Proposed Rule2023-26513
Section 30D Excluded Entities
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Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
December 4, 2023
Issuing agencies
Treasury DepartmentInternal Revenue Service
Abstract
This document contains proposed regulations that would provide guidance regarding the excluded entity provisions with respect to the clean vehicle credit as amended by the Inflation Reduction Act of 2022. The proposed regulations would also provide clarity on definitions with respect to new clean vehicles eligible for the clean vehicle credit. The proposed regulations would affect qualified manufacturers of new clean vehicles and taxpayers who purchase and place in service new clean vehicles.
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<title>Federal Register, Volume 88 Issue 231 (Monday, December 4, 2023)</title>
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[Federal Register Volume 88, Number 231 (Monday, December 4, 2023)]
[Proposed Rules]
[Pages 84098-84116]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-26513]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-118492-23]
RIN 1545-BQ99
Section 30D Excluded Entities
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This document contains proposed regulations that would provide
guidance regarding the excluded entity provisions with respect to the
clean vehicle credit as amended by the Inflation Reduction Act of 2022.
The proposed regulations would also provide clarity on definitions with
respect to new clean vehicles eligible for the clean vehicle credit.
The proposed regulations would affect qualified manufacturers of new
clean vehicles and taxpayers who purchase and place in service new
clean vehicles.
DATES: Written or electronic comments and requests for a public hearing
must be received by January 18, 2024. Requests for a public hearing
must be submitted as prescribed in the ``Comments and Requests for a
Public Hearing'' section.
ADDRESSES: Commenters are strongly encouraged to submit public comments
electronically via the Federal eRulemaking Portal at <a href="https://www.regulations.gov">https://www.regulations.gov</a> (indicate IRS and REG-118492-23) by following the
online instructions for submitting comments. Requests for a public
hearing must be submitted as prescribed in the ``Comments and Requests
for a Public Hearing'' section. Once submitted to the Federal
eRulemaking Portal, comments cannot be edited or withdrawn. The
[[Page 84099]]
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-118492-23),
Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin
Station, Washington, DC 20044.
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
the Office of Associate Chief Counsel (Passthroughs & Special
Industries) at (202) 317-6853 (not a toll-free number); concerning
submissions of comments and requests for a public hearing, call Vivian
Hayes (202) 317-6901 (not a toll-free number) or send an email to
<a href="/cdn-cgi/l/email-protection#92e2e7f0fefbf1faf7f3e0fbfcf5e1d2fbe0e1bcf5fde4"><span class="__cf_email__" data-cfemail="8dfdf8efe1e4eee5e8ecffe4e3eafecde4fffea3eae2fb">[email protected]</span></a> (preferred).
SUPPLEMENTARY INFORMATION:
Background
I. Overview
Public Law 117-169, 136 Stat. 1818 (August 16, 2022), commonly
known as the Inflation Reduction Act of 2022 (IRA), amended section 30D
of the Internal Revenue Code (Code). Section 30D provides a credit
(section 30D credit) against the tax imposed by chapter 1 of the Code
(chapter 1) with respect to each new clean vehicle that a taxpayer
purchases and places in service. The section 30D credit is determined
and allowable with respect to the taxable year in which the taxpayer
places the new clean vehicle in service.
This document contains proposed amendments to the Income Tax
Regulations (26 CFR part 1) under section 30D. These proposed
regulations supplement a notice of proposed rulemaking (REG-120080-22)
published in the Federal Register (88 FR 23370) on April 17, 2023
(April 2023 proposed regulations) that contains initial proposed
regulations under section 30D as amended by the IRA, as well as a
notice of proposed rulemaking (REG-113064-23) published in the Federal
Register (88 FR 70310) on October 10, 2023 (October 2023 proposed
regulations) that contains initial and additional proposed regulations
under sections 25E, 30D, and 6213 of the Code. This notice of proposed
rulemaking does not address written comments that were submitted in
response to the April 2023 proposed regulations or the October 2023
proposed regulations. Any comments received in response to this notice
of proposed rulemaking will be addressed in the Treasury Decision
adopting these regulations as final regulations.
II. Section 30D
Section 30D was 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 purchasing and
placing in service new qualified plug-in electric drive motor vehicles.
Section 30D has been amended several times since its enactment, most
recently by section 13401 of the IRA. In general, the amendments made
by section 13401 of the IRA to section 30D apply to vehicles placed in
service after December 31, 2022, except as provided in section
13401(k)(2) through (5) of the IRA.
Effective beginning on April 18, 2023, section 30D(b) provides a
maximum credit of $7,500 per new clean vehicle, consisting of $3,750 if
certain critical minerals requirements are met and $3,750 if certain
battery components requirements are met. These requirements are
described in section 30D(e)(1) and (2), respectively, and the preamble
to the April 2023 proposed regulations.
The amount of the section 30D credit is treated as a personal
credit or a general business credit depending on the character of the
vehicle. In general, under section 30D(c)(2), the section 30D credit is
treated as a nonrefundable personal credit allowable under subpart A of
part IV of subchapter A of chapter 1. However, under section 30D(c)(1),
so much of the credit that would be allowed under section 30D(a) that
is attributable to property that is of a character subject to an
allowance for depreciation is treated as a current year general
business credit under section 38(b) and not allowed under section
30D(a). Section 38(b)(30) lists as a current year business credit the
portion of the section 30D credit to which section 30D(c)(1) applies.
The IRA did not amend section 30D(c)(1) or (2).
The IRA amended section 30D(d) regarding the definition of a new
clean vehicle. Section 30D(d)(1) defines ``new clean vehicle'' as a
motor vehicle that satisfies the following eight requirements set forth
in section 30D(d)(1)(A) through (H) of the Code:
<bullet> the original use of the motor vehicle must commence with
the taxpayer;
<bullet> the motor vehicle must be acquired for use or lease by the
taxpayer and not for resale;
<bullet> the motor vehicle must be made by a qualified
manufacturer;
<bullet> the motor vehicle must be treated as a motor vehicle for
purposes of title II of the Clean Air Act;
<bullet> the motor vehicle must have a gross vehicle weight rating
of less than 14,000 pounds;
<bullet> the motor vehicle must be propelled to a significant
extent by an electric motor which draws electricity from a battery that
has a capacity of not less than 7 kilowatt hours, and is capable of
being recharged from an external source of electricity;
<bullet> the final assembly of the motor vehicle must occur within
North America; and
<bullet> the person who sells any vehicle to the taxpayer must
furnish a report to the taxpayer and to the Secretary of the Treasury
or her delegate (Secretary) containing certain specifically enumerated
items.
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 Clean Air Act (42 U.S.C. 7521
et seq.)) that enters into a written agreement with the Secretary under
which such manufacturer agrees to make periodic written reports to the
Secretary (at such times and in such manner as the Secretary may
provide) providing vehicle identification numbers and such other
information related to each vehicle manufactured by such manufacturer
as the Secretary may require.
Section 30D(d)(7) excludes from the definition of ``new clean
vehicle'' any vehicle placed in service after December 31, 2024, with
respect to which any of the applicable critical minerals contained in
the battery of such vehicle were extracted, processed, or recycled by a
foreign entity of concern (as defined in section 40207(a)(5) of the
Infrastructure Investment and Jobs Act (42 U.S.C. 18741(a)(5))), or any
vehicle placed in service after December 31, 2023, with respect to
which any of the components contained in the battery of such vehicle
were manufactured or assembled by a foreign entity of concern (as so
defined).
No section 30D credit is allowed with respect to a vehicle placed
in service after December 31, 2032.
III. Prior Guidance
A. Notice 2022-46
On October 5, 2022, the Treasury Department and the IRS published
Notice 2022-46, 2022-43 I.R.B. 302. The notice requested general
comments on issues arising under sections 25E and 30D, as well as
specific comments concerning: (1) definitions; (2) critical minerals
and battery components; (3) foreign entities of concern; (4)
recordkeeping and reporting; (5) eligible entities; (6) elections to
transfer and
[[Page 84100]]
advance payments; and (7) recapture. The Treasury Department and the
IRS received 884 comments from industry participants, environmental
groups, individual consumers, and other stakeholders. The Treasury
Department and the IRS appreciate the commenters' interest and
engagement on these issues. These comments have been carefully
considered in the preparation of the proposed regulations.
B. Revenue Procedure 2022-42
On December 12, 2022, the Treasury Department and the IRS published
Revenue Procedure 2022-42, 2022-52 I.R.B. 565, providing 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. In addition, Revenue
Procedure 2022-42 provides the procedures for sellers of new clean
vehicles or previously-owned clean vehicles to report certain
information to the IRS and the purchasers of such clean vehicles.
C. April 2023 Proposed Regulations
On April 17, 2023, the Treasury Department and the IRS published
the April 2023 proposed regulations in the Federal Register, which
provides proposed definitions for certain terms related to section 30D;
proposed rules regarding personal and business use and other special
rules; and additional proposed rules related to the critical mineral
and battery component requirements.
D. Revenue Procedure 2023-33
On October 6, 2023, the Treasury Department and the IRS released
Revenue Procedure 2023-33, which was published on October 23, 2023, in
Internal Revenue Bulletin 2023-43, to provide guidance for taxpayers
electing to transfer credits under section 25E or 30D and for eligible
entities receiving advance payments of credits under sections 30D and
25E. This revenue procedure sets forth the procedures under sections
30D(g) and 25E(f) for the transfer of the previously-owned clean
vehicle credit and the new clean vehicle credit from the taxpayer to an
eligible entity, including the procedures for dealer registration with
the IRS, the procedures for the revocation and suspension of that
registration, and the establishment of an advance payment program to
eligible entities. In addition, this revenue procedure superseded
sections 5.01 and 6.03 of Revenue Procedure 2022-42, providing new
information for the time and manner of submission of seller reports,
respectively. This revenue procedure also superseded sections 6.01 and
6.02 of Revenue Procedure 2022-42, providing updated information on
submission of written agreements by manufacturers to the IRS to be
considered qualified manufacturers, as well as the method of submission
of monthly reports by qualified manufacturers.
E. October 2023 Proposed Regulations
On October 10, 2023, the Treasury Department and the IRS published
the October 2023 proposed regulations in the Federal Register, which
provide guidance for elections to transfer clean vehicle credits under
sections 30D(g) and 25E(f). The proposed regulations provide guidance
for taxpayers intending to transfer the previously-owned clean vehicle
credit and the new clean vehicle credit to dealers who are entities
eligible to receive advance payments of either credit. The proposed
regulations also provide guidance for dealers to become eligible
entities to receive advance payments of previously-owned clean vehicle
credits or clean vehicle credits. The proposed regulations also provide
guidance for recapturing the credit under sections 30D and 25E.
Finally, proposed Sec. 1.6213-2 defines the term ``omission of a
correct vehicle identification number'' (VIN) for purposes of section
6213, under which, in part, the IRS is authorized to make a summary
assessment when there has been an omission of a correct VIN on a
taxpayer's return when claiming or electing to transfer a credit under
section 25E or 30D.
IV. Department of Energy Guidance
Concurrently with the release of these proposed regulations, the
Department of Energy (DOE) is releasing proposed guidance in the
Federal Register, which provides proposed interpretations of certain
terms used in the definition of ``foreign entity of concern'' (FEOC)
set forth in section 40207(a)(5) of the Infrastructure Investment and
Jobs Act (IIJA), 42 U.S.C. 18741(a)(5), and as cross-referenced in
section 30D(d)(7). Section 40207(a)(5) of the IIJA defines FEOC to
include foreign entities covered by specific designations, inclusions,
and allegations by Federal agencies as described in section
40207(a)(5)(A), (B), and (D), as well as foreign entities ``owned by,
controlled by, or subject to the jurisdiction or direction of a
government'' of a covered nation under section 40207(a)(5)(C). Covered
nations are defined in 10 U.S.C. 4872(d)(2) as the People's Republic of
China, the Russian Federation, the Democratic People's Republic of
Korea, and the Islamic Republic of Iran as of the date of publication
of these proposed regulations. Finally, section 40207(a)(5)(E) of the
IIJA provides that a FEOC includes a foreign entity that the Secretary
of Energy, in consultation with the Secretary of Defense and the
Director of National Intelligence, determines is engaged in
unauthorized conduct that is detrimental to the national security or
foreign policy of the United States.
The DOE proposed guidance provides an interpretation of section
40207(a)(5)(C) of the IIJA. In particular, the DOE proposed guidance
provides definitions for the terms ``government of a foreign country,''
``foreign entity,'' ``subject to the jurisdiction,'' and ``owned by,
controlled by, or subject to the direction of.''. In general, an entity
incorporated in, headquartered in, or performing the relevant
activities in a covered nation would be classified as a FEOC. For
purposes of these rules, an entity would be ``owned by, controlled by,
or subject to the direction'' of another entity if 25 percent or more
of the entity's board seats, voting rights, or equity interest are
cumulatively held by such other entity. In addition, licensing
agreements or other contractual agreements may also create control.
Finally, ``government of a foreign country'' would be defined to
include subnational governments and certain current or former senior
foreign political figures.
Explanation of Provisions
I. Section 1.30D-2 Definitions
Proposed Sec. 1.30D-2(a) is revised to clarify that all
definitions in the section apply for purposes of section 30D and the
section 30D regulations, including any guidance thereunder. Proposed
Sec. 1.30D-2(f) is revised to include in the definition of ``section
30D regulations'' the provisions of proposed Sec. 1.30D-5 as set forth
in the October 2023 proposed regulations and proposed Sec. 1.30D-6 as
set forth in these proposed regulations. Proposed Sec. 1.30D-2(k)
would provide, consistent with section 30D(d)(3), that ``manufacturer''
means any manufacturer within the meaning of the regulations prescribed
by the Administrator of the Environmental Protection Agency (EPA) for
purposes of the administration of title II of the Clean Air Act (42
U.S.C. 7521 et seq.) and as defined in 42 U.S.C. 7550(1). If multiple
manufacturers are involved in the production of a vehicle, the
requirements provided in section
[[Page 84101]]
30D(d)(3) must be met by the manufacturer who satisfies the reporting
requirements of the greenhouse gas emissions standards set by EPA under
the Clean Air Act (42 U.S.C. 7521 et seq.) for the subject vehicle.
Proposed Sec. 1.30D-2(l) would provide that a qualified
manufacturer means a manufacturer that meets the requirements described
in section 30D(d)(3). A qualified manufacturer would not include any
manufacturer whose qualified manufacturer status has been terminated by
the IRS. The IRS may terminate qualified manufacturer status for fraud,
intentional disregard, or gross negligence with respect to any
requirements of section 30D and the regulations and guidance
thereunder, including with respect to the periodic written reports
described in section 30D(d)(3) and proposed Sec. 1.30D-2(m) and any
attestations, documentation, or certifications described in proposed
Sec. 1.30D-3(e) and proposed Sec. 1.30D-6(d), at the time and in the
manner provided in the Internal Revenue Bulletin.
Proposed Sec. 1.30D-2(m) would provide that a ``new clean
vehicle'' means a vehicle that meets the requirements described in
section 30D(d). A new clean vehicle would not include any vehicle for
which the qualified manufacturer does any of the following: (1) fails
to provide a periodic written report for such vehicle prior to the
vehicle being placed in service, reporting the VIN of such vehicle and
certifying compliance with the requirements of section 30D(d); (2)
provides incorrect information with respect to the periodic written
report for such vehicle; (3) fails to update its periodic written
report in the event of a material change with respect to such vehicle;
or, (4) for new clean vehicles placed in service after December 31,
2024, the qualified manufacturer fails to meet the requirements of
proposed Sec. 1.30D-6(d). For purposes of section 30D(d)(6), the term
``new clean vehicle'' includes any new qualified fuel cell motor
vehicle (as defined in section 30B(b)(3)) which meets the requirements
under section 30D(d)(1)(G) and (H). The Treasury Department and the IRS
request comment on whether, in the interest of sound tax administration
and to provide additional transparency to taxpayers, it would be
feasible and helpful for tax administration if qualified manufacturers
were to encode eligibility for section 30D through a particular
calendar year into the VIN using an alphanumeric combination.
II. Section 1.30D-3 Provisions
Proposed Sec. 1.30D-3(d) would provide rules regarding excluded
entities by reference to proposed Sec. 1.30D-6.
Proposed Sec. 1.30D-3(e) would provide for an upfront review of
conformance with the critical minerals requirement and battery
components requirement. Specifically, proposed Sec. 1.30D-3(e) would
provide that for new clean vehicles placed in service after December
31, 2024, the qualified manufacturer must provide attestations,
certifications and documentation demonstrating compliance with the
requirements of section 30D(e), at the time and in the manner provided
in the Internal Revenue Bulletin. The IRS, with analytical assistance
from the DOE, will review the attestations, certifications, and
documentations.
III. Excluded Entities
A. Definitions
The proposed regulations would provide definitions for terms
relevant to the excluded entity provision. To the extent many of these
terms were defined in the April 2023 proposed regulations, these
proposed regulations would provide the same definitions for such terms
as is provided in proposed Sec. 1.30D-3(c). The Treasury Department
and the IRS intend that terms relevant to both the critical mineral and
battery component requirements described in proposed Sec. 1.30D-3 and
the excluded entity restrictions described in these proposed
regulations are interpreted consistently.
1. Applicable Critical Mineral
Proposed Sec. 1.30D-6(a)(1) would define ``applicable critical
mineral'' as an applicable critical mineral as defined in section
45X(c)(6). Guidance regarding the definition of applicable critical
minerals, including the applicable critical minerals that are used in
electric vehicle batteries to facilitate the electrochemical processes
necessary for energy storage, would be provided in forthcoming proposed
regulations under section 45X.
2. Assembly
Proposed Sec. 1.30D-6(a)(2) would define ``assembly'' as, with
respect to battery components, the process of combining battery
components into battery cells and battery modules.
3. Battery
Proposed Sec. 1.30D-6(a)(3) would define ``battery'' as, for
purposes of a new clean vehicle, a collection of one or more battery
modules, each of which has two or more electrically configured battery
cells in series or parallel, to create voltage or current. The term
battery does not include items such as thermal management systems or
other parts of a battery cell or module that do not directly contribute
to the electrochemical storage of energy within the battery, such as
battery cell cases, cans, or pouches.
4. Battery Cell
Proposed Sec. 1.30D-6(a)(4) would define ``battery cell'' as a
combination of battery components (other than battery cells) capable of
electrochemically storing energy from which the electric motor of a new
clean vehicle draws electricity.
5. Battery Cell Production Facility
Proposed Sec. 1.30D-6(a)(5) would define ``battery cell production
facility'' as a facility in which battery cells are manufactured or
assembled.
6. Battery Component
Proposed Sec. 1.30D-6(a)(6) would define ``battery component'' as
a component that forms part of a battery and that is manufactured or
assembled from one or more components or constituent materials that are
combined through industrial, chemical, and physical assembly steps.
Proposed Sec. 1.30D-6(a)(6) would specify that battery components may
include, but are not limited to, a cathode electrode, anode electrode,
solid metal electrode, separator, liquid electrolyte, solid state
electrolyte, battery cell, and battery module. Constituent materials
are not a type of battery component, although constituent materials may
be manufactured or assembled into battery components. Some battery
components may be made entirely of inputs that do not contain
constituent materials.
7. Compliant-Battery Ledger
Proposed Sec. 1.30D-6(a)(7) would define ``compliant-battery
ledger,'' for a qualified manufacturer for a calendar year, as a ledger
that tracks the number of available FEOC-compliant batteries for such
calendar year. A compliant-battery ledger is established under the
rules of proposed Sec. 1.30D-6(d), described in part III.D. of this
Explanation of Provisions.
8. Constituent Materials
Proposed Sec. 1.30D-6(a)(8) would define ``constituent materials''
as materials that contain applicable critical minerals and that are
employed directly in the manufacturing of battery components. Proposed
Sec. 1.30D-6(a)(8) would specify that constituent materials may
include, but are not limited to,
[[Page 84102]]
powders of cathode active materials, powders of anode active materials,
foils, metals for solid electrodes, binders, electrolyte salts, and
electrolyte additives, as required for a battery cell.
9. Extraction
Proposed Sec. 1.30D-6(a)(9) would define ``extraction'' to mean
the activities performed to harvest minerals or natural resources from
the ground or a body of water. Extraction would include, but would not
be limited to, operating equipment to harvest minerals or natural
resources from mines and wells, or to extract minerals or natural
resources from the waste or residue of prior extraction. Extraction
would conclude when activities are performed to convert raw mined or
harvested products or raw well effluent to substances that can be
readily transported or stored for direct use in critical mineral
processing. Extraction would include the physical processes involved in
refining. Extraction would not include the chemical and thermal
processes involved in refining.
10. Foreign Entity of Concern
Proposed Sec. 1.30D-6(a)(10) would define ``foreign entity of
concern (FEOC)'' to have the same meaning as defined in section
40207(a)(5) of the Infrastructure Investment and Jobs Act (42 U.S.C.
18741(a)(5)) and guidance promulgated thereunder by the DOE.
11. FEOC-Compliant
Proposed Sec. 1.30D-6(a)(11) would define ``FEOC-compliant'' to
mean in compliance with the applicable excluded entity requirement
under section 30D(d)(7). In particular, the proposed regulation would
provide definitions of FEOC-compliant with respect to a battery
component (other than a battery cell), applicable critical mineral,
battery cell, or battery. This definition would treat battery cells
separately from other battery components because battery cells contain
applicable critical minerals (and associated constituent materials) as
well as other battery components. Thus, the applicable rules under
section 30D(d)(7) must be satisfied for such critical minerals and such
components contained in the battery cell as well as the battery cell
itself. A battery component (other than a battery cell), with respect
to a new clean vehicle placed in service after December 31, 2023, is
FEOC-compliant if it is not manufactured or assembled by a FEOC. An
applicable critical mineral, with respect to a new clean vehicle placed
in service after December 31, 2024, is FEOC-compliant if it is not
extracted, processed, or recycled by a FEOC. As described in part
III.C.4. of this Explanation of Provisions, in general, the
determination of whether an applicable critical mineral is FEOC-
compliant would take into account each step of extraction, processing,
or recycling through the step in which such mineral is processed or
recycled into a constituent material, even if the mineral is not in a
form listed in section 45X(c)(6). A battery cell, with respect to a new
clean vehicle placed in service after December 31, 2023, and before
January 1, 2025, is FEOC compliant if it is not manufactured or
assembled by a FEOC and it contains only FEOC-compliant battery
components. A battery cell, with respect to a new clean vehicle placed
in service after December 31, 2024, is FEOC-compliant if it is not
manufactured or assembled by a FEOC and it contains only FEOC-compliant
battery components and applicable critical minerals. A battery, with
respect to a new clean vehicle placed in service after December 31,
2023, is FEOC-compliant if it contains only FEOC-compliant battery
components (other than battery cells) and FEOC-compliant battery cells.
12. Manufacturing
Proposed Sec. 1.30D-6(a)(12) would define ``manufacturing'' to
mean, with respect to a battery component, the industrial and chemical
steps taken to produce a battery component.
13. Non-Traceable Battery Materials
Proposed Sec. 1.30D-6(a)(13)(i) would define ``non-traceable
battery materials'' to mean specifically identified low-value battery
materials that may originate from multiple sources and are often
commingled during refining, processing, or other production processes
by suppliers to such a degree that the qualified manufacturer cannot,
due to current industry practice, feasibly determine and attest to the
origin of such battery materials. Proposed Sec. 1.30D-6(a)(13)(ii),
which is reserved, would contain the specific list of identified non-
traceable battery materials. Low-value battery materials are those
that, like the exemplar materials listed below, have low value compared
to the total value of the battery. Where battery materials make up only
a very small percentage of the value of the battery as a whole, many
industry participants, prior to the passage of the IRA, had little
reason to trace the source of these materials. As a result, unlike with
higher value battery materials, tracing the source of these low value
materials is not immediately feasible, which makes it in turn not
feasible for qualified manufacturers to provide the necessary assurance
to the IRS that their materials are FEOC-compliant.
The Treasury Department and the IRS, after extensive consultation
with the Department of Energy, are considering whether the following
applicable critical minerals (and associated constituent materials) may
be designated as identified non-traceable battery materials: applicable
critical minerals contained in electrolyte salts, electrode binders,
and electrolyte additives. These exemplar materials each account for
less than two percent of the value of applicable critical minerals in
the battery, and the Treasury Department and the IRS understand that
industry tracing of these particular applicable critical mineral
production processes is uncommon and third-party standards for doing so
are underdeveloped. Other materials for inclusion could include, for
example, other low-value electrode active materials that are also
subject to the traceability difficulties described in part III.A.13. of
this Explanation of Provisions. As discussed further below, the
Treasury Department and the IRS request comment on: (1) whether other
applicable critical minerals (and associated constituent materials)
should be designated as identified non-traceable battery materials for
the same reasons, and (2) whether an approach other than the proposed
list of non-traceable battery materials would better address the
traceability issues discussed here. As discussed in part III.B.2. of
this Explanation of Provisions, some stakeholders have suggested that
the Treasury Department and the IRS adopt a de minimis exception to the
excluded entity restrictions based on value, weight, mass, or other
considerations. In response to these comments, the Treasury Department
and the IRS have proposed a transition rule that would temporarily
exclude a specific list of identified non-traceable battery materials
from the due diligence requirements of the qualified manufacturers.
The Treasury Department and the IRS request comments on the best
approach to addressing low-value battery materials for which tracing to
their source is not immediately feasible. The Treasury Department and
the IRS request comment on whether the proposed approach is a sound
method of accounting for non-traceable battery materials, and whether
other criteria should be used to distinguish between traceable and non-
traceable battery materials. In particular, the Treasury Department and
the IRS request
[[Page 84103]]
comments that explain whether and why certain battery materials are
prohibitively difficult to trace at this time given current supply
chains and current broadly available tools and practices for supply-
chain tracing in the battery sector, and that explain how the supply
chain may be limited by any such difficulty. The Treasury Department
and the IRS also request comments explaining how the state of supply
chains and tools and practices for supply-chain tracing are expected to
evolve in the coming months and years for battery materials that are
prohibitively difficult to trace at present. The Treasury Department
and the IRS further request comments explaining the state of
recordkeeping that is currently used in the industry to trace supply
chains, what kind of recordkeeping requirements would facilitate better
tracing of supply chains in the coming months and years, how to
encourage manufacturers to adopt appropriate tracing systems as soon as
practicable, and how these rules incentivize further shifting of supply
chains in a manner that will strengthen our energy security, national
security, and domestic manufacturing.
In addition, the Treasury Department and the IRS request comment on
whether the listed materials are appropriately characterized as non-
traceable battery materials. The Treasury Department and the IRS
further request comment on whether any other applicable critical
minerals, including associated constituent materials, would also be
appropriately characterized as non-traceable battery materials because
they meet the required criteria. The Treasury Department and the IRS
further request comment on whether other criteria should be applied to
determine what qualifies as non-traceable battery materials, and what
applicable critical minerals, including associated constituent
materials, would be appropriately characterized as such materials under
the suggested criteria. Finally, the Treasury Department and the IRS
seek comment describing alternative approaches to addressing the
challenges posed by low-value battery materials that are not currently
feasible to trace to their origins.
14. Processing
Proposed Sec. 1.30D-6(a)(14) would define ``processing'' to mean
the non-physical processes involved in the refining of non-recycled
substances or materials, including the treating, baking, and coating
processes used to convert such substances and materials into
constituent materials. Processing includes the chemical or thermal
processes involved in refining. Processing does not include the
physical processes involved in refining.
15. Recycling
Proposed Sec. 1.30D-6(a)(15) would define ``recycling'' to mean
the series of activities during which recyclable materials containing
critical minerals are transformed into specification-grade commodities
and consumed in lieu of virgin materials to create new constituent
materials; such activities result in new constituent materials
contained in the battery from which the electric motor of a new clean
vehicle draws electricity.
B. Due Diligence and Transition Rule for Non-Traceable Battery
Materials
1. Due Diligence
Proposed Sec. 1.30D-6(b)(1) would provide that the qualified
manufacturer must conduct due diligence with respect to all battery
components and applicable critical minerals (and associated constituent
materials) that are relevant to determining whether such components or
minerals are FEOC-compliant. This due diligence must comply with
standards of tracing for battery materials available in the industry at
the time of the attestation or certification that enable the qualified
manufacturer to know with reasonable certainty the provenance of
applicable critical minerals, constituent materials, and battery
components. Such tracing standards may include international battery
passport certifications and enhanced battery material and component
tracking and labeling. Proposed Sec. 1.30D-6(b)(1) would specify that
reasonable reliance on a supplier attestation or certification will be
considered due diligence if the qualified manufacturer does not know or
have reason to know after due diligence that such supplier attestation
or certification is incorrect.
The due diligence must be conducted by the qualified manufacturer
prior to its determination of any information to establish a compliant-
battery ledger described in proposed Sec. 1.30D-6(d), and on an on-
going basis. A battery is not considered FEOC-compliant unless the
qualified manufacturer has conducted such due diligence with respect to
all such components and applicable critical minerals of the battery and
provided required attestations or certifications described in part
III.D. of this Explanation of Provisions.
2. Transition Rule For Non-Traceable Battery Materials
Proposed Sec. 1.30D-6(b)(2) would provide that for any new clean
vehicles for which the qualified manufacturer provides a periodic
written report before January 1, 2027, the due diligence requirement
may be satisfied by excluding identified non-traceable battery
materials (and associated constituent materials), as defined in
proposed Sec. 1.30D-6(a)(13)(ii). In addition, as described in part
III.C.3. of this Explanation of Provisions, identified non-traceable
battery materials (and associated constituent materials) may be
excluded from the determination of whether a battery cell is FEOC-
compliant. To use this transition rule, qualified manufacturers must
submit a report during the up-front review process described in part
III.D. of this Explanation of Provisions demonstrating how the
qualified manufacturer will comply with the excluded entity
restrictions once the transition rule is no longer in effect and all
materials must be fully traced through the entire electric vehicle
battery supply chain.
As described in part III.A.13. of this Explanation of Provisions,
the Treasury Department and the IRS understand, after extensive
consultation with the Department of Energy, that industry has not
developed standards or systems for tracing certain low-value materials
with precision. This inability to trace is exacerbated by the practice
of commingling such materials within the materials processing supply
chain. To address this issue, some stakeholders have suggested that the
Treasury Department and the IRS adopt a de minimis exception to the
excluded entity restrictions based on value, weight, mass, or other
considerations. The Treasury Department and the IRS understand the
tracing concerns in light of current standards and systems. However,
these standards and systems may develop to allow for improved tracing
in the future.
The Treasury Department and the IRS therefore recognize the
potential need for a transition rule to enable determination of FEOC
compliance while detailed tracing practices are being developed to
allow for full sourcing and tracing of applicable critical mineral
supply chains. The transition rule in proposed Sec. 1.30D-6(b)(2) and
(c)(3)(iii) is one option that the Treasury Department and the IRS are
considering for such a rule. The Treasury Department and the IRS also
are considering and seeking comment on possible alternative approaches
for a
[[Page 84104]]
transition rule that would address low-value materials that cannot be
traced under current industry standards and that would be responsive to
rapidly changing industry practices regarding specific materials or
overall battery composition, or no transition rule at all.
This transition rule in proposed Sec. 1.30D-6(b)(2) is proposed to
phase out for any new clean vehicles for which the manufacturer is
required to provide a periodic written report after December 31, 2026.
The Treasury Department and the IRS request comments on the need for
and design of this transition rule, including data or other objective
information to support such comments.
The Treasury Department and IRS also request comment on whether the
challenges identified in this Explanation of Provisions related to
traceability of low-value materials should instead be addressed through
an alternative approach. The Treasury Department and the IRS request
comment on whether a transition rule that adopts an alternative to the
approach of listing materials would better achieve the Treasury
Department's and IRS's stated goals and the challenges posed by low-
value materials that are not currently feasible to trace. The Treasury
Department and the IRS specifically request comment describing
alternative approaches to providing a transition rule that accounts for
low-value materials that cannot be traced under current industry
standards and that is responsive to rapidly changing industry practice,
if commenters believe a different approach could better achieve the
Treasury Department's and IRS's stated goals. Such alternative
approaches, which might include ones that use principle-based criteria
instead of the listing of specific non-traceable battery materials in a
final regulation, should be narrowly tailored to address the
traceability challenges identified, enable effective administration by
the IRS, and phase-out on a schedule consistent with the reasonable
development of industry standards.
C. Excluded Entity Restriction
1. In General
Proposed Sec. 1.30D-6(c)(1) would provide that in the case of any
new clean vehicle placed in service after December 31, 2023, the
batteries from which the electric motor of such vehicle draws
electricity must be FEOC-compliant. A serial number or other
identification system must be used to physically track FEOC-compliant
batteries to specific new clean vehicles.
The proposed regulation would provide that the determination that a
battery is FEOC-compliant is made as follows: First, the qualified
manufacturer makes a determination of whether battery components and
applicable critical minerals (and associated constituent materials) are
FEOC-compliant, in accordance with rules for the determination of FEOC-
compliant battery components and applicable critical minerals, which
are described in part III.C.4. of this Explanation of Provisions. Next,
the FEOC-compliant battery components and FEOC-compliant applicable
critical minerals (and associated constituent materials) are physically
tracked to specific battery cells, in accordance with rules for the
determination of FEOC compliant-battery cells, described in part
III.C.3. of this Explanation of Provisions. Alternatively, FEOC-
compliant applicable critical minerals and associated constituent
materials (but not battery components) may be allocated to battery
cells, without physical tracking, in accordance the rules for a
temporary allocation-based determination for applicable critical
minerals and associated constituent materials, described in part
III.C.3.a of this Explanation of Provisions. Finally, the battery
components, including battery cells, are physically tracked to specific
batteries, in accordance with the rules for the determination of FEOC-
compliant batteries described in part II.C.2 of this Explanation of
Provisions.
2. Determination of FEOC-Compliant Batteries
Proposed Sec. 1.30D-6(c)(2) would provide that the determination
that a battery is FEOC-compliant must be made by physically tracking
FEOC-compliant battery components, including battery cells, to such
battery. With respect to battery cells, a serial number or other
identification system must be used to physically track FEOC-compliant
battery cells to such batteries.
3. Determination of FEOC-Compliant Battery Cell
Proposed Sec. 1.30D-6(c)(3)(i) would provide that, except as
described in part III.C.3.a. of this Explanation of Provisions, the
determination that a battery cell contains FEOC-compliant battery
components and FEOC-compliant applicable critical minerals and their
associated constituent materials must be made by physically tracking
FEOC-compliant battery components to specific battery cells and by
physically tracking the mass of FEOC-compliant applicable critical
minerals and associated constituent materials to specific battery
cells.
a. Temporary Allocation-Based Determination for Applicable Critical
Materials and Associated Constituent Materials of a Battery Cell
Proposed Sec. 1.30D-6(c)(3)(ii)(A) would provide that the
determination that a battery cell is a FEOC-compliant battery cell may
be made through an allocation of available mass of applicable critical
minerals and associated constituent materials to specific battery cells
manufactured or assembled in a battery cell production facility,
without the physical tracking of the mass of applicable critical
minerals (and associated constituent materials) to specific battery
cells. This allocation-based determination is an exception to the
general rule, requiring specific tracking, of proposed Sec. 1.30D-
6(c)(3)(ii)(A). As provided in proposed Sec. 1.30D-6(c)(3)(ii)(F), the
Treasury Department and the IRS propose that this exception would be a
temporary rule for any new clean vehicle for which the qualified
manufacturer provides a periodic written report before January 1, 2027.
After extensive consultation with the DOE, the Treasury Department
and the IRS understand that certain applicable critical minerals (and
associated constituent materials) are commingled prior to delivery to
or at the battery cell production facility. Thus, while the qualified
manufacturer and its suppliers can trace such minerals through the
entire electric vehicle battery supply chain to determine FEOC-
compliance, the manufacturer and suppliers cannot physically track
specific mass of minerals to specific battery cells or batteries. As a
result, the qualified manufacturer cannot determine which battery cells
or batteries are FEOC-compliant, absent an allocation-based
determination.
The Treasury Department and the IRS anticipate that industry
accounting practices may adapt to compliance regimes that require
physical supply chain tracking in the future, whether through the
acquisition of wholly-compliant supply, the separation of currently-
commingled supply chains, the development of physical tracking systems,
or some combination thereof. Accordingly, this exception is proposed to
phase out for any new clean vehicle for which the qualified
manufacturer provides a periodic written report after December 31,
2026. The Treasury Department and the IRS request comments on the need
for, design, and duration of this temporary rule, including data or
other objective information to support such comments. The Treasury
Department and the IRS
[[Page 84105]]
also request comment on whether industry practices are likely to
develop that allow for physical tracking before December 31, 2032, and,
if not, whether allocation-based accounting should be included as a
permanent compliance approach, rather than as a temporary transition
rule.
Proposed Sec. 1.30D-6(c)(3)(ii)(B) would provide that the
temporary allocation-based determination rules are limited to
applicable critical minerals and associated constituent materials that
are incorporated into a battery cell or its battery components. Battery
components must be physically tracked.
Proposed Sec. 1.30D-6(c)(3)(ii)(C) would provide that any
allocation with respect to the mass of an applicable critical mineral
must be made within the type of constituent materials (such as powders
of cathode active materials, powders of anode active materials, or
foils) in which such mineral is contained. Masses of an applicable
critical mineral may not be aggregated across constituent materials
with which such applicable critical mineral is not associated, and an
allocation of mass of an applicable critical mineral may not be made
from one type of constituent material to another. Proposed Sec. 1.30D-
6(c)(3)(ii)(C) also provides an example illustrating this rule.
Proposed Sec. 1.30D-6(c)(3)(ii)(D) would provide that any
allocation with respect to applicable critical minerals and their
associated constituent materials must be allocated within one or more
specific battery cell product lines of the battery cell production
facility, such that a particular mass of constituent material is not
treated as fungible across different battery chemistries and designs.
Proposed Sec. 1.30D-6(c)(3)(ii)(E) would provide that if a
qualified manufacturer uses the allocation-based determination rules
described in this part III.C.3.a., the quantity of FEOC-compliant
battery cells that can result from this allocation may not exceed the
number of battery cells for which there is enough FEOC-compliant
quantity of every applicable critical mineral. That number will
necessarily be limited by the applicable critical mineral that has the
lowest percentage of FEOC-compliant supply. For example, if a qualified
manufacturer allocates all of applicable critical mineral A, that is 20
percent FEOC-compliant, and all of applicable critical mineral B, that
is 60 percent FEOC-compliant, to a battery cell product line, no more
than 20 percent of the battery cells in that battery cell product line
may be FEOC-compliant.
Proposed Sec. 1.30D-6(c)(3)(ii)(F) would provide that the rules of
proposed Sec. 1.30D-6(c)(3)(ii) do not apply with respect to any new
clean vehicle for which the qualified manufacturer provides a periodic
written report after December 31, 2026.
b. Transition Rule for Non-Traceable Battery Materials
Proposed Sec. 1.30D-6(c)(3)(iii) would provide that for new clean
vehicles for which the qualified manufacturer provides a periodic
written report before January 1, 2027, the determination of whether a
battery cell is FEOC-compliant under proposed Sec. 1.30D-6(c)(3) may
be satisfied by excluding non-traceable battery materials, and their
associated constituent materials. To use this transition rule, which is
further discussed in part III.B. of this Explanation of Provisions,
qualified manufacturers must submit a report during the up-front review
process described in proposed Sec. 1.30D-6(d)(2)(ii).
4. Determination of FEOC-Compliant Battery Components and Applicable
Critical Minerals
Proposed Sec. 1.30D-6(c)(4) would provide that the determination
that battery components and applicable critical minerals (and their
associated constituent materials) are FEOC-compliant must be made prior
to any determination under proposed Sec. 1.30D-6(c)(2) and (3). In
general, the determination of whether an applicable critical mineral is
FEOC-compliant would take into account each step of extraction,
processing, or recycling through the step in which such mineral is
processed or recycled into a constituent material, even if the mineral
is not in a form listed in section 45X(c)(6)), such as nickel sulphate
that is used in production of a nickel-manganese-cobalt cathode active
powder. A constituent material would be associated with an applicable
critical mineral if the applicable critical mineral has been processed
or recycled into a constituent material, even if that processing or
recycling transformed the mineral into a form not listed in section
45X(c)(6). However, an applicable critical mineral would be disregarded
for purposes of the determination under proposed Sec. 1.30D-6(c)(4) if
it is fully consumed in the production of the constituent material or
battery component and no longer remains in any form in the battery,
such as certain solvents used in electrode production.
With respect to recycling, applicable critical minerals and
associated constituent materials that are recycled would be subject to
the determination of whether such mineral is FEOC-compliant if the
recyclable material contains an applicable critical mineral, contains
material that was transformed from an applicable critical mineral, or
if the recyclable material is used to produce an applicable critical
mineral at any point during the recycling process. The determination of
whether an applicable critical mineral or associated constituent
material that is incorporated into a battery via recycling is FEOC-
compliant takes into account only activities that occurred during the
recycling process. Thus, for example, an applicable critical mineral
derived from recyclable material that was recycled by an entity that is
not a FEOC would be FEOC-compliant even if such mineral may have been
extracted by a FEOC prior to its inclusion in the recyclable material.
Whether an entity is a FEOC is determined as of the time of the
entity's performance of the relevant activity, which for applicable
critical minerals is the time of extraction, processing, or recycling,
and for battery components is the time of manufacturing or assembly.
The determination of whether an applicable critical mineral is FEOC-
compliant is determined at the end of processing or recycling of the
applicable critical mineral into a constituent material, taking into
account all applicable steps prior to final processing or recycling.
Thus, for example, an applicable critical mineral that is not extracted
by a FEOC but is processed by a FEOC is not FEOC-compliant.
Proposed Sec. 1.30D-6(c)(4)(iv) provides examples regarding
determinations of FEOC-compliant battery components and applicable
critical minerals.
5. Third-Party Manufacturers or Suppliers
Proposed Sec. 1.30D-6(c)(5) would provide that the determinations
under proposed Sec. 1.30D-6(c)(2) through (4) may be made by a third-
party manufacturer or supplier that operates a battery cell production
facility provided that the manufacturer or supplier performs the due
diligence described in proposed Sec. 1.30D-6 and provides the
qualified manufacturer of the new clean vehicle information sufficient
to establish a basis for the determinations under proposed Sec. 1.30D-
6(c)(2) through (4). In addition, the manufacturer or supplier must be
contractually required to provide such information to the qualified
manufacturer of the new clean vehicle and must be contractually
required to inform the qualified manufacturer of any changes in the
supply chain that affect determinations of FEOC compliance. In the case
of multiple third-party manufacturers or suppliers (such as if a
manufacturer
[[Page 84106]]
contracts with a battery manufacturer, who, in turn, contracts with a
manufacturer or supplier who operates a battery cell production
facility), the due diligence and information requirements must be
satisfied by each such manufacturer or supplier either directly to the
qualified manufacturer or indirectly through contractual relationships.
D. Compliant-Battery Ledger
1. In General
Proposed Sec. 1.30D-6(d)(1) would provide that for new clean
vehicles placed in service after December 31, 2024, the qualified
manufacturer must determine and provide information to the IRS to
establish a compliant-battery ledger for each calendar year, as
described in proposed Sec. 1.30D-6(d)(2)(i) and (ii). One compliant-
battery ledger may be established for all vehicles for a calendar year,
or there may be separate ledgers for specific models or classes of
vehicles.
2. Determination of Number of Batteries
Proposed Sec. 1.30D-6(d)(2)(i) would provide that, to establish a
compliant-battery ledger for a calendar year, the qualified
manufacturer must determine the number of batteries, with respect to
new clean vehicles (as described in section 30D(d) and proposed Sec.
1.30D-2(m)) for which the qualified manufacturer anticipates providing
a periodic written report during the calendar year, that it knows or
reasonably anticipates will be FEOC-compliant, pursuant to the
requirements of proposed Sec. 1.30D-6(b) and (c). The determination
would be based on the battery components and applicable critical
minerals (and associated constituent materials) that are procured or
contracted for the calendar year and that are known or reasonably
anticipated to be FEOC-compliant battery components or FEOC-compliant
applicable critical minerals, as applicable.
Proposed Sec. 1.30D-6(d)(2)(ii) would provide a process for
upfront review of the number of batteries described in the preceding
paragraph. Specifically, the proposed rule would provide that the
qualified manufacturer must attest to the number of FEOC-compliant
batteries determined under proposed Sec. 1.30D-6(d)(2)(i) and provide
the basis for the determination, including attestations, certifications
and documentation demonstrating compliance with proposed Sec. 1.30D-
6(b) and (c), at the time and in the manner provided in the Internal
Revenue Bulletin. The IRS, with analytical assistance from the DOE,
would review the attestations, certifications, and documentation. Once
the IRS has determined that the qualified manufacturer has provided the
required attestations, certifications, and documentation, the IRS will
approve or reject the determined number of FEOC-compliant batteries.
The IRS may approve the determined number in whole or part. The
approved number will be the initial balance in the compliant-battery
ledger.
Proposed Sec. 1.30D-6(d)(2)(iii) would provide rules for
decreasing or increasing the balance of the compliant-battery ledger.
Specifically, once the compliant-battery ledger is established with
respect to a calendar year, the qualified manufacturer must determine
and take into account any decrease in the number of FEOC-compliant
batteries for such calendar year, and any of the prior three calendar
years for which the qualified manufacturer had a compliant-battery
ledger, within 30 days of discovery. In addition, the qualified
manufacturer may determine and take into account any increase in the
number of FEOC-compliant batteries. Such determinations, and any
supporting attestations, certifications, and documentation, must be
provided on a periodic basis in the manner provided in the Internal
Revenue Bulletin.
The decrease described in the previous paragraph may decrease the
compliant-battery ledger below zero, creating a negative balance in the
compliant-battery ledger. In addition, if any such decrease is
determined subsequent to the calendar year to which it relates, the
decrease will be taken into account in the year in which the change is
discovered. The remaining balance in the compliant-battery ledger at
the end of the calendar year, whether positive or negative, will be
included in the compliant-battery ledger for the subsequent calendar
year. If a qualified manufacturer has multiple compliant-battery
ledgers with negative balances, any negative balance would first be
included in the compliant-battery ledger for the same model or class of
vehicles for the subsequent calendar year. However, if there is no
ledger for the same model or class of vehicles in the subsequent
calendar year, the IRS can account for such negative balance in the
ledger of a different model or class of vehicles of the qualified
manufacturer.
3. Tracking FEOC-Compliant Batteries
Proposed Sec. 1.30D-6(d)(3) would provide that the compliant-
battery ledger for a calendar year must be updated to track the number
of available FEOC-compliant batteries of the qualified manufacturer, by
reducing the balance of the ledger as the qualified manufacturer
submits periodic written reports reporting the VINs of new clean
vehicles as eligible for the credit under section 30D, at the time and
in the manner provided in the Internal Revenue Bulletin. If the balance
of the compliant-battery ledger for a calendar year of the qualified
manufacturer is zero or less than zero, the qualified manufacturer
would not be able to submit additional periodic written reports with
respect to section 30D.
4. Reconciliation of Battery Estimates
Proposed Sec. 1.30D-6(d)(4) would provide that, after the end of
any calendar year for which a compliant-battery ledger is established,
the IRS may require a qualified manufacturer to provide attestations,
certifications, and documentation to support the accuracy of the number
of FEOC-compliant batteries of the qualified manufacturer for such
calendar year, including with respect to any changes described in
paragraph (d)(3)(iii), at the time and in the manner provided in the
Internal Revenue Bulletin.
E. Rule for 2024
Proposed Sec. 1.30D-6(e) would provide rules for new clean
vehicles placed in service in 2024. This rule may apply to new clean
vehicles for which the qualified manufacturer submits a periodic
written report in 2024 as well as new clean vehicles for which a
qualified manufacturer submitted a periodic written report in 2023.
Thus, for example, a vehicle that was anticipated to be placed in
service in 2023 that remains unsold at the end of 2023 is subject to
these rules if placed in service in 2024.
Specifically, proposed Sec. 1.30D-6(e)(1) would provide that, for
new clean vehicles that are placed in service after December 31, 2023,
and prior to January 1, 2025, the qualified manufacturer must determine
whether the battery components contained in such vehicles satisfy the
requirements of section 30D(d)(7)(B) and whether batteries contained in
the vehicle are FEOC-compliant under the rules of proposed Sec. 1.30D-
6(b) and (c). The qualified manufacturer would be required to make an
attestation with respect to such determinations at the time and in the
manner provided in the Internal Revenue Bulletin.
However, for any new clean vehicles for which the qualified
manufacturer provides a periodic written report before the date that is
30 days after the date these regulations are finalized, provided that
the qualified manufacturer has determined that its supply chain of
[[Page 84107]]
battery components with respect to such vehicles contains only FEOC-
compliant battery components: (i) for purposes of the determination of
FEOC-compliant batteries and FEOC-compliant battery cells described in
parts III.C.2 and III.C.3. of this Explanation of Provisions, the
determination of which battery cells or batteries, as applicable,
contain FEOC-compliant battery components may be determined without
physical tracking; (ii) for purposes of the determination of FEOC-
compliant batteries, the determination of which batteries contain FEOC-
compliant battery cells may be determined without physical tracking
(and without the use of a serial number or other identification
system); and (iii) for purposes of the determination that a vehicle
contains a FEOC-compliant battery and therefore is a new clean vehicle,
as described in part III.C.1. of this Explanation of Provisions, the
determination of which vehicles contain FEOC-compliant batteries may be
determined without physical tracking (and without the use of a serial
number or other identification system).
Under proposed Sec. 1.30D-6(e)(2), the determination that a
qualified manufacturer's supply chain of battery components contains
only FEOC-compliant batteries may be made with respect to specific
models or classes of vehicles.
F. Inaccurate Attestations, Certifications or Documentation
1. In General
Proposed Sec. 1.30D-6(f)(1) would provide that if the IRS
determines, with analytical assistance from the DOE and after review of
the attestations, certifications, and documentation described in part
III.D. of this Explanation of Provisions, that a qualified manufacturer
provided inaccurate attestations, certifications, or documentation, the
IRS may take certain actions against the qualified manufacturer,
depending on the severity of the inaccuracy. Such actions would affect
new clean vehicles and qualified manufacturers on a prospective basis.
2. Inadvertence
Proposed Sec. 1.30D-6(f)(2) would provide that if the IRS
determines that the attestations, certifications, or documentation for
a new clean vehicle contain errors due to inadvertence, the following
may be required: The qualified manufacturer may cure the errors
identified, including by a decrease in the compliant-battery ledger of
the qualified manufacturer. However, if the errors are not cured, in
the case of a new clean vehicle that has not been placed in service but
for which the qualified manufacturer has submitted a periodic written
report certifying compliance with the requirements of section 30D(d),
such vehicle is no longer considered a new clean vehicle eligible for
the section 30D credit. If the errors are not cured, in the case of a
new clean vehicle that has not been placed in service and for which the
qualified manufacturer has not submitted a periodic written report, the
qualified manufacturer may not submit a periodic written report
certifying compliance with the requirements of section 30D(d). Finally,
if the errors are not cured, in the case of a new clean vehicle that
has been placed in service, the IRS may require a decrease to the
compliant-battery ledger.
3. Intentional Disregard or Fraud
Proposed Sec. 1.30D-6(f)(3) would provide guidance for cases of
intentional disregard or fraud. Specifically, the proposed regulations
would provide that if the IRS determines that a qualified manufacturer
intentionally disregarded attestation, certification, and documentation
requirements or reported information fraudulently or with intentional
disregard, the IRS may determine that all vehicles of the qualified
manufacturer that have not been placed in service are no longer
considered new clean vehicles eligible for the section 30D credit. In
addition, the IRS may terminate the written agreement between the IRS
and the manufacturer, thereby terminating the manufacturer's status as
a qualified manufacturer. The manufacturer would be required to submit
a new written agreement to reestablish qualified manufacturer status at
the time and in the manner provided in the Internal Revenue Bulletin.
G. Examples
Proposed Sec. 1.30D-6(g) would provide examples illustrating the
application of the proposed rules regarding excluded entities. Example
1 would provide a general set of facts and analysis. Example 2 would
provide an example illustrating the rules for third-party suppliers.
Example 3 would provide an example illustrating the general rules for
applicable critical minerals. Example 4 would provide a comprehensive
example with specified battery components and applicable critical
minerals (and associated constituent materials).
VI. Severability
Proposed Sec. 1.30D-6(h) would provide that if any provision in
this proposed rulemaking is held to be invalid or unenforceable
facially, or as applied to any person or circumstance, it shall be
severable from the remainder of this rulemaking, and shall not affect
the remainder thereof, or the application of the provision to other
persons not similarly situated or to other dissimilar circumstances.
Proposed Applicability Dates
Consistent with the April 2023 proposed regulations, previously
proposed Sec. 1.30D-2(a) through (h) are proposed to apply to new
clean vehicles placed in service on or after January 1, 2023, for
taxable years ending after April 17, 2023. Newly proposed Sec. 1.30D-
2(j) through (m) are proposed to apply to new clean vehicles placed in
service on or after January 1, 2024, for taxable years ending after
December 31, 2023.
Consistent with the April 2023 proposed regulations, previously
proposed Sec. 1.30D-3(a) through (c) and (f) are proposed to apply to
new clean vehicles placed in service after April 17, 2023, for taxable
years ending after April 17, 2023. Newly proposed Sec. 1.30D-3(d) and
(e) are proposed to apply to new clean vehicles placed in service on or
after January 1, 2024, for taxable years ending after December 31,
2023.
Section 30D(d)(7) provides that the excluded entity provisions
apply to vehicles placed in service after December 31, 2023, for
battery components, and after December 31, 2024, for applicable
critical minerals. Accordingly proposed Sec. 1.30D-6 is proposed to
apply to new clean vehicles placed in service after December 31, 2023.
Taxpayers may rely on these proposed regulations for vehicles
placed in service prior to the date final regulations are published in
the Federal Register, provided the taxpayer follows the proposed
regulations in their entirety, and in a consistent manner.
Effect on Other Documents
This notice of proposed rulemaking modifies proposed Sec. Sec.
1.30D-2 and 1.30D-3 of the April 2023 proposed regulations.
Special Analyses
I. 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
[[Page 84108]]
mandatory, voluntary, or required to obtain or retain a benefit.
For purposes of the PRA, the reporting burden associated with the
collection of information in proposed Sec. 1.30D-6 regarding excluded
entities will be reflected in the PRA Submissions associated with OMB
control number 1545-2311. OMB Control Number 1545-2137 covers Form 8936
and Form 8936-A regarding clean vehicle credits, including the new
requirement in section 30D(f)(9) to include on the taxpayer's return
for the taxable year the VIN of the vehicle for which the section 30D
credit is claimed. Revenue Procedure 2022-42 describes the procedural
requirements for qualified manufacturers to make periodic written
reports to the IRS to provide information related to each vehicle
manufactured by such manufacturer that is eligible for the section 30D
credit as required in section 30D(d)(3), including the critical mineral
and battery component attestation or certification requirements in
section 30D(e)(1)(A) and (2)(A). In addition, Revenue Procedure 2022-42
also provides the procedures for sellers of new clean vehicles to
report information required by section 30D(d)(1)(H) for vehicles to be
eligible for the section 30D credit. The collections of information
contained in Revenue Procedure 2022-42 are described in that document
and were submitted to the Office of Management and Budget in accordance
with the PRA under control number 1545-2137.
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.
II. Regulatory Flexibility Act
Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6),
the Secretary hereby certifies that these proposed regulations will not
have a significant economic impact on a substantial number of small
entities within the meaning of section 601(6) of the Regulatory
Flexibility Act. 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.
The proposed regulations affect qualified manufacturers that must
determine their compliance with the excluded entity requirements in
order to certify that their new clean vehicles placed in service after
December 31, 2023, qualify for the section 30D credit.
While the tracking and reporting of compliance with the excluded
entity requirements is likely to involve significant administrative
costs, according to public filings, every qualified manufacturer had
total revenues above $1 billion in 2022. There are a total of 11
qualified manufacturers that have indicated that they manufacture
vehicles currently eligible for the section 30D credit. Pursuant to
Revenue Procedure 2022-42, Revenue Procedure 2023-33, and following the
publication of these proposed regulations, qualified manufacturers will
also have to certify that their vehicles comply with the excluded
entity requirement and contain batteries that are FEOC-compliant. The
proposed regulations provide definitions and general rules for this
purposes. Accordingly, the Treasury Department and the IRS intend that
the proposed rules provide clarity for qualified manufacturers for
consistent application of the excluded entity requirements. The
Treasury Department and the IRS have determined that qualified
manufacturers do not meet the applicable definition of small entity.
Accordingly, the Secretary certifies that these proposed regulations
will not have a significant economic impact on a substantial number of
small entities. The Treasury Department and the IRS request comments
that provide data, other evidence, or models that provide insight on
this issue.
III. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA)
requires that agencies assess anticipated costs and benefits and take
certain other actions before issuing a final rule that includes any
Federal mandate that may result in expenditures in any one year by a
State, local, or Tribal government, in the aggregate, or by the private
sector, of $100 million (updated annually for inflation). This proposed
rule does not include any Federal mandate that may result in
expenditures by State, local, or Tribal governments, or by the private
sector in excess of that threshold.
IV. 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.
V. 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.
Comments and Requests for a Public Hearing
Before these proposed amendments to the regulations are adopted as
final regulations, consideration will be given to comments that are
submitted timely to the IRS as prescribed in this preamble under the
ADDRESSES section. The Treasury Department and the IRS request comments
on all aspects of the proposed regulations. Any comments submitted will
be made available at <a href="https://www.regulations.gov">https://www.regulations.gov</a> or upon request.
A public hearing will be scheduled if requested in writing by any
person who timely submits electronic or written comments. Requests for
a public hearing are also encouraged to be made electronically. If a
public hearing is scheduled, notice of the date and time for the public
hearing will be published in the Federal Register.
Announcement 2023-16, 2023-20 I.R.B. 854 (May 15, 2023), provides
that public hearings will be conducted in person, although the IRS will
continue to provide a telephonic option for individuals who wish to
attend or testify at a hearing by telephone. Any telephonic hearing
will be made accessible to people with disabilities.
Statement of Availability of IRS Documents
Guidance cited in this preamble is published in the Internal
Revenue Bulletin and is available from the Superintendent of Documents,
U.S. Government Publishing Office, Washington, DC 20402, or by visiting
the IRS website at <a href="https://www.irs.gov">https://www.irs.gov</a>.
Drafting Information
The principal author of these proposed regulations is 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.
[[Page 84109]]
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 parts 1 as follows:
PART 1--INCOME TAXES
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Paragraph 1. The authority citation for part 1 is amended by adding an
entry in numerical order for Sec. 1.30D-6 to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.30D-6 also issued under 26 U.S.C. 30D.
* * * * *
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Par. 2. Section 1.30D-0, as proposed to be added at 88 FR 23370 (April
17, 2023) and proposed to be amended at 88 FR 70310 (October 10, 2023),
is amended by:
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a. Adding paragraphs (k), (l), and (m) under Sec. 1.30D-2;
0
b. Revising paragraphs (e) and (f) under Sec. 1.30D-3;
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c. Adding paragraph (g) under Sec. 1.30D-3; and
0
d. Adding an entry in numerical order for Sec. 1.30D-6.
The additions and revisions read as follows:
Sec. 1.30D-0 Table of contents.
* * * * *
Sec. 1.30D-2 Definitions for purposes of section 30D.
* * * * *
(k) Manufacturer.
(l) Qualified manufacturer.
(m) New clean vehicle.
* * * * *
Sec. 1.30D-3 Critical mineral and battery component requirements.
* * * * *
(e) Upfront review of battery component and applicable critical
minerals requirements.
(f) Severability.
(g) Applicability date.
* * * * *
Sec. 1.30D-6 Excluded entities.
(a) Definitions.
(1) Applicable critical mineral.
(2) Assembly.
(3) Battery.
(4) Battery cell.
(5) Battery cell production facility.
(6) Battery component.
(7) Compliant-battery ledger.
(8) Constituent materials.
(9) Extraction.
(10) Foreign entity of concern.
(11) FEOC-compliant.
(12) Manufacturing.
(13) Non-traceable battery material.
(i) In general.
(ii) [Reserved]
(14) Processing.
(15) Recycling.
(b) Due diligence.
(1) In general.
(2) Transition rule for non-traceable battery materials.
(c) Excluded entity restriction.
(1) In general.
(2) Determination of FEOC-compliant batteries.
(3) Determination of FEOC-compliant battery cell.
(i) In general.
(ii) Temporary allocation-based determination for applicable
critical materials contained in constituent materials of a battery
cell.
(A) In general.
(B) Allocation limited to applicable critical minerals in the
battery cell.
(C) Separate allocation for each class of constituent materials.
(D) Allocation within each product line of battery cells.
(E) Limitation on number of FEOC-compliant battery cells.
(F) Termination of temporary allocation-based determination.
(iii) Transition rule for non-traceable battery materials.
(4) Determination of FEOC-compliant battery components and
applicable critical minerals.
(i) In general.
(ii) Applicable critical minerals.
(A) In general.
(B) Associated constituent materials.
(C) Exception for applicable critical minerals not contained in
the battery.
(D) Recycling.
(iii) Timing of determination of FEOC-compliant status.
(iv) Examples.
(A) Example 1: Timing of FEOC compliance determination.
(B) Example 2: Form of applicable critical mineral.
(C) Example 3: Recycling of applicable critical mineral.
(5) Third-party manufacturers or suppliers.
(d) Compliant-battery ledger.
(1) In general.
(2) Determination of number of batteries.
(i) In general.
(ii) Upfront review.
(iii) Decrease or increase to compliant-battery ledger.
(3) Tracking FEOC-compliant batteries.
(4) Reconciliation of battery estimates.
(e) Rule for 2024.
(1) In general.
(2) Determination.
(f) Inaccurate attestations, certifications, or documentation.
(1) In general.
(2) Inadvertence.
(3) Intentional disregard of fraud.
(g) Examples.
(1) Example 1: In general.
(2) Example 2: Rules for third-party suppliers.
(3) Example 3: Applicable critical minerals.
(4) Example 4: Comprehensive example.
(h) Severability.
(i) Applicability date.
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Par. 3. Section 1.30D-2, as proposed to be added at 88 FR 23370 (April
17, 2023) and proposed to be amended at 88 FR 70310 (October 10, 2023),
is amended by revising paragraphs (a), (f), and (i) and adding
paragraphs (k), (l), and (m) to read as follows:
Sec. 1.30D-2 Definitions for purposes of section 30D.
(a) In general. The definitions in this section apply for purposes
of section 30D of the Internal Revenue Code (Code) and the section 30D
regulations.
* * * * *
(f) Section 30D regulations. Section 30D regulations means Sec.
1.30D-1, this section, and Sec. Sec. 1.30D-3 through 1.30D-6.
* * * * *
(i) Applicability date. Paragraphs (a) through (h) of this section
apply to new clean vehicles placed in service on or after January 1,
2023, for taxable years ending after April 17, 2023. Paragraphs (j)
through (m) of this section apply for new clean vehicles placed in
service on or after January 1, 2024, for taxable years ending after
December 31, 2023.
* * * * *
(k) Manufacturer. A manufacturer means any manufacturer within the
meaning of the regulations prescribed by the Administrator of the
Environmental Protection Agency (EPA) for purposes of the
administration of title II of the Clean Air Act (42 U.S.C. 7521 et
seq.) and as defined in 42 U.S.C. 7550(1). If multiple manufacturers
are involved in the production of a vehicle, the requirements provided
in section 30D(d)(3) must be met by the manufacturer who 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.
(l) Qualified manufacturer. A qualified manufacturer means a
manufacturer that meets the requirements described in section
30D(d)(3). The term qualified manufacturer does not include any
manufacturer whose qualified manufacturer status has been terminated by
the Internal Revenue Service (IRS). The IRS may terminate qualified
manufacturer status for fraud, intentional disregard, or gross
negligence with respect to any requirements of section 30D, the section
30D regulations, or any guidance under section 30D, including with
respect to the periodic written reports described in section 30D(d)(3)
and Sec. 1.30D-2(m) and any attestations, documentation, or
certifications described in Sec. 1.30D-3(e) and Sec. 1.30D-6(d), at
the time and in the
[[Page 84110]]
manner provided in the Internal Revenue Bulletin (see Sec.
601.601(d)(2)(ii)(a) of this chapter). See Sec. 1.30D-6(f) for
additional rules regarding inaccurate determinations and documentation.
(m) New clean vehicle. A new clean vehicle means a vehicle that
meets the requirements described in section 30D(d). A vehicle does not
meet the requirements of section 30D(d) if--
(1) The qualified manufacturer fails to provide a periodic written
report for such vehicle prior to the vehicle being placed in service,
reporting the vehicle identification number (VIN) of such vehicle and
certifying compliance with the requirement of section 30D(d);
(2) The qualified manufacturer provides incorrect information with
respect to the periodic written report for such vehicle;
(3) The qualified manufacturer fails to update its periodic written
report in the event of a material change with respect to such vehicle;
or
(4) For new clean vehicles placed in service after December 31,
2024, the qualified manufacturer fails to meet the requirements of
Sec. 1.30D-6(d).
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Par. 4. Section 1.30D-3, as proposed to be added at 88 FR 23370 (April
17, 2023), is amended by:
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a. Revising paragraph (d);
0
b. Redesignating paragraphs (e) and (f) as paragraphs (f) and (g);
0
c. Adding new paragraph (e); and
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d. Revising newly redesignated paragraph (g).
The revisions and addition read as follows:
Sec. 1.30D-3 Critical mineral and battery component requirements.
* * * * *
(d) Excluded entities. For rules regarding excluded entities, see
Sec. 1.30D-6.
(e) Upfront review of battery component and applicable critical
minerals requirements. For new clean vehicles anticipated to be placed
in service after December 31, 2024, the qualified manufacturer must
provide attestations, certifications and documentation demonstrating
compliance with the requirements of section 30D(e), at the time and in
the manner provided in the Internal Revenue Bulletin (see Sec.
601.601(d)(2)(ii)(a) of this chapter). The IRS, with analytical
assistance from the Department of Energy, will review the attestations,
certifications, and documentations.
* * * * *
(g) Applicability date. Paragraphs (a) through (c) and (f) of this
section apply to new clean vehicles placed in service after April 17,
2023, for taxable years ending after April 17, 2023. Paragraphs (d) and
(e) of this section apply to new clean vehicles placed in service on or
after January 1, 2024, for taxable years beginning after December 31,
2023.
0
Par. 5. Section 1.30D-6 is added to read as follows:
Sec. 1.30D-6 Excluded entities.
(a) Definitions. This paragraph (a) provides definitions that apply
for purposes of section 30D(d)(7) of the Internal Revenue Code (Code)
and this section.
(1) Applicable critical mineral. Applicable critical mineral means
an applicable critical mineral as defined in section 45X(c)(6) of the
Code.
(2) Assembly. Assembly, with respect to battery components, means
the process of combining battery components into battery cells and
battery modules.
(3) Battery. Battery, for purposes of a new clean vehicle, means a
collection of one or more battery modules, each of which has two or
more electrically configured battery cells in series or parallel, to
create voltage or current. The term battery does not include items such
as thermal management systems or other parts of a battery cell or
module that do not directly contribute to the electrochemical storage
of energy within the battery, such as battery cell cases, cans, or
pouches.
(4) Battery cell. Battery cell, means a combination of battery
components (other than battery cells) capable of electrochemically
storing energy from which the electric motor of a new clean vehicle
draws electricity.
(5) Battery cell production facility. Battery cell production
facility means a facility in which battery cells are manufactured or
assembled.
(6) Battery component. Battery component means a component that
forms part of a battery and that is manufactured or assembled from one
or more components or constituent materials that are combined through
industrial, chemical, and physical assembly steps. Battery components
may include, but are not limited to, a cathode electrode, anode
electrode, solid metal electrode, separator, liquid electrolyte, solid
state electrolyte, battery cell, and battery module. Constituent
materials are not a type of battery component, although constituent
materials may be manufactured or assembled into battery components.
Some battery components may be made entirely of inputs that do not
contain constituent materials.
(7) Compliant-battery ledger. A compliant-battery ledger, for a
qualified manufacturer for a calendar year, is a ledger established
under the rules of paragraph (d) of this section that tracks the number
of available FEOC-compliant batteries for such calendar year.
(8) Constituent materials. Constituent materials means materials
that contain applicable critical minerals and that are employed
directly in the manufacturing of battery components. Constituent
materials may include, but are not limited to, powders of cathode
active materials, powders of anode active materials, foils, metals for
solid electrodes, binders, electrolyte salts, and electrolyte
additives, as required for a battery cell.
(9) Extraction. Extraction means the activities performed to
harvest minerals or natural resources from the ground or a body of
water. Extraction includes, but is not limited to, operating equipment
to harvest minerals or natural resources from mines and wells, or to
extract minerals or natural resources from the waste or residue of
prior extraction. Extraction concludes when activities are performed to
convert raw mined or harvested products or raw well effluent to
substances that can be readily transported or stored for direct use in
critical mineral processing. Extraction includes the physical processes
involved in refining. Extraction does not include the chemical and
thermal processes involved in refining.
(10) Foreign entity of concern. Foreign entity of concern (FEOC)
has the meaning provided in section 40207(a)(5) of the Infrastructure
Investment and Jobs Act (42 U.S.C. 18741(a)(5)) and guidance
promulgated thereunder by the Department of Energy (DOE).
(11) FEOC-compliant. FEOC-compliant means in compliance with the
applicable excluded entity requirement under section 30D(d)(7). In
particular--
(i) A battery component (other than a battery cell), with respect
to a new clean vehicle placed in service after December 31, 2023, is
FEOC-compliant if it is not manufactured or assembled by a FEOC;
(ii) An applicable critical mineral, with respect to a new clean
vehicle placed in service after December 31, 2024, is FEOC-compliant if
it is not extracted, processed, or recycled by a FEOC;
(iii) A battery cell, with respect to a new clean vehicle placed in
service after December 31, 2023, and before January 1, 2025, is FEOC-
compliant if it is not manufactured or assembled by a FEOC and it
contains only FEOC-compliant battery components;
(iv) A battery cell, with respect to a new clean vehicle placed in
service after
[[Page 84111]]
December 31, 2024, is FEOC-compliant if it is not manufactured or
assembled by a FEOC and it contains only FEOC-compliant battery
components and FEOC-compliant applicable critical minerals; and
(v) A battery, with respect to a new clean vehicle placed in
service after December 31, 2023, is FEOC-compliant if it contains only
FEOC-compliant battery components (other than battery cells) and FEOC-
compliant battery cells (as described in paragraph (a)(11)(iii) or (iv)
of this section, as applicable).
(12) Manufacturing. Manufacturing, with respect to a battery
component, means the industrial and chemical steps taken to produce a
battery component.
(13) Non-traceable battery materials--(i) In general. Non-traceable
battery materials mean specifically identified, low-value battery
materials that originate from multiple sources and are commingled
during refining, processing, or other production processes by suppliers
to such a degree that the qualified manufacturer cannot, due to current
industry practice, feasibly determine and attest to the origin of such
battery materials. For this purpose, low-value battery materials are
those that have low value compared to the total value of the battery.
(ii) [Reserved].
(14) Processing. Processing means the non-physical processes
involved in the refining of non-recycled substances or materials,
including the treating, baking, and coating processes used to convert
such substances and materials into constituent materials. Processing
includes the chemical or thermal processes involved in refining.
Processing does not include the physical processes involved in
refining.
(15) Recycling. Recycling means the series of activities during
which recyclable materials containing critical minerals are transformed
into specification-grade commodities and consumed in lieu of virgin
materials to create new constituent materials; such activities result
in new constituent materials contained in the battery from which the
electric motor of a new clean vehicle draws electricity.
(b) Due diligence--(1) In general. The qualified manufacturer must
conduct due diligence with respect to all battery components and
applicable critical minerals (and associated constituent materials)
that are relevant to determining whether such components or minerals
are FEOC-compliant. Such due diligence must comply with standards of
tracing for battery materials available in the industry at the time of
the attestation or certification that enable the manufacturer to know
with reasonable certainty the provenance of applicable critical
minerals, constituent materials, and battery components. Reasonable
reliance on a supplier attestation or certification will be considered
due diligence if the qualified manufacturer does not know or have
reason to know after its due diligence that such supplier attestation
or certification is incorrect. Due diligence must be conducted by the
qualified manufacturer prior to its determining information necessary
to establish any compliant-battery ledger under paragraph (d) of this
section, and on an ongoing basis.
(2) Transition rule for non-traceable battery materials. For any
new clean vehicles for which the qualified manufacturer provides a
periodic written report before January 1, 2027, the due diligence
requirement of paragraph (b)(1) of this section may be satisfied by
excluding identified non-traceable battery materials. To use this
transition rule, qualified manufacturers must submit a report during
the up-front review process described in paragraph (d)(2)(ii) of this
section demonstrating how the qualified manufacturer will comply with
the excluded entity restrictions once the transition rule is no longer
in effect.
(c) Excluded entity restriction--(1) In general. In the case of any
new clean vehicle placed in service after December 31, 2023, the
batteries from which the electric motor of such vehicle draws
electricity must be FEOC-compliant. A serial number or other
identification system must be used to physically track FEOC-compliant
batteries to specific new clean vehicles. The determination that a
battery is FEOC-compliant is made as follows:
(i) Step 1. First, the qualified manufacturer determines whether
battery components and applicable critical minerals (and associated
constituent materials) are FEOC-compliant, in accordance with paragraph
(c)(4) of this section.
(ii) Step 2. Next, the FEOC-compliant battery components and FEOC-
compliant applicable critical minerals (and associated constituent
materials) are physically tracked to specific battery cells, in
accordance with paragraph (c)(3)(i) of this section. Alternatively,
FEOC-compliant applicable critical minerals and associated constituent
materials (but not battery components) may be allocated to battery
cells, without physical tracking, in accordance with paragraph
(c)(3)(ii) of this section. In addition, the determination under
paragraph (c)(4) of this section may be made by applying the transition
rule for non-traceable battery materials, in accordance with paragraph
(c)(3)(iii) of this section.
(iii) Step 3. Finally, the battery components, including battery
cells, are physically tracked to specific batteries, in accordance with
paragraph (c)(2) of this section.
(2) Determination of FEOC-compliant batteries. The determination
that a battery is FEOC-compliant must be made by physically tracking
FEOC-compliant battery components (including battery cells) to such
battery. With respect to battery cells, a serial number or other
identification system must be used to physically track FEOC-compliant
battery cells to such batteries.
(3) Determination of FEOC-compliant battery cell--(i) In general.
Except as provided in paragraph (c)(3)(ii) of this section, the
determination that a battery cell contains FEOC-compliant battery
components and FEOC-compliant applicable critical minerals and their
associated constituent materials must be made by physically tracking
FEOC-compliant battery components to specific batteries cells and by
physically tracking the mass of FEOC-compliant applicable critical
minerals and their associated constituent materials to specific
batteries cells.
(ii) Temporary allocation-based determination for applicable
critical materials and associated constituent materials of a battery
cell--(A) In general. The determination that a battery cell is a FEOC-
compliant battery cell may be based on an allocation of available mass,
produced or contracted for, of applicable critical minerals and their
associated constituent materials to specific battery cells manufactured
or assembled in a battery cell production facility, without the
physical tracking of mass of applicable critical minerals and
associated constituent materials to specific battery cells.
(B) Allocation limited to applicable critical minerals in the
battery cell. The rules of this paragraph (c)(3)(ii) are limited to
applicable critical minerals and their associated constituent materials
that are incorporated into a battery cell or its battery components.
Battery components must be physically tracked.
(C) Separate allocation for each class of constituent materials.
Any allocation under this paragraph (c)(3)(ii) with respect to the mass
of an applicable critical mineral must be made within the type of
associated constituent materials (such as powders of cathode active
materials, powders of anode active materials, or foils) in which such
mineral is contained. Masses of an applicable critical mineral may not
be aggregated across constituent materials
[[Page 84112]]
with which such applicable critical mineral is not associated, and an
allocation of a mass of an applicable critical mineral may not be made
from one type of constituent material to another. For example, assume
that M, a qualified manufacturer, operates a battery cell production
facility. M manufactures a line of battery cells that contains
applicable critical mineral Z contained in constituent material 1 and
applicable critical mineral Z contained in constituent material 2. With
respect to constituent material 1, M procures 20,000,000 kilograms (kg)
of applicable critical mineral Z for the battery cell production
facility, of which 4,000,000 kg are FEOC-compliant and 16,000,000 kg
are not FEOC-compliant. With respect to constituent material 2, M
procures another 15,000,000 kg of applicable critical mineral Z for the
battery cell production facility, of which 7,500,000 kg are FEOC-
compliant and 7,500,000 kg are not FEOC-compliant. M determines which
battery cells are FEOC-compliant through an allocation-based
determination with respect to battery cells manufactured or assembled
in the battery cell production facility. Under this paragraph
(c)(3)(ii)(C), any allocation with respect to the mass of applicable
critical mineral Z must be made within the type of constituent
materials in which such mineral is contained. Thus, M may not aggregate
the 4,000,000 kg mass of FEOC-compliant applicable critical mineral Z
contained in constituent material 1 with the 7,500,000 kg mass of FEOC-
compliant applicable critical mineral Z contained in constituent
material 2, and allocations may not be made from constituent material 1
to constituent material 2. As a result, overall FEOC compliance is
constrained by the 20 percent of constituent material 1 that is FEOC-
compliant due to having 4,000,000 kg of applicable critical mineral Z,
even though 33 percent (7,500,000 + 4,000,000)/(20,000,000 +
15,000,000) of the total mass of critical mineral Z is compliant.
(D) Allocation within each product line of battery cells. Any
allocation under this paragraph (c)(3)(ii) with respect to applicable
critical minerals and their associated constituent materials must be
allocated within one or more specific battery cell product lines of the
battery cell production facility.
(E) Limitation on number of FEOC-compliant battery cells. If a
qualified manufacturer uses an allocation-based determination described
in this paragraph (c)(3)(ii), the number of FEOC-compliant battery
cells that can be produced from such allocation may not exceed the
total number of battery cells for which there is enough of every FEOC-
compliant applicable critical mineral. That number will necessarily be
limited by the applicable critical mineral that has the lowest
percentage of FEOC-compliant supply. For example, if a qualified
manufacturer allocates applicable critical mineral A, which is 20
percent FEOC-compliant and applicable critical mineral B, which is 60
percent FEOC-compliant, to a battery cell product line, no more than 20
percent of the battery cells in that battery cell product line will be
treated as FEOC-compliant.
(F) Termination of temporary allocation-based determination. The
rules of this paragraph (c)(3)(ii) do not apply with respect to any new
clean vehicle for which the qualified manufacturer is required to
provide a periodic written report after December 31, 2026.
(iii) Transition rule for non-traceable battery materials. For any
new clean vehicles for which the qualified manufacturer provides a
periodic written report before January 1, 2027, the determination of
whether a battery cell is FEOC-compliant under this paragraph (c)(3)
may be satisfied by excluding identified non-traceable battery
materials (and associated constituent materials). To use this
transition rule, qualified manufacturers must submit a report during
the up-front review process described in paragraph (d)(2)(ii) of this
section demonstrating how the qualified manufacturer will comply with
the excluded entity restrictions once the transition rule is no longer
in effect.
(4) Determination of FEOC-compliant battery components and
applicable critical minerals--(i) In general. The determination of
whether battery components and applicable critical minerals (and their
associated constituent materials) are FEOC-compliant must be made prior
to any determination under paragraphs (c)(2) and (3) of this section.
(ii) Applicable critical minerals--(A) In general. Except as
provided in paragraph (c)(4)(ii)(D) of this section, the determination
of whether an applicable critical mineral is FEOC-compliant takes into
account each step of extraction, processing, or recycling through the
step in which such mineral is processed or recycled into a constituent
material, even if the mineral is not in a form listed in section
45X(c)(6) at every step.
(B) Associated constituent materials. A constituent material is
associated with an applicable critical mineral if the applicable
critical mineral has been processed or recycled into a constituent
material, even if that processing or recycling transformed the mineral
into a form not listed in section 45X(c)(6).
(C) Exception for applicable critical minerals not contained in the
battery. An applicable critical mineral is disregarded for purposes of
the determination under this paragraph (c)(4) if it is fully consumed
in the production of the constituent material or battery component and
no longer remains in any form in the battery.
(D) Recycling. An applicable critical mineral and associated
constituent material that is recycled is subject to the determination
under this paragraph (c)(4) if the recyclable material contains an
applicable critical mineral, contains material that was transformed
from an applicable critical mineral, or if the recyclable material is
used to produce an applicable critical mineral at any point during the
recycling process. The determination of whether an applicable critical
mineral or associated constituent material that is incorporated into a
battery via recycling is FEOC-compliant takes into account only
activities that occurred during the recycling process.
(iii) Timing of determination of FEOC-compliant status. Whether an
entity is a FEOC is determined as of the time of the entity's
performance of the relevant activity, which for applicable critical
minerals is the time of extraction, processing, or recycling, and for
battery components is the time of manufacturing or assembly. The
determination of whether an applicable critical mineral is FEOC-
compliant is determined at the end of processing or recycling of the
applicable critical mineral into a constituent material, taking into
account all applicable steps through and including final processing or
recycling.
(iv) Examples. The following examples illustrate the rules under
this paragraph (c)(4):
(A) Example 1: Timing of FEOC compliance determination. Mineral X,
an applicable critical mineral, was not extracted by a FEOC but was
later processed by a FEOC. Mineral X is not FEOC-compliant because one
step of the extraction and processing was performed by a FEOC. Any
battery containing Mineral X is not FEOC-compliant.
(B) Example 2: Form of applicable critical mineral. Mineral Y is
extracted by a FEOC and is intended to be incorporated into the battery
of an electric vehicle. Mineral Y is not in a form listed in section
45X(c)(6) at the time of such extraction, but subsequently it is
refined into an
[[Page 84113]]
applicable critical mineral form listed in section 45X(c)(6) by an
entity that is not a FEOC. Mineral Y is not FEOC-compliant pursuant to
this paragraph (c)(4) because it was extracted by a FEOC, regardless of
its form at the time of extraction. Any battery containing Mineral Y is
not FEOC-compliant.
(C) Example 3: Recycling of applicable critical mineral. Mineral Z,
an applicable critical mineral in a form listed in section 45X(c)(6),
was processed by a FEOC in a prior production process. Mineral Z
subsequently was derived from recyclable material in a form not listed
in section 45X(c)(6). Mineral Z was recycled by an entity that is not a
FEOC. Mineral Z is subject to a determination of whether it is FEOC-
compliant at the end of the recycling process, because it was at one
time an applicable critical mineral. Mineral Z is FEOC-compliant
pursuant to this paragraph (c)(4) because it was not recycled by a
FEOC.
(5) Third-party manufacturers or suppliers. The determinations
under paragraphs (c)(2) through (4) of this section may be made by a
third-party manufacturer or supplier that operates a battery cell
production facility provided that:
(i) The third-party manufacturer or supplier performs the due
diligence described in paragraph (b) of this section;
(ii) The third-party manufacturer or supplier provides the
qualified manufacturer of the new clean vehicle information sufficient
to establish a basis for the determinations under paragraphs (c)(2)
through (4) of this section, including information related to the due
diligence described in paragraph (c)(5)(i) of this section;
(iii) The third-party manufacturer or supplier is contractually
required to provide the information in paragraph (c)(5)(ii) of this
section to the qualified manufacturer and is contractually required to
inform the qualified manufacturer of any change in the supply chain
that affects the determinations of FEOC compliance under paragraph
(c)(2) and (4) of this section; and
(iv) If there are multiple third-party manufacturers or suppliers
(such as a case in which a qualified manufacturer contracts with a
battery manufacturer, who, in turn, contracts with a battery cell
manufacturer or supplier who operates a battery cell production
facility), the due diligence and information requirements of this
paragraph (c) must be satisfied by each such manufacturer or supplier
either directly to the qualified manufacturer or indirectly through
contractual relationships.
(d) Compliant-battery ledger--(1) In general. For new clean
vehicles placed in service after December 31, 2024, the qualified
manufacturer must determine and provide information to the IRS to
establish a compliant-battery ledger for each calendar year, as
described in paragraphs (d)(2)(i) and (ii) of this section. One
compliant-battery ledger may be established for all vehicles for a
calendar year, or there may be separate ledgers for specific models or
classes of vehicles to account for different battery cell chemistries
or differing quantities of cells in each battery.
(2) Determination of number of batteries--(i) In general. To
establish a compliant-battery ledger for a calendar year, the qualified
manufacturer must determine the number of batteries, with respect to
new clean vehicles (as described in section 30D(d) and Sec. 1.30D-
2(m)) for which the qualified manufacturer anticipates providing a
periodic written report during the calendar year, that it knows or
reasonably anticipates will be FEOC-compliant, pursuant to the
requirements of paragraphs (b) and (c) of this section. The
determination is based on the battery components and applicable
critical minerals (and associated constituent materials) that are
procured or contracted for the calendar year and that are known or
reasonably anticipated to be FEOC-compliant battery components or FEOC-
compliant applicable critical minerals, as applicable.
(ii) Upfront review. The qualified manufacturer must attest to the
number of FEOC-compliant batteries determined under paragraph (d)(2)(i)
of this section and provide the basis for the determination, including
attestations, certifications and documentation demonstrating compliance
with paragraphs (b) and (c) of this section, at the time and in the
manner provided in the Internal Revenue Bulletin. The IRS, with
analytical assistance from the DOE, will review the attestations,
certifications, and documentation. Once the IRS determines that the
qualified manufacturer provided the required attestations,
certifications, and documentation, the IRS will approve or reject the
determined number of FEOC-compliant batteries. The IRS may approve the
determined number in whole or part. The approved number is the initial
balance in the compliant-battery ledger.
(iii) Decrease or increase to compliant-battery ledger--(A) Once
the compliant-battery ledger is established with respect to a calendar
year, the qualified manufacturer must determine and take into account
any decrease in the number of FEOC-compliant batteries for such
calendar year, and any of the prior three calendar years for which the
qualified manufacturer had a compliant-battery ledger, within 30 days
of discovery. In addition, the qualified manufacturer may determine and
take into account any increase in the number of FEOC-compliant
batteries. Such determinations, and any supporting attestations,
certifications, and documentation, must be provided on a periodic
basis, in accordance with paragraph (d)(2)(ii) of this section and the
manner provided in the Internal Revenue Bulletin.
(B) The decrease described in paragraph (d)(2)(iii)(A) of this
section may decrease the compliant-battery ledger below zero, creating
a negative balance in the compliant-battery ledger.
(C) If any decrease described in paragraph (d)(2)(iii)(A) of this
section is determined subsequent to the calendar year to which it
relates, the decrease must be taken into account in the year in which
the change is discovered.
(D) Any remaining balance in the compliant-battery ledger at the
end of the calendar year, whether positive or negative, will be
included in the compliant-battery ledger for the subsequent calendar
year. If a qualified manufacturer has multiple compliant-negative
battery accounts, any negative balance will first be included in the
compliant-battery ledger for the same model or class of vehicles for
the subsequent calendar year. However, if there is no ledger for the
same model or class of vehicles in the subsequent calendar year, the
IRS can account for such negative balance in the ledger of a different
model or class of vehicles of the qualified manufacturer.
(3) Tracking FEOC-compliant batteries. The compliant-battery ledger
for a calendar year must be updated to track the qualified
manufacturer's available FEOC-compliant batteries, by reducing the
balance in the ledger as the qualified manufacturer submits periodic
written reports reporting the vehicle identification numbers (VINs) of
new clean vehicles as eligible for the credit under section 30D, at the
time and in the manner provided in the Internal Revenue Bulletin. If
the balance in the compliant-battery ledger of the qualified
manufacturer for a calendar year is zero or less than zero, the
qualified manufacturer may not submit additional periodic written
reports with respect to section 30D until the number of available FEOC-
compliant batteries is increased as described in paragraph
(d)(2)(iii)(A) of this section.
[[Page 84114]]
(4) Reconciliation of battery estimates. After the end of any
calendar year for which a compliant-battery ledger is established, the
IRS may require a qualified manufacturer to provide attestations,
certifications, and documentation to support the accuracy of the number
of the qualified manufacturer's FEOC-compliant batteries for such
calendar year, including with respect to any changes described in
paragraph (d)(2)(iii) of this section, at the time and in the manner
provided in the Internal Revenue Bulletin.
(e) Rule for 2024--(1) In general. For new clean vehicles that are
placed in service after December 31, 2023, and prior to January 1,
2025, the qualified manufacturer must determine whether the battery
components contained in vehicles satisfy the requirements of section
30D(d)(7)(B) and whether batteries contained in the vehicle are FEOC-
compliant under the rules of paragraphs (b) and (c) of this section.
The qualified manufacturer must make an attestation with respect to
such determinations at the time and in the manner provided in the
Internal Revenue Bulletin. However, for any new clean vehicles for
which the qualified manufacturer provides a periodic written report
before the date that is 30 days after the date these regulations are
finalized, provided that the qualified manufacturer has determined that
its supply chains of each battery component with respect such vehicles
contain only FEOC-compliant battery components:
(i) For purposes of paragraphs (c)(2) and (3) of this section, the
determination of which battery cells or batteries, as applicable,
contain FEOC-compliant battery components may be determined without
physical tracking;
(ii) For purposes of paragraph (c)(2) of this section, the
determination of which batteries contain FEOC-compliant battery cells
may be determined without physical tracking (and without the use of a
serial number or other identification system); and
(iii) For purposes of paragraph (c)(1) of this section, the
determination of which vehicles contain FEOC-compliant batteries may be
determined, without physical tracking (and without the use of a serial
number or other identification system).
(2) Determination. The determination that a qualified
manufacturer's supply chains of each battery component contain only
FEOC-compliant battery components may be made with respect to specific
models or classes of vehicles.
(f) Inaccurate attestations, certifications or documentation--(1)
In general. If the IRS determines, with analytical assistance from the
DOE and after review of the attestations, certification and
documentation described in paragraph (d) of this section, that a
qualified manufacturer has provided attestations, certifications, or
documentation that contain inaccurate information, it may take
appropriate action as described in paragraphs (f)(2) and (3) of this
section. Such action would affect vehicles and qualified manufacturers
on a prospective basis.
(2) Inadvertence. If the IRS determines that the attestations,
certifications or documentation for a specific new clean vehicle
contain errors due to inadvertence, the following may be required:
(i) The qualified manufacturer may cure the errors identified,
including by a decrease in the compliant-battery ledger as described in
paragraph (d)(2)(iii) of this section. If the qualified manufacturer
has multiple compliant-battery ledgers, the IRS may determine which
ledger is to be decreased.
(ii) If the errors are not cured, in the case of a new clean
vehicle that has not been placed in service but for which the qualified
manufacturer has submitted a periodic written report certifying
compliance with the requirement of section 30D(d), such vehicle is no
longer considered a new clean vehicle eligible for the section 30D
credit.
(iii) If the errors are not cured, in the case of a new clean
vehicle that has not been placed in service and for which the qualified
manufacturer has not submitted a periodic written report certifying
compliance with the requirement of section 30D(d), the qualified
manufacturer may not submit such periodic written report.
(iv) If the errors are not cured, in the case of a new clean
vehicle that has been placed in service, the IRS may require a decrease
in the qualified manufacturer's compliant-battery ledger as described
in paragraph (d)(2)(iii) of this section. If the qualified manufacturer
has multiple compliant-battery ledgers, the IRS may determine which
ledger is to be decreased.
(3) Intentional disregard or fraud. If the IRS determines that a
qualified manufacturer intentionally disregarded attestation,
certification, or documentation requirements or reported information
fraudulently or with intentional disregard, the following may be
required:
(i) All vehicles of the qualified manufacturer that have not been
placed in service may no longer be considered new clean vehicles
eligible for the section 30D credit.
(ii) The IRS may terminate the written agreement between the IRS
and the manufacturer, thereby terminating the manufacturer's status as
a qualified manufacturer as described in Sec. 1.30D-2(l). The
manufacturer would be required to submit a new written agreement to
reestablish qualified manufacturer status at the time and in the manner
provided in the Internal Revenue Bulletin.
(g) Examples. The following examples illustrate the rules under
paragraphs (b) through (d) of this section:
(1) Example 1: In general--(i) Facts. M is a manufacturer of new
clean vehicles and batteries. M also manufactures or assembles battery
cells at its own battery cell production facility. M manufactures a
line of new clean vehicles that it anticipates will be placed in
service in calendar year 2025. Each vehicle contains one battery, and
each battery contains 1,000 battery cells. All battery cells are
produced at the same battery cell production facility. The battery
cells are not manufactured or assembled by a FEOC. Each battery cell
contains 10 mass of battery component A. M has procured or is under
contract to procure 10,000,000 mass of battery component A for the
battery cell production facility, of which 6,000,000 mass is from
supplier 1 and 4,000,000 mass is from supplier 2.
(ii) Analysis. (A) Under paragraph (b) of this section, M must
conduct due diligence on all battery components and applicable critical
minerals (and associated constituent materials) that are contained in
the battery to determine whether such components or minerals are FEOC-
compliant.
(B) Under paragraph (c)(4) of this section, M must first determine
whether the battery components and applicable critical minerals (and
associated constituent materials) are FEOC-compliant. From its due
diligence, M determines that, of the 10,000,000 mass of battery
component A, the 6,000,000 mass from supplier 1 is FEOC-compliant while
the 4,000,000 mass from supplier 2 is not FEOC-compliant. M determines
that all other battery components and applicable critical minerals (and
associated constituent materials) of the battery cell are FEOC-
compliant, that the battery cell is not manufactured or assembled by a
FEOC, and that all battery components (excluding components of the
battery cell) of the battery are FEOC-compliant.
(C) Under paragraph (c)(3) of this section, M must determine which
battery cells are FEOC-compliant through the physical tracking of the
6,000,000 mass of FEOC-compliant battery component A to determine
[[Page 84115]]
which 600,000 (6,000,000/10) battery cells are FEOC-compliant. Under
paragraph (c)(2) of this section, M must use a serial number or other
identification system to track the 600,000 FEOC-compliant battery cells
to 600 (600,000/1,000) specific batteries.
(D) Under paragraph (d)(1) of this section, a compliant-battery
ledger must be established for calendar year 2025. For purposes of
paragraph (d)(2)(i) of this section, M determines that it will
manufacture 600 batteries for calendar year 2025 that are FEOC-
compliant. Under paragraph (d)(2)(ii) of this section, M attests to the
600 FEOC-compliant batteries and provides the basis for the
determination, including attestations, certifications, and
documentation demonstrating compliance with paragraphs (b) and (c) of
this section. Once the IRS, with analytical assistance from the DOE,
approves the number, a compliant-battery ledger is established with a
balance of 600 FEOC-compliant batteries.
(E) M manufactures 100 vehicles that it anticipates will be placed
in service in 2025, for which it provides periodic written reports
providing the VINs of the vehicles and indicating that such vehicles
qualify for the section 30D credit. Under paragraph (d)(3) of this
section, the compliant-battery ledger is updated to track the number of
FEOC-compliant batteries. The number of batteries contained in the
compliant-battery ledger is reduced from 600 to 500. Assuming all of
the other requirements of section 30D and the regulations thereunder
are met, the 100 vehicles are new clean vehicles that qualify for
purposes of section 30D.
(2) Example 2: Rules for third-party suppliers--(i) Facts. The
facts are the same as example 1, except that M contracts with BM, a
battery manufacturer, for the provision of batteries, and BM contracts
with BCS, a battery cell supplier that operates a battery cell
production facility, for the provision of battery cells.
(ii) Analysis. Under paragraph (c)(5) of this section, BCS may make
the determination in paragraphs (c)(2) through (4) of this section,
provided that M, BM and BCS perform due diligence as described in
paragraph (b) of this section. In addition, BM and BCS must provide M
with information sufficient to establish a basis for the determinations
under paragraphs (c)(2) through (4) of this section, including
information related to due diligence. Finally, BM and BCS must be
contractually required to provide the required information to M, and
must also be required to inform the qualified manufacturer of any
change in supply chains that affects the determinations of FEOC
compliance under paragraphs (c)(2) and (4) of this section. The
contractual requirement may be satisfied if BM and BCS each have the
contractual obligation to M. Alternatively, it may be satisfied if BCS
has a contractual obligation to BM and BM, in turn, has a contractual
obligation to M.
(3) Example 3: Applicable critical minerals--(i) Facts. The facts
are the same as example 1. In addition, each battery cell contains 20
kilograms (kgs) of applicable critical mineral Z contained in a
constituent material. M has procured or is under contract to 20,000,000
kgs of Z for the battery cell production facility, of which 4,000,000
kgs are from supplier 3 and 16,000,000 kgs are from supplier 4.
(ii) Analysis. The analysis is the same as in example 1. In
addition, from its due diligence, M determines that of the 20,000,000
kg of applicable critical mineral Z, the 4,000,000 kg from supplier 3
is FEOC-compliant while the 16,000,000 kg from supplier 4 is not FEOC-
compliant. Under paragraph (c)(3) of this section, M may determine
which battery cells are FEOC-compliant through the physical tracking of
the 4,000,000 kg of FEOC-compliant applicable critical mineral Z to
200,000 (4,000,000/20) of the battery cells that also contain battery
component A, in order to determine which 200,000 battery cells are
FEOC-compliant. Alternatively, M may determine which 200,000 battery
cells are FEOC-compliant through an allocation of applicable critical
mineral Z (but not battery component A) to battery cells, without
physical tracking, under paragraph (c)(3)(ii) of this section. Under
paragraph (c)(2) of this section, M must use a serial number or other
identification system to track the 200,000 FEOC-compliant battery cells
to 200 (200,000/1,000) specific batteries.
(4) Example 4: Comprehensive example--(i) Facts. M is a
manufacturer of new clean vehicles and batteries. M also manufactures
or assembles battery cells at its own battery cell production facility.
M manufactures a line of new clean vehicles. Each vehicle contains one
battery. All battery cells are produced at the same battery cell
production facility. The battery cells are not manufactured or
assembled by a FEOC. Each battery contains 1,000 NMC 811 battery cells.
M anticipates manufacturing 1,000,000 such battery cells for a line of
new clean vehicles that it anticipates will be placed in service in
calendar year 2025.
(A) Each battery cell contains 1 cathode electrode, 1 anode
electrode, 1 separator, and 1 liquid electrolyte. Thus, M procures
1,000,000 of each battery component for the battery cell production
facility.
(B) In addition, each NMC 811 cathode incorporates cathode active
material (a constituent material) produced using 2.5 kg of applicable
critical minerals, consisting of 0.5 kg of lithium hydroxide, 1.6 kg of
nickel sulfate, 0.2 kg of cobalt sulfate, and 0.2 kg of manganese
sulfate. Thus, M procures 2,500 metric tons (2.5 kg * 1,000,000/1,000)
of applicable critical minerals for the battery cell production
facility, resulting in purchase agreements for 500 metric tons of
lithium, 1,600 metric tons of nickel, 200 metric tons of cobalt, and
200 metric tons of manganese.
(ii) Analysis. (A) Under Sec. 1.30D-6(b), M must conduct due
diligence on all battery components and applicable critical minerals
(and associated constituent materials) that are contained in the
battery to determine whether such components or minerals are FEOC-
compliant.
(B) Under paragraph (c)(4) of this section, M must first determine
whether the battery components and applicable critical minerals (and
associated constituent materials) are FEOC-compliant. From its due
diligence M determines that, of the cathode electrodes, 600,000 are not
manufactured by a FEOC and are therefore FEOC-compliant; 400,000 are
manufactured by a FEOC and are therefore non-compliant. Of the critical
minerals that M has procured, M determines that 250 metric tons of
lithium hydroxide, 1,200 metric tons of nickel sulfate, and all of the
cobalt sulfate and manganese sulfate are FEOC-compliant. All other
battery components and applicable critical minerals of the battery
cells are FEOC-compliant.
(C) Under paragraph (c)(3) of this section, M must determine which
battery cells are FEOC-compliant through the physical tracking of
battery components. M may determine which battery cells are FEOC-
compliant through the physical tracking of applicable critical
minerals. Alternatively, M may determine which battery cells are FEOC-
compliant through an allocation of applicable critical minerals (and
associated constituent materials) but not battery components.
(D) Under an allocation-based determination, M has procured 500
metric tons of lithium hydroxide incorporated into a constituent
material for the battery cell production facility, of which 50 percent
(250/500 metric tons) is FEOC-compliant. M has
[[Page 84116]]
procured 1,600 metric tons of nickel sulfate incorporated into a
constituent material for the battery cell production facility, of which
75 percent (1,200/1,600 metric tons) is FEOC-compliant. Since the
lithium hydroxide is the least compliant applicable critical mineral or
component, M allocates the FEOC-compliant lithium hydroxide mass to 50
percent or 500,000 (50 percent * 1,000,000) of the total battery cells,
and to battery cells that contain FEOC-compliant cathode electrodes and
have been allocated FEOC-compliant nickel sulfate. Under paragraph
(c)(2)(ii)(E) of this section, the quantity of FEOC-compliant battery
cells is limited by the applicable critical mineral (lithium hydroxide)
that has the lowest percentage (50 percent) of FEOC-compliant supply.
(E) Under paragraph (c)(2) of this section, M must use a serial
number or other identification system to track the 500,000 FEOC-
compliant battery cells to 500 (500,000/1,000) specific batteries.
(F) Under paragraph (d)(1) of this section, a compliant-battery
ledger must be established for calendar year 2025. For purposes of
paragraph (d)(2)(i) of this section, M determines that it will
manufacture 500 batteries for calendar year 2025 that are FEOC-
compliant. Under paragraph (d)(2)(ii) of this section, M attests to the
500 FEOC-compliant batteries and provides the basis for the
determination, including attestations, certifications, and
documentation demonstrating compliance with paragraphs (b) and (c) of
this section. Once the IRS, with analytical assistance from the DOE,
has approved the number, a compliant-battery ledger is established with
a balance of 500 FEOC-compliant batteries.
(h) Severability. The provisions of this section are separate and
severable from one another. If any provision of this section is stayed
or determined to be invalid, it is the agency's intention that the
remaining provisions will continue in effect.
(i) Applicability date. This section applies to new clean vehicles
placed in service after December 31, 2023.
Douglas W. O'Donnell,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2023-26513 Filed 12-1-23; 8:45 am]
BILLING CODE 4830-01-P
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