offshore
wind vessel means any vessel that is purpose-built or retrofitted for
purposes of the development, transport, installation, operation, or
maintenance of offshore wind energy components. A vessel is purpose-
built for development, transport, installation, operation, or
maintenance of offshore wind energy components if it is built to be
capable of performing such functions and it is of a type that is
commonly used in the offshore wind industry. A vessel is retrofitted
for development, transport, installation, operation, or maintenance of
offshore wind energy components if such vessel was incapable of
performing
[[Page 86864]]
such functions prior to being retrofitted, the retrofit causes the
vessel to be capable of performing such functions, and the retrofitted
vessel is of a type that is commonly used in the offshore wind
industry.
(ii) Credit amount. For a related offshore wind vessel, the credit
amount is equal to 10 percent of the sales price of the vessel. The
sales price of the vessel does not include the price of maintenance,
services, or other similar items that may be sold with the vessel. For
a related offshore wind vessel with respect to which an election under
section 45X(a)(3)(B)(i) has been made, such election shall not cause
the sale price of such vessel to be treated as having been determined
with respect to a transaction between uncontrolled taxpayers for
purposes of section 482 of the Code and the regulations in this
chapter.
(5) Tower--(i) Definition. Tower means a tubular or lattice
structure that supports the nacelle and rotor of a wind turbine.
(ii) Credit amount. For a tower, the credit amount is equal to the
product of 3 cents multiplied by the total rated capacity of the
completed wind turbine for which the tower is designed.
(6) Total rated capacity of the completed wind turbine. For
purposes of this section, total rated capacity of the completed wind
turbine means, for the completed wind turbine for which a blade,
nacelle, offshore wind foundation, or tower was manufactured and sold,
the nameplate capacity at the time of sale as certified to the relevant
national or international standards, such as International
Electrotechnical Commission (IEC) 61400, or ANSI/ACP 101-1-2021, the
Small Wind Turbine Standard. Certification of the turbine to such
standards must be documented by a certificate issued by an accredited
certification body. The total rated capacity of a wind turbine must be
expressed in watts.
(7) Substantiation. Taxpayers must maintain specific documentation
regarding wind energy components for which a section 45X credit is
claimed. For blades, nacelles, offshore wind foundations, or towers, a
taxpayer must document the turbine model for which such component is
designed and the total rated capacity of the completed wind turbine in
technical documentation associated with the sale of such component.
(d) Inverters--(1) In general. Inverter means an end product that
is suitable to convert direct current (DC) electricity from 1 or more
solar modules or certified distributed wind energy systems into
alternating current electricity. An end product is suitable to convert
DC electricity from 1 or more solar modules or certified distributed
wind energy systems into alternating current electricity if, in the
form sold by the manufacturer, it is able to connect with such modules
or systems and convert DC electricity to alternating current
electricity from such connected source. The term inverter includes a
central inverter, commercial inverter, distributed wind inverter,
microinverter, or residential inverter. Only an inverter that meets at
least one of the requirements in paragraphs (d)(2) through (7) of this
section is an eligible component for purposes of the section 45X
credit.
(2) Central inverter--(i) Definition. Central inverter means an
inverter that is suitable for large utility-scale systems and has a
capacity that is greater than 1,000 kilowatts. The capacity of a
central inverter is expressed on an alternating current watt basis. An
inverter is suitable for large utility-scale systems if, in the form
sold by the manufacturer, it is capable of serving as a component in a
large utility-scale system and meets the core engineering
specifications for such application.
(ii) Credit amount. For a central inverter the total rated capacity
of which is expressed on an alternating current watt basis, the credit
amount is equal to the product of 0.25 cents multiplied by the total
rated capacity of the central inverter.
(iii) Substantiation. The taxpayer must document that a central
inverter meets the core engineering specifications for use in a large
utility-scale system and has a capacity that is greater than 1,000
kilowatts with a specification sheet, bill of sale, or other similar
documentation that explicitly describes such specifications and
capacity.
(3) Commercial inverter--(i) Definition. Commercial inverter means
an inverter that--
(A) Is suitable for commercial or utility-scale applications;
(B) Has a rated output of 208, 480, 600, or 800 volt three-phase
power; and
(C) Has a capacity expressed on an alternating current watt basis
that is not less than 20 kilowatts and not greater than 125 kilowatts.
(ii) Suitable for commercial or utility-scale applications. An
inverter is suitable for commercial or utility-scale applications if,
in the form sold by the manufacturer, it is capable of serving as a
component in commercial or utility-scale systems and meets the core
engineering specifications for such application.
(iii) Credit amount. For a commercial inverter the total rated
capacity of which is expressed on an alternating current watt basis,
the credit amount is equal to the product of 2 cents multiplied by the
total rated capacity of the commercial inverter.
(iv) Substantiation. The taxpayer must document that a commercial
inverter meets the core engineering specifications for use in
commercial or utility-scale applications, the inverter's rated output,
and the inverter's capacity in a specification sheet, bill of sale, or
other similar documentation.
(4) Distributed wind inverter--(i) In general. Distributed wind
inverter means an inverter that is used in a residential or non-
residential system that utilizes 1 or more certified distributed wind
energy systems and has a total rated output, expressed on an
alternating current watt basis, of not greater than 150 kilowatts.
(ii) Certified distributed wind energy system. Certified
distributed wind energy system means a wind energy system that is
certified by an accredited certification agency to meet Standard 9.1-
2009 of the American Wind Energy Association; International
Electrotechnical Commission 61400-1, 61400-2, 61400-11, 61400-12; or
ANSI/ACP 101-1-2021, the Small Wind Turbine Standard, including any
subsequent revisions to or modifications of such Standard that have
been approved by the American National Standards Institute.
(iii) Credit amount. For a distributed wind inverter the total
rated capacity of which is expressed on an alternating current watt
basis, the credit amount is equal to the product of 11 cents multiplied
by the total rated capacity of the distributed wind inverter.
(iv) Substantiation. The taxpayer must document that a distributed
wind inverter is used in a residential or non-residential system that
utilizes one or more certified distributed wind energy systems with a
specification sheet, bill of sale, or other similar documentation that
explicitly describes such use and the total rated output of the
inverter on an alternating current watt basis.
(5) Microinverter--(i) Definition. Microinverter means an inverter
that--
(A) Is suitable to connect with one solar module;
(B) Has a rated output described in paragraph (d)(5)(ii) of this
section; and
(C) Has a capacity, expressed on an alternating current watt basis,
that is not greater than 650 watts.
(ii) Rated output. For purposes of paragraph (d)(5)(i)(B) of this
section, for an inverter to be a microinverter, the inverter must have
a rated output of--
[[Page 86865]]
(A) 120 or 240 volt single-phase power; or
(B) 208 or 480 volt three-phase power.
(iii) Suitable to connect to one solar module--(A) In general. An
inverter is suitable to connect to one solar module if, in the form
sold by the manufacturer, it is capable of connecting to one or more
solar modules and regulating the DC electricity from each module
independently before that electricity is converted into alternating
current electricity.
(B) Application to direct current (DC) optimized inverter systems.
A DC optimized inverter system means an inverter that is comprised of
an inverter connected to multiple DC optimizers that are each designed
to connect to one solar module. A DC optimized inverter system is
suitable to connect with one solar module if, in the form sold by the
manufacturer, it is capable of connecting to one or more solar modules
and regulating the DC electricity from each module independently before
that electricity is converted into alternating current electricity.
(C) Application to multi-module inverters. A multi-module inverter
means an inverter that is comprised of an inverter with independent
connections and DC optimizing components for two or more modules. A
multi-module microinverter is suitable to connect with one solar module
if it is capable of connecting to one or more solar modules and
regulating the DC electricity from each module independently before
that electricity is converted into alternating current electricity.
(iv) Credit amount--(A) In general. For a microinverter the total
rated capacity of which is expressed on an alternating current watt
basis, the credit amount is equal to the product of 11 cents multiplied
by the total rated capacity of the microinverter.
(B) DC optimized inverter systems. A DC optimized inverter system
qualifies as a microinverter if it meets the requirements of paragraph
(d)(5)(i) of this section. For purposes of paragraph (d)(5)(i)(C) of
this section, a DC optimized inverter system's capacity is determined
separately for each DC optimizer paired with the inverter in a DC
optimized inverter system. If each DC optimizer paired with the
inverter in a DC optimized inverter system meets the requirements of
paragraph (d)(5)(i) of this section, then the DC optimized inverter
system qualifies as a microinverter. The credit amount for a DC
optimized inverter system that qualifies as a microinverter is equal to
the product of 11 cents multiplied by the lesser of the sum of the
alternating current capacity of each DC optimizer when paired with the
inverter in the DC optimized inverter system or the alternating current
capacity of the inverter in the DC optimized inverter system. For
purposes of this paragraph (d)(5)(iv)(B), capacity must be measured in
watts of alternating current converted from DC electricity by the
inverter in a DC optimized inverter system. For a DC optimized inverter
system to qualify as a microinverter, a taxpayer must produce and sell
the inverter and the DC optimizers in the DC optimized inverter system
together as a combined end product.
(C) Multi-module inverters. A multi-module inverter qualifies as a
microinverter if it meets the requirements of paragraph (d)(5)(i) of
this section. For purposes of paragraph (d)(5)(i)(C) of this section, a
multi-module inverter's capacity is determined separately for each
internal DC optimizer paired with the inverter. The credit amount for a
multi-module inverter is equal to the product of 11 cents multiplied by
the total alternating current capacity of the DC optimizers in the
multi-module inverter when paired with the inverter in the system. For
purposes of this paragraph (d)(5)(iv)(C), capacity must be measured in
watts of alternating current converted from DC electricity by the
inverter in a multi-module microinverter.
(v) Substantiation. The taxpayer must document that a microinverter
meets the core engineering specifications to be suitable to connect
with one solar module, the inverter's rated output, and the inverter's
capacity in a specification sheet, bill of sale, or other similar
documentation. In the case of a DC optimized inverter system, the
taxpayer must also document that the DC optimizers and the inverter in
such system were sold as a combined end product.
(6) Residential inverter--(i) Definition. Residential inverter
means an inverter that--
(A) Is suitable for a residence;
(B) Has a rated output of 120 or 240 volt single-phase power; and
(C) Has a capacity expressed on an alternating current watt basis
that is not greater than 20 kilowatts.
(ii) Suitable for a residence. An inverter is suitable for a
residence if, in the form sold by the manufacturer, it is capable of
serving as a component in a residential system and meets the core
engineering specifications for such application.
(iii) Credit amount. For a residential inverter the total rated
capacity of which is expressed on an alternating current watt basis,
the credit amount is equal to the product of 6.5 cents multiplied by
the total rated capacity of the residential inverter.
(iv) Substantiation. The taxpayer must document that a residential
inverter meets the core engineering specifications for use in a
residence, the inverter's rated output, and the inverter's capacity in
a specification sheet, bill of sale, or other similar documentation.
(7) Utility inverter--(i) Definition. Utility inverter means an
inverter that--
(A) Is suitable for commercial or utility-scale systems;
(B) Has a rated output of not less than 600 volt three-phase power;
and
(C) Has a capacity expressed on an alternating current watt basis
that is greater than 125 kilowatts and not greater than 1000 kilowatts.
(ii) Suitable for commercial or utility-scale systems. An inverter
is suitable for commercial or utility-scale systems if, in the form
sold by the manufacturer, it is capable of serving as a component in
such systems and meets the core engineering specifications for such
application.
(iii) Credit amount. For a utility inverter the total rated
capacity of which is expressed on an alternating current watt basis,
the credit amount is equal to the product of 1.5 cents multiplied by
the total rated capacity of the utility inverter.
(iv) Substantiation. The taxpayer must document that a utility
inverter meets the core engineering specifications for use in
commercial or utility-scale systems, the inverter's rated output, and
the inverter's capacity in a specification sheet, bill of sale, or
other similar documentation.
(e) Qualifying battery component--(1) In general. Qualifying
battery component means electrode active materials, battery cells, or
battery modules, each as defined in this paragraph (e).
(2) Electrode active materials--(i) Definitions--(A) Electrode
active materials. Electrode active materials means cathode electrode
materials, anode electrode materials, and electrochemically active
materials that contribute to the electrochemical processes necessary
for energy storage. Electrode active materials do not include battery
management systems, terminal assemblies, cell containments, gas release
valves, module containments, module connectors, compression plates,
straps, pack terminals, bus bars, thermal management systems, and pack
jackets.
(B) Cathode electrode materials. Cathode electrode materials means
the
[[Page 86866]]
materials that comprise the cathode of a commercial battery technology,
such as binders, and current collectors (for example, cathode foils).
(C) Anode electrode materials. Anode electrode materials means the
materials that comprise the anode of a commercial battery technology,
including anode foils.
(D) Electrochemically active materials. Electrochemically active
materials that contribute to the electrochemical processes necessary
for energy storage means battery-grade materials that enable the
electrochemical storage within a commercial battery technology. In
addition to solvents, additives, and electrolyte salts,
electrochemically active materials that contribute to the
electrochemical processes necessary for energy storage may include
electrolytes, catholytes, anolytes, separators, and metal salts and
oxides.
(E) Example. A commercial battery technology contains Cathode
Active Material (CAM), which is a powder used in the battery that is
made by processing and combining Battery-Grade Materials A and B.
Battery-Grade Material A is a derivative of Material C, which has been
refined to the necessary level to enable electrochemical storage. The
production costs for CAM and its direct inputs (Battery-Grade Material
A and Battery-Grade Material B) are eligible for the section 45X credit
for electrode active materials, but the unrefined Material C is not.
(F) Battery-grade materials. Battery-grade materials means the
processed materials found in a final battery cell or an analogous unit,
or the direct battery-grade precursors to those processed materials.
(ii) Credit amount. For an electrode active material, the credit
amount is equal to 10 percent of the costs incurred by the taxpayer
with respect to production of such materials.
(iii) Production processes for electrode active materials--(A)
Conversion. For purposes of section 45X, the term conversion means a
chemical transformation from one species to another.
(B) Purification. For purposes of section 45X, the term
purification means increasing the mass fraction of a certain element.
(iv) Production costs incurred. Costs incurred by the taxpayer with
respect to production of electrode active materials includes all costs
as defined in Sec. 1.263A-1(e) that are paid or incurred within the
meaning of section 461 of the Code by the taxpayer for the production
of an electrode active material only, except direct materials costs as
defined in Sec. 1.263A-1(e)(2)(i)(A), or indirect materials costs as
defined in Sec. 1.263A-1(e)(3)(ii)(E), and any costs related to the
extraction of raw materials. Section 263A of the Code and the
regulations in this chapter under section 263A apply solely to identify
the types of costs that are includible in production costs incurred for
purposes of computing the amount of the section 45X credit, but do not
apply for any other purpose, such as to determine whether a taxpayer is
engaged in production activities.
(v) Materials that are both electrode active materials and
applicable critical minerals--(A) In general. A material that qualifies
as an electrode active material and an applicable critical material is
eligible for the section 45X credit. A taxpayer may claim the section
45X credit with respect to such material either as an electrode active
material or an applicable critical material, but not both.
(B) Example. Lithium carbonate is an electrode active material
because it is a direct battery-grade precursor to electrolyte salts,
which are processed materials found in a final battery cell. Lithium
carbonate is also eligible for the 45X critical minerals credit. A
taxpayer who produces and sells lithium carbonate may claim either the
electrode active material credit or the critical mineral credit for its
production and sale of lithium carbonate but may not take both credits.
(3) Battery cells--(i) Definition. Battery cell means an
electrochemical cell--
(A) Comprised of one or more positive electrodes and one or more
negative electrodes;
(B) With an energy density of not less than 100 watt-hours per
liter; and
(C) Capable of storing at least 12 watt-hours of energy.
(ii) Capacity measurement. Taxpayers must measure the capacity of a
battery cell in accordance with a national or international standard,
such as IEC 60086-1 (Primary Batteries), or an equivalent standard.
Taxpayers can reference the United States Advanced Battery Consortium
(USABC) Battery Test Manual for additional guidance.
(iii) Credit amount. For a battery cell, the credit amount is equal
to the product of $35 multiplied by the capacity of such battery cell,
subject to the limitation provided in paragraph (e)(5) of this section.
The capacity of a battery cell is expressed on a kilowatt-hour basis.
(4) Battery module definitions and applicable rules--(i) Battery
module defined. The term battery module means a module described in
paragraph (e)(4)(i)(A) or (B) of this section with an aggregate
capacity of not less than 7 kilowatt-hours (or, in the case of a module
for a hydrogen fuel cell vehicle, not less than 1 kilowatt-hour).
(A) Modules using battery cells. A module using battery cells, is a
module with two or more battery cells that are configured electrically,
in series or parallel, to create voltage or current, as appropriate, to
a specified end use, meaning an end-use configuration of battery
technologies. An end-use configuration is the product that ultimately
serves a specified end use. It is the collection of interconnected
cells, configured to that specific end-use and interconnected with the
necessary hardware and software required to deliver the required energy
and power (voltage and current) for that use.
(B) Modules with no battery cells. A module with no battery cells
means a product with a standardized manufacturing process and form that
is capable of storing and dispatching useful energy, that contains an
energy storage medium that remains in the module (for example, it is
not consumed through combustion), and that is not a custom-built
electricity generation or storage facility. For example, neither
standalone fuel storage tanks nor fuel tanks connected to engines or
generation systems qualify as modules with no battery cells.
(ii) Capacity measurement--(A) Modules using battery cells.
Taxpayers must measure the capacity of a module using battery cells
with a testing procedure that complies with a national or international
standard published by a recognized standard setting organization. The
capacity of a battery module may not exceed the total capacity of the
battery cells in the module. Taxpayers must measure the capacity of a
battery cell in accordance with a national or international standard,
such as IEC 60086-1 (Primary Batteries), or an equivalent standard.
Taxpayers can reference the USABC Battery Test Manual for additional
guidance.
(B) Modules with no battery cells. Taxpayers must measure the
capacity of a module with no battery cells with a testing procedure
that complies with a national or international standard published by a
recognized standard setting organization. If no such standard applies
to a type of module with no battery cells, taxpayers must measure the
capacity of such module as the Secretary may prescribe in regulations
or other guidance.
(iii) Credit amount--(A) Modules using battery cells. For a battery
module with cells, the credit amount is equal to the product of $10
multiplied by the
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capacity of such battery module, subject to the limitation provided in
paragraph (e)(5) of this section. The capacity of each battery module
is expressed on a kilowatt-hour basis.
(B) Modules with no battery cells. For a battery module without
cells, the credit amount is equal to the product of $45 multiplied by
the capacity of such battery module, subject to the limitation provided
in paragraph (e)(5) of this section. The capacity of each battery
module is expressed on a kilowatt-hour basis.
(5) Limitation on capacity of battery cells and battery modules--
(i) In general. For purposes of paragraphs (e)(3)(iii) and (e)(4)(iii)
of this section, the capacity determined with respect to a battery cell
or battery module must not exceed a capacity-to-power ratio of 100:1.
(ii) Capacity to power ratio. For purposes of paragraph (e)(5)(i)
of this section, capacity-to-power ratio means, with respect to a
battery cell or battery module, the ratio of the capacity of such cell
or module to the maximum discharge amount of such cell or module.
(f) Phase out rule--(1) In general. Except as provided in paragraph
(f)(3) of this section, in the case of any eligible component sold
after December 31, 2029, the amount of the section 45X credit
determined with respect to such eligible component must be equal to the
product of--
(i) The amount determined under this section with respect to such
eligible component, multiplied by;
(ii) The phase out percentage under paragraph (f)(2) of this
section.
(2) Phase out percentages. The phase out percentage is equal to 75
percent for eligible components sold during calendar year 2030; 50
percent for eligible components sold during calendar year 2031; 25
percent for eligible components sold during calendar year 2032, and
zero percent for eligible components sold after calendar year 2032.
(3) Exception for applicable critical minerals. The phase out rules
described in paragraphs (f)(1) and (2) of this section apply to all
eligible components except applicable critical minerals.
(g) Severability. The provisions of this section are separate and
severable from one another. If any provision of this section is stayed
or determined to be invalid, it is the agencies' intention that the
remaining provisions shall continue in effect.
(h) Applicability date. This section applies to eligible components
for which production is completed and sales occur after December 31,
2022, and during a taxable year ending on or after [date of publication
of the final regulations in the Federal Register].
Sec. 1.45X-4 Applicable critical minerals.
(a) In general. The term applicable critical mineral means any of
the minerals that are listed in section 45X(c)(6) and defined in
paragraph (b) of this section.
(b) Definitions--(1) Aluminum. The term commodity-grade aluminum
means aluminum that has been produced directly from aluminum described
in paragraph (b)(1)(i) or (ii) of this section and is in a form that is
sold on international commodity exchanges. The term aluminum means
aluminum, including commodity-grade aluminum, that is--
(i) Converted from bauxite to a minimum purity of 99 percent
alumina by mass; or
(ii) Purified to a minimum purity of 99.9 percent aluminum by mass.
(2) Antimony. The term antimony means antimony that is--
(i) Converted to antimony trisulfide concentrate with a minimum
purity of 90 percent antimony trisulfide by mass; or
(ii) Purified to a minimum purity of 99.65 percent antimony by
mass.
(3) Barite. The term barite means barite that is barium sulfate
purified to a minimum purity of 80 percent barite by mass.
(4) Beryllium. The term beryllium means beryllium that is--
(i) Converted to copper-beryllium master alloy; or
(ii) Purified to a minimum purity of 99 percent beryllium by mass.
(5) Cerium. The term cerium means cerium that is--
(i) Converted to cerium oxide that is purified to a minimum purity
of 99.9 percent cerium oxide by mass; or
(ii) Purified to a minimum purity of 99 percent cerium by mass.
(6) Cesium. The term cesium means cesium that is--
(i) Converted to cesium formate or cesium carbonate; or
(ii) Purified to a minimum purity of 99 percent cesium by mass.
(7) Chromium. The term chromium means chromium that is--
(i) Converted to ferrochromium consisting of not less than 60
percent chromium by mass; or
(ii) Purified to a minimum purity of 99 percent chromium by mass.
(8) Cobalt. The term cobalt means cobalt that is--
(i) Converted to cobalt sulfate; or
(ii) Purified to a minimum purity of 99.6 percent cobalt by mass.
(9) Dysprosium. The term dysprosium means dysprosium that is--
(i) Converted to not less than 99 percent pure dysprosium iron
alloy by mass; or
(ii) Purified to a minimum purity of 99 percent dysprosium by mass.
(10) Europium. The term europium means europium that is--
(i) Converted to europium oxide that is purified to a minimum
purity of 99.9 percent europium oxide by mass; or
(ii) Purified to a minimum purity of 99 percent of europium by
mass.
(11) Fluorspar. The term fluorspar means fluorspar that is--
(i) Converted to fluorspar that is purified to a minimum purity of
97 percent calcium fluoride by mass; or
(ii) Purified to a minimum purity of 99 percent fluorspar by mass.
(12) Gadolinium. The term gadolinium means gadolinium that is--
(i) Converted to gadolinium oxide that is purified to a minimum
purity of 99.9 percent gadolinium oxide by mass; or
(ii) Purified to a minimum purity of 99 percent gadolinium by mass.
(13) Germanium. The term germanium means germanium that is--
(i) Converted to germanium tetrachloride; or
(ii) Purified to a minimum purity of 99.99 percent germanium by
mass.
(14) Graphite. The term graphite means natural or synthetic
graphite that is purified to a minimum purity of 99.9 percent graphitic
carbon by mass. The term 99.9 percent graphitic carbon by mass means
graphite that is 99.9 percent carbon by mass.
(15) Indium. The term indium means indium that is--
(i) Converted to--
(A) Indium tin oxide; or
(B) Indium oxide that is purified to a minimum purity of 99.9
percent indium oxide by mass; or
(ii) Purified to a minimum purity of 99 percent indium by mass.
(16) Lithium. The term lithium means lithium that is--
(i) Converted to lithium carbonate or lithium hydroxide; or
(ii) Purified to a minimum purity of 99.9 percent lithium by mass.
(17) Manganese. The term manganese means manganese that is--
(i) Converted to manganese sulphate; or
(ii) Purified to a minimum purity of 99.7 percent manganese by
mass.
(18) Neodymium. The term neodymium means neodymium that is--
(i) Converted to neodymium-praseodymium oxide that is purified to a
minimum purity of 99 percent neodymium-praseodymium oxide by mass;
(ii) Converted to neodymium oxide that is purified to a minimum
purity of
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99.5 percent neodymium oxide by mass; or
(iii) Purified to a minimum purity of 99.9 percent neodymium by
mass.
(19) Nickel. The term nickel means nickel that is--
(i) Converted to nickel sulphate; or
(ii) Purified to a minimum purity of 99 percent nickel by mass.
(20) Niobium. The term niobium means niobium that is--
(i) Converted to ferronibium; or
(ii) Purified to a minimum purity of 99 percent niobium by mass.
(21) Tellurium. The term tellurium means tellurium that is--
(i) Converted to cadmium telluride; or
(ii) Purified to a minimum purity of 99 percent tellurium by mass.
(22) Tin. The term tin means tin that purified to low alpha
emitting tin that--
(i) Has a purity of greater than 99.99 percent by mass; and
(ii) Possesses an alpha emission rate of not greater than 0.01
counts per hour per centimeter square.
(23) Tungsten. The term tungsten means tungsten that is converted
to ammonium paratungstate or ferrotungsten.
(24) Vanadium. The term vanadium means vanadium that is converted
to ferrovanadium or vanadium pentoxide.
(25) Yttrium. The term yttrium means yttrium that is--
(i) Converted to yttrium oxide that is purified to a minimum purity
of 99.999 percent yttrium oxide by mass; or
(ii) Purified to a minimum purity of 99.9 percent yttrium by mass.
(26) Other minerals. The following minerals are also applicable
critical minerals provided that such mineral is purified to a minimum
purity of 99 percent by mass:
(i) Arsenic.
(ii) Bismuth.
(iii) Erbium.
(iv) Gallium.
(v) Hafnium.
(vi) Holmium.
(vii) Iridium.
(viii) Lanthanum.
(ix) Lutetium.
(x) Magnesium.
(xi) Palladium.
(xii) Platium.
(xiii) Praseodymium.
(xiv) Rhodium.
(xv) Rubidium.
(xvi) Ruthemium.
(xvii) Samarium.
(xviii) Scandium.
(xix) Tantalum.
(xx) Terbium.
(xxi) Thulium.
(xxii) Titanium.
(xxiii) Ytterbium.
(xxiv) Zinc.
(xxv) Zirconium.
(c) Credit amount--(1) In general. For any applicable critical
mineral, the credit amount is equal to 10 percent of the costs incurred
by the taxpayer with respect to production of such mineral.
(2) Production processes for applicable critical minerals--(i)
Conversion. For purposes of section 45X, the term conversion means a
chemical transformation from one species to another.
(ii) Purification. For purposes of section 45X, the term
purification means increasing the mass fraction of a certain element.
(3) Production costs incurred. Costs incurred by the taxpayer with
respect to the production of applicable critical minerals includes all
costs as defined in Sec. 1.263A-1(e) that are paid or incurred within
the meaning of section 461 of the Code by the taxpayer for the
production of an applicable critical mineral only, except direct or
indirect materials costs as defined in Sec. 1.263A-1(e)(2)(i)(A) and
(e)(3)(ii)(E), respectively, and any costs related to the extraction of
raw materials. Section 263A of the Code and the regulations in this
chapter under section 263A apply solely to identify the types of costs
that are includible in production costs incurred for purposes of
computing the amount of the section 45X credit, but do not apply for
any other purpose, such as to determine whether a taxpayer is engaged
in production activities.
(4) Substantiation. The taxpayer must document that an applicable
critical mineral meets the requirements of section 45X(c)(6) with a
certificate of analysis provided by the taxpayer to the person to which
the taxpayer sold the applicable critical mineral.
(d) Severability. The provisions of this section are separate and
severable from one another. If any provision of this section is stayed
or determined to be invalid, it is the agencies' intention that the
remaining provisions shall continue in effect.
(e) Applicability date. This section applies to eligible components
for which production is completed and sales occur after December 31,
2022, and during a taxable year ending on or after [date of publication
of the final regulations in the Federal Register].
Douglas W. O'Donnell,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2023-27498 Filed 12-14-23; 8:45 am]
BILLING CODE 4830-01-P