[Federal Register Volume 90, Number 8 (Tuesday, January 14, 2025)]
[Proposed Rules]
[Pages 3506-3532]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-00256]
[[Page 3505]]
Vol. 90
Tuesday,
No. 8
January 14, 2025
Part VI
Department of the Treasury
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Internal Revenue Service
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26 CFR Part 1
Section 45W Credit for Qualified Commercial Clean Vehicles; Proposed
Rule
Federal Register / Vol. 90 , No. 8 / Tuesday, January 14, 2025 /
Proposed Rules
[[Page 3506]]
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-123525-23]
RIN 1545-BR06
Section 45W Credit for Qualified Commercial Clean Vehicles
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking and notice of public hearing.
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SUMMARY: This document contains proposed regulations that would provide
guidance on the qualified commercial clean vehicle credit enacted by
the Inflation Reduction Act of 2022. These proposed regulations would
affect eligible taxpayers that place a qualified commercial clean
vehicle in service during a taxable year. These proposed regulations
would also affect manufacturers of qualified commercial clean vehicles.
DATES: Written or electronic comments must be received by March 17,
2025.
The public hearing on these proposed regulations is scheduled for
April 28, 2025, at 10 a.m. eastern standard time (EST). Requests to
speak and outlines of topics to be discussed at the public hearing must
be received by March 17, 2025. If no outlines are received by March 17,
2025, the public hearing will be cancelled.
ADDRESSES: Commenters are strongly encouraged to submit public comments
electronically via the Federal eRulemaking Portal at https://www.regulations.gov (indicate IRS and REG-123525-23) by following the
online instructions for submitting comments. Once submitted to the
Federal eRulemaking Portal, comments cannot be edited or withdrawn. The
Department of the Treasury (Treasury Department) and the IRS will
publish for public availability any comments submitted to the IRS's
public docket. Send paper submissions to: CC:PA:01:PR (REG-123525-23),
Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin
Station, Washington, DC 20044.
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
David Villagrana or Rika Valdman at (202) 317-6853 (not a toll-free
number); concerning submissions of comments or the public hearing,
Publications and Regulations Section at (202) 317-6901 (not a toll-free
number) or by email at [email protected] (preferred).
SUPPLEMENTARY INFORMATION:
Authority
This document contains proposed amendments to the Income Tax
Regulations (26 CFR part 1) regarding sections 25E, 30D, 45W, and 6417
of the Internal Revenue Code (Code) as they relate to the credit for
qualified commercial clean vehicles (proposed regulations). The
proposed regulations are issued by the Secretary of the Treasury or her
delegate (Secretary) under the authority granted by sections 25E(e),
30D(d)(3) and (f)(5), 45W(c)(1), (d)(1), and (f), 6417(h), and 7805(a)
of the Code.
Section 45W(f) provides an express delegation authorizing the
Secretary to issue ``such regulations or other guidance as the
Secretary determines necessary to carry out the purposes of this
section, including regulations or other guidance relating to
determination of the incremental cost of any qualified commercial clean
vehicle.''
Section 45W(c)(1), in part, incorporates in the definition of the
term ``qualified commercial clean vehicle'' that the vehicle ``meets
the requirements of section 30D(d)(1)(C).'' Section 30D(d)(1)(C)
requires that such vehicle be made by a ``qualified manufacturer,'' as
defined in section 30D(d)(3). Section 30D(d)(3) provides that a
qualified manufacturer must enter ``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.''
Section 45W(d)(1), which provides that rules similar to the rules
under section 30D(f) (without regard to section 30D(f)(10) or (11))
apply for purposes of section 45W, incorporates section 30D(f)(5),
which provides an express delegation of authority stating, ``[t]he
Secretary shall, by regulations, provide for recapturing the benefit of
any credit allowable under subsection (a) with respect to any property
which ceases to be property eligible for such credit.''
Section 6417(h) authorizes the Secretary to issue such regulations
or other guidance as may be necessary to carry out the purposes of
section 6417.
Finally, section 7805(a) authorizes the Secretary ``to prescribe
all needful rules and regulations for the enforcement of [the Code],
including all rules and regulations as may be necessary by reason of
any alteration of law in relation to internal revenue.''
Background
I. Overview
Section 13403(a) of Public Law 117-169, 136 Stat. 1818 (August 16,
2022), commonly known as the Inflation Reduction Act of 2022 (IRA),
added section 45W to the Code. Section 13403(b)(1) of the IRA added
section 45W to the list of general business credits in section 38 of
the Code. Section 45W provides a credit against the tax imposed by
chapter 1 of the Code (chapter 1) with respect to each qualified
commercial clean vehicle placed in service by the taxpayer during the
taxable year (section 45W credit). The section 45W credit is effective
for vehicles placed in service after December 31, 2022. The section 45W
credit is one of three related clean vehicle credits enacted under or
revised by the IRA. Section 25E provides a credit for previously-owned
clean vehicles. Section 30D provides a credit for new clean vehicles.
II. Section 45W
Section 45W(a) provides that, for purposes of section 38, the
qualified commercial clean vehicle credit for any taxable year is an
amount equal to the sum of the credit amounts determined under section
45W(b) with respect to each qualified commercial clean vehicle placed
in service by the taxpayer during the taxable year. The amount of the
section 45W credit is treated as a general business credit. Section
38(b)(37) lists as a current year business credit the qualified
commercial clean vehicle credit determined under section 45W.
Section 45W(b)(1) provides that, subject to the limitation in
section 45W(b)(4), the amount of the section 45W credit is the lesser
of: (A) 15 percent of the taxpayer's basis in the vehicle (30 percent
in the case of a vehicle not powered by a gasoline or diesel internal
combustion engine (ICE)), or (B) the incremental cost of the vehicle.
Section 45W(b)(2) provides that the incremental cost of any
qualified commercial clean vehicle is an amount equal to the excess of
the purchase price for such vehicle over the purchase price of a
comparable vehicle. Section 45W(b)(3) defines ``comparable vehicle'' to
mean, with respect to any qualified commercial clean vehicle, any
vehicle that is powered solely by a gasoline or diesel ICE and is
comparable in size and use to such vehicle.
Section 45W(b)(4) provides that the section 45W credit amount
determined under section 45W(b) with respect to any qualified
commercial clean vehicle
[[Page 3507]]
cannot exceed: (A) in the case of a vehicle that has a gross vehicle
weight rating of less than 14,000 pounds, $7,500; and (B) in the case
of a vehicle not described in section 45W(b)(4)(A), $40,000.
Section 45W(c) defines ``qualified commercial clean vehicle'' for
purposes of the section 45W credit as any vehicle which: (1) meets the
requirements of section 30D(d)(1)(C) of the Code, and is acquired for
use or lease by the taxpayer and not for resale; (2) either meets the
requirements of section 30D(d)(1)(D), and is manufactured primarily for
use on public streets, roads, and highways (not including a vehicle
operated exclusively on a rail or rails), or is mobile machinery, as
defined in section 4053(8) of the Code (including vehicles that are not
designed to perform a function of transporting a load over the public
highways); (3) either is propelled to a significant extent by an
electric motor which draws electricity from a battery that has a
capacity of not less than 15 kilowatt hours (or, in the case of a
vehicle that has a gross vehicle weight rating of less than 14,000
pounds, 7 kilowatt hours) and is capable of being recharged from an
external source of electricity, or is a motor vehicle that satisfies
the requirements under section 30B(b)(3)(A) and (B) of the Code; and
(4) is of a character subject to the allowance for depreciation.
Section 45W(d) establishes special rules for purposes of the
section 45W credit. Section 45W(d)(1) provides that rules similar to
the rules of section 30D(f)(1) through (9) apply to section 45W.
Section 45W(d)(2) provides that section 45W(c)(4) does not apply to any
vehicle that is not subject to a lease and which is placed in service
by a tax-exempt entity described in section 168(h)(2)(A)(i), (ii), or
(iv) of the Code. Section 45W(d)(3) provides that no section 45W credit
is allowed with respect to any vehicle for which a credit was allowed
under section 30D.
Section 45W(e) provides that no section 45W credit is allowed with
respect to any vehicle unless the taxpayer includes the vehicle
identification number of such vehicle on the return of tax for the
taxable year.
Section 45W(f) grants the Secretary authority to issue regulations
or other guidance to carry out the purposes of section 45W, including
regulations or other guidance relating to the determination of the
incremental cost of any qualified commercial clean vehicle.
Section 45W(g) provides that no section 45W credit is allowed with
respect to a vehicle acquired after December 31, 2032.
III. Section 25E
Section 13402 of 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 that relates to previously-owned clean
vehicles.
IV. Section 30D
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 credit). Section 30D was amended
several times since its enactment, most recently by section 13401 of
the IRA. Section 30D, as amended by the IRA, relates to new clean
vehicles.
The section 30D credit may be treated as either a personal credit
or a general business credit, depending on whether the vehicle is used
for personal use or is of a character subject to the allowance for
depreciation.
Section 30D(d)(1) defines ``new clean vehicle'' as a motor vehicle
that satisfies eight requirements set forth in section 30D(d)(1)(A)
through (H). As relevant to section 45W and these proposed regulations,
section 30D(d)(1)(C) provides that the vehicle must be made by a
qualified manufacturer, and section 30D(d)(1)(D) provides that the
vehicle must be treated as a motor vehicle for purposes of title II of
the Clean Air Act (CAA).
Section 30D(d)(3) defines ``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 CAA (42 U.S.C. 7521-7590))
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.
Section 30D(f)(1)-(9) provides special rules for purposes of
section 30D that are relevant to section 45W by virtue of the cross-
reference in section 45W(d)(1). Section 30D(f)(1) provides that the
basis of any property for which a credit is allowable under section
30D(a) is reduced by the amount of such credit so allowed (determined
without regard to section 30D(c)).
Section 30D(f)(2) provides that the amount of any deduction or
other credit allowable under chapter 1 for a vehicle for which a credit
is allowable under section 30D(a) is reduced by the amount of credit
allowed under section 30D(a) for such vehicle (determined without
regard to section 30D(c)).
Section 30D(f)(3) provides that in the case of a vehicle the use of
which is described in section 50(b)(3) or (4) of the Code (generally,
use by tax-exempt organizations, the United States, a government
entity, or foreign person or entities) and that is not subject to a
lease, the person who sold such vehicle to the person or entity using
such vehicle is treated as the taxpayer that placed such vehicle in
service, but only if such person clearly discloses to such person or
entity in a document the amount of any credit allowable under section
30D(a) with respect to such vehicle (determined without regard to
section 30D(c)). Section 30D(f)(3) was repealed for vehicles placed in
service after December 31, 2023.
Section 30D(f)(4) provides that no section 30D credit is allowable
with respect to any property referred to in section 50(b)(1)
(generally, property used predominantly outside of the United States).
Section 30D(f)(5) authorizes the Secretary to promulgate
regulations providing for the recapture of the benefit of any section
30D credit allowable with respect to any property which ceases to be
property eligible for such credit.
Section 30D(f)(6) provides that no section 30D credit is allowed
for any vehicle if the taxpayer elects to not have section 30D apply to
such vehicle.
Section 30D(f)(7) provides that a vehicle is not considered
eligible for a section 30D credit unless such vehicle is in compliance
with: (A) the applicable provisions of the CAA for the applicable make
and model year of the vehicle (or applicable air quality provisions of
State law in the case of a State which has adopted such provisions
under a waiver under section 209(b) of the CAA), and (B) the motor
vehicle safety provisions of 49 U.S.C. 30101 through 30169.
Section 30D(f)(8) provides that in the case of any vehicle, the
credit described in section 30D(a) is only allowed once with respect to
such vehicle, as determined based upon the vehicle identification
number of such vehicle, including any vehicle with respect to which the
taxpayer elects the application of section 30D(g).
Section 30D(f)(9) provides that no section 30D credit is allowed
with respect to any vehicle unless the
[[Page 3508]]
taxpayer includes the vehicle identification number of such vehicle on
the return of tax for the taxable year.
V. Section 6417
Section 6417 of the Code allows an applicable entity (as defined in
section 6417(d)(1)(A)) to make an election with respect to an
applicable credit (as defined in section 6417(b)) to be treated as
making a payment against the tax imposed by subtitle A of the Code
(related to income taxes) for the taxable year equal to the amount of
such credit. Under section 6417(b)(6), in the case of a tax-exempt
entity described in section 168(h)(2)(A)(i), (ii), or (iv), the term
``applicable credit'' includes the section 45W credit determined under
section 45W by reason of section 45W(d)(2).\1\
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\1\ The reference in section 6417(b)(6) to section 45W(d)(3) was
intended to be a reference to section 45W(d)(2). See General
Explanation of Tax Legislation Enacted in the 117th Congress, JCS-1-
23 (December 21, 2023) at 282. Thus, the proposed regulations refer
to section 45W(d)(2). See also TD 9988, 89 FR 17546, at 17546 n.1.
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VI. Prior Guidance
A. Notice 2022-56
On November 3, 2022, the Treasury Department and the IRS published
Notice 2022-56, 2022-47 I.R.B. 480, seeking comments regarding sections
45W and 30C of the Code. The notice requested general comments on
issues arising under section 45W, as well as specific comments
concerning: (1) factors to determine ``comparable in size and use'' for
purposes of the comparable vehicle definition in section 45W(b)(3) used
to determine incremental cost; (2) the definition of mobile machinery;
(3) the application of ``rules similar to the rules under section
30D(f)'' to section 45W; (4) the ``no double benefit'' rule in section
45W(d)(3); (5) compliance considerations for qualified manufacturers;
(6) the definition of ``significant extent'' for purposes of section
45W(c)(3)(A); (7) the term ``property of a character subject to an
allowance for depreciation'' for purposes of section 45W(c)(4); and (8)
other terms in section 45W that require definition or additional
guidance.
The Treasury Department and the IRS received over 130 comments on
Notice 2022-56. These comments were carefully considered in the
preparation of these proposed regulations.
B. Revenue Procedures
On December 27, 2022, the Treasury Department and the IRS published
Revenue Procedure 2022-42, 2022-52 I.R.B. 565. Among other things, Rev.
Proc. 2022-42 provided guidance for qualified manufacturers to enter
into written agreements with the IRS, as required in sections 30D, 25E,
and 45W, and to report certain information regarding vehicles produced
by such manufacturers that may be eligible for credits under these
sections.
On October 23, 2023, the Treasury Department and the IRS published
Revenue Procedure 2023-33, 2023-43 I.R.B. 1135. Among other things,
Rev. Proc. 2023-33 superseded certain provisions of Rev. Proc. 2022-42,
and provided updated information on the submission of written
agreements by manufacturers to the IRS in order to be considered
qualified manufacturers, as well as updated information on the method
of submission of monthly reports by qualified manufacturers.
On December 18, 2023, the Treasury Department and the IRS published
Revenue Procedure 2023-38, 2023-51 I.R.B. 1544. Among other things,
Rev. Proc. 2023-38 updated and consolidated the procedural rules for
qualified manufacturers with respect to the section 25E credit, the
section 30D credit, and the section 45W credit, and superseded certain
provisions of Rev. Proc. 2022-42 and Rev. Proc. 2023-33.
C. Safe Harbor Notices
On January 17, 2023, the Treasury Department and the IRS published
Notice 2023-9, 2023-3 I.R.B. 402, which provides a safe harbor for
purposes of the section 45W credit regarding the incremental cost of
certain qualified commercial clean vehicles placed in service in
calendar year 2023, based on a December 2022 incremental cost analysis
by the U.S. Department of Energy (DOE) across classes of street
vehicles (DOE analysis).
On January 8, 2024, the Treasury Department and the IRS published
Notice 2024-5, 2024-2 I.R.B. 347, which provides a safe harbor for the
purposes of the section 45W credit regarding the incremental cost of
certain qualified commercial clean vehicles placed in service in
calendar year 2024. The safe harbor for 2024 is based on the DOE
analysis, as amended by the DOE in December 2023 to incorporate minor
modifications that did not alter the incremental cost results. Notice
2024-5 also requested comments regarding additional types or classes of
vehicles that should be included in the safe harbor in the future. The
Treasury Department and the IRS received comments in response to the
Notice. These comments were carefully considered in the preparation of
these proposed regulations.
D. Final Regulations Under Sections 25E, 30D, and 6213
On May 6, 2024, the Treasury Department and the IRS published final
regulations (TD 9995) in the Federal Register (89 FR 37706) providing
rules and definitions for the section 25E credit and the section 30D
credit. In addition, the final regulations provide guidance under
section 6213(g)(2)(T) through (V) of the Code on the meaning of
``mathematical or clerical error'' with regard to certain assessments
of tax without a notice of deficiency in connection with the section
25E credit, the section 30D credit, and the section 45W credit.
Explanation of Provisions
I. Overview
Proposed Sec. 1.45W-1 would provide definitions applicable to
section 45W and the section 45W regulations. Proposed Sec. 1.45W-2
would provide rules for determining the amount of the section 45W
credit, including the determination of incremental cost for qualified
commercial clean vehicles. Proposed Sec. 1.45W-3 would provide rules
related to a vehicle's qualification as a qualified commercial clean
vehicle. Proposed Sec. 1.45W-4 would provide special rules relating to
the credit eligibility of a vehicle involved in certain transactions
and uses, the interaction of the section 45W credit with other credits,
and recapture of the section 45W credit. Proposed Sec. 1.45W-5 would
provide reporting requirements for purposes of the section 45W credit.
II. Credit for Qualified Commercial Clean Vehicles; Definitions
Proposed Sec. 1.45W-1 would provide definitions applicable to
section 45W and the section 45W regulations.
A. Battery
Proposed Sec. 1.45W-1(b)(1) would define the term ``battery'' to
mean a collection of one or more battery modules, each of which has two
or more battery cells, electrically configured 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. This definition is consistent with section 45W(c)(3)(A)
because battery modules and cells are the sources from which an
electric motor draws electricity. The definition is also consistent
with the definition of battery in Sec. 1.30D-2(b)(5).
[[Page 3509]]
B. Battery Electric Vehicle
Proposed Sec. 1.45W-1(b)(2) would define the term ``battery
electric vehicle'' (BEV) as a vehicle propelled solely by an electric
motor that draws electricity from batteries capable of being recharged
from an external source of electricity. This definition is consistent
with section 45W(c)(3)(A), which requires, in part, that a qualified
commercial clean vehicle be propelled to a significant extent by an
electric motor that draws electricity from a battery.
C. Fuel Cell Electric Vehicle
Proposed Sec. 1.45W-1(b)(3) would define ``fuel cell electric
vehicle'' (FCEV) as a vehicle (i) that is propelled by power derived
from one or more cells that convert chemical energy directly into
electricity by combining oxygen with hydrogen fuel which is stored on
board the vehicle in any form and may or may not require reformation
prior to use, and (ii) that, in the case of a light duty vehicle (that
is, a passenger automobile or light truck), has received on or after
August 8, 2005 (the date of the enactment of section 30B), a
certificate that such vehicle meets or exceeds the Bin 5 Tier II
emission level established in regulations prescribed by the
Administrator of the Environmental Protection Agency (EPA) under
section 202(i) of the CAA for that make and model year vehicle. This
definition repeats the substance of section 30B(b)(3)(A) and (B) and
adds the enactment date of section 30B (August 8, 2005) to implement
section 45W(c)(3)(B), which incorporates the requirements of section
30B(b)(3)(A) and (B).
D. Gross Vehicle Weight Rating
Proposed Sec. 1.45W-1(b)(4) would define ``gross vehicle weight
rating'' (GVWR) as having the meaning provided in 49 CFR 571.3(b) and
40 CFR 86.082-2. The Department of Transportation (DOT) definition of
GVWR in 49 CFR 571.3(b) (providing definitions related to Federal Motor
Vehicle Safety Standards) is substantially identical to the EPA
definition of GVWR in 40 CFR 86.082-2 (related to the control of
emissions from highway vehicles and engines). Because ``gross vehicle
weight rating'' is a term of art embedded in the regulatory regimes of
two other Federal agencies, proposed Sec. 1.45W-1(b)(4) would provide
a definition consistent with existing DOT and EPA regulations.
E. Manufacturer
Proposed Sec. 1.45W-1(b)(5)(i) would define ``manufacturer'' as
any manufacturer within the meaning of the regulations prescribed by
the Administrator of the 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). This definition would repeat the substance of the
definition of ``manufacturer'' within section 30D(d)(3)'s definition of
``qualified manufacturer,'' which is incorporated by section 45W(c)(1).
Consistent with the definition of ``manufacturer'' provided in Sec.
1.30D-2(b)(28), proposed Sec. 1.45W-1(b)(5)(i) would provide that, 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.
In addition, the proposed rules would move the existing rule
regarding the modification of a new motor vehicle that has not yet been
placed in service from Sec. 1.30D-2(b)(28)(ii)(B) to Sec. 1.45W-
1(b)(5)(ii) so that all rules related to the section 45W credit would
be included in the section 45W regulations. This rule allows a
manufacturer that modifies a new motor vehicle (as defined in 42 U.S.C.
7550(3)) that does not satisfy the requirements of section 45W(c)(3) so
that the vehicle, after modification, does satisfy such requirements to
enter into an agreement under section 30D(d)(3) if such modification
occurs prior to the new motor vehicle being placed in service.
F. Placed in Service
Under proposed Sec. 1.45W-1(b)(6), a qualified commercial clean
vehicle would be considered ``placed in service'' on the date the
taxpayer takes possession of the vehicle. This proposed definition is
consistent with the definition provided in Sec. 1.30D-2(b)(36) and
Sec. 1.25E-1(b)(10), which gives effect, in the specific context of
vehicles, to the general concept of ``placed in service'' from other
Code provisions addressing credits and depreciation. See Sec. 1.46-
3(d)(1)(ii) and (d)(4)(i) (for qualified investments, property is
considered placed in service in the earlier of the period for
depreciation with respect to such property begins or when placed in a
condition or state of readiness and availability for a specifically
assigned function); Sec. 1.167(a)-11(e)(1)(i) (for purposes of
depreciation, property is first placed in service when first placed in
a condition or state of readiness and availability for a specifically
assigned function); 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); see also Consumers
Power Co. v. Comm'r, 89 T.C. 710 (1987) (citing Sec. Sec. 1.46-
3(d)(1)(ii) and 1.167(a)-11(e)(1)(i), hydroelectric plant placed in
service for purposes of depreciation and investment credit when all
phases of preoperational testing were completed, thereby demonstrating
that the plant was available for service on a regular basis); Noell v.
Comm'r, 66 T.C. 718, 728-729 (1976) (citing Sec. 1.46-3(d)(1)(ii),
landing strip placed in service for purposes of investment credit when
strip was paved and therefore available for full service). The proposed
definition is also consistent with regulations issued under Code
sections addressing the excise tax on heavy trucks and trailers, 26 CFR
145.4051-1(c)(2) of the Temporary Excise Tax Regulations under the
Highway Revenue Act of 1982 (Pub. L. 97-424) (``a vehicle shall be
considered placed in service on the date on which the owner of the
vehicle took actual possession of the vehicle'').
G. Plug-in Hybrid Electric Vehicle
Proposed Sec. 1.45W-1(b)(7) would define ``plug-in hybrid electric
vehicle'' (PHEV) as a vehicle that uses batteries that can be recharged
from an external source of electricity to power an electric motor that
propels the vehicle to a significant extent, and another fuel, such as
gasoline or diesel, to power an ICE or other propulsion source. This
definition is consistent with section 45W(c)(3)(A), which requires, in
part, a vehicle propelled by an electric motor that draws electricity
from a battery, and with section 45W(b)(1)(A), which contemplates
differing basis percentages for purposes of calculating the amount of
the section 45W credit depending on whether a vehicle is powered in
part by a gasoline or diesel ICE.
H. Plug-in Hybrid Fuel Cell Electric Vehicle
Proposed Sec. 1.45W-1(b)(8) would define ``plug-in hybrid fuel
cell electric vehicle'' (PHFCEV) as a vehicle that uses batteries that
can be recharged from an external source of electricity to power an
electric motor that propels the vehicle to a significant extent and a
hydrogen fuel source that powers an electric motor through the fuel
cell system. This definition is consistent with section 45W(c)(3)(A),
which requires, in part, a vehicle propelled by an electric motor that
draws electricity from a battery.
[[Page 3510]]
I. Qualified Commercial Clean Vehicle
Proposed Sec. 1.45W-1(b)(9) would define ``qualified commercial
clean vehicle'' to mean a vehicle that meets the requirements of
section 45W(c) and Sec. 1.45W-3(b) through (d). Because section
30D(d)(1)(C), incorporated by section 45W(c)(1), requires a qualified
commercial clean vehicle to be made by a qualified manufacturer,
proposed Sec. 1.45W-1(b)(9)(i), (ii), and (iii) would add that a
vehicle does not meet the requirements of section 45W(c) if the
qualified manufacturer fails to provide a periodic written report for
such vehicle prior to the vehicle being placed in service by the
taxpayer claiming the credit reporting the vehicle identification
number of such vehicle, and certifying compliance with the requirements
of section 45W(c); if the qualified manufacturer provides incorrect
information with respect to the vehicle on such report; or if the
qualified manufacturer fails to update its report in the event of a
material change with respect to the vehicle. These proposed rules are
consistent with those that apply to qualified manufacturers in the
context of other clean vehicle credits. See Sec. 1.30D-2(b)(32).
J. Qualified Manufacturer
Proposed Sec. 1.45W-1(b)(10) would define ``qualified
manufacturer,'' consistent with Sec. 1.30D-2(b)(42), to mean 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'' would not, under the proposed rule, include
any manufacturer whose qualified manufacturer status has been
terminated by the IRS. Proposed Sec. 1.45W-1(b)(10) would further
provide that the IRS may terminate qualified manufacturer status for
fraud, intentional disregard, or gross negligence with respect to any
requirements of sections 25E, 30D, 45W, regulations or any guidance
thereunder, including with respect to the periodic written reports
described in section 30D(d)(3). See Sec. 601.601 of the Statement of
Procedural Rules (26 CFR part 1).
K. Secretary
Proposed Sec. 1.45W-1(b)(11) would provide that the term
``Secretary'' has the meaning provided in section 7701(a)(11)(B) of the
Code.
L. Section 45W Regulations
Proposed Sec. 1.45W-1(b)(12) would define the term ``section 45W
regulations'' to mean Sec. Sec. 1.45W-1 through 1.45W-5.
III. Amount of Section 45W Credit; Incremental Cost
Proposed Sec. 1.45W-2 would provide rules for determining the
amount of the section 45W credit, including the determination of
incremental cost for qualified commercial clean vehicles.
A. Per-Vehicle Credit Amount
Section 45W(b)(1) provides that, subject to section 45W(b)(4), the
amount of the section 45W credit for a qualified commercial clean
vehicle placed in service during the taxable year is equal to the
lesser of: (1) 15 percent of the basis in such vehicle, or 30 percent
in the case of a vehicle not powered by a gasoline or diesel ICE; or
(2) the incremental cost of such vehicle (as that phrase is defined in
section 45W(b)(2)). Section 45W(b)(4) limits the amount of the section
45W credit with respect to any qualified commercial clean vehicle to
$7,500 in the case of a vehicle that has a GVWR of less than 14,000
pounds, and $40,000 in the case of any other vehicle.
Proposed Sec. 1.45W-2(a) would therefore provide that, subject to
the limitation in section 45W(b)(4), the per-vehicle credit amount
under section 45W(b)(1) with respect to any qualified commercial clean
vehicle is the lesser of 15 percent of the basis of such vehicle (or 30
percent in the case of a vehicle not powered by a gasoline or diesel
ICE), or the incremental cost of such vehicle.
B. Incremental Cost of a Qualified Commercial Clean Vehicle
Section 45W(b)(2) provides that the incremental cost of any
qualified commercial clean vehicle is an amount equal to the excess of
the purchase price for such vehicle over such price of a comparable
vehicle. Section 45W(b)(3) defines a comparable vehicle, with respect
to any qualified commercial clean vehicle, as a vehicle powered solely
by a gasoline or diesel ICE that is comparable in size and use to such
vehicle.
Section 45W incentivizes taxpayers to purchase vehicles with
certain clean propulsion technologies instead of vehicles powered
solely by a gasoline or diesel ICE. Any cost comparison between such
vehicles and their ICE alternatives, no matter how precisely defined,
would inevitably reflect cost differences beyond those associated with
the propulsion technologies (for example, a custom body would likely
create a cost difference between two otherwise similar vehicles). If
such cost differences were reflected in the amount of the credit, the
credit could incentivize adoption of vehicle features unrelated to the
purposes of section 45W.
Proposed Sec. 1.45W-2(b) would therefore provide that incremental
cost is determined by multiplying the manufacturer's cost of the
components necessary for the powertrain of the qualified commercial
clean vehicle by the retail price equivalent (RPE) of that vehicle, and
then subtracting from that amount the product of the manufacturer's
cost of the powertrain of the comparable vehicle and the RPE of that
vehicle. Expressed formulaically, the rule is as follows:
Incremental cost = (cost of qualified commercial clean vehicle
powertrain x RPE of qualified commercial clean vehicle)-(cost of
comparable vehicle powertrain x RPE of comparable vehicle)
This approach attempts to eliminate, to the extent possible, any
cost differences unrelated to the propulsion technologies of the
vehicles (see also the discussion of ``comparable vehicle'' in section
III.D of this Explanation of Provisions). Application of an RPE (see
section III.C of this Explanation of Provisions) adjusts the
manufacturer's cost of a powertrain to reflect the taxpayer's cost with
respect to that powertrain. See section III of this Explanation of
Provisions for a discussion of the ways in which a taxpayer might
ascertain manufacturer's costs.
The Treasury Department and the IRS, in consultation with the DOE,
are proposing an incremental cost equation based on the incremental
cost of the powertrain because the powertrain is a large fraction of
the incremental cost between a clean vehicle and a comparable vehicle
and because there is robust data available to verify the difference in
costs between vehicles. This incremental cost equation is consistent
with current modeling done by the DOE regarding the costs of clean
vehicles compared to ICE vehicles. As modeling techniques, data
capabilities, and vehicle design evolve, the Treasury Department and
the IRS will continue to study this approach.
To implement this approach in the context of the range of
propulsion technologies and configurations contemplated by the statute
(that is, BEVs, FCEVs, PHEVs, and PHFCEVs), the Treasury Department and
the IRS, in consultation with the DOE, developed specific equations and
associated definitions for BEVs, FCEVs, PHEVs, and PHFCEVs that would
be provided
[[Page 3511]]
in proposed Sec. 1.45W-2(c)(2) through (5) and (d). These equations
would be powertrain-specific versions of the general equation described
in proposed Sec. 1.45W-2(b) and would specify the cost of the
components that, with respect to each type of powertrain, comprise the
powertrain cost. For example, the cost of a BEV powertrain would, under
the rule provided in Sec. 1.45W-2(c)(2), be equal to the sum of the
costs of the electric traction drive system, the battery, and the
electrical accessories, each a term defined in Sec. 1.45W-2(d)(1)
through (3). These equations and rules provided in proposed Sec.
1.45W-2(c)(2) through (5), which address the cost of BEV, PHEV, FCEV,
and PHFCEV powertrains and the cost of ICE powertrains of comparable
vehicles, are consistent with the incremental cost provisions of
section 45W(b)(2) and (3). The Treasury Department and the IRS welcome
comments on these proposed incremental cost equations and rules. In
particular, comments are requested on whether other vehicle equipment
or aspects of a vehicle's design should be included in the incremental
cost equations. Any recommended additions, however, must be supportable
by robust, verifiable quantitative data.
C. Retail Price Equivalent and Safe Harbor
Because section 45W(b)(2) defines incremental cost in terms of
purchase price rather than manufacturer's cost, an RPE is necessary to
adjust a manufacturer's cost of a qualified commercial clean vehicle
powertrain and an ICE powertrain to reflect a taxpayer's purchase price
of such powertrains. RPEs vary from vehicle to vehicle, manufacturer to
manufacturer, and across different segments of the market (that is, a
reasonable RPE for a lightweight vehicle may differ from a reasonable
RPE for medium or a heavy-duty vehicle). Consistent with this
understanding, proposed Sec. 1.45W-2(b)(1) would allow taxpayers to
calculate the incremental cost of a qualified commercial clean vehicle
using the RPE applicable to such vehicle.
Proposed Sec. 1.45W-2(b)(3)(i) would provide that a qualified
commercial clean vehicle's RPE is determined by calculating the ratio
of the manufacturer's suggested retail price (MSRP) of such vehicle to
the manufacturer's cost to manufacture such vehicle. Proposed Sec.
1.45W-2(b)(3)(i) through (iii) would further provide that the MSRP
represents the sum of the retail price and the retail delivered price
suggested by the manufacturer for each accessory or item of optional
equipment which is not included within the retail price 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. Because RPE represents the
ratio of the MSRP of the vehicle to the manufacturer's cost, it is
understood, for purposes of the incremental cost determination required
by section 45W and proposed Sec. 1.45W-2(b)(3), to represent that
ratio with respect to every component of the vehicle, including those
that comprise the vehicle's powertrain.
The Treasury Department and the IRS understand that providing the
precise RPE for a vehicle may involve the effective disclosure of
proprietary information. For this reason, the Treasury Department and
the IRS, in consultation with the DOE, intend to provide RPE safe
harbors for different segments of the vehicle market in the near term.
Taxpayers are advised to check www.irs.gov for updates. See section
VI.C of the Background section of this preamble.
D. Comparable Vehicle
Section 45W(b)(3) provides that, for purposes of determining
incremental cost, the term ``comparable vehicle'' means, with respect
to any qualified commercial clean vehicle, any vehicle that is powered
solely by a gasoline or diesel ICE and that is comparable in size and
use to such vehicle. To clarify the meaning of ``size and use,''
proposed Sec. 1.45W-2(b)(4) would provide that a vehicle powered
solely by a gasoline or diesel ICE is comparable in size and use to a
qualified commercial clean vehicle if the vehicles have substantially
similar GVWRs, number of doors, towing capacity, passenger capacity,
cargo capacity, mounted equipment, drivetrain type, overall width,
height and ground clearance, trim level, and so on. The Treasury
Department and the IRS intend this list to be representative of the
types of criteria under which the comparability of two vehicles would
be assessed. This list also distinguishes such criteria from the mere
performance characteristics of powertrains (which, if used as a sole
basis for comparison, could result in a negative incremental cost and
therefore a section 45W credit of $0). In other words, a solely
gasoline- or diesel-powered ICE vehicle is not necessarily comparable
to a qualified commercial clean vehicle simply because the performance
characteristics of the powertrains are identical. Rather, a comparable
vehicle must be in the same class and share other characteristics, as
appropriate to the vehicle, such as number of doors, cargo capacity,
drivetrain type, and trim level. See the example provided in Sec.
1.45W-2(b)(4)(iv).
Proposed Sec. 1.45W-2(b)(4)(ii) would provide that, in the
specific circumstance where the qualified manufacturer of a qualified
commercial clean vehicle manufactures a solely gasoline- or diesel-
powered ICE version (excluding prototype or other non-production
versions) of such qualified commercial clean vehicle, meaning a vehicle
of the same model and model year, and with features substantially
similar to those of the qualified commercial clean vehicle (such as
those noted in the prior paragraph), such vehicle is the only
comparable vehicle for purposes of the incremental cost determination
under section 45W(b)(1)(B) and (2). In circumstances in which a
qualified manufacturer of a qualified commercial clean vehicle does not
manufacture a solely gasoline- or diesel-powered ICE version of such
qualified commercial clean vehicle that is of the same model and model
year, and with features substantially similar to those of the qualified
commercial clean vehicle, the comparable vehicle for purposes of the
incremental cost determination under section 45W(b)(1)(B) and (2) would
be determined by the taxpayer (or manufacturer) based on the criteria
identified in the prior paragraph.
E. Negative Incremental Cost Treated as Zero
Proposed Sec. 1.45W-2(c)(8) would treat an incremental cost
calculation that results in a negative figure (meaning the qualified
manufacturer's cost of the qualified commercial clean vehicle's
powertrain is less than the manufacturer's cost of the ICE powertrain
of a comparable vehicle) as zero. Because zero would in every case be
the lesser of the allowable basis percentage, as provided in section
45W(b)(1), no credit would be allowed with respect to such vehicle.
This rule is consistent with the ``lesser of'' comparison required by
section 45W(b)(1) and the general purpose of section 45W to incentivize
the purchase of vehicles with certain clean propulsion technologies
instead of ICE alternatives. The fact that a taxpayer's calculation of
incremental cost under the general rule is zero for a particular
qualified commercial clean vehicle would not preclude that taxpayer
from using a safe harbor described in proposed Sec. 1.45W-2(c)(11) to
determine incremental cost in order to claim the section 45W credit
with respect to that vehicle.
[[Page 3512]]
F. Incremental Cost if No Comparable Vehicle Exists
If the particular characteristics of a qualified commercial clean
vehicle lead a taxpayer to conclude that no comparable vehicle exists
and, as a result, no incremental cost is calculable for that vehicle,
proposed Sec. 1.45W-2(c)(9) would provide that the incremental cost of
such vehicle is zero. However, consistent with the proposed rule
described in the preceding paragraph, the fact that the incremental
cost under the general rule is zero for a particular qualified
commercial clean vehicle does not preclude that taxpayer from using a
safe harbor described in proposed Sec. 1.45W-2(c)(11) to determine
incremental cost in order to claim the section 45W credit with respect
to that vehicle. This proposed rule would apply only to situations in
which no ICE vehicle alternative is produced by any manufacturer, for
example, because the intended operating environment precludes the use
of ICE vehicles. At this time, the Treasury Department and the IRS, in
consultation with the DOE, have not identified any qualified commercial
clean vehicles for which no comparable vehicle exists. For these
reasons, proposed Sec. 1.45W-2(c)(9) is expected to be relevant only
in rare instances. The Treasury Department and the IRS note that
proposed Sec. 1.45W-2(c)(9) aligns with one purpose of section 45W--to
incentivize the adoption of electric, hybrid, and fuel cell vehicles
instead of ICE alternatives.
G. Power Takeoffs
Some vehicles eligible for the section 45W credit may use power
takeoffs to transmit power to drive machinery or equipment other than
the vehicle itself.
In the case of a BEV or hybrid vehicle, the use of power takeoffs
might necessitate additional batteries; in the case of an FCEV, the use
of power takeoffs might necessitate additional fuel cells or additional
hydrogen storage. This situation, however, appears indistinguishable
from a situation in which a BEV or hybrid vehicle might be equipped
with additional batteries for other reasons (for example, extended
range), or a situation in which an FCEV might be equipped with
additional fuel cells for other reasons. Even if this were not the
case, determining, at the time the taxpayer claims the credit, the
relative extent to which the batteries in any given qualified
commercial clean vehicle might be employed to power the vehicle and the
ancillary machinery would present significant challenges. As a result,
proposed Sec. 1.45W-2(c)(7) would provide that the incremental cost
calculation for a qualified commercial clean vehicle with a power
takeoff would be carried out in the same manner as the incremental cost
calculation for a qualified commercial clean vehicle without a power
takeoff. Specifically, an appropriate comparable vehicle would be
selected (likely a vehicle with the same type of takeoff-powered
machinery or equipment or machinery) and the manufacturer's cost of the
ICE powertrain would be subtracted from the qualified manufacturer's
cost of the BEV, FCEV, PHEV, or PHFCEV powertrain (inclusive of any
additional batteries, fuel cells, or hydrogen storage).
H. Auxiliary Power Units
Some vehicles eligible for the section 45W credit may use auxiliary
power units (APUs) to drive machinery or equipment that is mounted or
installed on the vehicle; such APUs are not necessarily electric,
hybrid, or fuel cell based. Proposed Sec. 1.45W-2(c)(6) would clarify
that the incremental cost of qualified commercial clean vehicles
outfitted with APUs is calculated exclusive of the installed APUs. For
example, the comparable vehicle for a BEV outfitted with an APU to
drive an aerial lift may be an ICE truck outfitted with an APU to drive
an aerial lift (see discussion of comparable vehicles in section III.D
of this Explanation of Provisions), but the manufacturer's cost of the
APU is disregarded in the incremental cost equation for both the BEV
and the ICE vehicles. Similarly, to calculate the incremental cost of a
FCEV with an installed APU that powers the refrigeration unit, the
appropriate comparable vehicle may be an ICE refrigerator truck, but
the manufacturer's cost of the APU is disregarded for both vehicles.
I. Reliance on Qualified Manufacturer's Incremental Cost Calculation
and Safe Harbor
Information regarding a qualified manufacturer's cost for the
components of a qualified commercial clean vehicle powertrain may not
be readily available to taxpayers. If a qualified manufacturer
discloses this information to a taxpayer to facilitate the taxpayer's
calculation of incremental cost, or if the qualified manufacturer
discloses its incremental cost calculation for a qualified commercial
clean vehicle it manufactures as provided in section 45W and these
regulations, proposed Sec. 1.45W-2(c)(10) would permit taxpayers to
rely on such disclosure. Taxpayers would, however, be required to
retain the disclosure documentation in their records as long as the
period of limitations for the taxable period in which the credit was
claimed remains open. A qualified manufacturer that discloses its
incremental cost calculation for a qualified commercial clean vehicle
it manufactures must base such incremental cost calculation on actual
cost data for both the qualified commercial clean vehicle and the
comparable vehicle. Similarly, a taxpayer that calculates incremental
cost by using cost data for the qualified commercial clean vehicle
provided by the qualified manufacturer must use actual cost data for
the comparable vehicle for such calculation. See the definition of
``qualified manufacturer'' provided in proposed Sec. 1.45W-1(b)(10)
and discussed in section II.J of this Explanation of Provisions for the
potential consequences of qualified manufacturer fraud, intentional
disregard, and gross negligence with respect to the requirements of
section 45W, the section 45W regulations, and any guidance issued under
section 45W.
Alternatively, taxpayers may rely on the incremental cost safe
harbors published in Notice 2023-9 and Notice 2024-5, and any
succeeding guidance published in the Internal Revenue Bulletin, as
applicable, for the taxable year in which a credit is claimed. These
incremental cost safe harbors are based on the incremental cost
analysis conducted by the DOE, as described in periodic reports
published by the DOE.
J. Powertrain Subcomponents
The Treasury Department and the IRS, in consultation with the DOE,
developed proposed Sec. 1.45W-2(d)(1) through (9) to provide
definitions and clarify the typical subcomponents of a BEV, FCEV, PHEV,
PHFCEV, and ICE powertrain for purposes of determining a qualified
commercial clean vehicle's incremental cost under section 45W(b)(2) and
(3) and Sec. 1.45W-2(c). Recognizing that different vehicles may
implement different technologies, system configurations, and design
decisions, the subcomponents listed in the definitions in Sec. 1.45W-
2(d)(1) through (9) are not intended to prescribe required
subcomponents or to be an exhaustive list of those that may be
appropriate to consider for purposes of determining the incremental
cost of a given vehicle. For example, the qualified manufacturer's cost
of a BEV powertrain must reflect the qualified manufacturer's cost of
the electric traction drive system, battery, transmission, and
electrical accessories, but each of those components are comprised of
subcomponents that may vary among vehicles.
[[Page 3513]]
K. Incremental Cost of Qualified Commercial Clean Vehicle Previously
Placed in Service by Another Person
Proposed Sec. 1.45W-2(f)(1) would provide that the incremental
cost of a qualified commercial clean vehicle previously placed in
service by another person is calculated by multiplying the incremental
cost of such vehicle when new by a residual value factor determined by
the age of the vehicle. Proposed Sec. 1.45W-2(f)(2) would provide that
the age of such a vehicle is determined by subtracting the model year
of the vehicle from the calendar year in which the taxpayer places the
vehicle in service as a qualified commercial clean vehicle. Because
model years are, in some cases, released ahead of calendar years, and
because it is possible for a single vehicle to be sold more than once
within a twelve-month period, an age of zero (or a negative number in
the case of a vehicle placed in service twice before the calendar year
corresponding to its model year) does not result in an incremental cost
of a used qualified commercial clean vehicle equal to that of the
vehicle when new.
The residual value factor table in proposed Sec. 1.45W-2(f)(3)
reflects an analysis conducted by the DOE with respect to the decline
in the value of vehicles with ICE powertrains over time. The analysis
for light-duty vehicles (Class 1-3 Passenger Car and Light Truck)
utilized MSRP and ``True Market Value'' estimates from Edmunds to
calculate residual values across specific makes and models,
powertrains, vehicle age, and size classes for vehicles with model
years from 2010 to 2021. For medium to heavy duty vehicles (Class 4-8),
residual values were calculated from used vehicle listing data from
Commercial Truck Trader and TruckPaper.com, validated against data from
Price Digests for vehicles with model years from 2000 to 2020. As a
mature propulsion technology, ICE vehicles exhibit a relatively stable
pattern of declining value compared to their clean vehicle
counterparts, meaning, in part, that ICE vehicles tend to retain more
value over time than clean vehicles. Analysis of the declining value
patterns of ICE vehicles compared to their clean counterparts, however,
suggests that the residual values of clean vehicles are coming into
alignment with those of ICE vehicles. As a result, the ICE vehicle
depreciation pattern represents a good approximation of the likely
depreciation pattern for clean vehicles as clean vehicle technologies
continue to mature. The residual value factor is applied to the
incremental cost of the qualified commercial clean vehicle when new,
regardless of whether that incremental cost is determined by the
taxpayer, supplied to the taxpayer by the qualified manufacturer, or
provided by safe harbor guidance published in the Internal Revenue
Bulletin for the tax year in which such vehicle is originally placed in
service.
IV. Qualified Commercial Clean Vehicle
Proposed Sec. 1.45W-3 would provide rules related to a vehicle's
qualification as a qualified commercial clean vehicle.
A. Vehicles Acquired for Use or Lease and Not for Resale
Section 45W(c)(1) provides, in part, that a qualified commercial
clean vehicle must be acquired for use or lease by the taxpayer and not
for resale. Proposed Sec. 1.45W-3(b)(1), would provide that, except in
cases involving tax-exempt entities identified in section 45W(d)(2), a
taxpayer acquires a vehicle for use or lease if the taxpayer acquires
it for use or lease in a trade or business of the taxpayer. Thus, for
example, if a taxpayer that is engaged in the business of leasing
vehicles to customers acquires a commercial clean vehicle for the
purpose of leasing the vehicle to customers as part of that business,
this requirement would be satisfied.\2\ For further consideration of
vehicles purchased by a vehicle leasing business qualifying for a
section 45W credit, see the recapture rules explained in V.E of this
Explanation of Provisions.
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\2\ Whether an activity is treated as a trade or business
depends on the facts and circumstances of the activity. Courts have
considered factors such as the profit motive of the taxpayer and the
regularity and continuity of the activity. Commissioner v.
Groetzinger, 480 U.S. 23 (1987).
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Proposed Sec. 1.45W-3(b)(1) is consistent with the requirement
under section 45W(c)(4) that the vehicle be of a character subject to
the allowance for depreciation, which, under section 167(a), extends
only to property used in a trade or business or held for the production
of income. The proposed rule is also consistent with the trade or
business purposes expressed in section 45W(c)(1), the statutory
identification of the section 45W credit as being for ``commercial''
clean vehicles, and the allowance of the credit as a section 38 general
business credit.
If the lease of a qualified commercial clean vehicle would not be
respected as a lease for Federal income tax purposes, proposed Sec.
1.45W-3(b)(2) would treat the lessor as having acquired the vehicle for
resale and disallow the credit to such lessor with respect to the
purportedly leased vehicle. Whether the lessee may claim the section
45W credit with respect to the vehicle would depend on whether the
requirements of section 45W and the section 45W regulations are met
with respect to the vehicle. This rule, which recognizes that a sale
may, in some cases, be mischaracterized as a lease for Federal income
tax purposes, aligns with section 45W(c)(1) to limit ``use and lease''
to the scenarios in which the section 45W credit is allowable to a
taxpayer.
B. On-Road Vehicles
Section 45W(c)(2)(A) provides that a qualified commercial clean
vehicle may be a vehicle ``that meets the requirements of subparagraph
(D) of section 30D(d)(1) and is manufactured primarily for use on
public streets, roads, and highways (not including a vehicle operated
exclusively on a rail or rails).'' Regarding the former requirement,
section 30D(d)(1)(D) states that the vehicle must be ``treated as a
motor vehicle for purposes of title II of the [CAA],'' a determination
that implicitly incorporates the EPA's application of the relevant CAA
provisions, as well as any applicable regulations or guidance
thereunder. The latter requirement, ``manufactured primarily for use on
public streets, roads, and highways,'' occurs with sufficient frequency
in the Internal Revenue Code, the U.S. Code more broadly, and various
regulations and guidance issued thereunder to warrant deference to
existing understandings of the phrase across Federal statutes.
Section 45W(c)(2)(B) provides, in the alternative, that a qualified
commercial clean vehicle may be a vehicle ``that is mobile machinery,
as defined in section 4053(8) (including vehicles that are not designed
to perform a function of transporting a load over the public
highways).'' The definition of mobile machinery provided in section
4053(8) presents significant challenges for taxpayers and the IRS in
the context of section 45W. For a discussion of the complexities of
section 4053(8) in the context of section 45W generally, and the
implications of those complexities for the credit-eligibility of off-
road vehicles in particular, see section VII of this Explanation of
Provisions.
Section 4053(8) is an exemption to certain Federal excise taxes
imposed on highway vehicles (see sections 4051(a), 4071(a), and
4481(a)), a concept defined in Sec. 48.4061(a)-1(d) of the
Manufacturers and Retailers Excise Tax Regulations as ``any self-
propelled vehicle, or any trailer or semitrailer, designed to perform a
function of transporting a load over public highways, whether or not
also designed
[[Page 3514]]
to perform other functions.'' In other words, mobile machinery as
defined in 4053(8), in the context of existing Federal excise taxes, is
meaningful only as a subset of highway vehicles. As a result, most, if
not all, vehicles traditionally considered ``mobile machinery''
(including those exempt from the aforementioned Federal excise taxes)
would be eligible for the section 45W credit under section
45W(c)(2)(A).
A vehicle may satisfy the requirements of both section 45W(c)(2)(A)
and (B). For example, a digger derrick truck exempt from the tax
imposed by section 4051 by reason of section 4053(8) would qualify for
the credit under section 45W(c)(2)(B). Furthermore, because it is a
``highway vehicle'' under Sec. 48.4061(a)-1(d), the digger derrick
would almost certainly also qualify under section 45W(c)(2)(A), meaning
that it would be treated as a motor vehicle for purposes of title II of
the CAA and be considered manufactured primarily for use on the public
streets, roads, and highways. In such instances, the taxpayer may
choose the prong of section 45W(c)(2) under which the vehicle will
qualify, which may be relevant for recordkeeping and other purposes.
C. Electric Motor and Battery Requirements
Section 45W(c)(3)(A) provides requirements with respect to the
electric motor and battery of certain qualified commercial clean
vehicles. In part, section 45W(c)(3)(A) requires that a qualified
commercial clean vehicle be propelled to a significant extent by an
electric motor that draws electricity from a battery that meets certain
specifications depending on the GVWR of the vehicle. Proposed Sec.
1.45W-3(d)(1) would repeat the substance of section 45W(c)(3)(A).
Proposed Sec. 1.45W-3(d)(2) would clarify that a battery is capable of
being recharged from an external source of electricity if such source
of electricity is not an integral part of the vehicle. Proposed Sec.
1.45W-3(d)(2) would also provide the example of a regenerative braking
system as an integral part of the vehicle and, thus, not an external
source of electricity. This rule would render certain hybrid vehicles
ineligible for the section 45W credit, a result consistent with the
requirement that the vehicle be propelled to a significant extent by an
electric motor which draws electricity from a battery and the
requirement for an external source of electricity.
V. Special Rules
Section 45W(d) provides three special rules. First, section
45W(d)(1) provides, by cross reference to section 30D(f), that rules
similar to the rules under section 30D(f)(1) through (9) apply for
purposes of the section 45W credit. Second, section 45W(d)(2) provides
that a qualified commercial clean vehicle placed in service by a tax-
exempt entity described in section 168(h)(2)(A)(i), (ii), or (iv) is
not required to be of a character subject to the allowance for
depreciation if it is not subject to a lease. Third, section 45W(d)(3)
provides that any vehicle for which a credit was allowed under section
30D is not allowed a section 45W credit.
Proposed Sec. 1.45W-4 would provide special rules relating to the
credit eligibility of a vehicle resulting from certain transactions and
uses, the interaction of the section 45W credit with other credits, and
recapture of the section 45W credit. These rules are described in Part
V.A. through E. of this Explanation of Provisions.
A. No Double Benefit Rule
Section 30D(f)(8), as incorporated by section 45W(d)(1), provides
that a section 45W credit is allowed only once with respect to a
vehicle, as determined based upon the vehicle identification number of
such vehicle. Section 45W(d)(3) provides that no credit is allowed
under section 45W with respect to any vehicle for which a credit was
allowed under section 30D. To consolidate these two rules, proposed
Sec. 1.45W-4(a)(1) would provide that no credit will be allowed under
section 45W(a) with respect to any vehicle for which a section 45W
credit or a section 30D credit was previously allowed for such vehicle.
Section 45W(d)(1), which incorporates section 30D(f)(2), provides a
general no double benefit rule with respect to any deduction or other
credit allowable under chapter 1 for a vehicle for which a credit was
allowed under section 45W. Proposed Sec. 1.45W-4(a)(2) would repeat
the substance of section 30D(f)(2). This proposed rule is consistent
with the no double benefit rule provided in Sec. 1.25E-2(b)(1).
B. Vehicles Previously Placed in Service
Section 45W does not explicitly prohibit vehicles previously placed
in service from being eligible for a section 45W credit.\3\ Vehicles
previously placed in service present challenges with regard to the
statutory no double benefit rules in that taxpayers seeking to claim
the section 45W credit for such vehicles may not have access to
information about whether a deduction or credit was previously allowed,
or to what extent, and the IRS would be prohibited from providing such
information because disclosure of information related to another
taxpayer's claim for a tax credit for a particular vehicle is
confidential return information and is protected from disclosure under
section 6103 of the Code. Nonetheless, the normal rules requiring
taxpayers to establish their entitlement to a credit or other tax
benefit apply. Accordingly, a taxpayer claiming a 45W credit for a
vehicle previously placed in service must maintain evidence in their
books and records sufficient to establish that no credit under section
30D or section 45W has been allowed previously with respect to the
vehicle, and in the case of any prior credit allowed under section 25E,
the amount of such prior credit, and must provide such information to
the IRS upon request. See Sec. 1.6001-1; Roberts v. Comm'r, 62 T.C.
834, 836 (T.C. 1974); Isaacs v. Comm'r, 109 T.C.M. (CCH) 1624 (T.C.
2015). Such evidence may include signed attestations from all previous
owners that a credit was not claimed with respect to such vehicle.
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\3\ In the Description of Energy Tax Changes Made by Public Law
117-169, the Joint Committee on Taxation describes section 45W as
``creat[ing] a credit for qualified commercial clean vehicles
originally placed in service by a taxpayer,'' and in footnote 111
adds: ``A technical correction may be necessary to reflect this
intent.'' JCT, Description of Energy Tax Changes Made by Public Law
117-169, p. 58 (Apr. 19, 2023).
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The proposed regulations would also amend Sec. 1.25E-2 by adding a
new paragraph (b)(3), which would clarify that a vehicle for which a
credit was allowed under section 45W may qualify for a section 25E
credit in a subsequent year with no reduction in the amount of
allowable section 25E credit. This rule would be consistent with Sec.
1.25E-2(b)(2), which provides a similar rule regarding the interaction
between the section 25E credit and the section 30D credit.
C. Credit Ineligibility Resulting From Certain Transactions and Uses
Proposed Sec. 1.45W-4(b)(2) would provide that if a sale of a
qualified commercial clean vehicle is cancelled before the taxpayer
places the vehicle in service, then (i) the taxpayer may not claim the
section 45W credit with respect to such vehicle; (ii) the vehicle may
still be eligible for the section 45W credit; and (iii) a subsequent
buyer will not be required to apply the residual value rules of Sec.
1.45W-2(f)(3) to determine the incremental cost of the vehicle.
Proposed Sec. 1.45W-4(b)(3) would provide that if a taxpayer
returns a qualified commercial clean vehicle to the seller within 30
days of placing such vehicle in service, then (i) the taxpayer may not
claim the section 45W credit
[[Page 3515]]
with respect to such vehicle; (ii) the vehicle may still be eligible
for the section 45W credit; and (iii) a subsequent buyer must apply the
residual value rules of Sec. 1.45W-2(f)(3) to determine the
incremental cost of the vehicle.
In the case of a resale of a qualified commercial clean vehicle,
proposed Sec. 1.45W-4(b)(4) would provide that if a taxpayer resells
such vehicle within 30 days of placing the vehicle in service, then (i)
the taxpayer is treated as having acquired such vehicle with the intent
to resell; (ii) the taxpayer may not claim the section 45W credit with
respect to the vehicle; (iii) the vehicle may still be eligible for the
section 45W credit; and (iv) a subsequent buyer must apply the residual
value rules of Sec. 1.45W-2(f)(3) to determine the incremental cost of
the vehicle.
D. Business Use of Qualified Commercial Clean Vehicle Required
Section 45W(c)(4) requires a qualified commercial clean vehicle to
be of a character subject to the allowance for depreciation. Nothing in
section 45W indicates that a partial section 45W credit is allowable
with respect to a vehicle that is used only partially for business use
and is therefore only partially depreciable. Section 30D, a related
clean vehicle credit that was amended by the IRA, explicitly includes
an allocation rule to treat such credit as either a business or
personal credit based upon business or personal use. See section
30D(c)(1). Section 30C, also enacted as part of the IRA, has a similar
allocation rule. See section 30C(d)(1). The absence of such an
allocation rule in section 45W, which was enacted as part of the same
legislation, suggests that Congress did not intend for the section 45W
credit to reflect less than 100 percent business use.
Proposed Sec. 1.45W-4(b)(5) would provide that if a taxpayer's
trade or business use of a qualified commercial clean vehicle is less
than 100 percent of the taxpayer's total use of that vehicle (with the
exception of incidental personal use, such as a stop for lunch on the
way between two job sites) for the taxable year such vehicle is placed
in service, including because the vehicle is sold or otherwise disposed
of, then the vehicle is ineligible for the section 45W credit. This
rule would also apply to a qualified commercial clean vehicle placed in
service by a tax-exempt entity, except that 100 percent trade or
business use means the tax-exempt entity's use that is related to an
exempt purpose or an unrelated trade or business purpose.
E. Recapture
Section 30D(f)(5), which is incorporated in section 45W(d)(1),
authorizes the Secretary to provide for recapturing the benefit of any
section 45W credit allowable with respect to any property which ceases
to be property eligible for such credit. Proposed Sec. 1.45W-
4(c)(2)(i) would provide that if a taxpayer ceases to use the vehicle
for 100 percent trade or business use during the 18-month period
beginning on the date the vehicle is placed in service, including
because the vehicle is sold or otherwise disposed of, then (i) the
taxpayer may not claim the section 45W credit with respect to the
vehicle, and if the taxpayer has already claimed the credit, the credit
is recaptured; (ii) the vehicle may still be eligible for the section
45W credit; and (iii) a subsequent buyer must apply the residual value
rules of Sec. 1.45W-2(f)(3) to determine the incremental cost of the
vehicle. In determining the 18-month period as the appropriate length
of time for which the vehicle must be used in a trade or business for
purposes of recapturing the benefit of any section 45W credit
allowable, the Treasury Department and the IRS took into consideration
commercial vehicle leasing practices and sought to accommodate such
practices.
Proposed Sec. 1.45W-4(c)(2)(ii) would provide that, for a vehicle
placed in service by a tax-exempt entity, the 100 percent trade or
business use rule (excepting incidental personal use) in Sec. 1.45W-
4(b)(5) applies, which means use for an exempt purpose or unrelated
trade or business purpose.
F. Elective Payment Election
1. Section 6417
Section 6417, enacted by the IRA, provides a benefit to applicable
entities (defined in section 6417(d)(1)(A) and Sec. 1.6417-1(c)),
which include certain tax-exempt and government entities that are
described in section 50(b)(3) or (4). Section 6417 allows an applicable
entity to make an election to be treated as making a payment of tax in
the amount of certain applicable credits, including the section 45W
credit, which results in a refund equal to the amount of the applicable
credits if such entity has no other tax liability. Section
6417(d)(2)(A) requires an entity making an election to determine an
applicable credit without regard to section 50(b)(3) or (4)(A)(i),
effectively turning those sections off for purposes of calculating an
applicable credit.
These proposed regulations would make a clarification to proposed
Sec. 1.6417-6(b)(1) \4\ to align with these proposed section 45W
regulations. Proposed Sec. 1.6417-6(b)(1) in these proposed
regulations would add a reference to section 45W(d)(1) (which
incorporates the rules of section 30D(f)(1) related to basis reduction
and section 30D(f)(5) and the related proposed Sec. 1.45W-4(c)
pertaining to recapture) to the list of examples of provisions of the
Code that apply. Accordingly, proposed Sec. 1.6417-6(b)(1) would state
that if ``another provision of the Code contains a rule that operates
without reference to section 50 to reduce the basis of property with
respect to which an applicable credit is determined and/or recapture
any amount of an applicable credit (such as sections 30C, 45Q(f)(4),
45W(d)(1), and 48(a)(10)), then the rules of that provision of the Code
and the regulations issued under that provision of the Code apply,
except that any applicable credit continues to be determined without
regard to section 50(b)(3) and (4)(A)(i) and by treating any property
with respect to which such applicable credit is determined as used in a
trade or business of the applicable entity, consistent with section
6417(d)(2) and Sec. 1.6417-2(c).''
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\4\ Revisions to Sec. 1.6417-6(b)(1) were previously proposed
in the notice of proposed rulemaking (REG-118269-23), published in
the Federal Register (89 FR 76759, September 19, 2024), which sets
forth rules regarding the Section 30C Alternative Fuel Vehicle
Refueling Property Credit. These proposed regulations include
identical proposed language to Sec. 1.6417-6(b)(1) other than the
addition of a reference to section 45W(d)(1).
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2. Leases
Section 45W(d)(2) provides that the section 45W(c)(4) rule
regarding depreciation does not apply to any vehicle that is not
subject to a lease and that is placed in service by a tax-exempt entity
described in section 168(h)(2)(A)(i), (ii), or (iv).
Proposed Sec. 1.45W-4(d)(3) would provide that for purposes of
section 45W(d)(2), a vehicle is ``subject to a lease'' if it is leased
within 30 days of being placed in service by a tax-exempt entity. For
example, a school district purchases and places in service a fleet of
electric school buses that otherwise qualify for the section 45W
credit. The school district then leases the fleet to a school
transportation contractor 31 days after the school district placed the
fleet in service. The fleet of electric school buses is not subject to
a lease within the meaning of section 45W(d)(2) and proposed Sec.
1.45W-4(d)(3) because the buses were leased more than 30 days after
being placed in service by the school district. As a result, the fleet
of
[[Page 3516]]
electric school buses may be eligible for the section 45W credit.
This definition of ``subject to a lease'' aligns with the statutory
language that tax-exempt entities may be eligible for the section 45W
credit if the qualified commercial clean vehicle at issue meets the
relevant criteria near the time of being placed in service, which is
when vehicle eligibility is measured.
VI. Reporting Requirements
Proposed Sec. 1.45W-5 would provide reporting requirements for
purposes of the section 45W credit.
A. Requirement To File Return
Section 45W(e) provides that no section 45W credit can be
determined with respect to any vehicle unless the taxpayer includes the
vehicle identification number of such vehicle on the return of tax for
the taxable year. Proposed Sec. 1.45W-5(a) would provide that no
section 45W 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 qualified commercial
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 qualified commercial clean
vehicle.
B. Credit May Generally Be Claimed on Only One Tax Return
Proposed Sec. 1.45W-5(b)(1) would provide a general rule, subject
to the exceptions discussed later in this Explanation of Provisions,
that the amount of the section 45W credit attributable to a qualified
commercial clean vehicle may be claimed on only one Federal income tax
return, including on a joint return in which one of the spouses or the
spouse's wholly-owned business entity is listed on the title as the
sole owner of the vehicle. In the event a qualified commercial clean
vehicle is placed in service by multiple taxpayers that 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 45W
credit will be available, and only one of the taxpayers placing the
qualified commercial clean vehicle in service will be eligible for the
entirety of the allowable section 45W credit.
Proposed Sec. 1.45W-5(b)(2) would provide a rule for grantor
trusts. Specifically, proposed Sec. 1.45W-5(b)(2) would provide that
for qualified commercial clean vehicles placed in service by a trust,
to the extent 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
45W credit will be allocated to such grantor or other person in
accordance with Sec. 1.671-3(a)(1).
Proposed Sec. 1.45W-5(b)(3) would provide an exception for
qualified commercial clean vehicles placed in service by certain
passthrough entities, namely a partnership or S corporation. In such
cases, the section 45W credit will be allocated among the partners of
the partnership under Sec. 1.704-1(b)(4)(ii) or among the shareholders
of the S corporation under sections 1366(a) and 1377(a) of the Code and
claimed on the tax returns of the ultimate partners or of the S
corporation shareholders.
C. Taxpayer Reliance on Manufacturer Certifications and Periodic
Written Reports to IRS
Proposed Sec. 1.45W-5(c) would allow taxpayers to rely on certain
certifications and information provided by a manufacturer. Under this
proposed rule, a taxpayer that acquires a qualified commercial clean
vehicle and places it in service would be able to 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. To the extent a taxpayer relies on
certifications or attestations from the qualified manufacturer, the
qualified commercial clean vehicle the taxpayer acquires will be deemed
to meet the requirements of sections 30D(d)(1)(C) and 45W(c)(1).
VII. Off-Road Mobile Machinery
Section 45W(c)(2) provides, in part, that the term ``qualified
commercial clean vehicle'' includes ``mobile machinery, as defined in
section 4053(8) (including vehicles that are not designed to perform a
function of transporting a load over the public highways).'' Section
4053(8), in turn, defines mobile machinery as any vehicle which
consists of a chassis (A) to which there has been permanently mounted
(by welding, bolting, riveting, or other means) machinery or equipment
to perform a construction, manufacturing, processing, farming, mining,
drilling, timbering, or similar operation if the operation of the
machinery or equipment is unrelated to transportation on or off the
public highways, (B) which has been specially designed to serve only as
a mobile carriage and mount (and a power source, if applicable) for the
particular machinery or equipment involved, whether or not such
machinery or equipment is in operation, and (C) which, by reason of
such special design, could not, without substantial structural
modification, be used as a component of a vehicle designed to perform a
function of transporting any load other than that particular machinery
or equipment or similar machinery or equipment requiring such a
specially designed chassis.
Section 4053(8) is an exemption from the tax imposed by section
4051(a) and has been employed as an exemption from the taxes imposed by
sections 4071(a) and 4481(a), all of which contribute to the Highway
Trust Fund. See section 9503(b) of the Code. In that context, the
section 4053(8) definition is relevant only to highway vehicles,
defined in Sec. 48.4061(a)-1(d) \5\ as ``any self-propelled vehicle,
or any trailer or semitrailer, designed to perform a function of
transporting a load over public highways, whether or not also designed
to perform other functions.'' The parenthetical in section
45W(c)(2)(B)--``including vehicles that are not designed to perform a
function of transporting a load over the public highways''--contradicts
that definition and, therefore, arguably expands the traditional
category of ``mobile machinery'' to include off-road vehicles. Such an
expanded category might, for purposes of section 45W, include certain
agricultural vehicles, construction vehicles, forestry vehicles,
utility vehicles designed for airport operations, and other types of
off-road vehicles.
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\5\ The section 4061 manufacturers excise tax on certain highway
vehicles was repealed and replaced with the section 4051 retail
excise tax on similar vehicles. See Highway Revenue Act of 1982
(Public Law 97-424), effective April 1, 1983. The Sec. 48.4061(a)-
1(d) definition of ``highway vehicle'' is incorporated into the
current section 4051 regime by Sec. 145.4051-1(a)(2).
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However, section 4053(8) and several provisions of section 45W
present significant challenges with respect to the administrability of
a section 45W credit that encompasses such off-road vehicles.
Recognizing that, whenever possible, every word and every provision of
a statute should be given effect, Washington Market Co. v. Hoffman, 101
U.S. 112, 115-6 (1879), the Treasury Department and the IRS continue to
study, and request any relevant comments on, the considerations
described in section
[[Page 3517]]
VII.A through G of this Explanation of Provisions.
A. Section 4053(8) as Applied to Off-Road Vehicles
The definition of ``mobile machinery'' provided in section 4053(8)
is vehicle specific and fact intensive. Vehicles with chassis that
include a pintle hook or that have been modified to accommodate a water
tank do not qualify as mobile machinery because such vehicles are not
specially designed to serve only (solely) as the mobile carriage or
mount for the mounted equipment or machinery. Florida Power & Light Co.
v. U.S., 375 F.3d 1119 (Fed. Cir. 2004). For the same reason, peanut
drying trailers and boat trailers are not mobile machinery. Rockwater,
Inc. v. U.S., No. 4:21-CV-00125-CDL, 2023 WL 2473452 (M.D. Ga. Jan. 3,
2023), aff'd in part, reversed in part and remanded in part, 2024 WL
4799277, (11th Cir. Nov. 16, 2024); Hostar Marine Transp. Systems, Inc.
v. U.S., No. 06-10834-DPW, 2008 WL 4615464 (D. Mass. Oct. 16, 2008),
aff'd, 592 F.3d 202 (1st Cir. 2010). In addition, highway tractors
fitted with winches, compressors, or blowers are not mobile machinery
because such equipment, used to load or unload cargo, is not
``unrelated to transportation on or off the public highways.''
Schlumberger Technology Corp. and Subsidiaries v. U.S., 55 Fed. Cl. 203
(2003).
When applied to off-road vehicles, a category to which section
4053(8) was not traditionally relevant, the text of section 4053(8)
presents significant challenges for taxpayers and the IRS. Particular
vehicles would, on a vehicle-by-vehicle basis, be rendered ineligible
for the section 45W credit for reasons irrelevant to the purpose of the
credit, such as the presence of a pintle hook or the fact that the
vehicle can carry a load other than its mounted machinery or equipment.
Consideration of these types of vehicle features, although critical to
ensuring the correct taxation of highway vehicles for purposes of the
Highway Trust Fund, would lead to arbitrary results in the context of a
credit intended to incentivize the use of clean vehicle propulsion
technologies--for example, the eligibility of one vehicle for the
section 45W credit and the ineligibility of an identical vehicle,
except for the addition of a pintle hook.
To mitigate these challenges, the Treasury Department and the IRS
are considering an approach that would deem off-road vehicles (that is,
``vehicles not designed to perform a function of carrying a load over
the public highways'') to satisfy the requirements of section
4053(8)(B) and (C). Such an approach would acknowledge that section
4053(8)(B) and (C) assess a vehicle's potential to cause wear and tear
on the public highways. While this is critical in determining whether a
vehicle qualifies for an exemption from taxes that fund the Highway
Trust Fund, it has no relevance to off-road vehicles. Therefore, this
approach would apply the core definition of ``mobile machinery''
provided in section 4053(8)(A) and, consistent with the cross reference
provided in section 45W(c)(2)(B), do so in precisely the same way as
section 4053(8)(A) is applied in the context of Federal excise taxes.
While this approach would render vehicle-by-vehicle analysis
unnecessary in many cases and might eliminate certain types of
inconsistent results with respect to vehicle eligibility for the
section 45W credit, categorical bars on eligibility for certain types
of vehicles would remain. For example, off-road dump trucks would be
ineligible for the credit because their permanently mounted machinery
or equipment, that is, the hydraulics that lift the dump body, is not
``unrelated to transportation'' (the dump structure itself is a vehicle
body rather than machinery or equipment; see Notice 2017-5, 2017-6 IRB
779). Agricultural tractors would be ineligible to the extent they lack
permanently mounted machinery or equipment. Forklifts could be
ineligible because their permanently mounted equipment, which can be
used to load and unload goods and transport goods from one location to
another, is related to transportation. And mowers would be ineligible
because their permanently mounted machinery or equipment does not
perform an operation similar to those enumerated in section 4053(8)(A).
The Treasury Department and the IRS request comments on other
approaches that might be adopted in applying section 4053(8) to off-
road vehicles in a manner consistent with both the purpose and text of
section 45W and the statutory requirements of section 4053(8),
including established case law interpreting section 4053(8).
B. Off-Road Vehicles Lack NHTSA-Required VINs
1. In General
Section 45W(e) provides that no credit can be determined under
section 45W(a) with respect to any vehicle unless the taxpayer includes
the vehicle identification number of such vehicle on the return of tax
for the taxable year. See also section 45W(d)(1), which requires, among
other things, the application of rules similar to those provided in
section 30D(f)(8) (``In the case of any vehicle, the credit described
in [section 30D](a) shall only be allowed once with respect to such
vehicle, as determined based upon the vehicle identification number of
such vehicle [. . . .]''); section 30D(f)(9) (``No credit shall be
allowed under this section with respect to any vehicle unless the
taxpayer includes the vehicle identification number of such vehicle on
the return of tax for the taxable year.''); and, the definition of
``qualified manufacturer'' provided by section 30D(d)(3), incorporated
by section 45W(c)(1) by cross-reference to ``the requirements of
section 30D(1)(C),'' which, by definition, requires a qualified
manufacturer to enter into a written agreement with the Secretary under
which such manufacturer agrees to make periodic written reports to the
Secretary providing, among other things, vehicle identification numbers
``related to each vehicle manufactured by such manufacturer as the
Secretary may require.''
Neither section 45W nor any other section of the Code provides a
definition of ``vehicle identification number'' or ``VIN.'' See
sections 25E, 30D, 45W, 170(f)(12), and 6213(g)(2)(T) through (V). A
``vehicle identification number,'' as a term of art and in common
speech, refers specifically to the series of Arabic numbers and Roman
letters (defined in 49 CFR 565.13(a)) that the manufacturer assigns to
every motor vehicle in the United States, including imported vehicles,
subject to the authority of the National Highway Traffic Safety
Administration (NHTSA), an operating administration that is part of the
DOT. See 49 CFR 565.10 through 565.14. For this purpose, motor vehicles
are vehicles ``driven or drawn by mechanical power and manufactured
primarily for use on public streets, roads, and highways.'' 49 U.S.C.
30101-30102. As a result, manufacturers of off-road vehicles are not
required by NHTSA to assign VINs to such vehicles.
To give effect to the parenthetical in section 45W(c)(2)(B) that
includes off-road vehicles, therefore, requires a more general
understanding of the term ``vehicle identification number'' as used in
section 45W. Such an understanding might encompass other numbering
systems, provided that those systems would, if integrated with the
NHTSA-required VIN system, allow qualified manufacturers and the IRS to
uniquely identify each credit-eligible vehicle for purposes of the
qualified manufacturer requirements of section 30D(d)(3) and the one-
credit-per-vehicle provision of
[[Page 3518]]
section 30D(f)(8)--for example, product identification numbers (PINs)
administered by the Society of Automotive Engineers (SAE) or the
Association of Equipment Manufacturers (AEM). Compliance with section
30D(d)(3) and (f)(8)--and, thus, the eligibility of any off-road
vehicle for the section 45W credit--would depend on the integration of
the various ``vehicle identification number'' systems in question,
which would determine eligibility based on either a NHTSA-required VIN
or a unique identifier system for vehicles that do not have a NHTSA-
required VIN. The IRS must be able to identify each section 45W credit-
eligible vehicle based solely on the ``vehicle identification number''
assigned to the vehicle, and the ``vehicle identification number'' must
be unique across all numbering systems accepted by the IRS for the
purpose of administering section 45W. To integrate the unique
identifier system with the NHTSA-required VIN, the unique identifier
system should be a 17-digit alpha-numeric identifier.
2. Potential Integrated System for Vehicle Identification Numbers
The Treasury Department and the IRS are studying various potential
options for an integrated system of vehicle identification numbers for
purposes of section 45W. Until guidance is published detailing any such
future system, vehicles without a NHTSA-required VIN are unable to
satisfy the statutory VIN requirement in section 45W(e) and are
therefore ineligible for the section 45W credit.
The various potential options under consideration by the Treasury
Department and the IRS include the following structural elements:
i. If a qualified commercial clean vehicle has a NHTSA-required
VIN, the qualified manufacturer of such vehicle would need to report
the NHTSA-required VIN to the IRS for such vehicle to be eligible for
the section 45W credit. The taxpayer claiming a section 45W credit for
the qualified commercial clean vehicle in such a case would need to
report the NHTSA-required VIN on their tax return for the taxable year
in which the section 45W credit is claimed for such claim to be valid.
ii. If a qualified manufacturer assigns a PIN to a qualified
commercial clean vehicle and that PIN is also a unique 17-digit
identifier consisting of a three-digit World Manufacturer Code (WMC)
and 14 alpha-numeric characters that follow, the qualified manufacturer
would need to provide the PIN to the taxpayer no later than 15 days
from the time the identity of the taxpayer purchasing the vehicle is
known, or 15 days from when the taxpayer requests a PIN from the
qualified manufacturer, whichever is later. The qualified manufacturer
could choose to satisfy this requirement by labeling the PIN on the
vehicle, including adding the PIN to the item of specified property by
affixing a label to the vehicle or by etching the PIN on the vehicle.
Alternatively, a qualified manufacturer could choose to affix a label
containing the PIN to the vehicle's documentation or purchase records.
The qualified manufacturer would need to report the PIN and the
identity of the taxpayer purchasing the vehicle to the IRS no later
than 15 days from the time that the identity of the taxpayer purchasing
the vehicle is known for the vehicle to be considered eligible. A
taxpayer claiming a section 45W credit in such a case would need to
report the PIN on their tax return or information return for the
taxable year in which the section 45W credit is claimed for such claim
to be valid.
iii. If a qualified commercial clean vehicle does not have a VIN or
a PIN issued by a qualified manufacturer, the qualified manufacturer
could apply to receive a valid three-digit unique qualified
manufacturer identifier (QMID). Upon the issuance of a QMID, the
qualified manufacturer would assign unique 17-digit PINs to the
qualified commercial clean vehicles it manufactures. Each 17-digit PIN
would begin with the QMID followed by 14 alpha-numeric digits that the
qualified manufacturer assigns to each vehicle. The qualified
manufacturer would need to provide the PIN to the taxpayer no later
than 15 days from the time the identity of the taxpayer purchasing the
vehicle is known, or 15 days from when the taxpayer requests a PIN from
the qualified manufacturer, whichever is later. The qualified
manufacturer could choose to satisfy this requirement by labeling the
PIN on the vehicles, including adding the PIN to the item of specified
property by affixing a label to the vehicle or by etching the PIN on
the vehicle. Alternatively, a qualified manufacturer could choose to
affix a label containing the PIN to the vehicle's documentation or
purchase records. The qualified manufacturer would need to report the
PIN and the identity of the taxpayer purchasing the vehicle to the IRS
no later than 15 days from the time that the identity of the taxpayer
purchasing the vehicle is known for the vehicle to be considered
eligible. A taxpayer claiming a section 45W credit in such a case would
need to report the PIN on the taxpayer's tax return or information
return for the taxable year in which the section 45W credit is claimed
for such claim to be valid.
iv. A qualified manufacturer would not be able to set prerequisites
for a taxpayer receiving a PIN that are not required to verify the
purchase of the qualified commercial clean vehicle, such as requiring
taxpayers to sign up for promotional emails, texts, or other
communications from the qualified manufacturer, its related entities,
or partners. However, qualified manufacturers could choose to provide
PINs to taxpayers through the mail, online, email, or other means of
electronic delivery. Qualified manufacturers could choose to provide
PINs in conjunction with a formal registration for a warranty, provided
that the taxpayer could easily obtain the PIN without completing the
formal warranty registration.
v. For qualified commercial clean vehicles previously placed in
service by another person or entity, a subsequent taxpayer could be
required to contact the qualified manufacturer to obtain a PIN.
vi. Qualified manufacturers that manufacture vehicles without a
NHTSA-required VIN would need to enter into new qualified manufacturer
agreements.
3. Vehicles Without a NHTSA-Required VIN Are Not Currently Eligible for
the Credit
Eligibility of any off-road vehicle for the section 45W credit is
dependent on the issuance of final regulations establishing an
integrated vehicle identification number system that accommodates off-
road mobile machinery or other vehicles without a NHTSA-required VIN
that is sufficient to satisfy the statutory vehicle identification
number requirement. This means that off-road mobile machinery without a
NHTSA-required VIN is not eligible for the section 45W credit.
4. Request for Comments
The Treasury Department and the IRS request comments on the
potential integrated vehicle identification number system described in
section VII.B2 of this Explanation of Provisions. Specifically, the
Treasury Department and the IRS request comments on the following
questions:
i. What challenges, if any, would manufacturers have in
implementing and complying with the integrated vehicle identification
number system described in section VII.B2 of this Explanation of
Provisions? What would be the costs and timeline for manufacturers to
implement and comply with the proposed system? Are
[[Page 3519]]
there cases in which manufacturers or other stakeholders, such as
retailers, would decline to employ the system because compliance would
be overly burdensome? Commenters are encouraged to specifically
identify types and amounts of costs that manufacturers would incur in
implementing and complying with the proposed system, as well as
specific aspects of the proposal that would require set amounts of time
to develop and implement.
ii. Should the Treasury Department and the IRS leverage existing
systems, e.g. SAE or AEM, that assign WMCs that could be used as the
first three digits of the PIN? Are there perceived problems with these
systems? Do these systems ensure there is no overlap with any VINs
assigned under NHTSA's rules? Are there other PIN tracking systems in
place that the IRS could leverage?
iii. If the Treasury Department and the IRS were to implement the
integrated vehicle identification number system described in section
VII.B2 of this Explanation of Provisions, what changes or exceptions,
if any, should be made?
iv. What modifications, if any, could be made to the integrated
vehicle identification number system described in section VII.2 of this
Explanation of Provisions to accommodate limitations while still
adhering to the unique identifier requirement?
v. How would qualified manufacturers furnish PINs to taxpayers
(e.g., with the vehicle, through an online website, etc.) in a manner
that ensures the taxpayer has easy access to the PIN when filing their
tax return or information return? How would off-road vehicle
manufacturers obtain and provide information on the identity of those
purchasing qualified commercial clean vehicles to assist the IRS in
ensuring compliance? What labelling requirements should apply in
assigning PINs?
C. Manufacturers That Exclusively Manufacture Off-Road Clean Vehicles
Are Not Qualified Manufacturers
Section 45W(c)(1) provides, in part, that a qualified commercial
clean vehicle must meet the requirements of section 30D(d)(1)(C).
Section 30D(d)(1)(C), in turn, provides that a vehicle must be made by
a qualified manufacturer. Section 30D(d)(3), incorporated by section
45W(c)(1)'s cross reference to section 30D(d)(1)(C), defines
``qualified manufacturer,'' in part, as any manufacturer within the
meaning of the regulations prescribed by the Administrator of the EPA
for purposes of the administration of title II of the CAA (42 U.S.C.
7521-7590).
Section 216(1) of the CAA, generally referenced in regulations
under title II of the CAA (see, for example, 40 CFR 86.082-2(b),
85.1902(f), and 1037.801), defines ``manufacturer'', in relevant part,
as ``any person engaged in the manufacturing or assembling of new motor
vehicles, new motor vehicle engines, new nonroad vehicles or new
nonroad engines, or importing such vehicles or engines for resale . . .
.'' Section 216(2) of the CAA defines ``motor vehicle'' as any self-
propelled vehicle designed for transporting persons or property on a
street or highway. Section 216(11) of the CAA defines ``nonroad
vehicle'' as a vehicle that is powered by a nonroad engine and that is
not a motor vehicle or a vehicle used solely for competition. Section
216(10) of the CAA in turn defines ``nonroad engine'' as an ICE
(including the fuel system) that is not used in a motor vehicle or a
vehicle used solely for competition.
Under these definitions, ``manufacturer'' includes a maker of an
off-road vehicle with a ``conventional'' ICE, a maker of an off-road
vehicle with a hybrid engine (to the extent that such vehicle includes
an ICE), or a maker of motor vehicles. It does not include a maker of
only off-road vehicles with an exclusively electric motor or fuel cell
system. Consequently, makers of such off-road vehicles that do not also
make any motor vehicles or off-road vehicles with ICEs or hybrid
engines cannot be ``qualified manufacturers'' for purposes of section
45W, and their vehicles are, consequently, ineligible for the credit.
This result, which might allow a section 45W credit for an off-road
vehicle equipped with a hybrid powertrain but in some cases disallow a
credit for a functionally identical vehicle equipped with an electric
powertrain, may disadvantage manufacturers who make only products that
appear well aligned with the purposes of the credit.
D. Some Off-Road Vehicles May Not Display Their Gross Vehicle Weight
Ratings
Section 45W(b)(4) provides a limitation for the credit based on the
vehicle's GVWR, such that the amount of the section 45W credit does not
exceed $7,500 in the case of a vehicle that has a GVWR of less than
14,000 pounds, and $40,000 for other vehicles. Similarly, section
45W(c)(3)(A) bases battery capacity requirements applicable to certain
vehicles by reference to GVWR: a battery that has a capacity of not
less than 15 kilowatt hours (or, in the case of a vehicle that has a
GVWR of less than 14,000 pounds, 7 kilowatt hours).
GVWR is not defined in the Internal Revenue Code or any regulations
thereunder. However, the DOT and the EPA have defined the term for
purposes of regulating motor vehicle safety and emissions. DOT
regulations define the term ``gross vehicle weight rating'' as the
value specified by the manufacturer as the loaded weight of a single
vehicle. See 49 CFR 383.5 and 571.3(b). Similarly, EPA regulations
define the term ``gross vehicle weight rating'' as the value specified
by the manufacturer as the maximum design loaded weight of a single
vehicle. See 40 CFR 86.082-2.
Motor vehicles are required by DOT regulations to be affixed with
labels including the GVWR of the vehicle (see 49 CFR parts 567 and
568). The only vehicles to which those standards apply are motor
vehicles, which are defined in 49 U.S.C. 30102 as ``vehicle[s] driven
or drawn by mechanical power and manufactured primarily for use on
public streets, roads, and highways [. . . .]'' Off-road vehicles may
not have a GVWR affixed. It may, therefore, be difficult for taxpayers
to determine and substantiate the appropriate credit limitation under
section 45W(b)(4).
E. Off-Road Vehicles Employing Fuel Cells May Be Ineligible
Section 45W(c)(3)(B) provides that a qualified commercial clean
vehicle includes ``a motor vehicle which satisfies the requirements
under subparagraphs (A) and (B) of section 30B(b)(3) if the vehicle
satisfies the other requirements of section 45W(c).'' Section 30B(b)(3)
defines a ``new qualified fuel cell motor vehicle'' for purposes of
section 30B as a motor vehicle, and provides among other requirements
that it be a motor vehicle (A) that is propelled by power derived from
1 or more cells that convert chemical energy directly into electricity
by combining oxygen with hydrogen fuel that is stored on board the
vehicle in any form and may or may not require reformation prior to
use, and (B) that, in the case of a passenger automobile or light
truck, has received on or after the date of the enactment of this
section a certificate that such vehicle meets or exceeds the Bin 5 Tier
II emission level established in regulations prescribed by the
Administrator of the EPA under section 202(i) of the CAA for that make
and model year vehicle. Section 30B(b)(3)(A) and (B) apply, in the
context of section 30B, only to ``motor vehicles,'' a term defined in
section 30B(h)(1) to mean ``any vehicle which is manufactured primarily
for use on public streets, roads, and highways (not including a vehicle
operated exclusively
[[Page 3520]]
on a rail or rails) and which has at least 4 wheels.'' If this
definition of ``motor vehicle'' applies to section 45W(c)(3)(B)--a
meaning suggested by that subparagraph's use of the term ``motor
vehicle'' (which appears nowhere else in section 45W)--then off-road
vehicles powered by otherwise eligible fuel-cell technology would be
ineligible for the section 45W credit.
F. DOT Vehicle Safety Provisions
Section 45W(d)(1) requires, among other things, the application of
a rule similar to section 30D(f)(7). Section 30D(f)(7) provides, in
part, that a vehicle is not considered eligible for a credit unless
such vehicle is in compliance with the motor vehicle safety provisions
of 49 U.S.C. 30101 through 30169. As described in section VII.B of this
Explanation of Provisions, the grant of authority under those
provisions of law do not extend to off-road vehicles. See 49 U.S.C.
30101 through 30102. It is unlikely that any off-road vehicle might be,
as a factual matter, compliant with safety provisions that, legally, do
not apply to it.
However, given the broad scope of vehicles that potentially fall
under the category of off-road vehicles for purposes of section 45W,
and the scope of the safety provisions provided in 49 U.S.C. 30101
through 30169, identifying similar safety provisions and the criteria
by which such similarity might be judged appear to present significant
challenges.
G. Math Error Authority
Section 6213(g)(2)(V) provides that the term ``mathematical or
clerical error'' means an omission of a correct vehicle identification
number required to be included on a return under section 45W(e). As
noted in section VII.B of this Explanation of Provisions, treating off-
road mobile machinery (as described in the parenthetical in section
45W(c)(2)(B)) as eligible for the 45W credit would require a broad
interpretation of the term ``vehicle identification number'' as that
term is used in section 45W(e) and the provisions of section 30D that
are incorporated into section 45W through section 45W(d)(1). If the
Treasury Department and the IRS were to develop an integrated vehicle
identification number system that could accommodate a broad, general
definition of the term ``vehicle identification number'' to encompass
off-road mobile machinery in the section 45W context, the Treasury
Department and the IRS would propose a conforming amendment to Sec.
301.6213-2. Such an amendment would provide clarity to taxpayers by
providing a cross-reference to this broad, general definition of the
term ``vehicle identification number.''
H. Other Considerations
The proposed regulations may introduce challenges to allowing
section 45W credits for off-road vehicles beyond those flowing from the
statutory language, particularly in the calculation of incremental cost
of off-road vehicles. Determining the residual value of off-road
vehicles that have been previously placed in service by another person
or entity, the appropriate considerations for identifying a comparable
vehicle, and the appropriate RPE or RPEs for purposes of a safe harbor,
all present considerable difficulties given the range of vehicles that
may fall into the off-road vehicle category.
I. Request for Comments
The Treasury Department and the IRS are, in consultation with the
DOE, continuing to study these and related questions. The Treasury
Department and the IRS request comments on each of the considerations
described in section VII.A through H of this Explanation of Provisions
related to the eligibility of off-road mobile machinery for the section
45W credit.
Proposed Applicability Dates
Proposed Sec. Sec. 1.45W-1 through 1.45W-5 are proposed to apply
to taxable years ending after [date of publication of the final
regulations in the Federal Register]. Proposed Sec. 1.25E-2(b)(3) is
proposed to apply to taxable years ending after [date of publication of
the final regulations in the Federal Register]. Proposed Sec. 1.30D-
2(b)(28)(ii) is proposed to apply to taxable years ending after [date
of publication of the final regulations in the Federal Register]. The
second and third sentences of proposed Sec. 1.6417-6(b)(1) are
proposed to apply to property placed in service in taxable years ending
after [date of publication of the final regulations in the Federal
Register].
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. An 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.
OMB Control Number 1545-2137 covers Form 8936 and Form 8936-A
regarding clean vehicle credits, including the requirement to include
on the taxpayer's return for the taxable year the vehicle
identification number of the vehicle for which the section 45W credit
is claimed. Rev. Proc. 2022-42 and Rev. Proc. 2023-38 describe the
procedural requirements for qualified manufacturers to make periodic
written reports to the IRS to provide information related to each
vehicle manufactured by such manufacturer that is eligible for the
section 45W credit as required in section 30D(d)(3). The collections of
information contained in Rev. Proc. 2022-42 and Rev. Proc. 2023-38 are
described in those documents and were submitted to the Office of
Management and Budget in accordance with the PRA under control number
1545-2137. The notice of proposed rulemaking is not changing or
creating these already approved collection requirements.
In accordance with Sec. 1.6001-1, a taxpayer claiming a credit
under section 45W must keep permanent books of account or records
sufficient to establish the amount of any such credit required to be
shown by such taxpayer in any return of tax or information. For PRA
purposes, general tax records are already approved by OMB under 1545-
0074 for individuals, 1545-0123 for business entities, and under 1545-
0092 for trust and estate filers. The notice of proposed rulemaking is
not changing or creating these already approved collection
requirements.
The collections of information in the proposed regulations creates
reporting, third-party disclosure and recordkeeping requirements that
are necessary to ensure that specified property meets the requirements
for the qualified commercial clean vehicle credit under section 45W.
These collections of information generally would be used by the IRS for
tax compliance purposes and by taxpayers to ensure the vehicle
qualifies for the credit.
The reporting requirements include a provision requiring
manufacturers to
[[Page 3521]]
register with the IRS to become qualified manufacturers, as detailed in
Sec. 1.45W-5(c). The third-party disclosure requirement includes the
requirement that manufacturers provide taxpayers with a PIN number that
identifies the specified property as qualified under section 45W. The
likely respondents are businesses and other for-profit entities. The
burden for these requirements is as follows:
Estimated number of respondents: 4,500.
Estimated frequency of responses: 1.
Estimated average annual burden per response: 0.25 hours.
Estimated total reporting burden: 1,125 hours.
The proposed regulations include a third-party disclosure and
associated recordkeeping requirements for qualified manufacturers to
provide taxpayers with the incremental cost value, which may include
detailed cost information for the powertrains, and for taxpayers to
keep records of these disclosures, as detailed in Sec. 1.45W-2(c)(10).
The likely respondents are businesses and other for-profit and tax-
exempt entities. The burden for these requirements is as follows:
Estimated number of respondents: 500.
Estimated frequency of responses: 1.
Estimated average annual burden per response: 1.0 hours.
Estimated total reporting burden: 500 hours.
The collections of information contained in this notice of proposed
rulemaking have been submitted to the Office of Management and Budget
for review in accordance with the Paperwork Reduction Act under OMB
Control Number 1545-2137. Commenters are strongly encouraged to submit
public comments electronically. Written comments and recommendations
for the proposed information collection should be sent to https://www.reginfo.gov/public/do/PRAMain, with copies to the IRS. Find this
particular information collection by selecting ``Currently under
Review--Open for Public Comments,'' and then by using the search
function. Submit electronic submissions for the proposed information
collection to the IRS via email at [email protected] (indicate REG-
123525-23 on the Subject line). Comments on the collection of
information must be received by March 17, 2025.
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 an initial
regulatory flexibility analysis (IRFA) of the proposed rule. The
Treasury Department and the IRS have not determined whether the
proposed rule, when finalized, will have a significant economic impact
on a substantial number of small entities. This determination requires
further study. However, because there is a possibility of a significant
economic impact on a substantial number of small entities, these
proposed regulations include an IRFA. The Treasury Department and the
IRS invite comments on both the number of entities affected by these
proposed regulations and the economic impact of these proposed
regulations on small entities.
Small business entities that claim the section 45W credit must
satisfy reporting requirements. They will continue to file Form 8936,
Clean Vehicle Credits (or successor form as the Secretary prescribes),
as was the case for the section 45W credit prior to the publication of
these proposed regulations. The estimated burden for business taxpayers
filing Form 8936 is approved under OMB control number 1545-2137 and
1545-0123.
Although the Treasury Department and IRS estimate that small
business entities will claim the credit under section 45W in a given
year, the proposed regulations will not have a significant economic
impact on such entities because the proposed regulations do not impose
any additional burden on taxpayers outside of what is provided by the
statute. For example, section 30D(f)(5), which is incorporated into the
section 45W regime by section 45W(d)(1), requires the Secretary to
prescribe regulations that provide for the recapture of the credit with
respect to any property which ceases to be property eligible for such
credit. These proposed rules merely provide the framework for the
statutorily required recapture.
The Treasury Department and IRS have determined that the continued
requirement to file a Form 8936 (or successor form as the Secretary
prescribes) is unlikely to involve significant administrative costs
beyond what was previously required.
A. Need for and Objectives of the Rule
The proposed regulations would provide the eligibility rules and
key definitions applicable to the section 45W credit to allow taxpayers
to know whether the clean vehicle they intend to purchase is eligible
for the section 45W credit. In addition, the proposed regulations would
provide rules regarding the recapture authority under section
45W(d)(1), so that taxpayers and the IRS would have clear rules
regarding when a clean vehicle may cease to be eligible property for
purposes of the section 45W credit. Further, the proposed regulations
would provide rules for determining the amount of the section 45W
credit, including the determination of incremental cost for qualified
commercial clean vehicles.
The proposed rules are expected to encourage taxpayers to purchase
and place in service qualified commercial clean vehicles, thereby
increasing the number of clean vehicles on the roads. Thus, the
Treasury Department and the IRS intend and expect that the proposed
rules will deliver benefits across the economy and environment that
will beneficially impact various industries, including clean vehicle
manufacturers and dealers.
B. 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 proposed
regulations does not depend on the size of the business, as defined by
the Small Business Administration. As described more fully in the
preamble to this proposed regulation and in this IRFA, these rules may
affect a variety of different businesses across several different
industries, but will primarily affect commercial purchasers of
qualified commercial clean vehicles and qualified manufacturers of
qualified commercial clean vehicles. The Treasury Department and the
IRS currently estimate the number of manufacturers of on-road qualified
commercial clean vehicles to be approximately 77, and the number of
manufacturers of off-road mobile machinery to be approximately 4,500.
For off-road mobile machinery manufacturer estimates, the Treasury
Department and IRS reviewed tax return filings for relevant industry
codes for prior taxable years and made assumptions regarding the
likelihood of such taxpayers manufacturing electric or hydrogen-powered
off-road mobile machinery. For taxpayers that are not likely to meet
the definition of small
[[Page 3522]]
business entity, the Treasury Department and the IRS assumed that 100
percent would manufacture off-road mobile machinery that may qualify
for the credit under section 45W. For taxpayers likely to meet the
definition of small business entity, the Treasury Department and the
IRS assumed that varying percentages of such taxpayers, based on the
size of their operations, would manufacture off-road mobile machinery
that may qualify for the credit under section 45W.
Of the estimated 77 manufacturers of on-road qualified commercial
clean vehicles, the Treasury Department and the IRS have determined
that none of them are small businesses entities. Of the estimated 4,500
manufacturers of off-road mobile machinery, the Treasury Department and
the IRS estimate that more than half would likely be considered a small
business entity.
The Treasury Department and the IRS expect to receive more
information on the impact on small businesses through comments on this
proposed rule and again if the integrated system for vehicle
identification numbers for purposes of section 45W is established.
1. Impact of the Rules
The recordkeeping and reporting requirements would increase for
qualified manufacturers of off-road mobile machinery seeking to become
qualified manufacturers in the event of the establishment of an
integrated system for vehicle identification numbers. 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 the PRA section of the
preamble. Based on the total number of estimated manufacturers of off-
road mobile machinery (4500) and an estimated registration time of 0.25
hours per registration, the Treasury Department and IRS estimate that
off-road mobile machinery manufacturers will spend a total of 1,125
hours registering as qualified manufacturers.
2. Alternatives Considered
The Treasury Department and the IRS considered various alternatives
in promulgating these proposed regulations. Significant alternatives
and issues considered include: (1) the application of NHTSA rules
toward administering vehicle identification numbers; (2) the
appropriate length of time for which a vehicle must be used in a trade
or business as it relates to the recapture rules provided in proposed
Sec. 1.45W-4(c); and (3) how best to implement the no double benefit
rules and incremental cost calculation to the eligibility of used
vehicles for the section 45W credit.
Regarding the application of NHTSA's rules administering vehicle
identification numbers compared to an integrated vehicle identification
system, the Treasury Department and the IRS considered the appropriate
scope of the definition of ``vehicle identification number'' and how
that definition should be consistent with or diverge from the inclusion
of and reference to off-road mobile machinery in the statutory text of
section 45W(c)(2)(B). The Treasury Department and the IRS considered
interpreting the ``VIN number'' requirement in section 45W(e) to mean a
NHTSA-required VIN, consistent with the established definition of
``vehicle identification number'' in DOT regulations. See 49 CFR 565.10
through 565.14. However, the only vehicles regulated by NHTSA are motor
vehicles, which are vehicles manufactured primarily for use on public
streets, roads, and highways. See 49 U.S.C. 30102(7). Thus, off-road
vehicles do not have NHTSA-required VINs. Therefore, this
interpretation would effectively exclude all off-road mobile machinery,
which Congress may have intended to include, as reflected in the
parenthetical of section 45W(c)(2)(B).
The Treasury Department and the IRS considered alternatives to the
recapture rules provided in proposed Sec. 1.45W-4(c). Given that some
taxpayers may consider using vehicles for partial business and partial
personal use, the Treasury Department and the IRS determined it was
necessary to provide rules regarding when the value of the section 45W
credit can be recaptured when the vehicle is used less than 100 percent
for trade or business use, other than incidental personal use. The
Treasury Department and the IRS also considered the appropriate length
of time for which the vehicle must be used in a trade or business.
Longer and shorter periods of time were considered. Based on knowledge
of commercial vehicle leasing practices (fleet leasing), the Treasury
Department and the IRS determined that it was appropriate to require a
qualified commercial clean vehicle to be used for 100 percent trade or
business use for 18 months after it is placed in service.
The Treasury Department and the IRS considered issues raised by the
applicability of the section 45W credit to used vehicles, since the
statute does not contain an original use requirement. In particular,
the Treasury Department and the IRS considered how best to implement
the statutory no double benefit rules. Section 45W(d)(3) provides that
no credit is allowed with respect to any vehicle for which a credit was
allowed under section 30D. Section 45W(d)(1), in turn, incorporates
section 30D(f)(8), which provides in relevant part that in the case of
any vehicle, the credit shall only be allowed once with respect to such
vehicle, as determined based upon the vehicle identification number of
such vehicle. Section 45W(d)(1) also incorporates the no double benefit
rule in section 30D(f)(2). Subsequent buyers of qualified commercial
clean vehicles generally would not know if a prior tax credit for clean
vehicles had been claimed with respect to a particular used vehicle. In
addition, the IRS generally is legally prohibited from disclosing such
confidential tax information. Given these constraints and to ensure
compliance with the no double benefit rules, a taxpayer claiming such
credit must establish that they are entitled to the credit by keeping
evidence in their books and records, which may be provided to the IRS
upon request, sufficient to establish that no deduction or other credit
was previously allowed on such vehicle.
3. Duplicative, Overlapping, or Conflicting Federal Rules
The proposed regulations would not duplicate, overlap, or conflict
with any relevant Federal rules. As discussed in the Explanation of
Provisions, the proposed regulations would merely provide requirements,
procedures, and definitions related to the section 45W credit. The
Treasury Department and the IRS invite input from interested members of
the public about identifying and avoiding overlapping, duplicative, or
conflicting requirements.
C. Section 7805(f)
Pursuant to section 7805(f), this notice of proposed rulemaking has
been submitted to the Chief Counsel for the Office of Advocacy of the
Small Business Administration for comment on their impact on small
business.
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 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 (updated annually for inflation). These
proposed regulations
[[Page 3523]]
do 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 from
publishing any rule that has federalism implications if the rule either
imposes substantial, direct compliance costs on State and local
governments, and is not required by statute, or preempts State law,
unless the agency meets the consultation and funding requirements of
section 6 of the Executive order. This proposed rule does not have
federalism implications and does not impose substantial direct
compliance costs on State and local governments or preempt State law
within the meaning of the Executive order.
Comments and Public Hearing
Before these proposed amendments to the regulations are adopted as
final regulations, consideration will be given to comments regarding
the notice of proposed rulemaking that are submitted timely to the IRS
as prescribed in the preamble under the ADDRESSES section. The Treasury
Department and the IRS request comments on all aspects of the proposed
regulations. All comments will be made available at https://www.regulations.gov. Once submitted to the Federal eRulemaking Portal,
comments cannot be edited or withdrawn.
A public hearing with respect to this notice of proposed rulemaking
has been scheduled for April 28, 2025, beginning at 10 a.m. EST in the
Auditorium at the Internal Revenue Building, 1111 Constitution Avenue
NW, Washington, DC. Due to building security procedures, visitors must
enter at the Constitution Avenue entrance. In addition, all visitors
must present photo identification to enter the building. Because of
access restrictions, visitors will not be admitted beyond the immediate
entrance area more than 30 minutes before the hearing starts.
Participants may alternatively attend the public hearing by telephone.
The rules of 26 CFR 601.601(a)(3) apply to the public hearing.
Persons who wish to present oral comments at the public hearing must
submit an outline of the topics to be discussed and the time to be
devoted to each topic by March 17, 2025. A period of 10 minutes will be
allotted to each person for making comments. An agenda showing the
scheduling of the speakers will be prepared after the deadline for
receiving outlines has passed. Copies of the agenda will be available
free of charge at the public hearing. If no outline of the topics to be
discussed at the public hearing is received by March 17, 2025, the
public hearing will be cancelled. If the public hearing is cancelled, a
notice of cancellation of the public hearing will be published in the
Federal Register.
Individuals who want to testify in person at the public hearing
must send an email to [email protected] to have your name added to
the building access list. The subject line of the email must contain
the regulation number REG-123525-23 and the language TESTIFY In Person.
For example, the subject line may say: Request to TESTIFY In Person at
Hearing for REG-123525-23.
Individuals who want to testify by telephone at the public hearing
must send an email to [email protected] to receive the telephone
number and access code for the public hearing. The subject line of the
email must contain the regulation number REG-123525-23 and the language
TESTIFY Telephonically. For example, the subject line may say: Request
to TESTIFY Telephonically at Hearing for REG-123525-23.
Individuals who want to attend the public hearing in person without
testifying must also send an email to [email protected] to have
your name added to the building access list. The subject line of the
email must contain the regulation number REG-123525-23 and the language
ATTEND In Person. For example, the subject line may say: Request to
ATTEND Hearing In Person for REG-123525-23. Requests to attend the
public hearing must be received by 5 p.m. EST on April 24, 2025.
Individuals who want to attend the public hearing by telephone
without testifying must also send an email to [email protected] to
receive the telephone number and access code for the public hearing.
The subject line of the email must contain the regulation number REG-
123525-23 and the language ATTEND Hearing Telephonically. For example,
the subject line may say: Request to ATTEND Hearing Telephonically for
REG-123525-23. Requests to attend the public hearing must be received
by 5 p.m. EST on April 24, 2025.
Public hearings will be made accessible to people with
disabilities. To request special assistance during a public hearing
please contact the Publications and Regulations Section of the Office
of Associate Chief Counsel (Procedure and Administration) by sending an
email to [email protected] (preferred) or by telephone at (202)
317-6901 (not a toll-free number) and must be received by at least
April 23, 2025.
Statement of Availability of IRS Documents
Revenue procedures, revenue rulings, 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 these proposed regulations are James
Williford, Iris Chung, David Villagrana, and Rika Valdman of the Office
of the Associate Chief Counsel (Passthroughs and Special Industries).
However, other personnel from the Treasury Department, the DOE, and the
IRS participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, the Treasury Department and the IRS propose to amend
26 CFR part 1 as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 is amended by adding
entries in numerical order for Sec. Sec. 1.45W-1 through 1.45W-5 to
read in part as follows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
Section 1.45W-1 also issued under 26 U.S.C. 45W(f) and
30D(d)(3).
Section 1.45W-2 also issued under 26 U.S.C. 45W(f).
Section 1.45W-3 also issued under 26 U.S.C. 45W(f).
Section 1.45W-4 also issued under 26 U.S.C. 45W(f) and
30D(f)(5).
Section 1.45W-5 also issued under 26 U.S.C. 45W(f).
* * * * *
0
Par. 2. Section 1.25E-2 is amended by:
0
1. Adding paragraph (b)(3); and
0
2. Revising paragraph (i).
The addition and revision read as follows:
Sec. 1.25E-2 Special rules.
* * * * *
(b) * * *
(3) Interaction between section 25E and section 45W credits. A
credit that has been allowed under section 45W of
[[Page 3524]]
the Code with respect to a vehicle in a taxable year before the taxable
year in which a section 25E credit is allowable for that vehicle does
not reduce the amount allowable under section 25E.
* * * * *
(i) Applicability dates--(1) In general. Except as provided in
paragraph (i)(2) of this section, this section applies to previously-
owned clean vehicles placed in service after December 31, 2022, in
taxable years ending after October 10, 2023.
(2) Paragraph (b)(3) of this section. Paragraph (b)(3) of this
section applies to taxable years ending after [date of publication of
the final regulations in the Federal Register].
0
Par. 3. Section 1.30D-2 is amended by revising paragraphs (b)(28)(ii)
and (d) to read as follows:
Sec. 1.30D-2 Definitions for purposes of section 30D.
* * * * *
(b) * * *
(28) * * *
(ii) Modification of a new motor vehicle. 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 (6) so
that the new motor vehicle, after modification, does satisfy such
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.
* * * * *
(d) Applicability dates--(1) In general. Except as provided in
paragraph (d)(2) of this section, this section applies to taxable years
ending after December 4, 2023.
(2) Paragraph (b)(28)(ii) of this section. Paragraph (b)(28)(ii) of
this section applies to taxable years ending after [date of publication
of the final regulations in the Federal Register].
0
Par. 4. Sections 1.45W-0 through 1.45W-5 are added to read as follows:
Sec.
* * * * *
1.45W-0 Table of contents.
1.45W-1 Credit for qualified commercial clean vehicles; definitions.
1.45W-2 Amount of section 45W credit; incremental cost.
1.45W-3 Qualified commercial clean vehicle.
1.45W-4 Special rules.
1.45W-5 Reporting requirements.
* * * * *
Sec. 1.45W-0 Table of contents.
This section lists the captions contained in Sec. Sec. 1.45W-1
through 1.45W-5.
Sec. 1.45W-1 Credit for qualified commercial clean vehicles;
definitions.
(a) In general.
(b) Definitions.
(1) Battery.
(2) Battery electric vehicle or BEV.
(3) Fuel cell electric vehicle of FCEV.
(4) Gross Vehicle Weight Rating or GVWR.
(5) Manufacturer.
(6) Placed in service.
(7) Plug-in hybrid electric vehicle or PHEV.
(8) Plug-in hybrid fuel cell electric vehicle or PHFCEV.
(9) Qualified commercial clean vehicle.
(10) Qualified manufacturer.
(11) Secretary.
(12) Section 45W regulations.
(13) Statutory references.
(i) Chapter 1.
(ii) Code.
(iii) Subtitle A.
(c) Applicability date.
Sec. 1.45W-2 Amount of section 45W credit; incremental cost.
(a) Per vehicle amount.
(b) Incremental cost.
(1) In general.
(2) Manufacturer's cost.
(3) Retail price equivalent.
(i) In general.
(ii) Retail price.
(iii) Retail delivered price.
(iv) Safe harbor.
(4) Comparable vehicle.
(i) In general.
(ii) Gasoline- or diesel-powered vehicle by same manufacturer.
(iii) Vehicle comparable in size and use.
(iv) Example.
(A) Facts.
(B) Analysis.
(c) Incremental cost equations and calculations.
(1) ICE powertrain cost.
(2) Battery electric vehicles.
(3) Plug-in hybrid electric vehicles.
(4) Fuel cell electric vehicles.
(5) Plug-in hybrid fuel cell electric vehicles.
(6) Incremental cost determined exclusive of auxiliary power
units.
(7) Incremental cost determine inclusive of additional
batteries, fuel cells, or hydrogen storage.
(8) Negative incremental cost treated as zero.
(9) Incremental cost if no comparable vehicle exists.
(10) Taxpayer reliance on qualified manufacturer's incremental
cost determination.
(11) Safe harbor.
(d) Definitions.
(1) Battery.
(2) Electric traction drive system and components.
(3) Electrical accessories.
(4) Engine and engine components.
(5) Fuel cell.
(6) Hydrogen storage.
(7) Hydrogen storage cost.
(8) Mechanical accessories.
(9) Transmission.
(e) Examples.
(1) Example 1.
(i) Facts.
(ii) Analysis.
(2) Example 2.
(i) Facts.
(ii) Analysis.
(3) Example 3.
(i) Facts.
(ii) Analysis.
(f) Incremental cost of qualified commercial clean vehicle
previously placed in service by another person or entity.
(1) In general.
(2) Age of a qualified commercial clean vehicle previously
placed in service by another person or entity.
(3) Residual value factor.
(4) Example.
(i) Facts.
(ii) Analysis.
(g) Applicability date.
Sec. 1.45W-3 Qualified commercial clean vehicle.
(a) In general.
(b) Acquired for use or lease and not for resale by the
taxpayer.
(1) In general.
(2) Recharacterization of lease.
(c) Type of vehicle.
(1) In general.
(2) On-road vehicle.
(3) Mobile machinery.
(d) Electric motor and battery requirements.
(1) In general.
(2) Battery capable of being recharged from an external source
of electricity.
(e) Applicability date.
Sec. 1.45W-4 Special rules.
(a) No double benefit.
(1) Previous allowance of section 45W or 30D credit.
(2) Allowance of other deduction or credit.
(b) Credit ineligibility resulting from certain transactions and
uses.
(1) In general.
(2) Cancelled sale.
(3) Vehicle return.
(4) Resale.
(5) Less than 100 percent trade or business use in taxable year
vehicle is placed in service.
(c) Recapture.
(1) In general.
(2) Recapture in the case of less than 10 percent trade or
business use.
(i) In general.
(ii) Applicability to vehicles placed in service by a tax-exempt
entity.
(d) Elective payment elections.
(e) Leases.
(f) Applicability date.
Sec. 1.45W-5 Reporting requirements.
(a) Requirement to file return.
(b) Credit may generally be claimed on only one tax return.
(1) In general.
(2) Grantor trusts.
(3) Partnerships and S corporations.
(c) Taxpayer reliance on manufacturer certifications and
periodic written reports to the IRS.
(d) Applicability date.
[[Page 3525]]
Sec. 1.45W-1 Credit for qualified commercial clean vehicles;
definitions.
(a) In general. The section 45W regulations (defined in paragraph
(b)(12) of this section) apply for purposes of determining the
availability and amount of any credit under section 45W of the Internal
Revenue Code (Code) with respect to a qualified commercial clean
vehicle placed in service by a taxpayer during such taxpayer's taxable
year (section 45W credit). Paragraph (b) of this section provides
definitions of terms for purposes of applying section 45W and the
section 45W regulations. Section 1.45W-2 provides rules for determining
the per-vehicle credit amount under section 45W(b). Section 1.45W-3
provides rules related to the definition of qualified commercial clean
vehicle under section 45W(c). Section 1.45W-4 provides special rules
related to section 45W(d). Section 1.45W-5 provides reporting
requirements for purposes of section 45W.
(b) Definitions. The following definitions apply for purposes of
section 45W and the section 45W regulations. For definitions specific
to incremental cost calculations, see Sec. 1.45W-2(d).
(1) Battery. Battery means a collection of one or more battery
modules, each of which has two or more battery cells, electrically
configured 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.
(2) Battery electric vehicle or BEV. Battery electric vehicle or
BEV means a vehicle propelled solely by an electric motor that draws
electricity from batteries capable of being recharged from an external
source of electricity.
(3) Fuel cell electric vehicle or FCEV. Fuel cell electric vehicle
or FCEV means a vehicle--
(i) That is propelled by power derived from one or more cells that
convert chemical energy directly into electricity by combining oxygen
with hydrogen fuel that is stored on board the vehicle in any form and
may or may not require reformation prior to use; and
(ii) That, in the case of a light-duty vehicle (that is, a
passenger automobile or light truck), has received on or after August
8, 2005 (the date of the enactment of section 30B of the Code), a
certificate indicating that such vehicle meets or exceeds the Bin 5
Tier II emission level established in regulations in 40 CFR chapter I
prescribed by the Administrator of the Environmental Protection Agency
(EPA) under section 202(i) of the Clean Air Act (CAA) (42 U.S.C.
7521(i)) for that make and model year vehicle.
(4) Gross vehicle weight rating or GVWR. Gross vehicle weight
rating or GVWR has the meaning provided in 40 CFR 86.082-2 and 49 CFR
571.3(b).
(5) Manufacturer--(i) In general. Manufacturer means any
manufacturer within the meaning of the regulations in 40 CFR chapter I
prescribed by the Administrator of the EPA for purposes of the
administration of title II of the CAA (42 U.S.C. 7521 et seq.) and as
defined in 42 U.S.C. 7550(1). 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 CAA (42
U.S.C. 7521 et seq.) for the subject vehicle.
(ii) Modification of a new motor vehicle. 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 45W(c)(3) so that the
vehicle, after modification, does satisfy such requirements, then such
manufacturer may satisfy the requirements of section 30D(d)(3) of the
Code and Sec. 1.30D-2(b)(28)(i) for purposes of paragraph (b)(5)(i) of
this section if the modification occurs prior to the vehicle being
placed in service.
(6) Placed in service. A qualified commercial clean vehicle is
considered to be placed in service on the date the taxpayer takes
possession of the vehicle.
(7) Plug-in hybrid electric vehicle or PHEV. Plug-in hybrid
electric vehicle or PHEV means a vehicle that uses batteries that can
be recharged from an external source of electricity to power an
electric motor that propels the vehicle to a significant extent, and
another fuel, such as gasoline or diesel, to power an internal
combustion engine or other propulsion source.
(8) Plug-in hybrid fuel cell electric vehicle or PHFCEV. Plug-in
hybrid fuel cell electric vehicle or PHFCEV means a vehicle that uses
batteries that can be recharged from an external source of electricity
to power an electric motor that propels the vehicle to a significant
extent and a hydrogen fuel source that powers an electric motor through
the fuel cell system.
(9) Qualified commercial clean vehicle. Qualified commercial clean
vehicle means a vehicle that meets the requirements of section 45W(c)
and Sec. 1.45W-3(b) through (d). Vehicles that may qualify as
qualified commercial clean vehicles include BEVs, FCEVs, PHEVs, and
PHFCEVs. A vehicle does not meet the requirements of section 45W(c)
if--
(i) The qualified manufacturer fails to provide a periodic written
report for such vehicle prior to the vehicle being placed in service by
the taxpayer claiming the credit that reports the vehicle
identification number of such vehicle and certifies compliance with the
requirements of section 45W(c);
(ii) The qualified manufacturer provides incorrect information with
respect to the periodic written report for such vehicle; or
(iii) The qualified manufacturer fails to update its periodic
written report in the event of a material change with respect to such
vehicle.
(10) Qualified manufacturer. 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
Internal Revenue Service (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 45W, the section 45W regulations, or any
guidance under section 45W, including with respect to the periodic
written reports described in section 30D(d)(3) and this paragraph
(b)(10). The IRS may also terminate qualified manufacturer status for
fraud, intentional disregard, or gross negligence with respect to any
requirement of section 25E or 30D or any regulations in this chapter or
guidance thereunder.
(11) Secretary. Secretary has the meaning provided in section
7701(a)(11)(B) of the Code.
(12) Section 45W regulations. Section 45W regulations means this
section and Sec. Sec. 1.45W-2 through 1.45W-5.
(13) Statutory references--(i) Chapter 1. Chapter 1 means chapter 1
of the Code.
(ii) Code. Code means the Internal Revenue Code.
(iii) Subtitle A. Subtitle A means subtitle A of the Code.
(c) Applicability date. This section applies to qualified
commercial clean vehicles placed in service in taxable years ending
after [date of publication of the final regulations in the Federal
Register].
[[Page 3526]]
Sec. 1.45W-2 Amount of section 45W credit; incremental cost.
(a) Per-vehicle credit amount. Subject to the limitation in section
45W(b)(4) of the Code, the per-vehicle credit amount under section
45W(b)(1) with respect to any qualified commercial clean vehicle is the
lesser of 15 percent of the basis of such vehicle (or 30 percent in the
case of a vehicle not powered by a gasoline or diesel internal
combustion engine (ICE)), or the incremental cost of such vehicle.
(b) Incremental cost--(1) In general. For purposes of section
45W(b)(2), the incremental cost of any qualified commercial clean
vehicle is determined using the incremental cost calculations and
equations in paragraph (c) of this section to determine the amount
equal to the excess of--
(i) The product of the qualified manufacturer's cost of components
necessary for the BEV powertrain, FCEV powertrain, PHEV powertrain, or
PHFCEV powertrain used in the vehicle and the retail price equivalent
(RPE) of such vehicle; minus
(ii) The product of the manufacturer's cost of components necessary
for the powertrain of a comparable vehicle powered solely by a gasoline
or diesel ICE and the RPE of such comparable vehicle.
(2) Manufacturer's cost. For purposes of this section, a
manufacturer's cost includes only its direct manufacturing costs, which
may include, but are not limited to, the costs of materials and labor.
(3) Retail price equivalent--(i) In general. The RPE is the ratio
of the manufacturer's suggested retail price (MSRP) of a vehicle to the
manufacturer's cost to manufacture such vehicle. The MSRP is the sum of
the retail price and the retail delivered price.
(ii) Retail price. For purposes of paragraph (b)(3)(i) of this
section, retail price is the retail price of the vehicle 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)(3)(i) of this section, is the retail delivered price
suggested by the manufacturer for each accessory or item of optional
equipment physically attached to such vehicle at the time of its
delivery to the dealer that is not included within the price of such
vehicle as stated pursuant to 15 U.S.C. 1232(f)(1), as described in 15
U.S.C. 1232(f)(2).
(iv) Safe harbor. The Secretary may publish guidance in the
Internal Revenue Bulletin (see Sec. 601.601 of this chapter) no more
frequently than annually that will provide RPE safe harbors for
different segments of the vehicle market. Any taxpayer that uses an RPE
provided in safe harbor guidance published in the Internal Revenue
Bulletin (see Sec. 601.601 of this chapter) to determine the cost of a
BEV, PHEV, FCEV, PHFCEV, or ICE powertrain will be deemed to have
satisfied the requirements of this paragraph (b)(3), provided all
requirements specified in the applicable RPE safe harbor guidance have
been met. No formal election is required for a taxpayer to use a safe
harbor RPE.
(4) Comparable vehicle--(i) In general. A comparable vehicle is any
vehicle that is powered solely by a gasoline or diesel ICE and is
comparable in size and use to the qualified commercial clean vehicle.
Except as provided in paragraph (b)(4)(ii) of this section, the
manufacturer of the comparable vehicle need not be the manufacturer of
the qualified commercial clean vehicle.
(ii) Gasoline- or diesel-powered vehicle by same manufacturer. If
the qualified manufacturer of a qualified commercial clean vehicle also
manufactures a solely gasoline- or diesel-powered ICE version of such
vehicle, meaning a vehicle of the same model, produced in the same
model year, and with features substantially similar to those of the
qualified commercial clean vehicle, such solely gasoline- or diesel-
powered vehicle is the only comparable vehicle with respect to such
qualified commercial clean vehicle.
(iii) Vehicle comparable in size and use. A vehicle is comparable
to a qualified commercial clean vehicle in size and use if, as relevant
to the particular qualified commercial clean vehicle, it has
substantially similar features, such as GVWR, number of doors, towing
capacity, passenger capacity, cargo capacity, mounted equipment,
drivetrain type, overall width, height and ground clearance, and trim
level.
(iv) Example: Comparable vehicle--(A) Facts. A passenger car with a
BEV powertrain (BEV X) that is a qualified commercial clean vehicle has
a GVWR of 4,800 pounds, four doors, five-passenger seating capacity, a
mid-range trim level, and a 250-horsepower powertrain. A passenger car
with an ICE powertrain (ICE Car 1) has a GVWR of 4,500 pounds, four
doors, five-passenger seating capacity, a mid-range trim level, and a
200-horsepower powertrain. A second passenger car with an ICE
powertrain (ICE Car 2) has a GVWR of 4,500 pounds, two doors, two-
passenger seating capacity, a high-end trim level, and a 250-horsepower
powertrain.
(B) Analysis. ICE Car 1 is comparable to BEV X because ICE Car 1
and BEV X have substantially similar GVWRs (4,800 pounds compared to
4,500 pounds), numbers of doors (4), passenger capacity (5), and trim
levels (mid-range). The fact that ICE Car 1 and BEV X have dissimilar
horsepower is not determinative because whether two vehicles are
comparable vehicles under the rules of paragraph (b)(4) of this section
is not entirely dependent on the performance characteristics of the
powertrains. ICE Car 2 and BEV X, which have different numbers of doors
(4 compared to 2), passenger capacities (5 compared to 2), and trim
levels (mid-range compared to high-end), are not comparable. Therefore,
ICE Car 1 is a comparable vehicle for purposes of calculating the
incremental cost of BEV X, but ICE Car 2 is not.
(c) Incremental cost equations and calculations. The incremental
cost equations and calculations set forth in this paragraph (c) apply
to determine the incremental cost of a qualified commercial clean
vehicle for purposes of section 45W(b)(2) and this section.
(1) ICE powertrain cost. For purposes of the equations and
calculations in this paragraph (c), the ICE powertrain cost is the sum
of the cost of the engine, the ICE transmission, and the mechanical
accessories.
(2) Battery electric vehicles. In the case of a BEV, the
incremental cost of the BEV is the product of the manufacturer's cost
of the BEV powertrain and the RPE of such vehicle, less the product of
the manufacturer's cost of the comparable vehicle ICE powertrain and
the RPE of such vehicle. The BEV powertrain cost is the sum of the cost
of the electric traction drive system (which, for purposes of equation
1 to this paragraph (c)(2), includes the BEV transmission), the
battery, and the electrical accessories. Expressed formulaically, the
rule is as follows:
Equation 1 to Paragraph (c)(2)
Incremental cost of BEV = (BEV powertrain cost x RPE)-(ICE powertrain
cost x RPE)
(3) Plug-in hybrid electric vehicles. In the case of a PHEV, the
incremental cost of the PHEV is the product of the manufacturer's cost
of the PHEV powertrain and the RPE of such vehicle, less the product of
the manufacturer's cost of the comparable vehicle ICE powertrain and
the RPE of such vehicle. The PHEV powertrain cost is the sum of the
cost of the engine, the electric traction drive system (which, for
[[Page 3527]]
purposes of equation 2 to this paragraph (c)(3), includes the PHEV
transmission), the battery, and the electrical accessories. Expressed
formulaically, the rule is as follows:
Equation 2 to Paragraph (c)(3)
Incremental cost of PHEV = (PHEV powertrain cost x RPE)-(ICE powertrain
cost x RPE)
(4) Fuel cell electric vehicles. In the case of a FCEV, the
incremental cost of the FCEV is the product of the manufacturer's cost
of the FCEV powertrain and the RPE of such vehicle, less the product of
the manufacturer's cost of the comparable vehicle ICE powertrain and
the RPE of such vehicle. The FCEV powertrain cost is the sum of the
cost of the fuel cell system, the hydrogen storage, the electric
traction drive system (which, for purposes of equation 3 to this
paragraph (c)(4), includes the FCEV transmission), the battery, and the
electrical accessories. Expressed formulaically, the rule is as
follows:
Equation 3 to Paragraph (c)(4)
Incremental cost of FCEV = (FCEV powertrain cost x RPE)-(ICE powertrain
cost x RPE)
(5) Plug-in hybrid fuel cell electric vehicles. In the case of a
PHFCEV, the incremental cost of the PHFCEV is the product of the
manufacturer's cost of the PHFCEV powertrain and the RPE of such
vehicle, less the product of the manufacturer's cost of the comparable
vehicle ICE powertrain and the RPE of such vehicle. The PHFCEV
powertrain cost is the sum of the cost of the fuel cell system, the
hydrogen storage, the electric traction drive system (which, for
purposes of equation 4 to this paragraph (c)(5), includes the PHFCEV
transmission), the battery, and the electrical accessories. Expressed
formulaically, the rule is as follows:
Equation 4 to Paragraph (c)(5)
Incremental cost of PHFCEV = (PHFCEV powertrain cost x RPE)-(ICE
powertrain cost x RPE)
(6) Incremental cost determined exclusive of auxiliary power units.
The incremental cost of a qualified commercial clean vehicle is
determined without regard to any auxiliary power unit installed on such
vehicle or on a comparable vehicle.
(7) Incremental cost determined inclusive of additional batteries,
fuel cells, or hydrogen storage. The incremental cost of a qualified
commercial clean vehicle is determined by adding to the cost of the
BEV, FCEV, PHEV, or PHFCEV powertrain the cost of additional batteries
installed on such vehicle, regardless of whether such additional
batteries are required by a power takeoff, as well as additional fuel
cells or additional hydrogen storage installed on such vehicle,
regardless of whether such additional fuel cells are required by a
power takeoff.
(8) Negative incremental cost treated as zero. If the incremental
cost calculation results in a negative number, meaning that the cost of
the BEV, FCEV, PHEV, or PHFCEV powertrain used in the qualified
commercial clean vehicle is less than the cost of the ICE powertrain of
a comparable vehicle, then the incremental cost of the qualified
commercial vehicle is zero. This paragraph (c)(8) does not affect the
availability of the safe harbor described in paragraph (c)(11) of this
section.
(9) Incremental cost if no comparable vehicle exists. If a taxpayer
or manufacturer cannot identify a comparable vehicle with respect to a
particular qualified commercial clean vehicle, then the incremental
cost of such qualified commercial clean vehicle is zero. This paragraph
(c)(9) does not affect the availability of the safe harbor described in
paragraph (c)(11) of this section.
(10) Taxpayer reliance on qualified manufacturer's incremental cost
determination. If a qualified manufacturer provides a taxpayer with
written documentation of the incremental cost of a qualified commercial
clean vehicle that identifies the comparable vehicle such manufacturer
used for the incremental cost calculation and the taxpayer keeps such
incremental cost documentation in the taxpayer's records for as long as
the period of limitations for the taxable period in which the credit
was claimed is open, the taxpayer may rely on such incremental cost for
purposes of calculating the amount of the section 45W credit (defined
in Sec. 1.45W-1(a)) with respect to such vehicle. See Sec. 1.45W-
1(b)(9) for consequences of qualified manufacturer fraud, intentional
disregard, or gross negligence with respect to any requirements of
section 45W, the section 45W regulations (defined in Sec. 1.45W-
1(b)(12)), or any guidance issued by the Secretary under section 45W.
(11) Safe harbor. The Secretary may publish guidance in the
Internal Revenue Bulletin (see Sec. 601.601 of this chapter) no more
frequently than annually that will provide incremental cost safe
harbors for different types and classes of qualified commercial clean
vehicles placed in service during a specified period. Any taxpayer that
uses an incremental cost safe harbor provided in guidance published in
the Internal Revenue Bulletin (see Sec. 601.601 of this chapter) will
be deemed to have satisfied the requirements of section 45W(b)(1)(B)
and (2) and paragraphs (b) and (c) of this section, provided all
requirements specified in the applicable safe harbor guidance have been
met. No formal election is required for a taxpayer to use an
incremental cost safe harbor.
(d) Definitions. This paragraph (d) provides definitions related to
the incremental cost rules in section 45W(b)(1)(B) and paragraphs (b)
and (c) of this section.
(1) Battery. Battery has the meaning provided in Sec. 1.45W-
1(b)(1).
(2) Electric traction drive system and components--(i) Electric
traction drive system. Electric traction drive system means a system
used to provide vehicle propulsion in BEVs, FCEVs, PHEVs, and PHFCEVs
by delivering torque to the wheels and axle of the vehicle, and
includes, but is not limited to, an electric motor, an inverter, and a
transmission.
(ii) Electric motor. Electric motor means the component that
includes the stator, rotor, shaft, housing, bearings, and lubrication
elements. Multiple electric motors may be used in a vehicle.
(iii) Inverter. Inverter means a component that converts direct
current (DC) from the battery into alternating current (AC) to power
the electric motor, providing precise control over motor operations.
(iv) BEV, FCEV, PHEV, and PHFCEV transmission. For the definition
of transmission for BEVs, FCEVs, PHEVs, and PHFCEVs, see paragraph
(d)(9)(i) of this section.
(3) Electrical accessories--(i) In general. Electrical accessories
means accessories that support, but do not independently facilitate,
the function of essential vehicle systems, and include, but are not
limited to, battery enclosures, a compressor, an electric steering
pump, high voltage cables and connections, thermal management systems,
and a vacuum pump.
(ii) Battery enclosures. Battery enclosures means components that
consist of battery cases, cans or pouches, or casings or packaging used
to enclose and protect battery cells and modules into a pack.
(iii) Compressor. Compressor means a component that powers the air
conditioning system, ensuring effective climate control within the
vehicle.
(iv) Electric steering pump. Electric steering pump means a
component that provides hydraulic assistance for the
[[Page 3528]]
steering mechanism, enhancing ease of steering and vehicle
maneuverability.
(v) High voltage cables and connections. High voltage cables and
connections means components that include all high voltage cables,
connections to electric drive units, cables from the onboard charger,
DC-DC converter, air compressors, and the charging cable from the
charging port to the onboard charger.
(vi) Thermal management systems. Thermal management systems means
components that manage heating and cooling loads to ensure the
efficient operation of the battery and electric traction drive system.
(vii) Vacuum pump. Vacuum pump means a component that is essential
for various vehicle systems that require vacuum assistance,
contributing to overall system functionality.
(4) Engine and engine components--(i) Engine. The engine generates
power by burning fuel with air inside the engine. The engine includes,
but is not limited to, air intake and cooling systems, assembly
accessories, core engine components, engine management sensors and
electronics, exhaust gas regulator and breather systems, fuel systems,
induction air charging and fuel induction systems, power distribution
and sensing for after-treatment, primary exhaust and after-treatment
modules, and a valve train.
(ii) Air intake and cooling systems. Air intake and cooling systems
means components that ensure adequate airflow for combustion and
regulate engine temperature through the use of pumps, pipes, and
cooling fans.
(iii) Assembly accessories. Assembly accessories means auxiliary
components that are necessary for the assembly and integration of the
powertrain system.
(iv) Core engine components. Core engine components means
components that include the engine cylinder head, crankshaft, and
cylinder block, which form the fundamental structure of the engine,
facilitating combustion and power generation.
(v) Engine management sensors and electronics. Engine management
sensors and electronics means control units and sensors that monitor
and adjust engine parameters to maximize engine performance and
minimize emissions.
(vi) Exhaust gas regulator and breather systems. Exhaust gas
regulator and breather systems means components that control the
release of exhaust gases and maintain proper ventilation of the engine
crankcase.
(vii) Fuel system. Fuel system means components that encompass fuel
storage, distribution, and evaporative control components, ensuring
proper fuel delivery and reducing emissions.
(viii) Induction air charging and fuel induction systems. Induction
air charging and fuel induction systems means components that regulate
the intake of air and fuel into the combustion chambers, ensuring
efficient mixing and combustion.
(ix) Power distribution and sensing for after-treatment. Power
distribution and sensing for after-treatment means sensors and
distribution mechanisms that manage the after-treatment process,
ensuring effective emission control.
(x) Primary exhaust and after-treatment modules. Primary exhaust
and after-treatment modules means components that handle the initial
expulsion of exhaust gases and subsequent treatment to meet emission
standards.
(xi) Valve train. Valve train means a component that manages the
timing and operation of the engine's intake and exhaust valves,
optimizing airflow and exhaust processes.
(5) Fuel cell. Fuel cell means one or more cells in a stack that
convert chemical energy directly into electricity by combining oxygen
with hydrogen fuel that is stored on board the vehicle in any form and
may or may not require reformation prior to use. The fuel cell system
includes the stack as well as auxiliary components that include but are
not limited to pumps, sensors, heat exchangers, gaskets, compressors,
recirculation blowers, or humidifiers.
(6) Hydrogen storage. Hydrogen storage means storage of hydrogen on
board the vehicle in high-pressure tanks as a gas or liquid.
(7) Hydrogen storage cost. Hydrogen storage cost includes the cost
of the tank and the components that manage the flow of hydrogen from
the tank to the fuel cell system (that is, hydrogen supply and
regulation).
(8) Mechanical accessories--(i) In general. Mechanical accessories
are accessories that support, but do not independently facilitate, the
function of essential vehicle systems, and include, but are not limited
to, a compressor, a mechanical steering pump, and a water pump.
(ii) Compressor. Compressor means a component that powers the air
conditioning system, ensuring effective climate control within the
vehicle.
(iii) Mechanical steering pump. Mechanical steering pump means a
component that provides hydraulic assistance to the steering mechanism,
reducing the effort required by the driver to turn the steering wheel.
(iv) Water pump. Water pump means a component that circulates
coolant throughout the engine to maintain optimal operating
temperatures and prevent overheating.
(9) Transmission--(i) BEVs, FCEVs, PHEVs and PHFCEVs. For BEVs,
FCEVs, PHEVs, and PHFCEVs, transmission means a mechanical device that
uses a gear set--two or more gears working together--to change the
speed or direction of rotation in a machine. For BEVs and FCEVs
(electric vehicles), transmission means a component that consists of a
single- or multi-speed, single- or multi-reduction gearbox that
transfers power from the electric machine to the wheels. For PHEVs and
PHFCEVs (plug-in hybrid vehicles), transmission components will depend
on the vehicle driveline and orientation of the hybrid system (i.e.,
parallel or series) and may include, but are not limited to:
(A) Two transmissions (one ICE transmission and one electric
vehicle transmission);
(B) One transmission with some components of both ICE and EV
transmissions; and
(C) One electric vehicle transmission only.
(ii) ICE vehicles--(A) In general. For ICE vehicles, transmission
means a mechanical device that uses a gear set (that is, two or more
gears working together) to change the speed or direction of rotation in
a machine. For ICE vehicles, a transmission may include, but is not
limited to, a case, a drivetrain and geartrain, an internal clutch and
torque converter, a lubrication system, a mechanical controls and
electronic distribution system, a park-brake mechanism, and a
transmission cooling system.
(B) Case, drivetrain, and geartrain. Case, drivetrain, and
geartrain means the mechanical components within the transmission that
transfer power from the engine to the wheels, including gears and
shafts.
(C) Internal clutch and torque converter. Internal clutch and
torque converter means components that facilitate smooth power transfer
and gear changes, enhancing drivability.
(D) Lubrication system. Lubrication system means components that
ensure all moving parts within the transmission are adequately
lubricated, reducing friction and wear.
(E) Mechanical controls and electronic distribution system.
Mechanical controls and electronic distribution system means components
that manage the operation of the transmission, including gear selection
and shifting through both mechanical and electronic means.
[[Page 3529]]
(F) Park-brake mechanism. Park-brake mechanism means a component
that ensures the vehicle remains stationary when parked.
(G) Transmission cooling system. Transmission cooling system means
components that prevent overheating of the transmission components,
ensuring reliable performance under various operating conditions.
(e) Examples--(1) Example 1: Incremental cost calculation for a
qualified commercial clean vehicle--(i) Facts. Manufacturer is the
qualified manufacturer of a model year 2024 battery electric sport
utility vehicle (BEV SUV). The BEV SUV is a qualified commercial clean
vehicle with a GVWR of 4,600 pounds. Manufacturer is also the
manufacturer of a gasoline-powered ICE SUV (ICE SUV) that, except for
the powertrain, is identical to the BEV SUV. Manufacturer's costs of
the BEV SUV powertrain components are: electric traction drive system
($1,881.00), battery ($12,060.00), and electrical accessories
($1,437.00). The RPE of the BEV SUV is 1.49. Manufacturer's costs of
the ICE SUV powertrain components are: engine ($5,757.00), transmission
($1,744.00), and mechanical accessories ($415.00). The RPE of the ICE
SUV is 1.52. In 2025, Taxpayer purchases the BEV SUV for $50,000 and
places the vehicle in service. At the time of Taxpayer's purchase,
Manufacturer provides Taxpayer with a written disclosure of
Manufacturer's incremental cost calculation, which Manufacturer
calculated as described in paragraphs (b) and (c) of this section.
(ii) Analysis--(A) Calculation of incremental cost. Under paragraph
(b)(1) of this section, the incremental cost of the BEV SUV is the
product of Manufacturer's cost of the BEV SUV powertrain and the RPE of
such vehicle, less the product of Manufacturer's cost of the comparable
vehicle ICE powertrain and the RPE of such vehicle.
(1) Step 1. Under paragraph (c)(2) of this section, the BEV SUV
powertrain cost is the sum of the cost of the electric traction drive
system ($1,881.00), the battery ($12,060.00), and the electrical
accessories ($1,437.00), multiplied by the RPE of the vehicle (1.49),
or $22,913.22.
(2) Step 2. Under paragraph (b)(4) of this section, the ICE SUV is
the comparable vehicle with respect to the BEV SUV. Under paragraph
(c)(1) of this section, the ICE SUV powertrain cost is the sum of the
cost of the engine ($5,757.00), the ICE transmission ($1,744.00), and
the mechanical accessories ($415.00), multiplied by the RPE of the
vehicle (1.52), or $12,032.32.
(3) Step 3. Under paragraph (c)(2) of this section, the incremental
cost of the BEV SUV is determined by subtracting the cost of the ICE
SUV powertrain in step 2 ($12,032.32) from the cost of the BEV SUV
powertrain in step 1 ($22,913.22), or $10,880.90 ($22,913.22-$12,032.32
= $10,880.90).
(B) Determination of credit amount. Under paragraph (c)(10) of this
section, Taxpayer may rely on Manufacturer's incremental cost
calculation, which is described in paragraphs (b) and (c) of this
section, for purposes of determining the amount of the section 45W
credit allowable for the BEV SUV. Subject to the limitation in section
45W(b)(4), the credit amount is the lesser of 30 percent of Taxpayer's
basis in the BEV SUV ($50,000.00 x 30% = $15,000.00) or the incremental
cost of the BEV SUV ($10,880.90). Under section 45W(b)(4), the
taxpayer's credit is limited to a maximum of $7,500.00 because the
vehicle has a GVWR of less than 14,000 pounds. Therefore, the allowable
section 45W credit with respect to the BEV SUV is $7,500.00.
(2) Example 2: Section 45W credit equal to 30 percent of Taxpayer's
basis in a qualified commercial clean vehicle--(i) Facts. The facts are
the same as in paragraph (e)(1) of this section (Example 1), except
that Taxpayer purchases the BEV SUV for $21,600.00 and the incremental
cost calculated by Manufacturer and provided in writing to Taxpayer is
$7,000.00.
(ii) Analysis. Under paragraph (c)(10) of this section, Taxpayer
may rely on Manufacturer's incremental cost calculation, which is
described in paragraphs (b) and (c) of this section, for purposes of
determining the amount of the section 45W credit allowable for the BEV
SUV. Subject to the limitation in section 45W(b)(4), the credit amount
equals the lesser of 30 percent of Taxpayer's basis in the BEV SUV
($21,600.00 x 30% = $6,480.00) or the incremental cost of the BEV SUV
($7,000.00). Because $6,480.00 is below the $7,500 limitation in
section 45W(b)(4), the allowable section 45W credit with respect to the
BEV SUV is $6,840.00.
(3) Example 3: Incremental cost limit for a BEV with a GVWR over
14,000 pounds--(i) Facts. Manufacturer is the qualified manufacturer of
a model year 2025 battery electric bus (BEV Bus). The BEV Bus has a
GVWR of 14,500 pounds and is a qualified commercial clean vehicle.
Manufacturer is also the manufacturer of an ICE Bus that, except for
the powertrain, is substantially similar to the BEV Bus. Manufacturer's
costs of the BEV Bus powertrain components are: electric traction drive
system ($4,586.00), battery ($18,535.00), and electrical accessories
($2,150.00). The RPE of the BEV Bus is 1.49. Manufacturer's costs of
the ICE Bus powertrain components are: engine ($7,350.00), ICE
transmission ($4,730.00), and mechanical accessories ($780.00). The RPE
of the ICE Bus is 1.52. In 2025, Taxpayer purchases the BEV Bus for
$105,500.00, takes possession of the vehicle, and places it in service
that same year. At the time Taxpayer purchases the BEV Bus,
Manufacturer provides Taxpayer with a written disclosure of
Manufacturer's incremental cost calculation, which Manufacturer
calculated in the manner described in paragraphs (b) and (c) of this
section.
(ii) Analysis--(A) Calculation of incremental cost. Under paragraph
(c)(2) of this section, the incremental cost of the BEV Bus is the
product of Manufacturer's cost of the BEV Bus powertrain and the RPE of
such vehicle, less the product of Manufacturer's cost of the comparable
vehicle ICE powertrain and the RPE of such vehicle.
(1) Step 1. Under paragraph (c)(2) of this section, the BEV Bus
powertrain cost is the sum of the cost of the electric traction drive
system ($4,586.00), the battery ($18,535.00), and the electrical
accessories ($2,150.00) multiplied by the RPE of the vehicle (1.49), or
$37,653.79.
(2) Step 2. Under paragraph (b)(4) of this section, the ICE Bus is
the comparable vehicle with respect to the BEV Bus. Under paragraph
(c)(1) of this section, the ICE Bus powertrain cost is the sum of the
cost of the engine ($7,350.00), the ICE transmission ($4,730.00), and
the mechanical accessories ($780.00) multiplied by the RPE of the
vehicle (1.52), or $19,547.20.
(3) Step 3. Under paragraph (c)(2) of this section, the incremental
cost of the BEV Bus is determined by subtracting the cost of the ICE
Bus powertrain ($19,547.20) from the cost of the BEV Bus powertrain
($37,653.79), or $18,106.59 ($37,653.79 - $19,547.20 = $18,106.59).
(B) Determination of credit amount. Under paragraph (c)(1) of this
section, Taxpayer may rely on Manufacturer's incremental cost
calculation, which is described in paragraphs (b) and (c) of this
section. Subject to the limitation in section 45W(b)(4), the credit
amount is the lesser of 30 percent of Taxpayer's basis in the BEV Bus
($105,500 x 30% = $31,650.00) or the incremental cost of the BEV Bus
($18,106.59). Under section 45W(b)(4), the section 45W credit is
limited to $40,000 for the BEV Bus because it has a GVWR of more than
14,000 pounds. Because $18,106.59 is
[[Page 3530]]
below the $40,000.00 limitation in section 45W(b)(4), the allowable
section 45W credit with respect to the BEV Bus is $18,106.59.
(f) Incremental cost of qualified commercial clean vehicle
previously placed in service by another person or entity--(1) In
general. The incremental cost of a qualified commercial clean vehicle
previously placed in service by another person or entity is the product
of the incremental cost of the qualified commercial clean vehicle as
calculated under paragraphs (b) and (c) of this section (that is, the
incremental cost of such vehicle when new) and the residual value
factor that corresponds to the age of the qualified commercial clean
vehicle as determined under paragraph (f)(2) of this section.
(2) Age of a qualified commercial clean vehicle previously placed
in service by another person or entity. The age of a qualified
commercial clean vehicle previously placed in service by another person
or entity is determined by subtracting the model year of the vehicle
from the calendar year in which the taxpayer places the vehicle in
service. For purposes of this paragraph (f)(2) and paragraph (f)(3) of
this section, a negative age (for example, a case in which a model year
vehicle is sold twice prior to the calendar year that corresponds to
that model year) is treated as zero.
(3) Residual value factor. The residual value factor described in
paragraph (f)(1) of this section applicable to relevant vehicle
classes, based on GVWR, is as provided in the following tables:
Table 1 to Paragraph (f)(3)
------------------------------------------------------------------------
Vehicle class and description GVWR (lbs.)
------------------------------------------------------------------------
Class 1 Passenger car................................ <14,000
Class 1 or 2-3 Light Truck (Van, Sport Utility <14,000
Vehicle, Pickup Truck)..............................
Class 4-5............................................ 14,000-19,500
Class 6.............................................. 19,500-26,000
Class 7-8 Box/Other.................................. 26,000-60,000
Class 8 Day Cab/Sleeper.............................. >33,000
------------------------------------------------------------------------
Table 2 to Paragraph (f)(3)
----------------------------------------------------------------------------------------------------------------
Class 1 Class 1 or Class 7-8 Class 8 day
Vehicle class/vehicle age passenger 2-3 light Class 4-5 Class 6 box box/other cab/sleeper
car (%) truck (%) (%) (%) (%) (%)
----------------------------------------------------------------------------------------------------------------
0 years........................... 70 75 95 90 95 85
1 year............................ 60 70 85 80 85 75
2 years........................... 55 60 80 70 80 60
3 years........................... 50 55 75 60 70 55
4 years........................... 40 45 70 55 65 45
5 years........................... 40 40 65 45 60 40
6 years........................... 35 35 60 40 55 35
7 years........................... 30 35 55 35 50 30
8 years........................... 25 30 50 35 45 25
9 years........................... 25 25 45 30 45 25
10 years.......................... 20 25 45 25 40 20
11 years.......................... 20 20 40 25 35 20
12 years.......................... 15 20 40 20 35 15
13 years.......................... 15 15 35 20 30 15
14 or more years.................. 10 15 35 15 30 15
----------------------------------------------------------------------------------------------------------------
(4) Example--(i) Facts. In December 2024, X purchases and places in
service a model year 2025 battery electric car (BEV car). The BEV car
is a qualified commercial clean vehicle and has a GVWR of 3,900 pounds
and an incremental cost of $15,000. X did not claim a section 45W
credit with respect to the BEV car. X sells the BEV car to Y in
December 2025 for $40,000. Y is a fiscal year taxpayer whose taxable
year begins on October 1.
(ii) Analysis. Under paragraph (f)(2) of this section, the BEV car
is 0 years old because the model year of the BEV car (2025) subtracted
from the calendar year Y placed the BEV car in service (2025) equals 0.
Neither the calendar year in which X places the BEV car in service nor
Y's fiscal year is relevant to determining the age of the BEV car for
purposes of paragraph (f)(2) of this section. The applicable residual
value factor under paragraph (f)(3) of this section is therefore 70%.
The incremental cost of the BEV car is $10,500 ($15,000 x 70%). Because
the incremental cost of the BEV car ($10,500) is less than 30% of Y's
basis in the vehicle ($40,000 x 30% = $12,000), $10,500 is the amount
determined under section 45W(b)(1). Under section 45W(b)(4), the
allowable section 45W credit for the BEV car is limited to $7,500
because the BEV car has a GVWR of less than 14,000 pounds. Therefore,
Y's allowable section 45W credit with respect to the BEV car is $7,500.
(g) Applicability date. This section applies to qualified
commercial clean vehicles placed in service in taxable years ending
after [date of publication of the final regulations in the Federal
Register].
Sec. 1.45W-3 Qualified commercial clean vehicle.
(a) In general. To qualify as a qualified commercial clean vehicle
for purposes of section 45W of the Code, a vehicle must meet the
requirements of section 45W(c) and paragraphs (b) through (d) of this
section.
(b) Acquired for use or lease and not for resale by the taxpayer--
(1) In general. Under section 45W(c)(1), a qualified commercial clean
vehicle must be acquired for use or lease and not for
[[Page 3531]]
resale by the taxpayer. For purposes of section 45W(c)(1), a taxpayer
that is not a tax-exempt entity described in section 168(h)(2)(A)(i),
(ii), or (iv) of the Code acquires a vehicle for use or lease if the
taxpayer acquires the vehicle for use or lease in a trade or business
of the taxpayer.
(2) Recharacterization of lease. If a lease of a qualified
commercial clean vehicle would be treated as a sale rather than a lease
for purposes of subtitle A, such lease will not be respected for
purposes of section 45W(c)(1). In such case, the lessor will be treated
as having acquired the vehicle for resale, and no credit will be
allowed to such lessor under section 45W with respect to the vehicle.
To the extent the lessor has claimed a section 45W credit (defined in
Sec. 1.45W-1(a)) with respect to such vehicle, the recapture rules in
Sec. 1.45W-4(c) apply.
(c) Type of vehicle--(1) In general. Under section 45W(c)(2), a
qualified commercial clean vehicle must be either an on-road vehicle,
as described in section 45W(c)(2)(A) and paragraph (c)(2) of this
section, or mobile machinery, as described in section 45W(c)(2)(B) and
paragraph (c)(3) of this section. Some vehicles, such as a digger
derrick truck, may qualify as both an on-road vehicle and mobile
machinery.
(2) On-road vehicle. An on-road vehicle is a vehicle that meets the
requirements of section 30D(d)(1)(D) of the Code (that is, the vehicle
is treated as a motor vehicle for purposes of title II of the Clean Air
Act), is manufactured primarily for use on public streets, roads, and
highways (not including a vehicle operated exclusively on a rail or
rails).
(3) Mobile machinery. Mobile machinery has the meaning provided in
section 4053(8) of the Code.
(d) Electric motor and battery requirements--(1) In general. Under
section 45W(c)(3), a qualified commercial clean 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 15
kilowatt hours (or, in the case of a vehicle that has a gross vehicle
weight rating of less than 14,000 pounds, 7 kilowatt hours) and is
capable of being recharged from an external source of electricity, or
is a motor vehicle that satisfies the requirements under section
30B(b)(3)(A) and (B).
(2) Battery capable of being recharged from an external source of
electricity. For purposes of section 45W(c)(3)(A), a battery is capable
of being recharged from an external source of electricity if such
source of electricity is not an integral part of the vehicle. For
example, a regenerative braking system, in which the kinetic energy
generated by the motion of the vehicle is used to recharge a battery,
is not an external source of electricity for purposes of section
45W(c)(3)(A) and this paragraph (d)(2).
(e) Applicability date. This section applies to taxable years
ending after [date of publication of the final regulations in the
Federal Register].
Sec. 1.45W-4 Special rules.
(a) No double benefit--(1) Previous allowance of section 45W or 30D
credit. No credit is allowed under section 45W(a) of the Code (section
45W credit) with respect to any vehicle for which a section 45W credit
or a section 30D credit was previously allowed for such vehicle.
(2) Allowance of other deduction or credit. Under sections
45W(d)(1) and 30D(f)(2) of the Code, the amount of any deduction or
other credit allowable under chapter 1 of the Code (chapter 1) for a
vehicle for which a section 45W credit is allowable must be reduced by
the amount of the section 45W credit allowed for such vehicle. See also
Sec. 1.25E-2(b)(1).
(3) Recordkeeping for the qualified commercial clean vehicle
credit. In accordance with Sec. 1.6001-1, a taxpayer claiming a credit
under section 45W must keep permanent books of account or records
sufficient to establish the amount of any such credit required to be
shown by such taxpayer in any return of tax or information return. Such
records must be sufficient to establish, for example, that the section
45W credit claimed is not disallowed by paragraph (a)(1) of this
section, subject to reduction under Sec. 1.25E-2(b)(1), or, if any
such reduction is required, the amount of such reduction.
(b) Credit ineligibility resulting from certain transactions and
uses--(1) In general. This paragraph (b) provides rules that apply to
certain transactions involving qualified commercial clean vehicles and
certain uses of such vehicles, including cancelled sales, vehicle
returns, resales, or less than 100 percent use in a trade or business.
(2) Cancelled sale. If a sale of a qualified commercial clean
vehicle is cancelled before the taxpayer places the vehicle in service,
then--
(i) The taxpayer may not claim the section 45W credit with respect
to the vehicle;
(ii) The vehicle may still be eligible for the section 45W credit;
and
(iii) A subsequent buyer of the vehicle will not be required to
apply the residual value rules of Sec. 1.45W-2(f) to determine the
incremental cost of the vehicle.
(3) Vehicle return. If a taxpayer returns a qualified commercial
clean vehicle to the seller within 30 days of placing such vehicle in
service, then--
(i) The taxpayer may not claim the section 45W credit with respect
to the vehicle;
(ii) The vehicle may still be eligible for the section 45W credit;
and
(iii) A subsequent buyer of the vehicle must apply the residual
value rules of Sec. 1.45W-2(f) to determine the incremental cost of
the vehicle.
(4) Resale. If a taxpayer resells a qualified commercial clean
vehicle within 30 days of placing the vehicle in service, then--
(i) The taxpayer is treated as having acquired such vehicle with
the intent to resell;
(ii) The taxpayer may not claim the section 45W credit with respect
to the vehicle;
(iii) The vehicle may still be eligible for the section 45W credit;
and
(iv) A subsequent buyer of the vehicle must apply the residual
value rules of Sec. 1.45W-2(f) to determine the incremental cost of
the vehicle.
(5) Less than 100 percent trade or business use in taxable year
vehicle is placed in service. If a taxpayer's trade or business use of
a qualified commercial clean vehicle for the taxable year such vehicle
is placed in service by the taxpayer is less than 100 percent of the
taxpayer's total use of that vehicle for that taxable year (other than
incidental personal use, such as a stop for lunch on the way between
two job sites), including because the vehicle is sold or otherwise
disposed of, the vehicle is ineligible for the section 45W credit. This
rule also applies to a qualified commercial clean vehicle placed in
service by a tax-exempt entity, except that 100 percent trade or
business use means the tax-exempt entity's use that is related to an
exempt purpose or an unrelated trade or business purpose.
(c) Recapture--(1) In general. This paragraph (c) provides rules
regarding the recapture of the section 45W credit pursuant to sections
45W(d)(1) and 30D(f)(5).
(2) Recapture in the case of less than 100 percent trade or
business use--(i) In general. Except as provided in paragraph
(c)(2)(ii) of this section, if a taxpayer ceases to use a qualified
commercial clean vehicle for 100 percent trade or business use (other
than incidental personal use) during the 18-month period beginning on
the date the vehicle is placed in service, including because the
vehicle is sold or otherwise disposed of, then--
(A) The taxpayer may not claim the section 45W credit with respect
to the
[[Page 3532]]
vehicle. If the taxpayer has already claimed the section 45W credit,
the credit is recaptured as a tax under chapter 1.
(B) The vehicle may still be eligible for the section 45W credit;
and
(C) A subsequent buyer must apply the residual value rules of Sec.
1.45W-2(f)(3) to determine the incremental cost of the vehicle.
(ii) Applicability to vehicles placed in service by a tax-exempt
entity. For a qualified commercial clean vehicle placed in service by a
tax-exempt entity, the 100 percent trade or business use rule in
paragraph (c)(2)(i) of this section applies, except that, as provided
in paragraph (b)(5) of this section, 100 percent trade or business use
means the tax-exempt entity's use that is related to an exempt purpose
or an unrelated trade or business purpose.
(d) Elective payment elections. In the case of an applicable
entity, as described in section 6417(d)(1) of the Code and Sec.
1.6417-1(c) with respect to which an applicable credit listed in
section 6417(b) is determined for a taxable year, section 6417(a)
allows the applicable entity to make an election to treat the
applicable entity as making a payment against the tax imposed by
subtitle A of the Code equal to the amount of the applicable credit.
Section 6417(b)(6) and Sec. 1.6417-1(d)(6) include the section 45W
credit as an applicable credit, but only with respect to a section 45W
credit determined by reason of section 45W(d)(2) by a tax-exempt entity
described in section 168(h)(2)(A)(i), (ii), or (iv) that is also an
applicable entity listed in section 6417(d)(1) and Sec. 1.6417-1(c).
(e) Leases. For purposes of section 45W(d)(2), a vehicle is subject
to a lease if it is leased within 30 days of being placed in service by
a tax-exempt entity.
(f) Applicability date. This section applies to taxable years
ending after [date of publication of the final regulations in the
Federal Register].
Sec. 1.45W-5 Reporting requirements.
(a) Requirement to file return. No section 45W credit (defined in
Sec. 1.45W-1(a)) can be determined unless the taxpayer claiming such
credit files a Federal income tax return or information return, as
appropriate, for the taxable year in which the qualified commercial
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, including the
vehicle identification number of the qualified commercial clean
vehicle.
(b) Credit may generally be claimed on only one tax return--(1) In
general. Except as provided in paragraphs (b)(2) and (3) of this
section, the amount of the section 45W credit attributable to a
qualified commercial clean vehicle may be claimed on only one Federal
income tax return, including on a joint return in which one of the
spouses or the spouse's wholly-owned business entity is listed on the
title as the sole owner of the vehicle. In the event a qualified
commercial clean vehicle is placed in service by multiple taxpayers
that 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 45W credit is available.
(2) Grantor trusts. In the case of a qualified commercial clean
vehicle placed in service by a trust, to the extent the grantor or
another person is treated as owning all or part of the trust under
sections 671 through 679 of the Code, the section 45W credit is
allocated to such grantor or other person in accordance with Sec.
1.671-3(a)(1).
(3) Partnerships and S corporations. In the case of a qualified
commercial clean vehicle placed in service by a partnership or S
corporation, the section 45W credit is allocated among the partners of
the partnership under Sec. 1.704-1(b)(4)(ii) or among the shareholders
of the S corporation under sections 1366(a) and 1377(a) of the Code and
claimed on the tax returns of the ultimate partners or of the S
corporation shareholder(s).
(c) Taxpayer reliance on manufacturer certifications and periodic
written reports to the IRS. A taxpayer that acquires a qualified
commercial clean vehicle and places it in service 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, the qualified commercial clean vehicle the
taxpayer acquires will be deemed to meet the requirements of sections
30D(d)(1)(C) and 45W(c)(1) of the Code.
(d) Applicability date. This section applies to taxable years
ending after [date of publication of the final regulations in the
Federal Register].
0
Par. 5. Section 1.6417-6 is amended by:
0
1. Adding two sentences to the end of paragraph (b)(1); and
0
2. Revising paragraph (e).
The addition and revision read as follows:
Sec. 1.6417-6 Special rules.
* * * * *
(b) * * *
(1) * * * For purposes of this paragraph (b)(1), if an applicable
credit is subject to section 50, then section 50 applies without regard
to section 50(b)(3) and (b)(4)(A)(i). If another provision of the Code
contains a basis reduction and/or recapture provision outside of
section 50 that impacts the available credit (such as sections 30C(e),
45Q(f)(4), 45W(d)(1), and 48(a)(10)), then the rules of that provision
of the Code and the regulations in this chapter issued under that
provision of the Code apply, except that any applicable credit
continues to be determined without regard to section 50(b)(3) and
(b)(4)(A)(i) and by treating any property with respect to which such
credit is determined as used in a trade or business of the applicable
entity, consistent with section 6417(d)(2) and Sec. 1.6417-2(c).
* * * * *
(e) Applicability dates--(1) In general. Except as provided in
paragraph (e)(2) of this section, this section applies to taxable years
ending on or after March 11, 2024. For taxable years ending before
March 11, 2024, taxpayers, however, may choose to apply the rules of
Sec. Sec. 1.6417-1 through 1.6417-4 and this section, provided the
taxpayers apply the rules in their entirety and in a consistent manner.
(2) Paragraph (b)(1) of this section. The second and third
sentences of paragraph (b)(1) of this section apply to property placed
in service in taxable years ending after [date of publication of the
final regulations in the Federal Register].
Douglas W. O'Donnell,
Deputy Commissioner.
[FR Doc. 2025-00256 Filed 1-10-25; 8:45 am]
BILLING CODE 4830-01-P