[Federal Register Volume 89, Number 88 (Monday, May 6, 2024)]
[Rules and Regulations]
[Pages 37706-37775]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-09094]
[[Page 37705]]
Vol. 89
Monday,
No. 88
May 6, 2024
Part V
Department of the Treasury
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Internal Revenue Service
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26 CFR Parts 1 and 301
Clean Vehicle Credits Under Sections 25E and 30D; Transfer of Credits;
Critical Minerals and Battery Components; Foreign Entities of Concern;
Final Rule
Federal Register / Vol. 89, No. 88 / Monday, May 6, 2024 / Rules and
Regulations
[[Page 37706]]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 301
[TD 9995]
RIN 1545-BQ52; RIN 1545-BQ86; RIN 1545-BQ99
Clean Vehicle Credits Under Sections 25E and 30D; Transfer of
Credits; Critical Minerals and Battery Components; Foreign Entities of
Concern
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
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SUMMARY: This document contains final regulations regarding Federal
income tax credits under the Inflation Reduction Act of 2022 (IRA) for
the purchase of qualifying new and previously-owned clean vehicles,
including new and previously-owned plug-in electric vehicles powered by
an electric battery meeting certain requirements and new qualified fuel
cell motor vehicles. In addition, the final regulations provide
guidance for taxpayers who purchase qualifying vehicles and intend to
transfer the amount of any previously-owned clean vehicle credit or new
clean vehicle credit to dealers that are entities eligible to receive
advance payments of either credit. The final regulations also provide
guidance for dealers to become eligible entities to receive advance
payments of previously-owned clean vehicle credits or new clean vehicle
credits, and rules regarding recapture of the credits. Finally, the
final regulations provide guidance on the meaning of three new
definitions added to the exclusive list of mathematical or clerical
errors relating to certain assessments of tax without a notice of
deficiency.
DATES:
Effective date: These regulations are effective on July 5, 2024.
Applicability dates: For dates of applicability, see Sec. Sec.
1.25E-1(h), 1.25E-2(i), 1.25E-3(k), 1.30D-1(d), 1.30D-2(d), 1.30D-3(h),
1.30D-4(j), 1.30D-5(k), 1.30D-6(j), and 301.6213-2(c).
FOR FURTHER INFORMATION CONTACT: Rika Valdman or Maggie Stehn of the
Office of Associate Chief Counsel (Passthroughs & Special Industries)
at (202) 317-6853 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments to the Income Tax Regulations (26
CFR part 1) under sections 25E and 30D of the Internal Revenue Code
(Code), and to the Procedure and Administration Regulations (26 CFR
part 301) under section 6213 of the Code.
I. Section 25E
Section 13402 of Public Law 117-169, 136 Stat. 1818 (August 16,
2022), commonly known as the IRA, added section 25E to the Code. The
credit under section 25E (section 25E credit) is a personal credit
allowable under subpart A of the Code.
Section 25E(a) provides that, in the case of a qualified buyer who
during a taxable year places in service a previously-owned clean
vehicle, an income tax credit is allowed for the taxable year equal to
the lesser of: (1) $4,000, or (2) the amount equal to 30 percent of the
sale price with respect to such vehicle.
Section 25E(b)(1) sets a limitation based on modified adjusted
gross income (Modified AGI) and provides that no credit is allowed for
any taxable year if (A) the lesser of (i) the Modified AGI of the
taxpayer for such taxable year, or (ii) the Modified AGI of the
taxpayer for the preceding taxable year, exceeds (B) the threshold
amount. The threshold amount is set forth in section 25E(b)(2) and
varies based on a taxpayer's filing status. In the case of a taxpayer
filing a joint return or who is a surviving spouse (as defined in
section 2(a) of the Code), the threshold amount is $150,000. In the
case of a taxpayer who is a head of household (as defined in section
2(b)), the threshold amount is $112,500. In the case of any other
taxpayer, the threshold amount is $75,000. Section 25E(b)(3) defines
Modified AGI as adjusted gross income (AGI) increased by any amount
excluded from gross income under section 911, 931, or 933 of the Code.
Section 25E(c) defines certain terms for purposes of the section
25E credit. Section 25E(c)(1) defines ``previously-owned clean
vehicle'' as a motor vehicle:
(A) the model year of which is at least 2 years earlier than the
calendar year in which the taxpayer acquires such vehicle;
(B) the original use of which commences with a person other than
the taxpayer;
(C) that is acquired by the taxpayer in a qualified sale; and
(D) that (i) meets the requirements of section 30D(d)(1)(C), (D),
(E), (F), and (H) (except for section 30D(d)(1)(H)(iv)), or (ii) is a
motor vehicle that (I) satisfies the requirements under section
30B(b)(3)(A) and (B), and (II) has a gross vehicle weight rating (GVWR)
of less than 14,000 pounds.
Section 25E(c)(2) defines a ``qualified sale'' as a sale of a motor
vehicle (A) by a dealer (as defined in section 30D(g)(8)); (B) for a
sale price that does not exceed $25,000; and (C) that is the first
transfer since the date of enactment of the IRA to a qualified buyer
other than the person with whom the original use of such vehicle
commenced.
Under section 25E(c)(3), ``qualified buyer'' means, with respect to
a sale of a motor vehicle, a taxpayer (A) who is an individual; (B) who
purchases such vehicle for use and not for resale; (C) with respect to
whom no deduction is allowable with respect to another taxpayer under
section 151 of the Code; and (D) who has not been allowed a section 25E
credit for any sale during the 3-year period ending on the date of the
sale of such vehicle.
Section 25E(c)(4) defines ``motor vehicle'' and ``capacity'' to
have the meaning given such terms in section 30D(d)(2) and (4),
respectively.
Section 25E(d) provides that no credit is allowed under section
25E(a) with respect to any vehicle unless the taxpayer includes the
vehicle identification number (VIN) of such vehicle on the return of
tax for the taxable year.
Section 25E(e) and (f) provide, respectively, that rules similar to
the rules of section 30D(f) (without regard to paragraph (10) or (11)
thereof) and the rules of section 30D(g) apply for purposes of section
25E. Section 13402(e)(2) of the IRA provides that the ability of a
taxpayer to elect to transfer a section 25E credit under section 25E(f)
applies to vehicles placed in service by the taxpayer after December
31, 2023.
Section 25E(g) provides that no section 25E credit is allowed with
respect to a vehicle acquired after December 31, 2032.
II. Section 30D
A. In General
Section 30D(a) provides a credit (section 30D credit) with respect
to each new clean vehicle that a taxpayer purchases and places in
service. The credit is determined and allowable with respect to the
taxable year in which the taxpayer places the new clean vehicle in
service.
Section 30D was originally enacted by section 205(a) of the Energy
Improvement and Extension Act of 2008, Division B of Public Law 110-
343, 122 Stat. 3765, 3835 (October 3, 2008), to provide a credit for
the purchase and placing in service of new qualified plug-in electric
drive motor vehicles. Section 30D has been amended several times
[[Page 37707]]
since its enactment, most recently by section 13401 of the IRA.
The amount of the section 30D credit is treated as a personal
credit or a general business credit, depending on the character of the
vehicle. In general, the section 30D credit is treated as a personal
credit allowable under subpart A of the Code. Section 30D(c)(2).
However, the amount of the section 30D credit that is attributable to
property that is of a character subject to an allowance for
depreciation is treated as a current year business credit under section
38(b) instead of being allowed under section 30D(a). Section 30D(c)(1).
Section 38(b)(30) lists as a current year business credit the portion
of the section 30D credit to which section 30D(c)(1) applies. The IRA
did not amend section 30D(c)(1) or (2).
B. IRA Amendments to Section 30D
1. Credit Amount and Critical Minerals and Battery Components
Requirements
The IRA amends the rules for determining the amount of the section
30D credit. Prior to the amendments to section 30D made by section
13401(a) and (e) of the IRA, the amount of the section 30D credit was
calculated based on the vehicle's battery capacity. The base amount was
$2,500, plus $417 for a battery with a capacity of at least 5 kilowatt
hours, and an additional $417 for each kilowatt hour of capacity in
excess of 5 kilowatt hours, up to a maximum credit of $7,500 per
vehicle. Section 13401(a) of the IRA amends section 30D(b) to provide a
maximum credit of $7,500 per vehicle, consisting of $3,750 in the case
of a vehicle that meets certain requirements relating to critical
minerals and $3,750 in the case of a vehicle that meets certain
requirements relating to battery components. The amendments made by
section 13401(a) of the IRA apply to vehicles placed in service after
the date on which the Secretary of the Treasury or her delegate
(Secretary) issues proposed guidance described in new section
30D(e)(3)(B) of the Code relating to the new critical minerals
requirements described in new section 30D(e)(1)(A) (Critical Minerals
Requirement) and the new battery components requirements described in
new section 30D(e)(2)(A) (Battery Components Requirement). See section
13401(k)(3) of the IRA.
New section 30D(e)(1)(A) provides that the Critical Minerals
Requirement with respect to the battery from which the electric motor
of a vehicle draws electricity is satisfied if the percentage of the
value of the applicable critical minerals (as defined in section
45X(c)(6) of the Code) contained in such battery that were (i)
extracted or processed in the United States, or in any country with
which the United States has a free trade agreement in effect, or (ii)
recycled in North America, is equal to or greater than the applicable
percentage (as certified by the qualified manufacturer, in such form or
manner as prescribed by the Secretary). The applicable percentage for
the Critical Minerals Requirement is set forth in section
30D(e)(1)(B)(i) through (v), and varies based on when the vehicle is
placed in service. In the case of a vehicle placed in service after the
date of issuance of the proposed guidance described in new section
30D(e)(3)(B) and before January 1, 2024, the applicable percentage is
40 percent. In the case of a vehicle placed in service during calendar
year 2024, 2025, and 2026, the applicable percentage is 50 percent, 60
percent, and 70 percent, respectively. In the case of a vehicle placed
in service after December 31, 2026, the applicable percentage is 80
percent.
New section 30D(e)(2)(A) provides that the Battery Components
Requirement with respect to the battery from which the electric motor
of a vehicle draws electricity is satisfied if the percentage of the
value of the components contained in such battery that were
manufactured or assembled in North America is equal to or greater than
the applicable percentage (as certified by the qualified manufacturer,
in such form or manner as prescribed by the Secretary). The applicable
percentage for the Battery Components Requirement is set forth in
section 30D(e)(2)(B)(i) through (vi) and varies based on when the
vehicle is placed in service. In the case of a vehicle placed in
service after the date of issuance of the proposed guidance described
in new section 30D(e)(3)(B) of the Code and before January 1, 2024, the
applicable percentage is 50 percent. In the case of a vehicle placed in
service during calendar year 2024 or 2025, the applicable percentage is
60 percent. In the case of a vehicle placed in service during calendar
year 2026, 2027, and 2028, the applicable percentage is 70 percent, 80
percent, and 90 percent, respectively. In the case of a vehicle placed
in service after December 31, 2028, the applicable percentage is 100
percent.
2. New Clean Vehicle Definition
Section 13401(c) of the IRA amends section 30D(d) of the Code by
making the credit applicable to ``new clean vehicles,'' instead of
``new qualified plug-in electric drive motor vehicles.'' This amendment
is applicable to vehicles placed in service after December 31, 2022. As
amended by section 13401(c) and (g)(2) of the IRA, section 30D(d)(1) of
the Code defines a ``new clean vehicle'' as a motor vehicle that
satisfies the eight requirements set forth in section 30D(d)(1)(A)
through (H) of the Code: the original use of the motor vehicle must
commence with the taxpayer; the motor vehicle must be acquired for use
or lease by the taxpayer and not for resale; the motor vehicle must be
made by a qualified manufacturer; the motor vehicle must be treated as
a motor vehicle for purposes of title II of the Clean Air Act; the
motor vehicle must have a gross vehicle weight rating of less than
14,000 pounds; the motor vehicle must be propelled to a significant
extent by an electric motor that draws electricity from a battery that
has a capacity of not less than 7 kilowatt hours, and is capable of
being recharged from an external source of electricity; the final
assembly of the motor vehicle must occur within North America; and the
person who sells any vehicle to the taxpayer must furnish a report to
the taxpayer and to the Secretary, at such time and in such manner as
the Secretary provides, containing specifically enumerated items.
With respect to the requirement that the motor vehicle must be made
by a qualified manufacturer, the IRA creates new requirements for
manufacturers of vehicles eligible for the section 30D credit that are
applicable to vehicles placed in service after December 31, 2022. As
amended by section 13401(c) of the IRA, section 30D(d)(3) of the Code
defines a ``qualified manufacturer'' as any manufacturer (within the
meaning of the regulations prescribed by the Administrator of the
Environmental Protection Agency (EPA) for purposes of the
administration of title II of the Clean Air Act (42 U.S.C. 7521 et
seq.)) that enters into a written agreement with the Secretary under
which such manufacturer agrees to make periodic written reports to the
Secretary (at such times and in such manner as the Secretary may
provide) providing vehicle identification numbers and such other
information related to each vehicle manufactured by such manufacturer
as the Secretary may require.
The IRA requires new clean vehicles to undergo final assembly in
North America to be eligible for the section 30D credit. This
requirement is applicable to vehicles sold after August 16, 2022. See
section 13401(k)(2) of the IRA. New section 30D(d)(5) defines ``final
assembly'' as the process by which a manufacturer produces a new
[[Page 37708]]
clean vehicle at, or through the use of, a plant, factory, or other
place from which the vehicle is delivered to a dealer or importer with
all component parts necessary for the mechanical operation of the
vehicle included with the vehicle, whether or not the component parts
are permanently installed in or on the vehicle.
The IRA provides that certain fuel cell vehicles may qualify for
the section 30D credit. Section 13401(c) of the IRA adds new section
30D(d)(6) to the Code, which includes in the definition of the term
``new clean vehicle'' applicable to vehicles placed in service after
December 31, 2022, any ``new qualified fuel cell motor vehicle'' (as
defined in section 30B(b)(3)) that meets the requirements under section
30D(d)(1)(G) and (H) (North American final assembly and seller
reporting requirements).
The IRA disqualifies certain vehicles from the section 30D credit
if the battery of the vehicle contains critical minerals or battery
components from a foreign entity of concern (FEOC). As amended by
section 13401(e) of the IRA, section 30D(d)(7) of the Code excludes,
after certain specified dates, vehicles placed in service with
batteries containing certain critical minerals or battery components
from a FEOC from the definition of the term ``new clean vehicle.'' In
particular, amended section 30D(d)(7) (FEOC Restriction) provides that
the term ``new clean vehicle'' does not include (A) any vehicle placed
in service after December 31, 2024, with respect to which any of the
applicable critical minerals contained in the battery of such vehicle
(as described in section 30D(e)(1)(A)) were extracted, processed, or
recycled by a FEOC (as defined in section 40207(a)(5) of the
Infrastructure Investment and Jobs Act (42 U.S.C. 18741(a)(5))), or (B)
any vehicle placed in service after December 31, 2023, with respect to
which any of the components contained in the battery of such vehicle
(as described in section 30D(e)(2)(A)) were manufactured or assembled
by a FEOC (as so defined).
3. Elimination of Phaseout
The IRA eliminates the phaseout of the section 30D credit for
vehicles made by manufacturers that have sold at least 200,000 vehicles
eligible for the credit for use in the United States after December 31,
2009. Pursuant to section 13401(d) of the IRA this limitation does not
apply to vehicles sold after December 31, 2022. See section 13401(k)(5)
of the IRA.
4. Special Rules
The IRA adds four new special rules under section 30D(f) applicable
to vehicles placed in service after December 31, 2022. First, section
30D(f)(8) permits only one section 30D credit to be claimed for each
VIN. Second, section 30D(f)(9) requires taxpayers to include on the
taxpayer's return for the taxable year the VIN of the vehicle for which
the section 30D credit is claimed.
Third, section 30D(f)(10) denies the section 30D credit to certain
high-income taxpayers. More specifically, section 30D(f)(10)(A)
provides that no credit is allowed for any taxable year if (i) the
lesser of (I) the Modified AGI of the taxpayer for such taxable year,
or (II) the Modified AGI of the taxpayer for the preceding taxable
year, exceeds (ii) the threshold amount. New section 30D(f)(10)(B)
provides that the threshold amount is: (i) in the case of a joint
return or a surviving spouse (as defined in section 2(a) of the Code),
$300,000, (ii) in the case of a head of household (as defined in
section 2(b) of the Code), $225,000, and (iii) in the case of any other
taxpayer, $150,000. New section 30D(f)(10)(C) defines Modified AGI as
AGI increased by any amount excluded from gross income under sections
911, 931, or 933.
Fourth, section 30D(f)(11) excludes from the section 30D credit
vehicles that exceed certain manufacturer's suggested retail price
(MSRP) thresholds. New section 30D(f)(11)(A) provides that no credit is
allowed for a vehicle if the MSRP of the vehicle exceeds the applicable
limitation. New section 30D(f)(11)(B) provides that the applicable
limitation for each vehicle classification is as follows: in the case
of a van, $80,000; in the case of a sport utility vehicle, $80,000; in
the case of a pickup truck, $80,000; and in the case of any other
vehicle, $55,000. New section 30D(f)(11)(C) authorizes the Secretary to
prescribe such regulations or other guidance as the Secretary
determines necessary to determine vehicle classifications using
criteria similar to that employed by the EPA and the Department of the
Energy (DOE) to determine size and class of vehicles.
5. Transfer of Credit
The IRA added new section 30D(g) to the Code, which allows the
taxpayer to elect to transfer the section 30D credit in certain
situations for vehicles placed in service after December 31, 2023.
Section 30D(g)(1) provides that subject to such regulations or
other guidance as the Secretary determines necessary, a taxpayer may
elect to transfer a section 30D credit with respect to a new clean
vehicle to an eligible entity (credit transfer election).\1\ If the
taxpayer who acquires a new clean vehicle makes a credit transfer
election under section 30D(g) with respect to such vehicle, the section
30D credit that would otherwise be allowed to such taxpayer with
respect to such vehicle is allowed to the eligible entity specified in
such election (and not the taxpayer).
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\1\ As discussed in section VIII of this Background section, on
October 10, 2023, the Treasury Department and the IRS published a
notice of proposed rulemaking (REG-113064-23) in the Federal
Register (88 FR 70310), that referred to this election as the
``vehicle transfer election.'' However, ``credit transfer election''
is a more descriptive and appropriate term, so these final
regulations adopt the defined term ``credit transfer election'' to
refer to the election by a taxpayer to transfer a section 25E or
section 30D credit to an eligible entity.
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Section 30D(g)(2) defines an ``eligible entity'' with respect to
the vehicle for which the section 30D credit is allowed as the dealer
that sold such vehicle to the taxpayer and that satisfies the following
four requirements set forth in section 30D(g)(2)(A) through (D): (i)
the dealer, subject to section 30D(g)(4), must be registered with the
Secretary for purposes of section 30D(g)(2), at such time, and in such
form and manner, as the Secretary prescribes; (ii) the dealer, prior to
the credit transfer election and not later than at the time of sale,
must have disclosed to the taxpayer purchasing such vehicle the
manufacturer's suggested retail price, the value of the section 30D
credit allowed and any other incentive available for the purchase of
such vehicle, and the amount provided by the dealer to such taxpayer as
a condition of the credit transfer election; (iii) the dealer, not
later than at the time of sale, must have paid the taxpayer (whether in
cash or in the form of a partial payment or down payment for the
purchase of such vehicle) an amount equal to the credit otherwise
allowable to such taxpayer; and (iv) the dealer with respect to any
incentive otherwise available for the purchase of a vehicle for which a
section 30D credit is allowed, including any incentive in the form of a
rebate or discount provided by the dealer or manufacturer, must have
ensured that the availability or use of such incentive does not limit
the ability of a taxpayer to make a credit transfer election, and such
election does not limit the value or use of such incentive.
Section 30D(g)(3) addresses the timing of the transfer and provides
that any credit transfer election cannot be made by the taxpayer any
later than the date on which the vehicle for which the section 30D
credit is allowed is purchased.
[[Page 37709]]
Section 30D(g)(4) provides that upon determination by the Secretary
that a dealer has failed to comply with the requirements described in
section 30D(g)(2), the Secretary may revoke the dealer's registration.
Section 30D(g)(5) provides that with respect to any payment
described in section 30D(g)(2)(C), such payment is not includible in
the gross income of the taxpayer and is not deductible with respect to
the dealer.
Section 30D(g)(6) addresses the application of certain other
requirements to the transfer of credit and provides that in the case of
any credit transfer election with respect to any vehicle: (i) the basis
reduction and no double benefit requirements of section 30D(f)(1) and
(2) apply to the taxpayer who acquired the vehicle in the same manner
as if the section 30D credit determined with respect to such vehicle
were allowed to such taxpayer; (ii) the election in section 30D(f)(6)
to not take the section 30D credit does not apply; and (iii) the VIN
requirement of section 30D(f)(9) is treated as satisfied if the
eligible entity provides the VIN of such vehicle to the Secretary in
such manner as the Secretary may provide.
Section 30D(g)(7)(A) provides for the establishment of a program to
make advance payments to eligible entities in an amount equal to the
cumulative amount of the credits allowed with respect to any vehicles
sold by such entity for which a credit transfer election described in
section 30D(g)(1) has been made. Section 30D(g)(7)(B) provides that
rules similar to the rules of section 6417(d)(6) of the Code apply for
purposes of the advance payment rules, and section 30D(g)(7)(C)
provides that for purposes of 31 U.S.C. 1324, the payments under
section 30D(g)(7)(A) are treated in the same manner as a refund due
from a credit provision referred to in 31 U.S.C. 1324(b)(2).
Section 30D(g)(8) defines the term ``dealer'' as a person licensed
by a State, the District of Columbia, the Commonwealth of Puerto Rico,
any other territory or possession of the United States, an Indian
tribal government, or any Alaska Native Corporation (as defined in
section 3 of the Alaska Native Claims Settlement Act (43 U.S.C.
1602(m)) to engage in the sale of vehicles. Section 30D(g)(9) defines
an ``Indian tribal government'' as the recognized governing body of any
Indian or Alaska Native tribe, band, nation, pueblo, village,
community, component band, or component reservation, individually
identified (including parenthetically) in the list published most
recently as of the date of enactment of section 30D(g) (that is, August
16, 2022) pursuant to section 104 of the Federally Recognized Indian
Tribe List Act of 1994 (25 U.S.C. 5131).
Section 30D(g)(10) provides that in the case of any taxpayer who
has made a credit transfer election with respect to a new clean vehicle
and received a payment from an eligible entity, if the section 30D
credit would otherwise (but for section 30D(g)) not be allowable to
such taxpayer pursuant to the application of the Modified AGI
limitation of section 30D(f)(10), the income tax imposed on such
taxpayer under chapter 1 of the Code for the taxable year in which such
vehicle was placed in service must be increased by the amount of the
payment received by such taxpayer.
Section 13401(k)(4) of the IRA provides that the ability for a
taxpayer to elect to transfer a section 30D credit under section 30D(g)
applies to vehicles placed in service after December 31, 2023.
6. Termination
The IRA added new section 30D(h) to the Code, which provides that
no credit is allowed with respect to any vehicle placed in service
after December 31, 2032.
III. Section 45W
Section 13403(a) of the IRA added section 45W to the Code, which is
effective for vehicles acquired after December 31, 2022, and before
January 1, 2033. A taxpayer can claim a section 45W credit for
purchasing and placing in service a qualified commercial clean vehicle,
as defined in section 45W(c), during the taxable year. Section 45W(e)
provides that no section 45W credit is allowed with respect to any
vehicle unless the taxpayer includes the VIN of such vehicle on the tax
return for the taxable year.
IV. Section 6213(g)(2)
Section 6213(b)(1) authorizes the IRS to make certain assessments
of mathematical or clerical errors without first issuing a notice of
deficiency under section 6213(a). Section 13401(i)(4) of the IRA
amended section 6213(g)(2) to provide the IRS with math error authority
for the omission of a correct VIN required under sections 25E(d),
30D(f)(9), and 45W(e) to be included on a return. See section
6213(g)(2)(T)-(V).
V. Notice 2022-46
On October 24, 2022, the Treasury Department and the IRS published
Notice 2022-46, 2022-43 I.R.B. 306. The notice requested general
comments on issues arising under sections 25E and 30D. Regarding
section 30D, the notice requested specific comments concerning: (1)
definitions; (2) critical minerals; (3) battery components; (4)
applicable values; (5) FEOCs; (6) recordkeeping and reporting; (7) tax-
exempt entities; (8) registered dealers and eligible entities; (9) the
final assembly requirement; (10) vehicle classifications; (11)
elections to transfer and advance payments; and (12) recapture.
Regarding section 25E, the notice requested specific comments
concerning: (1) qualification as a ``previously-owned clean vehicle'';
(2) the rules of section 30D(f) that should be applied under section
25E(e); (3) the rules of section 30D(g) that should be applied under
section 25E; and (4) terms that may require definitions or further
guidance. Stakeholders submitted more than 800 comments in response to
Notice 2022-46. Those comments informed the development of the notices
of proposed rulemaking relating to sections 25E and 30D discussed in
section VII of this Background section.
VI. Revenue Procedures
On December 27, 2022, the Treasury Department and the IRS published
Revenue Procedure 2022-42, 2022-52 I.R.B. 565, which sets forth the
procedures under section 30D(d)(3) for qualified manufacturers to enter
into a written agreement with the Secretary under which such
manufacturer agrees to make periodic written reports to the Secretary
providing VINs and such other information related to each vehicle
manufactured by such manufacturer as the Secretary may require. The
revenue procedure also provides the procedures for persons selling
vehicles to report the information required to be reported to the IRS
in order for such vehicles to be eligible for the section 25E credit or
the section 30D credit.
On October 23, 2023, the Treasury Department and the IRS published
Revenue Procedure 2023-33, 2023-43 I.R.B. 1135. The revenue procedure
sets forth the procedures under sections 25E(f) and 30D(g) for the
transfer of the section 25E credit and the 30D credit from the taxpayer
to an eligible entity. In addition, the revenue procedure supersedes
certain provisions of Rev. Proc. 2022-42.
On December 18, 2023, the Treasury Department and the IRS published
Revenue Procedure 2023-38, 2023-51 I.R.B. 1544. The revenue procedure
provides procedural rules for qualified manufacturers of new clean
vehicles to comply with the reporting, certification, and attestation
requirements regarding the excluded entity restriction, under which the
IRS, with analytical
[[Page 37710]]
assistance from the DOE, will review compliance with the excluded
entity restrictions. In addition, Rev. Proc. 2023-38 updates and
consolidates the procedural rules for qualified manufacturers with
respect to the section 25E credit, the section 30D credit, and the
qualified commercial clean vehicle credit under section 45W. The
revenue procedure supersedes certain provisions of Rev. Proc. 2022-42
and Rev. Proc. 2023-33.
On February 26, 2024, the Treasury Department and the IRS published
Revenue Procedure 2024-12, 2024-9 I.R.B. 677. The revenue procedure
provides a temporary extension of time to submit seller reports to the
IRS under the procedures set out in Rev. Proc. 2022-42 and Rev. Proc.
2023-33 for the transfer of section 25E credits and 30D credits.
VII. Notice 2023-1, Notice 2023-16, and 30D White Paper
On January 17, 2023, the Treasury Department and the IRS published
Notice 2023-1, 2023-3 I.R.B. 373, which describes definitions for
certain terms in section 30D that the Treasury Department and the IRS
intended to include in proposed regulations.
The Treasury Department also released a white paper on the
anticipated direction of the proposed guidance on the Critical Minerals
Requirement and Battery Components Requirement and the process for
determining whether vehicles qualify under these requirements, as of
December 29, 2022. See ``Anticipated Direction of Forthcoming Proposed
Guidance on Critical Mineral and Battery Component Value Calculations
for the New Clean Vehicle Credit,'' Dec. 29, 2022, https://home.treasury.gov/system/files/136/30DWhite-Paper.pdf (last accessed
March 16, 2024).
On February 21, 2023, the Treasury Department and the IRS published
Notice 2023-16, 2023-8 I.R.B. 479, which modifies Notice 2023-1 by
revising the vehicle classification standard that the Treasury
Department and the IRS intended to provide in proposed regulations.
VIII. Notices of Proposed Rulemaking
On April 17, 2023, the Treasury Department and the IRS published a
notice of proposed rulemaking (REG-120080-22) in the Federal Register
(88 FR 23370), containing proposed regulations under section 30D (April
Proposed Regulations). The April Proposed Regulations provided proposed
definitions for certain terms related to section 30D; proposed rules
regarding personal and business use of new clean vehicles and other
special rules; and additional proposed rules related to the Critical
Minerals and Battery Components Requirements of section 30D(e) in
proposed Sec. 1.30D-3.
On October 10, 2023, the Treasury Department and the IRS published
a notice of proposed rulemaking (REG-113064-23) in the Federal Register
(88 FR 70310), which provided proposed guidance for elections to
transfer clean vehicle credits under sections 25E(f) and 30D(g)
(October Proposed Regulations). The October Proposed Regulations
provided proposed guidance for taxpayers intending to transfer the
section 25E credit and the section 30D credit to dealers that are
entities eligible to receive advance payments of such credits. The
October Proposed Regulations also provided proposed guidance for how
dealers become eligible entities to receive advance payments of the
section 25E credit and the section 30D credit. In addition, the October
Proposed Regulations provided proposed guidance regarding basic and
definitional provisions in for section 25E, recapture of the section
25E and section 30D credits, and math error authority under section
6213.
On December 4, 2023, the Treasury Department and the IRS published
a notice of proposed rulemaking (REG-118492-23) in the Federal Register
(88 FR 84098), which provided guidance regarding the excluded entities
limitation of section 30D(d)(7) (December Proposed Regulations). The
December Proposed Regulations provided proposed definitions and
proposed rules for qualified manufacturers of vehicles to determine
eligibility for the section 30D clean vehicle credit regarding the
excluded entity restrictions, under which vehicles placed in service
beginning in 2024 are not eligible if the battery contains battery
components manufactured or assembled by a FEOC, and vehicles placed in
service beginning in 2025 are not eligible if the battery contains
applicable critical minerals extracted, processed, or recycled by a
FEOC.
IX. Department of Energy Guidance
Concurrently with the release of the December Proposed Regulations,
the DOE released proposed guidance in the Federal Register, which
provides proposed interpretations of certain terms used in the
definition of FEOC set forth in section 40207(a)(5) of the
Infrastructure Investment and Jobs Act (IIJA), and as cross-referenced
in section 30D(d)(7). Concurrently with the release of these final
regulations, the DOE is releasing final regulations under section
40207(a)(5) of the IIJA.
Section 40207(a)(5) of the IIJA defines FEOC to include foreign
entities covered by specific designations, inclusions, and allegations
by Federal agencies as described in section 40207(a)(5)(A), (B), and
(D), as well as foreign entities ``owned by, controlled by, or subject
to the jurisdiction or direction of a government'' of a covered nation
under section 40207(a)(5)(C). Covered nations are defined in 10 U.S.C.
4872(d)(2) as the People's Republic of China, the Russian Federation,
the Democratic People's Republic of Korea, and the Islamic Republic of
Iran, as of the date of publication of the these final regulations and
the DOE final guidance. Finally, section 40207(a)(5)(E) of the IIJA
provides that a FEOC includes a foreign entity that the Secretary of
Energy, in consultation with the Secretary of Defense and the Director
of National Intelligence, determines is engaged in unauthorized conduct
that is detrimental to the national security or foreign policy of the
United States. The DOE final guidance provides an interpretation of
section 40207(a)(5)(C) of the IIJA. In particular, the DOE final
guidance provides definitions for the terms ``government of a foreign
country,'' ``foreign entity,'' ``subject to the jurisdiction,'' and
``owned by, controlled by, or subject to the direction of.'' In
general, an entity incorporated in, headquartered in, or performing the
relevant activities in a covered nation would be classified as a FEOC.
For purposes of these rules, an entity would be ``owned by, controlled
by, or subject to the direction'' of another entity if 25 percent or
more of the entity's board seats, voting rights, or equity interest are
cumulatively held by such other entity. In addition, licensing
agreements or other contractual agreements may also create control.
Finally, ``government of a foreign country'' is defined to include
subnational governments and certain current or former senior foreign
political figures.
Summary of Comments and Explanation of Revisions
The Treasury Department and the IRS received over 180 written and
electronic comments in response to the April Proposed Regulations, the
October Proposed Regulations, and the December Proposed Regulations
(collectively, the proposed regulations). A public hearing on the
proposed regulations was held on January 31, 2024. Copies of written
comments and the list of speakers at the public hearing are available
at https://www.regulations.gov or upon request.
[[Page 37711]]
After full consideration of the comments received on the proposed
regulations and the testimony presented at the public hearing, this
Treasury Decision adopts the proposed regulations with clarifying
changes and additional modifications in response to the comments and
testimony as described in this Summary of Comments and Explanation of
Revisions.
Unless otherwise indicated in this Summary of Comments and
Explanation of Revisions, provisions of the proposed regulations for
which no comments were received are adopted without substantive change.
Comments that merely summarize the proposed regulations, recommend
statutory revisions to section 25E, section 30D, or other statutes,
address issues that are outside the scope of this rulemaking (such as
proposed changes to other guidance), or recommend changes to IRS forms,
are beyond the scope of these regulations and are not adopted. In
addition, comments that relate to the revenue procedures or notices
described in section VI and VII of this Background section are beyond
the scope of these regulations and are not adopted. The final
regulations include non-substantive modifications, including
modifications that promote consistency across definitions, rules, and
examples, rearrange provisions, and improve the overall clarity of the
guidance. Such modifications are not addressed in the Summary of
Comments and Explanation of Revisions.
Section I of this Summary of Comments and Explanation of Revisions
addresses the comments and revisions applicable only to section 25E.
Section II of this Summary of Comments and Explanation of Revisions
addresses the comments and revisions applicable to both section 25E and
section 30D. Section III of this Summary of Comments and Explanation of
Revisions addresses the comments and revisions applicable only to
section 30D. Section IV of this Summary of Comments and Explanation of
Revisions addresses the comments and revisions applicable to section
6213. Section V of this Summary of Comments and Explanation of
Revisions addresses the applicability dates of these final regulations.
I. Section 25E Credit
A. Definitions
1. Previously-Owned Clean Vehicle
Proposed Sec. 1.25E-1(b)(5) defined the term ``previously-owned
clean vehicle'' by reference to the statutory definition provided in
section 25E(c)(1). A commenter noted that the proposed definition of
``previously-owned clean vehicle'' does not address whether a
previously-owned vehicle purchased from a dealership would be eligible
for the section 25E credit. Another commenter requested that the
Treasury Department and the IRS provide a definition of ``vehicle.''
Section 25E(c)(1) provides a definition of ``previously-owned clean
vehicle'' and criteria to be considered a ``motor vehicle.'' Section
25E(c)(4) defines ``motor vehicle'' by reference to section 30D(d)(2),
which defines that term as any vehicle that is manufactured primarily
for use on public streets, roads, and highways (not including a vehicle
operated exclusively on a rail or rails) and that has at least four
wheels. Further, section 25E(c)(2) defines ``qualified sale'' in part,
as a sale of a motor vehicle by the dealer. Under the plain language of
section 25E, a sale of a previously-owned clean vehicle by a dealer is
eligible for the section 25E credit, provided the other requirements of
section 25E are satisfied. Accordingly, the final regulations do not
adopt these comments.
The final regulations clarify that vehicles that may qualify as
previously-owned clean vehicles include battery electric vehicles,
plug-in hybrid electric vehicles, fuel cell motor vehicles, and plug-in
hybrid fuel cell motor vehicles.
2. Qualified Sale
i. Motor Vehicle Reference and Price Cap
Section 25E(c)(2) defines ``qualified sale'' as a sale of a motor
vehicle by a dealer (as defined in section 30D(g)(8)), for a sale price
that does not exceed $25,000, and that is the first transfer since
August 16, 2022 (the date of enactment of section 25E), to a qualified
buyer other than the person with whom the original use of such vehicle
commenced. Proposed Sec. 1.25E-1(b)(8)(i) tracked the statutory
definition.
A commenter recommended that the final regulations substitute
``previously-owned clean vehicle'' for ``motor vehicle'' in the
definition of ``qualified sale'' in proposed Sec. 1.25E-1(b)(8)(i). In
addition, multiple commenters requested changes to the $25,000 maximum
sale price amount in the definition of ``qualified sale.''
Section 25E(c)(2) uses the term ``motor vehicle'' in the definition
of ``qualified sale.'' In order to maintain consistency with the
statutory definition of ``qualified sale,'' the final regulations do
not adopt this comment. With regard to the comments suggesting a change
to the sale price limitation, section 25E(c)(2)(B) provides that the
sale price may not exceed $25,000. Because the $25,000 sale price
limitation is statutory, the final regulations do not adopt this
comment.
ii. First Transfer Rule
Proposed Sec. 1.25E-1(b)(8)(ii) provided that to be a qualified
sale, a transfer must be the first transfer since August 16, 2022, as
shown by vehicle history, of a previously-owned clean vehicle after the
sale to the person with whom the original use of such vehicle
commenced. The proposed regulation further provided that the taxpayer
may rely on the dealer's provision of the vehicle history in
determining whether the first transfer rule is satisfied.
A commenter recommended that the final regulations change the term
``vehicle history'' to ``vehicle history report'' in proposed Sec.
1.25E-1(b)(8)(ii) and define ``vehicle history report'' as a report
``issued by an approved provider at www.vehiclehistory.bja/ojp.gov/nmvtis_vehiclehistory.'' The website recommended by the commenter
provides a list of National Motor Vehicle Title Information System
(NMVTIS) approved data providers. This website is maintained by the
Department of Justice. The commenter further suggested removing the
dealer limitation from the last sentence of proposed Sec. 1.25E-
1(b)(8)(ii) and tying the vehicle history report to the time of sale.
Proposed Sec. 1.25E-1(b)(8)(ii) identified ``vehicle history'' as
the mechanism for verifying whether a transfer is the first transfer of
the vehicle for purposes of the qualified sale definition. The Treasury
Department and the IRS agree that substituting the term ``vehicle
history report'' for ``vehicle history'' adds clarity to the rule. The
Treasury Department and the IRS further agree that requiring the
taxpayer to obtain the vehicle history report from the dealer is overly
restrictive, and that the vehicle history report should be obtained at
the time of sale or as part of the sale transaction in order to satisfy
the first transfer rule. Accordingly, the final regulations adopt these
comments. Further, the Treasury Department and the IRS have determined
that vehicle history reports issued by NMVTIS-approved data providers
may be used to verify whether a transfer is the first transfer of the
vehicle. However, the Treasury Department and the IRS lack sufficient
information to determine whether limiting vehicle history reports to
those issued by NMVTIS-approved data providers would place an undue
burden on taxpayers. As a result, the final regulations adopt the
comment, in part, by adding a definition of ``vehicle
[[Page 37712]]
history report'' and clarifying that the term includes reports from
NMVTIS-approved data providers.
Another commenter expressed concern that the proposed first
transfer rule is more restrictive than the statutory language and could
severely limit the applicability of the section 25E credit. The
commenter suggested that the most straightforward way to determine if a
car had previously been sold to a qualified buyer would be to exclude
vehicles for which a credit under 25E had previously been claimed. The
commenter recommended that the final regulations allow one section 25E
credit per VIN (regardless of whether the credit is claimed with
respect to the first transfer since August 16, 2022, or the first
transfer to a qualified buyer) in place of the proposed first transfer
rule.
One of the statutory requirements to be a qualified sale is that
the sale be the first transfer to a qualified buyer since the enactment
of section 25E, other than to the person with whom the original use of
the vehicle commenced. The commenter's suggestion that the final
regulations adopt a one section 25E credit per VIN rule is inconsistent
with the statutory language and Congressional intent, because it would
allow a transfer to a second qualified buyer to be eligible for the
credit in situations where the first qualified buyer did not claim the
section 25E credit or was not eligible to claim the credit (for
example, if the first qualified buyer's MAGI exceeds the limitation).
Further, the commenter's suggestion, if adopted, would be
unadministrable because taxpayers have no way of verifying whether a
section 25E credit has previously been claimed with respect to a prior
sale of a particular vehicle. Such information is not part of a vehicle
history report and is otherwise inaccessible to taxpayers. While the
IRS has that information, it cannot share that information without
violating the taxpayer confidentiality restrictions in section 6103. As
a result, taxpayers making purchasing decisions would not know which
previously sold vehicles were eligible for the section 25E credit in
advance of their vehicle purchase, which would disincentivize the
purchase of previously-owned clean vehicles. Accordingly, the final
regulations do not adopt this comment.
As for the commenter's concern that the proposed first transfer
rule is more restrictive than the statutory language, the first
transfer rule is consistent with how Congress expected the statute to
operate \2\ and is necessary to protect confidential taxpayer
information consistent with section 6103. Once there has been a sale of
a previously-owned clean vehicle, there is no information source from
which a subsequent buyer could ascertain or verify whether the prior
sale was to a qualified buyer. For example, vehicle history reports do
not include information as to whether a previous buyer was an
individual, whether the previous buyer was a dependent, or whether the
previous buyer had claimed the section 25E credit in the prior three
years. As noted above, in cases where the previous buyer has claimed
the section 25E credit, the IRS would have the information necessary to
determine whether the prior transfer was to a qualified buyer, but such
taxpayer information is protected from disclosure by statute, under
section 6103. The first transfer rule, by allowing the section 25E
credit to the first transfer after the date of enactment of 25E as
determined by the vehicle's vehicle history report, provides certainty
to buyers and dealers in a manner that is consistent with the taxpayer
confidentiality mandates of section 6103. In addition, the proposed
first transfer rule is consistent with Congressional intent to
incentivize the deployment of clean vehicles.
---------------------------------------------------------------------------
\2\ See Joint Committee on Taxation, General Explanation of Tax
Legislation Enacted in the 117th Congress (JCS-1-23), December 2023
at page 254.
---------------------------------------------------------------------------
The final regulations thus adopt the proposed first transfer rule
without substantive change. As noted earlier, the first transfer rule
is an element of the definition of ``qualified sale.'' The final
regulations merge proposed Sec. 1.25E-1(b)(8)(i) and (ii) and finalize
the definition of ``qualified sale'' as Sec. 1.25E-1(b)(14). Further,
the final regulations move the language regarding taxpayer reliance on
the vehicle history report from the definition of ``qualified sale'' to
a standalone rule in Sec. 1.25E-1(f), and clarify that reliance on a
vehicle history report applies in the case where there has been a prior
sale and return or resale described in Sec. 1.25E-2(c). For additional
clarity, the final regulations add an example that illustrates how the
first transfer rule works in the context of dealer-to-dealer transfers.
3. Sale Price
Section 25E(a)(2) and (c)(2)(B) provide that the sale price of a
previously-owned clean vehicle is taken into account for purposes of
determining the amount of the section 25E credit and whether a
particular sale is a qualified sale of the vehicle. Proposed Sec.
1.25E-1(b)(9) defined the ``sale price'' of a previously-owned clean
vehicle as the total sale price agreed upon by the buyer and dealer in
a written contract at the time of sale, including any delivery charges
and after the application of any incentives, but excluding separately-
stated taxes and fees required by law. Under the proposed definition,
the sale price of a previously-owned clean vehicle was determined
before the application of any trade-in value. Proposed Sec. 1.25E-
1(b)(2) provided that for purposes of the definition of ``sale price,''
the term ``incentive'' means any reduction in total sale price offered
to and accepted by a taxpayer from the dealer or manufacturer, other
than a reduction, whether in the form of a partial payment or down
payment for the purchase of a previously-owned clean vehicle or
otherwise, pursuant to section 25E(f) and Sec. 1.25E-3.
One commenter requested clarification regarding the term
``incentives,'' noting that manufacturer and distributor rebates and
incentives are typically not available for previously-owned vehicles.
The commenter did not reference the proposed definition of
``incentive'' in its comment letter. The proposed definition addresses
the commenter's concern by broadly defining ``incentive'' to include
reductions in price by manufacturers and dealers. In other words, the
proposed definition does not limit incentives to price reductions
provided by manufacturers and distributors. Therefore, no clarification
is needed. However, because the term ``incentive'' is relevant to both
sale price determinations for purposes the $25,000 sale price cap in
section 25E(c)(2)(B) and the eligible entity definition in section
30D(g)(2)(B)(ii) and (D), the final regulations include separate
definitions of ``incentive'' that apply to those provisions. In
addition, with regard to the definition of ``incentive'' for purposes
of sale price determinations, the final regulations clarify that an
``incentive'' means any reduction in price offered to and accepted by a
taxpayer from the dealer or manufacturer. This clarification is
necessary because the proposed definition only looked to incentives
available to taxpayers from the dealer or manufacturer, which could
disadvantage consumers by artificially lowering the $25,000 sale price
cap in cases where the incentive was not accepted by the taxpayer.
Several commenters requested modifications to the proposed
definition of ``sale price.'' Two commenters requested a narrower
definition. Specifically, one commenter suggested that the proposed
definition of sale
[[Page 37713]]
price be amended so that fees and charges allowed by a state or
locality, such as titling and registration charges for out-of-state
buyers and charges associated with perfecting a lienholder's security
interest, be excluded from the sale price because the amount of such
fees is not easily knowable at the time of sale. Another commenter
recommended modifying the proposed definition of ``sale price'' to
exclude documentation fees because of long-standing practice in the
automotive industry to charge such fees to cover a dealer's processing
and administrative costs associated with a sale. The inclusion of
dealer document fees and charges allowed by a state or locality in the
sale price would allow dealers to allocate a portion of the sale price
of the vehicle to such fees in order to avoid the $25,000 sale price
cap in section 25E(c)(2)(B). Accordingly, the final regulations do not
adopt these comments.
A commenter suggested the proposed definition of ``sale price'' be
amended to include the total transaction amount, less any government-
imposed taxes or fees, and including all add-ons and any non-government
fees to prevent dealers from capturing a large portion of the credit as
profit. The proposed definition already effectively does what the
commenter suggests by excluding only separately-stated taxes and fees
as required by law. Accordingly, the final regulations do not adopt
this comment.
4. Other Definitions Applicable to Section 25E
The Treasury Department and the IRS received comments related to
other definitions applicable to section 25E that are also applicable to
section 30D. Section II of this Summary of Comments and Explanation of
Revisions discusses comments received and modifications made to
definitions applicable to both section 25E and section 30D.
B. Limitations Based on Modified AGI
The proposed regulations restated the Modified AGI limitation of
section 25E(b) at proposed Sec. 1.25E-1(b)(3) and (c)(1).
Several commenters suggested that the qualifying income threshold
for the section 25E credit should be increased. Because these
limitations are statutory, the final regulations do not adopt this
comment.
C. Branded Title
Proposed Sec. 1.25E-2(d) provided that a title to a previously-
owned clean vehicle indicating that such vehicle has been damaged or is
otherwise a branded title does not impact the vehicle's eligibility for
a section 25E credit.
A commenter suggested that the section 25E credit program should
not be used to incentivize consumers to purchase unsafe or unreliable
vehicles, such as those that have been determined to be a total loss,
salvage, or junk, and encouraged the Treasury Department and the IRS to
consider making such vehicles ineligible for the section 25E credit.
The commenter further suggested that title status reflected in the
NMVTIS should be determinative because all states, insurance companies,
and junk and salvage yards are required by law to regularly report
information about vehicles that have been determined to be a total
loss, salvage, or junk to NMVTIS.
Vehicle titles indicate whether the title is clean (meaning the
vehicle has never been declared a total loss) or branded (indicating
the vehicle has sustained serious damage, such as in the case of
salvage title, or that there is some other significant problem with the
vehicle, as in the case of a lemon title brand). State law generally
governs the titling of vehicles. Each State and the District of
Columbia has different standards for determining when a vehicle title
must be branded. Further, although there are broad categories of title
brands that are common across jurisdictions, such as salvage title, the
thresholds for applying those title brands varies. These variations can
lead to the practice of title washing, which is a method of removing a
title brand by retitling the vehicle in a jurisdiction that does not
recognize the title brand. The Treasury Department and the IRS do not
want to incentivize the purchase of unsafe or unreliable vehicles.
However, modifying proposed Sec. 1.25E-2(d) to exclude certain title
brands could lead to an increase in title washing, which, in turn,
could lead to increased fraud regarding previously-owned vehicles. This
would negatively impact consumers of previously-owned clean vehicles.
Moreover, the statute does not exclude branded titles, and there is no
indication that Congress intended to exclude such vehicles.
Accordingly, the final regulations do not adopt these comments.
II. Crossover Provisions in Section 25E and Section 30D
A. Definitions
This section of the Summary of Comments and Explanation of
Revisions addresses definitions that apply to both section 25E and
section 30D. Unless otherwise specified, the final regulations move the
definitions relating to section 30D from Sec. Sec. 1.30D-2, 1.30D-
3(c), 1.30D-5(a), and 1.30D-6(a) to Sec. 1.30D-2(b).
1. Dealer
Section 25E(c)(2)(A) cross references section 30D(g)(8) with regard
to the term ``dealer.'' Under section 30D(g)(8), the term ``dealer''
means a person licensed by a State, the District of Columbia, the
Commonwealth of Puerto Rico, or any other territory or possession of
the United States, an Indian tribal government, or any Alaska Native
Corporation to engage in the sale of vehicles.
Proposed Sec. Sec. 1.25E-1(b)(1) and 1.30D-5(a)(2) defined
``dealer'' as provided in section 30D(g)(8), except that the proposed
term did not include persons licensed solely by a territory of the
United States.\3\ Under the proposed regulations, the term included a
dealer licensed in any jurisdiction described in section 30D(g)(8)
(other than one licensed solely by a territory of the United States)
that makes sales at sites outside of the jurisdiction in which its
licensed. The definition of dealer in the proposed regulations did not
include persons licensed solely by a territory because clean vehicle
credits generally are not allowed for vehicles used predominantly
outside of the 50 States and the District of Columbia. See sections
30D(f)(4), 25E(e), 50(b)(1), and 7701(a)(9) of the Code.
---------------------------------------------------------------------------
\3\ Section 30D(g)(8) uses the term ``territory or possession,''
but the proposed regulations and these final regulations use the
term ``territory'' since both terms have the same meaning.
---------------------------------------------------------------------------
A commenter suggested that the definition of ``dealer'' should
include licensed dealers in territories or possessions of the United
States, but only for purposes of vehicles sold for use and not for
resale in the 50 states or the District of Columbia.
Such a rule would create verification issues for the IRS and place
administrative burdens on certain dealers and purchasers of clean
vehicles. At a minimum, buyers purchasing clean vehicles from dealers
licensed in territories of the United States would be required to
provide an attestation or certificate to the dealer indicating that the
buyer intended to use the vehicle in the United States and not resell
it. In addition, predominant use of the vehicle in a territory
subsequent to such a statement of intent would make the vehicle
ineligible for a clean vehicle credit. Pursuant to section 30D(g)(1),
the Secretary has authority to prescribe necessary regulations with
respect to that subsection. Accordingly, the final regulations do not
adopt this comment.
[[Page 37714]]
A separate comment requested guidance on the circumstances in which
an original equipment manufacturer (OEM) is considered a ``dealer'' for
purposes of section 30D(g)(8). In response to this comment, the
Treasury Department and the IRS note that an OEM may be a dealer if
licensed in any jurisdiction described in section 30D(g)(8) and
Sec. Sec. 1.25E-1(b) or 1.30D-2(b), as applicable.
2. Placed in Service
The year in which a vehicle is placed in service is relevant for a
number of rules under section 25E and section 30D, including the
applicable percentages for the Critical Minerals and Battery Components
Requirements of section 30D(e) and the FEOC Restriction, which impose
manufacturer sourcing requirements for the clean vehicle battery.
Proposed Sec. Sec. 1.25E-1(b)(4) and 1.30D-2(e) provided that a
vehicle is considered to be placed in service on the date the taxpayer
takes possession of the vehicle. The proposed definition is consistent
with the meaning of ``placed in service'' for purposes of other Code
provisions. See Sec. 1.46-3(d)(1)(ii) and (4)(i) and Sec. 1.179-4(e)
(property is considered placed in service when ``placed in a condition
or state of readiness and availability for a specifically assigned
function''); Sec. 145.4051-1(c)(2) (``a vehicle shall be considered
placed in service on the date on which the owner of the vehicle took
actual possession of the vehicle''); see also Sec. 1.1250-4(b)(2)
(``property is placed in service on the date on which it is first
used''); Consumers Power Co. v. Commissioner, 89 T.C. 710 (1987); Noell
v. Commissioner, 66 T.C. 718, 728-729 (1976).
The proposed definition is also consistent with the IRS's and the
Tax Court's interpretation of ``placed in service'' as used in section
30D(a), which was not amended by the IRA, and while not precedential or
binding, reflects the prevailing view. See e.g., Trout v. Comm'r of
Internal Revenue, T.C. Summ. Op. 2015-66, 2015 WL 7423818, at *4 (T.C.
Nov. 19, 2015) (``[t]he Court will look at whether the vehicle was `in
a condition or state of readiness and availability' for the
`specifically assigned function' for which petitioners purchased it to
determine when petitioners placed the [vehicle] in service.''); Podraza
v. Comm'r of Internal Revenue, T.C. Summ. Op. 2015-67, 2015 WL 7423525
(T.C. Nov. 19, 2015) (same); IRS PLR 201312034 (Mar. 22, 2013) (``the
taxable year in which the taxpayer may claim the credit on their return
is defined as the year in which the vehicle is `placed in service,'
which requires that the taxpayer have actual possession of the vehicle.
. .'').
The Treasury Department and the IRS received several comments
regarding the definition of ``placed in service.'' One commenter
suggested that for purposes of the section 30D credit, the definition
of ``placed in service'' be modified to mean the date of vehicle
manufacture. The commenter further noted that the proposed definition
will cause significant confusion for consumers if the clean vehicle
they want to buy is no longer credit-eligible because the vehicle was
not placed in service at the correct time.
Several other commenters requested that ``placed in service'' be
defined as the date of manufacture for purposes of the vehicle
manufacturing requirements (specifically, the Critical Minerals and
Battery Components Requirements and the FEOC Restriction) of section
30D. Another commenter raised concerns with the proposed definition of
``placed in service'' based on vehicle possession because some
taxpayers: (1) may never take possession of the vehicle, such as cases
involving leases and gifts, (2) may take possession before a vehicle is
sold, (3) may take possession at the time a vehicle is sold, or (4) may
take possession after a vehicle is sold, such as cases in which the
taxpayer preorders a vehicle. The commenter recommended that the
definition of ``placed in service'' be the date on which a vehicle is
registered by a United States jurisdiction that administers on-road
vehicle registration laws.
The final regulations adopt the definition in proposed Sec. Sec.
1.25E-1(b)(4) and 1.30D-2(e), with minor clarifying changes, because
the definition is consistent with existing guidance, as well as case
law relating to when a vehicle is placed in service. Further, the
Treasury Department and the IRS do not adopt a definition of ``placed
in service'' for purposes of the Critical Minerals and Battery
Components Requirements and the FEOC Restriction that differs from the
definition for purposes of section 30D(a), because in cases in which
the same term is used in a single section the term is presumed to have
the same meaning throughout. Mertens v. Hewitt Assocs., 508 U.S. 248,
260, 113 S.Ct. 2063, 124 L.Ed.2d 161 (1993). Accordingly, the final
regulations do not adopt these comments.
3. Sale
The term ``sale'' is not defined in section 25E, section 30D, or
the proposed regulations applicable to those sections. A commenter
suggested that a definition of the term ``sale'' be added to the final
regulations for purposes of sections 25E and 30D. The commenter
recommended that the term ``sale'' be defined as ``an enforceable
contract to transfer ownership of a vehicle from a dealer to a
taxpayer.''
The term ``sale'' is relevant to the determination of whether there
is a qualified sale for purposes of section 25E(c)(2) and the
applicable recapture provisions under sections 25E and 30D. The
commenter's proposed definition is overly broad and would not require
that the transfer of ownership be made for consideration provided by
the buyer. Further, section 25E(a) provides that the section 25E credit
is only allowed for a qualified sale of a previously-owned clean
vehicle. Section 25E(c)(2)(A) defines the term ``qualified sale,'' in
part, as a sale by a dealer. Similarly, the credit transfer election
framework incentivizes the purchase of previously-owned clean vehicles
and new clean vehicles from dealers. Dealers have well-established
practices with regard to vehicle sales and what constitutes a sale
transaction. Based on the foregoing, the Treasury Department and the
IRS have determined that a definition of ``sale'' is unnecessary.
Accordingly, the final regulations do not adopt this comment.
B. Special Rules
1. Recapture
Section 25E(e) provides that, for purposes of section 25E, rules
similar to the rules of section 30D(f) apply. Section 30D(f)(5)
instructs the Secretary to provide regulations for recapturing the
benefit of any section 30D credit with respect to any property that
ceases to be eligible for the section 30D credit. Proposed Sec. Sec.
1.25E-2(c) and 1.30D-4(d) provided corresponding rules under section
30D(f)(5) for cancelled sales, returns, and resales of the vehicle. The
final regulations clarify that for purposes of section 30D(f)(5), and
by extension, section 25E(e), the amount of the benefit recaptured due
to such an event is considered an increase to tax imposed by chapter 1
of the Code.
i. Cancelled Sale
Proposed Sec. Sec. 1.25E-2(c)(1)(i) and 1.30D-4(d)(1)(i) provided
the Federal income tax consequences that apply if the sale of a vehicle
between the taxpayer and seller is cancelled before the taxpayer places
the vehicle in service (that is, before the taxpayer takes possession
of the vehicle).
A commenter recommended that part of the definition of ``cancelled
sale'' be changed from ``taxpayer places the
[[Page 37715]]
vehicle in service'' to ``the vehicle is placed in service.'' Section
25E(a) expressly requires the previously-owned clean vehicle to be
placed in service by a qualified buyer. Similarly, section 30D(a)
expressly requires the new clean vehicle to be placed in service by the
taxpayer. Accordingly, the final regulations do not adopt this comment
because a clean vehicle placed in service by someone other than the
qualified buyer or taxpayer, as applicable, would not qualify for the
credit.
ii. Vehicle Returns
Proposed Sec. Sec. 1.25E-2(c)(1)(ii) and 1.30D-4(d)(1)(ii)
addressed the Federal income tax consequences that apply if the
taxpayer returns the vehicle to the seller within 30 days of placing
the vehicle in service.
The Treasury Department and the IRS received multiple comments
regarding the proposed vehicle return rules in proposed Sec. Sec.
1.25E-2(c)(1)(ii) and 1.30D-4(d)(1)(ii). A commenter requested that the
final regulations clarify that once a contract for the purchase of a
clean vehicle is signed by the buyer and seller, the 30-day return
period is for credit recapture purposes only and that state contract
law governs whether the buyer can void the sale. One commenter agreed
that 30 days is an appropriate length of time for qualified vehicle
returns. Another commenter recommended deleting the 30-day limitation.
That commenter also suggested changing ``of placing such vehicle in
service'' to ``after it is placed in service'' and ``the vehicle
history'' to ``a vehicle history report as of the date of such sale.''
In addition, a commenter recommended that, in general, the Treasury
Department and the IRS regulate returns after the vehicle is
registered.
Dealers generally have return policies that range from several days
up to 30 days, so the proposed rules regarding returns within 30 days
reflect industry practice. The final regulations maintain the 30-day
return rule, with one modification. Specifically, the final
regulations, for purposes of 25E, modify the reference to ``the vehicle
history'' by changing it to ``a vehicle history report obtained on the
date of such subsequent sale or as part of such subsequent sale
transaction'' to conform with modifications to the definition of
``qualified sale'' described in section I.A.2 of this Summary of
Comments and Explanation of Revisions. The final regulations also add a
definition of ``vehicle history report'' and clarify that the term
includes reports from NMVTIS-approved data providers. In addition, the
Treasury Department and the IRS confirm that the vehicle return rules
in the final regulations relate only to the section 25E and 30D credits
and have no impact on the voidability of the sales contract for the
clean vehicle, which is governed by state contract law. Otherwise, the
final regulations do not adopt these comments.
2. Resales
Proposed Sec. Sec. 1.25E-2(c)(1)(iii) and 1.30D-4(d)(1)(iii) treat
the taxpayer as having purchased a clean vehicle with an intent to
resell such vehicle if the resale occurs within 30 days of the taxpayer
placing the vehicle in service.
A commenter noted that it largely agreed with the proposed resale
rules, but suggested that for purposes of section 25E, the final
regulations include an exception for subsequent sales by dealers that
are unaware of prior resales as of the date of the subsequent sale. The
commenter did not suggest an exception for purposes of section 30D
resales given that a resale of a vehicle will render it used, thereby
making the vehicle ineligible for the section 30D credit. The commenter
also suggested changing ``placing the vehicle'' in service to ``it
being placed'' in service. Another commenter stated that 30 days is an
appropriate length of time for the resale rule.
The recapture rule in proposed Sec. 1.25E-2(c)(1)(iii) did not
address sales by dealers. Proposed Sec. 1.25E-2(c)(1)(iii) addressed
sales by individual buyers within 30 days and provided that recapture
in the event of such resale is recaptured from the taxpayer, not the
dealer. Accordingly, the final regulations retain the rules in proposed
Sec. Sec. 1.25E-2(c)(1)(iii) and 1.30D-4(d)(1)(iii) and do not adopt
these comments.
3. Other Returns or Resales
Proposed Sec. Sec. 1.25E-2(c)(1)(iv) and 1.30D-4(d)(iv) provided a
rule for returns or resales occurring more than 30 days after the date
on which the taxpayer places the vehicle in service. Generally,
taxpayers returning or reselling a clean vehicle more than 30 days
after the date the taxpayer places it in service will remain eligible
for the section 25E or section 30D credit for the purchase of such
vehicle. The proposed regulations provided that, in the case of a new
clean vehicle that is returned or resold, the vehicle, once returned or
resold, is not available for original use by another taxpayer and,
therefore, is not eligible for a section 30D credit. Similarly, in the
case of a previously-owned clean vehicle that is returned or resold,
the vehicle, once returned or resold, is generally not eligible for the
section 25E credit upon a subsequent sale pursuant to the first
transfer rule described in proposed Sec. 1.25E-1(b)(8)(ii). In the
case of a return occurring more than 30 days after the date on which
the taxpayer places the vehicle in service, the seller report is not
required to be updated because the taxpayer generally will be eligible
for the clean vehicle credit in this circumstance. In addition, in the
case of a resale of such vehicle, the seller report is not required to
be updated because the seller would not have knowledge of the
subsequent resale. Finally, if the taxpayer made an election to
transfer the clean vehicle credit, that credit transfer election
remains in effect and the value of any transferred credit pursuant to
the clean vehicle credit transfer rules generally is not subject to
recapture and is not an excessive payment.
Although the proposed regulations did not provide an automatic
clean vehicle credit recapture rule for returns or resales more than 30
days after a return or resale, the IRS may determine, based upon the
facts and circumstances of a particular case, that a clean vehicle was
purchased with the intent to return or resell and may disallow the
clean vehicle credit in such case.
One commenter noted that dealers regularly place new clean vehicles
in use for longer than 30 days as loaners, rentals, or company
vehicles, and that the period of time the vehicle is in use varies but
is normally longer than 30 days. The commenter suggested that the
section 30D credit obtained by the dealer on its purchase of the
vehicle should not be recaptured if, after a period of more than 30
days of use as a loaner, the dealer reclassifies the vehicle as used
and subsequently sells it to a third party. The commenter requested the
addition of an example to the final regulations addressing this
scenario.
The final regulations adopt the comment and add an example to Sec.
1.30D-4(e) that illustrates the application of the vehicle return rules
to a scenario in which the dealer purchases a new clean vehicle, uses
it as a demonstrator, and later sells the vehicle.
4. Recapture After Transfer Election
One commenter requested that an example be added to the final
regulations that addresses who would be responsible for repaying a
credit in the event the taxpayer made an election to transfer the
credit and later learned that the sale of the previously-owned
[[Page 37716]]
clean vehicle to the taxpayer was not a qualified sale.
In general, whether the sale of a previously-owned clean vehicle is
a qualified sale will be determined at the time of sale. For example,
the taxpayer may rely on the vehicle history report obtained at the
time of sale or as part of the sale transaction to determine whether
the first transfer rule is satisfied. In the case of recapture, as
described in Sec. Sec. 1.25E-2(c) and 1.30D-4(e), responsibility for
recapture of a clean vehicle credit depends upon the circumstances of
recapture. In the case of a vehicle return within 30 days of placing a
clean vehicle in service in which the taxpayer made a credit transfer
election, the eligible entity must repay the amount of the credit as an
excessive payment. In contrast, if the taxpayer resells the vehicle
within 30 days of placing the clean vehicle in service rather than
returning it to the eligible entity, the amount of the transferred
credit is recaptured from the taxpayer.
Another commenter requested additional information about specific
procedures regarding recapture, including clarification as to whether
both parties would be notified, how such notification might occur, and
when recapture would occur.
Generally, recapture is reported via self-assessment by the
eligible entity or taxpayer. In the event of recapture from the
eligible entity, the eligible entity must report the recapture via the
dealer registration system as described in Sec. Sec. 1.25E-3(c)(1) and
1.30D-5(c)(1), as finalized. In the event of recapture from the
taxpayer, the taxpayer must report the recapture amount as an increase
in tax imposed by chapter 1 of the Code on the taxpayer's Federal
income tax return for the taxable year in which the recapture occurred.
A commenter requested that the final regulations clarify whether a
taxpayer would be liable for repayment of the credit or a portion of
the credit if a transfer election is made but the taxpayer's regular
tax liability is less than the total amount of the credit transferred.
With respect to the section 25E credit, this situation is addressed in
proposed Sec. 1.25E-3(e)(1)(i) and proposed Sec. 1.25E-3(e)(5)
Example 1. With respect to the section 30D credit, this situation is
addressed in proposed Sec. 1.30D-5(e)(1)(i) and Sec. 1.30D-5(e)(5)
Example 1. These provisions and examples are adopted in the final
regulations at Sec. 1.25E-3(e)(1)(i), Sec. 1.25E-3(e)(5) Example 1,
Sec. 1.30D-5(e)(1)(i), and Sec. 1.30D-5(e)(5) Example 1. Accordingly,
no additional clarification is needed and the final regulations do not
adopt this comment.
5. Requirement To File a Complete Income Tax Return
Proposed Sec. Sec. 1.25E-2(f) and 1.30D-4(g) provided that
taxpayers must file an income tax return, together with Schedule A
(Form 8936), Clean Vehicle Credit Amount, or successor form, and any
additional forms, schedules, or statements prescribed by the
Commissioner for the purpose of making a return to report the tax under
chapter 1 of the Code that includes all of the information required on
the forms and in the instructions, for the taxable year in which the
clean vehicle is placed in service to be entitled to the credit under
section 25E or section 30D. The final regulations under section 30D
clarify that this requirement also applies to information returns
because a partnership or S corporation may claim a section 30D credit
as a general business credit under section 38.
A commenter noted that some taxpayers may transfer a credit to a
dealer and then fail to file a return or fail to attach Form 8936 to
their return, and that dealers will have little incentive to inform
taxpayers of their future filing obligations in order to qualify for
the credit. The commenter recommended that the final regulations
clarify that failing to file a return or failing to attach Form 8936 to
a return will not alone subject the taxpayer to the credit recapture
rules.
Proposed Sec. Sec. 1.25E-3(h) and 1.30D-5(g) provide a reporting
requirement for taxpayers who transfer a section 25E credit or section
30D credit to a dealer, but do not provide for recapture of the credit
as a consequence of failing to fulfill these requirements. Although a
taxpayer may not otherwise be required to file an income tax return for
a particular taxable year, the taxpayer is required to file an income
tax return and attach a Form 8936 and Schedule A (Form 8936) to ensure
timely processing of their tax return and to demonstrate their
eligibility for the credit. This reporting requirement assists the IRS
in the collection of accurate information necessary to effectively
administer the section 25E and section 30D credits. The statutory text
provides the IRS with sufficient authority to impose this requirement
to ensure program integrity, including the ability to recapture the
credit where necessary. See sections 25E(f), 30D(g)(1) and 30D(g)(10);
see also section 6011. Accordingly, a clarification has been made in
the final regulations. The final regulations regarding credit transfer
elections under section 30D also clarify that this includes information
returns.
C. Transfer Rules
1. Disclosure and Assurance
Section 30D(g) generally establishes a set of rules under which a
taxpayer may transfer a section 30D credit to certain dealers, referred
to as eligible entities, in which case the eligible entity (and not the
taxpayer) is allowed the section 30D credit. In exchange, the eligible
entity must pay the taxpayer an amount equal to the transferred section
30D credit (with such payment being made either in cash or in the form
of a partial payment or down payment for the purchase of the vehicle).
Section 25E(f) provides that, for purposes of section 25E, rules
similar to the rules of section 30D(g) apply.
Proposed Sec. Sec. 1.25E-3 and 1.30D-5 provided transfer rules
under section 30D(g) (and section 25E(f) by cross reference to section
30D(g)), including the establishment of an advance payment program for
such transfers. The proposed regulations did not specifically address
the requirements under section 30D(g)(2)(B)(ii) and (D) relating to the
disclosure by the dealer of other incentives.
A commenter requested that the final regulations define the term
``incentive'' for purposes of the disclosure requirement and suggested
a definition similar to the one in proposed Sec. 1.25E-1(b)(2). The
commenter also requested that the final regulations provide an
attestation for dealers and taxpayers to use in conjunction with
creditable sales to satisfy the assurance requirement.
The Treasury Department and the IRS agree that the final
regulations should include a definition of ``incentive'' for purposes
of section 30D(g)(2)(B)(ii) and (D). Because the section 30(g) credit
transfer rules also apply to section 25E by reason of the cross
reference in section 25E(f), the definition of ``incentive'' for the
section 25E and 30D eligible entity requirements should align.
Accordingly, the final regulations add a definition of ``incentive'' to
Sec. Sec. 1.25E-1(b) and 1.30D-5(b) that applies for purposes of the
eligible entity requirements. Under that definition, ``incentive''
means any reduction in price available to the taxpayer from the dealer
or manufacturer, including as in combination with other incentives,
other than a reduction in the form of a partial payment or down payment
for the purchase of a clean vehicle pursuant to section 30D(g)(2)(C).
[[Page 37717]]
2. Definitions
Proposed Sec. Sec. 1.25E-3(b) and 1.30D-5(a) provided definitions
that apply for purposes of the transfer of a clean vehicle credit.
i. Advance Payment Program
Proposed Sec. Sec. 1.25E-3(b)(1) and 1.30D-5(a)(1) defined
``advance payment program'' as the program described in section
30D(g)(7) (and section 25E(f) by cross reference to section 30D(g)) and
the proposed regulations under which an eligible entity may receive an
advance payment from the IRS in the case of a credit transfer election
made by an electing taxpayer. The advance payment program is the
exclusive means by which an eligible entity may receive a transferred
clean vehicle credit.
Several commenters requested that the section 25E and 30D credits
be refundable regardless of tax liability. Other commenters requested
that the credits be available for a taxpayer to use as a down payment
at the time of the sale. In contrast, another commenter, requested that
taxpayers without sufficient tax liability be required to repay the
excess credit amount because, the commenter argued, Congress intended
for the credit to be a non-refundable credit. One commenter requested
clarification on how the credit will work in 2024 and beyond compared
to previous years. Another commenter suggested that the proposed
regulations allow 30D credits to be carried forward.
The section 25E and 30D credits are nonrefundable credits under the
Code that cannot be carried forward; however, pursuant to sections
25E(f) and 30D(g), such credits may be transferred to an eligible
entity beginning in 2024, regardless of the tax liability of the
taxpayer or the eligible entity for the applicable tax year. Sections
25E(f) and 30D(g) do not provide for repayment in the event of
insufficient tax liability. In exchange for the transferred credit, the
eligible entity must pay the taxpayer an amount equal to the
transferred clean vehicle credit, with such payment being made either
in cash or in the form of a partial payment or down payment for the
purchase of the vehicle. The proposed regulations described the
transfer of the clean vehicle credits, including examples of cases in
which a taxpayer may not have sufficient tax liability to claim the
full amount of the credit (for example, Example 1 of proposed Sec.
1.30D-5(d)(5)(i)). Accordingly, the final regulations do not adopt the
comment to require repayment of an excess credit amount. Proposed
Sec. Sec. 1.25E-3 and 1.30D-5 already provided the other rules
requested by commenters, and no additional clarification is needed.
Accordingly, no changes are needed in the final regulations to address
these comments.
ii. Electing Taxpayer
Under proposed Sec. Sec. 1.25E-3(b)(3) and 1.30D-5(a)(4),
``electing taxpayer'' means the individual that purchases and places in
service a clean vehicle and that elects to transfer a clean vehicle
credit associated with that vehicle that would otherwise be allowable
to that individual.
A commenter requested that businesses that purchase new clean
vehicles be allowed to use the credit transfer option under section
30D(g). Because the election to transfer a credit under section 30D(g)
is limited to the credit allowable under section 30D, the Treasury
Department and the IRS have determined that a taxpayer may not elect to
transfer a general business credit for a new clean vehicle allowable
under section 38 pursuant to section 30D(c)(1). Proposed Sec. 1.30D-
1(b)(1) provided that in the event a depreciable vehicle's use is 50
percent or more business use in the taxable year the vehicle is placed
in service, it will be creditable entirely under section 38 as a
general business credit rather than under section 30D. Thus, the use of
a new clean vehicle must be predominantly personal for a taxpayer to be
able to make the election to transfer the credit under section 30D(g).
Accordingly, the final regulations do not adopt this comment.
iii. Eligible Entity
Under proposed Sec. Sec. 1.25E-3(b)(4) and 1.30D-5(a)(5),
``eligible entity'' means a registered dealer that meets certain
requirements and, by reason of meeting those requirements, is eligible
to receive advance payments from the IRS under the advance payment
program.
A commenter suggested clarifying that an eligible entity is a
registered dealer that is eligible to receive payments under the
advance payment program by virtue of meeting the statutory and
regulatory requirements. Proposed Sec. Sec. 1.25E-3(b)(4) and 1.30D-
5(a)(5) already provided the rule requested in this comment, and no
additional clarification is needed. Accordingly, the final regulations
do not adopt this comment.
iv. Time of Sale
Under proposed Sec. Sec. 1.25E-3(b)(6) and 1.30D-5(a)(7), ``time
of sale'' means the date the clean vehicle is placed in service. Under
the proposed regulations, the date the clean vehicle is placed in
service is the date the taxpayer takes possession of the vehicle.
A commenter suggested that ``time of sale'' be defined as the date
of sale on the seller report, and noted that physical possession may
occur before, after, or at the time of sale (or at no time) and is not
relevant to when a sale has occurred. The date a taxpayer takes
possession of the vehicle is a date certain that completes the
transaction of purchasing a vehicle, whereas a date on the seller
report does not guarantee the taxpayer will take possession of the
vehicle and place it in service. As discussed in section II.A.2 of this
Summary of Comments and Explanation of Revisions, defining ``placed in
service'' as the date a taxpayer takes possession of the vehicle is
consistent with other provisions of the Code and prior interpretations
of section 30D(a). Accordingly, the final regulations do not adopt this
comment.
3. Dealer Registration
Proposed Sec. Sec. 1.25E-3(c)(2) and 1.30D-5(b)(2) provided rules
regarding dealer tax compliance. Specifically, the proposed regulations
provided that if the dealer is not in dealer tax compliance for any of
the taxable periods during the most recent five taxable years, the
dealer may register nonetheless to become a registered dealer. However,
the proposed regulations provided that in such cases the dealer cannot
receive advance payments under the advance payment program until the
dealer's tax compliance issue is resolved. This is because the dealer,
while registered, is not an eligible entity until it comes into dealer
tax compliance.
One commenter suggested creating an exemption from the dealer tax
compliance requirement to address the unique nature of its sales model
in which all advance payments of transferred credits ultimately reside
with the corporate parent and not with one of the subsidiaries in the
organization structure that may be deemed out of tax compliance.
A commenter asserted that dealers play a purely ministerial role in
the credit transfer process, and their tax compliance status does not
impact the dealer's ability to facilitate a credit transfer. The
commenter requested that to the extent the final regulations do not
remove the dealer tax compliance provision, the compliance lookback
period should be for a maximum of three years rather than the five
provided in the proposed regulations. In addition, the commenter
requested that the final regulations clarify that the dealer tax
compliance requirement applies for
[[Page 37718]]
advance payment purposes only and has no impact on a registered
dealer's sales or seller reporting.
Pursuant to section 30D(g)(1) and (g)(7), participation in the
advance payment program is elective and is subject to the requirements
and conditions that the Secretary determines necessary. An advance
payment system for dealers presents unique tax administration
challenges because it involves the IRS making payments to dealers
regardless of their tax liability and doing so outside of the normal
tax filing system, with its built-in compliance and enforcement
mechanisms. The dealer tax compliance requirement ensures that the
entities receiving advance payments have satisfied their own Federal
tax obligations, which aids in fraud prevention and tax administration.
For these reasons, the final regulations retain the dealer tax
compliance requirement. Further, the final regulations retain the five-
year lookback period because the longer period better facilitates the
IRS's ability to determine whether there are enforcement concerns with
regard to a particular dealer. The final regulations also add an
express statement that dealer tax compliance is required before
describing the consequences of noncompliance. No clarification is
needed regarding the scope of the dealer tax compliance requirement
because it is clear from the placement of the requirement in the
provisions relating to the transfer of the section 25E and 30D credits
that such requirement applies only for purposes of the advance payment
program and not for other dealer activities, such as the issuance of
seller reports.
4. Form of Payment From Eligible Entity to Electing Taxpayer
Proposed Sec. Sec. 1.25E-3(e)(3) and 1.30D-5(d)(3) provided that
the Federal income tax treatment of the payments associated with a
credit transfer election are the same regardless of whether the payment
is made in cash or in the form of a partial payment or down payment for
the purchase of the clean vehicle.
A commenter noted that in some states, dealers are prohibited under
state law to promise to pay or otherwise tender cash if a vehicle is
financed. The commenter recommended that the credit transfer election
be available only for a reduction in sale price without the payment of
cash in states where cash payments from dealers for financed vehicles
are prohibited under state law. Proposed Sec. Sec. 1.25E-3(e)(3) and
1.30D-5(d)(3) included examples that illustrate the application of the
payment rules referenced by the commenter. The examples in proposed
Sec. Sec. 1.25E-3(e)(5)(ii) and 1.30D-5(d)(5)(ii) address a scenario
in which the eligible entity makes the payment to the electing taxpayer
in the form of a reduction in sale price (rather than as cash) and
concluded that the eligible entity is eligible to receive an advance
payment. Although addressed in the examples, reductions in sale price
are not explicitly addressed in proposed Sec. Sec. 1.25E-3(e)(3) and
1.30D-5(d)(3), which articulate the rules illustrated in the examples.
Accordingly, the final regulations adopt proposed Sec. Sec. 1.25E-
3(e)(3) and 1.30D-5(d)(3) with language clarifying that reductions in
sale price are acceptable forms of payment by an eligible entity.
5. Vehicle Identification Number Requirement
Proposed Sec. Sec. 1.25E-2(e)(4) and 1.30D-5(d)(4) impose certain
additional requirements for credit transfer elections. Among those
rules, the proposed regulations provided that the vehicle
identification number requirements of section 30D(f)(9) and, by reason
of section 25E(e), section 25E(d), would be treated as satisfied if the
eligible entity provides the vehicle identification number of such
vehicle to the IRS in the form and manner set forth in guidance
published in the Internal Revenue Bulletin. The final regulations,
consistent with the Secretary's general authority under section
30D(g)(1), provide that the electing taxpayer must provide its vehicle
identification number with its Federal income tax return for the
taxable year in which the vehicle is placed in service. Reporting of
the vehicle identification number by both the electing taxpayer and the
eligible entity is necessary to reconcile the advance payments under
the credit transfer program with the eligibility of the electing
taxpayer, which helps safeguard program integrity.
6. Increases in Tax
i. Recapture From Taxpayer
Section 30D(g)(10) provides that, in the case of any taxpayer who
has made a credit transfer election and received a payment from an
eligible entity, if the section 30D credit would otherwise (but for
section 30D(g)) not be allowable to such taxpayer pursuant to the
application of the Modified AGI limitation, the tax imposed on such
taxpayer under chapter 1 of the Code for the taxable year in which such
vehicle was placed in service will be increased by the amount of the
payment received by such taxpayer. Because section 25E(f) cross
references to section 30D(g), similar rules apply with respect to the
section 25E credit.
Proposed Sec. Sec. 1.25E-3(g)(1) and 1.30D-5(f)(1) provided that,
in the case of a clean vehicle credit that would otherwise not be
allowable to a taxpayer that made a credit transfer election because
the taxpayer exceeds the limitation based on Modified AGI, the income
tax imposed on the taxpayer under chapter 1 of the Code for the taxable
year in which the vehicle was placed in service is increased by the
amount of the payment received by the taxpayer pursuant to the credit
transfer election. The taxpayer in such a case must report recapture of
the additional amount on its income tax return for the taxable year
during which the vehicle was placed in service.
A commenter suggested that Sec. Sec. 1.25E-3(g)(1) and 1.30D-
5(f)(1) should be revised to apply recapture to taxpayers purchasing
clean vehicles for resale or for primarily nonpersonal use. Regarding
the purchase for resale aspect of this comment, proposed Sec. Sec.
1.25E-2(c)(1)(iii)(E) and 1.30D-4(f)(1)(iii)(E) provided that the value
of any transferred credit will be collected from the taxpayer in the
event the taxpayer resells the vehicle within 30 days of placing the
vehicle in service. Therefore, the proposed regulations already
addressed the purchase for resale aspect of this comment and further
clarification is not necessary. Regarding the aspect of the comment
related to recapture in the event of primary nonpersonal use of the
vehicle, Revenue Procedure 2023-33 provides that a taxpayer must attest
to the IRS under penalty of perjury that the taxpayer is an individual
for purposes of section 25E, or that the taxpayer will use the vehicle
predominantly for personal use for purposes of section 30D. Because
nonpersonal use of vehicles is adequately addressed in sub-regulatory
guidance, additional clarification is not necessary. Accordingly, the
final regulations do not adopt this comment.
Another commenter requested that the final regulations clarify who
is responsible for recapture and under what circumstances. The final
regulations, as described in this section of the Summary of Comments
and Explanation of Revisions, make clear who is subject to recapture.
Accordingly, the final regulations do not adopt this comment.
Based on the foregoing, the final regulations adopt proposed
Sec. Sec. 1.25E-2(c)(1)(iii)(E) and 1.30D-4(f)(1)(iii)(E) without
modification.
[[Page 37719]]
ii. Excessive Payment to an Eligible Entity
Section 30D(g)(7)(B) and section 25E(f) (by cross reference to
section 30D(g)) provide that rules similar to the rules of section
6417(d)(6) apply for purposes of the advance payment program. Proposed
Sec. Sec. 1.25E-3(g)(2) and 1.30D-5(f)(2) provided that, in the case
of any advance payment that the IRS determines constitutes an excessive
payment, the tax imposed on the eligible entity by chapter 1 of the
Code, for the taxable year in which such determination is made will be
increased by the sum of the amount of the excessive payment, plus an
amount equal to 20 percent of such excessive payment. The proposed
regulations further provided that the rule applies regardless of
whether such entity would otherwise be subject to chapter 1 tax. The
additional amount of 20 percent, however, will not apply if the
eligible entity demonstrates to the IRS that the excessive payment was
due to reasonable cause, which is presumed to be the case for a clean
vehicle returned within 30 days of placing such vehicle in service. See
proposed Sec. Sec. 1.25E-3(g)(2)(ii) and 1.30D-5(f)(2)(ii).
The proposed regulations provided that an excessive payment means,
with respect to an advance payment to an eligible entity pursuant to a
credit transfer election made by an electing taxpayer, an advance
payment made to a registered dealer that fails to meet the requirements
to be an eligible entity. Additionally, the proposed regulations define
``excessive payment'' as an advance payment to an eligible entity with
respect to a clean vehicle to the extent the payment exceeds the amount
of the clean vehicle credit that would be otherwise allowable to the
electing taxpayer with respect to the vehicle. See proposed Sec. Sec.
1.25E-3(g)(2)(iii) and 1.30D-5(f)(2)(iii). However, any excess payment
attributable to a taxpayer exceeding the limitation based on Modified
AGI is not treated as an excessive payment to an eligible entity.
A commenter requested clarification that ``reasonable cause''
includes an eligible entity's reliance on a manufacturer's calculations
for purposes of the Critical Minerals and Battery Components
Requirements, as shown on https://fueleconomy.gov or elsewhere.
Specifically, the commenter requested that the final regulations
clearly provide that eligible entities will not be liable for mistaken
determinations with respect to those requirements.
Section 4.03 of Revenue Procedure 2022-42 provides that a taxpayer
may rely on the information and certifications (which include
certifications with respect to the Critical Minerals and Battery
Components Requirements and the FEOC Restriction) contained in the
qualified manufacturer's periodic written reports. Therefore, in the
case of a mistaken calculation by the qualified manufacturer in a
periodic written report, the taxpayer is not denied the section 30D
credit. Accordingly, if that taxpayer transfers the credit under the
advance payment program, the excess of the advance payment to the
dealer over the credit otherwise allowable to the taxpayer would be
zero, and there is no excessive payment under proposed Sec. 1.30D-
5(f)(2)(iii). Consequently, the eligible entity would have no liability
and no need to demonstrate reasonable cause. For clarity, the final
regulations incorporate the provisions of section 4.03 of Revenue
Procedure 2022-42 regarding taxpayer reliance on manufacturer
certifications regarding qualified manufacturer status, and
certifications and information a qualified manufacturer provides to the
IRS in periodic written reports. The final regulations also delineate
what taxpayer reliance means in this context. In addition, the final
regulations add an example to Sec. Sec. 1.25E-2(g) and 1.30D-5(g)(3)
that illustrate that an excessive payment does not arise in the
situation described by the commenter.
7. Two Credit Transfer Elections per Year
Proposed Sec. Sec. 1.25E-3(i) and 1.30D-5(h) provided that a
taxpayer may make no more than two credit transfer elections per
taxable year. The proposed regulations further provided that in the
case of a joint income tax return, each spouse may make two transfer
elections per taxable year, for a maximum of four credit transfer
elections in a taxable year. These proposed rules were intended to
ensure program integrity by limiting credit transfer elections to
vehicle sales that appear to be for legitimate nonbusiness individual
use.
A commenter recommended that the requirements of proposed
Sec. Sec. 1.25E-3(i) and 1.30D-5(h) be deleted because there is no
basis in section 25E or section 30D for these restrictions. The
commenter noted that an eligible entity working with a taxpayer on a
credit transfer would have no ability to determine whether the taxpayer
would have already made two transfer elections. Section 30D(g)(1)
provides that the credit transfer election is ``[s]ubject to such
regulations or other guidance as the Secretary determines necessary.''
Section 25E(f) adopts section 30D(g) by reference. Therefore, the
Treasury Department and the IRS have the authority to regulate the
credit transfer election to ensure program integrity and sound tax
administration. Moreover, pursuant to Revenue Procedure 2023-33, the
taxpayer will attest to the IRS directly that they have not made more
than two transfer elections per year, and the dealer may rely on the
taxpayer's attestation. Accordingly, the final regulations do not adopt
this comment.
III. New Clean Vehicle Credit--Section 30D
A. Definitions
Section 1.30D-2 of the April Proposed Regulations provided general
definitions related to the section 30D credit. Section 1.30D-3(c) of
the April Proposed Regulations provided definitions applicable for
purposes of the Critical Minerals and Battery Components Requirements.
Section 1.30D-6(a) of the December Proposed Regulations provided
definitions applicable for purposes of the FEOC Restriction. In the
Explanation of Provisions to the December Proposed Regulations, the
Treasury Department and the IRS noted that terms relevant to both the
Critical Minerals and Battery Components Requirements described in
proposed Sec. 1.30D-3 and the FEOC Restriction of proposed Sec.
1.30D-6 should be interpreted consistently between those provisions.
Consistent with this statement, the final regulations retain
proposed Sec. 1.30D-2, with certain modifications described in this
section of the Summary of Comments and Explanation of Revisions, and
generally move the definitions from proposed Sec. 1.30D-3 and proposed
Sec. 1.30D-6 to Sec. 1.30D-2(b). However, the final regulations,
under Sec. 1.30D-3, retain certain definitions that are directly
relevant to the calculations under the Critical Minerals and Battery
Components Requirements; those definitions are cross-referenced in
Sec. 1.30D-2(b). Section 1.30D-2(b) also cross-references definitions
in proposed Sec. 1.30D-5, which provides rules for the credit transfer
election (described in section II.C of this Summary of Comments and
Explanation of Revisions).
The discussion in this section of the Summary of Comments and
Explanation of Revisions only addresses new definitions, definitions
that have been modified, or definitions for which comments were
received.
1. Applicable Critical Mineral
Proposed Sec. Sec. 1.30D-3(c)(1) and 1.30D-6(a)(1), consistent
with section
[[Page 37720]]
30D(e)(1), defined an ``applicable critical mineral'' as an applicable
critical mineral defined in section 45X(c)(6).
In addition, proposed Sec. 1.30D-6(c)(4)(ii)(A) provided that the
determination of whether an applicable critical mineral is FEOC-
compliant takes into account each step of extraction, processing, or
recycling through the step in which such mineral is processed or
recycled into a constituent material, even if the mineral is not in a
form listed in section 45X(c)(6) at every step. Proposed Sec. 1.30D-
6(c)(4)(ii)(A) provided an exception to this general rule in the case
of recycling (as discussed in this Summary of Comments and Explanation
of Revisions at section III.A.25). Proposed Sec. 1.30D-6(c)(4)(ii)(C)
further provided that, for purposes of determining whether an
applicable critical mineral is FEOC-compliant, an applicable critical
mineral is disregarded if it is fully consumed in the production of the
constituent material or battery component and no longer remains in any
form in the battery.
Several commenters asked for clarification with respect to
graphite. Specifically, the commenters requested clarification as to
whether graphite that is of a purity of less than 99.9 percent
graphitic carbon, but that is purified to a minimum purity of 99.9
percent carbon, is an applicable critical mineral under section
45X(c)(6) and thus section 30D. These comments were considered in the
context of the section 45X proposed regulations. As explained in the
Explanation of Provisions to the section 45X proposed regulations:
``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. [. . .] 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.'' The Treasury
Department and the IRS will continue to consider this issue as part of
finalizing of the section 45X regulations. The form of graphite that is
an applicable critical mineral for the purposes of section 30D will be
the form that is determined to be an applicable critical mineral in the
45X final regulations.
Several commenters requested clarity as to whether synthetic
graphite is an applicable critical mineral. Those commenters requested
that the final regulations explicitly state that both graphite
variations, synthetic and natural, qualify as an applicable critical
mineral. A separate commenter suggested that, because natural and
synthetic graphite have entirely different processing procedures,
synthetic graphite should not be categorized as an applicable critical
mineral. These comments were also considered in the context of the
section 45X proposed regulations. Proposed Sec. 1.45X-4(b)(14) would
provide that ``[t]he term graphite means natural or synthetic graphite
that is purified to a minimum purity of 99.9 percent graphitic carbon
by mass.'' The Treasury Department and the IRS will continue to
consider this issue as part of finalizing of the section 45X
regulations. The form of graphite that is an applicable critical
mineral for the purposes of section 30D will be the form that is
determined to be an applicable critical mineral in the section 45X
final regulations.
Several commenters requested clarification on whether other
critical minerals are subject to the Critical Minerals Requirement and
the FEOC Restriction. One commenter requested that the final
regulations provide clarification with respect to hydrofluoric acid
(HF). HF may be produced from fluorspar that is purified to a minimum
purity of 97 percent calcium fluoride by mass. In these cases, the
fluorspar is an applicable critical mineral (under section
45X(c)(6)(K)) and the HF would be an associated constituent material,
both of which would be subject to the Critical Minerals Requirement and
the FEOC Restriction. The commenter noted that in other cases, HF may
be made with lower purity fluorspar or through phosphate mining
(without fluorspar). The commenter requested clarification that such HF
is still subject to the Critical Minerals Requirement and the FEOC
Restriction. Similarly, another commenter requested clarity as to
whether nickel, manganese, cobalt, and lithium that do not meet the
purity requirements of section 45X(c)(6) are subject to the Critical
Minerals Requirement and the FEOC Restriction. This commenter
recommended that such lower-purity minerals not be subject to these
rules.
One commenter recommended expanding the definition of ``applicable
critical mineral'' to include other chemical forms of the critical
minerals identified in section 45X(c)(6), such as nitrates, hydroxides,
oxides, oxide hydroxides, carbonates, and chlorides. Another commenter
stated that the critical minerals list excludes important minerals,
such as iron and phosphorous, that are prevalent in FEOC-made
batteries, and that this exclusion may introduce a loophole whereby
FEOC-made batteries using non-listed critical minerals may be eligible
for the critical mineral portion of the 30D credit. That commenter
requested that the Treasury Department and the IRS issue additional
rules to address non-U.S. critical minerals. Finally, one commenter
noted that many minerals that enter battery supply chains prior to
attaining the purity level listed in section 45X or becoming an
associated constituent material come from FEOCs. That commenter
expressed support for extending FEOC-compliance for critical minerals
throughout production, even if the mineral is not in a final form
listed in section 45X(c)(6) during each step.
In response to these comments, the Treasury Department and the IRS
note that under the plain language of sections 30D(e)(1) and 45X(c)(6),
minerals other than those specified in section 45X(c)(6) are not
applicable critical minerals, and are therefore not subject to the
Critical Minerals Requirement and the FEOC Restriction. In addition,
the rules of proposed Sec. Sec. 1.30D-6(c)(4)(ii)(A) and 1.30D-
6(c)(4)(ii)(C) provided additional clarity regarding classification as
an applicable critical mineral in cases in which the form of the
mineral changes during the steps of extraction, processing, or
recycling. The final regulations extend this clarification to the
Critical Minerals Requirement by incorporating it into the definition
of ``applicable critical mineral.''
The final regulations adopt the definition in proposed Sec. Sec.
1.30D-3(a)(1), 1.30D-6(c)(1), 1.30D-6(c)(4)(ii)(A), and 1.30D-
3(c)(4)(ii)(C), with the modification described above, consolidate it,
and move it to Sec. 1.30D-2(b) with the modification described
previously. Specifically, the final regulations, like the proposed
regulations, provide that ``applicable critical mineral'' means an
applicable critical mineral defined in section 45X(c)(6). The final
regulations clarify that the requirements under Sec. Sec. 1.30D-3 and
1.30D-6 with respect to an applicable critical mineral take into
account each step of extraction, processing, or recycling through the
step in which such mineral is processed or recycled into an associated
constituent material, even if the mineral is not in a form listed in
section 45X(c)(6) at every step of production. The final regulations
further clarify that an applicable critical mineral is disregarded for
purposes of the Critical Minerals Requirement and the FEOC Restriction
if it is fully consumed in the production of the constituent material
or battery component and no longer remains in any form in the battery.
[[Page 37721]]
In addition, the final regulations incorporate the special rule for
recycling in proposed Sec. 1.30D-6(c)(4)(ii)(A) into the definition of
``recycling'' in Sec. 1.30D-2(b). The final regulations also provide
an example that illustrates when the determinations under the Critical
Minerals Requirement and the FEOC Restriction take place with respect
to an applicable critical mineral.
2. Assembly
Proposed Sec. Sec. 1.30D-3(c)(2) and 1.30D-6(a)(2) defined
``assembly,'' with respect to battery components, as the process of
combining battery components into battery cells and battery modules.
The final regulations adopt the definition of ``assembly'' in proposed
Sec. Sec. 1.30D-3(c)(2) and 1.30D-6(a)(2), consolidate it into a
single provision, and move it to Sec. 1.30D-2(b).
One commenter stated that the definition of ``assembly'' could
allow for abuse under the Battery Components Requirement by allowing a
North American manufacturer, for example, to simply affix two Chinese
batteries together, which would be considered assembly of a North
American battery component. However, in this situation, the incremental
value, for purposes of determining the total incremental value of North
American battery components (that is, the numerator in the qualifying
battery component content that is compared to the applicable
percentages of section 30D(e)(2)(B)), would only be the value of the
affixed batteries, less the value of the batteries prior to assembly.
Because that incremental value would be minimal, the potential for
abuse as described by the commenter would also be minimal. Accordingly,
the final regulations do not adopt this comment.
3. Associated Constituent Materials
Proposed Sec. 1.30D-6(c)(4)(ii)(B) provided that in determining
whether an applicable critical mineral is FEOC-compliant, a constituent
material is associated with an applicable critical mineral if the
applicable critical mineral has been processed or recycled into a
constituent material, even if that processing or recycling transformed
the mineral into a form not listed in section 45X(c)(6).
The Critical Minerals Requirement under proposed Sec. 1.30D-3
incorporated the same concept by providing that the portion of an
applicable critical mineral that is a qualifying critical mineral must
be determined separately for each procurement chain. Proposed Sec.
1.30D-3(c)(14) defined ``procurement chain'' as a common sequence of
extraction, processing, or recycling activities that occur in a common
set of locations with respect to an applicable critical mineral,
concluding in the production of constituent materials.
These determinations necessarily encompass steps in the procurement
chain in which the applicable critical mineral is transformed into a
form not listed in section 45X(c)(6). Accordingly, the final
regulations add a definition of ``associated constituent material'' to
Sec. 1.30D-2(b), which provides that, with respect to an applicable
critical mineral, an ``associated constituent material'' is a
constituent material that has been processed or recycled from such
mineral into the constituent material with which it is associated, even
if that processing or recycling transformed such mineral into a form
not listed in section 45X(c)(6).
4. Battery
Proposed Sec. Sec. 1.30D-3(c)(3) and 1.30D-6(a)(3) defined
``battery,'' for purposes of a new clean vehicle, as a collection of
one or more battery modules, each of which has two or more electrically
configured battery cells in series or parallel, to create voltage or
current. Under proposed Sec. Sec. 1.30D-3(c)(3) and 1.30D-6(a)(3), the
term ``battery'' did not include items such as thermal management
systems or other parts of a battery cell or module that do not directly
contribute to the electrochemical storage of energy within the battery,
such as battery cell cases, cans, or pouches. The final regulations
adopt the definition of ``battery'' in Sec. Sec. 1.30D-3(c)(3) and
1.30D-6(a)(3), consolidate it into a single provision, and move the
definition to Sec. 1.30D-2(b).
The Treasury Department and the IRS received comments both in
support of and in opposition to the proposed definition of ``battery.''
Several commenters requested a broader definition of ``battery,'' while
other commenters criticized the definition of battery as too broad.
Similarly, several commenters disagreed with the definition of
``battery'' and recommended that it be defined as a complete battery
pack. The Explanation of Provisions to the April Proposed Regulations
noted that the proposed definition of ``battery'' is consistent with
the language and purpose of section 30D because battery modules and
cells are the sources ``from which the electric motor of such vehicle
draws electricity.'' See sections 30D(e)(1)(A) and (2)(A). Consistent
with this, items that do not directly contribute to the electrochemical
storage of energy within the battery are not the subject of the IRA's
incentives to shift to more secure and resilient electric vehicle
battery supply chains. Such items are generally low-value commodities
that are specific to the end-use of the energy storage technology,
rather than the process of storing energy. The proposed definition of
``battery'' is in keeping with the statutory purpose of incentivizing
the resiliency and security of the highest-value and most specialized
portions of the battery supply chain. In addition, the functional
definition of ``battery'' in the proposed regulations allows for
technological changes, as the definition will not be obsolete if
battery pack structures change in the future, but is also consistent
with current industry practice, as electrochemical batteries are
currently standard. Accordingly, the final regulations do not adopt
these comments.
In addition, one commenter requested that the definition of
``battery'' exclude thermal management systems and other components
that do not directly contribute to energy storage. Because the
definition of ``battery'' already excludes such systems and such other
components, no modification to the definition of ``battery'' is
required.
Finally, one commenter noted the necessity of future conversations
about the definitions of ``battery'' and ``battery component'' to
reflect technological advances. The Treasury Department and the IRS
will continue to monitor technology in this area in coordination with
the DOE. The Treasury Department and the IRS welcome additional
comments in the future that discuss technological changes with respect
to electric vehicle batteries.
5. Battery Cell
Proposed Sec. Sec. 1.30D-3(c)(4) and 1.30D-6(a)(4) defined
``battery cell'' as a combination of battery components (other than
battery cells) capable of electrochemically storing energy from which
the electric motor of a new clean vehicle draws electricity. This
proposed definition of battery cell encompassed the smallest
combination of battery components necessary for the function of energy
storage. The final regulations adopt the definition of ``battery cell''
in proposed Sec. Sec. 1.30D-3(c)(4) and 1.30D-6(a)(4), consolidate it
into a single provision, and move it to Sec. 1.30D-2(b).
A commenter requested that the guidance align the definitions of
``battery cell'' and ``battery component'' with those in section
45X(c)(5). However, section 30D does not adopt those definitions by
reference. As noted in section III.A.4 of this Summary of Comments and
Explanation of Revisions, items that do not directly contribute to the
electrochemical storage of energy within the battery, which are
[[Page 37722]]
generally low-value commodities, are not the subject of the IRA's
incentives to shift to more secure and resilient electric vehicle
battery supply chains. For this reason, the Treasury Department and the
IRS have determined that the section 30D definitions should be limited
to electrochemical energy storage batteries that that are used in
electric vehicles, and do not need to encompass concepts that are
pertinent to other forms of energy storage that are included in the
definitions in section 45X(c)(5) (for example, thermal batteries).
Accordingly, the final regulations do not adopt this comment.
6. Battery Component
Proposed Sec. Sec. 1.30D-3(c)(5) and 1.30D-6(a)(6) defined
``battery component'' as a component that forms part of a battery and
that is manufactured or assembled from one or more components or
constituent materials that are combined through industrial, chemical,
and physical assembly steps. Battery components include, but are not
limited to, a cathode electrode, anode electrode, solid metal
electrode, separator, liquid electrolyte, solid state electrolyte,
battery cell, and battery module. Constituent materials are not
considered a type of battery component, although constituent materials
could be manufactured or assembled into battery components. Some
battery components could be made entirely of inputs that do not contain
constituent materials. Battery components include any piece of the
assembled battery cell that contributes to electrochemical energy
storage.
The Treasury Department and the IRS received a number of comments
regarding the definition of ``battery component.'' Several commenters
were supportive of the definition. The proposed definition of ``battery
component'' included a non-exhaustive list of specific components, and
many commenters proposed additions to the list. One commenter suggested
that the list specifically include cathode and anode foil. Other
commenters requested clarity with respect to lead tabs (for battery
cells), metal components (for battery modules), and cap assemblies (for
the manufacture of canister battery cells). Other items suggested for
inclusion were separator coatings, binders, electrolyte solvents and
electrolyte salts, current collectors, cell contacting layers, voltage
sense harnessing, and battery management systems. Another commenter
noted that the inclusion of ``but not be limited to'' language creates
uncertainty for automakers and instead asked for a full list of
components. In response, the final regulations add a new definition of
``battery materials'' (described in section III.A.7 of this Summary of
Comments and Explanation of Revisions) to Sec. 1.30D-2(b). In
addition, the final regulations clarify that battery materials without
applicable critical minerals are not battery components, as they are
not manufactured or assembled. The final regulations do not provide a
complete list of battery components because electric vehicle battery
components may vary depending on the battery chemistry, especially as
battery technology continues to evolve. The illustrative list of
battery components in the final regulation allows for future
innovation.
Several commenters raised concerns regarding the limitation of
battery components to items that contribute to electrochemical energy
storage. A commenter supported the limitation as important to both the
workability of and intent behind the Battery Components Requirement. On
the other hand, another commenter requested that the final regulations
expand the definition of ``battery component'' to include additional
enabling technologies, such as thermal management, cooling, and housing
and enclosure components. The commenter, mentioned previously, that
requested clarity with respect to lead tabs and metal components stated
that ambiguity with respect to the phrase ``electrochemical storage
components'' made it difficult to determine whether these items were
battery components. Similarly, commenters suggested that, under the
language of section 30D, battery components should include thermal
barriers. As noted previously, the proposed definition of ``battery,''
which informs the definition of ``battery component,'' is consistent
with the statute because battery modules and cells are the sources
``from which the electric motor of such vehicle draws electricity.''
Section 30D(e)(1)(A) and (2)(A). In addition, this definition is
consistent with the purpose of section 30D to provide incentives to
move toward more secure and resilient electric vehicle battery inputs.
Inputs that do not directly contribute to the electrochemical processes
necessary for energy storage (for example, thermal management systems,
battery management systems, housing/enclosure components) are generally
lower-value and specific to the end use of the battery, rather than the
process of storing energy. The same reasoning applies to battery
components. As noted by the Joint Committee on Taxation, the battery
components requirement in section 30D(e)(2)(A) is ``intended to
incentivize the manufacturing or assembly of high-value battery
components, such as battery cells, in North America.'' \4\ Accordingly,
because the proposed definition is consistent with the statutory text
and purpose, the final regulations do not adopt these comments.
---------------------------------------------------------------------------
\4\ Joint Committee on Taxation, Joint Committee on Taxation,
General Explanation of Tax Legislation Enacted in the 117 Congress
(JCS 1-23), December 2023, at 252, n.1070.
---------------------------------------------------------------------------
Finally, multiple commenters raised questions and provided
recommendations relating to separators, many of which relate to the
determination under the Battery Components Requirement (discussed in
section III.B.2 of this Summary of Comments and Explanation of
Revisions). One commenter requested clarification as to the incremental
value of a coated separator, and recommended that the incremental value
be determined by subtracting the value of an uncoated separator (a
lithium-ion battery separator) from the value of the coated separator
(a ceramic coated separator). Another commenter, noting that
``substantially all'' in the definition of ``North American Battery
Component'' was vague, requested that the final regulations state that
a separator coated in North America is a North American Battery
Component (regardless of where the pre-coated separator was
manufactured). This commenter stated that up to 60 percent of the value
added by the separator comes from the coating process. In contrast,
another commenter requested that the final regulations clarify that
coating a separator is not manufacturing or assembly, to ensure that a
separator coated in North America is not considered a North American
Battery Component if the pre-coated separator was manufactured outside
of North America. A different commenter advocated against the inclusion
of base film and coating materials used to make such separator in the
definition of ``battery component'' for purposes of the Battery
Components Requirement and the FEOC Restriction. In addition, one
commenter requested that the bare film and binders incorporated into a
ceramic-coated separator be classified as battery sub-components and
noted that these items should qualify under either the Critical
Minerals Requirement or the Battery Components Requirement if
manufactured in North America or a country with which the United States
has a free trade agreement in effect. This commenter also made
suggestions with respect to various other government
[[Page 37723]]
rules that may apply to coated separators, which are outside the scope
of these final regulations.
In response to these comments, the Treasury Department and the IRS
note that a coated separator is a battery component. In general, the
base film and coating are battery materials, not battery components,
because they are processed rather than manufactured or assembled. If
those battery materials contain applicable critical minerals, those
battery materials are constituent materials. The final regulations
clarify this in the definition of ``battery component'' and the new
definition of ``battery materials.''
Finally, several commenters discussed the relationship between the
Battery Components Requirement and the FEOC Restriction. One commenter
encouraged the Treasury Department and the IRS to use the same
definition of ``battery component'' for purposes of the Battery
Components Requirement and the FEOC Restriction. In contrast, another
commenter suggested that the final regulations adopt a broader
definition of ``battery component'' for purposes of the FEOC
Restriction that includes components otherwise included in the
definition of ``constituent material'' for purposes of the Critical
Minerals Requirements. As noted in the Explanation of Provisions to the
December Proposed Regulations, the Treasury Department and the IRS
intend that terms relevant to both the Critical Minerals and Battery
Components Requirement and the FEOC Restriction be interpreted
consistently. Consistent with that, the final regulations include one
general definition of ``battery component'' for purposes of section
30D, and do not adopt the comment suggesting a broader definition for
purposes of the FEOC Restriction.
The final regulations, in Sec. 1.30D-2(b), adopt a definition of
``battery component'' that clarifies the treatment of separators and
incorporates the new definition of ``battery materials.'' The
definition is modified to improve clarity regarding the relationship
between battery components, constituent materials, and battery
materials.
7. Battery Materials
To further clarify the line between battery components and
constituent materials, the final regulations add a definition of
``battery materials'' to Sec. 1.30D-2(b). The final regulations define
``battery materials'' as direct and indirect inputs to battery
components that are produced through processing, rather than
manufacturing or assembly. Battery materials are not considered a type
of battery component, although battery materials may be manufactured or
assembled into battery components. The three categories of battery
materials are applicable critical minerals, constituent materials, and
battery materials without applicable critical minerals. Examples of
battery materials that may or may not contain applicable critical
minerals include a separator base film (if not manufactured or
assembled) and separator coating. Examples of battery materials without
applicable critical minerals include conductive additives, copper foils
prior to graphite deposition, and electrolyte solvents.
8. Clean Vehicle Battery
The final regulations add a definition of ``clean vehicle battery''
to Sec. 1.30D-2(b). Consistent with section 30D(d)(1)(F) and 30D(e),
the final regulations define ``clean vehicle battery,'' with respect to
a new clean vehicle, means the battery from which the electric motor of
the vehicle draws electricity to propel such vehicle.
9. Compliant-Battery Ledger
Proposed Sec. 1.30D-6(a)(7) defined ``compliant-battery ledger,''
for a qualified manufacturer for a calendar year, as a ledger that
tracks the number of available FEOC-compliant batteries for such
calendar year. Proposed Sec. 1.30D-6(d) set forth rules applicable to
compliant-battery ledgers. The Treasury Department and the IRS received
several comments about the rules for establishing, updating, and
reconciling the compliant-battery ledger. These comments are included
as part of the discussion of proposed Sec. 1.30D-6(d) in section
III.D.3 of this Summary of Comments and Explanation of Revisions.
The final regulations adopt the proposed definition and move it to
Sec. 1.30D-2(b).
10. Constituent Materials
Proposed Sec. Sec. 1.30D-3(c)(6) and 1.30D-6(a)(8) defined
``constituent materials'' as materials that contain applicable critical
minerals and are employed directly in the manufacturing of battery
components. Constituent materials could include, but are not limited
to, powders of cathode active materials, powders of anode active
materials, foils, metals for solid electrodes, binders, electrolyte
salts, and electrolyte additives, as required for a battery cell. As
explained in the Explanation of Provisions to the April Proposed
Regulations, the definition of ``constituent materials'' describes the
materials that distinguish the steps of extraction, processing, and
recycling of critical minerals from the subsequent steps of
manufacturing and assembly of battery components. Constituent materials
are the final products relevant for calculating the value of the
applicable critical minerals in the battery.
The Treasury Department and the IRS received multiple comments with
respect to the definition of ``constituent materials.'' Several
commenters expressed support for the proposed definition. However,
other commenters criticized the definition as not supported by the
statute; as at odds with section 45X, which includes ``electrode active
materials'' as qualifying battery components; and as an inappropriate
reclassification of items that should be battery components, and thus
subject to the Battery Components Requirement. One commenter suggested
that constituent materials be included within the definition of
``battery component'' or otherwise phased in to allow for additional
time to relocate production facilities to North America. Another
commenter indicated that the definition of ``constituent materials''
could be exploited to exclude critical minerals.
In response to these comments, the Treasury Department and the IRS
note that although section 30D does not define ``battery component,''
it consistently refers to components as ``manufactured or assembled,''
and it consistently refers to ``applicable critical minerals'' as
``extracted, processed, or recycled.'' To avoid a gap in the supply
chain between applicable critical minerals and battery components, the
proposed regulations introduced the concept of constituent materials to
make clear that materials downstream of applicable critical minerals,
but still processed rather than manufactured or assembled, belong in
the analysis of a battery's applicable critical minerals. Section 30D
looks to a material's production steps to determine its status as an
applicable critical mineral or a battery component. The constituent
materials concept does not alter how the statute works; rather, it
clarifies how the statute applies to certain materials.
One commenter suggested modifying the definition of ``constituent
materials'' to include domestic alternatives that serve the same
purpose as constituent materials but do not contain applicable critical
minerals. The final regulations do not adopt this comment because the
commenter's proposal would be at odds with the Critical Minerals
Requirement and the FEOC Restriction (as applicable to applicable
critical minerals).
[[Page 37724]]
Other commenters raised questions with respect to whether specific
materials are constituent materials. One commenter asked for
clarification as to whether foils, such as a copper foil that does not
contain any applicable critical minerals, are constituent materials.
Another commenter asked for clarity with respect to polyvinylidene
fluoride (PVDF). Noting that PVDF made from fluorine (in the form of an
applicable critical mineral) would be a constituent material, the
commenter asked for clarification about the classification of PVDF that
is not made from an applicable critical mineral, such as PVDF sourced
from phosphate rock. The final regulations clarify that battery
materials may not contain applicable critical minerals. Further, the
Treasury Department and the IRS note that the materials referenced by
these commenters (foils and PVDF) would both be considered battery
materials without applicable critical minerals.
One commenter sought clarification of whether lithium
hexafluorophosphate is considered an electrolyte salt for purposes of
the definition of constituent materials. If an applicable critical
mineral in a form specified in section 45X(c)(6) is used to produce
lithium hexafluorophosphate, and this material is integrated into a
battery component, the material would be considered a constituent
material.
A separate commenter requested that the final regulations clarify
that carboxymethylcellulose (CMC), made from wood pulp or linter pulp,
is not a constituent material. The commenter notes that CMC does not
contain applicable critical minerals. The Treasury Department and the
IRS note that, while CMC is used in the manufacture of a battery
component as a binder or coating for the production of anode electrodes
by deposition of anode active material onto copper foil, CMC itself
does not contain an applicable critical mineral, and therefore would
not be considered a constituent material.
Finally, one commenter requested clarification with respect to
powders of cathode active materials (CAM), which is listed as a
constituent material. The commenter noted that the list does not
expressly include precursor materials used for making CAM or other
intermediate materials incorporating the critical minerals that are
used to produce the CAM. The commenter specifically recommended adding
these items to the list and including references to the relevant
applicable critical minerals by revising the definition to include
powders of precursor cathode active materials and any other
intermediate products incorporating critical minerals such as
manganese, nickel, or cobalt, powders of cathode active materials. The
final regulations provide, in the definition of ``applicable critical
mineral,'' that determinations under the Critical Minerals Requirement
and the FEOC Restriction with respect to an applicable critical mineral
take into account each step of extraction, processing, or recycling
through the step in which such mineral is processed or recycled into a
constituent material. Thus, the final regulations clarify that these
precursor or other intermediate materials are relevant for both the
Critical Minerals Requirement and the FEOC Restriction.
The final regulations adopt the definition of ``constituent
materials'' in proposed Sec. Sec. 1.30D-3(a)(8) and 1.30D-6(c)(6),
consolidate it into a single provision, and move it to Sec. 1.30D-
2(b). In addition, the final regulations clarify that battery materials
without applicable critical minerals are not constituent materials.
12. Country With Which the United States Has a Free Trade Agreement in
Effect
Proposed Sec. 1.30D-3(c)(7) defined the term ``country with which
the United States has a free trade agreement in effect'' and listed the
countries with which the United States has free trade agreements in
effect. As noted in the Explanation of Provisions to the April Proposed
Regulations, the term free trade agreement is not defined in the IRA or
in the Code. Proposed Sec. 1.30D-3(c)(7)(i) set forth criteria for the
identification of a country with which the United States has a free
trade agreement in effect, including whether an agreement between the
United States and another country, as to the critical minerals
contained in electric vehicle batteries or more generally, and in the
context of the overall commercial and economic relationship between
that country and the United States: (A) reduces or eliminates trade
barriers on a preferential basis, (B) commits the parties to refrain
from imposing new trade barriers, (C) establishes high-standard
disciplines in key areas affecting trade (such as core labor and
environmental protections), and/or (D) reduces or eliminates
restrictions on exports or commits the parties to refrain from imposing
such restrictions on exports.
Proposed Sec. 1.30D-3(c)(7)(ii) identified twenty countries with
which the United States has comprehensive free trade agreements (that
is, agreements covering substantially all trade in goods and services
between the parties, including trade in critical minerals). In
addition, the Treasury Department and the IRS proposed to include
additional countries identified by the Secretary, after consideration
of the listed criteria, and identified Japan as an additional country.
On March 28, 2023, the United States and Japan concluded a Critical
Minerals Agreement (CMA), which contained robust obligations to help
ensure free trade in critical minerals.\5\
---------------------------------------------------------------------------
\5\ Agreement Between the Government of the United States of
America and the Government of Japan on Strengthening Critical
Minerals Supply Chains, concluded March 28, 2023, https://ustr.gov/sites/default/files/2023-03/US%20Japan%20Critical%20Minerals%20Agreement%202023%2003%2028.pdf.
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Proposed Sec. 1.30D-3(c)(7)(iii) provided that the list of
identified countries in paragraph (c)(7)(ii) may be revised and updated
through appropriate guidance published in the Federal Register or in
the Internal Revenue Bulletin (see Sec. 601.601 of the Statement of
Procedural Rules (26 CFR part 601)).
The final regulations adopt this definition and move it to Sec.
1.30D-2(b). At this time, the Treasury Department and the IRS have not
identified any additions to the list of identified countries. The final
regulations continue to include Japan on the list of countries with
which the United States has free trade agreements in effect. After
consulting with the United States Trade Representative in applying the
relevant factors for identifying free trade agreements, the Treasury
Department and the IRS have concluded that Japan is a country with
which the United States has a free trade agreement in effect. The
Treasury Department and the IRS specifically sought comments on the
proposed criteria for identifying countries with which the United
States has free trade agreements in effect, other potential approaches
for identifying those countries, and the list of countries set forth in
proposed Sec. 1.30D-3(c)(7)(ii).
The Treasury Department and the IRS received several comments with
respect to this definition. One comment requested guidance identifying
at what stage a trade agreement is considered in effect, noting the
signature date of an agreement is frequently different from the trade
agreement's implementation date. The commenter requested that the
completion date be considered the date that a trade agreement is in
effect. As an initial matter, international agreements to which the
United States is a party, including those referred to in the Sec.
1.30D-2(b) definition of ``country with which the United States has a
free trade agreement in effect,'' ordinarily identify the date on which
they enter into force
[[Page 37725]]
and therefore are ``in effect,'' as that term is used in section 30D.
Consistent with the approach described in the proposed rules and
adopted in the final rules, the Treasury Department and the IRS will
also ``make any necessary amendments to the list . . . including adding
any additional countries as any new qualifying international agreements
enter into force and the Secretary determines that the [applicable]
factors have been met.'' The Treasury Department and the IRS have
determined that the assessment of whether an agreement is in effect is
something that the Secretary will evaluate in the context of individual
agreements that may be considered in determining whether to add
individual countries to the list of countries with which the United
States has free trade agreements in effect.
One commenter requested defining ``country'' to include
geographical areas that are of an international nature and do not
belong to any one country, such as international waters. The ordinary
meaning of ``country'' does not include areas beyond national
jurisdiction. Therefore, the final regulations do not adopt this
comment.
Several comments suggested that the proposed definition of ``free
trade agreement'' expands the regulatory regime and undercuts
Congressional intent. Relatedly, a comment specifically criticized the
inclusion of Japan on the list on the basis of the CMA. Other
commenters supported the inclusion of Japan on the basis of the CMA.
Another commenter suggested that the proposed regulations impermissibly
expand the Secretary's authority to define ``free trade agreement,''
and that the regulatory definition departs from its accepted meaning.
Several commenters suggested defining free trade agreements to include
arrangements, including plurilateral agreements, in which the United
States and a foreign economy agree to at least some strategic and/or
economic partnerships, including government procurement, even if the
agreement was not labeled a free trade agreement.
As noted earlier in this discussion and in the Explanation of
Provisions to the April Proposed Regulations, the term ``free trade
agreement'' is not defined in the IRA or in the Code, and the
definition in the proposed regulations is consistent with the statute
and its purpose, as reflected in the term's ordinary meaning, use, and
context in section 30D and in the broader IRA. As also noted in the
Explanation of Provisions to the April Proposed Regulations, the
purpose of the IRA's amendments to section 30D is to expand the
incentives for taxpayers to purchase new clean vehicles and for vehicle
manufacturers to increase their reliance on supply chains in the United
States and in countries with which the United States has reliable and
trusted economic relationships, which is essential for our national
security, our economic security, and our technological leadership. The
proposed definition of ``country with which the United States has a
free trade agreement in effect'' is consistent with these statutory
purposes. In particular, the criteria identified in the proposed
definition that must be met for an instrument to be determined to be a
free trade agreement include whether an agreement between the United
States and another country includes commitments related to reducing or
eliminating trade barriers on a preferential basis, refraining from
imposing new trade barriers, establishing high-standard disciplines in
trade-related areas, and reducing or eliminating restrictions on
exports or committing the parties to refrain from imposing such
restrictions, all in the context of the overall commercial and economic
relationship between the country in question and the United States.
Based on the criteria above, Japan was identified as a country with
which the United States has a free trade agreement in effect. In
particular, the United States-Japan CMA was identified as a free trade
agreement under these criteria because it includes robust obligations,
such as a commitment to refrain from imposing duties on exports of
critical minerals that are currently essential to the electric vehicle
battery supply chain, and a commitment for the United States and Japan
to confer on best practices regarding review of investments in the
critical minerals sector for purposes of assisting a determination of
the effect of such investments on national security. The CMA also
includes detailed terms related to the relationships of labor and
environmental laws to trade in critical minerals and cooperation on
non-market policies and practices of non-parties affecting trade in
critical minerals. The CMA was concluded in the context of an earlier
trade agreement the United States concluded with Japan in 2019, a
related 2019 agreement on digital trade, and the U.S.-Japan Partnership
on Trade announced in November 2021.
Several commenters addressed issues relating to labor standards,
environmental standards, economic and national security, transparency,
and enforceability. One commenter requested that the United States
Geological Survey be consulted as to the environmental standards and
compliance and enforcement histories of specified non-domestic sources.
Another commenter encouraged the Treasury Department and the IRS to
collaborate with the Department of State to leverage the Minerals
Security Partnership (MSP) to secure supply chains needed to scale
domestic battery production while establishing higher labor standards,
greater transparency, improved environmental practices, and greater
value-added benefits for communities located in countries with
significant mineral endowments. The Treasury Department and the IRS
appreciate these concerns and note that they are appropriately
reflected in the criteria identified in the proposed regulations,
specifically as high-standard disciplines in key areas affecting trade.
The Treasury Department and the IRS will consult with appropriate
agencies across the Federal government in applying the listed criteria
in the future.
Relatedly, several commenters raised concerns about whether
countries with which the United States does not have free trade
agreements in effect could launder applicable critical minerals through
procurement chains involving countries with which the United States has
free trade agreements in effect. The Treasury Department and the IRS
have determined that the upfront review process in Sec. 1.30D-3(d) of
the final regulations (described in section III.B.3 of this Summary of
Comments and Explanation of Revisions), which involves due diligence
and requires documentation of critical mineral supply chains, will
promote accurate tracing of the full critical mineral supply chain.
Another commenter suggested including a broad set of critical
minerals in any future critical minerals agreement. The commenter noted
that limiting future critical mineral agreements to a limited subset of
applicable critical minerals has the potential to limit innovation. In
response to this comment, the Treasury Department and the IRS note that
the determination under the Critical Minerals Requirement with respect
to ``any country with which the United States has a free trade
agreement in effect,'' would not be limited in the case of critical
minerals agreements by the scope of minerals covered by such critical
minerals agreement. Once the Secretary determines that a country
qualifies as a country with which the United States has a free trade
agreement
[[Page 37726]]
in effect, any applicable critical minerals within the meaning of
section 45X(c)(6) extracted or processed in that country are eligible.
Finally, several commenters requested that additional countries be
added to the list, including Argentina, the Philippines, members of the
European Union, and the United Kingdom. At this time, the Treasury
Department and the IRS have not identified agreements in effect with
the suggested countries within the meaning of section 30D. The Treasury
Department and the IRS will continue to work with the United States
Trade Representative and across the Federal government to apply the
listed criteria to determine if it is appropriate to list additional
countries.
13. Extraction
Proposed Sec. Sec. 1.30D-3(c)(8) and 1.30D-6(a)(9) defined
``extraction'' as the activities performed to extract or harvest
minerals or natural resources from the ground or a body of water,
including, but not limited to, by operating equipment to extract
minerals or natural resources from mines and wells, or to extract or
harvest minerals or natural resources from the waste or residue of
prior extraction. Under the proposed definition, extraction concludes
when activities are performed to convert raw mined or harvested
products or raw well effluent to substances that can be readily
transported or stored for direct use in applicable critical mineral
processing. Extraction includes the beneficiation or other physical
processes that allow the extracted materials, including ores, clays,
and brines, to become transportable. Extraction also includes the
physical processes involved in refining, but not the chemical and
thermal processes involved in refining.
Several commenters requested clarity on the line between extraction
and processing. Section III.A.22 of the Summary of Comments and
Explanation of Revisions addresses these comments.
One commenter suggested that the definition of ``extraction'' be
expanded to include critical minerals not physically taken from the
ground, citing innovations in producing graphite from biomass that no
longer require physical ground extraction. The proposed definition of
``extraction'' includes the extraction of minerals or natural resources
from the waste or residue of prior extraction. Therefore, it is
unnecessary to modify the definition of ``extraction'' in the manner
the commenter suggests. However, the final regulations clarify that
extraction also includes crude oil extraction to the extent processes
applied to that crude oil yield an applicable critical mineral as a
byproduct. The final regulations also clarify that extraction does not
include activities that begin with a recyclable commodity (as such
activities themselves constitute recycling).
The final regulations adopt the definition of ``extraction'' in the
proposed regulations, consolidate it into a single provision with the
clarification described previously, and move it to Sec. 1.30D-2(b).
14. Final Assembly
Proposed Sec. 1.30D-2(b) provided that, consistent with section
30D(d)(5), ``final assembly'' means the process by which a manufacturer
produces a new clean vehicle at, or through the use of, a plant,
factory, or other place from which the vehicle is delivered to a dealer
or importer with all component parts necessary for the mechanical
operation of the vehicle included with the vehicle, whether or not the
component parts are permanently installed in or on the vehicle. To
establish where final assembly of a new clean vehicle occurred, the
proposed regulations provided that a taxpayer could rely on the
following information: (1) the vehicle's plant of manufacture as
reported in the VIN pursuant to 49 CFR 565; or (2) the final assembly
point reported on the label affixed to the vehicle as described in 49
CFR 583.5(a)(3). The final regulations adopt the proposed definition of
``final assembly'' without change.
The proposed regulations provided two different methods for
determining whether a vehicle meets the North American final assembly
requirement, either via the VIN or the vehicle label, to ensure that
this information was available and accessible for taxpayers. For nearly
all vehicles, both methods will provide the same final assembly
location. The vehicle's plant of manufacture as reported in the VIN
means the plant where the manufacturer affixes the VIN. See 49 CFR
565.12. The plant of manufacture is reported in the VIN pursuant to 49
CFR 565.15(d)(2). The DOE, Alternative Fuels Data Center (AFDC), and
the Department of Transportation, National Highway Traffic Safety
Administration (NHSTA), each provide a VIN decoder to the public, which
can be used to identify a vehicle's plant of manufacture. AFDC, VIN
Decoder, https://afdc.energy.gov/laws/electric-vehicles-for-tax-credit;
NHTSA, VIN Decoder, https://www.nhtsa.gov/vin-decoder. Labeling
requirements in 49 CFR 583.5 require the final assembly point to be
reported on the label affixed to a passenger motor vehicle as defined
in 49 U.S.C. 32304(11) (which limits such vehicles to those with GVWR
of 8,500 pounds or less). Final assembly point means the plant,
factory, or other place, which is a building or series of buildings in
close proximity, where a new passenger motor vehicle is produced or
assembled from passenger motor vehicle equipment and from which such
vehicle is delivered to a dealer or importer in such a condition that
all component parts necessary to the mechanical operation of such
automobile are included with such vehicle, whether or not such
component parts are permanently installed in or on such vehicle. For
multi-stage vehicles, the labeling requirements provide that the final
assembly point is the location where the first stage vehicle is
assembled. 49 CFR 583.4(b)(5). Multi-stage vehicles are vehicles
manufactured in two or more stages by which an incomplete vehicle
becomes a completed vehicle and may involve multiple manufacturers. See
49 CFR 567.3 for definitions of ``incomplete vehicle'' and ``completed
vehicle.''
A commenter stated that the proposed rule would allow taxpayers to
use the vehicle's plant of manufacture reported on the VIN, rather than
the final assembly point, for multi-stage vehicles. However, existing
vehicle labeling requirements in 49 CFR part 583 apply to both single-
stage and multi-stage vehicles with GVWR of 8,500 pounds or less.
Therefore, such requirements provide a final assembly point for both
types of vehicles. The proposed regulations provided flexibility to
taxpayers in determining whether the section 30D credit final assembly
requirement is met by allowing taxpayers to look to either the plant of
manufacture identified in the VIN or the vehicle label final assembly
point. In the limited situations in which the VIN and vehicle label may
provide different final assembly locations, the proposed regulations
allowed taxpayers to choose the standard that is more favorable to
them. Moreover, the VIN and vehicle labels will diverge only in certain
limited situations with respect to a multi-stage vehicle, and most
multi-stage vehicles have a GVWR of more than 8,500 pounds, and are,
therefore, not subject to the part 583 vehicle labeling requirements.
Furthermore, it is important to leverage existing standards that
provide accessible information to taxpayers, and such information is
more accessible if taxpayers have multiple ways to obtain it.
Accordingly, the final regulations do not adopt this comment.
Another commenter requested that the final regulations define
``final assembly'' more broadly, to include
[[Page 37727]]
assembly of body panels, painting, chassis assembly, trim installation,
and other assembly and fabrication processes that are currently found
in established final assembly plants, to maximize the incentive for
production in the United States. Section 30D(d)(5) and the proposed
definition of ``final assembly'' look to the plant, factory, or other
place at which all component parts necessary for the mechanical
operation of the vehicle are included with the vehicle. Consistent with
the commenter's suggestion, this is generally the location where the
chassis of the vehicle is assembled, because at that point the vehicle
may be mechanically operable. In addition, the two reliance standards
described in the proposed regulations, the vehicle's plant of
manufacture as reported in the VIN, and the final assembly point
reported on the vehicle label, generally also look to the location
where the chassis of the vehicle is assembled. The other processes
suggested by the commenter (body panel assembly, painting, and trim
installation) do not affect mechanical operation of the vehicle and
therefore are inconsistent with the definition of ``final assembly''
for purposes of 30D. Moreover, the VIN and labeling standards also
would not consider such processes in determining the vehicle's plant of
manufacture or final assembly point. To provide accessible information
to taxpayers and to create an administrable rule, especially because
the final assembly rule was immediately effective upon passage of the
IRA,\6\ the Treasury Department and the IRS determined it was necessary
to leverage existing reporting of final assembly rather than create an
alternative definition that relies on information that is not currently
available to the public. The Treasury Department and the IRS consulted
with the Department of Transportation in developing the proposed and
final regulations regarding final assembly. Because the proposed
definition of ``final assembly'' is consistent with the statutory
definition and provides an administrable rule, the final regulations do
not adopt this comment with respect to processes other than chassis
assembly.
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\6\ The final assembly requirement amendments made to section
30D in the IRA were applicable to vehicles sold after the date of
enactment of the IRA. Public Law 117-169 Sec. 13401(k)(2).
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Another commenter stated that entities already in the process of
constructing production facilities should not be held at a disadvantage
given the economic opportunity of creating additional domestic jobs.
The North American final assembly requirement in section 30D(d)(1)(G)
is prescribed by statute, and the IRA provided an immediately
applicable effective date for this provision (August 17, 2022).
Accordingly, the final regulations do not adopt this comment.
15. Foreign Entity of Concern
Proposed Sec. 1.30D-6(a)(10), consistent with section 30D(d)(7),
defined ``foreign entity of concern'' to have the same meaning as in
section 40207(a)(5) of the Infrastructure Investment and Jobs Act and
guidance promulgated thereunder by the DOE. The final regulations adopt
the proposed definition and move it to Sec. 1.30D-2(b).
The definition of ``foreign entity of concern'' under section
40207(a)(5) of the Infrastructure Investment and Jobs Act is under the
jurisdiction of the DOE. On December 1, 2023, contemporaneous with the
issuance of the December Proposed Regulations, the DOE issued proposed
interpretative guidance relating to the definition. 88 FR 84082
(published December 4, 2023). A number of commenters to the December
Proposed Regulations made requests or suggestions with respect to the
definition. These comments are outside of the scope of these
regulations, and are not further addressed in this Summary of Comments
and Explanation of Revisions.
Similarly, several commenters requested more detailed thresholds
and processes for determining the involvement of FEOC entities based on
entity ownership, control of, and/or acting jurisdiction. The
determination of whether an entity is owned by, controlled by, or
subject to the jurisdiction of a FEOC is within the jurisdiction of the
DOE and its interpretive guidance. Accordingly, the comments are
outside of the scope of these final regulations. One commenter also
requested that the final regulations address the potential for
arbitrage by artificially increasing the value of a critical mineral or
battery component not based in or under the control of a FEOC. Because
the FEOC Restriction is not based on value of materials, the final
regulations do not adopt this comment.
16. FEOC-Compliant
Proposed Sec. 1.30D-6(a)(11), adopted and moved to Sec. 1.30D-
2(b) of the final regulations, defined ``FEOC-compliant'' to mean in
compliance with the applicable excluded entity requirement under
section 30D(d)(7). The definition provided specific rules with respect
to a clean vehicle battery, a battery component (other than a battery
cell), a battery cell, and an applicable critical mineral. A number of
commenters raised questions with respect to the due diligence required
to determine if an item is FEOC-compliant or commented on the FEOC
Restriction. These comments are addressed in section III.D of this
Summary of Comments and Explanation of Revisions.
17. Manufacturer
Proposed Sec. 1.30D-2(k) provided, consistent with section
30D(d)(3), that ``manufacturer'' means any manufacturer within the
meaning of the regulations prescribed by the EPA for purposes of the
administration of title II of the Clean Air Act (CAA) (42 U.S.C. 7521
et seq.) and as defined in 42 U.S.C. 7550(1).
Under 42 U.S.C. 7550(1) and 40 CFR 1068.30 under the CAA
regulations, multiple parties may be a manufacturer with respect to a
vehicle. To address this situation, the proposed definition also
provided that, if multiple manufacturers are involved in the production
of a vehicle, the requirements provided in section 30D(d)(3), which
must be met for a vehicle to qualify for the section 30D, 45W and 25E
credits, must be met by the manufacturer who satisfies the reporting
requirements of the greenhouse gas emissions standards (CAA emissions
reporting requirements) set by the EPA under the CAA for the subject
vehicle. The purpose of the proposed multiple manufacturer rule was to
provide a clear rule for OEMs and other parties that may be considered
a manufacturer under the CAA regulations.
One commenter suggested that the final regulations modify the
definition of ``manufacturer'' to include upstream members of the
critical mineral supply chain, including cell manufacturers, cathode
manufacturers, and anode manufacturers, in addition to the OEMs.
Because the proposed regulations define a manufacturer by referring to
the CAA regulations, if an upstream manufacturer is covered by the CAA
regulations, that party will be a manufacturer under section 30D.
However, if the upstream manufacturer is not covered by the CAA
regulations, the statute would not include such manufacturers in the
definition of ``manufacturer.'' Accordingly, the final regulations do
not adopt this comment.
Another commenter requested that the multiple manufacturer rule be
modified to include upfitters as manufacturers. Upfitters purchase new
internal combustion engine (ICE) motor vehicles from manufacturers and
then modify them into clean vehicles prior to the vehicle being placed
in service by
[[Page 37728]]
the ultimate purchaser. Because the ICE vehicle manufacturer is subject
to the CAA emissions reporting requirements, neither the upfitter nor
the ICE vehicle manufacturer would be able to meet the requirements of
section 30D(d)(1)(C) and (3) under the multiple manufacturer rule in
the proposed regulations. As a result, the vehicles modified by the
upfitter would be ineligible for the section 25E, 30D, and 45W credits.
The Treasury Department and the IRS have concluded that including
upfitters in the definition of ``manufacturer'' is consistent with the
statutory language of section 30D and the CAA regulations, as well as
Congressional intent to incentivize the development and purchase of
non-ICE vehicles. Accordingly, the final regulations modify the
multiple manufacturer rule to allow a manufacturer that modifies a new
vehicle into either a new clean vehicle or a qualified commercial clean
vehicle to enter into an agreement under section 30D(d)(3) if such
modification occurs prior to the new motor vehicle being placed in
service.
The same commenter requested that the final regulations allow this
rule to apply retroactively for purposes of the section 45W credit for
upfitters that modify new vehicles into qualified commercial clean
vehicles. Section III.A.23 of this Summary of Comments and Explanation
of Revisions concerning the definition of qualified manufacturer
addresses this comment.
One commenter suggested that final regulations provide robust
oversight of OEMs, including mandatory reporting of certain economic
impacts including the collective bargaining status of final assembly
plants, and repurposing the EPA's Clean School Bus Program's OEM Job
Quality and Workforce Development questionnaire. This comment is beyond
the scope of the final regulations and is not adopted.
The final regulations adopt the proposed definition of
``manufacturer'' with the modification regarding upfitters. In
addition, the final regulations move the definition to Sec. 1.30D-
2(b).
18. Manufacturer's Suggested Retail Price (MSRP)
Proposed Sec. 1.30D-2(c) provided that for purposes of the MSRP
limitation in section 30D(f)(11)(A), ``manufacturer's suggested retail
price'' means the sum of: (A) the retail price of the automobile
suggested by the manufacturer as described in 15 U.S.C. 1232(f)(1); and
(B) the retail delivered price suggested by the manufacturer for each
accessory or item of optional equipment, physically attached to such
automobile at the time of its delivery to the dealer, which is not
included within the price of such automobile as stated pursuant to 15
U.S.C. 1232(f)(1), as described in 15 U.S.C. 1232(f)(2). This price
information is reported on the label that is affixed to the windshield
or side window of the vehicle, as described in 15 U.S.C. 1232.17.
One commenter stated that the determination of MSRP by
manufacturers is not well-regulated, and that the final regulations
should restrict manufacturers from setting an artificially low MSRP.
The commenter suggested that the MSRP should be the actual out the door
price paid, and should be limited so that the average cash price paid
by consumers does not exceed the MSRP set by manufacturers. Another
commenter suggested that the vehicle's base price (exclusive of
accessories) be used to determine whether a vehicle's price is under
the limitation to be eligible for the section 30D credit.
Section 30D(f)(11) restricts vehicle eligibility for the section
30D credit on the basis of MSRP, not on the basis of actual price paid.
In addition, the Treasury Department and the IRS have determined that
the MSRP should include not just the base MSRP described in 15 U.S.C.
1232(f)(1), but also the portion of the MSRP described in 15 U.S.C.
1232(f)(2) (each accessory or item of optional equipment, physically
attached to the automobile at the time of its delivery to the dealer)
because looking solely at base MSRP could encourage manufacturers to
artificially lower the base MSRP and increase the amount of the MSRP
allocated to accessories or items of optional equipment in an attempt
to circumvent the MSRP limitations. Accordingly, the final regulations
do not adopt the comments.
The final regulations adopt the proposed definition and move it to
Sec. 1.30D-2(b).
19. New Clean Vehicle
Proposed Sec. 1.30D-2(m) defined ``new clean vehicle'' as a
vehicle that meets the requirements described in section 30D(d). Under
the proposed regulations, a new clean vehicle would not include any
vehicle for which the qualified manufacturer: (1) fails to provide a
periodic written report for such vehicle prior to the vehicle being
placed in service, reporting the VIN of such vehicle and certifying
compliance with the requirements of section 30D(d); (2) provides
incorrect information with respect to the periodic written report for
such vehicle; (3) fails to update its periodic written report in the
event of a material change with respect to such vehicle; or (4) fails
to meet the requirements of proposed Sec. 1.30D-6(d) for new clean
vehicles placed in service after December 31, 2024. For purposes of
section 30D(d)(6), the term ``new clean vehicle'' includes any new
qualified fuel cell motor vehicle (as defined in section 30B(b)(3))
that meets the requirements under section 30D(d)(1)(G) and (H).
Several commenters suggested that the Treasury Department and the
IRS not allow leased vehicles to bypass the stringent domestic-sourcing
requirements under section 30D by making the section 45W credit
available for such vehicles. Another commenter asked whether the
Modified AGI limitation would apply to the lessor or lessee if a clean
vehicle is leased to individuals and, if used for business purposes,
would fall within section 45W. Section 30D and section 45W each include
a no double benefit rule. See section 30D(f)(2) and section 45W(d)(3).
This demonstrates that under the statutory framework, certain vehicles
may qualify for both the section 30D credit and the section 45W credit,
and that in such instances, the taxpayer must choose which credit to
claim. Further, as described in IRS Fact Sheet FS-2023-22, Topic G, Q5-
7, a taxpayer that leases clean vehicles to its customers as its
business may be eligible to claim the section 45W credit if the
taxpayer is the owner of such vehicles for Federal income tax purposes.
The owner of the vehicle is determined based on whether the lease is
respected as a lease or is recharacterized as a sale for Federal income
tax purposes. The Modified AGI limitation, if applicable, applies to
the owner of the vehicle who places it in service for use or lease, and
not to the lessee. Accordingly, the final regulations do not adopt
these comments.
One commenter expressed concern that vehicles used in a courtesy
transportation program would be ineligible for the section 30D credit
upon a later sale due to the original use rule of section 30D(d)(1)(A).
Because the original use rule is statutory, the final regulations do
not adopt this comment. However, the owner of the vehicle that is used
in a courtesy transportation program may itself be able to claim a
section 30D credit.
Section 30D(d)(1)(F) requires the vehicle to be propelled to a
significant extent by an electric motor that draws electricity from a
battery that has a capacity of not less than 7 kilowatt hours, and is
capable of being recharged from an external source of electricity.
[[Page 37729]]
One commenter requested that the final regulations define ``significant
extent'' in the context of section 30D(d)(1)(F), but did not propose a
definition. Given the purpose of this requirement to distinguish ICE
vehicles from battery electric vehicles and plug-in hybrid electric
vehicles, and the possibility for technical change in this area, it
would be impracticable to precisely define the term. For these reasons,
the final regulations do not adopt this comment.
Finally, one commenter suggested making the VINs of eligible
vehicles available in an accessible, dealer-facing database, which
would allow dealers to use a common source to readily identify which
vehicles are eligible for the section 30D credit, reduce confusion, and
improve deployment. This comment is outside of the scope of these final
regulations. However, the Treasury Department and the IRS, together
with the DOE, have provided public-facing information regarding vehicle
eligibility via the IRS website and https://fueleconomy.gov and will
continue to develop such information in a way that is accessible to
dealers and taxpayers.
The final regulations adopt the proposed definition of ``new clean
vehicle'' with clarifying language that new clean vehicles include
battery electric vehicles, plug-in hybrid electric vehicles, fuel cell
motor vehicles, and plug-in hybrid fuel cell motor vehicles.
20. New Qualified Fuel Cell Motor Vehicle
To provide additional clarity to taxpayers, the final regulations
add a definition of a ``new qualified fuel cell motor vehicle'' to
Sec. 1.30D-2(b) that is consistent with section 30D(d)(6).
Specifically, the final regulations define ``new qualified fuel cell
motor vehicle'' to be any new qualified fuel cell motor vehicle (as
defined in section 30B(b)(3)) that meets the requirements under section
30D(d)(1)(G) (that is, the final assembly in North America requirement)
and (H) (that is, the seller report requirement), and that does not
have a clean vehicle battery. This definition includes otherwise
qualifying vehicles that have only a ``start-stop'' battery, because
such a battery is not a clean vehicle battery.
21. Non-Traceable Battery Materials/Impracticable-to-Trace Battery
Materials
Proposed Sec. 1.30D-6(a)(13)(i) defined ``non-traceable battery
materials'' to mean specifically identified low-value battery materials
that may originate from multiple sources and are often commingled
during refining, processing, or other production processes by suppliers
to such a degree that the qualified manufacturer cannot, due to current
industry practice, feasibly determine and attest to the origin of such
battery materials. Proposed Sec. 1.30D-6(a)(13)(ii), which was
reserved, would have provided the specific list of identified non-
traceable battery materials. In the Explanation of Provisions to the
December Proposed Regulations, the Treasury Department and the IRS,
after extensive consultation with the DOE, stated that they would
consider whether the following applicable critical minerals (and
associated constituent materials) may be designated as identified non-
traceable battery materials: applicable critical minerals contained in
electrolyte salts, electrode binders, and electrolyte additives.
The Treasury Department and the IRS received a number of comments
with respect to the definition of ``non-traceable battery materials''
as well as the related FEOC Restriction transition rule for non-
traceable battery materials. Section III.D of this Summary of Comments
and Explanation of Revisions discusses these comments.
Consistent with the expectation and requirement that OEMs will
develop thorough tracing processes in the future, even while such
processes do not now exist, the final regulations retain the list but
change the name to ``impracticable-to-trace battery materials.'' The
final regulations adopt the proposed definition and move it to Sec.
1.30D-2(b). Specifically, the final regulations define ``identified
impracticable-to-trace battery materials'' as applicable critical
minerals in the following circumstances: graphite contained in anode
materials (both synthetic and natural) and applicable critical minerals
contained in electrolyte salts, electrode binders, and electrolyte
additives.
22. Processing
Proposed Sec. Sec. 1.30D-3(c)(13) and 1.30D-6(a)(14) defined
``processing'' as the non-physical processes involved in the refining
of non-recycled substances or materials, including the treating,
baking, and coating processes used to convert such substances and
materials into constituent materials. The proposed regulations further
provided that processing begins when chemical or thermal processes, or
the combination of them, are used on extracted minerals or natural
resources or manmade minerals or resources to create a new product
that, through subsequent steps in the applicable critical minerals
supply chain, will be processed into a final constituent material.
Under the proposed regulations, processing included the chemical or
thermal processes involved in refining, but did not include the
physical processes involved in refining.
One commenter requested that the final regulations include high
temperature heat treatment among the listed non-physical processes
involved in refining that constitute processing to ensure that
graphitization is included as processing. High temperature heat
treatment is a thermal process, so it is already included in the
definition of processing. Therefore, the commenter's requested
modification is unnecessary.
Another commenter specifically requested that the final regulations
address a fact pattern in which lithium carbonate is procured from an
ally of the United States that is not a country with which the United
States has a free trade agreement in effect, but is processed into both
lithium hydroxide and cathode active material in the United States or a
country with which the United States has a free trade agreement in
effect. Lithium carbonate is a form of an applicable critical mineral
specified in 45X(c)(6); therefore, it is subject to the Critical
Minerals Requirement. Lithium carbonate that is procured from a region
that is not in the United States or a country with which the United
States has a free trade agreement in effect but is processed in the
United States may be counted in the numerator of the qualifying
critical mineral content calculation to the extent of the value added
in the United States.
A number of commenters requested clarification on the line between
extraction and processing. One commenter requested that the final
regulations clarify that minor treatments necessary to render raw
materials transportable are not processing (as chemical or thermal
refining), but are instead extraction (as beneficiation). Another
commenter noted that evolving technologies, such as glycine leaching
technology, simplify value chains and may not uniquely fit into the
proposed definitions of ``extraction'' or ``processing.'' One commenter
recommended narrowing the definition of ``processing'' to exclude
processes performed during battery manufacturing. Another commenter
requested that the final regulations provide additional examples of
different procurement chains that illustrate where the extraction and
processing steps begin and end. Finally, another commenter proposed
alternative definitions of ``extraction'' and ``processing'' that
conform with the commenter's view of industry practice, rather than
distinguish between physical and non-physical processes. That same
commenter requested that the
[[Page 37730]]
final regulations clarify that smelting nickel is extraction rather
than processing, again consistent with the commenter's view of industry
practice. The Treasury Department and the IRS note that smelting nickel
is a thermal process and is therefore already included in the proposed
definition of ``processing.'' Further, the proposed regulations
expressly list, in the definitions of ``extraction'' and
``processing,'' production steps that are generally high value add, and
it is likely not possible to generate an exhaustive list given the
variety of production steps that may apply to the various applicable
critical minerals. Moreover, the proposed regulations are more
administrable than a rule based on industry standards, which may change
in the future. Accordingly, the final regulations do not adopt these
comments.
The final regulations adopt the definition of ``processing'' in
proposed Sec. Sec. 1.30D-3(c)(13) and 1.30D-6(a)(14), consolidate it
into a single provision, and move it to Sec. 1.30D-2(b).
23. Qualified Manufacturer
Proposed Sec. 1.30D-3(c)(15), applicable to the Critical Minerals
and Battery Components Requirements, defined a ``qualified
manufacturer'' as a manufacturer described in section 30D(d)(3).
Proposed Sec. 1.30D-2(l), applicable as a general definition for
section 30D purposes, similarly defined a ``qualified manufacturer'' as
a manufacturer that meets the requirements described in section
30D(d)(3). In addition, proposed Sec. 1.30D-2(l) provided that the
term ``qualified manufacturer'' does not include any manufacturer whose
qualified manufacturer status has been terminated by the IRS for fraud,
intentional disregard, or gross negligence with respect to any
requirements of section 30D, including with respect to the periodic
written reports described in section 30D(d)(3) and proposed Sec.
1.30D-2(m), and any attestations, documentation, or certifications
described in proposed Sec. Sec. 1.30D-3(e) and 1.30D-6(d), at the time
and in the manner provided in the Internal Revenue Bulletin (see Sec.
601.601 of this chapter).
As in discussed in section III.A.17 of this Summary of Comments and
Explanation of Revisions concerning the definition of ``manufacturer,''
a commenter requested that the proposed multiple manufacturer rule be
modified to include upfitters as manufacturers. The same commenter
requested that the final regulations allow upfitters to rely on any
final regulations as of January 1, 2023, register as qualified
manufacturers after the final regulations are published, and include in
such upfitters' first periodic written report to the IRS information
regarding all vehicles that the upfitter asserts are eligible for the
section 45W credit. This comment is outside the scope of the final
regulations because (i) it pertains to the section 45W credit, and (ii)
the qualified manufacturer registration process is addressed in Revenue
Procedure 2023-33 and other sub-regulatory guidance. Accordingly, the
final regulations do not adopt this comment.
However, in considering the comment regarding upfitters, the
Treasury Department and the IRS have determined that it is necessary to
clarify when qualified manufacturer status is determined. Accordingly,
the final regulations clarify that, for purposes of determining whether
the qualified manufacturer requirement of section 30D(d)(1)(C) is met,
a new clean vehicle is made by a qualified manufacturer if it is made
by a manufacturer that is a qualified manufacturer at the time a
written report is submitted to the IRS under a qualified manufacturer
agreement, as described in section 30D(d)(3). This rule is consistent
with section 30D, as well as its underlying purpose of incentivizing
clean vehicle deployment. Further, under this rule, a vehicle made by a
manufacturer that was not a qualified manufacturer at the time of
production may still qualify as a new clean vehicle, provided the
manufacturer becomes a qualified manufacturer and submits a written
report to the IRS prior to the time the vehicle is sold. In addition,
The Treasury Department and the IRS lack authority to provide
retroactive relief with respect to vehicles that were sold prior to the
time the qualified manufacturer submitted a periodic written report to
the IRS under the qualified manufacturer agreement. Finally, the
qualified manufacturer requirements of sections 30D(d)(1)(C) and
30D(d)(3), and therefore these final regulations, also apply for
purposes of sections 25E and 45W. See sections 25E(c)(1)(D)(i) and
45W(c)(1). Therefore, a vehicle made by a manufacturer that was not a
qualified manufacturer at the time of production--including a vehicle
produced prior to enactment of the IRA, when there were no qualified
manufacturer rules with respect to section 30D--may qualify as a
previously-owned clean vehicle, provided the manufacturer becomes a
qualified manufacturer and submits a written report to the IRS prior to
the time the vehicle is sold. Consistent with this rule and with the
statute, the final regulations provide that the IRS may terminate
qualified manufacturer status for fraud, intentional disregard, or
gross negligence with respect to any requirement of section 25E or
section 45W or any regulations thereunder.
The final regulations adopt the proposed definition of ``qualified
manufacturer'' with the modification described previously, and move it
Sec. 1.30D-2(b).
24. Recycling
Proposed Sec. Sec. 1.30D-6(a)(15) and 1.30D-3(c)(19) defined
``recycling'' as the series of activities during which recyclable
materials containing applicable critical minerals are transformed into
specification-grade commodities and consumed in lieu of virgin
materials to create new constituent materials; such activities result
in new constituent materials contained in the battery from which the
electric motor of a new clean vehicle draws electricity. Under the
proposed regulations, all physical, chemical, and thermal treatments or
modifications that convert recycled feedstocks to specification grade
constituent materials are included in recycling. The Explanation of
Provisions to the April Proposed Regulations noted that this definition
aligns with the current methods of direct, hydrometallurgical, or
pyrometallurgical recycling that are utilized commercially for reuse of
materials for battery applications.
In addition, proposed Sec. 1.30D-6(c)(4)(ii)(D), provided that,
for purposes of the FEOC Restriction, an applicable critical mineral
and associated constituent material that is recycled is subject to the
FEOC-compliance determination if the recyclable material (1) contains
an applicable critical mineral, (2) contains material that was
transformed from an applicable critical mineral, or (3) is used to
produce an applicable critical mineral at any point during the
recycling process. Under the proposed regulations, the determination of
whether an applicable critical mineral or associated constituent
material that is incorporated into a battery via recycling is FEOC-
compliant took into account only activities that occurred during the
recycling process.
One commenter noted that the definition of ``recycling'' is vague
and does not clearly define which recycling steps (for example,
shredding, separating, producing black mass, and critical mineral
refinement processing) can and cannot occur within a FEOC. The
commenter requested that the final regulations clarify that all
recycling
[[Page 37731]]
activities must occur in a non-FEOC facility for the recycled material
to qualify as FEOC-compliant in a new clean vehicle battery. Under the
proposed regulations, the determination of whether an applicable
critical mineral or associated constituent material that is
incorporated into a battery via recycling is FEOC-compliant already
takes into account all recycling activities. Accordingly, the suggested
clarification is unnecessary.
Another commenter recommended that the Treasury Department and the
IRS work with the DOE and other agencies to develop safeguards to
prevent batteries from being recycled before the end of their useful
lives by entities seeking to convert non-FEOC-compliant batteries into
FEOC-compliant batteries through recycling. Critical minerals and
associated constituent materials are subject to both the Critical
Minerals Requirement and the FEOC Restriction. The Critical Minerals
Requirement generally looks to the value of the recycled materials. Due
to this requirement, as well as market forces, it will generally be
uneconomical to recycle batteries before the end of their useful lives
for purposes of the FEOC Restriction. Accordingly, the final
regulations do not adopt this comment.
The final regulations consolidate the definition of ``recycling''
in proposed Sec. Sec. 1.30D-3(c)(19), 1.30D-6(a)(15), and 1.30D-
6(c)(4)(ii)(D) into a single provision, and move it to Sec. 1.30D-
2(b). Specifically, the final regulations define ``recycling'' as the
series of activities during which recyclable materials containing
applicable critical minerals are transformed into specification-grade
commodities and consumed in lieu of virgin materials to create new
constituent materials; such activities result in new constituent
materials contained in the clean vehicle battery. Under the final
regulations, all physical, chemical, and thermal treatments or
modifications that convert recycled feedstocks to specification-grade
constituent materials are included in recycling. Further, recycled
applicable critical minerals and associated constituent materials are
only subject to the requirements under Sec. Sec. 1.30D-3 and 1.30D-6
if the recyclable material contains an applicable critical mineral,
contains material that was transformed from an applicable critical
mineral, or if the recyclable material is used to produce an applicable
critical mineral at any point during the recycling process. The
requirements under Sec. Sec. 1.30D-3 and 1.30D-6 only take into
account activities that occurred during the recycling process.
The final regulations also add an example that illustrates which
activities are taken into account with respect to recycling for
purposes of the Critical Minerals Requirement and the FEOC Restriction.
25. Section 30D Regulations
Proposed Sec. 1.30D-2(f) defined ``section 30D regulations'' to
mean Sec. Sec. 1.30D-1 through 1.30D-4. The final regulations modify
the definition to mean Sec. Sec. 1.30D-1 through 1.30D-6, and move it
to Sec. 1.30D-2(b).
26. Seller Report
Proposed Sec. 1.30D-2(j) defined ``seller report'' as the report
described in section 30D(d)(1)(H) and provided by the seller of a
vehicle to the taxpayer and the IRS in the manner provided in, and
containing the information described in, guidance published in the
Internal Revenue Bulletin (see Sec. 601.601 of this chapter). The
proposed regulations further provided that the seller report must be
provided to the IRS electronically. In addition, the proposed
regulations provided that the term ``seller report'' does not include a
report rejected by the IRS due to the information contained therein not
matching IRS records. The final regulations adopt the proposed
definition and move it to Sec. 1.30D-2(b).
One commenter requested that the IRS issue a form, with related
instructions, for making seller reports to taxpayer/purchasers as
required by Sec. 30(D)(d)(1)(H). The Treasury Department and the IRS
have issued such a form, Form 15400, Clean Vehicle Seller Report.
27. Value
Proposed Sec. 1.30D-3 defined ``value,'' with respect to property,
as the arm's-length price that was paid or would be paid for the
property by an unrelated purchaser determined in accordance with the
principles of section 482 of the Code and regulations thereunder. The
final regulations adopt the proposed definition and move it to Sec.
1.30D-2(b).
One commenter recommended that the Treasury Department and the IRS
consider how the term ``value'' might be defined in a manner that
accommodates and incentivizes further technological innovation,
increased performance and efficiency, and minimization of environmental
impacts. The commenter, however, did not propose a specific
modification to the definition. The final regulations, consistent with
the proposed regulations, define ``value'' in accordance with
longstanding tax law principles.
28. Vehicle Classifications
Proposed Sec. 1.30D-2(g) provided that the vehicle classification
of a new clean vehicle is to be determined consistent with the EPA's
fuel economy labeling rules and definitions provided in 40 CFR 600.315-
08 for vans, sport utility vehicles, pickup trucks, and other vehicles.
Specifically, ``van'' means a vehicle classified as a van or minivan
under 40 CFR 600.315-08(a)(2)(iii) and (iv), or otherwise so classified
by the Administrator of the EPA pursuant to 40 CFR 600.315-
08(a)(3)(ii); ``sport utility vehicle'' means a vehicle classified as a
small sport utility vehicle or standard sport utility vehicle under 40
CFR 600.315-08(a)(2)(v) and (vi), or otherwise so classified by the
Administrator of the EPA pursuant to 40 CFR 600.315-08(a)(3)(ii);
``pickup truck'' means a vehicle classified as a small pickup truck or
standard pickup truck under 40 CFR 600.315-08(a)(2)(i) and (ii), or
otherwise so classified by the Administrator of the EPA pursuant to 40
CFR 600.315-08(a)(3)(ii); and ``other vehicle'' means any vehicle
classified in one of the classes of passenger automobiles listed in 40
CFR 600.315-08(a)(1), or otherwise so classified by the Administrator
of the EPA pursuant to 40 CFR 600.315-08(a)(3)(ii).
One commenter commended the Treasury Department's and the IRS's
decision to align the section 30D vehicle classification definitions
with existing EPA regulations, which incorporate certain classification
flexibility. For added clarity, the commenter recommended that the
final regulations adopt by reference less specific pin cites in the EPA
fuel economy labeling regulations to better reflect EPA's general
classification authority. In particular, the commenter suggested that
the final regulations define a sport utility vehicle by citing 40 CFR
600.315-08(a)(1), which states that the EPA Administrator may classify
passenger automobiles by car line into one of the classes based on
interior volume index or seating capacity except for those that the
Administrator determines are most appropriately placed in a different
classification. Additionally, the commenter suggested that the final
regulations define pickup truck by citing 40 CFR 600.315-08(a)(2) or 40
CFR 600.315-08 generally rather than 40 CFR 600.315-08(a)(3)(ii). After
consultation with the EPA, the Treasury Department and the IRS agree
that a more general cross-reference to EPA's classification authority
is warranted, given the authority not only in 40 CFR 600.315-
08(a)(3)(ii) but also in 40 CFR 600.315-08(a)(1) and (2). The final
[[Page 37732]]
regulations adopt the comment and modify the definitions accordingly.
Another commenter requested that the MSRP limitation under section
30D(f)(11)(B) be expanded to apply to all crossover vehicles similar to
the regime described in 40 CFR 600.315-08, which would further
incentivize automakers to onshore electric vehicle supply chains by
making additional vehicles eligible for the section 30D credit. The
Treasury Department and the IRS note that crossover vehicles are
included in the vehicle classifications subject to the appropriate MSRP
limitation. Under the EPA fuel economy labeling regulations, crossover
vehicles may be categorized as either a sport utility vehicle or other
vehicle. The Treasury Department and the IRS adopted the EPA fuel
economy labeling definitions in part because they are reported on the
vehicle label and are accessible on https://fueleconomy.gov, making the
classification accessible to both consumers and the IRS. In addition,
the EPA fuel economy labeling definitions provide some discretion,
which EPA may exercise to align its classifications with consumer
expectations regarding vehicle type. Because the proposed regulations
already adopt the regime suggested by commenters and because the MSRP
limitation is prescribed by statute, the final regulations do not adopt
this comment.
A different commenter requested that low-speed vehicles be included
in the ``other vehicles'' classification under proposed Sec. 1.30D-
2(g)(5), noting that they are commercial, street-legal vehicles.
However, as the commenter notes, a new clean vehicle must be treated as
a motor vehicle for purpose of title II of the Clean Air Act as
described in section 30D(d)(1)(D). Under section 216 of the title II of
the Clean Air Act, a motor vehicle is defined as ``any self-propelled
vehicle designed for transporting persons or property on a street or
highway.'' 42 U.S.C. 7550(2). EPA regulations at 40 CFR 85.1703(e)(1)
further define a motor vehicle under title II of the Clean Air Act to
exclude vehicles with maximum speeds of 25 miles per hour, which
excludes low-speed vehicles. Because section 30D requires new clean
vehicles to meet Clean Air Act standards, which exclude low-speed
vehicles, the final regulations do not adopt this comment.
Some commenters praised the proposed implementation of the fuel
economy labeling regime, whereas others claimed there is a potential
for misclassifying vehicles given the lessened emphasis on weight and
other physical characteristics as major classification factors under
EPA standards as compared to gas-powered vehicles. In particular, a
commenter stated the proposed vehicle classification regime is
arbitrary and unreliable, due to the EPA's subjective authority granted
without explicit authorization found in title I of the IRA. The
commenter requested that the final regulations use objective vehicle
classification standards, such as those found in 40 CFR 600.002, rather
than subjective EPA determinations. An additional commenter stated that
light trucks and SUVs in particular may be misclassified as passenger
cars if physical characteristics are overlooked for emissions.
The Treasury Department and the IRS previously considered adopting
the vehicle classification definitions used by the CAFE standards in 40
CFR 600.002, as described in Notice 2023-1. After consultation with the
DOE and the EPA, as provided for in section 30D(f)(11)(C), the Treasury
Department and the IRS determined that the fuel economy labeling
standards in 40 CFR 600.315-08 better reflect consumer expectations and
marketing practices regarding vehicle classifications. In addition, the
vehicle classification, as determined under the fuel economy labeling
standards, is shown on the vehicle label and is otherwise accessible on
https://fueleconomy.gov, making the classification accessible to both
consumers and the IRS. In contrast, a particular vehicle's
classification under the CAFE standard is not publicly available
information under current practices. For these reasons, the final
regulations do not adopt the comments.
The final regulations adopt the proposed definition, with more
general cross-references to EPA's classification authority, and move it
to Sec. 1.30D-2(b).
B. Critical Minerals and Battery Components Requirements
Section 30D(e) provides requirements for critical minerals and
battery components with respect to clean vehicle batteries. The
Critical Minerals and Battery Components Requirements apply to
applicable critical minerals and battery components, respectively,
contained in a battery. The April Proposed Regulations set forth rules
for the Critical Minerals and Battery Components Requirements in
proposed Sec. 1.30D-3. The final regulations reorganize the rules of
the Critical Minerals and Battery Components Requirements.
First, the proposed regulations included, in proposed Sec. 1.30D-
3(c), definitions applicable for purposes of the Critical Minerals and
Battery Components Requirements. As noted previously in section III.A
of this Summary of Comments and Explanation of Revisions, the final
regulations move many of these definitions to Sec. 1.30D-2(b), as
general definitions for purposes of section 30D and the section 30D
regulations. The final regulations retain the definitions applicable to
the calculations of the Critical Minerals Requirement in Sec. 1.30D-
3(c)(1), and the definitions applicable to and the Battery Components
Requirement in Sec. 1.30D-3(c)(2). Second, the final regulations
include rules for the calculation of qualifying critical mineral
content for purposes of the Critical Minerals Requirement in Sec.
1.30D-3(a), and for the calculation of qualifying battery component
content for purposes of the Battery Components Requirement in Sec.
1.30D-3(b). Third, the final regulations finalize, as Sec. 1.30D-
3(d),\7\ the rules for upfront review of the Critical Minerals and
Battery Components Requirements. Fourth, the final regulations add a
new rule for new qualified fuel cell motor vehicles as Sec. 1.30D-
3(e). Finally, in response requests from commenters, the final
regulations add examples that illustrate the calculations under the
Critical Minerals and Battery Components Requirements as Sec. 1.30D-
3(f).
---------------------------------------------------------------------------
\7\ The April Proposed Regulations reserved proposed Sec.
1.30D-3(d) for excluded entities. The December Proposed Regulations
modified proposed Sec. 1.30D-3(d) to include a cross reference to
the rules for excluded entities in proposed Sec. 1.30D-6. These
final regulations finalize those rules in Sec. 1.30D-6; Sec.
1.30D-3(d) is deleted as unnecessary.
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1. Critical Minerals Requirement
Proposed Sec. 1.30D-3(a)(1) provided that that Critical Minerals
Requirement was met if the qualifying critical mineral content of the
clean vehicle battery of the vehicle is equal to or exceeds the
applicable critical minerals percentage provided in section
30D(e)(1)(B) and proposed Sec. 1.30D-3(a)(2). Proposed Sec. 1.30D-
3(c)(18) defined ``qualifying critical mineral content'' as the
percentage of the value of the applicable critical minerals contained
in the clean vehicle battery that were extracted or processed in the
United States, or in any country with which the United States has a
free trade agreement in effect, or were recycled in North America.
The April Proposed Regulations provided a three-step process (50%
Value Added Test) for determining the qualifying critical mineral
content of a clean vehicle battery.
First, qualified manufacturer would determine the procurement chain
or chains for each applicable critical
[[Page 37733]]
mineral. Proposed Sec. 1.30D-3(c)(14) defined a ``procurement chain''
as a common sequence of extraction, processing, or recycling activities
that occur in a common set of locations, concluding in the production
of constituent materials. In addition, proposed Sec. 1.30D-3(c)(14)
clarified that sources of a single applicable critical mineral may have
multiple procurement chains if, for example, one source of the
applicable critical mineral undergoes the same extraction, processing,
or recycling process in different locations. Each applicable critical
mineral procurement chain would be evaluated separately pursuant to
proposed Sec. 1.30D-3(a)(3)(ii).
Second, qualified manufacturers would evaluate each applicable
critical mineral procurement chain in the clean vehicle battery to
determine whether critical minerals procured from the chain have been
(1) extracted or processed in the United States, or in any country with
which the United States has a free trade agreement in effect, or (2)
recycled in North America. Applicable critical minerals that satisfy
this requirement are considered qualifying critical minerals. Proposed
Sec. 1.30D-3(c)(17) defined ``qualifying critical mineral'' as an
applicable critical mineral that is extracted or processed in the
United States, or in any country with which the United States has a
free trade agreement in effect, or that is recycled in North America.
Proposed Sec. 1.30D-3(c)(17) used a 50 percent threshold to determine
whether an applicable critical mineral is a ``qualifying critical
mineral.'' Thus, under the proposed regulations, an applicable critical
mineral was treated as extracted or processed in the United States, or
in any country with which the United States has a free trade agreement
in effect, if: (1) 50 percent or more of the value added to the
applicable critical mineral by extraction is derived from extraction
that occurred in the United States or in any country with which the
United States has a free trade agreement in effect; or (2) 50 percent
or more of the value added to the applicable critical mineral by
processing is derived from processing that occurred in the United
States or in any country with which the United States has a free trade
agreement in effect. An applicable critical mineral would be treated as
recycled in North America if 50 percent or more of the value added to
the applicable critical mineral by recycling is derived from recycling
that occurred in North America. Proposed Sec. 1.30D-3(c)(25) defined
``value added,'' with respect to recycling, extraction, or processing
of an applicable critical mineral, as the increase in the value of the
applicable critical mineral attributable to the relevant activity.
Third, qualified manufacturers would calculate qualifying critical
mineral content. Under proposed Sec. 1.30D-3(a)(3)(i), qualifying
critical mineral content would be calculated as the percentage that
results from dividing the total value of qualifying critical minerals
by the total value of critical minerals. Proposed Sec. 1.30D-3(c)(23)
defined ``total value of qualifying critical minerals'' as the sum of
the values of all the qualifying critical minerals contained in a
battery described in proposed Sec. 1.30D-3(a)(1). Proposed Sec.
1.30D-3(c)(22) defined ``total value of critical minerals'' as the sum
of the values of all applicable critical minerals contained in a
battery described in proposed Sec. 1.30D-3(a)(1).
Proposed Sec. 1.30D-3(a)(3)(iii) required qualified manufacturers
to select a date for determining the values associated with the total
value of qualifying critical minerals (determined separately for each
procurement chain) and the total value of critical minerals. Such date
needs to be after the final processing or recycling step for the
applicable critical minerals relevant to the certification described in
section 30D(e)(1)(A) of the Code and should be uniformly applied for
all applicable critical minerals contained in the battery.
Proposed Sec. 1.30D-3(a)(3)(iv) provided that a qualified
manufacturer may determine qualifying critical mineral content based on
the value of the applicable critical minerals actually contained in the
clean vehicle battery of a specific vehicle. Alternatively, for
purposes of calculating the qualifying critical mineral content for
batteries in a group of vehicles, a qualified manufacturer could
average the qualifying critical mineral content calculation over a
limited period of time (for example, a year, quarter, or month) with
respect to vehicles from the same model line, plant, class, or some
combination of thereof, with final assembly (as defined in section
30D(d)(5) of the Code and proposed Sec. 1.30D-2(b)) within North
America.
The Treasury Department and the IRS received numerous comments with
respect to the Critical Minerals Requirement. To the extent comments
relate to general definitions, such as ``constituent material,''
``extraction,'' or ``processing,'' they are addressed in section III.A
of this Summary of Comments and Explanation of Revisions.
Many commenters expressed criticism or concerns relating to the
Critical Minerals Requirement. Several criticized the requirement as
too strict. For example, one commenter stated that classifying the
supply chains of the United States' allies as non-qualifying would
damage the development of a North American supply chain. Section
30D(e)(1) requires an analysis of the location of supply chain
activities (that is, extraction, processing, and recycling).
Accordingly, the final regulations do not adopt these comments.
Similarly, one commenter requested that the Critical Minerals
Requirement be restricted to nickel, cobalt, lithium, manganese, and
graphite, as minerals. Because section 30D(e)(1)(A) defines
``applicable critical minerals'' by reference to section 45X(c)(6),
which includes a broader list of minerals than the five noted by the
commenter, the final regulations do not adopt this comment.
Many comments addressed the 50% Value Added Test. Multiple comments
were supportive of the tests, while others recommended that the final
regulations adopt a different rule. One commenter suggested that, for
lithium and nickel, the final regulations replace the 50% Value Added
Test with rules that specify which combinations of extraction and
processing are necessary for qualification as qualifying critical
mineral content. Two commenters recommended that the 50% Value Added
Test be replaced with a determination based on change in tariff
classifications. Several comments asserted that the 50% Value Added
Test was not strict enough. One commenter stated that the 50% Value
Added Test impermissibly stretches the statute by substantially
diluting the applicable percentage requirement of section 30D(e)(1)(B).
Similarly, another commenter states that the 50% Value Added Test
improperly dilutes section 30D(e)(1)(B), and that it improperly
bifurcates the Critical Minerals Requirement into separate tests for
extraction and processing. Several commenters proposed that the 50%
Value Added Test be increased to a higher percentage. Another commenter
requested that the 50% Value Added Test be eliminated entirely after
2024. A different commenter requested that guidance describing a more
stringent test under the Critical Minerals Requirement be provided as
soon as possible, in order to provide clarity to taxpayers, OEMs, and
battery suppliers. However, another commenter suggested that the IRS
and the Treasury Department refrain from drafting a replacement to the
50% Value Add Test until supply chains are more mature.
[[Page 37734]]
An applicable critical mineral may undergo multiple steps of each
of extraction, processing, or recycling that occur in multiple
locations, and section 30D(e)(1)(A) does not specify how to determine
whether an applicable critical mineral was extracted, processed, or
recycled in a statutorily-required location. To account for this, the
50% Value Added Test was developed to determine whether an applicable
critical mineral procurement chain was sufficiently produced in a
statutory-required location to count toward meeting the Critical
Minerals Requirement. The 50% Value Added Test allows qualified
manufacturers to make an objective determination of when an applicable
critical mineral was produced in a manner that would qualify under
section 30D(e)(1)(A). While some commenters have criticized the 50
percent threshold as too low, this percentage, as noted in the
Explanation of Provisions to the April Proposed Regulations, was
intended as a transition rule while ensuring that a significant portion
of the extraction, processing, or recycling activities was performed in
a statutorily required location. The percentage was designed with the
purposes of section 30D(e)(1) in mind and to allow qualified
manufacturers time to transition supply chains in anticipation of a
more stringent rule.
The final regulations adopt the Traced Qualifying Value Test,
described more fully after the discussion of comments in this section
of the Summary of Comments and Explanation of Revisions. This test is
more precise than the 50% Value Added Test, as it requires an OEM to
fully trace any value added in each procurement chain that it applies
toward the Critical Minerals Requirement. It is also generally more
stringent, because the OEM may treat as qualifying only a percentage of
value of an applicable critical mineral, and not the full value. The
Traced Qualifying Value Test credits the share of value added by
extraction or processing in the United States or a country with which
the United States has a free trade agreement in effect, or recycling in
North America, in determining whether the Critical Minerals Requirement
is met. By looking to the highest value-added percentage of the three
specified activities (extraction, processing, or recycling) for each
applicable critical mineral procurement chain, the Traced Qualifying
Value Test appropriately implements the statutory language requiring
only one of the three specified activities with respect to an
applicable critical mineral to occur in a qualifying place in order to
have the value of an applicable critical mineral count toward
satisfying the Critical Minerals Requirement.
In response to comments suggesting alternative approaches to
determining whether the Critical Minerals Requirement is satisfied, the
Treasury Department and the IRS have determined that specifying
combinations of extraction and processing steps would not be
administrable given the potential number of permutations. Moreover,
specifying combinations only for certain minerals would be at odds with
the rules of section 30D(e)(1), which apply to all critical minerals.
Similarly, the Treasury Department and the IRS have determined that
determining qualifying mineral content based on a change in tariff
classification would not be administrable or provide certainty to OEMs
because changes in tariff classification may not provide the clear
standards required for purposes of tax credit eligibility
determinations.
The final regulations adopt the Traced Qualifying Value Test, which
is described further below after the discussion of comments in this
section of the Summary of Comments and Explanation of Revisions, for
taxable years ending after May 6, 2024. In response to commenters who
supported the 50% Value Added Test or who supported a longer transition
period, the final regulations permit use of the 50% Value Added Test as
an optional transition rule for vehicles for which a qualified
manufacturer provides a periodic written report prior to January 1,
2027, and require the 50% Value Added Test for vehicles for which a
qualified manufacturer provides a periodic written report prior to May
6, 2024.
Several commenters to the April Proposed Regulations raised
questions about how the FEOC Restriction applied to applicable critical
minerals. These questions were answered in the December Proposed
Regulations, which are finalized herein.
Several commenters raised questions relating to the calculation
under the 50% Value Added Test. These questions may be relevant under
these final regulations for either the 50% Value Added Test (as it is
retained as a transition rule) or for the Traced Qualifying Value Test,
and so are addressed herein. For example, one commenter requested
clarification on whether lithium carbonate or lithium ore corresponding
to lithium carbonate should be used to calculate the total value of
qualifying critical minerals. The final regulations clarify, in the
definition of ``applicable critical mineral'' in Sec. 1.30D-2(b), that
the Critical Minerals Requirement and FEOC Restriction determinations
with respect to an applicable critical mineral take into account each
step of extraction, processing, or recycling through the step in which
such mineral is processed or recycled into an associated constituent
material, even if the mineral is not in a form listed in section
45X(c)(6) at every step of production. Thus, both the lithium carbonate
and lithium ore should be taken into account. Several commenters raised
specific questions about specific components of the calculation.
Another commenter requested that the final regulations clarify that,
under step three of the 50% Value Added Test calculation, the total
value of qualifying critical minerals and total value of critical
minerals means the value of the corresponding constituent materials.
Because a constituent material may be composed of an applicable
critical mineral that has multiple procurement chains, or of multiple
critical minerals, their values may not necessarily correspond to the
value of the associated constituent material. Accordingly, the final
regulations do not adopt this comment. Another commenter asked whether
a weighted average is used for purposes of the 50% Value Added Test if
an applicable critical mineral has two or more procurement chains. The
same commenter asked if the 50% Value Added Test can be satisfied by
adding percentages across extraction and processing. Under both the
proposed and final regulations, the 50% Value Added Test does not use a
weighted average, and the percentages must be examined separately for
each of extraction, processing, or recycling. Relatedly, two commenters
noted that the proposed regulations did not provide a methodology for
distributing the value-add across procurement chains. The proposed
regulations required a separate analysis of each procurement chain and
did not allow for analysis across procurement chains. Because allowing
analysis across procurement chains would be at odds with the supply-
chain tracing requirements of section 30D(e)(1), the final regulations
do not adopt these comments.
One commenter asked for clarification on how to determine value
added in cases in which multiple applicable critical minerals are
processed together, and recommended that the final regulations provide
that value added be allocated to each applicable critical
[[Page 37735]]
mineral based on weight. The proposed regulations defined ``value
added'' with respect to recycling, extracting, or processing of an
applicable critical mineral as the increase in the value of the
applicable critical mineral attributable to the relevant activity; the
proposed regulations did not provide a specific rule for a case in
which multiple applicable critical minerals are processed together. In
response to this comment, the final regulations clarify that, in the
case in which multiple applicable critical mineral procurement chains
are part of the same processing or recycling activity, value added
should be allocated to each procurement chain based on relative mass.
The proposed regulations allowed qualified manufacturers to average
qualifying critical mineral content over a limited period of time (for
example, a year, quarter, or month) with respect to vehicles from the
same model line, plant, class, or some combination of thereof. The
Treasury Department and the IRS received a number of comments on this
rule. Several commenters were supportive of the proposed rule or sought
a broader averaging rule. One commenter asked that the final
regulations expressly allow for an 18-month averaging period. One
commenter requested that the final regulations consider also allowing
qualified manufacturers to average critical mineral content over
batteries produced at a particular facility. Similarly, another
commenter requested that the final regulations allow automakers to
calculate, on a companywide basis, their volume or percentage of
qualifying critical minerals and allocate such minerals to specific
batteries or vehicles on a unit-by-unit or VIN-by-VIN basis. On the
other hand, several commenters raised concerns that the averaging rule
could allow for manipulation. One commenter suggested limitations on
the averaging rule, and requested that the final regulations require
automakers to offer a clear explanation of how they perform the
calculation, and demonstrate to the IRS that the calculation will
neither exclude any vehicles with a battery that the automaker brings
to market, nor double count any vehicles. The commenter also suggested
that the IRS limit an automaker's ability to switch between groupings
of vehicles (for purpose of calculating the average) to minimize the
opportunity to manipulate the calculation. The commenter further
recommended that automakers be allowed to choose a test period
(preferably as late as possible in the year) over which to calculate
average values to take advantage of growing qualifying supply chains,
but with sufficient time to ensure the automaker can determine vehicle
eligibility for the tax credit before the beginning of a calendar year.
Another commenter noted that averaging qualifying critical mineral
content by alternative periods of time by model line, plant, class, or
combination thereof with final assembly in North America may prove an
administrative burden and result in an increased risk of manipulation,
citing how anode and cathode critical minerals could move through the
procurement supply chain to manipulate value calculations. A separate
commenter expressed concern that the averaging rules could allow OEMs
to source critical minerals from outside the United States and
countries with which the United States has free trade agreements in
effect, yet still satisfy the Critical Minerals Requirement. The
Treasury Department and the IRS have determined that the proposed rules
reflect a reasonable balancing of these considerations by allowing
averaging, but limiting it to groups of vehicles that may share the
same procurement chains (that is, vehicles from the same model line,
plant, class, or some combination of thereof). In addition, the upfront
review process, finalized as Sec. 1.30D-3(d), provides a mechanism for
review and verification of OEM calculations, which will prevent
manipulation. Finally, the time periods of a year, quarter, or month
are exemplary and do not prevent averaging over a different time
period. However, the averaging period should be consistent with any
rules and procedures established by the upfront review process.
Accordingly, the final regulations do not adopt these comments.
Several commenters raised concerns with respect to the volatility
of mineral pricing. One such commenter requested that qualified
manufacturers be given the option to elect to average the most common
critical mineral's value with the historical values of that material
based on previous annual contracts. Others requested a historical
lookback period of between eighteen months to five years. Another
commenter requested that the Treasury Department and the IRS allow for
multiple methods of calculation to address market fluctuations.
Specifically, the commenter recommended that to address market
fluctuations, the previous year's average mineral price could be used,
or a five-year average. The commenter further noted that this would
take into account the very large difference in the value of the
different materials, but mitigate against market volatility. A
commenter suggested the Treasury Department and the IRS provide the
option to use widely-recognized and trusted market indices to serve as
an acceptable estimation of the price of a particular step in the
procurement chain for which actual prices for certain procurement
chains or portions of the procurement chain cannot be determined by the
manufacturer. The commenter noted that contracts with suppliers usually
indicate what the ``controllable piece'' is, essentially what cost of
that supplier's value-add is within the overall cost of the supplied
product. However, contracts typically do not provide a set cost for
inputs, as those inputs are price flexible based on the mineral
markets, meaning that using an established mineral market index for
cost estimation would more closely reflect the real-world prices paid
for that material. The commenter indicated that these indices may
include those commonly cited in U.S. Geological Survey reports.
Finally, commenters proposed adopting a safe harbor provision due to
the price volatility of critical minerals, which would enable producers
of critical minerals to relocate sourcing operations to the United
States or countries with which the United States has free trade
agreements in effect. The Treasury Department and the IRS acknowledge
these commenters' concerns relating to mineral valuation and
volatility. The averaging rules of the proposed and final regulations
are intended, in part, to address these concerns by allowing qualified
manufacturers to determine qualifying critical mineral content based on
an average value (rather than the value at a specific time that may be
unusually high or low) and by allowing qualified manufacturer
flexibility in determining the averaging period. Similarly, the
proposed and final regulations allow qualified manufacturers to choose
a date, after the final processing or recycling step, for the
determination of value, which also provides flexibility. Accordingly,
the final regulations do not adopt these comments.
Several commenters commented on sourcing and OEM due diligence. One
commenter suggested that the final regulations require qualified
manufacturers to engage in detailed tracing, and provide related
documentation to the IRS. That commenter suggested that the processes
of the EU Battery Regulation could provide a model. Another commenter
encouraged the Treasury Department
[[Page 37736]]
and the IRS to work closely with the DOE, Environmental Protection
Agency, and Department of Transportation to explore how a digital
battery identifier could help facilitate material sourcing transparency
and improve the efficiency of battery repurposing and recycling.
Several commenters suggested adopting standards based on Organisation
for Economic Co-operation and Development (OECD) standards. A commenter
requested clarification on what due diligence is required with respect
to battery supply chains, particularly in instances in which
intermediate materials may not be sold on an open market. The upfront
review process of Sec. 1.30D-3(d) is intended to provide clear rules
and a clear process for automakers to provide information regarding due
diligence with respect to the Critical Minerals and Battery Components
Requirements to the IRS. The Treasury Department and the IRS are
considering future sub-regulatory guidance with respect to the upfront
review process.
Finally, one commenter raised concerns that unexpected events could
affect the supply of either applicable critical minerals or battery
components, and suggested that the Treasury Department and the IRS
allow for a temporary waiver request process in such cases, allowing
the affected minerals or components to be excluded from the calculation
under the Critical Minerals or Battery Components Requirements. The
commenter set out a detailed scheme for the waiver process. Another
commenter similarly requested a waiver process in cases in which
certain production steps are affected by either market volatility or
unexpected events. The Treasury Department and the IRS determined that
the averaging rules under the Critical Minerals and Battery Components
Requirements allow for flexibility in the case of both price
fluctuations and unexpected events. In addition, allowing OEMs or their
suppliers a waiver with respect to certain production steps could be
subject to manipulation. Accordingly, these comments are not adopted.
As under the proposed regulations, the final regulations, under
Sec. 1.30D-3(a)(1), provide that the Critical Minerals Requirement is
met if the qualifying critical mineral content of the clean vehicle
battery of the vehicle is equal to or exceeds the applicable critical
minerals percentage provided in section 30D(e)(1)(B) and Sec. 1.30D-
3(a)(2). The proposed regulations included the 50% Value Added Test for
determination of the qualifying critical mineral content. In the
Explanation of Provisions to the April Proposed Regulations, the
Treasury Department and the IRS anticipated that the 50% Value Added
Test would serve as a transition rule, which would provide
manufacturers time to develop the necessary capability to certify
compliance with the Critical Minerals Requirement throughout their
supply chains, and the final regulations would move to a more stringent
test. Certain commenters criticized the April NPRM rules as
inconsistent with the statute, while others have been supportive.
Several commenters asked for additional clarity as to how to make the
calculations and for specific examples. Others asked that the
calculation in the proposed rule be made permanent. Other than as
described above, commenters generally did not identify alternative
proposals for the Critical Minerals requirement. Consistent with this,
and taking into account the comments received, the final regulations
adopt the following rules for determining qualifying critical mineral
content.
For vehicles for which a qualified manufacturer provides a periodic
written report on or after May 6, 2024, Sec. 1.30D-3(a)(3), as
finalized, provides a three-step process (Traced Qualifying Value Test)
for the calculation under the Critical Minerals Requirement.
First, the qualified manufacturer determines each procurement
chain, as defined in Sec. 1.30D-3(c)(1)(i), consistent with the April
Proposed Regulations.
Second, the qualified manufacturer must determine the ``traced
qualifying value'' of all applicable critical minerals'' and the
``total traced qualifying value.'' These definitions are introduced in
the final regulations. ``Traced qualifying value'' is defined, in Sec.
1.30D-3(c)(1)(vii) as, with respect to an applicable critical mineral
that is extracted and processed into a constituent material, the value
of the applicable critical mineral multiplied by the greater of (A) the
value added to the applicable critical mineral by extraction that
occurred in the United States or in any country with which the United
States has a free trade agreement in effect, divided by the total value
added from extraction of the applicable critical mineral; or (B) the
value added to the applicable critical mineral by processing that
occurred in the United States or in any country with which the United
States has a free trade agreement in effect, divided by the total value
added from processing of the applicable critical mineral. ``Traced
qualifying value'' is defined as, with respect to an applicable
critical mineral that is recycled into an associated constituent
material, the value of the applicable critical mineral multiplied by
the percentage obtained by dividing the value added to the applicable
critical mineral by recycling that occurred in North America by the
total value added from recycling of the applicable critical mineral.
``Valued added'' is defined in Sec. 1.30D-3(c)(1)(viii), consistent
with the April Proposed Regulations. Section 1.30D-3(a)(3)(ii) provides
that the traced qualifying value of an applicable critical mineral,
including the percentage or percentages necessary to determine the
traced qualifying value, must be determined separately for each
procurement chain. ``Total traced qualifying value,'' in Sec. 1.30D-
3(c)(1)(iv), is defined as the sum of the traced qualifying values of
all applicable critical minerals contained in the clean vehicle
battery.
Third, the qualified manufacturer determines the qualifying
critical mineral content. Section 1.30D-3(a)(3)(i) provides that
qualifying critical mineral content is determined by dividing the total
traced qualifying value (calculated in step 2) by the total value of
critical minerals. The final regulations, consistent with the proposed
regulations, provide in Sec. 1.30D-3(c)(1)(v) that the ``total value
of critical minerals'' means the sum of the values of all applicable
critical minerals contained in a clean vehicle battery.
Section 1.30D-3(a)(3)(iii) requires qualified manufacturers to
select a date for determining the values associated with the total
traced qualifying value (determined separately for each procurement
chain) and the total value of critical minerals. Such date would need
to be after the final processing or recycling step for the applicable
critical minerals relevant to the certification described in section
30D(e)(1)(A) of the Code. This date would need to be uniformly applied
for all applicable critical minerals contained in the battery.
Section 1.30D-3(a)(3)(iv) provides that a qualified manufacturer
may determine qualifying critical mineral content based on the value of
the applicable critical minerals actually contained in the clean
vehicle battery of a specific vehicle. Alternatively, for purposes of
calculating the qualifying critical mineral content for batteries in a
group of vehicles, a qualified manufacturer could average the
qualifying critical mineral content calculation over a limited period
of time (for example, a year, calendar quarter, or month) with respect
to vehicles from the same model line, plant, class, or some combination
of thereof, with final assembly within North America.
[[Page 37737]]
As noted above, the Traced Qualifying Value Test is more precise
than the 50% Value Added Test, as it requires an OEM to fully trace any
value added in each procurement chain that it applies toward the
Critical Minerals Requirement. It is also generally more stringent,
because the OEM may treat as qualifying only a percentage of value of
an applicable critical mineral, and not the full value. The Treasury
Department and the IRS also considered adapting the 50% Value Added
Test to require a higher threshold percentage than 50%, but such an
approach results in a ``cliff effect'' whereby the value of applicable
critical minerals just below the threshold percentages is not applied
toward the Critical Minerals Requirement while the full value of
applicable critical minerals just above the threshold percentage is
treated as qualifying, which could lead to counter-intuitive results
and increased potential for gaming. By contrast, the Traced Qualifying
Value Test incentivizes each incremental increase in value-added
activities in the United States and free trade agreement partner
countries or in North America, as applicable. For these reasons, the
Treasury Department and the IRS have determined that this test is the
most effective of the potential alternatives considered in furthering
the statutory purpose of transitioning to secure clean vehicle battery
supply chains in the United States and allied countries.
In order to allow for a transition to the Traced Qualifying Value
Test, the final regulations provide that, for vehicles for which a
qualified manufacturer provides a periodic written report on or after
May 6, 2024 and prior to January 1, 2027, a qualified manufacturer may
calculate qualifying critical mineral content under the 50% Value Added
Test. Finally, the regulations finalize the 50% Value Added Test for
vehicles for which a qualified manufacturer provides a periodic written
report prior to May 6, 2024.
2. Battery Components Requirement
The final regulations adopt the Battery Components Requirement of
the April Proposed Regulations without change. Section Sec. 1.30D-
3(c)(2)(iii) defines ``qualifying battery component content'' as the
percentage of the value of the battery components contained in the
clean vehicle battery that were manufactured or assembled in North
America. As finalized in Sec. 1.30D-3(b)(1), the Battery Components
Requirement is met if the qualifying battery component content of a
clean vehicle battery is equal to or exceeds the applicable battery
components percentage provided in section 30D(e)(2)(B) and Sec. 1.30D-
3(a)(2).
The final regulations provide a four-step process for determining
the percentage of the value of the battery components in a battery that
contribute toward meeting the Battery Components Requirement.
First, qualified manufacturers determine whether each battery
component in a battery was a ``North American battery component,'' that
is, a battery component substantially all of the manufacturing or
assembly of which occurs in North America, without regard to the
location of the manufacturing or assembly activities of any components
that make up the particular battery component (as defined in Sec.
1.30D-3(c)(2)(ii).
Second, qualified manufacturers determine the ``total incremental
value of North American battery components,'' that is, the sum of the
incremental values of each North American battery component contained
in clean vehicle battery (as defined in Sec. 1.30D-3(c)(2)(v)).
``Incremental value'' is defined as, with respect to the battery
component, the value of that battery component minus the value of the
manufactured or assembled battery components, if any, that are
contained in that battery component (as defined in Sec. 1.30D-
3(c)(2)(i)).
Third, qualified manufacturers determine the ``total incremental
value of battery components,'' that is, the sum of the incremental
values of each battery component contained in a clean vehicle battery
(as defined in Sec. 1.30D-3(c)(2)(iv)).
Fourth, qualified manufacturers determine the qualifying battery
component content, by dividing the total incremental value of North
American battery components (determined in step 2) by the total
incremental value of battery components (determined in step 3), as
provided in Sec. 1.30D-3(b)(3)(i).
Section 1.30D-3(b)(3)(ii) requires qualified manufacturers to
select a date for determining the values associated with the total
incremental value of North American battery components and the total
incremental value of battery components. Such date needs to be after
the last manufacturing or assembly step for the battery components
relevant to the certification described in section 30D(e)(2)(A). This
date must be uniformly applied for all battery components contained in
the battery.
Section 1.30D-3(b)(3)(iii) provides that a qualified manufacturer
may determine qualifying battery component content based on the
incremental values of the battery components actually contained in the
clean vehicle battery of a specific vehicle. Alternatively, for
purposes of calculating the qualifying battery component content for
batteries in a group of vehicles, a qualified manufacturer could
average the qualifying battery component content calculation over a
limited period of time (for example, a year, a calendar quarter, or a
month) with respect to vehicles from the same model line, plant, class,
or some combination of thereof, with final assembly (as defined in
section 30D(d)(5) of the Code and Sec. 1.30D-2(b) of the final
regulations) within North America.
Finally, the final regulations, in Sec. 1.30D-3(c)(2)(iv), clarify
that the battery module is the end point for the purpose of calculating
the value of battery components. This clarification was noted in the
Explanation of Provisions to the April Proposed Regulations. In
addition, the final regulations clarify that, in the case of a cell-to-
pack battery design with no modules, the battery cell is the end point
for the purpose of calculating the value of battery components.
The Treasury Department and the IRS received a number of comments
with respect to the Battery Components Requirement. Comments with
respect to generally applicable definitions, such as ``assembly,''
``battery,'' ``battery component,'' or ``manufacturing,'' are discussed
in section III.A of this Summary of Comments and Explanation of
Revisions. This section discusses comments with respect to the
calculation required to determine compliance with the Battery
Components Requirement.
One commenter criticized the Battery Components Requirement and
noted that it may reduce efficiency, cost effectiveness, and innovation
with respect to battery components. In response to this, the Treasury
Department and the IRS note that the Battery Components Requirement is
mandated by the statute. Similarly, another commenter recommended that
battery components manufactured or assembled in Japan be considered as
qualifying. However, this is prohibited by the statute because battery
components must be manufactured or assembled in North America to meet
the Battery Components Requirement.
A commenter asked for a more detailed components list along with
calculation examples that include the components in the list. As
discussed in section III.A.6 of this Summary of Comments and
Explanation of Revisions, the Treasury Department and the IRS decline
to amend the list of
[[Page 37738]]
battery components. However, the final regulations add a new definition
for the term ``battery materials,'' and clarify that battery materials
are not battery components. In addition, the Treasury Department and
the IRS have included in the Summary of Comments and Explanation of
Revisions to the final regulations an example calculation under the
Battery Components Requirement that references specific components.
Proposed Sec. 1.30D-3(b)(3)(iii) provided flexible rules that
allow a qualified manufacturer to average the qualifying battery
component content calculation over a limited period of time (for
example, a year, quarter, or month) with respect to vehicles from the
same model line, plant, class, or some combination of thereof. One
commenter raised a concern that these rules were too flexible and could
create gaming opportunities. The commenter suggested that the final
regulations clearly describe which vehicle characteristics may be
averaged together and directly state that any combination of
characteristics not identified in the final regulations may not be
averaged together. Because the category of vehicle characteristics is
open-ended, may vary by manufacturer, and is subject to change in the
future, it is not practicable to specify certain vehicle
characteristics that are necessary for grouping. In addition, a
specified list of vehicle characteristics may not correspond to the
vehicle procurement chains of particular manufacturers. For these
reasons, the Treasury Department and the IRS appreciate the concerns
raised by this comment, but have concluded that the flexibility of the
proposed rule is necessary in order to provide an administrable rule to
qualified manufacturers. In addition, the upfront review process
described in proposed Sec. 1.30D-3(e), discussed in section III.B.3 of
this Summary of Comments and Explanation of Revisions, will also help
prevent gaming of the Battery Components Requirement calculations. This
commenter also suggested that the Treasury Department and the IRS
maintain the right to update which characteristics may be averaged
together in the future, should changes be necessary. In response to
this, the Treasury Department and the IRS will continue to study this
issue as the Treasury Department and the IRS gain experience with the
upfront review process.
Finally, two commenters suggested that the final regulations
consider allowing for a waiver of the Critical Minerals and Battery
Components Requirements in certain cases. The statute does not provide
for a waiver program; thus, the final regulations do not adopt these
comments. Commenter proposals for a waiver process are discussed in
more detail in section III.B.1 of this Summary of Comments and
Explanation of Revisions.
3. Upfront Review
Proposed Sec. 1.30D-3(e) provided for an upfront review to assess
a qualified manufacturer's conformance with the Critical Minerals and
Battery Components Requirements. Specifically, proposed Sec. 1.30D-
3(e) provided that for new clean vehicles placed in service after
December 31, 2024, the qualified manufacturer must provide
attestations, certifications, and documentation demonstrating
compliance with the requirements of section 30D(e), at the time and in
the manner provided in the Internal Revenue Bulletin (see Sec. 601.601
of this chapter). The IRS, with analytical assistance from the DOE,
will review the attestations, certifications, and documentation. This
rule is finalized as Sec. 1.30D-3(d).
One commenter stated that, if final regulations require qualified
manufacturer submissions, the Treasury Department and the IRS should
develop a system to protect confidential business secrets. In response
to this, the Treasury Department and the IRS note that they intend to
continue to engage with OEMs and other stakeholders to develop the
rules under the upfront review process.
4. Rule for New Qualified Fuel Cell Motor Vehicles
The final regulations provide in Sec. 1.30D-3(e) that the
requirements of section 30D(e) and Sec. 1.30D-3 (Critical Minerals and
Battery Components Requirements) are deemed to be satisfied with
respect to new qualified fuel cell motor vehicles. Thus, the amount of
the credit with respect to these vehicles, under section 30D(b), is
$7,500. However, a qualified fuel cell motor vehicle (as defined in
section 30B(b)(3)) with a clean vehicle battery, such as a plug-in
hybrid fuel cell electric vehicle, would be subject to the Critical
Minerals and Battery Components Requirements because it draws
electricity from the clean vehicle battery.
Because new qualified fuel cell motor vehicles do not have a clean
vehicle battery, these vehicles do not have applicable critical
minerals or battery components contained in such battery that would be
subject to the Critical Minerals and Battery Components Requirements.
The IRA's enactment of section 30D(d)(6), which provides that new
qualified fuel cell motor vehicles are new clean vehicles if such
vehicles meet the North American final assembly and seller reporting
requirements (see section 30D(d)(1)(G) and (H)), indicates that
Congress intended for these vehicles to be eligible for the section 30D
credit. Therefore, the better reading of section 30D as a whole is that
new qualified fuel cell motor vehicles are eligible for the full
section 30D credit amount of $7,500.
C. Special Rules
Proposed Sec. 1.30D-4 provided special rules with respect to the
section 30D credit. Among those rules, proposed Sec. 1.30D-4(b)(5)(i)
provided that, except as provided in proposed Sec. 1.30D-4(b)(5)(ii),
in the case of a new clean vehicle that is placed in service by a
corporation or other taxpayer that is not an individual for whom AGI is
computed under section 62, the Modified AGI limitation does not apply.
One commenter expressed concern about individuals circumventing the
Modified AGI limitation by having a non-grantor trust place in service
an otherwise qualifying vehicle, suggesting that an anti-abuse rule
would prevent such occurrences. In response to this comment, the final
regulations provide that the Modified AGI limitation applies to
individuals, estates, and non-grantor trusts. For estates and non-
grantor trusts, Modified AGI is AGI as determined under section 67(e)
of the Code. The final regulations also provide that the $150,000
threshold amount applies to estates and non-grantor trusts for purposes
of the Modified AGI limitation, and that an estate or non-grantor trust
will be treated as having Modified AGI above the threshold amount for
any year in which it is not in existence. The Treasury Department and
the IRS will also continue to monitor this issue. In further response
to this comment, the final regulations also clarify the applicability
of this credit to grantor trusts, and provide that, to the extent that
the grantor or another person is treated as owning all or part of a
trust under sections 671 through 679 of the Code, the section 30D
credit is allocated to such grantor or other person in accordance with
Sec. 1.671-3(a)(1). In addition, the Modified AGI limitation applies
based on the Modified AGI of the grantor or other deemed owner, not the
Modified AGI of the trust or any other beneficiary.
The final regulations also clarify that with regard to partnerships
and S corporations, the Modified AGI limitation applies on a partner or
shareholder level. Finally, consistent with the preceding, the final
regulations provide that the Modified AGI
[[Page 37739]]
limitation does not apply to corporations and taxpayers other than
individuals, estates, trusts, and partners or shareholders of
passthrough entities.
D. FEOC Restriction
Section 30D(d)(7), the excluded entities provision or FEOC
Restriction, excludes from the definition of ``new clean vehicle'' any
vehicle placed in service after December 31, 2024, with respect to
which any of the applicable critical minerals contained in the battery
of such vehicle (as described in section 30D(e)(1)(A)) were extracted,
processed, or recycled by a FEOC (as defined in section 40207(a)(5) of
the Infrastructure Investment and Jobs Act), or any vehicle placed in
service after December 31, 2023, with respect to which any of the
components contained in the battery of such vehicle (as described in
section 30D(e)(2)(A)) were manufactured or assembled by a FEOC (as so
defined).
Several commenters either criticized the FEOC Restriction or
requested that these applicability dates be delayed in order to give
the industry time to reconfigure their supply chains. Similarly,
commenters noted that the FEOC Restriction may be problematic for land-
based sourcing of nickel, cobalt, and manganese in particular. As the
FEOC Restriction and its applicability dates are statutory, the final
regulations do not adopt these comments.
Proposed Sec. 1.30D-6(a) provided definitions for terms relevant
to the FEOC Restriction and proposed Sec. 1.30D-6. The final
regulation moves these definitions to Sec. 1.30D-2(b), and include a
new Sec. 1.30D-6(a) that is a general statement of the FEOC
Restriction rules. Otherwise, the final regulations adopt the structure
and framework of proposed Sec. 1.30D-6, with the modifications
described herein.
1. Due Diligence and Transition Rule for Non-Traceable Battery
Materials
Proposed Sec. 1.30D-6(b) provided due diligence requirements for
qualified manufacturers to determine compliance with the FEOC
Restriction. Proposed Sec. 1.30D-6(b)(2) provided a temporary
exception to the due diligence requirements for identified non-
traceable battery materials.
i. Due Diligence
Proposed Sec. 1.30D-6(b)(1) provided that the qualified
manufacturer must conduct due diligence with respect to all battery
components and applicable critical minerals (and associated constituent
materials) that are relevant to determining whether such components or
minerals are FEOC-compliant. This due diligence must comply with
standards of tracing for battery materials available in the industry at
the time of the attestation or certification that enable the qualified
manufacturer to know with reasonable certainty the provenance of
applicable critical minerals, constituent materials, and battery
components. As noted in the Explanation of Provisions to the December
Proposed Regulations, such tracing standards may include international
battery passport certifications and enhanced battery material and
component tracking and labeling. Proposed Sec. 1.30D-6(b)(1) specified
that reasonable reliance on a supplier attestation or certification
will be considered due diligence if the qualified manufacturer does not
know or have reason to know after due diligence that such supplier
attestation or certification is incorrect.
The due diligence must be conducted by the qualified manufacturer
prior to its determination of any information to establish a compliant-
battery ledger described in proposed Sec. 1.30D-6(d), and on an
ongoing basis. A battery is not considered FEOC-compliant unless the
qualified manufacturer has conducted such due diligence with respect to
all such components and applicable critical minerals of the battery and
provided required attestations or certifications described in section
III.D. of this Summary of Comments and Explanation of Revisions.
The Treasury Department and the IRS received a number of comments
relating to the due diligence requirement.
As noted previously, proposed Sec. 1.30D-6(b)(1) provided that due
diligence must comply with standards of tracing for battery materials
available in the industry at the time of the attestation or
certification. The proposed regulations did not specify a tracing
system. Several commenters requested that the final regulations create
an industry standard for due diligence to avoid confusion and provide a
standardized system. One such commenter suggested that the Catena-X
battery passport, used in Europe, as a model while another commenter
recommended against adopting such rules because the commenter
considered them to be burdensome and largely untested. Another
commenter suggested defining ``due diligence'' according to certain
OECD standards. That same commenter suggested requiring use of digital
battery identifiers (that is, battery passports). Another commenter
suggested that until mineral supply chain tracing becomes standardized,
voluntary standards using multi-stakeholder governance with
independent, publicly available, third-party auditing (such as the
Initiative for Responsible Mining Assurance's standard), can assist.
Finally, one commenter expressed a desire to better understand
expectations for supply chain tracing and offered to assist the
Treasury Department and qualified manufacturers in implementing
effective traceability mechanisms.
The Treasury Department and the IRS appreciate the number of
comments about due diligence. However, the broad range of perspectives
offered by the commenters counsels against mandating a universal
standard at this time. The Treasury Department and the IRS will
continue to monitor industry standards, battery passports, and other
methodologies for tracing, and will consider this issue for future
guidance.
The Treasury Department and the IRS also received comments with
respect to the due diligence requirements and upstream suppliers of the
OEMs. One commenter requested that the final regulations require
battery manufacturers and suppliers of battery components and
applicable critical minerals to cooperate and provide information to
qualified manufacturers. Alternatively, the commenter requested that
battery manufacturers be required to directly submit information to the
IRS and provide qualified manufacturers with certification that any
items are FEOC-compliant. Section 30D does not provide authority to
require submissions by upstream suppliers, either to the qualified
manufacturer or to the IRS. Section 30D(d)(3) authorizes information
reporting to the Secretary regarding new clean vehicles only by
qualified manufacturers. Qualified manufacturers may seek to
incorporate reporting and assurances by their battery suppliers as part
of their supply contracts, but such an arrangement would be outside the
scope of these regulations. Accordingly, the final regulations do not
adopt this comment.
Two commenters raised issues with respect to battery supplier
reliance on further upstream suppliers. Proposed Sec. 1.30D-6(b)(1)
specified that reasonable reliance on a supplier attestation or
certification will be considered due diligence if the qualified
manufacturer does not know or have reason to know after due diligence
that such supplier attestation or certification is incorrect. The two
commenters requested that the reasonable reliance rule be extended to
third-party manufacturers or suppliers who conduct due diligence under
proposed Sec. 1.30D-6(c)(5). The Treasury Department and the IRS agree
with these commenters. Accordingly, the final regulations also specify
that that
[[Page 37740]]
reasonable reliance on a supplier attestation or certification will
also be considered due diligence if the third-party manufacturer or
supplier (described in Sec. 1.30D-6(c)(5)) does not know or have
reason to know after due diligence that such supplier attestation or
certification is incorrect.
One commenter stated that additional clarification is needed to
identify the elements of reasonable reliance and due diligence beyond
the attestation of the supplier. For instance, suppliers may, in
certain circumstances, be reluctant to share certain sourcing
information as proprietary and competitive in nature. The commenter
asked whether a supplier statement based on undisclosed information
could be reasonably relied upon. In addition, the commenter sought more
information about implications of a qualified manufacturer's reasonable
reliance on supplier attestations that prove later to be inaccurate,
such as whether the qualified manufacturer's reasonable reliance would
act as a shield against a penalty. Another commenter suggested that
Treasury should consider establishing a process for certifying that
suppliers are not FEOCs. The commenter posited that such a process
could mirror existing U.S. government certification, accreditation, or
registration processes, such as International Traffic in Arms
Regulations (ITAR) registration or National Institute of Standards and
Technologies (NIST) certification.
The Treasury Department and the IRS appreciate the commenters'
desire for certainty regarding the procedures for establishing
reasonable reliance and due diligence. As described in proposed Sec.
1.30D-6(f), the IRS will consider a range of remedial options in the
event of inaccurate attestations, certification, or documentation, and
the IRS will exercise discretion in pursuing any of the specified
options on the basis of the unique facts and circumstances of the
inaccuracy, including reasonable reliance on supplier information. In
addition, parties to supply contracts may include a provision for such
attestations as part of their contracts.
ii. Transition Rule for Impracticable-to Trace-Battery Materials
Proposed Sec. 1.30D-6(b)(2) provided that for any new clean
vehicles for which the qualified manufacturer provides a periodic
written report before January 1, 2027, the due diligence requirement
may be satisfied by excluding identified non-traceable battery
materials (and associated constituent materials). In addition, proposed
Sec. 1.30D-6(c)(2) provided that identified non-traceable battery
materials (and associated constituent materials) may be excluded from
the determination of whether a battery cell is FEOC-compliant. To use
these transition rules, qualified manufacturers must submit a report
during the up-front review process (described in section III.B.3 of
this Summary of Comments and Explanation of Revisions) demonstrating
how the qualified manufacturer will comply with the excluded entity
restrictions once the transition rule is no longer in effect and once
all materials must be fully traced through the entire electric vehicle
battery supply chain.
Proposed Sec. 1.30D-6(a)(13)(i) defined ``non-traceable battery
materials'' to mean specifically identified low-value battery materials
that may originate from multiple sources and are often commingled
during refining, processing, or other production processes by suppliers
to such a degree that the qualified manufacturer cannot, due to current
industry practice, feasibly determine and attest to the origin of such
battery materials. For this purpose, low-value battery materials are
those that have low value compared to the total value of the battery.
Proposed Sec. 1.30D-6(a)(13)(ii) was reserved to contain the specific
list of identified non-traceable battery materials. While proposed
Sec. 1.30D-6(a)(13)(ii) was reserved, the Explanation of Provisions to
the December Proposed Regulations identified as exemplar materials, for
potential inclusion on the list, applicable critical minerals contained
in electrolyte salts, electrode binders, and electrolyte additives.
As noted in section III.A. of this Summary of Comments and
Explanation of Revisions, consistent with the expectation and
requirement that OEMs will develop tracing processes in the future, the
final regulations retain the list but change the name to
``impracticable-to-trace battery materials,'' in order to better
describe the rationale underlying the list.
The Treasury Department and the IRS received many comments with
respect to the list of identified nontraceable battery materials as
well as the proposed transition rules.
Several commenters requested changes to the meaning of ``low
value.'' \8\ One commenter requested that low value be determined by
reference to the battery as a whole, and not just the total value of
applicable critical minerals. Similarly, another commenter requested
that ``low value'' be defined with respect to a specified percentage
relative to the value of the battery. Several commenters requested that
``low value'' be defined as less than 5 percent or 10 percent of the
value of the battery. However, another commenter proposed that ``low
value'' be defined as less than 5 percent of the total value of the
critical minerals in the batteries. Finally, one commenter objected to
a definition based on value, noting that, apart from certain cathode
materials, the economic value of every other component in lithium ion
batteries is low relative to the total value of the battery. The final
regulations do not adopt these comments, as the determination of low-
value is not an operative rule with respect to the impracticable-to-
trace battery materials list. Instead, the Explanation of Provisions to
the December Proposed Regulations only noted the low-value of certain
materials, relative to the value of the clean vehicle battery, for the
purpose of identifying materials that qualified manufacturers could not
feasibly trace. However, the as noted in this Summary of Comments and
Explanation of Revisions, the term ``low-value'' is not defined as a
specific percentage. Instead, a low-value battery material is one for
which qualified manufacturers have not historically conducted due
diligence or tracing, due to its relatively low value in relation to
either the battery or the applicable critical minerals in the battery.
---------------------------------------------------------------------------
\8\ The Explanation of Provisions to the December Proposed
Regulations noted that, where battery materials make up only a very
small percentage of the value of the battery as a whole, many
industry participants had little reason to trace the source of these
materials prior to the passage of the IRA. On the other hand, that
Explanation of Provisions identified exemplar materials that
accounted for less than two percent of the value of applicable
critical minerals in the battery.
---------------------------------------------------------------------------
Several commenters supported the development of a specific list of
nontraceable battery materials as this would provide the greatest
clarity and certainty for the supply chain. Several commenters also
requested a full enumerated list of materials. Many commenters
requested certainty as soon as possible. Several commenters requested
that the non-traceable battery materials rule be made permanent. On the
other hand, several commenters supported the transition rule for non-
traceable battery materials, agreed with the temporary nature of the
rule, and were in favor of this approach over other alternatives, such
as a de minimis rule or set of criteria for exclusion. Many commenters
agreed with the exemplar materials identified in the Explanation of
Provisions to the December Proposed Regulations (that is, applicable
critical minerals contained in electrolyte salts, electrode binders,
and
[[Page 37741]]
electrolyte additives). A few commenters suggested clarification
regarding other materials. One commenter requested that the final rule
exclude low value anode materials from the tracing requirements. Some
commenters requested that applicable critical minerals contained in
foils be added to the list. Other commenters recommended that low-value
materials, comprising less than five or ten percent of the value of all
critical minerals in a battery, be excluded from sourcing requirements
under any final rule and specifically lists cobalt, zinc, tungsten,
yttrium, titanium, graphite, and fluorspar as potential low-value
materials. Finally, one commenter requested that constituent materials
be added to the list. That commenter gave the specific example of the
electrolyte, and noted that the battery manufacturer may have
difficulty conducting due diligence with respect to electrolytes, due
to the tiers of upstream suppliers as well as the need to request
confidential commercial information.
Other commenters noted that certain minerals or materials should
not be included in the definition of non-traceable battery materials.
One commenter noted that consultation with industry is needed to
develop a list, because many materials either can be traceable or will
be traceable before 2027. Several commenters took issue with the
exemplar materials identified in the Explanation of Provisions to the
April Proposed Regulations. Some commenters disputed the idea that
applicable critical minerals contained in electrolyte salts and
electrode binders are non-traceable. One commenter noted that special
electrolyte salts and additives (SESAs) are never commingled during
transport or usage and may be traced to the source through a
certification of origin. Other commenters specifically enumerated
minerals that they asserted were traceable, including magnesium,
magnesium sulfate, manganese sulphate monohydrate and related manganese
materials and manganese oxides; fluorspar, fluorspar-based hydrofluoric
acid, fluorine compounds, polyvinylidene fluoride (PVDF) and PVDF
binder technology; rare earth elements; lithium and Lithium
hexafluorophosphate (LiPF6); cobalt; and nickel. Finally, one commenter
suggested that the list of non-traceable battery materials only include
non-essential battery materials that have ready substitutes. The
commenter contrasted those materials with essential battery materials
(such as fluorinated salts and fluorinated binders) that are essential
to making an EV battery and have no meaningful substitutes. The
commenter recommended that such essential battery materials not be
added to the nontraceable battery materials list.
Several comments raised questions relating to the justifications
for the identified non-traceable battery materials list. One commenter,
while generally supportive of the proposed rules, stated that all
materials are in fact able to be traced.
Finally, several commenters suggested that the final regulations
adopt a different approach for a transition rule. One commenter
requested that the final regulations provide a detailed list of low-
value and non-traceable battery materials that form part of constituent
materials, so that battery manufacturers do not have to trace materials
to specific upstream suppliers. Another commenter proposed establishing
a dynamic list of non-traceable battery materials rather than a static
list. Several commenters also suggested that the final regulations
provide a list of criteria for manufacturers to apply to determine what
materials are excludible. Similarly, several commenters recommended
that the final regulations adopt a de minimis threshold, with some
suggesting a five percent threshold and others a ten percent threshold.
One commenter requested that the Treasury Department and the IRS remove
the non-traceable battery materials transition rule and replace it with
an exemption from due diligence for battery materials produced by DOE
Office of Manufacturing Energy and Supply Chains battery grant
awardees. Finally, one commenter requested a three- to four-year grace
period for certain applicable critical minerals, such as graphite and
powders of cathode active materials.
Balancing all of the varying and opposing considerations reflected
in these comments, the final regulations do not adopt a de minimis
percentage threshold. The statute does not provide guidance for
determining a numerical de minimis percentage. Instead, the statute
compels qualified manufacturers to conduct due diligence in order to
determine that vehicles satisfy the FEOC Restriction. The final
transition rule requires due diligence in light of existing tracing
capabilities and the practicalities of mineral and battery component
supply chains, such as the presence of commingling. Instead of adopting
a numerical de minimis percentage, the final regulations retain the
proposed list and the related transition rules from the proposed
regulations, but generally include only the exemplar materials
identified in the Explanation of Provisions to the April Proposed
Regulations.
In addition, however, graphite contained in anode materials is
added to the list of impracticable-to-trace battery materials. Several
commenters raised issues relating to graphite. Many commenters that
supported the transition rule also generally supported including
graphite on the list. One commenter noted that graphite accounts for
only 3 to 4 percent of EV battery value, and that it is especially
difficult to trace because battery cell manufacturers frequently mix
synthetic and natural graphite together. Another commenter requested
clarification of whether the FEOC analysis for synthetic graphite (1)
begins with the petroleum coke from which synthetic graphite is derived
or, instead, (2) goes all the way upstream to the oil extraction. This
commenter noted that, in the latter case, tracing would not be
possible. However, a different commenter stated that the ``battery
coke'' used by the EV industry to make synthetic graphite is not
produced from a nontraceable supply chain, and that such battery coke
(unlike commodity cokes) is not commingled prior to shipment to an end
user. Taking these comments under consideration, the Treasury
Department and the IRS have determined that, due to the commingling of
natural and synthetic graphite, as well as the difficulty of tracing
synthetic graphite fully upstream, graphite contained in anode
materials is an impracticable-to-trace material. Consequently, the
final regulations include graphite contained in anode materials on the
list of identified impracticable-to-trace battery materials.
The final regulations add a definition of ``impracticable-to-trace
battery materials'' to Sec. 1.30D-2(b), and specify identified
impracticable-to-trace battery materials as applicable critical
minerals in the following circumstances: graphite contained in anode
materials and applicable critical minerals contained in electrolyte
salts, electrode binders, and electrolyte additives. Section 1.30D-
6(b)(2) provides that for any new clean vehicles for which the
qualified manufacturer provides a periodic written report before
January 1, 2027, the due diligence requirement may be satisfied by
excluding identified impracticable-to-trace battery materials (and
associated constituent materials). Section Sec. 1.30D-6(c)(3)(iii)
provides that identified impracticable-to-trace battery materials (and
associated constituent materials) may be excluded from the
determination of whether a battery cell is FEOC-compliant.
[[Page 37742]]
In addition, the proposed regulations provided that, to use these
transition rules, qualified manufacturers must submit a report during
the up-front review process demonstrating how the qualified
manufacturer will comply with the FEOC Restriction once the transition
rules end. The final regulations keep this requirement and further
clarify that this report must include information about efforts made to
date to secure a FEOC-compliant battery supply once the transition rule
is no longer in effect. Additional requirements related to this report
will be described in guidance published in the Internal Revenue
Bulletin (see Sec. 601.601 of this chapter). The Treasury Department
and the IRS anticipate that such requirements will include robust
documentation of efforts made to date to secure FEOC-compliant battery
supply, such as potential suppliers engaged, offtake agreements, and
contracts entered into with domestic or compliant suppliers. Finally,
the Treasury Department and the IRS note that the inclusion of
materials on the impracticable-to-trace battery materials list does not
relieve any person from compliance obligations with respect to any
other laws or requirements of other federal agencies or international
organizations, including U.S. sanctions law administered by the
Treasury Department's Office of Foreign Assets Control (OFAC) (31 CFR
Chapter V).
2. FEOC Compliance
Proposed Sec. 1.30D-6(c) provided the rules for determining
whether battery components, battery cells, and applicable critical
minerals (and associated constituent materials) are FEOC-compliant.
These rules generally required the physical tracking of applicable
critical minerals, battery cells, and battery components. However,
proposed Sec. 1.30D-6(c)(3)(ii)(A) provided that the determination
that a battery cell is a FEOC-compliant battery cell may be made
through an allocation of the available mass of applicable critical
minerals and associated constituent materials to specific battery cells
manufactured or assembled in a battery cell production facility,
without the physical tracking of the mass of applicable critical
minerals (and associated constituent materials) to specific battery
cells. This allocation-based determination was an exception to the
general rule, which required specific tracking. Proposed Sec. 1.30D-
6(c)(3)(ii)(F) provided that the allocation-based exception would be a
temporary rule for any new clean vehicle for which the qualified
manufacturer provides a periodic written report before January 1, 2027.
In the Explanation of Provisions to the December Proposed
Regulations the Treasury Department and the IRS requested comments on
whether industry practices are likely to develop that allow for
physical tracking before December 31, 2032, and, if not, whether the
allocation-based determination should be included as a permanent
compliance approach rather than as a temporary transition rule.
In response, several commenters expressed appreciation for the
allocation-based determination. Commenters also requested that the rule
be made permanent, due to the inability to quickly modify supply chains
and the impracticability or impossibility of physically tracing
applicable critical minerals. One commenter appreciated the inclusion
of the transition rule in allowing allocation-based determinations for
critical minerals and constituent materials, as well as the transition
rule regarding non-traceable materials. One commenter noted that the
time frame for the temporary allocation-based approach (ending December
31, 2026) is very short and was not sure it would be sufficient for
manufacturers to alter their supply chains, as needed. The commenter
further recommended that the proposed transition rule for allocation-
based accounting be made permanent for the duration of the section 30D
tax credit. In response to these comments, these final regulations make
the allocation-based determination a permanent rule. Informed by the
consensus view from the comments and consultation with the DOE, the
Treasury Department and the IRS recognize that it may be difficult to
de-commingle supply chains by 2027. In addition, it would be difficult
and impracticable to track individual masses of applicable critical
minerals through the supply chain in order to determine which masses
are FEOC-compliant and which are not. Moreover, allocation-based
accounting is consistent with the purposes of the statute, because it
encourages OEMs and their suppliers to ensure secure supply chains;
under an allocation-based accounting rule, the number of new clean
vehicles that OEMs are able to produce is limited by the supply of the
lowest-quantity FEOC-compliant critical mineral.
In addition, several commenters requested changes to the
calculation-based methodology under the allocation-based accounting
rule. Two commenters requested that the allocation be of total
aggregated mass of FEOC-compliant applicable critical minerals, rather
than limiting the FEOC-compliant battery cells to the critical mineral
that has the lowest percentage of FEOC-compliant supply. The Treasury
Department and the IRS disagree with these comments. Under the total
aggregated mass approach suggested by the commenters, a qualified
manufacturer with 0 percent FEOC-compliant mass of a specific
applicable critical mineral would still have FEOC-compliant batteries
based on the total mass of FEOC-compliant applicable critical minerals.
This result would be inconsistent with the purposes of section
30D(d)(7). Accordingly, the final regulations do not adopt these
comments.
Two commenters recommended that the final regulations adopt a mass
balance approach with respect to allocated accounting. A full mass
balance approach would require full physical tracing across long
procurement chains for arrays of materials into the battery materials
production. Given concerns with the ability of manufacturers to
implement a robust tracking process in the near term to this level of
specificity, the final regulations do not adopt this approach.
Proposed Sec. 1.30D-6(c)(3)(iii) provided that for new clean
vehicles for which the qualified manufacturer provides a periodic
written report before January 1, 2027, the determination of whether a
battery cell is FEOC-compliant under proposed Sec. 1.30D-6(c)(3) may
be satisfied by excluding non-traceable battery materials, and their
associated constituent materials. As described in section III.D.1.ii.
of this Summary of Comments and Explanation of Revisions, this rule is
finalized with respect to identified impracticable-to-trace battery
materials.
3. Compliant-Battery Ledger
Proposed Sec. 1.30D-6(d)(1) provided that for new clean vehicles
placed in service after December 31, 2024, the qualified manufacturer
must determine and provide information to the IRS to establish a
compliant-battery ledger for each calendar year, as described in
proposed Sec. 1.30D-6(d)(2)(i) and (ii). One compliant-battery ledger
may be established for all vehicles for a calendar year, or there may
be separate ledgers for specific models or classes of vehicles.
The Treasury Department and the IRS received several comments with
respect to the compliant-battery ledger.
Several commenters noted that the upfront review process is both
novel and complicated, and will require continued conversation between
OEMs and the Treasury Department and the IRS. One such commenter
commended
[[Page 37743]]
the Treasury Department and the IRS's willingness to engage with
manufacturers to support compliance and also asked for sufficient
advance notice to qualified manufacturers regarding the upfront review
process. Another noted that the process of establishing the mechanisms
of the compliant-battery ledger will be an iterative process. In
response to this, the Treasury Department and the IRS note that they
intend to continue to engage with OEMs and other stakeholders to
develop the rules under the upfront review process.
One commenter requested further clarification on the administrative
procedures and necessary documentation requirements on areas such as
FEOC-compliant certification and compliant-battery ledger. In response,
the Treasury Department and the IRS generally note that initial
guidance with respect to the upfront review process was issued in
Revenue Procedure 2023-38.
Section 5.08 of Revenue Procedure 2023-38 requires qualified
manufacturers to report any decrease to the ledger within 30-days of
discovery. One commenter requested that this 30-day time period be
extended. Although the comment is outside the scope of these final
regulations, the Treasury Department and the IRS note that they will
continue to study how best to administer the rules for establishing and
updating compliant-battery ledgers.
One commenter raised a concern that the compliant-battery ledger
may allow for noncompliance because batteries need not be tracked to
specific vehicles. Proposed Sec. 1.30D-6(c)(1) requires the physical
tracking of batteries to specific new clean vehicles via serial number
or other identification system. Therefore, the commenter's concern is
already addressed.
Finally, two commenters requested additional mechanisms for the
upfront review process. First, one commenter requested that the
Treasury Department and the IRS create a safe harbor system through
which sourcing plans and licensing agreements of a proposed transaction
are submitted for review and clearance. This commenter suggested that
the Treasury Department's Committee on Foreign Investment in the United
States process could provide a model. Second, several commenters noted
that OEMs may have difficulty verifying information due to
confidentiality obligations as well as the lack of harmonization among
suppliers, and proposed that the Treasury Department and the IRS create
an online portal to allow OEMs and suppliers to match information. The
Treasury Department and the IRS intend that the upfront review process
will be an iterative process in which attestations, certifications, and
documentation regarding the section 30D sourcing requirements are
submitted for review to the IRS, with analytical assistance from the
DOE. This process allows for additional information to be requested of
and supplied by qualified manufacturers. In addition, qualified
manufacturers may rely on determinations provided by third-party
manufacturers or suppliers, provided the requirements in Sec. 1.30D-
6(c)(5) are met.
4. Rule for New Qualified Fuel Cell Motor Vehicles
The final regulations add Sec. 1.30D-6(g) to clarify that the FEOC
Restriction does not apply to new qualified fuel cell motor vehicles.
However, a qualified fuel cell motor vehicle (as defined in section
30B(b)(3)) with a clean vehicle battery, such as a plug-in hybrid fuel
cell electric vehicle, would be subject to the FEOC Restriction.
Because new qualified fuel cell motor vehicles do not contain clean
vehicle batteries, these vehicles do not have applicable critical
minerals or battery components contained in such battery that would
subject the vehicles to the FEOC Restriction. Thus, the rule regarding
new qualified fuel cell vehicles flows naturally from the statute.
IV. Section 6213(g)(2)
The IRA added three new definitions to the exclusive list of
``mathematical or clerical errors'' in section 6213(g)(2). These new
definitions are set out in sections 6213(g)(2)(T), (U), and (V).
Section 6213(g)(2)(T) provides that the term ``mathematical or clerical
error'' means an omission of a correct VIN required under section
30D(f)(9) (relating to the credit for new clean vehicles) to be
included on a return; section 6213(g)(2)(U) provides that the term
``mathematical or clerical error'' means an omission of a correct VIN
required under section 25E(d) (relating to the credit for previously-
owned clean vehicles) to be included on a return; and section
6213(g)(2)(V) provides that the term ``mathematical or clerical error''
means an omission of a correct VIN required under section 45W(e)
(relating to the credit for qualified commercial clean vehicles) to be
included on a return.
The flush language added in 1998 to the end of section 6213(g)(2)
regarding whether a taxpayer is treated as having omitted a correct
taxpayer identification number does not provide the clarification that
is necessary to determine the meaning of ``an omission of a correct
vehicle identification number'' under sections 6213(g)(2)(T) through
(V). Accordingly, proposed Sec. 301.6213-2 provided rules for
determining whether the IRS is authorized to use math error authority
to make a summary assessment if there has been an ``omission of a
correct vehicle identification number'' on a taxpayer's return on which
the taxpayer is claiming or electing to transfer the credits under
sections 30D, 25E and 45W.
A comment recommended that the proposed regulation be modified to
clarify how it applies to taxpayers who rely on a seller report
containing mistakenly entered VINs, or taxpayers who rely on
manufacturers' incorrect determinations that a vehicle is eligible for
the section 25E or 30D credit if the vehicle is in fact ineligible for
either credit.
Vehicle sellers can prevent the situation described by the
commenter by submitting the seller report described in Sec. Sec.
1.25E-1(b)(19) and Sec. 1.30D-2(b)(48), which must be submitted
electronically by the seller to the IRS at the time of sale. The
reported VIN's eligibility is checked against qualified manufacturer
reporting to the IRS at the time of submission of the seller report.
The taxpayer then receives a copy of the seller report only after VIN
eligibility is verified through the seller reporting process in real
time. Accordingly, the seller report should not contain an incorrect
VIN or VIN for a vehicle that was ineligible for a clean vehicle
credit. Vehicle sellers are advised to ensure they accurately enter the
VIN of the clean vehicle the taxpayer is purchasing when submitting the
seller report and to be cautious in finalizing transactions in any case
in which a VIN's eligibility has not been confirmed by the IRS through
an electronically submitted seller report. Taxpayers should also ensure
that the VIN listed on their seller report matches the VIN of the clean
vehicle actually purchased. In addition, the taxpayer can rely on the
information and certifications contained in the qualified manufacturer
written reports for the sections 25E and 30D credits pursuant to
Sec. Sec. 1.25E-2(h) and 1.30D-4(h).
V. Applicability Dates
The final rules modify the applicability dates of the proposed
rules for uniformity and administrability across the various rules
included in the April, October, and December Proposed Regulations.
Consistent with the authority in section 7805(b)(1), the applicability
dates generally are
[[Page 37744]]
modified to apply to taxable years ending after the latest publication
date of the proposed regulations to which the section relates.
Accordingly, the section 25E final regulations generally apply to
taxable years ending after October 10, 2023, and the section 30D final
regulations generally apply to taxable years ending after December 4,
2023.
The regulatory applicability dates also align with certain
statutory applicability dates. For example, the rules regarding
transfer of the section 25E and 30D credits in Sec. Sec. 1.25E-3 and
1.30D-5 apply to clean vehicles placed in service after December 31,
2023, in taxable years ending after December 31, 2023, to reflect the
statutory applicability date of vehicles acquired (section 25E) or
placed in service (section 30D) after December 31, 2023. Similarly, the
rules related to the FEOC Restriction in Sec. 1.30D-6 reflect the
statutory applicability date of vehicles placed in service after
December 31, 2023.
Special Analyses
I. Regulatory Planning and Review
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.
Any collection burden associated with rules described in these
final regulations is previously accounted for in OMB Control Number
1545-2137. These final regulations do not alter previously accounted
for information collection requirements and do not create new
collection requirements. OMB Control Number 1545-2137 covers Form 8936
and Form 8936-A regarding electric vehicle credits, including the new
requirement in section 30D(f)(9) to include on the taxpayer's return
for the taxable year the VIN of the vehicle for which the section 30D
credit is claimed. Revenue Procedure 2022-42 describes the procedural
requirements for qualified manufacturers to make periodic written
reports to the Secretary to provide information related to each vehicle
manufactured by such manufacturer that is eligible for the section 30D
credit as required in section 30D(d)(3), including the critical mineral
and battery component certification requirements in sections
30D(e)(1)(A) and (e)(2)(A). In addition, Revenue Procedure 2022-42
provides the procedures for sellers of new clean vehicles to report
information required by section 30D(d)(1)(H) for vehicles to be
eligible for the section 30D credit. The collections of information
contained in Revenue Procedure 2022-42 are described in that document
and were submitted to the Office of Management and Budget in accordance
with the Paperwork Reduction Act under control number 1545-2137.
The requirement to determine the final assembly location as defined
in Sec. 1.30D-2(b) by relying on (1) the vehicle's plant of
manufacture as reported in the VIN pursuant to 49 CFR 565 or (2) the
final assembly point reported on the label affixed to the vehicle as
described in 49 CFR 583.5(a)(3) is accounted for by the Department of
Transportation in OMB Control Numbers 2127-0510 and 2127-0573.
For purposes of the PRA, the reporting burden associated with the
collection of information in Sec. Sec. 1.25E-3 and 1.30D-5 regarding
credit transfer elections will be reflected in the PRA Submissions
associated with Revenue Procedure 2023-33. The OMB control number for
Revenue Procedure 2023-33 is 1545-2311.
A Federal agency may not conduct or sponsor, and a person is not
required to respond to, a collection of information unless it displays
a valid control number assigned by the Office of Management and Budget.
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 will not have a
significant economic impact on a substantial number of small entities,
section 603 of the RFA requires the agency to present a final
regulatory flexibility analysis (FRFA) of the proposed rule.
In connection with the April and December Proposed Regulations, the
Secretary certified that these proposed regulations will not have a
significant economic impact on a substantial number of small entities.
April Proposed Regulations: The regulations proposed in April
affect two types of business entities: (1) qualified manufacturers that
must trace and report on their critical minerals and battery components
in order to certify that their new clean vehicles qualify for the
section 30D credit, and (2) businesses that may earn the section 30D
credit when purchasing and placing in service a new clean vehicle.
While the tracking and reporting of critical minerals and battery
components is likely to involve significant administrative costs,
according to public filings, all qualified manufacturers had total
revenues above $1 billion in 2022. There are a total of 13 qualified
manufacturers that have indicated that they manufacture vehicles
currently eligible for the section 30D credit.
Qualified manufacturers also have to certify that their vehicles
qualify under the Critical Minerals and Battery Components
Requirements. The regulations provide definitions and general rules for
the section 30D credit, including rules for qualified manufacturers to
comply with the Critical Minerals and Battery Components Requirements.
The Treasury Department and the IRS intend that the rules provide
clarity for qualified manufacturers for consistent application of
critical minerals and battery components calculations and for taxpayers
purchasing new clean vehicles that qualify for the section 30D credit.
The Treasury Department and the IRS have determined that qualified
manufacturers do not meet the applicable definition of small entity.
Business purchasers of clean vehicles who take the section 30D
credit must satisfy reporting requirements that are largely the same as
those faced by individuals accessing the section 30D credit to purchase
clean vehicles. Taxpayers will continue to file Form 8936, Clean
Vehicle Credit, to claim the section 30D credit. As was the case for
the section 30D credit prior to amendments made by the IRA, taxpayers
can rely on qualified manufacturers to determine if the vehicle being
purchased qualifies for the section 30D credit and the credit amount.
The estimated burden for individual and business taxpayers filing this
form is approved under OMB control number 1545-0074 and 1545-0123. To
make it easier for a taxpayer to determine the potential section 30D
credit available for a specific vehicle, the regulations provide
business entities with tools and definitions to ascertain
[[Page 37745]]
whether any vehicles purchased would be eligible for the credit. The
VIN reporting required by section 30D(f)(9) and described in the
proposed regulations was included in prior section 30D reporting.
December Proposed Regulations: The regulations proposed in December
affect qualified manufacturers that must determine their compliance
with the FEOC Restriction in order to certify that their new clean
vehicles placed in service after December 31, 2023, qualify for the
section 30D credit.
While the tracking and reporting of compliance with the FEOC
Restriction is likely to involve significant administrative costs,
according to public filings, every qualified manufacturer had total
revenues above $1 billion in 2022. There are a total of 13 qualified
manufacturers that have indicated that they manufacture vehicles
currently eligible for the section 30D credit. Qualified manufacturers
also have to certify that their vehicles comply with the FEOC
Restriction and contain batteries that are FEOC-compliant. The
regulations provide definitions and general rules for this purposes.
Accordingly, the Treasury Department and the IRS intend that the rules
provide clarity for qualified manufacturers for consistent application
of the FEOC Restriction. The Treasury Department and the IRS have
determined that qualified manufacturers do not meet the applicable
definition of small entity.
For these reasons, it is hereby certified that Sec. Sec. 1.30D-1,
1.30D-3, 1.30D-4(a)-(e) and 1.30D-6, and the accompanying definitions
in Sec. 1.30D-2 that were proposed in the April and December Proposed
Regulations, do not have a significant economic impact on a substantial
number of small entities.
In connection with the October Proposed Regulations, the Treasury
Department and the IRS presented an IRFA to invite comments on both the
number of entities affected and the economic impact on small entities.
No comments were received specific to these areas of inquiry. In the
absence of comments in response to the October Proposed Regulations,
this FRFA is presented with the final rule.
In addition, pursuant to section 7805(f) of the Code, the April,
October, and December proposed regulations preceding this final rule
were submitted to the Chief Counsel for the Office of Advocacy of the
Small Business Administration for comment on its impact on small
business, and no comments were received from the Chief Counsel for the
Office of Advocacy of the Small Business Administration.
A. Need for and Objectives of the Rule
The final regulations provide the eligibility rules and key
definitions regarding the section 25E and section 30D credits to allow
taxpayers to know whether their purchase of a previously-owned clean
vehicle or new clean vehicle is eligible for the section 25E and
section 30D credits, respectively. In addition, the final regulations
provide rules regarding the recapture authority under sections 25E(e)
and 30D(f)(5), so that taxpayers and the IRS have clear rules regarding
when a clean vehicle may cease being eligible for the section 25E and
section 30D credits. Further, the final regulations provide rules
regarding the omission of a correct VIN for purposes of math error
authority as described in section 6213(g)(2). Clear rules regarding the
exercise of math error authority will provide for efficient and fair
tax administration.
The final regulations provide guidance for purposes of taxpayers
electing to transfer vehicle credits under sections 25E(f) and 30D(g)
to eligible entities, and for eligible entities participating in the
advance payment program with respect to those transferred credits. The
final regulations provide rules regarding the process for taxpayers to
elect to transfer the credits and for eligible entities to register and
receive advance payments from the IRS, and rules regarding the Federal
income tax treatment of the credit transfer election, including
recapture and excessive payments. The final rules regarding the credit
transfer election ensure certainty regarding the consequences of the
transfer election, decrease the risk of fraud, and expedite the process
by which an eligible entity may receive an advance payment under
section 25E(f) or 30D(g).
The final rules are expected to encourage taxpayers to increase the
placing in service of new and previously-owned clean vehicles. Thus,
the Treasury Department and the IRS intend and expect that the final
rules will deliver benefits across the economy and environment that
will beneficially impact various industries, including clean vehicle
manufacturers and dealers.
B. Issues Raised by Public Comments in Response to the IRFA
As previously noted, there were no comments filed that specifically
addressed the impact of the proposed rules and policies on small
entities or the number of potentially impacted entities presented in
the IRFA. Additionally, no comments were filed by the Chief Counsel of
Advocacy of the Small Business Administration.
C. Affected Small Entities
The Small Business Administration estimates in its 2023 Small
Business Profile that 99.9 percent of United States businesses meet its
definition of a small business. The applicability of these final
regulations does not depend on the size of the business, as defined by
the Small Business Administration. As described more fully in the
Summary of Comments and Explanation of Revisions to this final
regulation and in this FRFA, these rules may affect a variety of
different businesses across several different industries, but will
primarily affect dealers of new and previously-owned clean vehicles
that would like to be eligible entities to receive a transferred credit
from the buyers of a clean vehicle. The Treasury Department and the IRS
currently estimate the number of dealers of new clean vehicles to be
approximately 16,000, and the number of dealers of previously-owned
clean vehicles to be approximately 36,000.
Of the estimated 16,000 dealers of new clean vehicles, we estimate
that 10,000 will have receipts in excess of $25 million; 3,000 will
have receipts between $10-$25 million; 1,000 will have receipts between
$5-10 million, and 2,000 will have receipts under $5 million. Of the
estimated 36,000 dealers of previously-owned clean vehicles, we
estimate that 500 will have receipts in excess of $25 million; 1,500
will have receipts between $10-$25 million; 2,000 will have receipts
between $5-10 million, and 32,000 will have receipts under $5 million.
The Treasury Department and the IRS expect to receive more
information on the impact on small businesses through comments on this
final rule.
D. Impact of the Rules
The recordkeeping and reporting requirements would increase for
taxpayers who elect to transfer the section 25E or 30D credit to an
eligible entity. In addition, the recordkeeping and reporting
requirements would increase for dealers who seek to qualify as eligible
entities and participate in the advance payment program. Although the
Treasury Department and the IRS do not have sufficient data to
precisely determine the likely extent of the increased costs of
compliance, the estimated burden of complying with the recordkeeping
and reporting requirements are described in section II of the Special
Analyses regarding the PRA. The Treasury Department and the IRS
estimate that, based on the total of
[[Page 37746]]
52,000 dealers of new (16,000) and previously-owned (36,000) clean
vehicles, it will take approximately one hour to register as entities
eligible to receive advance payments of credits under sections 25E and
30D, for a total of 52,000 hours total. The Treasury Department and the
IRS further estimate that there are approximately 950,000 taxpayers who
will purchase new clean vehicles and 28,750 taxpayers who will purchase
previously-owned clean vehicles who will elect to transfer their
respective credits to the eligible entity, for a total of 978,750
elections annually. The Treasury Department and the IRS estimate each
election will take approximately 15 minutes to complete, for a total
burden of approximately 244,688 hours per year.
E. Steps Taken To Minimize Impacts on Small Entities and Alternatives
Considered
The Treasury Department and the IRS considered various alternatives
in promulgating these final regulations. Significant alternatives
considered include: (1) the sale price definition in Sec. 1.25E-
1(b)(16); (2) the first transfer rule described in Sec. 1.25E-
1(b)(14)(ii); (3) the recapture rules provided in Sec. Sec. 1.25E-2(c)
and 1.30D-4(e), and (4) the dealer registration requirements provided
in Sec. Sec. 1.25E-3(c) and 1.30D-5(c).
Regarding the sale price definition in Sec. 1.25E-1(b)(16), the
Treasury Department and the IRS considered the appropriate scope of the
definition and how the definition of sale price should be consistent
with or diverge from the definition of manufacturer's suggested retail
price for purposes of section 30D(f)(11). The definition of
``manufacturer's suggested retail price'' in Sec. 1.30D-2(b) refers to
a statutory definition in 15 U.S.C. 1232 that is used for purposes of
vehicle labeling on the vehicle window sticker. That definition
includes optional accessories or items included by the manufacturer at
the time of delivery to the dealer but excludes delivery charges to the
dealer. For previously-owned clean vehicles, however, there are not
similar vehicle labeling standards that provide a standard for defining
sale price. In addition, in a previously-owned clean vehicle sale, the
dealer and buyer may negotiate to characterize a portion of the sale
price as a separately stated fee or charge (other than those required
by law) to avoid the section 25E sale price cap of $25,000. To prevent
this type of recharacterization, Sec. 1.25E-1(b)(16) defines sale
price to mean the total sale price agreed upon by the buyer and the
dealer, including any delivery charges. This definition specifically
excludes separately-stated taxes and fees required by State or local
law because such taxes and fees are not subject to negotiation or
recharacterization by the dealer and buyer.
The Treasury Department and the IRS considered various alternatives
to the first transfer rule described in Sec. 1.25E-1(b)(14)(ii). This
rule is necessary to determine whether a sale of a previously-owned
clean vehicle is a qualified sale pursuant to section 25E(c)(2). One of
the requirements to be a qualified sale is that the sale be the first
transfer to a qualified buyer since the enactment of section 25E other
than to the person with whom the original use of the vehicle commenced.
However, some of the characteristics of being a qualified buyer are
unknowable to the dealer and the buyer in a subsequent sale, including
that a qualified buyer be an individual, not be a dependent, and not
have claimed the section 25E credit in the prior three years. As a
result, if a previously-owned clean vehicle is transferred more than
once after the date of enactment of section 25E, there is no way for
the parties after the first transfer to know if the first transfer was
to a qualified buyer. Because the IRS may have access to some
information necessary to determine whether a first transfer was to a
qualified buyer, the Treasury Department and the IRS considered
alternatives to the first transfer rule such as a look-up tool
regarding prior claims of the section 25E credit for a particular
vehicle or information regarding prior vehicle purchasers. However,
disclosure of this information raises significant confidentiality
issues. Accordingly, the Treasury Department and the IRS have provided
the first transfer rule to provide certainty to buyers and dealers as
to which transfer of a previously-owned clean vehicle is the first
transfer and will qualify for the section 25E credit by relying on the
vehicle history report.
The Treasury Department and the IRS considered alternatives to the
recapture rules provided in Sec. Sec. 1.25E-2(c) and 1.30D-4(e). Given
the increased availability and benefits of the section 30D credit and
the new section 25E credit arising because the credit can be
transferred to an eligible entity and is not limited by the taxpayer's
tax liability, the Treasury Department and the IRS determined it was
necessary to provide rules regarding when the value of the clean
vehicle credits can be recaptured. The Treasury Department and the IRS
also considered the appropriate length of time within which a return or
resale of a vehicle would make the taxpayer ineligible for the credit.
Longer and shorter periods of time were considered. Based on industry
standard return policies, including money-back guarantees, the Treasury
Department and the IRS determined that it was appropriate to deny the
benefit of the credit if the vehicle was returned within 30 days. In
addition, the Treasury Department and the IRS determined it was
reasonable to assume an intent to resell the vehicle, making the
purchase of the vehicle ineligible, if the vehicle was resold within 30
days.
Finally, with respect to the dealer registration requirements
provided in Sec. Sec. 1.25E-3(c) and 1.30D-5(c), the Treasury
Department and the IRS considered various processes by which a seller
could become an eligible entity and participate in the advance payment
program. The Treasury Department and the IRS considered a process that
did not require submission of a significant amount of information prior
to the dealer becoming an eligible entity, but such an approach could
require more back-end compliance. To ensure efficient tax
administration and reduce fraud, the Treasury Department and the IRS
determined that an up-front, electronic registration process was
necessary for the IRS to effectively review and validate eligible
entity status. In addition, the Treasury Department and the IRS
determined that dealers must submit identity information and
attestations regarding their participation in the advance payment
program to ensure program integrity. Finally, the Treasury Department
and the IRS determined that dealer tax compliance was necessary to
ensure that advance payments are being paid only to compliant dealers.
F. Duplicative, Overlapping, or Conflicting Federal Rules
The final rule does not duplicate, overlap, or conflict with any
relevant Federal rules. As discussed in the Summary of Comments and the
Explanation of Revisions, the final rules merely provide requirements,
procedures, and definitions related to the credit transfer election for
sections 25E and 30D. 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 requires
that agencies assess anticipated costs and benefits and take certain
other actions before issuing a final rule that
[[Page 37747]]
includes any Federal mandate that may result in expenditures in any one
year by a State, local, or Tribal government, in the aggregate, or by
the private sector, of $100 million in 1995 dollars, updated annually
for inflation. In 2023, that threshold is approximately $198 million.
This final rule does not include any Federal mandate that may result in
expenditures by State, local, or Tribal governments, or by the private
sector in excess of that threshold.
V. Executive Order 13132: Federalism
Executive Order 13132 (Federalism) prohibits an agency (to the
extent practicable and permitted by law) from promulgating any
regulation that has federalism implications, unless the agency meets
the consultation and funding requirements of section 6 of the Executive
order, if the rule either imposes substantial, direct compliance costs
on State and local governments, and is not required by statute, or
preempts State law. This final 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. Regulatory Planning and Review
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.
VII. Congressional Review Act
Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.),
the Office of Information and Regulatory Affairs designated this rule
as a major rule as defined by 5 U.S.C. 804(2).
Statement of Availability of IRS Documents
The IRS Revenue Procedures, Notices, and other 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 the regulations are Rika Valdman, Maggie
Stehn, Nicole Stenchever, Mark C. Frantz, Jr., James Williford, and
Iris Chung of the Office of Associate Chief Counsel (Passthroughs &
Special Industries). However, other personnel from the Treasury
Department and the IRS participated in the development of the final
regulations.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 301
Employment taxes, Estate taxes, Excise taxes, Gift taxes,
Penalties, Reporting and recordkeeping requirements.
Amendments to the Regulations
Accordingly, the Treasury Department and the IRS amend 26 CFR parts
1 and 301 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. 1.25E-1 through 1.25E-3, and
1.30D-1 through 1.30D-6 to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
Section 1.25E-1 also issued under 26 U.S.C. 25E.
Section 1.25E-2 also issued under 26 U.S.C. 25E.
Section 1.25E-3 also issued under 26 U.S.C. 25E, 26 U.S.C.
30D(g)(1) and (g)(10), and 26 U.S.C. 6011.
* * * * *
Section 1.30D-1 also issued under 26 U.S.C. 30D.
Section 1.30D-2 also issued under 26 U.S.C. 30D.
Section 1.30D-3 also issued under 26 U.S.C. 30D.
Section 1.30D-4 also issued under 26 U.S.C. 30D and 26 U.S.C.
45W(d)(3).
Section 1.30D-5 also issued under 26 U.S.C. 30D and 26 U.S.C.
6011.
Section 1.30D-6 also issued under 26 U.S.C. 30D.
* * * * *
0
Par 2. Sections 1.25E-0 through 1.25E-3 are added to read as follows:
Sec.
* * * * *
1.25E-0 Table of contents.
1.25E-1 Credit for previously-owned clean vehicles.
1.25E-2 Special rules.
1.25E-3 Transfer of credit.
* * * * *
Sec. 1.25E-0 Table of contents.
This section lists the captions contained in Sec. Sec. 1.25E-1
through 1.25E-3.
Sec. 1.25E-1 Credit for previously-owned clean vehicles.
(a) In general.
(b) Definitions.
(1) Advance payment program.
(2) Credit transfer election.
(3) Dealer.
(4) Dealer tax compliance.
(5) Electing taxpayer.
(6) Eligible entity.
(7) Excessive payment.
(8) Incentive.
(i) For purposes of sale price.
(ii) For purposes of eligible entity requirements.
(9) Modified adjusted gross income.
(10) Placed in service.
(11) Previously-owned clean vehicle.
(12) Qualified buyer.
(13) Qualified manufacturer.
(14) Qualified sale.
(15) Registered dealer.
(16) Sale price.
(17) Section 25E regulations.
(18) Seller report.
(19) Time of sale.
(20) Vehicle history report.
(c) Limitation based on modified adjusted gross income.
(1) In general.
(2) Threshold amount.
(3) Special rule for change in filing status.
(d) Credit may be claimed on only one tax return.
(1) In general.
(2) Seller reporting.
(e) Examples.
(1) Example 1: First transfer since enactment of section 25E.
(2) Example 2: Multiple transfers since enactment of section
25E.
(3) Example 3: Multiple transfers; commercial purchaser.
(4) Example 4: Multiple transfers; buyer exceeds modified
adjusted gross income limitation.
(5) Example 5: Multiple transfers; buyer elects to not take
credit.
(6) Example 6: Multiple transfers; sale between dealers.
(f) Reliance on vehicle history report for purposes of
determining whether sale is a qualified sale.
(g) Severability.
(h) Applicability date.
Sec. 1.25E-2 Special rules.
(a) In general.
(b) No double benefit.
(1) In general.
(2) Interaction between section 25E and 30D credits.
(c) Recapture.
(1) In general.
(i) Cancelled sale.
(ii) Vehicle return.
(iii) Resale.
(iv) Other returns and resales.
(2) Recapture rules in the case of a credit transfer election.
(3) Example: Vehicle return.
(d) Branded title.
(e) Seller registration.
(f) Requirement to file income tax return.
(g) Taxpayer reliance on manufacturer certifications and
periodic written reports to IRS.
(h) Severability.
(i) Applicability date.
Sec. 1.25E-3 Transfer of credit.
(a) In general.
[[Page 37748]]
(b) Definitions.
(1) Advance payment program.
(2) Credit transfer election.
(3) Dealer tax compliance.
(4) Electing taxpayer.
(5) Eligible entity.
(6) Registered dealer.
(7) Time of sale.
(c) Dealer registration.
(1) In general.
(2) Dealer tax compliance required.
(3) Suspension of registration.
(4) Revocation of registration.
(d) Credit transfer election by electing taxpayer.
(e) Federal income tax consequences of credit transfer election.
(1) Tax consequences for electing taxpayer.
(2) Tax consequences for eligible entity.
(3) Form of payment from eligible entity to electing taxpayer.
(4) Additional requirements.
(5) Examples.
(i) Example 1: Electing taxpayer's regular tax liability less
than amount of credit.
(A) Facts.
(B) Analysis.
(ii) Example 2: Non-cash payment by eligible entity to electing
taxpayer.
(A) Facts.
(B) Analysis.
(iii) Example 3: Eligible entity is a partnership.
(A) Facts.
(B) Analysis.
(f) Advance payments received by eligible entities.
(1) In general.
(2) Requirements for a registered dealer to become an eligible
entity.
(g) Increase in tax.
(1) Recapture if electing taxpayer exceeds modified adjusted
gross income limitation.
(2) Excessive payments.
(i) In general.
(ii) Reasonable cause.
(iii) Excessive payment defined.
(iv) Special rule for cases in which electing taxpayer's
modified adjusted gross income exceeds the limitation.
(3) Examples.
(i) Example 1: Registered dealer is not an eligible entity.
(A) Facts.
(B) Analysis.
(ii) Example 2: Incorrect manufacturer certifications.
(A) Facts.
(B) Analysis.
(h) Return requirement.
(i) Two credit transfer elections per year.
(j) Severability.
(k) Applicability date.
Sec. 1.25E-1 Credit for previously-owned clean vehicles.
(a) In general. Section 25E(a) of the Internal Revenue Code (Code)
allows as a credit against the tax imposed by chapter 1 of the Code
(chapter 1) for the taxable year of a taxpayer an amount equal to the
lesser of $4,000, or the amount equal to 30 percent of the sale price
of a previously-owned clean vehicle, if that previously-owned clean
vehicle is placed in service during the taxable year by a taxpayer that
acquired the previously-owned clean vehicle in a qualified sale in
which that taxpayer is a qualified buyer. This section provides
definitions and generally applicable rules that apply for purposes of
determining the credit under section 25E and the section 25E
regulations (section 25E credit). Section 1.25E-2 provides special
rules under section 25E(e) and other special rules with respect to the
section 25E credit. Section 1.25E-3 provides rules under section
25E(f).
(b) Definitions. The definitions in this paragraph (b) apply for
purposes of section 25E and the section 25E regulations.
(1) Advance payment program. Advance payment program means advance
payment program as defined in Sec. 1.25E-3(b)(1).
(2) Credit transfer election. Credit transfer election means credit
transfer election as defined in Sec. 1.25E-3(b)(2).
(3) Dealer. Dealer has the meaning provided in section 25E(c)(2)(A)
by reference to section 30D(g)(8) of the Code, except that the term
does not include persons licensed solely by a territory of the United
States, and includes a dealer licensed by any jurisdiction described in
section 30D(g)(8) (other than one licensed solely by a territory of the
United States) that makes sales at sites outside of the jurisdiction in
which it is licensed.
(4) Dealer tax compliance. Dealer tax compliance means dealer tax
compliance as defined in Sec. 1.25E-3(b)(3).
(5) Electing taxpayer. Electing taxpayer means electing taxpayer as
defined in Sec. 1.25E-3(b)(4).
(6) Eligible entity. Eligible entity means eligible entity as
defined in Sec. 1.25E-3(b)(5).
(7) Excessive payment. Excessive payment means excessive payment as
defined in Sec. 1.25E-3(g)(2)(iii).
(8) Incentive--(i) For purposes of sale price. For purposes of the
definition of sale price in Sec. 1.25E-1(b)(16), incentive means any
reduction in price offered to and accepted by a taxpayer from the
dealer or manufacturer, other than a reduction in the form of a partial
payment or down payment for the purchase of a previously-owned clean
vehicle pursuant to section 25E(f) and Sec. 1.25E-3.
(ii) For purposes of eligible entity requirements. For purposes of
the eligible entity requirements for a credit transfer election
pursuant to sections 25E(f) and 30D(g)(2)(B) and (D), incentive means
any reduction in price offered to the taxpayer by the dealer or
manufacturer of the previously-owned clean vehicle, including in
combination with other incentives, other than a reduction in the form
of a partial payment or down payment for the purchase of a previously-
owned clean vehicle pursuant to section 25E(f) and Sec. 1.25E-3.
(9) Modified adjusted gross income. Modified adjusted gross income
means adjusted gross income (as defined in section 62 of the Code)
increased by any amount excluded from gross income under section 911,
931, or 933 of the Code.
(10) Placed in service. A previously-owned clean vehicle is
considered to be placed in service on the date the taxpayer takes
possession of the vehicle.
(11) Previously-owned clean vehicle. Previously-owned clean vehicle
has the meaning provided in section 25E(c)(1). Vehicles that may
qualify as previously-owned clean vehicles include battery electric
vehicles, plug-in hybrid electric vehicles, fuel cell motor vehicles,
and plug-in hybrid fuel cell motor vehicles.
(12) Qualified buyer. Qualified buyer means, with respect to a sale
of a motor vehicle, a taxpayer--
(i) Who is an individual;
(ii) Who purchases such vehicle for use and not for resale;
(iii) With respect to whom no deduction is allowable to another
taxpayer under section 151 of the Code; and
(iv) Who has not been allowed a credit under section 25E and this
section for any sale during the three-year period beginning three years
before the date of the sale of such vehicle and ending on the date of
the sale of such vehicle.
(13) Qualified manufacturer. Qualified manufacturer means qualified
manufacturer as defined in Sec. 1.30D-2(b)(42).
(14) Qualified sale. Qualified sale means a sale of a motor
vehicle--
(i) By a dealer;
(ii) For a sale price that does not exceed $25,000; and
(iii) That is a sale to a qualified buyer (other than the person
with whom the original use of such vehicle commenced), and that is the
first transfer of the motor vehicle since August 16, 2022 (other than a
transfer to a dealer).
(15) Registered dealer. Registered dealer means registered dealer
as defined in Sec. 1.25E-3(b)(6).
(16) Sale price. The sale price of a previously-owned clean vehicle
means the total price agreed upon by the taxpayer and dealer in a
written contract at the time of sale, including any delivery charges
and after the
[[Page 37749]]
application of any incentives. The sale price of a previously-owned
clean vehicle does not include separately stated taxes and fees
required by State or local law. The sale price of a previously-owned
clean vehicle is determined before the application of any trade-in
value.
(17) Section 25E regulations. Section 25E regulations means this
section and Sec. Sec. 1.25E-2 and 1.25E-3.
(18) Seller report. Seller report means the report described in
section 25E(c)(1)(D)(i) by reference to section 30D(d)(1)(H) that the
seller of a previously-owned clean vehicle provides to the taxpayer and
the IRS in the manner provided in, and containing the information
described in, guidance published in the Internal Revenue Bulletin (see
Sec. 601.601 of this chapter). The seller report must be transmitted
to the IRS electronically. The term seller report does not include a
report rejected by the IRS due to the information contained therein not
matching IRS records.
(19) Time of sale. Time of sale means time of sale as defined in
Sec. 1.25E-3(b)(7).
(20) Vehicle history report. Vehicle history report means a report
that provides the ownership history of a motor vehicle. Vehicle history
report includes a vehicle history report issued by a data provider
approved by the National Motor Vehicle Title Information System.
(c) Limitation based on modified adjusted gross income--(1) In
general. Under section 25E(b)(1), no section 25E credit is allowed for
any taxable year if--
(i) The lesser of--
(A) The modified adjusted gross income of the taxpayer for such
taxable year, or
(B) The modified adjusted gross income of the taxpayer for the
preceding taxable year, exceeds
(ii) The threshold amount.
(2) Threshold amount. For purposes of section 25E(b)(1) and
paragraph (c)(1) of this section, the threshold amount is determined
based on the taxpayer's return filing status for the taxable year, as
set forth in paragraphs (c)(2)(i) through (iii) of this section. See
section 25E(b)(2).
(i) In the case of a joint return or a surviving spouse (as defined
in section 2(a) of the Code), the threshold amount is $150,000.
(ii) In the case of a head of household (as defined in section
2(b)), the threshold amount is $112,500.
(iii) In the case of a taxpayer not described in paragraph
(c)(2)(i) or (ii) of this section, the threshold amount is $75,000.
(3) Special rule for change in filing status. If the taxpayer's
filing status for the taxable year differs from the taxpayer's filing
status in the preceding taxable year, then the taxpayer satisfies the
limitation in section 25E(b)(1) and paragraph (c)(1) of this section if
the taxpayer's modified adjusted gross income does not exceed the
threshold amount in either year based on the applicable filing status
for that taxable year.
(d) Credit may be claimed on only one tax return--(1) In general.
The amount of the section 25E credit attributable to a previously-owned
clean vehicle may be claimed on only one Federal income tax return,
including on a joint return for which one of the spouses is listed on
the seller report. In the event a previously-owned clean vehicle is
placed in service by multiple taxpayers who do not file a joint return,
such as married individuals filing separate returns, no allocation or
proration of the section 25E credit is available.
(2) Seller reporting. The name and taxpayer identification number
of the taxpayer claiming the section 25E credit must be listed on the
seller report pursuant to sections 25E(c)(1)(D)(i) and 30D(d)(1)(H).
The credit will be allowed only on the Federal income tax return of the
taxpayer listed in the seller report.
(e) Examples. The following examples illustrate the application of
the rules in this section.
(1) Example 1: First transfer since enactment of section 25E. On
August 1, 2022, a dealer sells a previously-owned vehicle that
satisfies the requirements of section 25E(c)(1)(A), (B), and (D). On
May 7, 2024, a dealer sells the vehicle to a qualified buyer, X, for a
sale price of $24,000. X places the vehicle in service the same day.
The May 7, 2024, sale to X is the first transfer of the vehicle since
the enactment of section 25E.. The May 7, 2024, sale is a qualified
sale pursuant to section 25E(c)(2) and paragraph (b)(14) of this
section. As a result, the vehicle also satisfies the requirement of
section 25E(c)(1)(C) and is a previously-owned clean vehicle as defined
in section 25E(c)(1) and paragraph (b)(11) of this section.
(2) Example 2: Multiple transfers since enactment of section 25E.
On July 1, 2023, a dealer sells a previously-owned vehicle that
satisfies the requirements of section 25E(c)(1)(A), (B), and (D) to an
individual, X, for a sale price of $30,000. X places the vehicle in
service the same day. This is the first transfer of the vehicle since
the enactment of section 25E. On May 7, 2024, a dealer sells the
vehicle to an individual, Y, for a sale price of $24,500. The July 1,
2023, sale of the vehicle to X is not a qualified sale because the sale
price exceeds the $25,000 limitation described in section 25E(c)(2)(B)
and paragraph (b)(14) of this section. The May 7, 2024, sale to Y is
not a qualified sale because it is not the first transfer since the
enactment of section 25E.
(3) Example 3: Multiple transfers; commercial purchaser. The facts
are the same as in paragraph (e)(2) of this section (Example 2), except
that X is a partnership and the July 1, 2023, sale is for a sale price
of $24,000. Although the vehicle is a previously-owned clean vehicle as
defined in section 25E(c)(1) and paragraph (b)(11) of this section, no
section 25E credit is allowed in relation to the sale because X is not
a qualified buyer. The May 7, 2024, sale to Y is not a qualified sale
because it is not the first transfer since enactment of section 25E.
(4) Example 4: Multiple transfers; buyer exceeds modified adjusted
gross income limitation. The facts are the same as in paragraph (e)(2)
of this section (Example 2), except the July 1, 2023, sale is for a
sale price of $24,000 and X's modified adjusted gross income exceeds
the limitation described in section 25E(b)(2) and paragraph (c) of this
section. No section 25E credit is allowed in relation to the July 1,
2023, sale to X because X's modified adjusted gross income exceeds the
limitation described in section 25E(b)(2) and paragraph (c) of this
section. The May 7, 2024, sale to Y is not a qualified sale because it
is not the first transfer since the enactment of section 25E.
(5) Example 5: Multiple transfers; buyer elects to not take credit.
The facts are the same as in paragraph (e)(2) of this section (Example
2), except the July 1, 2023, sale is for a sale price of $24,000 and X
elects to not claim the section 25E credit. The May 7, 2024, sale to Y
is not a qualified sale because it is not the first transfer since the
enactment of section 25E.
(6) Example 6: Multiple transfers; sale between dealers. On July 1,
2023, a dealer, D1, sells a previously-owned vehicle that satisfies the
requirements of section 25E(c)(1)(A), (B), and (D) to another dealer,
D2, for $18,000. D1 and D2 are not individuals. On August 1, 2024, D2
sells the vehicle to an individual, Y, for a sale price of $24,500. Y
places the vehicle in service the same day. Y satisfies the modified
adjusted gross income limitation in section 25E(b)(2) and paragraph (c)
of this section. The July 1, 2023, sale to D2 is ignored because it is
a transfer
[[Page 37750]]
between dealers. Further, with regard to the July 1, 2023, sale, D2 is
not a qualified buyer because D2 is not an individual. The May 7, 2024,
sale to Y is a qualified sale because it is the first transfer that is
regarded since the enactment of section 25E.
(f) Reliance on vehicle history report for purposes of determining
whether sale is a qualified sale. A taxpayer may rely on a vehicle
history report obtained on the date of sale or as part of the sale
transaction to determine whether the requirements of section
25E(c)(2)(C) and paragraph (b)(14) of this section are satisfied,
including in the case where there has been a prior sale and return or
resale described in Sec. 1.25E-2(c).
(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 previously-owned
clean vehicles placed in service after December 31, 2022, in taxable
years ending after October 10, 2023.
Sec. 1.25E-2 Special rules.
(a) In general. This section provides guidance under section 25E(e)
of the Internal Revenue Code (Code), which incorporates rules similar
to the rules of section 30D(f) of the Code, other than section
30D(f)(10) or 30D(f)(11). Unless otherwise provided in this section,
the rules of section 30D(f) apply to section 25E and the section 25E
regulations in the same manner by replacing, if applicable, any
reference to section 30D or the section 30D credit with a reference to
section 25E or the section 25E credit. This section also provides
guidance regarding other special rules with respect to the section 25E
credit.
(b) No double benefit--(1) In general. Under sections 25E(e) and
30D(f)(2), the amount of any deduction or other credit allowable under
chapter 1 of the Code (chapter 1) for a vehicle for which a section 25E
credit is allowable must be reduced by the amount of the section 25E
credit allowed for such vehicle.
(2) Interaction between section 25E and section 30D credits. A
section 30D credit that has been allowed with respect to a vehicle in a
taxable year before the year in which a section 25E credit is allowable
for that vehicle does not reduce the amount allowable under section
25E.
(c) Recapture--(1) In general. This paragraph (c) provides rules
regarding the recapture of the section 25E credit.
(i) Cancelled sale. If the sale of a previously-owned clean vehicle
between the taxpayer and dealer is cancelled before the taxpayer places
the vehicle in service, then--
(A) The taxpayer may not claim the section 25E credit with respect
to the vehicle;
(B) The sale will be treated as not having occurred (and no
transfer of the vehicle is considered to have occurred by reason of the
cancelled sale), and the vehicle will, therefore, still be eligible for
the section 25E credit upon a subsequent sale meeting the requirements
of section 25E and the section 25E regulations;
(C) The seller report must be rescinded by the seller in the manner
set forth in guidance published in the Internal Revenue Bulletin (see
Sec. 601.601 of this chapter); and
(D) The taxpayer cannot make a credit transfer election under
section 25E(f) and Sec. 1.25E-3 with respect to the cancelled sale.
(ii) Vehicle return. If a taxpayer returns a previously-owned clean
vehicle to the dealer within 30 days of placing such vehicle in
service, then--
(A) The taxpayer cannot claim the section 25E credit with respect
to the vehicle;
(B) The sale will be treated as having occurred (and a transfer of
the vehicle is therefore considered to have occurred by reason of the
sale), and the vehicle will not qualify for the section 25E credit upon
a subsequent sale;
(C) The seller report must be updated by the seller; and
(D) A credit transfer election made pursuant to section 25E(f) and
Sec. 1.25E-3, if applicable, will be treated as nullified and any
advance payment made pursuant to section 25E(f) and Sec. 1.25E-3, if
applicable, will be collected from the eligible entity as an excessive
payment pursuant to Sec. 1.25E-3(g)(2).
(iii) Resale. If a taxpayer resells a previously-owned clean
vehicle within 30 days of placing the vehicle in service, then the
taxpayer is treated as having purchased such vehicle with the intent to
resell, and--
(A) The taxpayer cannot claim the section 25E credit with respect
to the vehicle;
(B) The sale to the taxpayer will be treated as having occurred
(and a transfer of the vehicle is therefore considered to have occurred
by reason of the sale), and the vehicle will not qualify for the
section 25E credit upon a subsequent sale;
(C) The seller report will not be updated;
(D) A credit transfer election made pursuant to section 25E(f) and
Sec. 1.25E-3, if applicable, will remain in effect and any advance
payment made pursuant to section 25E(f) and Sec. 1.25E-3 will not be
collected from the eligible entity; and
(E) The amount of any transferred credit will be collected from the
taxpayer as an increase in tax imposed by chapter 1 of the Code for the
taxable year in which the vehicle was placed in service.
(iv) Other returns and resales. In the case of a vehicle return not
described in paragraph (c)(1)(ii) of this section or a resale not
described in paragraph (c)(1)(iii) of this section, the previously-
owned clean vehicle will not be eligible for the section 25E credit
upon a subsequent sale.
(2) Recapture rules in the case of a credit transfer election. For
additional recapture rules that apply in the case of a credit transfer
election, see Sec. 1.25E-3(g)(1). For excessive payment rules that
apply in the case of an advance payment made to an eligible entity, see
Sec. 1.25E-3(g)(2).
(3) Example: Vehicle return. On May 1, 2024, a dealer, D, sells a
vehicle that satisfies the requirements of section 25E(c)(1) to a
qualified buyer, X. X returns the vehicle to D within 30 days of
placing the vehicle in service, and does not claim the section 25E
credit. On July 9, 2024, D sells the vehicle to a qualified buyer, Y,
for a sale price of $24,000. The vehicle history report obtained on
July 9, 2024, reflects the May 1, 2024, sale and subsequent return of
the vehicle. The July 9, 2024, sale of the vehicle is not a qualified
sale because it is not the first transfer of the vehicle after the
enactment of section 25E. Therefore, no section 25E credit is allowed
in relation to that sale. It is irrelevant that X did not claim the
section 25E credit with respect to the May 1, 2024, sale.
(d) Branded title. A title to a previously-owned clean vehicle
indicating that such vehicle has been damaged, or is otherwise a
branded title, does not impact the vehicle's eligibility for a section
25E credit.
(e) Seller registration. A seller must register with the IRS in the
manner set forth in guidance published in the Internal Revenue Bulletin
(see Sec. 601.601 of this chapter) for purposes of filing seller
reports (as defined in Sec. 1.25E-1(b)(18)).
(f) Requirement to file income tax return. No section 25E credit is
allowed unless the taxpayer claiming such credit files a Federal income
tax return for the taxable year in which the previously-owned clean
vehicle is placed in service. The taxpayer must attach to such return a
completed Form 8936, Clean Vehicle Credits, or successor
[[Page 37751]]
form, that includes all information required by the form and
instructions. The taxpayer must also attach a completed Schedule A
(Form 8936), Clean Vehicle Credit Amount, or successor form or
schedule, that includes all information required by the schedule and
instructions, such as the vehicle identification number of the
previously-owned clean vehicle.
(g) Taxpayer reliance on manufacturer certifications and periodic
written reports to IRS. A taxpayer who acquires a previously-owned
clean vehicle in a qualified sale and places it in service may rely on
the manufacturer's certification concerning the manufacturer's status
as a qualified manufacturer. A taxpayer also may rely on the
information and certifications contained in the qualified
manufacturer's periodic written reports to the IRS for purposes of
determining whether a vehicle is a previously-owned clean vehicle. The
procedures for such written reports are established in guidance
published in the Internal Revenue Bulletin (see Sec. 601.601 of this
chapter). To the extent a taxpayer relies on such certifications or
information, the previously-owned clean vehicle the taxpayer acquires
will be deemed to meet the requirements of section 25E(c)(1)(D) (except
the section 30D(d)(1)(H) requirement cross-referenced in section
25E(c)(1)(D)(i), which must be satisfied separately), provided the
certifications or information relied upon by the taxpayer support this
result. See Sec. 1.25E-3(g)(3)(ii) for an example that illustrates the
interplay between the rule in this paragraph (g) and the excessive
payment rule in Sec. 1.25E-3(g)(2).
(h) 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.
(i) Applicability date. This section applies to previously-owned
clean vehicles placed in service after December 31, 2022, in taxable
years ending after October 10, 2023.
Sec. 1.25E-3 Transfer of credit.
(a) In general. This section provides rules related to the transfer
and advance payment of the section 25E credit pursuant to section
25E(f) of the Internal Revenue Code (Code) by cross reference to
section 30D(g) of the Code. Under the rules of section 30D(g) and this
section, a taxpayer may elect to transfer a section 25E credit to an
eligible entity, and the eligible entity may receive an advance payment
for such credit, provided certain requirements are met. See paragraph
(d) of this section for rules applicable to credit transfer elections.
See paragraph (f) of this section for rules applicable to advance
payments of transferred section 25E credits. Section 30D(g)(2) sets
forth certain requirements that a dealer must satisfy to be an eligible
entity for credit transfer and advance payment purposes. Section
30D(g)(2)(A) requires registration with the IRS. See paragraph (c) of
this section for rules related to dealer registration. Section
30D(g)(2)(B) through (D) and paragraph (f)(2) of this section impose
additional requirements that a registered dealer must satisfy in order
to be an eligible entity for credit transfer and advance payment
purposes.
(b) Definitions. This paragraph (b) provides definitions that apply
for purposes of section 25E(f) and this section. See Sec. 1.25E-1(b)
for definitions that are generally applicable to section 25E and the
section 25E regulations.
(1) Advance payment program. Advance payment program means the
program described in paragraph (f)(1) of this section.
(2) Credit transfer election. Credit transfer election has the
meaning provided in sections 25E(f) and 30D(g), and paragraph (d) of
this section.
(3) Dealer tax compliance. Dealer tax compliance means that the
dealer has filed all required Federal information and tax returns,
including for Federal income and employment tax purposes, and the
dealer has paid all Federal tax, penalties, and interest due as of the
time of sale. A dealer that has entered into an installment agreement
with the IRS for which a dealer is current on its obligations
(including required filings) is treated as being in dealer tax
compliance.
(4) Electing taxpayer. Electing taxpayer means an individual who
purchases and places in service a previously-owned clean vehicle and
elects to transfer the section 25E credit that would otherwise be
allowable to such individual to an eligible entity pursuant to section
25E(f) and paragraph (d) of this section. A taxpayer is an electing
taxpayer only if the taxpayer makes certain attestations to the
registered dealer, pursuant to procedures provided in guidance
published in the Internal Revenue Bulletin (see Sec. 601.601 of this
chapter), including that the taxpayer does not anticipate exceeding the
modified adjusted gross income limitation of section 25E(b)(1) and
Sec. 1.25E-1(b).
(5) Eligible entity. Eligible entity has the meaning provided in
section 30D(g)(2) and paragraph (f)(2) of this section.
(6) Registered dealer. Registered dealer means a dealer that has
completed registration with the IRS as provided in paragraph (c) of
this section.
(7) Time of sale. Time of sale means the date the previously-owned
clean vehicle is placed in service, as defined in Sec. 1.25E-1(b)(10).
(c) Dealer registration--(1) In general. A dealer must register
with the IRS in the manner set forth in guidance published in the
Internal Revenue Bulletin (see Sec. 601.601 of this chapter) for the
dealer to receive credits transferred by an electing taxpayer pursuant
to section 25E(f) and paragraph (d) of this section.
(2) Dealer tax compliance required. A dealer must be in dealer tax
compliance to complete and maintain its registration with the IRS. If
the dealer is not in dealer tax compliance for any of the taxable
periods during the last five taxable years, then the dealer may
complete its initial registration with the IRS, but the dealer will not
be eligible for the advance payment program (and, therefore, the dealer
will not be eligible to receive transferred section 25E credits) until
the compliance issue is resolved. The IRS will notify the dealer in
writing that the dealer is not in dealer tax compliance, and the dealer
will have the opportunity to address any failure through regular
procedures. If the failure is corrected, the IRS will complete the
dealer's registration, and, provided all other requirements of section
25E(f) and this section are met, the dealer will then be allowed to
receive transferred section 25E credits and participate in the advance
payment program. Additional procedural guidance regarding this
paragraph is set forth in guidance published in the Internal Revenue
Bulletin (see Sec. 601.601 of this chapter).
(3) Suspension of registration. A registered dealer's registration
may be suspended pursuant to the procedures described in guidance
published in the Internal Revenue Bulletin (see Sec. 601.601 of this
chapter). Any decision made by the IRS relating to the suspension of a
registered dealer's registration is not subject to administrative
appeal to the IRS Independent Office of Appeals unless the IRS and the
IRS Independent Office of Appeals agree that such review is available
and the IRS provides the time and manner for such review.
(4) Revocation of registration. A registered dealer's registration
may be revoked pursuant to the procedures described in guidance
published in the Internal Revenue Bulletin (see Sec. 601.601). Any
decision made by the IRS relating to the revocation of a
[[Page 37752]]
dealer's registration is not subject to administrative appeal to the
IRS Independent Office of Appeals unless the IRS and the IRS
Independent Office of Appeals agree that such review is available and
the IRS provides the time and manner for such review.
(d) Credit transfer election by electing taxpayer. For a
previously-owned clean vehicle placed in service after December 31,
2023, an electing taxpayer may elect to apply the rules of section
25E(f) and this section to make a credit transfer election with respect
to the vehicle so that the section 25E credit is allowed to the
eligible entity specified in the credit transfer election (and not to
the electing taxpayer) pursuant to the advance payment program
described in paragraph (f) of this section. The electing taxpayer, as
part of the credit transfer election, must transfer the entire amount
of the credit that would otherwise be allowable to the electing
taxpayer under section 25E with respect to the vehicle, and the
eligible entity specified in the credit transfer election must pay the
electing taxpayer an amount equal to the amount of the credit included
in the credit transfer election. A credit transfer election must be
made no later than the time of sale, and must be made in the manner set
forth in guidance published in the Internal Revenue Bulletin (see Sec.
601.601 of this chapter). Once made, a credit transfer election is
irrevocable.
(e) Federal income tax consequences of credit transfer election--
(1) Tax consequences for electing taxpayer. In the case of a credit
transfer election, the Federal income tax consequences for the electing
taxpayer are as follows--
(i) The amount of the section 25E credit that the electing taxpayer
elects to transfer to the eligible entity under section 30D(g) (by
reason of section 25E(f)) and paragraph (d) of this section may exceed
the electing taxpayer's regular tax liability (as defined in section
26(b)(1) of the Code) for the taxable year in which the sale occurs,
and the excess, if any, is not subject to recapture on the basis that
it exceeded the electing taxpayer's regular tax liability;
(ii) The payment made by an eligible entity to an electing taxpayer
under section 30D(g)(2)(C) (by reason of 25E(f)) and paragraph (d) of
this section to an electing taxpayer pursuant to a credit transfer
election is not includible in the gross income of the electing
taxpayer; and
(iii) The payment made by an eligible entity under section
30D(g)(2)(C) (by reason of section 25E(f)) and paragraph (d) of this
section is treated as repaid by the electing taxpayer to the eligible
entity as partial payment of the sale price of the previously-owned
clean vehicle. Thus, the repayment by the electing taxpayer is included
in the electing taxpayer's basis in the previously-owned clean vehicle
prior to the application of the basis reduction rule of section
30D(f)(1) that applies by reason of section 25E(e) and Sec. 1.25E-
2(a).
(2) Tax consequences for eligible entity. In the case of a credit
transfer election, the Federal income tax consequences for the eligible
entity are as follows--
(i) The eligible entity is allowed the section 25E credit with
respect to the previously-owned clean vehicle and may receive an
advance payment pursuant to section 30D(g)(7) (by reason of section
25E(f)) and paragraph (f) of this section;
(ii) Advance payments received by the eligible entity are not
treated as a tax credit in the hands of the eligible entity and may
exceed the eligible entity's regular tax liability (as defined in
section 26(b)(1)) for the taxable year in which the sale occurs;
(iii) An advance payment received by the eligible entity is not
included in the gross income of the eligible entity;
(iv) The payment made by an eligible entity under section
30D(g)(2)(C) (by reason of section 25E(f)) and paragraph (d) of this
section to an electing taxpayer is not deductible by the eligible
entity;
(v) The payment made by an eligible entity to the electing taxpayer
under section 30D(g)(2)(C) (by reason of section 25E(f)) and paragraph
(d) of this section is treated as paid by the electing taxpayer to the
eligible entity as partial payment of the sale price of the previously-
owned clean vehicle. Thus, the repayment by the electing taxpayer is
treated as an amount realized by the eligible entity under section 1001
of the Code and the regulations under section 1001; and
(vi) If the eligible entity is a partnership or an S corporation,
then--
(A) The IRS will make the advance payment to such partnership or S
corporation equal to the amount of the section 25E credit allowed that
is transferred to the eligible entity;
(B) Such section 25E credit is reduced to zero and is, for any
other purpose of the Code, deemed to have been allowed solely to such
entity (and not allocated or otherwise allowed to its partners or
shareholders) for such taxable year; and
(C) The amount of the advance payment is not treated as tax exempt
income to the partnership or S corporation for purposes of the Code.
(3) Form of payment from eligible entity to electing taxpayer. The
tax treatment of the payment made by the eligible entity to the
electing taxpayer described in paragraphs (e)(1) and (2) of this
section is the same regardless of whether the payment is made in cash,
in the form of a partial payment or down payment for the purchase of
the previously-owned clean vehicle, or as a reduction in sale price
(without the payment of cash) of the previously-owned clean vehicle.
(4) Additional requirements. In the case of a credit transfer
election, the following additional rules apply:
(i) The requirements of section 30D(f)(1) (regarding basis
reduction) and 30D(f)(2) (regarding no double benefit), by reason of
section 25E(e), apply to the electing taxpayer as if the credit
transfer election were not made (so, for example, the electing taxpayer
must reduce the electing taxpayer's basis in the vehicle by the amount
of the section 25E credit, regardless of the credit transfer election).
(ii) Section 30D(f)(6) (regarding the election not to take the
credit), by reason of section 25E(e), will not apply (in other words,
by electing to transfer the credit, the electing taxpayer is electing
to take the credit).
(iii) Section 30D(f)(9) (regarding the vehicle identification
number requirement), by reason of section 25E(e), and section 25E(d)
(regarding the vehicle identification number requirement) will be
treated as satisfied if the eligible entity provides the vehicle
identification number of such vehicle to the IRS in the form and manner
set forth in guidance published in the Internal Revenue Bulletin (see
Sec. 601.601 of this chapter). The electing taxpayer must also provide
the vehicle identification number with their Federal income tax return
for the taxable year in which the vehicle is placed in service. See
section 6213(g)(2)(U) of the Code and Sec. 301.6213-2 of this chapter
for rules relating to the omission of a correct vehicle identification
number.
(5) Examples. The following examples illustrate the rules of
paragraph (e) of this section.
(i) Example 1: Electing taxpayer's regular tax liability less than
amount of credit--(A) Facts. T, an individual, purchases a previously-
owned clean vehicle from a dealer, D, which is a C corporation. T
satisfies the requirements to be an electing taxpayer and elects to
transfer the section 25E credit to D. D is a registered dealer and
satisfies the requirements to be an eligible entity. The sale price of
the vehicle is $24,000. The section 25E credit otherwise allowable to T
is $4,000. D makes the payment required to be made to T in the form of
a cash payment of $4,000. T
[[Page 37753]]
uses the $4,000 as a partial payment for the vehicle. T pays D an
additional $20,000 from other funds. T's regular tax liability for the
year is less than $4,000.
(B) Analysis. Under paragraph (e)(1)(i) of this section, T may
transfer the credit to D, even though T's regular tax liability is less
than $4,000, and no amount of the credit will be recaptured from T on
the basis that the allowable credit exceeded T's regular tax liability.
D's $4,000 payment to T is not included in T's gross income, and the
sale price of the vehicle is $24,000 (including both the $4,000 payment
and the additional $20,000 paid by T from other funds), prior to the
application of the basis reduction rule of section 30D(f)(1) (by reason
of section 25E(e)). After application of the basis reduction rule, T's
basis in the vehicle is $20,000. D is eligible to receive an advance
payment of $4,000 for the transferred section 25E credit as provided in
section 30D(g)(7) (by reason of section 25E(e)) and paragraph (f) of
this section. Under paragraph (e)(2) of this section, D may receive the
advance payment regardless of whether D's regular tax liability is less
than $4,000. The advance payment is not treated as a credit toward D's
tax liability (if any), nor is it included in D's gross income.
Further, D's $4,000 payment to T is not deductible, and D's amount
realized is $24,000 upon the sale of the vehicle (including both the
$4,000 payment from D to T that T uses as a partial payment, and the
additional $20,000 paid by T from other funds).
(ii) Example 2: Non-cash payment by eligible entity to electing
taxpayer--(A) Facts. The facts are the same as in paragraph
(e)(5)(i)(A) of this section (facts of Example 1), except that D makes
the payment to T in the form of a reduction in the sale price of the
vehicle (rather than as a cash payment).
(B) Analysis. Paragraph (e)(3) of this section provides that the
application of paragraphs (e)(1) and (2) of this section is not
dependent on the form of payment from an eligible entity to an electing
taxpayer (for example, a payment in cash or a payment in the form of a
reduction in sale price). Thus, the analysis is the same as in
paragraph (e)(5)(i)(B) of this section (analysis of Example 1).
(iii) Example 3: Eligible entity is a partnership--(A) Facts. The
facts are the same as in paragraph (e)(5)(i)(A) of this section (facts
of Example 1), except that D is a partnership.
(B) Analysis. The analysis as to T is the same as in paragraph
(e)(5)(i)(B) of this section (analysis of Example 1). Because D is a
partnership, paragraph (e)(2)(vi) of this section applies. Thus, the
advance payment is made to the partnership, the credit is reduced to
zero and is, for any other purpose of the Code, deemed to have been
allowed solely to the partnership (and not allocated or otherwise
allowed to its partners) for such taxable year. The amount of the
advance payment is not treated as tax exempt income to the partnership
for purposes of the Code.
(f) Advance payments received by eligible entities--(1) In general.
An eligible entity may receive advance payments from the IRS
(corresponding to the amount of the section 25E credit for which a
credit transfer election was made by an electing taxpayer to transfer
the credit to the eligible entity pursuant to section 30D(g) (by reason
of section 25E(f)) and paragraph (d) of this section) before the
eligible entity files its Federal income tax return or information
return, as appropriate, for the taxable year with respect to which the
credit transfer election corresponds. This advance payment program is
the exclusive mechanism for an eligible entity to receive the section
25E credit transferred pursuant to section 25E(f) and paragraph (d) of
this section. An eligible entity receiving a transferred section 25E
credit may not claim the credit on a tax return.
(2) Requirements for a registered dealer to become an eligible
entity. A registered dealer qualifies as an eligible entity, and may
therefore receive an advance payment in connection with a credit
transfer election, if it meets the following requirements:
(i) The registered dealer submits all required registration
information and is in dealer tax compliance;
(ii) The registered dealer retains information regarding the credit
transfer election for three calendar years beginning with the year
immediately after the year in which the vehicle is placed in service,
as described in guidance published in the Internal Revenue Bulletin
(see Sec. 601.601 of this chapter);
(iii) The registered dealer meets any other requirements set forth
in guidance published in the Internal Revenue Bulletin (see Sec.
601.601 of this chapter) or in forms and instructions; and
(iv) The registered dealer meets any other requirements of section
25E(f) by reference to section 30D(g), including those in section
30D(g)(2)(B) through (E).
(g) Increase in tax--(1) Recapture if electing taxpayer exceeds
modified adjusted gross income limitation. If an electing taxpayer has
modified adjusted gross income that exceeds the limitation in section
25E(b) and Sec. 1.25E-1(b), then the income tax imposed on such
taxpayer under chapter 1 of the Code (chapter 1) for the taxable year
in which the vehicle was placed in service is increased by the amount
of the payment received by the taxpayer. The electing taxpayer must
recapture such amounts on the Federal income tax return described in
paragraph (h) of this section.
(2) Excessive payments--(i) In general. This paragraph provides
rules under section 25E(f) by reference to section 30D(g)(7)(B), which
provides that rules similar to the rules of section 6417(d)(6) of the
Code apply to the advance payment program. In the case of any advance
payment to an eligible entity that the IRS determines constitutes an
excessive payment, the tax imposed on the eligible entity under chapter
1, regardless of whether such entity would otherwise be subject to tax
under chapter 1, for the taxable year in which such determination is
made will be increased by the sum of the following amounts--
(A) The amount of the excessive payment; plus
(B) An amount equal to 20 percent of such excessive payment.
(ii) Reasonable cause. The amount described in paragraph
(g)(2)(i)(B) of this section will not apply to an eligible entity if
the eligible entity demonstrates to the satisfaction of the IRS that
the excessive payment resulted from reasonable cause. In the case of a
previously-owned clean vehicle (with respect to which a credit transfer
election was made by the electing taxpayer) that is returned to the
eligible entity within 30 days of being placed in service, the eligible
entity will be treated as having demonstrated that the excessive
payment resulted from reasonable cause.
(iii) Excessive payment defined. Excessive payment means an advance
payment made--
(A) To a registered dealer that fails to meet the requirements to
be an eligible entity provided in paragraph (f)(2) of this section; or
(B) Except as provided in paragraph (g)(2)(iv) of this section, to
an eligible entity with respect to a previously-owned clean vehicle to
the extent the payment exceeds the amount of the credit that, without
application of section 25E(f) and this section, would be otherwise
allowable to the electing taxpayer with respect to the vehicle for such
tax year.
(iv) Special rule for cases in which electing taxpayer's modified
adjusted gross income exceeds the limitation. Any excess described in
paragraph (g)(2)(iii)(B) of this section that arises due to the
electing taxpayer exceeding
[[Page 37754]]
the limitation based on modified adjusted gross income in section
25E(b) and Sec. 1.25E-1(b) is not an excessive payment. Instead, the
amount of the advance payment is recaptured from the taxpayer under
section 25E(e) and paragraph (g)(1) of this section.
(3) Examples. The following examples illustrate the excessive
payment rules in paragraph (g)(2) of this section.
(i) Example 1: Registered dealer is not an eligible entity--(A)
Facts. In 2024, D, a registered dealer, receives an advance payment of
$4,000 with respect to a credit transferred pursuant to section 25E(f)
and paragraph (d) of this section for a previously-owned clean vehicle,
vehicle V. In 2025, the IRS determines that D was not an eligible
entity with respect to vehicle V at the time it received the advance
payment in 2024 because D failed to satisfy one of the requirements of
section 30D(g)(2) (applicable by reason of section 25E(e)) and
paragraph (f)(2) of this section. D is unable to show reasonable cause
for the failure.
(B) Analysis. Under paragraph (g)(2)(i) of this section, the tax
imposed on D is increased by the amount of the excessive payment if the
advance payment received by D constitutes an excessive payment. Under
paragraph (g)(2)(iii) of this section, the entire amount of the $4,000
advance payment received by D is an excessive payment because D did not
meet the requirements to be an eligible entity under section 30D(g)(2)
(applicable by reason of section 25E(f) and paragraph (f)(2) of this
section). Additionally, because D cannot show reasonable cause for its
failure to meet these requirements, the tax imposed under chapter 1 on
D is increased by $4,800 in 2025 (the taxable year of the IRS
determination). This is comprised of the $4,000 excessive payment plus
the $800 penalty, calculated as 20% of the $4,000 excessive payment
(20% x $4,000 = $800). This treatment applies regardless of whether D
is otherwise subject to tax under chapter 1 (for example, if D is a
partnership).
(ii) Example 2: Incorrect manufacturer certifications--(A) Facts.
In 2024, T, a taxpayer, makes an election to transfer a $4,000 credit
pursuant to section 25E(f) and paragraph (d) of this section to
registered dealer, E, with respect to vehicle V. M, the manufacturer of
vehicle V, certified to the IRS that vehicle V has a battery with a
capacity of not less than 7 kilowatt hours (kwh). T and vehicle V
otherwise meet the eligibility requirements for the section 25E credit.
T, in reliance on the manufacturer's certification to the IRS regarding
vehicle V's battery capacity, transfers the section 25E credit to E.
Subsequent to T's purchase of vehicle V and election to transfer the
$4,000 credit to E, M reports to the IRS that vehicle V has a battery
capacity of less than 7 kwh.
(B) Analysis. Section 1.25E-2(g) provides that T may rely on the
information and certifications provided in M's written report to the
IRS for purposes of determining whether vehicle V is a previously-owned
clean vehicle, as defined in section 25E(c)(1) and Sec. 1.25E-
1(b)(11). Because T relied on M's certification to the IRS regarding
vehicle V's battery capacity and T and vehicle V otherwise meet the
eligibility requirements for the section 25E credit, vehicle V is
deemed to meet the requirements of section 30D(d)(1)(F) (as cross-
referenced in section 25E(c)(1)(D)(i)). Under paragraph (g)(2)(iii)(B)
of this section, an advance payment to an eligible entity with respect
to a vehicle is an excessive payment to the extent the payment exceeds
the amount of the credit that, without a credit transfer election,
would be otherwise allowable to the electing taxpayer with respect to
the vehicle for such taxable year. Because the amount of the credit
that would be allowable to T for 2024 is $4,000, and T transferred the
$4,000 credit to E, there is no excessive payment with respect to E.
(h) Return requirement. An electing taxpayer that makes a credit
transfer election must file a Federal income tax return for the taxable
year in which the credit transfer election is made and indicate such
election on the return in accordance with the instructions to the form
on which the return is made. The electing taxpayer must attach to such
return a completed Form 8936, Clean Vehicle Credits, or successor form,
that includes all information required by the form and instructions.
The electing taxpayer must also attach a completed Schedule A (Form
8936), Clean Vehicle Credit Amount, or successor form or schedule, that
includes all information required by the schedule and instructions,
such as the vehicle identification number of the previously-owned clean
vehicle.
(i) Two credit transfer elections per year. A taxpayer may make no
more than two credit transfer elections per taxable year, consisting of
either two elections to transfer section 30D credits, or one section
30D credit and one election to transfer a section 25E credit. In the
case of taxpayers who file a joint return, each individual taxpayer may
make no more than two credit transfer elections per taxable year.
(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 will continue in effect.
(k) Applicability date. This section applies to previously-owned
vehicles placed in service after December 31, 2023, in taxable years
ending after December 31, 2023.
0
Par 3. Sections 1.30D-0 through 1.30D-6 are added to read as follows:
Sec. 1.30D-0 Table of contents.
This section lists the captions contained in Sec. Sec. 1.30D-1
through 1.30D-6.
Sec. 1.30D-1 Credit for new clean vehicles.
(a) In general.
(b) Application with other credits.
(1) Business credit treated as part of general business credit.
(2) Apportionment of section 30D credit.
(3) Personal credit limited based on tax liability.
(c) Severability.
(d) Applicability date.
Sec. 1.30D-2 Definitions for purposes of section 30D.
(a) In general.
(b) Definitions.
(1) Advance payment program.
(2) Applicable critical mineral.
(i) In general.
(ii) Example: Form of applicable critical mineral.
(3) Assembly.
(4) Associated constituent material.
(5) Battery.
(6) Battery cell.
(7) Battery cell production facility.
(8) Battery component.
(9) Battery materials.
(10) Clean vehicle battery.
(11) Compliant-battery ledger.
(12) Constituent materials.
(13) Country with which the United States has a free trade
agreement in effect.
(i) In general.
(ii) Free trade agreements in effect.
(iii) Updates.
(14) Credit transfer election.
(15) Dealer.
(16) Dealer tax compliance.
(17) Depreciable vehicle.
(18) Electing taxpayer.
(19) Eligible entity.
(20) Excessive payment.
(21) Extraction.
(22) FEOC-compliant.
(23) Final assembly.
(24) Foreign entity of concern.
(25) Impracticable-to-trace battery materials.
(i) In general.
(ii) Identified impracticable-to-trace battery materials.
(26) Incentive.
(27) Incremental value.
(28) Manufacturer.
(i) In general.
[[Page 37755]]
(ii) Modification of a new motor vehicle.
(29) Manufacturer's suggested retail price.
(i) In general.
(ii) Retail price.
(iii) Retail delivered price.
(30) Manufacturing.
(31) Modified adjusted gross income.
(i) Individuals.
(ii) Estates and trusts.
(32) New clean vehicle.
(33) New qualified fuel cell motor vehicle.
(34) North America.
(35) North American battery component.
(36) Placed in service.
(37) Processing.
(38) Procurement chain.
(39) Qualifying battery component content.
(40) Qualifying critical mineral.
(41) Qualifying critical mineral content.
(42) Qualified manufacturer.
(43) Recycling.
(i) In general.
(ii) Example: Recycling of applicable critical mineral.
(44) Registered dealer.
(45) Section 30D regulations.
(46) Seller report.
(47) Time of sale.
(48) Total incremental value of battery components.
(49) Total incremental value of North American battery
components.
(50) Total traced qualifying value.
(51) Total value of critical minerals.
(52) Total value of qualifying critical minerals.
(53) Traced qualifying value.
(54) Value.
(55) Value added.
(56) Vehicle classification.
(i) In general.
(ii) Van.
(iii) Sport utility vehicle.
(iv) Pickup truck.
(v) Other vehicle.
(c) Severability.
(d) Applicability date.
Sec. 1.30D-3 Critical minerals and battery components requirements.
(a) Critical minerals requirement.
(1) In general.
(2) Applicable critical minerals percentage.
(i) In general.
(ii) Vehicles placed in service between April 18, 2023, and
December 31, 2023.
(iii) Vehicles placed in service during calendar year 2024.
(iv) Vehicles placed in service during calendar year 2025.
(v) Vehicles placed in service during calendar year 2026.
(vi) Vehicles placed in service during calendar year 2027 and
later.
(3) Determining qualifying critical mineral content.
(i) In general.
(ii) Separate determinations required for each procurement
chain.
(iii) Time for determining value.
(iv) Application of qualifying critical mineral content to
vehicles.
(4) Temporary safe harbor for determining qualifying critical
mineral content for vehicles for which a qualified manufacturer
submits a periodic written report on or after May 6, 2024 and before
January 1, 2027.
(i) In general.
(ii) Separate determinations required for each procurement
chain.
(iii) Time for determining value.
(iv) Application of qualifying critical mineral content to
vehicles.
(v) Consistent determination required for all procurement
chains.
(5) Rule for determining qualifying critical mineral content for
vehicles for which a qualified manufacturer submitted a periodic
written report before May 6, 2024.
(b) Battery components requirement.
(1) In general.
(2) Applicable battery components percentage.
(i) In general.
(ii) Vehicles placed in service between April 18, 2023, and
December 31, 2023.
(iii) Vehicles placed in service during calendar year 2024 or
2025.
(iv) Vehicles placed in service during calendar year 2026.
(v) Vehicles placed in service during calendar year 2027.
(vi) Vehicles placed in service during calendar year 2028.
(vii) Vehicles placed in service in calendar year 2029 and
later.
(3) Determining qualifying battery component content.
(i) In general.
(ii) Time for determining value.
(iii) Application of qualifying battery component content to
vehicles.
(iv) End point for determination.
(c) Definitions.
(1) Certain terms relevant to the critical minerals requirement.
(i) Procurement chain.
(ii) Qualifying critical mineral.
(A) In general.
(B) Extracted or processed in the United States or in any
country with which the United States has a free trade agreement in
effect.
(C) Recycled in North America.
(iii) Qualifying critical mineral content.
(iv) Total traced qualifying value.
(v) Total value of critical minerals.
(vi) Total value of qualifying critical minerals.
(vii) Traced qualifying value.
(A) Extracted or processed in the United States or in any
country with which the United States has a free trade agreement in
effect.
(B) Recycled in North America.
(viii) Value added.
(2) Certain terms relevant to the battery components
requirement.
(i) Incremental value.
(ii) North American battery component.
(iii) Qualifying battery component content.
(iv) Total incremental value of battery components.
(v) Total incremental value of North American battery
components.
(d) Upfront review of critical minerals and battery components
requirements.
(e) New qualified fuel cell motor vehicles.
(f) Examples.
(1) Example 1: Critical minerals requirement.
(i) Facts.
(ii) Analysis.
(2) Example 2: Critical minerals requirement temporary safe
harbor.
(i) Facts.
(ii) Analysis.
(3) Example 3: Battery components requirement. Kelley -Payroll
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SUBJECT][/PREAMB][SUPLINF][HED]*[/HED][REGTEXT][EXTRACT][P]*[/P]?>
(i) Facts.
(ii) Analysis.
(g) Severability.
(h) Applicability date.
(1) In general.
(2) Upfront review and traced qualifying value.
Sec. 1.30D-4 Special rules.
(a) No double benefit.
(1) In general.
(2) Interaction between section 30D and section 25E credits.
(3) Interaction between section 30D and section 45W credits.
(b) Limitation based on modified adjusted gross income.
(1) In general.
(2) Threshold amount.
(3) Special rule for change in filing status.
(4) Application to estates and trusts.
(i) Estates and non-grantor trusts.
(ii) Grantor trusts.
(5) Application to passthrough entities.
(6) Other taxpayers.
(c) Credit may generally be claimed on only one tax return.
(1) In general.
(2) Exception for passthrough entities.
(3) Seller reporting.
(i) In general.
(ii) Passthrough entities.
(4) Example.
(d) Grantor trusts.
(e) Recapture rules.
(1) In general.
(i) Cancelled sale.
(ii) Vehicle return.
(iii) Resale.
(iv) Other vehicle returns and resales.
(2) Recapture rules in the case of a credit transfer election.
(3) Example: Demonstrator vehicle.
(f) Seller registration.
(g) Requirement to file return.
(h) Taxpayer reliance on manufacturer certifications and
periodic written reports to the IRS.
(i) Severability.
(j) Applicability date.
Sec. 1.30D-5 Transfer of credit.
(a) In general.
(b) Definitions.
(1) Advance payment program.
(2) Credit transfer election.
(3) Dealer.
(4) Dealer tax compliance.
(5) Electing taxpayer.
(6) Eligible entity.
(7) Incentive.
(8) Registered dealer.
(9) Sale price.
(10) Time of sale.
(c) Dealer registration.
(1) In general.
(2) Dealer tax compliance required.
(3) Suspension of registration.
(4) Revocation of registration.
(d) Credit transfer election by electing taxpayer.
(e) Federal income tax consequences of the credit transfer
election.
[[Page 37756]]
(1) Tax consequences for electing taxpayer.
(2) Tax consequences for eligible entity.
(3) Form of payment from eligible entity to electing taxpayer.
(4) Additional requirements.
(5) Examples.
(i) Example 1: Electing taxpayer's regular tax liability less
than amount of credit.
(A) Facts.
(B) Analysis.
(ii) Example 2: Non-cash payment by eligible entity to electing
taxpayer.
(A) Facts.
(B) Analysis.
(iii) Example 3: Eligible entity is a partnership.
(A) Facts.
(B) Analysis.
(f) Advance payments received by eligible entities.
(1) In general.
(2) Requirements for a registered dealer to become an eligible
entity.
(3) Suspension of registered dealer eligibility.
(4) Revocation of registered dealer eligibility.
(g) Increase in tax.
(1) Recapture if electing taxpayer exceeds modified adjusted
gross income limitation.
(2) Excessive payments.
(i) In general.
(ii) Reasonable cause.
(iii) Excessive payment defined.
(iv) Special rule for cases in which the electing taxpayer's
modified adjusted gross income exceeds the limitation.
(3) Examples.
(i) Example 1: Registered dealer is not an eligible entity.
(A) Facts.
(B) Analysis.
(ii) Example 2: Incorrect manufacturer certifications.
(A) Facts.
(B) Analysis.
(h) Return requirement.
(i) Two credit transfer elections per year.
(j) Severability.
(k) Applicability date.
Sec. 1.30D-6 Foreign entity of concern restriction.
(a) In general.
(b) Due diligence required.
(1) In general.
(2) Transition rule for impracticable-to-trace battery
materials.
(c) FEOC compliance.
(1) In general.
(i) Step 1.
(ii) Step 2.
(iii) Step 3.
(2) FEOC-compliant batteries.
(3) FEOC-compliant battery cells.
(i) In general.
(ii) Allocation-based determination for applicable critical
minerals and associated constituent materials of a battery cell.
(A) In general.
(B) Allocation limited to applicable critical minerals in the
battery cell.
(C) Separate allocation required for each type of associated
constituent material.
(1) In general.
(2) Example.
(D) Allocation within each product line of battery cells.
(E) Limitation on number of FEOC-compliant battery cells.
(iii) Transition rule for impracticable-to-trace battery
materials.
(4) FEOC-compliant battery components and applicable critical
minerals.
(i) In general.
(ii) Timing of determination of FEOC or FEOC-compliant status.
(iii) Example: Timing of FEOC compliance determination.
(5) Third-party manufacturers or suppliers.
(i) Due diligence required.
(ii) Provision of required information to qualified
manufacturer.
(iii) Contractual obligations.
(iv) Additional requirements in case of multiple third-party
manufacturers or suppliers.
(d) Compliant-battery ledger.
(1) In general.
(2) Determination of number of batteries.
(i) In general.
(ii) Upfront review.
(iii) Decrease or increase to compliant-battery ledger.
(3) Tracking FEOC-compliant batteries.
(4) Reconciliation of battery estimates.
(e) Rule for 2024.
(1) In general.
(2) Determination.
(f) Inaccurate attestations, certifications, or documentation.
(1) In general.
(2) Inadvertence.
(i) Inaccurate information may be cured by qualified
manufacturer.
(ii) Consequences if errors not cured.
(3) Intentional disregard or fraud.
(i) All vehicles ineligible for credit.
(ii) Termination of written agreement.
(g) Rules inapplicable to new qualified fuel cell motor
vehicles.
(h) Examples.
(1) Example 1: In general.
(i) Facts.
(ii) Analysis.
(2) Example 2: Rules for third-party suppliers.
(i) Facts.
(ii) Analysis.
(3) Example 3: Applicable critical minerals.
(i) Facts.
(ii) Analysis.
(4) Example 4: Comprehensive example.
(i) Facts.
(ii) Analysis.
(i) Severability.
(j) Applicability date.
Sec. 1.30D-1 Credit for new clean vehicles.
(a) In general. Section 30D(a) of the Internal Revenue Code (Code)
allows as a credit against the tax imposed by chapter 1 of the Code
(chapter 1) for the taxable year of a taxpayer an amount equal to the
sum of the credit amounts determined under section 30D(b) with respect
to each new clean vehicle purchased by the taxpayer that the taxpayer
places in service during the taxable year. This section provides
generally applicable rules that apply for purposes of determining the
credit under section 30D and the section 30D regulations (section 30D
credit). Section 1.30D-2 provides definitions that apply for purposes
of section 30D and the section 30D regulations. Section 1.30D-3
provides rules regarding the critical minerals and battery components
requirements of section 30D(e). Section 1.30D-4 provides guidance
regarding the limitations and special rules in section 30D(f) as well
as other special rules with respect to the section 30D credit. Section
1.30D-5 provides rules for the credit transfer election and advance
payment program and for recapture. Section 1.30D-6 provides rules
regarding the foreign entities of concern (FEOC) restriction of section
30D(d)(7).
(b) Application with other credits--(1) Business credit treated as
part of general business credit. Section 30D(c)(1) requires that so
much of the section 30D credit that would be allowed under section
30D(a) for any taxable year (determined without regard to section
30D(c) and this paragraph (b)) that is attributable to a depreciable
vehicle must be treated as a general business credit under section 38
of the Code that is listed in section 38(b)(30) for such taxable year
(and not allowed under section 30D(a)). In the case of a depreciable
vehicle the use of which is 50 percent or more business use in the
taxable year such vehicle is placed in service, the section 30D credit
that would be allowed under section 30D(a) for that taxable year
(determined without regard to section 30D(c) and this paragraph (b))
that is attributable to such depreciable vehicle must be treated as a
general business credit under section 38(b)(30) for such taxable year
(and not allowed under section 30D(a)). See paragraph (b)(2) of this
section for rules applicable in the case of a depreciable vehicle the
use of which is less than 50 percent business use in the taxable year
such vehicle is placed in service. See paragraph (b)(3) of this section
for rules applicable to a section 30D credit allowed under section
30D(a) pursuant to section 30D(c)(2) or paragraph (b)(2)(ii) or (b)(3)
of this section.
(2) Apportionment of section 30D credit. Unless the taxpayer has
elected to transfer the credit pursuant to section 30D(g) and Sec.
1.30D-5(d), in the case of a depreciable vehicle the business use of
which is less than 50 percent of a taxpayer's total use of the vehicle
for the taxable year in which the vehicle is placed in service, the
taxpayer's section 30D credit for that taxable year with respect to
that vehicle must be apportioned as follows:
(i) The portion of the section 30D credit corresponding to the
percentage
[[Page 37757]]
of the taxpayer's business use of the vehicle is treated as a general
business credit under section 30D(c)(1) and paragraph (b)(1) of this
section (and not allowed under section 30D(a) or paragraph (b)(3) of
this section).
(ii) The portion of the section 30D credit corresponding to the
percentage of the taxpayer's personal use of the vehicle is treated as
a section 30D credit allowed under section 30D(a) pursuant to section
30D(c)(2) and paragraph (b)(3) of this section.
(3) Personal credit limited based on tax liability. Section 26 of
the Code limits the aggregate amount of credits allowed to a taxpayer
by subpart A of part IV of subchapter A of chapter 1 (subpart A) based
on the taxpayer's tax liability. Under section 26(a), the aggregate
amount of credits allowed to a taxpayer by subpart A cannot exceed the
sum of the taxpayer's regular tax liability (as defined in section
26(b)) for the taxable year reduced by the foreign tax credit allowable
under section 27 of the Code, and the alternative minimum tax imposed
by section 55(a) of the Code for the taxable year. Section 30D(c)(2)
provides that the section 30D credit allowed under section 30D(a) for
any taxable year (determined after application of section 30D(c)(1) and
paragraphs (b)(1) and (2) of this section) is treated as a credit
allowable under subpart A for such taxable year, and the section 30D
credit allowed under section 30D(a) is therefore subject to the
limitation imposed by section 26.
(c) 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.
(d) Applicability date. This section applies to taxable years
ending after December 4, 2023.
Sec. 1.30D-2 Definitions for purposes of section 30D.
(a) In general. The definitions in this section apply for purposes
of section 30D of the Internal Revenue Code (Code) and the section 30D
regulations.
(b) Definitions--(1) Advance payment program. Advance payment
program means advance payment program as defined in Sec. 1.30D-
5(b)(1).
(2) Applicable critical mineral--(i) In general. Applicable
critical mineral means an applicable critical mineral as defined in
section 45X(c)(6) of the Code. The requirements of Sec. Sec. 1.30D-
3(a) and 1.30D-6 with respect to an applicable critical mineral take
into account each step of extraction, processing, or recycling through
the step in which such mineral is processed or recycled into a
constituent material, even if the mineral is not in a form listed in
section 45X(c)(6) at every step of production. However, an applicable
critical mineral is disregarded for purposes of the requirements of
Sec. Sec. 1.30D-3(a) and 1.30D-6 if it is fully consumed in the
production of the constituent material or battery component and no
longer remains in any form in the battery.
(ii) Example: Form of applicable critical mineral. Mineral Y is
extracted and is intended to be incorporated into the battery of an
electric vehicle. Mineral Y is not in a form listed in section
45X(c)(6) at the time of such extraction, but subsequently it is
refined into an applicable critical mineral form listed in section
45X(c)(6). Both the extraction and processing are taken into account
for purposes of the requirements of Sec. Sec. 1.30D-3(a) and 1.30D-6.
(3) Assembly. Assembly, with respect to battery components, means
the process of combining battery components into battery cells and
battery modules.
(4) Associated constituent material. Associated constituent
material, with respect to an applicable critical mineral, means a
constituent material that has been processed or recycled from such
mineral into the constituent material with which it is associated, even
if that processing or recycling transformed such mineral into a form
not listed in section 45X(c)(6).
(5) Battery. Battery, for purposes of a new clean vehicle, means a
collection of one or more battery modules, each of which has two or
more electrically configured battery cells in series or parallel, to
create voltage or current. The term battery does not include items such
as thermal management systems or other parts of a battery cell or
module that do not directly contribute to the electrochemical storage
of energy within the battery, such as battery cell cases, cans, or
pouches.
(6) Battery cell. Battery cell means a combination of battery
components (other than battery cells) capable of electrochemically
storing energy from which the electric motor of a new clean vehicle
draws electricity.
(7) Battery cell production facility. Battery cell production
facility means a facility in which battery cells are manufactured or
assembled.
(8) Battery component. Battery component means a component that
forms part of a clean vehicle battery and that is manufactured or
assembled from one or more components or battery materials that are
combined through industrial, chemical, and physical assembly steps.
Battery components may include, but are not limited to, a cathode
electrode, anode electrode, solid metal electrode, coated separator,
liquid electrolyte, solid state electrolyte, battery cell, and battery
module.
(9) Battery materials. Battery materials means direct and indirect
inputs to battery components that are produced through processing
rather than through manufacturing or assembly. Battery materials are
not considered a type of battery component, although battery materials
may be manufactured or assembled into battery components. The three
categories of battery materials are applicable critical minerals,
constituent materials, and battery materials without applicable
critical minerals. Examples of battery materials that may or may not
contain applicable critical minerals include a separator base film (if
not manufactured or assembled) and separator coating. Examples of
battery materials without applicable critical minerals include
conductive additives, copper foils prior to graphite deposition, and
electrolyte solvents.
(10) Clean vehicle battery. Clean vehicle battery, with respect to
a new clean vehicle, means the battery from which the electric motor of
the vehicle draws electricity to propel such vehicle.
(11) Compliant-battery ledger. A compliant-battery ledger, for a
qualified manufacturer for a calendar year, is a ledger established
under the rules of Sec. 1.30D-6(d) that tracks the number of available
FEOC-compliant batteries for such calendar year.
(12) Constituent materials. Constituent materials means battery
materials that contain applicable critical minerals. Constituent
materials may include, but are not limited to, powders of cathode
active materials, powders of anode active materials, foils, metals for
solid electrodes, binders, electrolyte salts, and electrolyte
additives, as required for a battery cell. Battery materials without
applicable critical minerals are not constituent materials.
(13) Country with which the United States has a free trade
agreement in effect--(i) In general. The term country with which the
United States has a free trade agreement in effect means any of those
countries identified in paragraph (b)(13)(ii) of this section or that
the Secretary of the Treasury or her delegate (Secretary) may identify
in the future. The criteria the Secretary will consider in determining
whether to identify a country under this paragraph (b)(13) include
whether an agreement between the United States and that country, as to
the critical minerals contained in clean vehicle batteries or more
generally, and in the context of the overall commercial
[[Page 37758]]
and economic relationship between that country and the United States:
(A) Reduces or eliminates trade barriers on a preferential basis;
(B) Commits the parties to refrain from imposing new trade
barriers;
(C) Establishes high-standard disciplines in key areas affecting
trade (such as core labor and environmental protections); and/or
(D) Reduces or eliminates restrictions on exports or commits the
parties to refrain from imposing such restrictions.
(ii) Free trade agreements in effect. The countries with which the
United States currently has free trade agreements in effect are:
Australia, Bahrain, Canada, Chile, Colombia, Costa Rica, Dominican
Republic, El Salvador, Guatemala, Honduras, Israel, Japan, Jordan,
South Korea, Mexico, Morocco, Nicaragua, Oman, Panama, Peru, and
Singapore.
(iii) Updates. The list of countries in paragraph (b)(13)(ii) of
this section may be revised and updated through guidance published in
the Federal Register or in the Internal Revenue Bulletin (see Sec.
601.601 of this chapter).
(14) Credit transfer election. Credit transfer election means
credit transfer election as defined in Sec. 1.30D-5(b)(2).
(15) Dealer. Dealer means dealer as defined in Sec. 1.30D-5(b)(3).
(16) Dealer tax compliance. Dealer tax compliance means dealer tax
compliance as defined in Sec. 1.30D-5(b)(4).
(17) Depreciable vehicle. Depreciable vehicle means a vehicle of a
character subject to an allowance for depreciation.
(18) Electing taxpayer. Electing taxpayer means electing taxpayer
as defined in Sec. 1.30D-5(b)(5).
(19) Eligible entity. Eligible entity means eligible entity as
defined in Sec. 1.30D-5(b)(6).
(20) Excessive payment. Excessive payment means excessive payment
as defined in Sec. 1.30D-5(g)(2)(iii).
(21) Extraction. Extraction means the activities performed to
harvest minerals or natural resources from the ground or from a body of
water. Extraction includes, but is not limited to, operating equipment
to harvest minerals or natural resources from mines and wells and the
physical processes involved in refining. Extraction also includes
operating equipment to extract minerals or natural resources from the
waste or residue of prior extraction, including crude oil extraction to
the extent that processes applied to that crude oil yield an applicable
critical mineral as a byproduct. Extraction concludes when activities
are performed to convert raw mined or harvested products or raw well
effluent to substances that can be readily transported or stored for
direct use in critical mineral processing. Extraction does not include
activities that begin with a recyclable commodity (as such activities
are recycling). Extraction does not include the chemical and thermal
processes involved in refining.
(22) FEOC-compliant. FEOC-compliant means in compliance with the
applicable excluded entity requirement under section 30D(d)(7). In
particular--
(i) A battery component (other than a battery cell), with respect
to a new clean vehicle placed in service after December 31, 2023, is
FEOC-compliant if it is not manufactured or assembled by a FEOC;
(ii) An applicable critical mineral, with respect to a new clean
vehicle placed in service after December 31, 2024, is FEOC-compliant if
it is not extracted, processed, or recycled by a FEOC;
(iii) A battery cell, with respect to a new clean vehicle placed in
service after December 31, 2023, and before January 1, 2025, is FEOC-
compliant if it is not manufactured or assembled by a FEOC and it
contains only FEOC-compliant battery components;
(iv) A battery cell, with respect to a new clean vehicle placed in
service after December 31, 2024, is FEOC-compliant if it is not
manufactured or assembled by a FEOC and it contains only FEOC-compliant
battery components and FEOC-compliant applicable critical minerals; and
(v) A clean vehicle battery, with respect to a new clean vehicle
placed in service after December 31, 2023, is FEOC-compliant if it
contains only FEOC-compliant battery components (other than battery
cells) and FEOC-compliant battery cells (as described in paragraph
(b)(22)(iii) or (iv) of this section, as applicable).
(23) Final assembly. Final assembly means the process by which a
manufacturer produces a new clean vehicle at, or through the use of, a
plant, factory, or other place from which the vehicle is delivered to a
dealer or importer with all component parts necessary for the
mechanical operation of the vehicle included with the vehicle, whether
or not the component parts are permanently installed in or on the
vehicle. To establish where final assembly of a new clean vehicle
occurred for purposes of the requirement in section 30D(d)(1)(G) that
final assembly of a new clean vehicle occur within North America, the
taxpayer may rely on the following information:
(i) The vehicle's plant of manufacture as reported in the vehicle
identification number pursuant to 49 CFR 565; or
(ii) The final assembly point reported on the label affixed to the
vehicle as described in 49 CFR 583.5(a)(3).
(24) Foreign entity of concern. Foreign entity of concern (FEOC)
has the meaning provided in section 40207(a)(5) of the Infrastructure
Investment and Jobs Act (42 U.S.C. 18741(a)(5)) and guidance
promulgated thereunder by the Department of Energy (DOE).
(25) Impracticable-to-trace battery materials--(i) In general.
Impracticable-to-trace battery materials means specifically identified,
low-value battery materials that originate from multiple sources and
are commingled during refining, processing, or other production
processes by suppliers to such a degree that the qualified manufacturer
cannot, due to current industry practice, feasibly determine and attest
to the origin of such battery materials. For this purpose,
impracticable-to-trace battery materials are those that have low value
compared to the total value of the clean vehicle battery.
(ii) Identified impracticable-to-trace battery materials.
Identified impracticable-to-trace battery materials means applicable
critical minerals in the following circumstances: graphite contained in
anode materials, and applicable critical minerals contained in
electrolyte salts, electrolyte binders, or electrolyte additives.
(26) Incentive. Incentive means incentive as defined in Sec.
1.30D-5(b)(7).
(27) Incremental value. Incremental value means incremental value
as defined in Sec. 1.30D-3(c)(2)(i).
(28) Manufacturer--(i) In general. A manufacturer means any
manufacturer within the meaning of the regulations prescribed by the
Administrator of the Environmental Protection Agency (EPA) for purposes
of the administration of title II of the Clean Air Act (42 U.S.C. 7521
et seq.) and as defined in 42 U.S.C. 7550(1). Except as provided in
paragraph (b)(28)(ii) of this section, if multiple manufacturers are
involved in the production of a vehicle, the requirements of section
30D(d)(3) must be met by the manufacturer that satisfies the reporting
requirements of the greenhouse gas emissions standards set by the EPA
under the Clean Air Act (42 U.S.C. 7521 et seq.) for the subject
vehicle.
(ii) Modification of a new motor vehicle--(A) If a manufacturer
modifies a new motor vehicle (as defined in 42 U.S.C. 7550(3)) that
does not satisfy the requirements of section 30D(d)(1)(F) or (d)(6) so
that the new motor vehicle, after modification, does satisfy such
[[Page 37759]]
requirements, then such manufacturer may satisfy the requirements of
section 30D(d)(3) if the modification occurred prior to the new motor
vehicle being placed in service.
(B) If a manufacturer modifies a new motor vehicle (as defined in
42 U.S.C. 7550(3)) that does not satisfy the requirements of 45W(c)(3)
so that the new motor vehicle, after modification, does satisfy such
requirements, then such manufacturer may satisfy the requirements of
30D(d)(3) if the modification occurred prior to the new motor vehicle
being placed in service.
(29) Manufacturer's suggested retail price--(i) In general.
Manufacturer's suggested retail price means the sum of the retail price
and the retail delivered price (as defined in paragraphs (b)(29)(ii)
and (iii) of this section) as reported on the label that is affixed to
the windshield or side window of the vehicle, as described in 15 U.S.C.
1232.
(ii) Retail price. Retail price, for purposes of paragraph
(b)(29)(i) of this section, means the retail price of the automobile
suggested by the manufacturer as described in 15 U.S.C. 1232(f)(1).
(iii) Retail delivered price. Retail delivered price, for purposes
of paragraph (b)(29)(i) of this section, means the retail delivered
price suggested by the manufacturer for each accessory or item of
optional equipment physically attached to such automobile at the time
of its delivery to the dealer that is not included within the price of
such automobile as stated pursuant to 15 U.S.C. 1232(f)(1), as
described in 15 U.S.C. 1232(f)(2).
(30) Manufacturing. Manufacturing, with respect to a battery
component, means the industrial and chemical steps taken to produce a
battery component.
(31) Modified adjusted gross income--(i) Individuals. Modified
adjusted gross income, in the case of an individual, means adjusted
gross income (as defined in section 62 of the Code) increased by any
amount excluded from gross income under section 911, 931, or 933 of the
Code.
(ii) Estates and trusts. Modified adjusted gross income, in the
case of an estate or non-grantor trust, means adjusted gross income (as
defined in section 67(e) of the Code).
(32) New clean vehicle. New clean vehicle means a vehicle that
meets the requirements described in section 30D(d). Vehicles that may
qualify as new clean vehicles include battery electric vehicles, plug-
in hybrid electric vehicles, fuel cell motor vehicles, and plug-in
hybrid fuel cell motor vehicles. A vehicle does not meet the
requirements of section 30D(d) if--
(i) The qualified manufacturer fails to provide a periodic written
report for such vehicle prior to the vehicle being placed in service
reporting the vehicle identification number of such vehicle and
certifying compliance with the requirement of section 30D(d);
(ii) The qualified manufacturer provides incorrect information with
respect to the periodic written report for such vehicle;
(iii) The qualified manufacturer fails to update its periodic
written report in the event of a material change with respect to such
vehicle; or
(iv) For new clean vehicles placed in service after December 31,
2024, the qualified manufacturer fails to meet the requirements of
Sec. 1.30D-6(d).
(33) New qualified fuel cell motor vehicle. New qualified fuel cell
motor vehicle means any new qualified fuel cell motor vehicle (as
defined in section 30B(b)(3)) that meets the requirements under section
30D(d)(1)(G) (that is, the final assembly in North America requirement)
and (H) (that is, the seller report requirement), and that does not
have a clean vehicle battery.
(34) North America. North America means the territory of the United
States, Canada, and Mexico as defined in 19 CFR part 182, Appendix A,
Sec. 1(1).
(35) North American battery component. North American battery
component means North American battery component as defined in Sec.
1.30D-3(c)(2)(ii).
(36) Placed in service. A new clean vehicle is considered to be
placed in service on the date the taxpayer takes possession of the
vehicle.
(37) Processing. Processing means the non-physical processes
involved in the refining of non-recycled substances or materials,
including the treating, baking, and coating processes used to convert
such substances and materials into constituent materials. Processing
includes the chemical or thermal processes involved in refining.
Processing does not include the physical processes involved in
refining.
(38) Procurement chain. Procurement chain means procurement chain
as defined in Sec. 1.30D-3(c)(1)(i).
(39) Qualifying battery component content. Qualifying battery
component content means qualifying battery component content as defined
in Sec. 1.30D-3(c)(2)(iii).
(40) Qualifying critical mineral. Qualifying critical mineral means
qualifying critical mineral as defined in Sec. 1.30D-3(c)(1)(ii).
(41) Qualifying critical mineral content. Qualifying critical
mineral content means qualifying critical mineral content as defined in
Sec. 1.30D-3(c)(1)(iii).
(42) Qualified manufacturer. A qualified manufacturer means a
manufacturer that meets the requirements described in section 30D(d)(3)
at the time the manufacturer submits a periodic written report to the
IRS under a written agreement described in section 30D(d)(3). The term
qualified manufacturer does not include any manufacturer whose
qualified manufacturer status has been terminated by the IRS. The IRS
may terminate qualified manufacturer status for fraud, intentional
disregard, or gross negligence with respect to any requirements of
section 30D, the section 30D regulations, or any guidance under section
30D, including with respect to the periodic written reports described
in section 30D(d)(3) and paragraph (b)(32) of this section and any
attestations, documentation, or certifications described in Sec. Sec.
1.30D-3(d) and 1.30D-6(d), at the time and in the manner provided in
the Internal Revenue Bulletin (see Sec. 601.601 of this chapter). See
Sec. 1.30D-6(f) for additional rules regarding inaccurate
determinations and documentation. The IRS may also terminate qualified
manufacturer status for fraud, intentional disregard, or gross
negligence with respect to any requirement of section 25E or section
45W or any regulations thereunder.
(43) Recycling--(i) In general. Recycling means the series of
activities during which recyclable materials containing critical
minerals are transformed into specification-grade commodities and
consumed in lieu of virgin materials to create new constituent
materials; such activities result in new constituent materials
contained in the clean vehicle battery. All physical, chemical, and
thermal treatments or modifications that convert recycled feedstocks to
specification grade constituent materials are included in recycling.
However, recycled applicable critical minerals and associated
constituent materials are only subject to the requirements under
Sec. Sec. 1.30D-3(a) and 1.30D-6 if the recyclable material contains
an applicable critical mineral, contains material that was transformed
from an applicable critical mineral, or if the recyclable material is
used to produce an applicable critical mineral at any point during the
recycling process. The requirements under Sec. Sec. 1.30D-3(a) and
1.30D-6 only take into account activities that occurred during the
recycling process.
(ii) Example: Recycling of applicable critical mineral. Mineral Z,
an applicable critical mineral in a form
[[Page 37760]]
listed in section 45X(c)(6), was processed by A in a prior production
process. Mineral Z subsequently was derived from recyclable material in
a form not listed in section 45X(c)(6). Mineral Z was recycled by B.
The requirements under Sec. Sec. 1.30D-3 and 1.30D-6 only take into
account the activities conducted by B.
(44) Registered dealer. Registered dealer means registered dealer
as defined in Sec. 1.30D-5(b)(8).
(45) Section 30D regulations. Section 30D regulations means Sec.
1.30D-1, this section, and Sec. Sec. 1.30D-3 through 1.30D-6.
(46) Seller report. Seller report means the report described in
section 30D(d)(1)(H) that the seller of a new clean vehicle provides to
the taxpayer and the IRS in the manner provided in, and containing the
information described in, guidance published in the Internal Revenue
Bulletin (see Sec. 601.601 of this chapter). The seller report must be
transmitted to the IRS electronically. The term seller report does not
include a report rejected by the IRS due to the information contained
therein not matching IRS records.
(47) Time of sale. Time of sale means time of sale as defined in
Sec. 1.30D-5(b)(9).
(48) Total incremental value of battery components. Total
incremental value of battery components means total incremental value
of battery components as defined in Sec. 1.30D-3(c)(2)(iv).
(49) Total incremental value of North American battery components.
Total incremental value of North American battery components means
total incremental value of North American battery components as defined
in Sec. 1.30D-3(c)(2)(v).
(50) Total traced qualifying value. Total traced qualifying value
means total traced qualifying value as defined in Sec. 1.30D-
3(c)(1)(iv).
(51) Total value of critical minerals. Total value of critical
minerals means total value of critical minerals as defined in Sec.
1.30D-3(c)(1)(v).
(52) Total value of qualifying critical minerals. Total value of
qualifying critical minerals means total value of qualifying critical
minerals as defined in Sec. 1.30D-3(c)(1)(vi).
(53) Traced qualifying value. Traced qualifying value means traced
qualifying value as defined in Sec. 1.30D-3(c)(1)(vii).
(54) Value. Value, with respect to property, means the arm's-length
price that was paid or would be paid for the property by an unrelated
purchaser determined in accordance with the principles of section 482
of the Code and regulations thereunder.
(55) Value added. Value added means value added as defined in Sec.
1.30D-3(c)(1)(viii).
(56) Vehicle classification--(i) In general. Vehicle classification
means the vehicle classification of a new clean vehicle determined
consistent with the rules and definitions provided in 40 CFR 600.315-08
and this paragraph (b)(56) for vans, sport utility vehicles, pickup
trucks, and other vehicles.
(ii) Van. Van means a vehicle classified as a van or minivan under
40 CFR 600.315-08(a)(2)(iii) and (iv), or otherwise so classified by
the Administrator of the EPA pursuant to 40 CFR 600.315-08(a).
(iii) Sport utility vehicle. Sport utility vehicle means a vehicle
classified as a small sport utility vehicle or standard sport utility
vehicle under 40 CFR 600.315-08(a)(2)(v) and (vi), or otherwise so
classified by the Administrator of the EPA pursuant to 40 CFR 600.315-
08(a).
(iv) Pickup truck. Pickup truck means a vehicle classified as a
small pickup truck or standard pickup truck under 40 CFR 600.315-
08(a)(2)(i) and (ii), or otherwise so classified by the Administrator
of the EPA pursuant to 40 CFR 600.315-08(a).
(v) Other vehicle. Other vehicle means any vehicle classified in
one of the classes of passenger automobiles listed in 40 CFR 600.315-
08(a)(1), or otherwise so classified by the Administrator of the EPA
pursuant to 40 CFR 600.315-08(a).
(c) 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.
(d) Applicability date. This section applies to taxable years
ending after December 4, 2023.
Sec. 1.30D-3 Critical minerals and battery components requirements.
(a) Critical minerals requirement--(1) In general. The critical
minerals requirement described in section 30D(e)(1)(A) of the Internal
Revenue Code (Code), with respect to a clean vehicle battery, is met if
the qualifying critical mineral content of such battery is equal to or
greater than the applicable critical minerals percentage (as defined in
paragraph (a)(2) of this section), as certified by the qualified
manufacturer, in such form or manner as prescribed by the Secretary of
the Treasury or her delegate (Secretary).
(2) Applicable critical minerals percentage--(i) In general. For
purposes of paragraph (a)(1) of this section, the applicable critical
minerals percentage, which is based on the year in which a vehicle is
placed in service by the taxpayer, is set forth in paragraphs
(a)(2)(ii) through (vi) of this section. See section 30D(e)(1)(B).
(ii) Vehicles placed in service between April 18, 2023, and
December 31, 2023. In the case of a vehicle placed in service after
April 17, 2023, and before January 1, 2024, the applicable critical
minerals percentage is 40 percent.
(iii) Vehicles placed in service during calendar year 2024. In the
case of a vehicle placed in service during calendar year 2024, the
applicable critical minerals percentage is 50 percent.
(iv) Vehicles placed in service during calendar year 2025. In the
case of a vehicle placed in service during calendar year 2025, the
applicable critical minerals percentage is 60 percent.
(v) Vehicles placed in service during calendar year 2026. In the
case of a vehicle placed in service during calendar year 2026, the
applicable critical minerals percentage is 70 percent.
(vi) Vehicles placed in service during calendar year 2027 and
later. In the case of a vehicle placed in service after December 31,
2026, the applicable critical minerals percentage is 80 percent.
(3) Determining qualifying critical mineral content--(i) In
general. Qualifying critical mineral content with respect to a clean
vehicle battery is calculated as the percentage that results from
dividing:
(A) The total traced qualifying value, by
(B) The total value of critical minerals.
(ii) Separate determinations required for each procurement chain.
The traced qualifying value of an applicable critical mineral,
including the percentage or percentages necessary to determine the
traced qualifying value, must be determined separately for each
procurement chain.
(iii) Time for determining value. A qualified manufacturer must
select a date for determining the values described in paragraphs
(a)(3)(i)(A) and (B) of this section. Such date must be after the final
processing or recycling step for the applicable critical minerals
relevant to the certification described in section 30D(e)(1)(A).
(iv) Application of qualifying critical mineral content to
vehicles. A qualified manufacturer may determine qualifying
[[Page 37761]]
critical mineral content based on the value of the applicable critical
minerals actually contained in the clean vehicle battery of a specific
vehicle. Alternatively, for purposes of calculating the qualifying
critical mineral content for clean vehicle batteries in a group of
vehicles, a qualified manufacturer may average the qualifying critical
mineral content under this paragraph (a)(3)(iv) over a period of time
(for example, a year, a calendar quarter, or a month) with respect to
vehicles from the same model line, plant, class, or some combination
thereof, with final assembly (as defined in section 30D(d)(5) of the
Code and Sec. 1.30D-2(b)(23)) within North America.
(4) Temporary safe harbor for determining qualifying critical
mineral content for vehicles for which a qualified manufacturer submits
a periodic written report on or after May 6, 2024 and before January 1,
2027--(i) In general. For vehicles for which a qualified manufacturer
submits a periodic written report on or after May 6, 2024 and before
January 1, 2027, qualifying critical mineral content with respect to a
clean vehicle battery may be calculated as the percentage that results
from dividing:
(A) The total value of qualifying critical minerals, by
(B) The total value of critical minerals.
(ii) Separate determinations required for each procurement chain.
The portion of an applicable critical mineral that is a qualifying
critical mineral must be determined separately for each procurement
chain.
(iii) Time for determining value. A qualified manufacturer must
select a date for determining the values described in paragraphs
(a)(4)(i)(A) and (B) of this section. Such date must be after the final
processing or recycling step for the applicable critical minerals
relevant to the certification described in section 30D(e)(1)(A).
(iv) Application of qualifying critical mineral content to
vehicles. A qualified manufacturer may determine qualifying critical
mineral content based on the value of the applicable critical minerals
actually contained in the clean vehicle battery of a specific vehicle.
Alternatively, for purposes of calculating the qualifying critical
mineral content for clean vehicle batteries in a group of vehicles, a
qualified manufacturer may average the qualifying critical mineral
content calculation over a period of time (for example, a year,
quarter, or month) with respect to vehicles from the same model line,
plant, class, or some combination of thereof, with final assembly (as
defined in section 30D(d)(5) of the Code and Sec. 1.30D-2(b)(23))
within North America.
(v) Consistent determination required for all procurement chains. A
qualified manufacturer that makes a determination under this paragraph
(a)(4) must use the rules of this paragraph for all procurement chains
of the clean vehicle battery. If a qualified manufacturer averages
qualifying critical mineral content as described in paragraph
(a)(4)(iv) of this section, the qualified manufacturer must use the
rules of such paragraph for all procurement chains for all clean
vehicle batteries in the group of vehicles. Therefore, the qualified
manufacturer may not use the rules of paragraph (a)(3) for some
procurement chains and the rules of paragraph (a)(4) for other
procurement chains for the same clean vehicle battery or clean vehicle
batteries in the group of vehicles, as applicable.
(5) Rule for determining qualifying critical mineral content for
vehicles for which a qualified manufacturer submitted a periodic
written report before May 6, 2024. For vehicles for which a qualified
manufacturer submitted a periodic written report before May 6, 2024,
qualifying critical mineral content with respect to a clean vehicle
battery must be calculated using the method described in paragraph
(a)(4) of this section.
(b) Battery components requirement--(1) In general. The battery
components requirement described in section 30D(e)(2)(A), with respect
to a clean vehicle battery, is met if the qualifying battery component
content of such battery is equal to or greater than the applicable
battery components percentage (as defined in paragraph (b)(2) of this
section), as certified by the qualified manufacturer, in such form or
manner as prescribed by the Secretary.
(2) Applicable battery components percentage--(i) In general. For
purposes of paragraph (b)(1) of this section, section 30D(e)(2)(B)
provides the applicable battery components percentage, which is based
on the year in which a vehicle is placed in service by the taxpayer as
set forth in paragraphs (b)(2)(ii) through (vii) of this section.
(ii) Vehicles placed in service between April 18, 2023, and
December 31, 2023. In the case of a vehicle placed in service after
April 17, 2023, and before January 1, 2024, the applicable battery
components percentage is 50 percent.
(iii) Vehicles placed in service during calendar year 2024 or 2025.
In the case of a vehicle placed in service during calendar year 2024 or
2025, the applicable battery components percentage is 60 percent.
(iv) Vehicles placed in service during calendar year 2026. In the
case of a vehicle placed in service during calendar year 2026, the
applicable battery components percentage is 70 percent.
(v) Vehicles placed in service during calendar year 2027. In the
case of a vehicle placed in service during calendar year 2027, the
applicable battery components percentage is 80 percent.
(vi) Vehicles placed in service during calendar year 2028. In the
case of a vehicle placed in service during calendar year 2028, the
applicable battery components percentage is 90 percent.
(vii) Vehicles placed in service in calendar year 2029 and later.
In the case of a vehicle placed in service after December 31, 2028, the
applicable battery components percentage is 100 percent.
(3) Determining qualifying battery component content--(i) In
general. Qualifying battery component content with respect to a clean
vehicle battery of the vehicle is calculated as the percentage that
results from dividing--
(A) The total incremental value of North American battery
components, by
(B) The total incremental value of battery components.
(ii) Time for determining value. A qualified manufacturer must
select a date for determining the incremental values described in
paragraphs (b)(3)(i)(A) and (B) of this section. Such date must be
after the last manufacturing or assembly step for the battery
components relevant to the certification described in section
30D(e)(2)(A).
(iii) Application of qualifying battery component content to
vehicles. A qualified manufacturer may determine qualifying battery
component content based on the incremental values of the battery
components actually contained in the clean vehicle battery of a
specific vehicle. Alternatively, for purposes of calculating the
qualifying battery component content for clean vehicle batteries in a
group of vehicles, a qualified manufacturer may average the qualifying
battery component content calculation over a period of time (for
example, a year, quarter, or month) with respect to vehicles from the
same model line, plant, class, or some combination of thereof, with
final assembly (as defined in section 30D(d)(5) of the Code and Sec.
1.30D-2(b)(23)) within North America.
(iv) End point for determination. For a clean vehicle battery that
contains a
[[Page 37762]]
battery module or modules containing battery cells, the calculation
under this paragraph (b) takes into account the value of the module and
battery components contained in the module. In the case of a clean
vehicle battery that contains battery cells but no battery modules, the
calculation under this paragraph (b) takes into account the value of
the battery cells and battery components contained in the battery
cells.
(c) Definitions--(1) Certain terms relevant to the critical
minerals requirement. The following definitions apply for purposes of
the rules of section 30D(e)(1) and paragraph (a) of this section:
(i) Procurement chain. Procurement chain means a common sequence of
extraction, processing, or recycling activities that occur in a common
set of locations with respect to an applicable critical mineral,
concluding in the production of constituent materials. Sources of a
single applicable critical mineral may have multiple procurement chains
if, for example, one source of the applicable critical mineral
undergoes the same extraction, processing, or recycling process in
different locations.
(ii) Qualifying critical mineral--(A) In general. Qualifying
critical mineral means an applicable critical mineral that is extracted
or processed in the United States, or in any country with which the
United States has a free trade agreement in effect, or that is recycled
in North America.
(B) Extracted or processed in the United States or in any country
with which the United States has a free trade agreement in effect. An
applicable critical mineral is extracted or processed in the United
States, or in any country with which the United States has a free trade
agreement in effect, if:
(1) Fifty percent or more of the value added to the applicable
critical mineral by extraction is derived from extraction that occurred
in the United States or in any country with which the United States has
a free trade agreement in effect; or
(2) Fifty percent or more of the value added to the applicable
critical mineral by processing is derived from processing that occurred
in the United States or in any country with which the United States has
a free trade agreement in effect.
(C) Recycled in North America. An applicable critical mineral is
recycled in North America if 50 percent or more of the value added to
the applicable critical mineral by recycling is derived from recycling
that occurred in North America.
(iii) Qualifying critical mineral content. Qualifying critical
mineral content means the percentage of the value of the applicable
critical minerals contained in a clean vehicle battery that is
extracted or processed in the United States, or in any country with
which the United States has a free trade agreement in effect, or that
is recycled in North America.
(iv) Total traced qualifying value. Total traced qualifying value
means the sum of the traced qualifying values of all applicable
critical minerals contained in a clean vehicle battery.
(v) Total value of critical minerals. Total value of critical
minerals means the sum of the values of all applicable critical
minerals contained in a clean vehicle battery.
(vi) Total value of qualifying critical minerals. Total value of
qualifying critical minerals means the sum of the values of all the
qualifying critical minerals contained in a clean vehicle battery.
(vii) Traced qualifying value--(A) Extracted or processed in the
United States or in any country with which the United States has a free
trade agreement in effect. Traced qualifying value means, with respect
to an applicable critical mineral that is extracted and processed into
a constituent material, the value of the applicable critical mineral
multiplied by the greater of:
(1) The value added to the applicable critical mineral by
extraction that occurred in the United States or in any country with
which the United States has a free trade agreement in effect, divided
by the total value added by from extraction of the applicable critical
mineral; or
(2) The value added to the applicable critical mineral by
processing that occurred in the United States or in any country with
which the United States has a free trade agreement in effect, divided
by the total value added by processing of the applicable critical
mineral.
(B) Recycled in North America. Traced qualifying value means, with
respect to an applicable critical mineral that is recycled into a
constituent material, the value of the applicable critical mineral
multiplied by the percentage obtained by dividing the value added to
the applicable critical mineral by recycling that occurred in North
America by the total value added by recycling of the applicable
critical mineral.
(viii) Value added. Value added, with respect to recycling,
extraction, or processing of an applicable critical mineral, means the
increase in the value of the applicable critical mineral attributable
to the relevant activity. In the case of multiple applicable critical
mineral procurement chains that are part of the same processing or
recycling activity, value added should be allocated to each procurement
chain based on relative mass.
(2) Certain terms relevant to the battery components requirement.
The following definitions apply for purposes of the rules of section
30D(e)(2) and paragraph (b) of this section:
(i) Incremental value. Incremental value, with respect to a battery
component, means the value determined by subtracting from the value of
that battery component the value of the manufactured or assembled
battery components, if any, that are contained in that battery
component.
(ii) North American battery component. North American battery
component means a battery component substantially all of the
manufacturing or assembly of which occurs in North America, without
regard to the location of the manufacturing or assembly activities of
any components that make up the particular battery component.
(iii) Qualifying battery component content. Qualifying battery
component content means the percentage of the value of the battery
components contained in a clean vehicle battery that were manufactured
or assembled in North America.
(iv) Total incremental value of battery components. Total
incremental value of battery components means the sum of the
incremental values of each battery component contained in a clean
vehicle battery.
(v) Total incremental value of North American battery components.
Total incremental value of North American battery components means the
sum of the incremental values of each North American battery component
contained in a clean vehicle battery.
(d) Upfront review of critical minerals and battery components
requirements. For new clean vehicles anticipated to be placed in
service after December 31, 2024, the qualified manufacturer must
provide attestations, certifications, and documentation demonstrating
compliance with the requirements of section 30D(e), at the time and in
the manner provided in the Internal Revenue Bulletin (see Sec. 601.601
of this chapter). The IRS, with analytical assistance from the
Department of Energy, will review the attestations, certifications, and
documentation.
(e) New qualified fuel cell motor vehicles. The requirements of
section 30D(e) and this section are deemed to be satisfied with respect
to new qualified fuel cell motor vehicles. The amount of
[[Page 37763]]
the credit with respect to such vehicles, under section 30D(b), is
$7,500.
(f) Examples. The following examples illustrate the rules of this
section.
(1) Example 1: Critical minerals requirement--(i) Facts. In 2028,
Company A uses a clean vehicle battery that contains three applicable
critical minerals, which are used for the clean vehicle batteries of
the same group of vehicles for the purposes of averaging qualifying
critical mineral content under paragraph (a)(3)(iv) of this section.
(A) Applicable critical mineral 1 (ACM-1) has a value of $100. ACM-
1 has one procurement chain; in this procurement chain, extraction
accounts for 20% ($20) of the total value added of ACM-1 and processing
accounts for 80% ($80) of the total value added of ACM-1. Of the value
added by extraction, 100% ($20) is in the United States or in a country
with which the United States has a free trade agreement in effect. Of
the value added by processing, 100% ($80) is in the United States or in
a country with which the United States has a free trade agreement in
effect.
(B) Applicable critical mineral 2 (ACM-2) has a value of $200. ACM-
2 has two procurement chains. The value of ACM-2 is $100 per
procurement chain. In the first procurement chain for ACM-2, extraction
accounts for 50% ($50) of the value added, while processing accounts
for 50% ($50). Of the value added by extraction, 50% ($25) is in United
States or in a country with which the United States has a free trade
agreement in effect. Of the value added by processing, 25% ($12.50) is
in the United States or in a country with which the United States has a
free trade agreement in effect. In the second procurement chain for
ACM-2, extraction accounts for 50% ($50) of the value added, and
processing accounts for 50% ($50) of the value added. Of the value
added by extraction, 75% ($37.50) is in the United States or in a
country with which the United States has a free trade agreement in
effect. Of the value added by processing, 100% ($50) is in the United
States or in a country with which the United States has a free trade
agreement in effect.
(C) Applicable critical mineral 3 (ACM-3) has a value of $100. ACM-
3 has one procurement chain. Extraction accounts for 10% ($10) of the
value added and processing accounts for 90% ($90) of the value added.
Of the value added by extraction, 50% ($5) is in the United States or
in a country with which the United States has a free trade agreement in
effect. Of the value added by processing, 75% ($67.50) is in the United
States or in a country with which the United States has a free trade
agreement in effect.
(ii) Analysis--(A) First, Company A determines each procurement
chain. ACM-1 has one procurement chain. ACM-2 has two procurement
chains. ACM-3 has one procurement chain.
(B) Second, Company A determines, for each procurement chain, the
traced qualifying value, and then determines the total traced
qualifying value.
(1) With respect to ACM-1, Company A divides the value added by
extraction that is in the United States or in any country with which
the United States has a free trade agreement in effect by the total
value added from extraction of the applicable critical mineral: $20/
$20, which equals 100%. Company A divides the value added by processing
that is in the United States or in any country with which the United
States has a free trade agreement in effect by the total value added
from processing of the applicable critical mineral: $80/$80, which
equals 100%. Because the percentages for extraction and processing are
equal, that percentage (100%) is used to determine traced qualifying
value. Therefore, Company A multiplies 100% by the total value of the
applicable critical mineral ($100) to obtain $100 as the traced
qualifying value for the procurement chain of ACM-1.
(2) With respect to the first procurement chain of ACM-2, Company A
divides the value added by extraction that is in the United States or a
country with which the United States has a free trade agreement in
effect by the total value added from extraction of the applicable
critical mineral: $25/$50, which equals 50%. Company A divides the
value added by processing that is in the United States or a country
with which the United States has a free trade agreement in effect by
the total value added from processing of the applicable critical
mineral: $12.50/$50, which equals 25%. Of these percentages, the one
for extraction is greater (50%). Therefore, Company A multiplies 50% by
the total value of the applicable critical minerals ($100) to obtain
$50 as the traced qualifying value for the first procurement chain of
ACM-2.
(3) With respect to the second procurement chain of ACM-2, Company
A divides the value added by extraction that is in the United States or
a country with which the United States has a free trade agreement in
effect by the total value added from extraction of the applicable
critical mineral: $37.50/$50, which equals 75%. Company A divides the
value added by processing that is in the United States or a country
with which the United States has a free trade agreement in effect by
the total value added from processing of the applicable critical
mineral: $50/$50, which equals 100%. Of these percentages, the one for
processing is greater (100%). Therefore, Company A multiplies 100% by
the total value of the applicable critical mineral ($100) to obtain
$100 as the traced qualifying value for the second procurement chain of
ACM-2.
(4) With respect to ACM-3, Company A divides the value added by
extraction that is in the United States or a country with which the
United States has a free trade agreement in effect by the total value
added from extraction of the applicable critical mineral: $5/$10, which
equals 50%. Company A divides the value added by processing that is in
the United States or a country with which the United States has a free
trade agreement in effect by the total value added from processing of
the applicable critical mineral: $67.50/$90, which equals 75%. Of these
percentages, the one for processing is greater (75%). Company A
therefore multiplies 75% by the total value of the applicable critical
mineral ($100) to obtain $75 as the traced qualifying value for the
procurement chain of ACM-3.
(5) The total traced qualifying value is the sum of the traced
qualifying values of all applicable critical minerals contained in the
clean vehicle battery of the vehicle, or $325 ($100 + $50 + $100 +
$75).
(C) Third, Company A determines the qualifying critical mineral
content by taking the total traced qualifying value ($325, determined
in step 2) divided by the total value of the critical minerals in the
battery ($400). The qualifying critical mineral content is therefore
81.25%. Company A uses this percentage to calculate the average
qualifying critical mineral content for the clean vehicle batteries of
a group of vehicles and compares that average percentage to the
applicable critical minerals percentage of section 30D(e)(2) and Sec.
1.30D-3(a)(2).
(2) Example 2: Critical minerals requirement temporary safe
harbor--(i) Facts. The facts are the same as in paragraph (f)(1)(i) of
this section (facts of Example 1). However, Company A is eligible to
apply the temporary safe harbor of Sec. 1.30D-3(a)(4) to determine its
qualifying critical mineral content and chooses to do so. The
applicable critical minerals are used for the clean vehicle batteries
of the same group of vehicles for the purposes of averaging qualifying
critical mineral content under paragraph (a)(4)(iv) of this section.
[[Page 37764]]
(ii) Analysis--(A) First, Company A determines each procurement
chain, as in paragraph (f)(1) of this section (Example 1).
(B) Second, Company A determines whether ACM-1, ACM-2, and ACM-3
are qualifying critical minerals. ACM-1 is a qualifying critical
mineral because, for both extraction and processing, 100% of the value
added is derived from extraction and processing that occurs in the
United States or in a country with which the United States has a free
trade agreement in effect. With respect to its first procurement chain,
ACM-2 is a qualifying critical mineral because 50% of the value added
from extraction is derived from extraction that occurs in the United
States or a country with which the United States has a free trade
agreement in effect. With respect to its second procurement chain, ACM-
2 is a qualifying critical mineral because 75% of the value added from
extraction, and 100% of the value added from processing are derived
from extraction and processing, respectively, that occur in the United
States or in a country with which the United States has a free trade
agreement in effect. ACM-3 is a qualifying critical mineral because 50%
of the value added for extraction, and 75% of the value added for
processing, are derived from extraction and processing, respectively,
that occur in the United States or in a country with which the United
States has a free trade agreement in effect. The total value of the
qualifying critical minerals is the sum of the value of all of the
qualifying critical minerals contained in the clean vehicle battery of
the vehicle, or $400 ($100 + $100 + $100 + $100).
(C) Third, Company A determines qualifying critical mineral content
by taking the total value of qualifying critical minerals ($400,
determined in step 2) and dividing by the total value of critical
minerals in the battery ($400). The qualifying critical mineral content
of the battery is 100%. Company A uses this percentage to calculate
average qualifying critical mineral content for the clean vehicle
batteries of a group of vehicles and compares that average percentage
to the applicable critical minerals percentage of section 30D(e)(2) and
Sec. 1.30D-3(a)(2).
(3) Example 3: Battery components requirement--(i) Facts. Company B
uses a battery cell comprised of a cathode electrode, anode electrode,
separator, and electrolyte. The cathode electrode has a value of $4,000
and is manufactured in North America. The anode electrode has a value
of $1,000 and is manufactured outside of North America. The separator
has a value of $1,000 and is manufactured in North America. The
electrolyte has a value of $800 and is manufactured in North America.
The battery cell has a value of $7,500 and is manufactured in North
America. The battery components are used for the clean vehicle
batteries of the same group of vehicles for the purposes of averaging
qualifying critical mineral content under paragraph (b)(3)(iii) of this
section.
(ii) Analysis--(A) First, Company B determines whether each battery
component in a battery is a North American battery component. The
cathode electrode, separator, and battery cell are North American
battery components.
(B) Second, Company B determines the total incremental value of
North American battery components. The incremental value of the battery
cell ($700) is determined by subtracting from the value of the battery
cell ($7,500) the total value of its battery components ($6,800). The
incremental value of the cathode electrode is $4,000. The incremental
value of the separator is $1,000. The incremental value of the
electrolyte is $800. The total incremental value of North American
battery components is $6,500 ($700 + $4,000 + $1,000 + $800).
(C) Third, Company B determines the total incremental value of
battery components. The anode electrode is not a North American battery
component because it is manufactured outside of North America. The
incremental value of the anode electrode is $1,000. The total
incremental value of battery components is $6,500 plus $1,000 or
$7,500.
(D) Fourth, Company B determines the qualifying battery component
content by taking the total incremental value of North American battery
components ($6,500, determined in Step 2) divided by the total
incremental value of battery components ($7,500, determined in Step 3).
The qualifying battery component content is therefore 86.7%. Company B
uses this percentage to calculate the average battery component content
for the clean vehicle batteries of a group of vehicles and compares
that average percentage to the applicable battery components percentage
of section 30D(e)(2) and Sec. 1.30D-3(b)(2).
(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--(1) In general. Except as provided in
paragraph (h)(2) of this section, this section applies to new clean
vehicles placed in service after April 17, 2023, in taxable years
ending after April 17, 2023.
(2) Upfront review and traced qualifying value. Paragraphs (a)(3)
and (4) (relating to traced qualifying value test) and (d) (relating to
upfront review of critical minerals and battery components
requirements) of this section apply to taxable years ending after May
6, 2024.
Sec. 1.30D-4 Special rules.
(a) No double benefit--(1) In general. Under section 30D(f)(2) of
the Internal Revenue Code (Code), the amount of any deduction or other
credit allowable under chapter 1 of the Code for a vehicle for which a
credit is allowable under section 30D(a) must be reduced by the amount
of the section 30D credit allowed for such vehicle (determined without
regard to section 30D(c)).
(2) Interaction between section 30D and section 25E credits. A
section 30D credit that has been allowed with respect to a vehicle in a
taxable year before the year in which a credit under section 25E of the
Code is allowable for that vehicle does not reduce the amount allowable
under section 25E.
(3) Interaction between section 30D and section 45W credits.
Pursuant to section 45W(d)(3) of the Code, no credit is allowed under
section 45W with respect to any vehicle for which a credit was allowed
under section 30D.
(b) Limitation based on modified adjusted gross income--(1) In
general. Under section 30D(f)(10)(A), no credit is allowed under
section 30D(a) for any taxable year if--
(i) The lesser of--
(A) The modified adjusted gross income of the taxpayer for such
taxable year, or
(B) The modified adjusted gross income of the taxpayer for the
preceding taxable year, exceeds
(ii) The threshold amount.
(2) Threshold amount. For purposes of section 30D(f)(10)(A) and
paragraph (b)(1) of this section, the threshold amount applies to
taxpayers based on the return filing status for the taxable year, as
set forth in paragraphs (b)(2)(i) through (iii) of this section. See
section 30D(f)(10)(B).
(i) In the case of a joint return or a surviving spouse (as defined
in section 2(a) of the Code), the threshold amount is $300,000,
(ii) In the case of a head of household (as defined in section
2(b)), the threshold amount is $225,000.
(iii) In the case of a taxpayer not described in paragraph
(b)(2)(i) or (ii) of this section, the threshold amount is $150,000.
[[Page 37765]]
(3) Special rule for change in filing status. If the taxpayer's
filing status for the taxable year differs from the taxpayer's filing
status in the preceding taxable year, then the taxpayer satisfies the
limitation described in section 30D(f)(10) and paragraph (b)(1) of this
section if the taxpayer's modified adjusted gross income does not
exceed the threshold amount in either year based on the applicable
filing status for that taxable year.
(4) Application to estates and trusts--(i) Estates and non-grantor
trusts. In the case of a new clean vehicle placed in service by an
estate or a non-grantor trust, the threshold amount of paragraph
(b)(2)(iii) of this section applies for purposes of the modified
adjusted gross income limitation of section 30D(f)(10) and this
paragraph (b). For purposes of the modified adjusted gross income
limitation, an estate or non-grantor trust is treated as having
modified adjusted gross income above the threshold amount for any year
in which the estate or non-grantor trust is not in existence.
(ii) Grantor trusts. In the case of a new clean vehicle placed in
service by a grantor trust, the modified adjusted gross income
limitation of section 30D(f)(10) and this paragraph (b) applies based
on the modified adjusted gross income of the grantor or other deemed
owner of the trust, and not the modified adjusted gross income of the
trust or any beneficiary of the trust other than the grantor or other
deemed owner.
(5) Application to passthrough entities. In the case of a new clean
vehicle placed in service by a partnership or an S corporation, if the
section 30D credit is claimed by individuals, non-grantor trusts, or
estates who are direct or indirect partners of that partnership or
shareholders of that S corporation, the modified gross income
limitation of section 30D(f)(10) and this paragraph (b) applies at the
partner or shareholder level in accordance with the rules of this
paragraph (b).
(6) Other taxpayers. The modified adjusted gross income limitation
of this paragraph (b) does not apply in the case of a new clean vehicle
placed in service by a corporation or by a taxpayer that is not an
individual, estate, trust, or entity as provided in paragraph (b)(4) or
(b)(5) of this section.
(c) Credit may generally be claimed on only one tax return--(1) In
general. Except as provided in paragraph (c)(2) of this section, the
amount of the section 30D credit attributable to a new clean vehicle
may be claimed on only one Federal income tax return, including on a
joint return in which one of the spouses is listed on the seller
report. In the event a new clean vehicle is placed in service by
multiple taxpayers who do not file a joint tax return (for example, in
the case of married individuals filing separate returns), no allocation
or proration of the section 30D credit is available.
(2) Exception for passthrough entities. In the case of a new clean
vehicle placed in service by a partnership or an S corporation, the
section 30D credit is allocated among the partners of the partnership
under Sec. 1.704-1(b)(4)(ii), or among the shareholder(s) of the S
corporation under sections 1366(a) and 1377(a) of the Code, and claimed
on the Federal income tax returns of the individual partners or S
corporation shareholder(s).
(3) Seller reporting--(i) In general. The name and taxpayer
identification number of the taxpayer claiming the section 30D credit
must be listed on the seller report pursuant to section 30D(d)(1)(H).
The credit will be allowed only on the Federal income tax return of the
taxpayer listed in the seller report.
(ii) Passthrough entities. In the case of a new clean vehicle
placed in service by a partnership or S corporation, the name and tax
identification number of the partnership or S corporation that placed
the new clean vehicle in service must be listed on the seller report
pursuant to section 30D(d)(1)(H).
(4) Example. A married couple jointly purchases and places in
service a new clean vehicle that qualifies for the section 30D credit
and puts both of their names on the title. The couple files separate
Federal income tax returns by using the married filing separately
filing status. Only one spouse may claim the section 30D credit with
respect to the new clean vehicle on that spouse's respective return,
and the other spouse may not claim any amount of the section 30D credit
with respect to that new clean vehicle. The spouse that claims the
section 30D credit must be the same spouse listed on the seller report.
(d) Grantor trusts. To the extent that the grantor or another
person is treated as owning all or part of a trust under sections 671
through 679 of the Code, the section 30D credit is allocated to such
grantor or other person in accordance with Sec. 1.671-3(a)(1).
(e) Recapture rules--(1) In general. This paragraph (e) provides
rules under section 30D(f)(5) regarding the recapture of the section
30D credit.
(i) Cancelled sale. If the sale of a vehicle between the taxpayer
and seller is cancelled before the taxpayer places the vehicle in
service, then--
(A) The taxpayer may not claim the section 30D credit with respect
to the vehicle;
(B) The sale will be treated as not having occurred and the vehicle
will be considered available for original use by another taxpayer
(regardless of the cancelled sale), and the vehicle will, therefore,
still be eligible for the section 30D credit upon a subsequent sale
that meets the requirements of section 30D and the section 30D
regulations;
(C) The seller report must be rescinded by the seller in the manner
set forth in guidance published in the Internal Revenue Bulletin (see
Sec. 601.601 of this chapter); and
(D) The taxpayer cannot make a credit transfer election under
section 30D(g) and Sec. 1.30D-5(d) with respect to the cancelled sale.
(ii) Vehicle return. If a taxpayer returns to the seller a vehicle
within 30 days of placing such vehicle in service, then--
(A) The taxpayer cannot claim the section 30D credit with respect
to the vehicle;
(B) The vehicle will no longer be considered available for original
use by another taxpayer, and, therefore, the vehicle will no longer be
eligible for the section 30D credit;
(C) The seller report must be updated by the seller in the manner
set forth in guidance published in the Internal Revenue Bulletin (see
Sec. 601.601 of this chapter); and
(D) A credit transfer election under 30D(g) and Sec. 1.30D-5(d),
if applicable, will be treated as nullified and any advance payment
made pursuant to section 30D(g) and Sec. 1.30D-5(f), if applicable,
will be collected from the eligible entity as an excessive payment
pursuant to Sec. 1.30D-5(g)(2).
(iii) Resale. If a taxpayer resells a vehicle within 30 days of
placing the vehicle in service, then the taxpayer is treated as having
purchased such vehicle with the intent to resell, and--
(A) The taxpayer cannot claim the section 30D credit with respect
to the vehicle;
(B) The vehicle will no longer be considered available for original
use by another taxpayer, and, therefore, the vehicle will no longer be
eligible for the section 30D credit;
(C) The seller report will not be updated;
(D) A credit transfer election under 30D(g) and Sec. 1.30D-5(d),
if applicable, will remain in effect and any advance payment made
pursuant to section 30D(g) and Sec. 1.30D-5(f) will not be collected
from the eligible entity; and
(E) The value of any transferred credit will be collected from the
taxpayer as an
[[Page 37766]]
increase in tax imposed by chapter 1 of the Code for the taxable year
in which the vehicle is placed in service.
(iv) Other vehicle returns and resales. In the case of a return of
a new clean vehicle not described in paragraph (e)(1)(ii) of this
section or a resale not described in paragraph (e)(1)(iii) of this
section, the vehicle will no longer be considered available for
original use by another taxpayer, and, therefore, will no longer be
eligible for the section 30D credit upon a subsequent sale.
(2) Recapture rules in the case of a credit transfer election. For
additional recapture rules that apply in the case of a credit transfer
election, see Sec. 1.30D-5(g)(1). For excessive payment rules that
apply in the case of an advance payment made to an eligible entity, see
Sec. 1.30D-5(g)(2).
(3) Example: Demonstrator vehicle. A dealer purchases, registers,
and titles a vehicle in its name and uses it as a demonstrator vehicle
for customers. The dealer resells the vehicle more than 30 days after
placing the vehicle in service. The dealer claimed the section 30D
credit on its Federal tax return for the tax year the vehicle is placed
in service. The credit recapture provision in Sec. 1.30D-4(e)(1)(iii)
does not apply because the vehicle was resold more than 30 days after
being placed in service.
(f) Seller registration. A seller must register with the IRS in the
manner set forth in guidance published in the Internal Revenue Bulletin
(see Sec. 601.601 of this chapter) for purposes of filing seller
reports (as defined in Sec. 1.30D-2(b)(46)).
(g) Requirement to file return. No section 30D credit is allowed
unless the taxpayer claiming such credit files a Federal income tax
return or information return, as appropriate, for the taxable year in
which the new clean vehicle is placed in service. The taxpayer must
attach to such return a completed Form 8936, Clean Vehicle Credits, or
successor form that includes all information required by the form and
instructions. The taxpayer must also attach a completed Schedule A
(Form 8936), Clean Vehicle Credit Amount, or successor form or schedule
that includes all information required by the schedule and
instructions, such as the vehicle identification number of the
previously-owned clean vehicle.
(h) Taxpayer reliance on manufacturer certifications and periodic
written reports to the IRS. A taxpayer that acquires a new clean
vehicle and places it in service may rely on the manufacturer's
certification concerning the manufacturer's status as a qualified
manufacturer. A taxpayer also may rely on the information and
certifications contained in the qualified manufacturer's written
reports to the IRS. The procedures for such periodic written reports
are established in guidance published in the Internal Revenue Bulletin
(see Sec. 601.601 of this chapter). To the extent a taxpayer relies on
certifications or attestations from the qualified manufacturer
regarding certain section 30D requirements, the new clean vehicle the
taxpayer acquires will be deemed to meet the requirements of section
30D(d)(1)(C) through (F), (d)(7), and (e). See Sec. 1.30D-5(g)(3)(ii)
for an example that illustrates the interplay between the rule in this
paragraph (h) and the excessive payment rule in Sec. 1.30D-3(g)(2).
(i) 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.
(j) Applicability date. This section applies to taxable years
ending after December 4, 2023.
Sec. 1.30D-5 Transfer of credit.
(a) In general. This section provides rules related to the transfer
and advance payment of the section 30D credit pursuant to section
30D(g) of the Internal Revenue Code (Code). Under the rules of section
30D(g) and this section, a taxpayer may elect to transfer a section 30D
credit to an eligible entity, and the eligible entity may receive an
advance payment for such credit, provided certain requirements are met.
See paragraph (d) of this section for rules applicable to credit
transfer elections. See paragraph (f) of this section for rules
applicable to advance payments of transferred section 30D credits.
Section 30D(g)(2) sets forth certain requirements that a dealer must
satisfy to be an eligible entity for credit transfer and advance
payment purposes. Section 30D(g)(2)(A) requires registration with the
IRS. See paragraph (c) of this section for rules related to dealer
registration. Section 30D(g)(2)(B) through (D) and paragraph (f)(2) of
this section impose additional requirements that a registered dealer
must satisfy in order to be an eligible entity for credit transfer and
advance payment purposes.
(b) Definitions. This paragraph (b) provides definitions that apply
for purposes of section 30D(g) and this section. See Sec. 1.30D-2(b)
for definitions that are generally applicable to section 30D and the
section 30D regulations.
(1) Advance payment program. Advance payment program means the
program described in paragraph (f)(1) of this section.
(2) Credit transfer election. Credit transfer election has the
meaning provided in section 30D(g) and paragraph (d) of this section.
(3) Dealer. Dealer has the meaning provided in section 30D(g)(8),
except that, for purposes of this section, the term does not include
persons licensed solely by a territory of the United States, and
includes a dealer licensed by any jurisdiction (other than one licensed
solely by a territory of the United States) that makes sales at sites
outside of the jurisdiction in which it is licensed.
(4) Dealer tax compliance. Dealer tax compliance means the dealer
has filed all required Federal information and tax returns, including
for Federal income and employment tax purposes, and the dealer has paid
all Federal tax, penalties, and interest due as of the time of sale. A
dealer that has entered into an installment agreement with the IRS for
which a dealer is current on its obligations (including filing
obligations) is treated as in dealer tax compliance.
(5) Electing taxpayer. Electing taxpayer means an individual who
purchases and places in service a new clean vehicle and elects to
transfer the section 30D credit that would otherwise be allowable to
such individual to an eligible entity pursuant to section 30D(g) and
paragraph (d) of this section. A taxpayer is an electing taxpayer only
if the taxpayer makes certain attestations to the registered dealer,
pursuant to procedures provided in guidance published in the Internal
Revenue Bulletin (see Sec. 601.601 of this chapter), including that
the taxpayer does not anticipate exceeding the modified adjusted gross
income limitation of section 30D(b)(1) and Sec. 1.30D-4(b) and that
the taxpayer will use the vehicle predominantly for personal use.
(6) Eligible entity. Eligible entity has the meaning provided in
section 30D(g)(2) and paragraph (f)(2) of this section.
(7) Incentive. For purposes of the eligible entity requirements of
section 30D(g)(2)(B)(ii) and (D), incentive means any reduction in
price available to the taxpayer from the dealer or manufacturer,
including in combination with other incentives, other than a reduction
in the form of a partial payment or down payment for the purchase of a
new clean vehicle pursuant to section 30D(g)(2)(C).
(8) Registered dealer. Registered dealer means a dealer that has
completed registration with the IRS as provided in paragraph (c) of
this section.
[[Page 37767]]
(9) Sale price. The sale price of a new clean vehicle means the
total price agreed upon by the taxpayer and dealer in a written
contract at the time of sale, including any delivery charges and after
the application of any incentives. The sale price of a new clean
vehicle does not include separately stated taxes and fees required by
State or local law. The sale price of a new clean vehicle is determined
before the application of any trade-in value.
(10) Time of sale. Time of sale means the date the new clean
vehicle is placed in service, as defined in Sec. 1.30D-2(b)(36).
(c) Dealer registration--(1) In general. A dealer must register
with the IRS in the manner set forth in guidance published in the
Internal Revenue Bulletin (see Sec. 601.601 of this chapter) for the
dealer to receive credits transferred by an electing taxpayer pursuant
to section 30D(g) and paragraph (d) of this section.
(2) Dealer tax compliance required. A dealer must be in dealer tax
compliance to complete and maintain its registration with the IRS and
paragraph (d) of this section. If the dealer is not in dealer tax
compliance for any of the taxable periods during the last five taxable
years, then the dealer may complete its initial registration with the
IRS, but the dealer will not be eligible for the advance payment
program (and, therefore, the dealer will not be eligible to receive
transferred section 30D credits) until the compliance issue is
resolved. The IRS will notify the dealer in writing that the dealer is
not in dealer tax compliance, and the dealer will have the opportunity
to address any failure through regular procedures. If the failure is
corrected, the IRS will complete the dealer's registration, and,
provided all other requirements of section 30D(g) and this section are
met, the dealer will then be allowed to receive transferred section 30D
credits and participate in the advance payment program. Additional
procedural guidance regarding this paragraph is set forth in guidance
published in the Internal Revenue Bulletin (see Sec. 601.601 of this
chapter).
(3) Suspension of registration. A registered dealer's registration
may be suspended pursuant to the procedures described in guidance
published in the Internal Revenue Bulletin (see Sec. 601.601 of this
chapter). Any decision made by the IRS relating to the suspension of a
registered dealer's registration is not subject to administrative
appeal to the IRS Independent Office of Appeals unless the IRS and the
IRS Independent Office of Appeals agree that such review is available
and the IRS provides the time and manner for such review.
(4) Revocation of registration. A registered dealer's registration
may be revoked pursuant to the procedures described in guidance
published in the Internal Revenue Bulletin (see Sec. 601.601). Any
decision made by the IRS relating to the revocation of a dealer's
registration is not subject to administrative appeal to the IRS
Independent Office of Appeals unless the IRS and the IRS Independent
Office of Appeals agree that such review is available and the IRS
provides the time and manner for such review.
(d) Credit transfer election by electing taxpayer. For a new clean
vehicle placed in service after December 31, 2023, an electing taxpayer
may elect to apply the rules of section 30D(g) and this section to make
a credit transfer election with respect to the vehicle so that the
section 30D credit with respect to the vehicle is allowed to the
eligible entity specified in the credit transfer election (and not to
the electing taxpayer) pursuant to the advance payment program
described in paragraph (f) of this section. The electing taxpayer, as
part of the credit transfer election, must transfer the entire amount
of the credit that would otherwise be allowable to the electing
taxpayer under section 30D with respect to the vehicle, and the
eligible entity specified in the credit transfer election must pay the
electing taxpayer an amount equal to the amount of the credit included
in the credit transfer election. A credit transfer election must be
made no later than the time of sale, and must be made in the manner set
forth in guidance published in the Internal Revenue Bulletin (see Sec.
601.601 of this chapter). Once made, a credit transfer election is
irrevocable. No credit transfer election may be made to transfer an
amount of credit that would otherwise be allowed to the electing
taxpayer under section 38.
(e) Federal income tax consequences of the credit transfer
election--(1) Tax consequences for electing taxpayer. In the case of a
credit transfer election, the Federal income tax consequences for the
electing taxpayer are as follows--
(i) The credit amount under section 30D that the electing taxpayer
elects to transfer to the eligible entity under section 30D(g) and
paragraph (d) of this section may exceed the electing taxpayer's
regular tax liability (as defined in section 26(b)(1) of the Code) for
the taxable year in which the sale occurs, and the excess, if any, is
not subject to recapture on the basis that it exceeded the electing
taxpayer's regular tax liability;
(ii) The payment made by an eligible entity to an electing taxpayer
under section 30D(g)(2)(C) and paragraph (d) of this section to an
electing taxpayer pursuant to the credit transfer election is not
includible in the gross income of the electing taxpayer; and
(iii) The payment made by an eligible entity to an electing
taxpayer under section 30D(g)(2)(C) and paragraph (d) of this section
is treated as repaid by the electing taxpayer to the eligible entity as
partial payment of the sale price of the new clean vehicle. Thus, the
repayment by the electing taxpayer is included in the electing
taxpayer's basis in the new clean vehicle prior to the application of
the basis reduction rule in section 30D(f)(1).
(2) Tax consequences for eligible entity. In the case of a credit
transfer election, the Federal income tax consequences for the eligible
entity are as follows--
(i) The eligible entity is allowed the section 30D credit with
respect to the new clean vehicle and may receive an advance payment
pursuant to section 30D(g)(7) and paragraph (f) of this section;
(ii) Advance payments received by the eligible entity are not
treated as a tax credit in the hands of the eligible entity and may
exceed the eligible entity's regular tax liability (as defined in
section 26(b)(1)) for the taxable year in which the sale occurs;
(iii) An advance payment received by the eligible entity is not
included in the gross income of the eligible entity;
(iv) The payment made by an eligible entity under section
30D(g)(2)(C) and paragraph (d) of this section to an electing taxpayer
is not deductible by the eligible entity;
(v) The payment made by an eligible entity to an electing taxpayer
under section 30D(g)(2)(C) and paragraph (d) of this section is treated
as repaid by the electing taxpayer to the eligible entity as partial
payment of the sale price of the new clean vehicle. Thus, the repayment
by the electing taxpayer is treated as an amount realized by the
eligible entity under section 1001 of the Code and the regulations
under section 1001; and
(vi) If the eligible entity is a partnership or an S corporation,
then--
(A) The IRS will make the advance payment to such partnership or S
corporation equal to the amount of the section 30D credit allowed that
is transferred to the eligible entity;
(B) Such section 30D credit is reduced to zero and is, for any
other purpose of the Code, deemed to have been allowed solely to such
entity (and not allocated or otherwise allowed to its partners or
shareholders) for such taxable year; and
[[Page 37768]]
(C) The amount of the advance payment is not treated as tax exempt
income to the partnership or S corporation for purposes of the Code.
(3) Form of payment from eligible entity to electing taxpayer. The
tax treatment of the payment made by the eligible entity to the
electing taxpayer described in paragraphs (e)(1) and (2) of this
section is the same regardless of whether the payment is made in cash,
in the form of a partial payment or down payment for the purchase of
the new clean vehicle, or as a reduction in sale price (without the
payment of cash) of the new clean vehicle.
(4) Additional requirements. In the case of a credit transfer
election, the following additional rules apply--
(i) The requirements of section 30D(f)(1) (regarding basis
reduction) and 30D(f)(2) (regarding no double benefit) apply to the
electing taxpayer as if the credit transfer election were not made (so,
for example, the electing taxpayer must reduce the electing taxpayer's
basis in the vehicle by the amount of the section 30D credit,
regardless of the credit transfer election);
(ii) Section 30D(f)(6) (regarding the election not to take the
credit) will not apply (in other words, by electing to transfer the
credit, the electing taxpayer is electing to take the credit);
(iii) Section 30D(f)(9) (regarding the vehicle identification
number requirement) will be treated as satisfied if the eligible entity
provides the vehicle identification number of such vehicle to the IRS
in the form and manner set forth in guidance published in the Internal
Revenue Bulletin (see Sec. 601.601 of this chapter). The electing
taxpayer must also provide the vehicle identification number with their
tax return for the taxable year in which the vehicle is placed in
service. See section 6213(g)(2)(T) of the Code and Sec. 301.6213-2 of
this chapter for rules relating to the omission of a correct vehicle
identification number.
(5) Examples. The following examples illustrate the rules of
paragraph (e) of this section.
(i) Example 1: Electing taxpayer's regular tax liability less than
amount of credit--(A) Facts. T, an individual, purchases a new clean
sport utility vehicle from a dealer, D, which is a C corporation. T
satisfies the requirements to be an electing taxpayer and elects to
transfer the section 30D credit to D. D is a registered dealer and
satisfies the requirements to be an eligible entity. The sale price of
the vehicle is $57,500. The section 30D credit otherwise allowable to T
is $7,500. D makes the payment required to be made to T in the form of
a cash payment of $7,500. T uses the $7,500 as a partial payment for
the vehicle. T pays D an additional $50,000 from other funds. T's
regular tax liability for the year is less than $7,500.
(B) Analysis. Under paragraph (e)(1)(i) of this section, T may
transfer the credit to D, even though T's regular tax liability is less
than $7,500, and no amount of the credit will be recaptured from T on
the basis that the allowable credit exceeds T's regular tax liability.
D's $7,500 payment to T is not included in T's gross income, and the
sale price of the vehicle is $57,500 (including both the $7,500 payment
and the additional $50,000 paid by T from other funds), prior to the
application of the basis reduction rule of section 30D(f)(1). After
application of the basis reduction rule, T's basis in the vehicle is
$50,000. D is eligible to receive an advance payment of $7,500 for the
transferred section 30D credit as provided in section 30D(g)(7) and
paragraph (f) of this section. Under paragraph (e)(2) of this section,
D may receive the advance payment irrespective of the fact that D's
regular tax liability is less than $7,500. The advance payment is not
treated as a credit toward D's tax liability (if any), nor is it
included in D's gross income. Further, D's $7,500 payment to T is not
deductible, and D's amount realized is $57,500 upon the sale of the
vehicle (including both the $7,500 payment from D to T that T uses as a
partial payment, and the additional $50,000 paid by T from other
funds).
(ii) Example 2: Non-cash payment by eligible entity to electing
taxpayer--(A) Facts. The facts are the same as in paragraph
(e)(5)(i)(A) of this section (facts of Example 1), except that D makes
the payment to T in the form of a reduction in the sale price of the
vehicle (rather than as a cash payment).
(B) Analysis. Paragraph (e)(3) of this section provides that the
application of paragraphs (e)(1) and (2) of this section is not
dependent on the form of payment from an eligible entity to an electing
taxpayer (for example, a payment in cash or a payment in the form of a
reduction in sale price). Thus, the analysis is the same as in
paragraph (e)(5)(i)(B) of this section (analysis of Example 1).
(iii) Example 3: Eligible entity is a partnership--(A) Facts. The
facts are the same as in paragraph (e)(5)(i)(A) of this section (facts
of Example 1), except that D is a partnership.
(B) Analysis. The analysis as to T is the same as in paragraph
(e)(5)(i)(B) of this section (analysis of Example 1). Because D is a
partnership, paragraph (e)(2)(vi) of this section applies. Thus, the
advance payment is made to the partnership, the credit is reduced to
zero and is, for any other purpose of the Code, deemed to have been
allowed solely to the partnership (and not allocated or otherwise
allowed to its partners) for such taxable year. The amount of the
advance payment is not treated as tax-exempt income to the partnership
for purposes of the Code.
(f) Advance payments received by eligible entities--(1) In general.
An eligible entity may receive advance payments from the IRS
(corresponding to the amount of the section 30D credit for which a
credit transfer election was made by an electing taxpayer to transfer
the credit to the eligible entity pursuant to section 30D(g) and
paragraph (d) of this section) before the eligible entity files its
Federal income tax return or information return, as appropriate, for
the taxable year with respect to which the credit transfer election
corresponds. This advance payment program is the exclusive mechanism
for an eligible entity to receive the section 30D credit transferred
pursuant to section 30D(g) and paragraph (d) of this section. An
eligible entity receiving a transferred section 30D credit may not
claim the credit on a tax return.
(2) Requirements for a registered dealer to become an eligible
entity. A registered dealer qualifies as an eligible entity, and may
therefore receive an advance payment, in connection with a credit
transfer election, if it meets the following requirements:
(i) The registered dealer submits required registration information
and is in dealer tax compliance;
(ii) The registered dealer retains information regarding the credit
transfer election for three calendar years beginning with the year
immediately after the year in which the vehicle is placed in service,
as described in guidance published in the Internal Revenue Bulletin
(see Sec. 601.601 of this chapter);
(iii) The registered dealer meets any other requirements set forth
in guidance published in the Internal Revenue Bulletin (see Sec.
601.601 of this chapter) or in forms and instructions; and
(iv) The registered dealer meets any other requirements of section
30D(g), including those in section 30D(g)(2)(B) through (E).
(g) Increase in tax--(1) Recapture if electing taxpayer exceeds
modified adjusted gross income limitation. If an electing taxpayer has
modified adjusted gross income that exceeds the limitation in section
30D(f)(10) and Sec. 1.30D-4(b), then the income tax imposed on such
taxpayer under chapter 1 of the Code (chapter 1) for the taxable year
in which such vehicle was placed in service is
[[Page 37769]]
increased by the amount of the payment received by the taxpayer. The
electing taxpayer must recapture such amounts on the return described
in paragraph (h) of this section.
(2) Excessive payments--(i) In general. This paragraph provides
rules under section 30D(g)(7)(B), which provides that rules similar to
the rules of section 6417(d)(6) of the Code apply to the advance
payment program. In the case of any advance payment to an eligible
entity that the IRS determines constitutes an excessive payment, the
tax imposed on the eligible entity under chapter 1, regardless of
whether such entity would otherwise be subject to tax under chapter 1,
for the taxable year in which such determination is made will be
increased by the sum of the following amounts--
(A) The amount of the excessive payment; plus
(B) An amount equal to 20 percent of such excessive payment.
(ii) Reasonable cause. The amount described in paragraph
(g)(2)(i)(B) of this section will not apply to an eligible entity if
the eligible entity demonstrates to the satisfaction of the IRS that
the excessive payment resulted from reasonable cause. In the case of a
new clean vehicle (with respect to which a credit transfer election was
made by the electing taxpayer) that is returned to the eligible entity
within 30 days of being placed in service, the eligible entity will be
treated as having demonstrated that the excessive payment resulted from
reasonable cause.
(iii) Excessive payment defined. Excessive payment means an advance
payment made--
(A) To a registered dealer that fails to meet the requirements to
be an eligible entity provided in section 30D(g)(2) and paragraph
(f)(2) of this section, or
(B) Except as provided in paragraph (g)(2)(iv) of this section, to
an eligible entity with respect to a new clean vehicle to the extent
the payment exceeds the amount of the credit that, without application
of section 30D(g) and this section, would be otherwise allowable to the
electing taxpayer with respect to the vehicle for such tax year.
(iv) Special rule for cases in which the electing taxpayer's
modified adjusted gross income exceeds the limitation. Any excess
described in paragraph (g)(2)(iii)(B) of this section that arises due
to the electing taxpayer exceeding the limitation based on modified
adjusted gross income in section 30D(f)(10) and Sec. 1.30D-4(b) is not
an excessive payment. Instead, the amount of the advance payment is
recaptured from the electing taxpayer under section 30D(g)(10) and
paragraph (g)(1) of this section.
(3) Examples. The following examples illustrate the excessive
payment rules in paragraph (g)(2) of this section.
(i) Example 1: Registered dealer is not an eligible entity--(A)
Facts. In 2024, D, a registered dealer, receives an advance payment of
$7,500 with respect to a credit transferred under section 30D(g)(1) and
paragraph (d) of this section for a new clean vehicle V. In 2025, the
IRS determines that D was not an eligible entity with respect to new
clean vehicle V at the time of the receipt of the advance payment in
2024, because D failed to satisfy one of the requirements of section
30D(g)(2) and paragraph (f)(2) of this section. D is unable to show
reasonable cause for the failure.
(B) Analysis. Under paragraph (g)(2)(i) of this section, the tax
imposed on D is increased by the amount of the excessive payment if the
advance payment received by D constitutes an excessive payment. Under
paragraph (g)(2)(iii) of this section, the entire amount of the $7,500
advance payment received by D is an excessive payment because D did not
meet the requirements to be an eligible entity under section 30D(g)(2)
and paragraph (f)(2) of this section. Additionally, because D cannot
show reasonable cause for its failure to meet these requirements, the
tax imposed under chapter 1 on D is increased by $9,000 in 2025 (the
taxable year of the IRS determination). This is comprised of the $7,500
value of the credit plus the $1,500 penalty, calculated as a 20%
penalty on such $7,500 (20% x $7,500 = $1,500). This treatment applies
regardless of whether D is otherwise subject to tax under chapter 1
(for example, if D is a partnership).
(ii) Example 2: Incorrect manufacturer certifications--(A) Facts.
In 2024, T, a taxpayer, makes an election to transfer a credit under
section 30D(g)(1) and paragraph (d) of this section to E, a registered
dealer, for a new clean vehicle V. M, the manufacturer of such vehicle,
certified to the IRS that vehicle V was eligible for a $7,500 credit
because it met both the critical minerals and the battery components
requirements. T transfers the $7,500 credit to E. Subsequent to T's
purchase and election to transfer the $7,500 credit to E, M reports to
the IRS that vehicle V was only eligible for a $3,750 credit because it
did not meet the critical minerals requirement.
(B) Analysis. Under Sec. 1.30D-4(h), T may rely on the information
and certifications provided in M's written report to the IRS regarding
vehicle V's eligibility for the section 30D credit. Under paragraph
(g)(2)(iii)(B) of this section, an advance payment to an eligible
entity with respect to a vehicle is an excessive payment to the extent
the payment exceeds the amount of the credit that, without a credit
transfer election, would be otherwise allowable to the electing
taxpayer with respect to the vehicle for such taxable year. Because the
amount of the credit that would be allowable to T for 2024 is $7,500,
and T transferred the $7,500 credit to E, there is no excessive payment
with respect to E.
(h) Return requirement. An electing taxpayer that makes a credit
transfer election must file a Federal income tax return or information
return, as appropriate, for the taxable year in which the credit
transfer election is made and indicate such election on the return in
accordance with the instructions to the form on which the return is
made. The electing taxpayer must attach a completed Form 8936, Clean
Vehicle Credits, or successor form, and a completed Schedule A (Form
8936), Clean Vehicle Credit Amount, or successor form or schedule,
including the vehicle identification number of the new clean vehicle
and such other information as provided in forms and instructions.
(i) Two credit transfer elections per year. A taxpayer may make no
more than two credit transfer elections per taxable year, consisting of
either two elections to transfer section 30D credits, or one election
to transfer a section 30D credit and one election to transfer a section
25E credit. In the case of taxpayers who file a joint return, each
individual taxpayer may make no more than two credit transfer elections
per taxable year.
(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 will continue in effect.
(k) Applicability date. This section applies to new clean vehicles
placed in service after December 31, 2023, in taxable years ending
after December 31, 2023.
Sec. 1.30D-6 Foreign entity of concern restriction.
(a) In general. This section provides rules related to the excluded
entities provision of section 30D(d)(7) of the Internal Revenue Code
(Code), which imposes certain restrictions on the extraction,
processing, or recycling of applicable critical minerals, and the
manufacturing or assembly of battery
[[Page 37770]]
components contained in a clean vehicle battery by a foreign entity of
concern (FEOC). Specifically, section 30D(d)(7) provides that the term
new clean vehicle does not include any vehicle placed in service after
December 31, 2023, with respect to which any of the battery components
in the clean vehicle battery were manufactured or assembled by a FEOC,
or any vehicle placed in service after December 31, 2024, with respect
to which any of the applicable critical minerals contained in the clean
vehicle battery were extracted, processed, or recycled by a FEOC (FEOC
restriction). See Sec. 1.30D-2(b) for definitions applicable to
section 30D(d)(7) and this section.
(b) Due diligence required--(1) In general. The qualified
manufacturer must conduct due diligence with respect to all battery
components and applicable critical minerals (and associated constituent
materials) that are relevant to determining whether such components or
minerals are FEOC-compliant. Such due diligence must comply with
standards of tracing for battery materials available in the industry at
the time of the attestation or certification that enables the qualified
manufacturer to know with reasonable certainty the provenance of
applicable critical minerals, associated constituent materials, and
battery components. Reasonable reliance on a supplier attestation or
certification will be considered due diligence if the qualified
manufacturer, or any third-party manufacturer or supplier, does not
know or have reason to know that such supplier attestation or
certification is incorrect. See paragraph (c)(5) of this section for
rules related to third-party manufacturers and suppliers. The qualified
manufacturer must conduct due diligence prior to the qualified
manufacturer determining the information necessary to establish any
compliant-battery ledger under paragraph (d) of this section, and the
qualified manufacturer must continue to conduct due diligence on an
ongoing basis.
(2) Transition rule for impracticable-to-trace battery materials.
For any new clean vehicles for which the qualified manufacturer
provides a periodic written report before January 1, 2027, the due
diligence requirement of paragraph (b)(1) of this section may be
satisfied by excluding identified impracticable-to-trace battery
materials. To use this transition rule, a qualified manufacturer must
submit a report during the up-front review process described in
paragraph (d)(2)(ii) of this section demonstrating how the qualified
manufacturer will comply with the FEOC restriction of section 30D(d)(7)
and this section, including information about efforts made to date to
secure a FEOC-compliant supply of these battery materials once the
transition rule is no longer in effect.
(c) FEOC compliance--(1) In general. In the case of any new clean
vehicle placed in service after December 31, 2023, the clean vehicle
battery or batteries of the vehicle must be FEOC-compliant. A serial
number or other identification system must be used to physically track
FEOC-compliant batteries to specific new clean vehicles. The
determination that a clean vehicle battery is FEOC-compliant is made as
follows:
(i) Step 1. The qualified manufacturer determines whether battery
components and applicable critical minerals (and associated constituent
materials) are FEOC-compliant, in accordance with paragraph (c)(4) of
this section.
(ii) Step 2. The FEOC-compliant battery components and FEOC-
compliant applicable critical minerals (and associated constituent
materials) are physically tracked to specific battery cells, in
accordance with paragraph (c)(3)(i) of this section. Alternatively,
FEOC-compliant applicable critical minerals and associated constituent
materials (but not battery components) may be allocated to battery
cells, without physical tracking, in accordance with paragraph
(c)(3)(ii) of this section. In addition, the determination of whether a
battery cell is FEOC-compliant may be made by applying the transition
rule for impracticable-to-trace battery materials, in accordance with
paragraph (c)(3)(iii) of this section.
(iii) Step 3. The battery components, including battery cells, are
physically tracked to specific clean vehicle batteries, in accordance
with paragraph (c)(2) of this section.
(2) FEOC-compliant batteries. The determination that a clean
vehicle battery is FEOC-compliant must be made by physically tracking
FEOC-compliant battery components (including battery cells) to such
battery. With respect to battery cells, a serial number or other
identification system must be used to physically track FEOC-compliant
battery cells to such batteries.
(3) FEOC-compliant battery cells--(i) In general. Except as
provided in paragraph (c)(3)(ii) of this section, the determination
that a battery cell contains FEOC-compliant battery components and
FEOC-compliant applicable critical minerals and their associated
constituent materials must be made by physically tracking FEOC-
compliant battery components to specific battery cells, and by
physically tracking the mass of FEOC-compliant applicable critical
minerals and their associated constituent materials to specific battery
cells.
(ii) Allocation-based determination for applicable critical
minerals and associated constituent materials of a battery cell--(A) In
general. The determination that a battery cell is FEOC-compliant may be
based on an allocation of available mass, procured or contracted for,
of applicable critical minerals and their associated constituent
materials to specific battery cells manufactured or assembled in a
battery cell production facility, without the physical tracking of mass
of applicable critical minerals and associated constituent materials to
specific battery cells.
(B) Allocation limited to applicable critical minerals in the
battery cell. The rules of this paragraph (c)(3)(ii) are limited to
applicable critical minerals and their associated constituent materials
that are incorporated into a battery cell or its battery components.
Battery components must be physically tracked.
(C) Separate allocation required for each type of associated
constituent material--(1) In general. Any allocation under this
paragraph (c)(3)(ii) with respect to the mass of an applicable critical
mineral must be made within the type of associated constituent material
(such as powders of cathode active materials, powders of anode active
materials, or foils) in which such applicable critical mineral is
contained. Masses of an applicable critical mineral may not be
aggregated across constituent materials with which such applicable
critical mineral is not associated, and an allocation of a mass of an
applicable critical mineral may not be made from one type of
constituent material to another.
(2) Example. M, a qualified manufacturer, operates a battery cell
production facility. M manufactures a line of battery cells that
contains applicable critical mineral Z (ACM-Z) in constituent material
1 and in constituent material 2. With respect to constituent material
1, M procures 20,000,000 kilograms (kg) of ACM-Z for the battery cell
production facility, of which 4,000,000 kg are FEOC-compliant and
16,000,000 kg are not FEOC-compliant. With respect to constituent
material 2, M procures another 15,000,000 kg of ACM-Z for the battery
cell production facility, of which 7,500,000 kg are FEOC-compliant and
7,500,000 kg are not FEOC-compliant. M determines which battery cells
are FEOC-compliant through an allocation-
[[Page 37771]]
based determination with respect to battery cells manufactured or
assembled in the battery cell production facility. Under this paragraph
(c)(3)(ii)(C), any allocation with respect to the mass of ACM-Z must be
made within the type of constituent material in which ACM-Z is
contained. Thus, M may not aggregate the 4,000,000 kg of FEOC-compliant
ACM-Z contained in constituent material 1 with the 7,500,000 kg of
FEOC-compliant ACM-Z contained in constituent material 2, and
allocations may not be made from constituent material 1 to constituent
material 2. As a result, overall FEOC compliance is constrained by the
20% of constituent material 1 that is FEOC-compliant due to having
4,000,000 kg of ACM-Z, even though 33% (4,000,000 + 7,500,000)/
(20,000,000 + 15,000,000) of the total mass of ACM-Z is FEOC-compliant.
(D) Allocation within each product line of battery cells. Any
allocation under this paragraph (c)(3)(ii) with respect to applicable
critical minerals and their associated constituent materials must be
allocated within one or more specific battery cell product lines of the
battery cell production facility.
(E) Limitation on number of FEOC-compliant battery cells. If a
qualified manufacturer uses an allocation-based determination described
in this paragraph (c)(3)(ii), the number of FEOC-compliant battery
cells that can be produced from such allocation may not exceed the
total number of battery cells for which there is enough of every FEOC-
compliant applicable critical mineral. That number will necessarily be
limited by the applicable critical mineral that has the lowest
percentage of FEOC-compliant supply. For example, if a qualified
manufacturer allocates applicable critical mineral A, which is 20
percent FEOC-compliant, and applicable critical mineral B, which is 60
percent FEOC-compliant, to a battery cell product line, no more than 20
percent of the battery cells in that battery cell product line will be
treated as FEOC-compliant.
(iii) Transition rule for impracticable-to-trace battery materials.
For any new clean vehicles for which the qualified manufacturer
provides a periodic written report before January 1, 2027, the
qualified manufacturer's determination of whether a battery cell is
FEOC-compliant under this paragraph (c)(3) may be satisfied by
excluding identified impracticable-to-trace battery materials (and
associated constituent materials).
(4) FEOC-compliant battery components and applicable critical
minerals--(i) In general. The determination of whether battery
components and applicable critical minerals (and their associated
constituent materials) are FEOC-compliant must be made prior to any
determination under paragraphs (c)(2) and (3) of this section.
(ii) Timing of determination of FEOC or FEOC-compliant status.
Whether an entity is a FEOC is determined at the time of the entity's
performance of the relevant activity, which for applicable critical
minerals is the time of extraction, processing, or recycling, and for
battery components is the time of manufacturing or assembly. The
determination of whether an applicable critical mineral is FEOC-
compliant is determined at the end of processing or recycling the
applicable critical mineral into a constituent material, taking into
account all applicable steps through and including final processing or
recycling.
(iii) Example: Timing of FEOC compliance determination. Mineral X,
an applicable critical mineral, was not extracted by a FEOC but was
later processed by a FEOC. Mineral X is not FEOC-compliant because one
step of the extraction and processing was performed by a FEOC.
Therefore, any battery containing Mineral X is not FEOC-compliant.
(5) Third-party manufacturers or suppliers. The determinations
under paragraphs (c)(2) through (4) of this section, which are
generally made by the qualified manufacturer, may be made by a third-
party manufacturer or supplier that operates a battery cell production
facility, provided the third-party manufacturer satisfies the
requirements of paragraph (c)(5)(i) through (iii) of this section, and
paragraph (c)(5)(iv) of this section, if applicable.
(i) Due diligence required. The third-party manufacturer or
supplier must perform the due diligence described in paragraph (b) of
this section.
(ii) Provision of required information to qualified manufacturer.
The third-party manufacturer or supplier must provide the qualified
manufacturer of the new clean vehicle information sufficient to
establish a basis for the determinations under paragraphs (c)(2)
through (4) of this section, including information related to the due
diligence described in paragraph (c)(5)(i) of this section.
(iii) Contractual obligations. The third-party manufacturer or
supplier must be contractually required to provide the information in
paragraph (c)(5)(ii) of this section to the qualified manufacturer and
must be contractually required to inform the qualified manufacturer of
any change in the supply chain that affects the determinations of FEOC
compliance under paragraph (c)(2) through (4) of this section.
(iv) Additional requirements in case of multiple third-party
manufacturers or suppliers. If there are multiple third-party
manufacturers or suppliers (such as a case in which a qualified
manufacturer contracts with a battery manufacturer, that, in turn,
contracts with a battery cell manufacturer or supplier that operates a
battery cell production facility), the due diligence and information
requirements of this paragraph (c) must be satisfied by each third-
party manufacturer or supplier, either by providing all required
information directly to the qualified manufacturer or indirectly
through contractual relationships.
(d) Compliant-battery ledger--(1) In general. For new clean
vehicles placed in service after December 31, 2024, the qualified
manufacturer must determine and provide information to the IRS to
establish a compliant-battery ledger for each calendar year, as
described in paragraphs (d)(2)(i) and (ii) of this section. The
qualified manufacturer may establish one compliant-battery ledger for
all vehicles for a calendar year, or separate ledgers for specific
models or classes of vehicles to account for different battery cell
chemistries or differing quantities of cells in each clean vehicle
battery.
(2) Determination of number of batteries--(i) In general. To
establish a compliant-battery ledger for a calendar year, the qualified
manufacturer must determine the number of clean vehicle batteries, with
respect to new clean vehicles for which the qualified manufacturer
anticipates providing a periodic written report during the calendar
year, that it knows or reasonably anticipates will be FEOC-compliant,
pursuant to the requirements of paragraphs (b) and (c) of this section.
The determination is based on the battery components and applicable
critical minerals (and associated constituent materials) that are
procured or contracted for the calendar year and that are known or
reasonably anticipated to be FEOC-compliant battery components or FEOC-
compliant applicable critical minerals, as applicable.
(ii) Upfront review. The qualified manufacturer must attest to the
number of FEOC-compliant clean vehicle batteries determined under
paragraph (d)(2)(i) of this section and provide the basis for the
determination, including attestations, certifications and documentation
demonstrating
[[Page 37772]]
compliance with paragraphs (b) and (c) of this section, at the time and
in the manner provided in the Internal Revenue Bulletin (see Sec.
601.601 of this chapter). The IRS, with analytical assistance from the
Department of Energy (DOE), will review the attestations,
certifications, and documentation. Once the IRS determines that the
qualified manufacturer provided the required attestations,
certifications, and documentation, the IRS will approve or reject the
determined number of FEOC-compliant batteries. The IRS may approve the
determined number in whole or part. The approved number is the initial
balance in the compliant-battery ledger.
(iii) Decrease or increase to compliant-battery ledger--(A) Once
the compliant-battery ledger is established with respect to a calendar
year, the qualified manufacturer must determine and take into account
any decrease in the number of FEOC-compliant batteries for such
calendar year and any of the prior three calendar years for which the
qualified manufacturer had a compliant-battery ledger, within 30 days
of discovery. In addition, the qualified manufacturer may determine and
take into account any increase in the number of FEOC-compliant
batteries. Such determinations, and any supporting attestations,
certifications, and documentation, must be provided on a periodic
basis, in accordance with paragraph (d)(2)(ii) of this section and the
manner provided in the Internal Revenue Bulletin (see Sec. 601.601 of
this chapter).
(B) The decrease described in paragraph (d)(2)(iii)(A) of this
section may decrease the compliant-battery ledger below zero, creating
a negative balance in the compliant-battery ledger.
(C) If any decrease described in paragraph (d)(2)(iii)(A) of this
section is determined subsequent to the calendar year to which it
relates, the decrease must be taken into account in the year in which
the change is discovered.
(D) Any remaining balance in the compliant-battery ledger at the
end of the calendar year, whether positive or negative, will be
included in the compliant-battery ledger for the subsequent calendar
year. If a qualified manufacturer has multiple negative compliant-
battery accounts, any negative balance will first be included in the
compliant-battery ledger for the same model or class of vehicles for
the subsequent calendar year. However, if there is no ledger for the
same model or class of vehicles in the subsequent calendar year, the
IRS can account for such negative balance in the ledger of a different
model or class of vehicles of the qualified manufacturer.
(3) Tracking FEOC-compliant batteries. The compliant-battery ledger
for a calendar year must be updated to track the qualified
manufacturer's available FEOC-compliant batteries, by reducing the
balance in the ledger as the qualified manufacturer submits periodic
written reports reporting the vehicle identification numbers of new
clean vehicles as eligible for the credit under section 30D, at the
time and in the manner provided in the Internal Revenue Bulletin (see
Sec. 601.601 of this chapter). If the balance in the compliant-battery
ledger of the qualified manufacturer for a calendar year is zero or
less than zero, the qualified manufacturer may not submit additional
periodic written reports with respect to section 30D until the number
of available FEOC-compliant batteries is increased as described in
paragraph (d)(2)(iii)(A) of this section.
(4) Reconciliation of battery estimates. After the end of any
calendar year for which a compliant-battery ledger is established, the
IRS may require a qualified manufacturer to provide attestations,
certifications, and documentation to support the accuracy of the number
of the qualified manufacturer's FEOC-compliant batteries for such
calendar year, including with respect to any changes described in
paragraph (d)(2)(iii) of this section, at the time and in the manner
provided in the Internal Revenue Bulletin (see Sec. 601.601 of this
chapter).
(e) Rule for 2024--(1) In general. For new clean vehicles that are
placed in service after December 31, 2023, and prior to January 1,
2025, the qualified manufacturer must determine whether the battery
components contained in the vehicles satisfy the requirements of
section 30D(d)(7)(B), and whether batteries contained in the vehicles
are FEOC-compliant under the rules of paragraphs (b) and (c) of this
section. The qualified manufacturer must make an attestation with
respect to such determinations at the time and in the manner provided
in the Internal Revenue Bulletin (see Sec. 601.601 of this chapter).
However, for any new clean vehicles for which the qualified
manufacturer provides a periodic written report before June 5, 2024,
provided that the qualified manufacturer has determined that its supply
chains for each battery component with respect such vehicles contain
only FEOC-compliant battery components:
(i) For purposes of paragraphs (c)(2) and (3) of this section, the
determination of which battery cells or clean vehicle batteries, as
applicable, contain FEOC-compliant battery components may be made
without physical tracking;
(ii) For purposes of paragraph (c)(2) of this section, the
determination of which clean vehicle batteries contain FEOC-compliant
battery cells may be made without physical tracking (and without the
use of a serial number or other identification system); and
(iii) For purposes of paragraph (c)(1) of this section, the
determination of which vehicles contain FEOC-compliant batteries may be
made without physical tracking (and without the use of a serial number
or other identification system).
(2) Determination. The determination that a qualified
manufacturer's supply chains of each battery component contain only
FEOC-compliant battery components may be made with respect to specific
models or classes of vehicles.
(f) Inaccurate attestations, certifications, or documentation--(1)
In general. If the IRS determines, with analytical assistance from the
DOE and after review of the attestations, certification, and
documentation described in paragraph (d) of this section, that a
qualified manufacturer has provided attestations, certifications, or
documentation that contain inaccurate information, the IRS may take
appropriate action, as described in paragraphs (f)(2) and (3) of this
section. Such action would affect vehicles and qualified manufacturers
on a prospective basis.
(2) Inadvertence--(i) Inaccurate information may be cured by
qualified manufacturer. If the IRS determines that the qualified
manufacturer's attestations, certifications, or documentation for a
specific new clean vehicle contain inaccurate information due to
inadvertence, the qualified manufacturer may, within a reasonable
period of time after discovery of the inaccurate information, cure the
errors, including by a decrease in the compliant-battery ledger as
described in paragraph (d)(2)(iii) of this section. If the qualified
manufacturer has multiple compliant-battery ledgers, the IRS may
determine which ledger is to be decreased.
(ii) Consequences if errors not cured. If the qualified
manufacturer does not cure the errors, the IRS may take any of the
following actions:
(A) In the case of a new clean vehicle that has not been placed in
service but for which the qualified manufacturer has submitted a
periodic written report certifying compliance with the requirements of
section 30D(d), the IRS may determine that such vehicle is no
[[Page 37773]]
longer considered a new clean vehicle eligible for the section 30D
credit.
(B) In the case of a new clean vehicle that has not been placed in
service and for which the qualified manufacturer has not submitted a
periodic written report certifying compliance with the requirements of
section 30D(d), the qualified manufacturer may not submit such periodic
written report.
(C) In the case of a new clean vehicle that has been placed in
service, the IRS may require a decrease in the qualified manufacturer's
compliant-battery ledger as described in paragraph (d)(2)(iii) of this
section. If the qualified manufacturer has multiple compliant-battery
ledgers, the IRS may determine which ledger is to be decreased.
(3) Intentional disregard or fraud. If the IRS determines that a
qualified manufacturer intentionally disregarded attestation,
certification, or documentation requirements, or reported information
fraudulently or with intentional disregard, the IRS may take any of the
actions described in paragraph (f)(3)(i) or (ii) of this section.
(i) All vehicles ineligible for credit. The IRS may determine that
all vehicles manufactured by the qualified manufacturer that have not
been placed in service are no longer considered new clean vehicles
eligible for the section 30D credit.
(ii) Termination of written agreement. The IRS may terminate the
written agreement between the IRS and the manufacturer, thereby
terminating the manufacturer's status as a qualified manufacturer. In
such instance, the manufacturer would be required to submit a new
written agreement to reestablish qualified manufacturer status at the
time and in the manner provided in the Internal Revenue Bulletin (see
Sec. 601.601 of this chapter).
(g) Rules inapplicable to new qualified fuel cell motor vehicles.
The requirements of section 30D(d)(7) and this section do not apply to
new qualified fuel cell motor vehicles.
(h) Examples. The following examples illustrate the rules under
paragraphs (b) through (e) of this section:
(1) Example 1: In general--(i) Facts. M is a manufacturer of new
clean vehicles and batteries. M also manufactures and assembles battery
cells at its own battery cell production facility. M manufactures a
line of new clean vehicles that it anticipates will be placed in
service in calendar year 2025. Each vehicle contains one clean vehicle
battery, and each clean vehicle battery contains 1,000 battery cells.
All battery cells are produced at the same battery cell production
facility. The battery cells are not manufactured or assembled by a
FEOC. Each battery cell contains 10 units of battery component A. M has
procured or is under contract to procure 10,000,000 units of battery
component A for the battery cell production facility, of which
6,000,000 units are from supplier 1 and 4,000,000 units are from
supplier 2.
(ii) Analysis--(A) Under paragraph (b) of this section, M must
conduct due diligence on all battery components and applicable critical
minerals (and associated constituent materials) that are contained in
the clean vehicle batteries to determine whether such components or
minerals are FEOC-compliant.
(B) Under paragraph (c)(4) of this section, M must first determine
whether the battery components and applicable critical minerals (and
associated constituent materials) are FEOC-compliant. From its due
diligence, M determines that, of the 10,000,000 units of battery
component A, the 6,000,000 units from supplier 1 are FEOC-compliant
while the 4,000,000 units from supplier 2 are not FEOC-compliant. M
determines that all other battery components and applicable critical
minerals (and associated constituent materials) of the battery cells
are FEOC-compliant, that the battery cell is not manufactured or
assembled by a FEOC, and that all battery components (excluding
components of the battery cell) of the clean vehicle batteries are
FEOC-compliant.
(C) Under paragraph (c)(3) of this section, M must determine which
battery cells are FEOC-compliant through the physical tracking of the
6,000,000 units of FEOC-compliant battery component A to determine
which 600,000 (6,000,000/10) battery cells are FEOC-compliant. Under
paragraph (c)(2) of this section, M must use a serial number or other
identification system to track the 600,000 FEOC-compliant battery cells
to 600 (600,000/1,000) specific clean vehicle batteries.
(D) Under paragraph (d)(1) of this section, a compliant-battery
ledger must be established for calendar year 2025. For purposes of
paragraph (d)(2)(i) of this section, M determines that it will
manufacture 600 batteries for calendar year 2025 that are FEOC-
compliant. Under paragraph (d)(2)(ii) of this section, M attests to the
600 FEOC-compliant batteries and provides the basis for the
determination, including attestations, certifications, and
documentation demonstrating compliance with paragraphs (b) and (c) of
this section. Once the IRS, with analytical assistance from the DOE,
approves the number, a compliant-battery ledger is established with a
balance of 600 FEOC-compliant batteries.
(E) M manufactures 100 vehicles that it anticipates will be placed
in service in 2025, for which it provides periodic written reports
providing the vehicle identification numbers of the vehicles and
indicating that such vehicles qualify for the section 30D credit. Under
paragraph (d)(3) of this section, the compliant-battery ledger is
updated to track the number of FEOC-compliant batteries. The number of
FEOC-compliant batteries contained in the compliant-battery ledger is
reduced from 600 to 500. Assuming all of the other requirements of
section 30D and the regulations thereunder are met, the 100 vehicles
are new clean vehicles for purposes of section 30D.
(2) Example 2: Rules for third-party suppliers--(i) Facts. The
facts are the same as in paragraph (h)(1)(i) of this section (facts of
Example 1), except that M contracts with a battery manufacturer, BM,
for the provision of clean vehicle batteries, and BM contracts with a
battery cell supplier, BCS, that operates a battery cell production
facility, for the provision of battery cells.
(ii) Analysis. Under paragraph (c)(5) of this section, BCS may make
the determination in paragraphs (c)(2) through (4) of this section,
provided that M, BM, and BCS perform due diligence as described in
paragraph (b) of this section. In addition, BM and BCS must provide M
with information sufficient to establish a basis for the determinations
under paragraphs (c)(2) through (4) of this section, including
information related to due diligence. Finally, BM and BCS must be
contractually required to provide the required information to M, and
must also be required to inform the qualified manufacturer of any
change in supply chains that affects the determinations of FEOC
compliance under paragraphs (c)(2) and (4) of this section. The
contractual requirement may be satisfied if BM and BCS each have the
contractual obligation to M. Alternatively, it may be satisfied if BCS
has a contractual obligation to BM and BM, in turn, has a contractual
obligation to M.
(3) Example 3: Applicable critical minerals--(i) Facts. The facts
are the same as in paragraph (h)(1)(i) of this section (facts of
Example 1). In addition, each battery cell contains 20 kilograms (kg)
of applicable critical mineral Z (ACM-Z) contained in a constituent
material. M has procured or is under contract to procure 20,000,000 kg
of ACM-Z for the battery cell production
[[Page 37774]]
facility, of which 4,000,000 kg are from supplier 3 and 16,000,000 kg
are from supplier 4.
(ii) Analysis. The analysis is the same as in paragraph (h)(1)(ii)
of this section (analysis of Example 1). In addition, from its due
diligence, M determines that of the 20,000,000 kg of ACM-Z, the
4,000,000 kg from supplier 3 is FEOC-compliant while the 16,000,000 kg
from supplier 4 is not FEOC-compliant. Under paragraph (c)(3) of this
section, M may determine which battery cells are FEOC-compliant through
the physical tracking of the 4,000,000 kg of FEOC-compliant ACM-Z to
200,000 (4,000,000/20) of the battery cells that also contain battery
component A, in order to determine which 200,000 battery cells are
FEOC-compliant. Alternatively, M may determine which 200,000 battery
cells are FEOC-compliant through an allocation of ACM-Z (but not
battery component A) to battery cells, without physical tracking, under
paragraph (c)(3)(ii) of this section. Under paragraph (c)(2) of this
section, M must use a serial number or other identification system to
track the 200,000 FEOC-compliant battery cells to 200 (200,000/1,000)
specific clean vehicle batteries.
(4) Example 4: Comprehensive example--(i) Facts. M is a
manufacturer of new clean vehicles and batteries. M also manufactures
or assembles battery cells at its own battery cell production facility.
M manufactures a line of new clean vehicles. Each vehicle contains one
battery. All battery cells are produced at the same battery cell
production facility. The battery cells are not manufactured or
assembled by a FEOC. Each battery contains 1,000 NMC 811 battery cells.
M anticipates manufacturing 1,000,000 such battery cells for a line of
new clean vehicles that it anticipates will be placed in service in
calendar year 2025.
(A) Each battery cell contains 1 cathode electrode, 1 anode
electrode, 1 separator, and 1 liquid electrolyte. Thus, M procures
1,000,000 units of each battery component for the battery cell
production facility.
(B) In addition, each NMC 811 cathode incorporates cathode active
material (a constituent material) produced using 2.5 kg of applicable
critical minerals, consisting of 0.5 kg of lithium hydroxide, 1.6 kg of
nickel sulfate, 0.2 kg of cobalt sulfate, and 0.2 kg of manganese
sulfate. Thus, M procures 2,500 metric tons (2.5 kg x 1,000,000/1,000)
of applicable critical minerals for the battery cell production
facility, resulting in purchase agreements for 500 metric tons of
lithium, 1,600 metric tons of nickel, 200 metric tons of cobalt, and
200 metric tons of manganese.
(ii) Analysis--(A) Under paragraph (b) of this section, M must
conduct due diligence on all battery components and applicable critical
minerals (and associated constituent materials) that are contained in
the clean vehicle batteries to determine whether such components or
minerals are FEOC-compliant.
(B) Under paragraph (c)(4) of this section, M must first determine
whether the battery components and applicable critical minerals (and
associated constituent materials) are FEOC-compliant. From its due
diligence M determines that, of the cathode electrodes, 600,000 are not
manufactured by a FEOC and are therefore FEOC-compliant; 400,000 are
manufactured by a FEOC and are therefore non-compliant. Because each
battery cell contains 1 cathode electrode, a maximum of 600,000 battery
cells would be FEOC-compliant. Of the critical minerals that M has
procured, M determines that 250 metric tons of lithium hydroxide, 1,200
metric tons of nickel sulfate, and all of the cobalt sulfate and
manganese sulfate are FEOC-compliant. M determines that all other
battery components and applicable critical minerals of the battery
cells are FEOC-compliant.
(C) Under paragraph (c)(3) of this section, M must determine which
battery cells are FEOC-compliant through the physical tracking of
battery components. M may determine which battery cells are FEOC-
compliant through the physical tracking of applicable critical
minerals. Alternatively, M may determine which battery cells are FEOC-
compliant through an allocation of applicable critical minerals (and
associated constituent materials) but not battery components.
(D) Under an allocation-based determination, M has procured 500
metric tons of lithium hydroxide incorporated into a constituent
material for the battery cell production facility, of which 50% (250/
500 metric tons) is FEOC-compliant. M has procured 1,600 metric tons of
nickel sulfate incorporated into a constituent material for the battery
cell production facility, of which 75% (1,200/1,600 metric tons) is
FEOC-compliant. Because the lithium hydroxide is the least compliant
applicable critical mineral or component, M allocates the FEOC-
compliant lithium hydroxide mass to 50% or 500,000 (50% x 1,000,000) of
the total battery cells, and to battery cells that contain FEOC-
compliant cathode electrodes and have been allocated FEOC-compliant
nickel sulfate. Under paragraph (c)(3)(ii)(E) of this section, the
quantity of FEOC-compliant battery cells is limited by the applicable
critical mineral (lithium hydroxide) that has the lowest percentage
(50%) of FEOC-compliant supply.
(E) Under paragraph (c)(2) of this section, M must use a serial
number or other identification system to track the 500,000 FEOC-
compliant battery cells to 500 (500,000/1,000) specific clean vehicle
batteries.
(F) Under paragraph (d)(1) of this section, a compliant-battery
ledger must be established for calendar year 2025. For purposes of
paragraph (d)(2)(i) of this section, M determines that it will
manufacture 500 batteries for calendar year 2025 that are FEOC-
compliant, allocating its FEOC-compliant applicable critical minerals
to the cells containing FEOC-compliant battery components. Under
paragraph (d)(2)(ii) of this section, M attests to the 500 FEOC-
compliant batteries and provides the basis for the determination,
including attestations, certifications, and documentation demonstrating
compliance with paragraphs (b) and (c) of this section. Once the IRS,
with analytical assistance from the DOE, has approved the number, a
compliant-battery ledger is established with a balance of 500 FEOC-
compliant batteries.
(i) 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 will continue in effect.
(j) Applicability date. This section applies to new clean vehicles
placed in service after December 31, 2023, in taxable years ending
after December 31, 2023.
PART 301--PROCEDURE AND ADMINISTRATION
0
Par 4. The authority citation for part 301 is amended by adding an
entry in numerical order for Sec. 301.6213-2 to read, in part, as
follows:
Authority: 26 U.S.C. 7805.
* * * * *
Section 301.6213-2 also issued under 26 U.S.C. 6213.
* * * * *
0
Par 5. Section 301.6213-2 is added to read as follows:
Sec. 301.6213-2 Omission of correct vehicle identification number.
(a) In general. The definition of the term mathematical or clerical
error in
[[Page 37775]]
section 6213(g)(2) of the Internal Revenue Code (Code) includes:
(1) Under section 6213(g)(2)(T), an omission of a correct vehicle
identification number required under section 30D(f)(9) of the Code
(relating to credit for new clean vehicles) to be included on a return;
(2) Under section 6213(g)(2)(U), an omission of a correct vehicle
identification number required under section 25E(d) of the Code
(relating to credit for previously-owned clean vehicles) to be included
on a return; and
(3) Under section 6213(g)(2)(V), an omission of a correct vehicle
identification number required under section 45W(e) of the Code
(relating to credit for qualified commercial clean vehicles) to be
included on a return.
(b) Omission of a correct vehicle identification number. For
purposes of paragraph (a) of this section, a taxpayer is treated as
having omitted a correct vehicle identification number if:
(1) The vehicle identification number required to be reported under
section 30D(f)(9), 25E(d), or 45W(e) is not included on the return of
tax;
(2) The vehicle identification number included on the return of tax
is not that of a vehicle eligible for a credit under section 30D, 25E,
or 45W.
(3) The vehicle identification number included on the return of tax
is not that of a vehicle eligible for a credit under section 30D, 25E,
or 45W for the year in which it is claimed;
(4) The vehicle identification number included on the return of tax
differs from the vehicle identification number reported to the IRS and
the taxpayer under section 30D(d)(1)(H) for each new clean vehicle
placed in service during the taxable year by the taxpayer who was
issued the report; or
(5) The vehicle identification number included on the return of tax
differs from the vehicle identification number reported to the IRS and
the taxpayer under section 25E(c)(1)(D)(i) for each previously-owned
clean vehicle placed in service during the taxable year by the taxpayer
who was issued the report.
(c) Applicability date. This section applies to taxable years
beginning after December 31, 2023.
Douglas W. O'Donnell,
Deputy Commissioner.
Approved: April 21, 2024.
Aviva Aron-Dine,
Acting Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2024-09094 Filed 5-3-24; 8:45 am]
BILLING CODE 4830-01-P