Rule2024-09094
Clean Vehicle Credits Under Sections 25E and 30D; Transfer of Credits; Critical Minerals and Battery Components; Foreign Entities of Concern
Primary source
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
May 6, 2024
Effective
July 5, 2024
Issuing agencies
Treasury DepartmentInternal Revenue Service
Abstract
This document contains final regulations regarding Federal income tax credits under the Inflation Reduction Act of 2022 (IRA) for the purchase of qualifying new and previously-owned clean vehicles, including new and previously-owned plug-in electric vehicles powered by an electric battery meeting certain requirements and new qualified fuel cell motor vehicles. In addition, the final regulations provide guidance for taxpayers who purchase qualifying vehicles and intend to transfer the amount of any previously-owned clean vehicle credit or new clean vehicle credit to dealers that are entities eligible to receive advance payments of either credit. The final regulations also provide guidance for dealers to become eligible entities to receive advance payments of previously-owned clean vehicle credits or new clean vehicle credits, and rules regarding recapture of the credits. Finally, the final regulations provide guidance on the meaning of three new definitions added to the exclusive list of mathematical or clerical errors relating to certain assessments of tax without a notice of deficiency.
Full Text
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<title>Federal Register, Volume 89 Issue 88 (Monday, May 6, 2024)</title>
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[Federal Register Volume 89, Number 88 (Monday, May 6, 2024)]
[Rules and Regulations]
[Pages 37706-37775]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-09094]
[[Page 37705]]
Vol. 89
Monday,
No. 88
May 6, 2024
Part V
Department of the Treasury
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Internal Revenue Service
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26 CFR Parts 1 and 301
Clean Vehicle Credits Under Sections 25E and 30D; Transfer of Credits;
Critical Minerals and Battery Components; Foreign Entities of Concern;
Final Rule
Federal Register / Vol. 89, No. 88 / Monday, May 6, 2024 / Rules and
Regulations
[[Page 37706]]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 301
[TD 9995]
RIN 1545-BQ52; RIN 1545-BQ86; RIN 1545-BQ99
Clean Vehicle Credits Under Sections 25E and 30D; Transfer of
Credits; Critical Minerals and Battery Components; Foreign Entities of
Concern
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
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SUMMARY: This document contains final regulations regarding Federal
income tax credits under the Inflation Reduction Act of 2022 (IRA) for
the purchase of qualifying new and previously-owned clean vehicles,
including new and previously-owned plug-in electric vehicles powered by
an electric battery meeting certain requirements and new qualified fuel
cell motor vehicles. In addition, the final regulations provide
guidance for taxpayers who purchase qualifying vehicles and intend to
transfer the amount of any previously-owned clean vehicle credit or new
clean vehicle credit to dealers that are entities eligible to receive
advance payments of either credit. The final regulations also provide
guidance for dealers to become eligible entities to receive advance
payments of previously-owned clean vehicle credits or new clean vehicle
credits, and rules regarding recapture of the credits. Finally, the
final regulations provide guidance on the meaning of three new
definitions added to the exclusive list of mathematical or clerical
errors relating to certain assessments of tax without a notice of
deficiency.
DATES:
Effective date: These regulations are effective on July 5, 2024.
Applicability dates: For dates of applicability, see Sec. Sec.
1.25E-1(h), 1.25E-2(i), 1.25E-3(k), 1.30D-1(d), 1.30D-2(d), 1.30D-3(h),
1.30D-4(j), 1.30D-5(k), 1.30D-6(j), and 301.6213-2(c).
FOR FURTHER INFORMATION CONTACT: Rika Valdman or Maggie Stehn of the
Office of Associate Chief Counsel (Passthroughs & Special Industries)
at (202) 317-6853 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments to the Income Tax Regulations (26
CFR part 1) under sections 25E and 30D of the Internal Revenue Code
(Code), and to the Procedure and Administration Regulations (26 CFR
part 301) under section 6213 of the Code.
I. Section 25E
Section 13402 of Public Law 117-169, 136 Stat. 1818 (August 16,
2022), commonly known as the IRA, added section 25E to the Code. The
credit under section 25E (section 25E credit) is a personal credit
allowable under subpart A of the Code.
Section 25E(a) provides that, in the case of a qualified buyer who
during a taxable year places in service a previously-owned clean
vehicle, an income tax credit is allowed for the taxable year equal to
the lesser of: (1) $4,000, or (2) the amount equal to 30 percent of the
sale price with respect to such vehicle.
Section 25E(b)(1) sets a limitation based on modified adjusted
gross income (Modified AGI) and provides that no credit is allowed for
any taxable year if (A) the lesser of (i) the Modified AGI of the
taxpayer for such taxable year, or (ii) the Modified AGI of the
taxpayer for the preceding taxable year, exceeds (B) the threshold
amount. The threshold amount is set forth in section 25E(b)(2) and
varies based on a taxpayer's filing status. In the case of a taxpayer
filing a joint return or who is a surviving spouse (as defined in
section 2(a) of the Code), the threshold amount is $150,000. In the
case of a taxpayer who is a head of household (as defined in section
2(b)), the threshold amount is $112,500. In the case of any other
taxpayer, the threshold amount is $75,000. Section 25E(b)(3) defines
Modified AGI as adjusted gross income (AGI) increased by any amount
excluded from gross income under section 911, 931, or 933 of the Code.
Section 25E(c) defines certain terms for purposes of the section
25E credit. Section 25E(c)(1) defines ``previously-owned clean
vehicle'' as a motor vehicle:
(A) the model year of which is at least 2 years earlier than the
calendar year in which the taxpayer acquires such vehicle;
(B) the original use of which commences with a person other than
the taxpayer;
(C) that is acquired by the taxpayer in a qualified sale; and
(D) that (i) meets the requirements of section 30D(d)(1)(C), (D),
(E), (F), and (H) (except for section 30D(d)(1)(H)(iv)), or (ii) is a
motor vehicle that (I) satisfies the requirements under section
30B(b)(3)(A) and (B), and (II) has a gross vehicle weight rating (GVWR)
of less than 14,000 pounds.
Section 25E(c)(2) defines a ``qualified sale'' as a sale of a motor
vehicle (A) by a dealer (as defined in section 30D(g)(8)); (B) for a
sale price that does not exceed $25,000; and (C) that is the first
transfer since the date of enactment of the IRA to a qualified buyer
other than the person with whom the original use of such vehicle
commenced.
Under section 25E(c)(3), ``qualified buyer'' means, with respect to
a sale of a motor vehicle, a taxpayer (A) who is an individual; (B) who
purchases such vehicle for use and not for resale; (C) with respect to
whom no deduction is allowable with respect to another taxpayer under
section 151 of the Code; and (D) who has not been allowed a section 25E
credit for any sale during the 3-year period ending on the date of the
sale of such vehicle.
Section 25E(c)(4) defines ``motor vehicle'' and ``capacity'' to
have the meaning given such terms in section 30D(d)(2) and (4),
respectively.
Section 25E(d) provides that no credit is allowed under section
25E(a) with respect to any vehicle unless the taxpayer includes the
vehicle identification number (VIN) of such vehicle on the return of
tax for the taxable year.
Section 25E(e) and (f) provide, respectively, that rules similar to
the rules of section 30D(f) (without regard to paragraph (10) or (11)
thereof) and the rules of section 30D(g) apply for purposes of section
25E. Section 13402(e)(2) of the IRA provides that the ability of a
taxpayer to elect to transfer a section 25E credit under section 25E(f)
applies to vehicles placed in service by the taxpayer after December
31, 2023.
Section 25E(g) provides that no section 25E credit is allowed with
respect to a vehicle acquired after December 31, 2032.
II. Section 30D
A. In General
Section 30D(a) provides a credit (section 30D credit) with respect
to each new clean vehicle that a taxpayer purchases and places in
service. The credit is determined and allowable with respect to the
taxable year in which the taxpayer places the new clean vehicle in
service.
Section 30D was originally enacted by section 205(a) of the Energy
Improvement and Extension Act of 2008, Division B of Public Law 110-
343, 122 Stat. 3765, 3835 (October 3, 2008), to provide a credit for
the purchase and placing in service of new qualified plug-in electric
drive motor vehicles. Section 30D has been amended several times
[[Page 37707]]
since its enactment, most recently by section 13401 of the IRA.
The amount of the section 30D credit is treated as a personal
credit or a general business credit, depending on the character of the
vehicle. In general, the section 30D credit is treated as a personal
credit allowable under subpart A of the Code. Section 30D(c)(2).
However, the amount of the section 30D credit that is attributable to
property that is of a character subject to an allowance for
depreciation is treated as a current year business credit under section
38(b) instead of being allowed under section 30D(a). Section 30D(c)(1).
Section 38(b)(30) lists as a current year business credit the portion
of the section 30D credit to which section 30D(c)(1) applies. The IRA
did not amend section 30D(c)(1) or (2).
B. IRA Amendments to Section 30D
1. Credit Amount and Critical Minerals and Battery Components
Requirements
The IRA amends the rules for determining the amount of the section
30D credit. Prior to the amendments to section 30D made by section
13401(a) and (e) of the IRA, the amount of the section 30D credit was
calculated based on the vehicle's battery capacity. The base amount was
$2,500, plus $417 for a battery with a capacity of at least 5 kilowatt
hours, and an additional $417 for each kilowatt hour of capacity in
excess of 5 kilowatt hours, up to a maximum credit of $7,500 per
vehicle. Section 13401(a) of the IRA amends section 30D(b) to provide a
maximum credit of $7,500 per vehicle, consisting of $3,750 in the case
of a vehicle that meets certain requirements relating to critical
minerals and $3,750 in the case of a vehicle that meets certain
requirements relating to battery components. The amendments made by
section 13401(a) of the IRA apply to vehicles placed in service after
the date on which the Secretary of the Treasury or her delegate
(Secretary) issues proposed guidance described in new section
30D(e)(3)(B) of the Code relating to the new critical minerals
requirements described in new section 30D(e)(1)(A) (Critical Minerals
Requirement) and the new battery components requirements described in
new section 30D(e)(2)(A) (Battery Components Requirement). See section
13401(k)(3) of the IRA.
New section 30D(e)(1)(A) provides that the Critical Minerals
Requirement with respect to the battery from which the electric motor
of a vehicle draws electricity is satisfied if the percentage of the
value of the applicable critical minerals (as defined in section
45X(c)(6) of the Code) contained in such battery that were (i)
extracted or processed in the United States, or in any country with
which the United States has a free trade agreement in effect, or (ii)
recycled in North America, is equal to or greater than the applicable
percentage (as certified by the qualified manufacturer, in such form or
manner as prescribed by the Secretary). The applicable percentage for
the Critical Minerals Requirement is set forth in section
30D(e)(1)(B)(i) through (v), and varies based on when the vehicle is
placed in service. In the case of a vehicle placed in service after the
date of issuance of the proposed guidance described in new section
30D(e)(3)(B) and before January 1, 2024, the applicable percentage is
40 percent. In the case of a vehicle placed in service during calendar
year 2024, 2025, and 2026, the applicable percentage is 50 percent, 60
percent, and 70 percent, respectively. In the case of a vehicle placed
in service after December 31, 2026, the applicable percentage is 80
percent.
New section 30D(e)(2)(A) provides that the Battery Components
Requirement with respect to the battery from which the electric motor
of a vehicle draws electricity is satisfied if the percentage of the
value of the components contained in such battery that were
manufactured or assembled in North America is equal to or greater than
the applicable percentage (as certified by the qualified manufacturer,
in such form or manner as prescribed by the Secretary). The applicable
percentage for the Battery Components Requirement is set forth in
section 30D(e)(2)(B)(i) through (vi) and varies based on when the
vehicle is placed in service. In the case of a vehicle placed in
service after the date of issuance of the proposed guidance described
in new section 30D(e)(3)(B) of the Code and before January 1, 2024, the
applicable percentage is 50 percent. In the case of a vehicle placed in
service during calendar year 2024 or 2025, the applicable percentage is
60 percent. In the case of a vehicle placed in service during calendar
year 2026, 2027, and 2028, the applicable percentage is 70 percent, 80
percent, and 90 percent, respectively. In the case of a vehicle placed
in service after December 31, 2028, the applicable percentage is 100
percent.
2. New Clean Vehicle Definition
Section 13401(c) of the IRA amends section 30D(d) of the Code by
making the credit applicable to ``new clean vehicles,'' instead of
``new qualified plug-in electric drive motor vehicles.'' This amendment
is applicable to vehicles placed in service after December 31, 2022. As
amended by section 13401(c) and (g)(2) of the IRA, section 30D(d)(1) of
the Code defines a ``new clean vehicle'' as a motor vehicle that
satisfies the eight requirements set forth in section 30D(d)(1)(A)
through (H) of the Code: the original use of the motor vehicle must
commence with the taxpayer; the motor vehicle must be acquired for use
or lease by the taxpayer and not for resale; the motor vehicle must be
made by a qualified manufacturer; the motor vehicle must be treated as
a motor vehicle for purposes of title II of the Clean Air Act; the
motor vehicle must have a gross vehicle weight rating of less than
14,000 pounds; the motor vehicle must be propelled to a significant
extent by an electric motor that draws electricity from a battery that
has a capacity of not less than 7 kilowatt hours, and is capable of
being recharged from an external source of electricity; the final
assembly of the motor vehicle must occur within North America; and the
person who sells any vehicle to the taxpayer must furnish a report to
the taxpayer and to the Secretary, at such time and in such manner as
the Secretary provides, containing specifically enumerated items.
With respect to the requirement that the motor vehicle must be made
by a qualified manufacturer, the IRA creates new requirements for
manufacturers of vehicles eligible for the section 30D credit that are
applicable to vehicles placed in service after December 31, 2022. As
amended by section 13401(c) of the IRA, section 30D(d)(3) of the Code
defines a ``qualified manufacturer'' as any manufacturer (within the
meaning of the regulations prescribed by the Administrator of the
Environmental Protection Agency (EPA) for purposes of the
administration of title II of the Clean Air Act (42 U.S.C. 7521 et
seq.)) that enters into a written agreement with the Secretary under
which such manufacturer agrees to make periodic written reports to the
Secretary (at such times and in such manner as the Secretary may
provide) providing vehicle identification numbers and such other
information related to each vehicle manufactured by such manufacturer
as the Secretary may require.
The IRA requires new clean vehicles to undergo final assembly in
North America to be eligible for the section 30D credit. This
requirement is applicable to vehicles sold after August 16, 2022. See
section 13401(k)(2) of the IRA. New section 30D(d)(5) defines ``final
assembly'' as the process by which a manufacturer produces a new
[[Page 37708]]
clean vehicle at, or through the use of, a plant, factory, or other
place from which the vehicle is delivered to a dealer or importer with
all component parts necessary for the mechanical operation of the
vehicle included with the vehicle, whether or not the component parts
are permanently installed in or on the vehicle.
The IRA provides that certain fuel cell vehicles may qualify for
the section 30D credit. Section 13401(c) of the IRA adds new section
30D(d)(6) to the Code, which includes in the definition of the term
``new clean vehicle'' applicable to vehicles placed in service after
December 31, 2022, any ``new qualified fuel cell motor vehicle'' (as
defined in section 30B(b)(3)) that meets the requirements under section
30D(d)(1)(G) and (H) (North American final assembly and seller
reporting requirements).
The IRA disqualifies certain vehicles from the section 30D credit
if the battery of the vehicle contains critical minerals or battery
components from a foreign entity of concern (FEOC). As amended by
section 13401(e) of the IRA, section 30D(d)(7) of the Code excludes,
after certain specified dates, vehicles placed in service with
batteries containing certain critical minerals or battery components
from a FEOC from the definition of the term ``new clean vehicle.'' In
particular, amended section 30D(d)(7) (FEOC Restriction) provides that
the term ``new clean vehicle'' does not include (A) any vehicle placed
in service after December 31, 2024, with respect to which any of the
applicable critical minerals contained in the battery of such vehicle
(as described in section 30D(e)(1)(A)) were extracted, processed, or
recycled by a FEOC (as defined in section 40207(a)(5) of the
Infrastructure Investment and Jobs Act (42 U.S.C. 18741(a)(5))), or (B)
any vehicle placed in service after December 31, 2023, with respect to
which any of the components contained in the battery of such vehicle
(as described in section 30D(e)(2)(A)) were manufactured or assembled
by a FEOC (as so defined).
3. Elimination of Phaseout
The IRA eliminates the phaseout of the section 30D credit for
vehicles made by manufacturers that have sold at least 200,000 vehicles
eligible for the credit for use in the United States after December 31,
2009. Pursuant to section 13401(d) of the IRA this limitation does not
apply to vehicles sold after December 31, 2022. See section 13401(k)(5)
of the IRA.
4. Special Rules
The IRA adds four new special rules under section 30D(f) applicable
to vehicles placed in service after December 31, 2022. First, section
30D(f)(8) permits only one section 30D credit to be claimed for each
VIN. Second, section 30D(f)(9) requires taxpayers to include on the
taxpayer's return for the taxable year the VIN of the vehicle for which
the section 30D credit is claimed.
Third, section 30D(f)(10) denies the section 30D credit to certain
high-income taxpayers. More specifically, section 30D(f)(10)(A)
provides that no credit is allowed for any taxable year if (i) the
lesser of (I) the Modified AGI of the taxpayer for such taxable year,
or (II) the Modified AGI of the taxpayer for the preceding taxable
year, exceeds (ii) the threshold amount. New section 30D(f)(10)(B)
provides that the threshold amount is: (i) in the case of a joint
return or a surviving spouse (as defined in section 2(a) of the Code),
$300,000, (ii) in the case of a head of household (as defined in
section 2(b) of the Code), $225,000, and (iii) in the case of any other
taxpayer, $150,000. New section 30D(f)(10)(C) defines Modified AGI as
AGI increased by any amount excluded from gross income under sections
911, 931, or 933.
Fourth, section 30D(f)(11) excludes from the section 30D credit
vehicles that exceed certain manufacturer's suggested retail price
(MSRP) thresholds. New section 30D(f)(11)(A) provides that no credit is
allowed for a vehicle if the MSRP of the vehicle exceeds the applicable
limitation. New section 30D(f)(11)(B) provides that the applicable
limitation for each vehicle classification is as follows: in the case
of a van, $80,000; in the case of a sport utility vehicle, $80,000; in
the case of a pickup truck, $80,000; and in the case of any other
vehicle, $55,000. New section 30D(f)(11)(C) authorizes the Secretary to
prescribe such regulations or other guidance as the Secretary
determines necessary to determine vehicle classifications using
criteria similar to that employed by the EPA and the Department of the
Energy (DOE) to determine size and class of vehicles.
5. Transfer of Credit
The IRA added new section 30D(g) to the Code, which allows the
taxpayer to elect to transfer the section 30D credit in certain
situations for vehicles placed in service after December 31, 2023.
Section 30D(g)(1) provides that subject to such regulations or
other guidance as the Secretary determines necessary, a taxpayer may
elect to transfer a section 30D credit with respect to a new clean
vehicle to an eligible entity (credit transfer election).\1\ If the
taxpayer who acquires a new clean vehicle makes a credit transfer
election under section 30D(g) with respect to such vehicle, the section
30D credit that would otherwise be allowed to such taxpayer with
respect to such vehicle is allowed to the eligible entity specified in
such election (and not the taxpayer).
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\1\ As discussed in section VIII of this Background section, on
October 10, 2023, the Treasury Department and the IRS published a
notice of proposed rulemaking (REG-113064-23) in the Federal
Register (88 FR 70310), that referred to this election as the
``vehicle transfer election.'' However, ``credit transfer election''
is a more descriptive and appropriate term, so these final
regulations adopt the defined term ``credit transfer election'' to
refer to the election by a taxpayer to transfer a section 25E or
section 30D credit to an eligible entity.
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Section 30D(g)(2) defines an ``eligible entity'' with respect to
the vehicle for which the section 30D credit is allowed as the dealer
that sold such vehicle to the taxpayer and that satisfies the following
four requirements set forth in section 30D(g)(2)(A) through (D): (i)
the dealer, subject to section 30D(g)(4), must be registered with the
Secretary for purposes of section 30D(g)(2), at such time, and in such
form and manner, as the Secretary prescribes; (ii) the dealer, prior to
the credit transfer election and not later than at the time of sale,
must have disclosed to the taxpayer purchasing such vehicle the
manufacturer's suggested retail price, the value of the section 30D
credit allowed and any other incentive available for the purchase of
such vehicle, and the amount provided by the dealer to such taxpayer as
a condition of the credit transfer election; (iii) the dealer, not
later than at the time of sale, must have paid the taxpayer (whether in
cash or in the form of a partial payment or down payment for the
purchase of such vehicle) an amount equal to the credit otherwise
allowable to such taxpayer; and (iv) the dealer with respect to any
incentive otherwise available for the purchase of a vehicle for which a
section 30D credit is allowed, including any incentive in the form of a
rebate or discount provided by the dealer or manufacturer, must have
ensured that the availability or use of such incentive does not limit
the ability of a taxpayer to make a credit transfer election, and such
election does not limit the value or use of such incentive.
Section 30D(g)(3) addresses the timing of the transfer and provides
that any credit transfer election cannot be made by the taxpayer any
later than the date on which the vehicle for which the section 30D
credit is allowed is purchased.
[[Page 37709]]
Section 30D(g)(4) provides that upon determination by the Secretary
that a dealer has failed to comply with the requirements described in
section 30D(g)(2), the Secretary may revoke the dealer's registration.
Section 30D(g)(5) provides that with respect to any payment
described in section 30D(g)(2)(C), such payment is not includible in
the gross income of the taxpayer and is not deductible with respect to
the dealer.
Section 30D(g)(6) addresses the application of certain other
requirements to the transfer of credit and provides that in the case of
any credit transfer election with respect to any vehicle: (i) the basis
reduction and no double benefit requirements of section 30D(f)(1) and
(2) apply to the taxpayer who acquired the vehicle in the same manner
as if the section 30D credit determined with respect to such vehicle
were allowed to such taxpayer; (ii) the election in section 30D(f)(6)
to not take the section 30D credit does not apply; and (iii) the VIN
requirement of section 30D(f)(9) is treated as satisfied if the
eligible entity provides the VIN of such vehicle to the Secretary in
such manner as the Secretary may provide.
Section 30D(g)(7)(A) provides for the establishment of a program to
make advance payments to eligible entities in an amount equal to the
cumulative amount of the credits allowed with respect to any vehicles
sold by such entity for which a credit transfer election described in
section 30D(g)(1) has been made. Section 30D(g)(7)(B) provides that
rules similar to the rules of section 6417(d)(6) of the Code apply for
purposes of the advance payment rules, and section 30D(g)(7)(C)
provides that for purposes of 31 U.S.C. 1324, the payments under
section 30D(g)(7)(A) are treated in the same manner as a refund due
from a credit provision referred to in 31 U.S.C. 1324(b)(2).
Section 30D(g)(8) defines the term ``dealer'' as a person licensed
by a State, the District of Columbia, the Commonwealth of Puerto Rico,
any other territory or possession of the United States, an Indian
tribal government, or any Alaska Native Corporation (as defined in
section 3 of the Alaska Native Claims Settlement Act (43 U.S.C.
1602(m)) to engage in the sale of vehicles. Section 30D(g)(9) defines
an ``Indian tribal government'' as the recognized governing body of any
Indian or Alaska Native tribe, band, nation, pueblo, village,
community, component band, or component reservation, individually
identified (including parenthetically) in the list published most
recently as of the date of enactment of section 30D(g) (that is, August
16, 2022) pursuant to section 104 of the Federally Recognized Indian
Tribe List Act of 1994 (25 U.S.C. 5131).
Section 30D(g)(10) provides that in the case of any taxpayer who
has made a credit transfer election with respect to a new clean vehicle
and received a payment from an eligible entity, if the section 30D
credit would otherwise (but for section 30D(g)) not be allowable to
such taxpayer pursuant to the application of the Modified AGI
limitation of section 30D(f)(10), the income tax imposed on such
taxpayer under chapter 1 of the Code for the taxable year in which such
vehicle was placed in service must be increased by the amount of the
payment received by such taxpayer.
Section 13401(k)(4) of the IRA provides that the ability for a
taxpayer to elect to transfer a section 30D credit under section 30D(g)
applies to vehicles placed in service after December 31, 2023.
6. Termination
The IRA added new section 30D(h) to the Code, which provides that
no credit is allowed with respect to any vehicle placed in service
after December 31, 2032.
III. Section 45W
Section 13403(a) of the IRA added section 45W to the Code, which is
effective for vehicles acquired after December 31, 2022, and before
January 1, 2033. A taxpayer can claim a section 45W credit for
purchasing and placing in service a qualified commercial clean vehicle,
as defined in section 45W(c), during the taxable year. Section 45W(e)
provides that no section 45W credit is allowed with respect to any
vehicle unless the taxpayer includes the VIN of such vehicle on the tax
return for the taxable year.
IV. Section 6213(g)(2)
Section 6213(b)(1) authorizes the IRS to make certain assessments
of mathematical or clerical errors without first issuing a notice of
deficiency under section 6213(a). Section 13401(i)(4) of the IRA
amended section 6213(g)(2) to provide the IRS with math error authority
for the omission of a correct VIN required under sections 25E(d),
30D(f)(9), and 45W(e) to be included on a return. See section
6213(g)(2)(T)-(V).
V. Notice 2022-46
On October 24, 2022, the Treasury Department and the IRS published
Notice 2022-46, 2022-43 I.R.B. 306. The notice requested general
comments on issues arising under sections 25E and 30D. Regarding
section 30D, the notice requested specific comments concerning: (1)
definitions; (2) critical minerals; (3) battery components; (4)
applicable values; (5) FEOCs; (6) recordkeeping and reporting; (7) tax-
exempt entities; (8) registered dealers and eligible entities; (9) the
final assembly requirement; (10) vehicle classifications; (11)
elections to transfer and advance payments; and (12) recapture.
Regarding section 25E, the notice requested specific comments
concerning: (1) qualification as a ``previously-owned clean vehicle'';
(2) the rules of section 30D(f) that should be applied under section
25E(e); (3) the rules of section 30D(g) that should be applied under
section 25E; and (4) terms that may require definitions or further
guidance. Stakeholders submitted more than 800 comments in response to
Notice 2022-46. Those comments informed the development of the notices
of proposed rulemaking relating to sections 25E and 30D discussed in
section VII of this Background section.
VI. Revenue Procedures
On December 27, 2022, the Treasury Department and the IRS published
Revenue Procedure 2022-42, 2022-52 I.R.B. 565, which sets forth the
procedures under section 30D(d)(3) for qualified manufacturers to enter
into a written agreement with the Secretary under which such
manufacturer agrees to make periodic written reports to the Secretary
providing VINs and such other information related to each vehicle
manufactured by such manufacturer as the Secretary may require. The
revenue procedure also provides the procedures for persons selling
vehicles to report the information required to be reported to the IRS
in order for such vehicles to be eligible for the section 25E credit or
the section 30D credit.
On October 23, 2023, the Treasury Department and the IRS published
Revenue Procedure 2023-33, 2023-43 I.R.B. 1135. The revenue procedure
sets forth the procedures under sections 25E(f) and 30D(g) for the
transfer of the section 25E credit and the 30D credit from the taxpayer
to an eligible entity. In addition, the revenue procedure supersedes
certain provisions of Rev. Proc. 2022-42.
On December 18, 2023, the Treasury Department and the IRS published
Revenue Procedure 2023-38, 2023-51 I.R.B. 1544. The revenue procedure
provides procedural rules for qualified manufacturers of new clean
vehicles to comply with the reporting, certification, and attestation
requirements regarding the excluded entity restriction, under which the
IRS, with analytical
[[Page 37710]]
assistance from the DOE, will review compliance with the excluded
entity restrictions. In addition, Rev. Proc. 2023-38 updates and
consolidates the procedural rules for qualified manufacturers with
respect to the section 25E credit, the section 30D credit, and the
qualified commercial clean vehicle credit under section 45W. The
revenue procedure supersedes certain provisions of Rev. Proc. 2022-42
and Rev. Proc. 2023-33.
On February 26, 2024, the Treasury Department and the IRS published
Revenue Procedure 2024-12, 2024-9 I.R.B. 677. The revenue procedure
provides a temporary extension of time to submit seller reports to the
IRS under the procedures set out in Rev. Proc. 2022-42 and Rev. Proc.
2023-33 for the transfer of section 25E credits and 30D credits.
VII. Notice 2023-1, Notice 2023-16, and 30D White Paper
On January 17, 2023, the Treasury Department and the IRS published
Notice 2023-1, 2023-3 I.R.B. 373, which describes definitions for
certain terms in section 30D that the Treasury Department and the IRS
intended to include in proposed regulations.
The Treasury Department also released a white paper on the
anticipated direction of the proposed guidance on the Critical Minerals
Requirement and Battery Components Requirement and the process for
determining whether vehicles qualify under these requirements, as of
December 29, 2022. See ``Anticipated Direction of Forthcoming Proposed
Guidance on Critical Mineral and Battery Component Value Calculations
for the New Clean Vehicle Credit,'' Dec. 29, 2022, <a href="https://home.treasury.gov/system/files/136/30DWhite-Paper.pdf">https://home.treasury.gov/system/files/136/30DWhite-Paper.pdf</a> (last accessed
March 16, 2024).
On February 21, 2023, the Treasury Department and the IRS published
Notice 2023-16, 2023-8 I.R.B. 479, which modifies Notice 2023-1 by
revising the vehicle classification standard that the Treasury
Department and the IRS intended to provide in proposed regulations.
VIII. Notices of Proposed Rulemaking
On April 17, 2023, the Treasury Department and the IRS published a
notice of proposed rulemaking (REG-120080-22) in the Federal Register
(88 FR 23370), containing proposed regulations under section 30D (April
Proposed Regulations). The April Proposed Regulations provided proposed
definitions for certain terms related to section 30D; proposed rules
regarding personal and business use of new clean vehicles and other
special rules; and additional proposed rules related to the Critical
Minerals and Battery Components Requirements of section 30D(e) in
proposed Sec. 1.30D-3.
On October 10, 2023, the Treasury Department and the IRS published
a notice of proposed rulemaking (REG-113064-23) in the Federal Register
(88 FR 70310), which provided proposed guidance for elections to
transfer clean vehicle credits under sections 25E(f) and 30D(g)
(October Proposed Regulations). The October Proposed Regulations
provided proposed guidance for taxpayers intending to transfer the
section 25E credit and the section 30D credit to dealers that are
entities eligible to receive advance payments of such credits. The
October Proposed Regulations also provided proposed guidance for how
dealers become eligible entities to receive advance payments of the
section 25E credit and the section 30D credit. In addition, the October
Proposed Regulations provided proposed guidance regarding basic and
definitional provisions in for section 25E, recapture of the section
25E and section 30D credits, and math error authority under section
6213.
On December 4, 2023, the Treasury Department and the IRS published
a notice of proposed rulemaking (REG-118492-23) in the Federal Register
(88 FR 84098), which provided guidance regarding the excluded entities
limitation of section 30D(d)(7) (December Proposed Regulations). The
December Proposed Regulations provided proposed definitions and
proposed rules for qualified manufacturers of vehicles to determine
eligibility for the section 30D clean vehicle credit regarding the
excluded entity restrictions, under which vehicles placed in service
beginning in 2024 are not eligible if the battery contains battery
components manufactured or assembled by a FEOC, and vehicles placed in
service beginning in 2025 are not eligible if the battery contains
applicable critical minerals extracted, processed, or recycled by a
FEOC.
IX. Department of Energy Guidance
Concurrently with the release of the December Proposed Regulations,
the DOE released proposed guidance in the Federal Register, which
provides proposed interpretations of certain terms used in the
definition of FEOC set forth in section 40207(a)(5) of the
Infrastructure Investment and Jobs Act (IIJA), and as cross-referenced
in section 30D(d)(7). Concurrently with the release of these final
regulations, the DOE is releasing final regulations under section
40207(a)(5) of the IIJA.
Section 40207(a)(5) of the IIJA defines FEOC to include foreign
entities covered by specific designations, inclusions, and allegations
by Federal agencies as described in section 40207(a)(5)(A), (B), and
(D), as well as foreign entities ``owned by, controlled by, or subject
to the jurisdiction or direction of a government'' of a covered nation
under section 40207(a)(5)(C). Covered nations are defined in 10 U.S.C.
4872(d)(2) as the People's Republic of China, the Russian Federation,
the Democratic People's Republic of Korea, and the Islamic Republic of
Iran, as of the date of publication of the these final regulations and
the DOE final guidance. Finally, section 40207(a)(5)(E) of the IIJA
provides that a FEOC includes a foreign entity that the Secretary of
Energy, in consultation with the Secretary of Defense and the Director
of National Intelligence, determines is engaged in unauthorized conduct
that is detrimental to the national security or foreign policy of the
United States. The DOE final guidance provides an interpretation of
section 40207(a)(5)(C) of the IIJA. In particular, the DOE final
guidance provides definitions for the terms ``government of a foreign
country,'' ``foreign entity,'' ``subject to the jurisdiction,'' and
``owned by, controlled by, or subject to the direction of.'' In
general, an entity incorporated in, headquartered in, or performing the
relevant activities in a covered nation would be classified as a FEOC.
For purposes of these rules, an entity would be ``owned by, controlled
by, or subject to the direction'' of another entity if 25 percent or
more of the entity's board seats, voting rights, or equity interest are
cumulatively held by such other entity. In addition, licensing
agreements or other contractual agreements may also create control.
Finally, ``government of a foreign country'' is defined to include
subnational governments and certain current or former senior foreign
political figures.
Summary of Comments and Explanation of Revisions
The Treasury Department and the IRS received over 180 written and
electronic comments in response to the April Proposed Regulations, the
October Proposed Regulations, and the December Proposed Regulations
(collectively, the proposed regulations). A public hearing on the
proposed regulations was held on January 31, 2024. Copies of written
comments and the list of speakers at the public hearing are available
at <a href="https://www.regulations.gov">https://www.regulations.gov</a> or upon request.
[[Page 37711]]
After full consideration of the comments received on the proposed
regulations and the testimony presented at the public hearing, this
Treasury Decision adopts the proposed regulations with clarifying
changes and additional modifications in response to the comments and
testimony as described in this Summary of Comments and Explanation of
Revisions.
Unless otherwise indicated in this Summary of Comments and
Explanation of Revisions, provisions of the proposed regulations for
which no comments were received are adopted without substantive change.
Comments that merely summarize the proposed regulations, recommend
statutory revisions to section 25E, section 30D, or other statutes,
address issues that are outside the scope of this rulemaking (such as
proposed changes to other guidance), or recommend changes to IRS forms,
are beyond the scope of these regulations and are not adopted. In
addition, comments that relate to the revenue procedures or notices
described in section VI and VII of this Background section are beyond
the scope of these regulations and are not adopted. The final
regulations include non-substantive modifications, including
modifications that promote consistency across definitions, rules, and
examples, rearrange provisions, and improve the overall clarity of the
guidance. Such modifications are not addressed in the Summary of
Comments and Explanation of Revisions.
Section I of this Summary of Comments and Explanation of Revisions
addresses the comments and revisions applicable only to section 25E.
Section II of this Summary of Comments and Explanation of Revisions
addresses the comments and revisions applicable to both section 25E and
section 30D. Section III of this Summary of Comments and Explanation of
Revisions addresses the comments and revisions applicable only to
section 30D. Section IV of this Summary of Comments and Explanation of
Revisions addresses the comments and revisions applicable to section
6213. Section V of this Summary of Comments and Explanation of
Revisions addresses the applicability dates of these final regulations.
I. Section 25E Credit
A. Definitions
1. Previously-Owned Clean Vehicle
Proposed Sec. 1.25E-1(b)(5) defined the term ``previously-owned
clean vehicle'' by reference to the statutory definition provided in
section 25E(c)(1). A commenter noted that the proposed definition of
``previously-owned clean vehicle'' does not address whether a
previously-owned vehicle purchased from a dealership would be eligible
for the section 25E credit. Another commenter requested that the
Treasury Department and the IRS provide a definition of ``vehicle.''
Section 25E(c)(1) provides a definition of ``previously-owned clean
vehicle'' and criteria to be considered a ``motor vehicle.'' Section
25E(c)(4) defines ``motor vehicle'' by reference to section 30D(d)(2),
which defines that term as any vehicle that is manufactured primarily
for use on public streets, roads, and highways (not including a vehicle
operated exclusively on a rail or rails) and that has at least four
wheels. Further, section 25E(c)(2) defines ``qualified sale'' in part,
as a sale of a motor vehicle by the dealer. Under the plain language of
section 25E, a sale of a previously-owned clean vehicle by a dealer is
eligible for the section 25E credit, provided the other requirements of
section 25E are satisfied. Accordingly, the final regulations do not
adopt these comments.
The final regulations clarify that vehicles that may qualify as
previously-owned clean vehicles include battery electric vehicles,
plug-in hybrid electric vehicles, fuel cell motor vehicles, and plug-in
hybrid fuel cell motor vehicles.
2. Qualified Sale
i. Motor Vehicle Reference and Price Cap
Section 25E(c)(2) defines ``qualified sale'' as a sale of a motor
vehicle by a dealer (as defined in section 30D(g)(8)), for a sale price
that does not exceed $25,000, and that is the first transfer since
August 16, 2022 (the date of enactment of section 25E), to a qualified
buyer other than the person with whom the original use of such vehicle
commenced. Proposed Sec. 1.25E-1(b)(8)(i) tracked the statutory
definition.
A commenter recommended that the final regulations substitute
``previously-owned clean vehicle'' for ``motor vehicle'' in the
definition of ``qualified sale'' in proposed Sec. 1.25E-1(b)(8)(i). In
addition, multiple commenters requested changes to the $25,000 maximum
sale price amount in the definition of ``qualified sale.''
Section 25E(c)(2) uses the term ``motor vehicle'' in the definition
of ``qualified sale.'' In order to maintain consistency with the
statutory definition of ``qualified sale,'' the final regulations do
not adopt this comment. With regard to the comments suggesting a change
to the sale price limitation, section 25E(c)(2)(B) provides that the
sale price may not exceed $25,000. Because the $25,000 sale price
limitation is statutory, the final regulations do not adopt this
comment.
ii. First Transfer Rule
Proposed Sec. 1.25E-1(b)(8)(ii) provided that to be a qualified
sale, a transfer must be the first transfer since August 16, 2022, as
shown by vehicle history, of a previously-owned clean vehicle after the
sale to the person with whom the original use of such vehicle
commenced. The proposed regulation further provided that the taxpayer
may rely on the dealer's provision of the vehicle history in
determining whether the first transfer rule is satisfied.
A commenter recommended that the final regulations change the term
``vehicle history'' to ``vehicle history report'' in proposed Sec.
1.25E-1(b)(8)(ii) and define ``vehicle history report'' as a report
``issued by an approved provider at www.vehiclehistory.bja/<a href="http://ojp.gov/nmvtis_vehiclehistory">ojp.gov/nmvtis_vehiclehistory</a>.'' The website recommended by the commenter
provides a list of National Motor Vehicle Title Information System
(NMVTIS) approved data providers. This website is maintained by the
Department of Justice. The commenter further suggested removing the
dealer limitation from the last sentence of proposed Sec. 1.25E-
1(b)(8)(ii) and tying the vehicle history report to the time of sale.
Proposed Sec. 1.25E-1(b)(8)(ii) identified ``vehicle history'' as
the mechanism for verifying whether a transfer is the first transfer of
the vehicle for purposes of the qualified sale definition. The Treasury
Department and the IRS agree that substituting the term ``vehicle
history report'' for ``vehicle history'' adds clarity to the rule. The
Treasury Department and the IRS further agree that requiring the
taxpayer to obtain the vehicle history report from the dealer is overly
restrictive, and that the vehicle history report should be obtained at
the time of sale or as part of the sale transaction in order to satisfy
the first transfer rule. Accordingly, the final regulations adopt these
comments. Further, the Treasury Department and the IRS have determined
that vehicle history reports issued by NMVTIS-approved data providers
may be used to verify whether a transfer is the first transfer of the
vehicle. However, the Treasury Department and the IRS lack sufficient
information to determine whether limiting vehicle history reports to
those issued by NMVTIS-approved data providers would place an undue
burden on taxpayers. As a result, the final regulations adopt the
comment, in part, by adding a definition of ``vehicle
[[Page 37712]]
history report'' and clarifying that the term includes reports from
NMVTIS-approved data providers.
Another commenter expressed concern that the proposed first
transfer rule is more restrictive than the statutory language and could
severely limit the applicability of the section 25E credit. The
commenter suggested that the most straightforward way to determine if a
car had previously been sold to a qualified buyer would be to exclude
vehicles for which a credit under 25E had previously been claimed. The
commenter recommended that the final regulations allow one section 25E
credit per VIN (regardless of whether the credit is claimed with
respect to the first transfer since August 16, 2022, or the first
transfer to a qualified buyer) in place of the proposed first transfer
rule.
One of the statutory requirements to be a qualified sale is that
the sale be the first transfer to a qualified buyer since the enactment
of section 25E, other than to the person with whom the original use of
the vehicle commenced. The commenter's suggestion that the final
regulations adopt a one section 25E credit per VIN rule is inconsistent
with the statutory language and Congressional intent, because it would
allow a transfer to a second qualified buyer to be eligible for the
credit in situations where the first qualified buyer did not claim the
section 25E credit or was not eligible to claim the credit (for
example, if the first qualified buyer's MAGI exceeds the limitation).
Further, the commenter's suggestion, if adopted, would be
unadministrable because taxpayers have no way of verifying whether a
section 25E credit has previously been claimed with respect to a prior
sale of a particular vehicle. Such information is not part of a vehicle
history report and is otherwise inaccessible to taxpayers. While the
IRS has that information, it cannot share that information without
violating the taxpayer confidentiality restrictions in section 6103. As
a result, taxpayers making purchasing decisions would not know which
previously sold vehicles were eligible for the section 25E credit in
advance of their vehicle purchase, which would disincentivize the
purchase of previously-owned clean vehicles. Accordingly, the final
regulations do not adopt this comment.
As for the commenter's concern that the proposed first transfer
rule is more restrictive than the statutory language, the first
transfer rule is consistent with how Congress expected the statute to
operate \2\ and is necessary to protect confidential taxpayer
information consistent with section 6103. Once there has been a sale of
a previously-owned clean vehicle, there is no information source from
which a subsequent buyer could ascertain or verify whether the prior
sale was to a qualified buyer. For example, vehicle history reports do
not include information as to whether a previous buyer was an
individual, whether the previous buyer was a dependent, or whether the
previous buyer had claimed the section 25E credit in the prior three
years. As noted above, in cases where the previous buyer has claimed
the section 25E credit, the IRS would have the information necessary to
determine whether the prior transfer was to a qualified buyer, but such
taxpayer information is protected from disclosure by statute, under
section 6103. The first transfer rule, by allowing the section 25E
credit to the first transfer after the date of enactment of 25E as
determined by the vehicle's vehicle history report, provides certainty
to buyers and dealers in a manner that is consistent with the taxpayer
confidentiality mandates of section 6103. In addition, the proposed
first transfer rule is consistent with Congressional intent to
incentivize the deployment of clean vehicles.
---------------------------------------------------------------------------
\2\ See Joint Committee on Taxation, General Explanation of Tax
Legislation Enacted in the 117th Congress (JCS-1-23), December 2023
at page 254.
---------------------------------------------------------------------------
The final regulations thus adopt the proposed first transfer rule
without substantive change. As noted earlier, the first transfer rule
is an element of the definition of ``qualified sale.'' The final
regulations merge proposed Sec. 1.25E-1(b)(8)(i) and (ii) and finalize
the definition of ``qualified sale'' as Sec. 1.25E-1(b)(14). Further,
the final regulations move the language regarding taxpayer reliance on
the vehicle history report from the definition of ``qualified sale'' to
a standalone rule in Sec. 1.25E-1(f), and clarify that reliance on a
vehicle history report applies in the case where there has been a prior
sale and return or resale described in Sec. 1.25E-2(c). For additional
clarity, the final regulations add an example that illustrates how the
first transfer rule works in the context of dealer-to-dealer transfers.
3. Sale Price
Section 25E(a)(2) and (c)(2)(B) provide that the sale price of a
previously-owned clean vehicle is taken into account for purposes of
determining the amount of the section 25E credit and whether a
particular sale is a qualified sale of the vehicle. Proposed Sec.
1.25E-1(b)(9) defined the ``sale price'' of a previously-owned clean
vehicle as the total sale price agreed upon by the buyer and dealer in
a written contract at the time of sale, including any delivery charges
and after the application of any incentives, but excluding separately-
stated taxes and fees required by law. Under the proposed definition,
the sale price of a previously-owned clean vehicle was determined
before the application of any trade-in value. Proposed Sec. 1.25E-
1(b)(2) provided that for purposes of the definition of ``sale price,''
the term ``incentive'' means any reduction in total sale price offered
to and accepted by a taxpayer from the dealer or manufacturer, other
than a reduction, whether in the form of a partial payment or down
payment for the purchase of a previously-owned clean vehicle or
otherwise, pursuant to section 25E(f) and Sec. 1.25E-3.
One commenter requested clarification regarding the term
``incentives,'' noting that manufacturer and distributor rebates and
incentives are typically not available for previously-owned vehicles.
The commenter did not reference the proposed definition of
``incentive'' in its comment letter. The proposed definition addresses
the commenter's concern by broadly defining ``incentive'' to include
reductions in price by manufacturers and dealers. In other words, the
proposed definition does not limit incentives to price reductions
provided by manufacturers and distributors. Therefore, no clarification
is needed. However, because the term ``incentive'' is relevant to both
sale price determinations for purposes the $25,000 sale price cap in
section 25E(c)(2)(B) and the eligible entity definition in section
30D(g)(2)(B)(ii) and (D), the final regulations include separate
definitions of ``incentive'' that apply to those provisions. In
addition, with regard to the definition of ``incentive'' for purposes
of sale price determinations, the final regulations clarify that an
``incentive'' means any reduction in price offered to and accepted by a
taxpayer from the dealer or manufacturer. This clarification is
necessary because the proposed definition only looked to incentives
available to taxpayers from the dealer or manufacturer, which could
disadvantage consumers by artificially lowering the $25,000 sale price
cap in cases where the incentive was not accepted by the taxpayer.
Several commenters requested modifications to the proposed
definition of ``sale price.'' Two commenters requested a narrower
definition. Specifically, one commenter suggested that the proposed
definition of sale
[[Page 37713]]
price be amended so that fees and charges allowed by a state or
locality, such as titling and registration charges for out-of-state
buyers and charges associated with perfecting a lienholder's security
interest, be excluded from the sale price because the amount of such
fees is not easily knowable at the time of sale. Another commenter
recommended modifying the proposed definition of ``sale price'' to
exclude documentation fees because of long-standing practice in the
automotive industry to charge such fees to cover a dealer's processing
and administrative costs associated with a sale. The inclusion of
dealer document fees and charges allowed by a state or locality in the
sale price would allow dealers to allocate a portion of the sale price
of the vehicle to such fees in order to avoid the $25,000 sale price
cap in section 25E(c)(2)(B). Accordingly, the final regulations do not
adopt these comments.
A commenter suggested the proposed definition of ``sale price'' be
amended to include the total transaction amount, less any government-
imposed taxes or fees, and including all add-ons and any non-government
fees to prevent dealers from capturing a large portion of the credit as
profit. The proposed definition already effectively does what the
commenter suggests by excluding only separately-stated taxes and fees
as required by law. Accordingly, the final regulations do not adopt
this comment.
4. Other Definitions Applicable to Section 25E
The Treasury Department and the IRS received comments related to
other definitions applicable to section 25E that are also applicable to
section 30D. Section II of this Summary of Comments and Explanation of
Revisions discusses comments received and modifications made to
definitions applicable to both section 25E and section 30D.
B. Limitations Based on Modified AGI
The proposed regulations restated the Modified AGI limitation of
section 25E(b) at proposed Sec. 1.25E-1(b)(3) and (c)(1).
Several commenters suggested that the qualifying income threshold
for the section 25E credit should be increased. Because these
limitations are statutory, the final regulations do not adopt this
comment.
C. Branded Title
Proposed Sec. 1.25E-2(d) provided that a title to a previously-
owned clean vehicle indicating that such vehicle has been damaged or is
otherwise a branded title does not impact the vehicle's eligibility for
a section 25E credit.
A commenter suggested that the section 25E credit program should
not be used to incentivize consumers to purchase unsafe or unreliable
vehicles, such as those that have been determined to be a total loss,
salvage, or junk, and encouraged the Treasury Department and the IRS to
consider making such vehicles ineligible for the section 25E credit.
The commenter further suggested that title status reflected in the
NMVTIS should be determinative because all states, insurance companies,
and junk and salvage yards are required by law to regularly report
information about vehicles that have been determined to be a total
loss, salvage, or junk to NMVTIS.
Vehicle titles indicate whether the title is clean (meaning the
vehicle has never been declared a total loss) or branded (indicating
the vehicle has sustained serious damage, such as in the case of
salvage title, or that there is some other significant problem with the
vehicle, as in the case of a lemon title brand). State law generally
governs the titling of vehicles. Each State and the District of
Columbia has different standards for determining when a vehicle title
must be branded. Further, although there are broad categories of title
brands that are common across jurisdictions, such as salvage title, the
thresholds for applying those title brands varies. These variations can
lead to the practice of title washing, which is a method of removing a
title brand by retitling the vehicle in a jurisdiction that does not
recognize the title brand. The Treasury Department and the IRS do not
want to incentivize the purchase of unsafe or unreliable vehicles.
However, modifying proposed Sec. 1.25E-2(d) to exclude certain title
brands could lead to an increase in title washing, which, in turn,
could lead to increased fraud regarding previously-owned vehicles. This
would negatively impact consumers of previously-owned clean vehicles.
Moreover, the statute does not exclude branded titles, and there is no
indication that Congress intended to exclude such vehicles.
Accordingly, the final regulations do not adopt these comments.
II. Crossover Provisions in Section 25E and Section 30D
A. Definitions
This section of the Summary of Comments and Explanation of
Revisions addresses definitions that apply to both section 25E and
section 30D. Unless otherwise specified, the final regulations move the
definitions relating to section 30D from Sec. Sec. 1.30D-2, 1.30D-
3(c), 1.30D-5(a), and 1.30D-6(a) to Sec. 1.30D-2(b).
1. Dealer
Section 25E(c)(2)(A) cross references section 30D(g)(8) with regard
to the term ``dealer.'' Under section 30D(g)(8), the term ``dealer''
means a person licensed by a State, the District of Columbia, the
Commonwealth of Puerto Rico, or any other territory or possession of
the United States, an Indian tribal government, or any Alaska Native
Corporation to engage in the sale of vehicles.
Proposed Sec. Sec. 1.25E-1(b)(1) and 1.30D-5(a)(2) defined
``dealer'' as provided in section 30D(g)(8), except that the proposed
term did not include persons licensed solely by a territory of the
United States.\3\ Under the proposed regulations, the term included a
dealer licensed in any jurisdiction described in section 30D(g)(8)
(other than one licensed solely by a territory of the United States)
that makes sales at sites outside of the jurisdiction in which its
licensed. The definition of dealer in the proposed regulations did not
include persons licensed solely by a territory because clean vehicle
credits generally are not allowed for vehicles used predominantly
outside of the 50 States and the District of Columbia. See sections
30D(f)(4), 25E(e), 50(b)(1), and 7701(a)(9) of the Code.
---------------------------------------------------------------------------
\3\ Section 30D(g)(8) uses the term ``territory or possession,''
but the proposed regulations and these final regulations use the
term ``territory'' since both terms have the same meaning.
---------------------------------------------------------------------------
A commenter suggested that the definition of ``dealer'' should
include licensed dealers in territories or possessions of the United
States, but only for purposes of vehicles sold for use and not for
resale in the 50 states or the District of Columbia.
Such a rule would create verification issues for the IRS and place
administrative burdens on certain dealers and purchasers of clean
vehicles. At a minimum, buyers purchasing clean vehicles from dealers
licensed in territories of the United States would be required to
provide an attestation or certificate to the dealer indicating that the
buyer intended to use the vehicle in the United States and not resell
it. In addition, predominant use of the vehicle in a territory
subsequent to such a statement of intent would make the vehicle
ineligible for a clean vehicle credit. Pursuant to section 30D(g)(1),
the Secretary has authority to prescribe necessary regulations with
respect to that subsection. Accordingly, the final regulations do not
adopt this comment.
[[Page 37714]]
A separate comment requested guidance on the circumstances in which
an original equipment manufacturer (OEM) is considered a ``dealer'' for
purposes of section 30D(g)(8). In response to this comment, the
Treasury Department and the IRS note that an OEM may be a dealer if
licensed in any jurisdiction described in section 30D(g)(8) and
Sec. Sec. 1.25E-1(b) or 1.30D-2(b), as applicable.
2. Placed in Service
The year in which a vehicle is placed in service is relevant for a
number of rules under section 25E and section 30D, including the
applicable percentages for the Critical Minerals and Battery Components
Requirements of section 30D(e) and the FEOC Restriction, which impose
manufacturer sourcing requirements for the clean vehicle battery.
Proposed Sec. Sec. 1.25E-1(b)(4) and 1.30D-2(e) provided that a
vehicle is considered to be placed in service on the date the taxpayer
takes possession of the vehicle. The proposed definition is consistent
with the meaning of ``placed in service'' for purposes of other Code
provisions. See Sec. 1.46-3(d)(1)(ii) and (4)(i) and Sec. 1.179-4(e)
(property is considered placed in service when ``placed in a condition
or state of readiness and availability for a specifically assigned
function''); Sec. 145.4051-1(c)(2) (``a vehicle shall be considered
placed in service on the date on which the owner of the vehicle took
actual possession of the vehicle''); see also Sec. 1.1250-4(b)(2)
(``property is placed in service on the date on which it is first
used''); Consumers Power Co. v. Commissioner, 89 T.C. 710 (1987); Noell
v. Commissioner, 66 T.C. 718, 728-729 (1976).
The proposed definition is also consistent with the IRS's and the
Tax Court's interpretation of ``placed in service'' as used in section
30D(a), which was not amended by the IRA, and while not precedential or
binding, reflects the prevailing view. See e.g., Trout v. Comm'r of
Internal Revenue, T.C. Summ. Op. 2015-66, 2015 WL 7423818, at *4 (T.C.
Nov. 19, 2015) (``[t]he Court will look at whether the vehicle was `in
a condition or state of readiness and availability' for the
`specifically assigned function' for which petitioners purchased it to
determine when petitioners placed the [vehicle] in service.''); Podraza
v. Comm'r of Internal Revenue, T.C. Summ. Op. 2015-67, 2015 WL 7423525
(T.C. Nov. 19, 2015) (same); IRS PLR 201312034 (Mar. 22, 2013) (``the
taxable year in which the taxpayer may claim the credit on their return
is defined as the year in which the vehicle is `placed in service,'
which requires that the taxpayer have actual possession of the vehicle.
. .'').
The Treasury Department and the IRS received several comments
regarding the definition of ``placed in service.'' One commenter
suggested that for purposes of the section 30D credit, the definition
of ``placed in service'' be modified to mean the date of vehicle
manufacture. The commenter further noted that the proposed definition
will cause significant confusion for consumers if the clean vehicle
they want to buy is no longer credit-eligible because the vehicle was
not placed in service at the correct time.
Several other commenters requested that ``placed in service'' be
defined as the date of manufacture for purposes of the vehicle
manufacturing requirements (specifically, the Critical Minerals and
Battery Components Requirements and the FEOC Restriction) of section
30D. Another commenter raised concerns with the proposed definition of
``placed in service'' based on vehicle possession because some
taxpayers: (1) may never take possession of the vehicle, such as cases
involving leases and gifts, (2) may take possession before a vehicle is
sold, (3) may take possession at the time a vehicle is sold, or (4) may
take possession after a vehicle is sold, such as cases in which the
taxpayer preorders a vehicle. The commenter recommended that the
definition of ``placed in service'' be the date on which a vehicle is
registered by a United States jurisdiction that administers on-road
vehicle registration laws.
The final regulations adopt the definition in proposed Sec. Sec.
1.25E-1(b)(4) and 1.30D-2(e), with minor clarifying changes, because
the definition is consistent with existing guidance, as well as case
law relating to when a vehicle is placed in service. Further, the
Treasury Department and the IRS do not adopt a definition of ``placed
in service'' for purposes of the Critical Minerals and Battery
Components Requirements and the FEOC Restriction that differs from the
definition for purposes of section 30D(a), because in cases in which
the same term is used in a single section the term is presumed to have
the same meaning throughout. Mertens v. Hewitt Assocs., 508 U.S. 248,
260, 113 S.Ct. 2063, 124 L.Ed.2d 161 (1993). Accordingly, the final
regulations do not adopt these comments.
3. Sale
The term ``sale'' is not defined in section 25E, section 30D, or
the proposed regulations applicable to those sections. A commenter
suggested that a definition of the term ``sale'' be added to the final
regulations for purposes of sections 25E and 30D. The commenter
recommended that the term ``sale'' be defined as ``an enforceable
contract to transfer ownership of a vehicle from a dealer to a
taxpayer.''
The term ``sale'' is relevant to the determination of whether there
is a qualified sale for purposes of section 25E(c)(2) and the
applicable recapture provisions under sections 25E and 30D. The
commenter's proposed definition is overly broad and would not require
that the transfer of ownership be made for consideration provided by
the buyer. Further, section 25E(a) provides that the section 25E credit
is only allowed for a qualified sale of a previously-owned clean
vehicle. Section 25E(c)(2)(A) defines the term ``qualified sale,'' in
part, as a sale by a dealer. Similarly, the credit transfer election
framework incentivizes the purchase of previously-owned clean vehicles
and new clean vehicles from dealers. Dealers have well-established
practices with regard to vehicle sales and what constitutes a sale
transaction. Based on the foregoing, the Treasury Department and the
IRS have determined that a definition of ``sale'' is unnecessary.
Accordingly, the final regulations do not adopt this comment.
B. Special Rules
1. Recapture
Section 25E(e) provides that, for purposes of section 25E, rules
similar to the rules of section 30D(f) apply. Section 30D(f)(5)
instructs the Secretary to provide regulations for recapturing the
benefit of any section 30D credit with respect to any property that
ceases to be eligible for the section 30D credit. Proposed Sec. Sec.
1.25E-2(c) and 1.30D-4(d) provided corresponding rules under section
30D(f)(5) for cancelled sales, returns, and resales of the vehicle. The
final regulations clarify that for purposes of section 30D(f)(5), and
by extension, section 25E(e), the amount of the benefit recaptured due
to such an event is considered an increase to tax imposed by chapter 1
of the Code.
i. Cancelled Sale
Proposed Sec. Sec. 1.25E-2(c)(1)(i) and 1.30D-4(d)(1)(i) provided
the Federal income tax consequences that apply if the sale of a vehicle
between the taxpayer and seller is cancelled before the taxpayer places
the vehicle in service (that is, before the taxpayer takes possession
of the vehicle).
A commenter recommended that part of the definition of ``cancelled
sale'' be changed from ``taxpayer places the
[[Page 37715]]
vehicle in service'' to ``the vehicle is placed in service.'' Section
25E(a) expressly requires the previously-owned clean vehicle to be
placed in service by a qualified buyer. Similarly, section 30D(a)
expressly requires the new clean vehicle to be placed in service by the
taxpayer. Accordingly, the final regulations do not adopt this comment
because a clean vehicle placed in service by someone other than the
qualified buyer or taxpayer, as applicable, would not qualify for the
credit.
ii. Vehicle Returns
Proposed Sec. Sec. 1.25E-2(c)(1)(ii) and 1.30D-4(d)(1)(ii)
addressed the Federal income tax consequences that apply if the
taxpayer returns the vehicle to the seller within 30 days of placing
the vehicle in service.
The Treasury Department and the IRS received multiple comments
regarding the proposed vehicle return rules in proposed Sec. Sec.
1.25E-2(c)(1)(ii) and 1.30D-4(d)(1)(ii). A commenter requested that the
final regulations clarify that once a contract for the purchase of a
clean vehicle is signed by the buyer and seller, the 30-day return
period is for credit recapture purposes only and that state contract
law governs whether the buyer can void the sale. One commenter agreed
that 30 days is an appropriate length of time for qualified vehicle
returns. Another commenter recommended deleting the 30-day limitation.
That commenter also suggested changing ``of placing such vehicle in
service'' to ``after it is placed in service'' and ``the vehicle
history'' to ``a vehicle history report as of the date of such sale.''
In addition, a commenter recommended that, in general, the Treasury
Department and the IRS regulate returns after the vehicle is
registered.
Dealers generally have return policies that range from several days
up to 30 days, so the proposed rules regarding returns within 30 days
reflect industry practice. The final regulations maintain the 30-day
return rule, with one modification. Specifically, the final
regulations, for purposes of 25E, modify the reference to ``the vehicle
history'' by changing it to ``a vehicle history report obtained on the
date of such subsequent sale or as part of such subsequent sale
transaction'' to conform with modifications to the definition of
``qualified sale'' described in section I.A.2 of this Summary of
Comments and Explanation of Revisions. The final regulations also add a
definition of ``vehicle history report'' and clarify that the term
includes reports from NMVTIS-approved data providers. In addition, the
Treasury Department and the IRS confirm that the vehicle return rules
in the final regulations relate only to the section 25E and 30D credits
and have no impact on the voidability of the sales contract for the
clean vehicle, which is governed by state contract law. Otherwise, the
final regulations do not adopt these comments.
2. Resales
Proposed Sec. Sec. 1.25E-2(c)(1)(iii) and 1.30D-4(d)(1)(iii) treat
the taxpayer as having purchased a clean vehicle with an intent to
resell such vehicle if the resale occurs within 30 days of the taxpayer
placing the vehicle in service.
A commenter noted that it largely agreed with the proposed resale
rules, but suggested that for purposes of section 25E, the final
regulations include an exception for subsequent sales by dealers that
are unaware of prior resales as of the date of the subsequent sale. The
commenter did not suggest an exception for purposes of section 30D
resales given that a resale of a vehicle will render it used, thereby
making the vehicle ineligible for the section 30D credit. The commenter
also suggested changing ``placing the vehicle'' in service to ``it
being placed'' in service. Another commenter stated that 30 days is an
appropriate length of time for the resale rule.
The recapture rule in proposed Sec. 1.25E-2(c)(1)(iii) did not
address sales by dealers. Proposed Sec. 1.25E-2(c)(1)(iii) addressed
sales by individual buyers within 30 days and provided that recapture
in the event of such resale is recaptured from the taxpayer, not the
dealer. Accordingly, the final regulations retain the rules in proposed
Sec. Sec. 1.25E-2(c)(1)(iii) and 1.30D-4(d)(1)(iii) and do not adopt
these comments.
3. Other Returns or Resales
Proposed Sec. Sec. 1.25E-2(c)(1)(iv) and 1.30D-4(d)(iv) provided a
rule for returns or resales occurring more than 30 days after the date
on which the taxpayer places the vehicle in service. Generally,
taxpayers returning or reselling a clean vehicle more than 30 days
after the date the taxpayer places it in service will remain eligible
for the section 25E or section 30D credit for the purchase of such
vehicle. The proposed regulations provided that, in the case of a new
clean vehicle that is returned or resold, the vehicle, once returned or
resold, is not available for original use by another taxpayer and,
therefore, is not eligible for a section 30D credit. Similarly, in the
case of a previously-owned clean vehicle that is returned or resold,
the vehicle, once returned or resold, is generally not eligible for the
section 25E credit upon a subsequent sale pursuant to the first
transfer rule described in proposed Sec. 1.25E-1(b)(8)(ii). In the
case of a return occurring more than 30 days after the date on which
the taxpayer places the vehicle in service, the seller report is not
required to be updated because the taxpayer generally will be eligible
for the clean vehicle credit in this circumstance. In addition, in the
case of a resale of such vehicle, the seller report is not required to
be updated because the seller would not have knowledge of the
subsequent resale. Finally, if the taxpayer made an election to
transfer the clean vehicle credit, that credit transfer election
remains in effect and the value of any transferred credit pursuant to
the clean vehicle credit transfer rules generally is not subject to
recapture and is not an excessive payment.
Although the proposed regulations did not provide an automatic
clean vehicle credit recapture rule for returns or resales more than 30
days after a return or resale, the IRS may determine, based upon the
facts and circumstances of a particular case, that a clean vehicle was
purchased with the intent to return or resell and may disallow the
clean vehicle credit in such case.
One commenter noted that dealers regularly place new clean vehicles
in use for longer than 30 days as loaners, rentals, or company
vehicles, and that the period of time the vehicle is in use varies but
is normally longer than 30 days. The commenter suggested that the
section 30D credit obtained by the dealer on its purchase of the
vehicle should not be recaptured if, after a period of more than 30
days of use as a loaner, the dealer reclassifies the vehicle as used
and subsequently sells it to a third party. The commenter requested the
addition of an example to the final regulations addressing this
scenario.
The final regulations adopt the comment and add an example to Sec.
1.30D-4(e) that illustrates the application of the vehicle return rules
to a scenario in which the dealer purchases a new clean vehicle, uses
it as a demonstrator, and later sells the vehicle.
4. Recapture After Transfer Election
One commenter requested that an example be added to the final
regulations that addresses who would be responsible for repaying a
credit in the event the taxpayer made an election to transfer the
credit and later learned that the sale of the previously-owned
[[Page 37716]]
clean vehicle to the taxpayer was not a qualified sale.
In general, whether the sale of a previously-owned clean vehicle is
a qualified sale will be determined at the time of sale. For example,
the taxpayer may rely on the vehicle history report obtained at the
time of sale or as part of the sale transaction to determine whether
the first transfer rule is satisfied. In the case of recapture, as
described in Sec. Sec. 1.25E-2(c) and 1.30D-4(e), responsibility for
recapture of a clean vehicle credit depends upon the circumstances of
recapture. In the case of a vehicle return within 30 days of placing a
clean vehicle in service in which the taxpayer made a credit transfer
election, the eligible entity must repay the amount of the credit as an
excessive payment. In contrast, if the taxpayer resells the vehicle
within 30 days of placing the clean vehicle in service rather than
returning it to the eligible entity, the amount of the transferred
credit is recaptured from the taxpayer.
Another commenter requested additional information about specific
procedures regarding recapture, including clarification as to whether
both parties would be notified, how such notification might occur, and
when recapture would occur.
Generally, recapture is reported via self-assessment by the
eligible entity or taxpayer. In the event of recapture from the
eligible entity, the eligible entity must report the recapture via the
dealer registration system as described in Sec. Sec. 1.25E-3(c)(1) and
1.30D-5(c)(1), as finalized. In the event of recapture from the
taxpayer, the taxpayer must report the recapture amount as an increase
in tax imposed by chapter 1 of the Code on the taxpayer's Federal
income tax return for the taxable year in which the recapture occurred.
A commenter requested that the final regulations clarify whether a
taxpayer would be liable for repayment of the credit or a portion of
the credit if a transfer election is made but the taxpayer's regular
tax liability is less than the total amount of the credit transferred.
With respect to the section 25E credit, this situation is addressed in
proposed Sec. 1.25E-3(e)(1)(i) and proposed Sec. 1.25E-3(e)(5)
Example 1. With respect to the section 30D credit, this situation is
addressed in proposed Sec. 1.30D-5(e)(1)(i) and Sec. 1.30D-5(e)(5)
Example 1. These provisions and examples are adopted in the final
regulations at Sec. 1.25E-3(e)(1)(i), Sec. 1.25E-3(e)(5) Example 1,
Sec. 1.30D-5(e)(1)(i), and Sec. 1.30D-5(e)(5) Example 1. Accordingly,
no additional clarification is needed and the final regulations do not
adopt this comment.
5. Requirement To File a Complete Income Tax Return
Proposed Sec. Sec. 1.25E-2(f) and 1.30D-4(g) provided that
taxpayers must file an income tax return, together with Schedule A
(Form 8936), Clean Vehicle Credit Amount, or successor form, and any
additional forms, schedules, or statements prescribed by the
Commissioner for the purpose of making a return to report the tax under
chapter 1 of the Code that includes all of the information required on
the forms and in the instructions, for the taxable year in which the
clean vehicle is placed in service to be entitled to the credit under
section 25E or section 30D. The final regulations under section 30D
clarify that this requirement also applies to information returns
because a partnership or S corporation may claim a section 30D credit
as a general business credit under section 38.
A commenter noted that some taxpayers may transfer a credit to a
dealer and then fail to file a return or fail to attach Form 8936 to
their return, and that dealers will have little incentive to inform
taxpayers of their future filing obligations in order to qualify for
the credit. The commenter recommended that the final regulations
clarify that failing to file a return or failing to attach Form 8936 to
a return will not alone subject the taxpayer to the credit recapture
rules.
Proposed Sec. Sec. 1.25E-3(h) and 1.30D-5(g) provide a reporting
requirement for taxpayers who transfer a section 25E credit or section
30D credit to a dealer, but do not provide for recapture of the credit
as a consequence of failing to fulfill these requirements. Although a
taxpayer may not otherwise be required to file an income tax return for
a particular taxable year, the taxpayer is required to file an income
tax return and attach a Form 8936 and Schedule A (Form 8936) to ensure
timely processing of their tax return and to demonstrate their
eligibility for the credit. This reporting requirement assists the IRS
in the collection of accurate information necessary to effectively
administer the section 25E and section 30D credits. The statutory text
provides the IRS with sufficient authority to impose this requirement
to ensure program integrity, including the ability to recapture the
credit where necessary. See sections 25E(f), 30D(g)(1) and 30D(g)(10);
see also section 6011. Accordingly, a clarification has been made in
the final regulations. The final regulations regarding credit transfer
elections under section 30D also clarify that this includes information
returns.
C. Transfer Rules
1. Disclosure and Assurance
Section 30D(g) generally establishes a set of rules under which a
taxpayer may transfer a section 30D credit to certain dealers, referred
to as eligible entities, in which case the eligible entity (and not the
taxpayer) is allowed the section 30D credit. In exchange, the eligible
entity must pay the taxpayer an amount equal to the transferred section
30D credit (with such payment being made either in cash or in the form
of a partial payment or down payment for the purchase of the vehicle).
Section 25E(f) provides that, for purposes of section 25E, rules
similar to the rules of section 30D(g) apply.
Proposed Sec. Sec. 1.25E-3 and 1.30D-5 provided transfer rules
under section 30D(g) (and section 25E(f) by cross reference to section
30D(g)), including the establishment of an advance payment program for
such transfers. The proposed regulations did not specifically address
the requirements under section 30D(g)(2)(B)(ii) and (D) relating to the
disclosure by the dealer of other incentives.
A commenter requested that the final regulations define the term
``incentive'' for purposes of the disclosure requirement and suggested
a definition similar to the one in proposed Sec. 1.25E-1(b)(2). The
commenter also requested that the final regulations provide an
attestation for dealers and taxpayers to use in conjunction with
creditable sales to satisfy the assurance requirement.
The Treasury Department and the IRS agree that the final
regulations should include a definition of ``incentive'' for purposes
of section 30D(g)(2)(B)(ii) and (D). Because the section 30(g) credit
transfer rules also apply to section 25E by reason of the cross
reference in section 25E(f), the definition of ``incentive'' for the
section 25E and 30D eligible entity requirements should align.
Accordingly, the final regulations add a definition of ``incentive'' to
Sec. Sec. 1.25E-1(b) and 1.30D-5(b) that applies for purposes of the
eligible entity requirements. Under that definition, ``incentive''
means any reduction in price available to the taxpayer from the dealer
or manufacturer, including as in combination with other incentives,
other than a reduction in the form of a partial payment or down payment
for the purchase of a clean vehicle pursuant to section 30D(g)(2)(C).
[[Page 37717]]
2. Definitions
Proposed Sec. Sec. 1.25E-3(b) and 1.30D-5(a) provided definitions
that apply for purposes of the transfer of a clean vehicle credit.
i. Advance Payment Program
Proposed Sec. Sec. 1.25E-3(b)(1) and 1.30D-5(a)(1) defined
``advance payment program'' as the program described in section
30D(g)(7) (and section 25E(f) by cross reference to section 30D(g)) and
the proposed regulations under which an eligible entity may receive an
advance payment from the IRS in the case of a credit transfer election
made by an electing taxpayer. The advance payment program is the
exclusive means by which an eligible entity may receive a transferred
clean vehicle credit.
Several commenters requested that the section 25E and 30D credits
be refundable regardless of tax liability. Other commenters requested
that the credits be available for a taxpayer to use as a down payment
at the time of the sale. In contrast, another commenter, requested that
taxpayers without sufficient tax liability be required to repay the
excess credit amount because, the commenter argued, Congress intended
for the credit to be a non-refundable credit. One commenter requested
clarification on how the credit will work in 2024 and beyond compared
to previous years. Another commenter suggested that the proposed
regulations allow 30D credits to be carried forward.
The section 25E and 30D credits are nonrefundable credits under the
Code that cannot be carried forward; however, pursuant to sections
25E(f) and 30D(g), such credits may be transferred to an eligible
entity beginning in 2024, regardless of the tax liability of the
taxpayer or the eligible entity for the applicable tax year. Sections
25E(f) and 30D(g) do not provide for repayment in the event of
insufficient tax liability. In exchange for the transferred credit, the
eligible entity must pay the taxpayer an amount equal to the
transferred clean vehicle credit, with such payment being made either
in cash or in the form of a partial payment or down payment for the
purchase of the vehicle. The proposed regulations described the
transfer of the clean vehicle credits, including examples of cases in
which a taxpayer may not have sufficient tax liability to claim the
full amount of the credit (for example, Example 1 of proposed Sec.
1.30D-5(d)(5)(i)). Accordingly, the final regulations do not adopt the
comment to require repayment of an excess credit amount. Proposed
Sec. Sec. 1.25E-3 and 1.30D-5 already provided the other rules
requested by commenters, and no additional clarification is needed.
Accordingly, no changes are needed in the final regulations to address
these comments.
ii. Electing Taxpayer
Under proposed Sec. Sec. 1.25E-3(b)(3) and 1.30D-5(a)(4),
``electing taxpayer'' means the individual that purchases and places in
service a clean vehicle and that elects to transfer a clean vehicle
credit associated with that vehicle that would otherwise be allowable
to that individual.
A commenter requested that businesses that purchase new clean
vehicles be allowed to use the credit transfer option under section
30D(g). Because the election to transfer a credit under section 30D(g)
is limited to the credit allowable under section 30D, the Treasury
Department and the IRS have determined that a taxpayer may not elect to
transfer a general business credit for a new clean vehicle allowable
under section 38 pursuant to section 30D(c)(1). Proposed Sec. 1.30D-
1(b)(1) provided that in the event a depreciable vehicle's use is 50
percent or more business use in the taxable year the vehicle is placed
in service, it will be creditable entirely under section 38 as a
general business credit rather than under section 30D. Thus, the use of
a new clean vehicle must be predominantly personal for a taxpayer to be
able to make the election to transfer the credit under section 30D(g).
Accordingly, the final regulations do not adopt this comment.
iii. Eligible Entity
Under proposed Sec. Sec. 1.25E-3(b)(4) and 1.30D-5(a)(5),
``eligible entity'' means a registered dealer that meets certain
requirements and, by reason of meeting those requirements, is eligible
to receive advance payments from the IRS under the advance payment
program.
A commenter suggested clarifying that an eligible entity is a
registered dealer that is eligible to receive payments under the
advance payment program by virtue of meeting the statutory and
regulatory requirements. Proposed Sec. Sec. 1.25E-3(b)(4) and 1.30D-
5(a)(5) already provided the rule requested in this comment, and no
additional clarification is needed. Accordingly, the final regulations
do not adopt this comment.
iv. Time of Sale
Under proposed Sec. Sec. 1.25E-3(b)(6) and 1.30D-5(a)(7), ``time
of sale'' means the date the clean vehicle is placed in service. Under
the proposed regulations, the date the clean vehicle is placed in
service is the date the taxpayer takes possession of the vehicle.
A commenter suggested that ``time of sale'' be defined as the date
of sale on the seller report, and noted that physical possession may
occur before, after, or at the time of sale (or at no time) and is not
relevant to when a sale has occurred. The date a taxpayer takes
possession of the vehicle is a date certain that completes the
transaction of purchasing a vehicle, whereas a date on the seller
report does not guarantee the taxpayer will take possession of the
vehicle and place it in service. As discussed in section II.A.2 of this
Summary of Comments and Explanation of Revisions, defining ``placed in
service'' as the date a taxpayer takes possession of the vehicle is
consistent with other provisions of the Code and prior interpretations
of section 30D(a). Accordingly, the final regulations do not adopt this
comment.
3. Dealer Registration
Proposed Sec. Sec. 1.25E-3(c)(2) and 1.30D-5(b)(2) provided rules
regarding dealer tax compliance. Specifically, the proposed regulations
provided that if the dealer is not in dealer tax compliance for any of
the taxable periods during the most recent five taxable years, the
dealer may register nonetheless to become a registered dealer. However,
the proposed regulations provided that in such cases the dealer cannot
receive advance payments under the advance payment program until the
dealer's tax compliance issue is resolved. This is because the dealer,
while registered, is not an eligible entity until it comes into dealer
tax compliance.
One commenter suggested creating an exemption from the dealer tax
compliance requirement to address the unique nature of its sales model
in which all advance payments of transferred credits ultimately reside
with the corporate parent and not with one of the subsidiaries in the
organization structure that may be deemed out of tax compliance.
A commenter asserted that dealers play a purely ministerial role in
the credit transfer process, and their tax compliance status does not
impact the dealer's ability to facilitate a credit transfer. The
commenter requested that to the extent the final regulations do not
remove the dealer tax compliance provision, the compliance lookback
period should be for a maximum of three years rather than the five
provided in the proposed regulations. In addition, the commenter
requested that the final regulations clarify that the dealer tax
compliance requirement applies for
[[Page 37718]]
advance payment purposes only and has no impact on a registered
dealer's sales or seller reporting.
Pursuant to section 30D(g)(1) and (g)(7), participation in the
advance payment program is elective and is subject to the requirements
and conditions that the Secretary determines necessary. An advance
payment system for dealers presents unique tax administration
challenges because it involves the IRS making payments to dealers
regardless of their tax liability and doing so outside of the normal
tax filing system, with its built-in compliance and enforcement
mechanisms. The dealer tax compliance requirement ensures that the
entities receiving advance payments have satisfied their own Federal
tax obligations, which aids in fraud prevention and tax administration.
For these reasons, the final regulations retain the dealer tax
compliance requirement. Further, the final regulations retain the five-
year lookback period because the longer period better facilitates the
IRS's ability to determine whether there are enforcement concerns with
regard to a particular dealer. The final regulations also add an
express statement that dealer tax compliance is required before
describing the consequences of noncompliance. No clarification is
needed regarding the scope of the dealer tax compliance requirement
because it is clear from the placement of the requirement in the
provisions relating to the transfer of the section 25E and 30D credits
that such requirement applies only for purposes of the advance payment
program and not for other dealer activities, such as the issuance of
seller reports.
4. Form of Payment From Eligible Entity to Electing Taxpayer
Proposed Sec. Sec. 1.25E-3(e)(3) and 1.30D-5(d)(3) provided that
the Federal income tax treatment of the payments associated with a
credit transfer election are the same regardless of whether the payment
is made in cash or in the form of a partial payment or down payment for
the purchase of the clean vehicle.
A commenter noted that in some states, dealers are prohibited under
state law to promise to pay or otherwise tender cash if a vehicle is
financed. The commenter recommended that the credit transfer election
be available only for a reduction in sale price without the payment of
cash in states where cash payments from dealers for financed vehicles
are prohibited under state law. Proposed Sec. Sec. 1.25E-3(e)(3) and
1.30D-5(d)(3) included examples that illustrate the application of the
payment rules referenced by the commenter. The examples in proposed
Sec. Sec. 1.25E-3(e)(5)(ii) and 1.30D-5(d)(5)(ii) address a scenario
in which the eligible entity makes the payment to the electing taxpayer
in the form of a reduction in sale price (rather than as cash) and
concluded that the eligible entity is eligible to receive an advance
payment. Although addressed in the examples, reductions in sale price
are not explicitly addressed in proposed Sec. Sec. 1.25E-3(e)(3) and
1.30D-5(d)(3), which articulate the rules illustrated in the examples.
Accordingly, the final regulations adopt proposed Sec. Sec. 1.25E-
3(e)(3) and 1.30D-5(d)(3) with language clarifying that reductions in
sale price are acceptable forms of payment by an eligible entity.
5. Vehicle Identification Number Requirement
Proposed Sec. Sec. 1.25E-2(e)(4) and 1.30D-5(d)(4) impose certain
additional requirements for credit transfer elections. Among those
rules, the proposed regulations provided that the vehicle
identification number requirements of section 30D(f)(9) and, by reason
of section 25E(e), section 25E(d), would be treated as satisfied if the
eligible entity provides the vehicle identification number of such
vehicle to the IRS in the form and manner set forth in guidance
published in the Internal Revenue Bulletin. The final regulations,
consistent with the Secretary's general authority under section
30D(g)(1), provide that the electing taxpayer must provide its vehicle
identification number with its Federal income tax return for the
taxable year in which the vehicle is placed in service. Reporting of
the vehicle identification number by both the electing taxpayer and the
eligible entity is necessary to reconcile the advance payments under
the credit transfer program with the eligibility of the electing
taxpayer, which helps safeguard program integrity.
6. Increases in Tax
i. Recapture From Taxpayer
Section 30D(g)(10) provides that, in the case of any taxpayer who
has made a credit transfer election and received a payment from an
eligible entity, if the section 30D credit would otherwise (but for
section 30D(g)) not be allowable to such taxpayer pursuant to the
application of the Modified AGI limitation, the tax imposed on such
taxpayer under chapter 1 of the Code for the taxable year in which such
vehicle was placed in service will be increased by the amount of the
payment received by such taxpayer. Because section 25E(f) cross
references to section 30D(g), similar rules apply with respect to the
section 25E credit.
Proposed Sec. Sec. 1.25E-3(g)(1) and 1.30D-5(f)(1) provided that,
in the case of a clean vehicle credit that would otherwise not be
allowable to a taxpayer that made a credit transfer election because
the taxpayer exceeds the limitation based on Modified AGI, the income
tax imposed on the taxpayer under chapter 1 of the Code for the taxable
year in which the vehicle was placed in service is increased by the
amount of the payment received by the taxpayer pursuant to the credit
transfer election. The taxpayer in such a case must report recapture of
the additional amount on its income tax return for the taxable year
during which the vehicle was placed in service.
A commenter suggested that Sec. Sec. 1.25E-3(g)(1) and 1.30D-
5(f)(1) should be revised to apply recapture to taxpayers purchasing
clean vehicles for resale or for primarily nonpersonal use. Regarding
the purchase for resale aspect of this comment, proposed Sec. Sec.
1.25E-2(c)(1)(iii)(E) and 1.30D-4(f)(1)(iii)(E) provided that the value
of any transferred credit will be collected from the taxpayer in the
event the taxpayer resells the vehicle within 30 days of placing the
vehicle in service. Therefore, the proposed regulations already
addressed the purchase for resale aspect of this comment and further
clarification is not necessary. Regarding the aspect of the comment
related to recapture in the event of primary nonpersonal use of the
vehicle, Revenue Procedure 2023-33 provides that a taxpayer must attest
to the IRS under penalty of perjury that the taxpayer is an individual
for purposes of section 25E, or that the taxpayer will use the vehicle
predominantly for personal use for purposes of section 30D. Because
nonpersonal use of vehicles is adequately addressed in sub-regulatory
guidance, additional clarification is not necessary. Accordingly, the
final regulations do not adopt this comment.
Another commenter requested that the final regulations clarify who
is responsible for recapture and under what circumstances. The final
regulations, as described in this section of the Summary of Comments
and Explanation of Revisions, make clear who is subject to recapture.
Accordingly, the final regulations do not adopt this comment.
Based on the foregoing, the final regulations adopt proposed
Sec. Sec. 1.25E-2(c)(1)(iii)(E) and 1.30D-4(f)(1)(iii)(E) without
modification.
[[Page 37719]]
ii. Excessive Payment to an Eligible Entity
Section 30D(g)(7)(B) and section 25E(f) (by cross reference to
section 30D(g)) provide that rules similar to the rules of section
6417(d)(6) apply for purposes of the advance payment program. Proposed
Sec. Sec. 1.25E-3(g)(2) and 1.30D-5(f)(2) provided that, in the case
of any advance payment that the IRS determines constitutes an excessive
payment, the tax imposed on the eligible entity by chapter 1 of the
Code, for the taxable year in which such determination is made will be
increased by the sum of the amount of the excessive payment, plus an
amount equal to 20 percent of such excessive payment. The proposed
regulations further provided that the rule applies regardless of
whether such entity would otherwise be subject to chapter 1 tax. The
additional amount of 20 percent, however, will not apply if the
eligible entity demonstrates to the IRS that the excessive payment was
due to reasonable cause, which is presumed to be the case for a clean
vehicle returned within 30 days of placing such vehicle in service. See
proposed Sec. Sec. 1.25E-3(g)(2)(ii) and 1.30D-5(f)(2)(ii).
The proposed regulations provided that an excessive payment means,
with respect to an advance payment to an eligible entity pursuant to a
credit transfer election made by an electing taxpayer, an advance
payment made to a registered dealer that fails to meet the requirements
to be an eligible entity. Additionally, the proposed regulations define
``excessive payment'' as an advance payment to an eligible entity with
respect to a clean vehicle to the extent the payment exceeds the amount
of the clean vehicle credit that would be otherwise allowable to the
electing taxpayer with respect to the vehicle. See proposed Sec. Sec.
1.25E-3(g)(2)(iii) and 1.30D-5(f)(2)(iii). However, any excess payment
attributable to a taxpayer exceeding the limitation based on Modified
AGI is not treated as an excessive payment to an eligible entity.
A commenter requested clarification that ``reasonable cause''
includes an eligible entity's reliance on a manufacturer's calculations
for purposes of the Critical Minerals and Battery Components
Requirements, as shown on <a href="https://fueleconomy.gov">https://fueleconomy.gov</a> or elsewhere.
Specifically, the commenter requested that the final regulations
clearly provide that eligible entities will not be liable for mistaken
determinations with respect to those requirements.
Section 4.03 of Revenue Procedure 2022-42 provides that a taxpayer
may rely on the information and certifications (which include
certifications with respect to the Critical Minerals and Battery
Components Requirements and the FEOC Restriction) contained in the
qualified manufacturer's periodic written reports. Therefore, in the
case of a mistaken calculation by the qualified manufacturer in a
periodic written report, the taxpayer is not denied the section 30D
credit. Accordingly, if that taxpayer transfers the credit under the
advance payment program, the excess of the advance payment to the
dealer over the credit otherwise allowable to the taxpayer would be
zero, and there is no excessive payment under proposed Sec. 1.30D-
5(f)(2)(iii). Consequently, the eligible entity would have no liability
and no need to demonstrate reasonable cause. For clarity, the final
regulations incorporate the provisions of section 4.03 of Revenue
Procedure 2022-42 regarding taxpayer reliance on manufacturer
certifications regarding qualified manufacturer status, and
certifications and information a qualified manufacturer provides to the
IRS in periodic written reports. The final regulations also delineate
what taxpayer reliance means in this context. In addition, the final
regulations add an example to Sec. Sec. 1.25E-2(g) and 1.30D-5(g)(3)
that illustrate that an excessive payment does not arise in the
situation described by the commenter.
7. Two Credit Transfer Elections per Year
Proposed Sec. Sec. 1.25E-3(i) and 1.30D-5(h) provided that a
taxpayer may make no more than two credit transfer elections per
taxable year. The proposed regulations further provided that in the
case of a joint income tax return, each spouse may make two transfer
elections per taxable year, for a maximum of four credit transfer
elections in a taxable year. These proposed rules were intended to
ensure program integrity by limiting credit transfer elections to
vehicle sales that appear to be for legitimate nonbusiness individual
use.
A commenter recommended that the requirements of proposed
Sec. Sec. 1.25E-3(i) and 1.30D-5(h) be deleted because there is no
basis in section 25E or section 30D for these restrictions. The
commenter noted that an eligible entity working with a taxpayer on a
credit transfer would have no ability to determine whether the taxpayer
would have already made two transfer elections. Section 30D(g)(1)
provides that the credit transfer election is ``[s]ubject to such
regulations or other guidance as the Secretary determines necessary.''
Section 25E(f) adopts section 30D(g) by reference. Therefore, the
Treasury Department and the IRS have the authority to regulate the
credit transfer election to ensure program integrity and sound tax
administration. Moreover, pursuant to Revenue Procedure 2023-33, the
taxpayer will attest to the IRS directly that they have not made more
than two transfer elections per year, and the dealer may rely on the
taxpayer's attestation. Accordingly, the final regulations do not adopt
this comment.
III. New Clean Vehicle Credit--Section 30D
A. Definitions
Section 1.30D-2 of the April Proposed Regulations provided general
definitions related to the section 30D credit. Section 1.30D-3(c) of
the April Proposed Regulations provided definitions applicable for
purposes of the Critical Minerals and Battery Components Requirements.
Section 1.30D-6(a) of the December Proposed Regulations provided
definitions applicable for purposes of the FEOC Restriction. In the
Explanation of Provisions to the December Proposed Regulations, the
Treasury Department and the IRS noted that terms relevant to both the
Critical Minerals and Battery Components Requirements described in
proposed Sec. 1.30D-3 and the FEOC Restriction of proposed Sec.
1.30D-6 should be interpreted consistently between those provisions.
Consistent with this statement, the final regulations retain
proposed Sec. 1.30D-2, with certain modifications described in this
section of the Summary of Comments and Explanation of Revisions, and
generally move the definitions from proposed Sec. 1.30D-3 and proposed
Sec. 1.30D-6 to Sec. 1.30D-2(b). However, the final regulations,
under Sec. 1.30D-3, retain certain definitions that are directly
relevant to the calculations under the Critical Minerals and Battery
Components Requirements; those definitions are cross-referenced in
Sec. 1.30D-2(b). Section 1.30D-2(b) also cross-references definitions
in proposed Sec. 1.30D-5, which provides rules for the credit transfer
election (described in section II.C of this Summary of Comments and
Explanation of Revisions).
The discussion in this section of the Summary of Comments and
Explanation of Revisions only addresses new definitions, definitions
that have been modified, or definitions for which comments were
received.
1. Applicable Critical Mineral
Proposed Sec. Sec. 1.30D-3(c)(1) and 1.30D-6(a)(1), consistent
with section
[[Page 37720]]
30D(e)(1), defined an ``applicable critical mineral'' as an applicable
critical mineral defined in section 45X(c)(6).
In addition, proposed Sec. 1.30D-6(c)(4)(ii)(A) provided that the
determination of whether an applicable critical mineral is FEOC-
compliant takes into account each step of extraction, processing, or
recycling through the step in which such mineral is processed or
recycled into a constituent material, even if the mineral is not in a
form listed in section 45X(c)(6) at every step. Proposed Sec. 1.30D-
6(c)(4)(ii)(A) provided an exception to this general rule in the case
of recycling (as discussed in this Summary of Comments and Explanation
of Revisions at section III.A.25). Proposed Sec. 1.30D-6(c)(4)(ii)(C)
further provided that, for purposes of determining whether an
applicable critical mineral is FEOC-compliant, an applicable critical
mineral is disregarded if it is fully consumed in the production of the
constituent material or battery component and no longer remains in any
form in the battery.
Several commenters asked for clarification with respect to
graphite. Specifically, the commenters requested clarification as to
whether graphite that is of a purity of less than 99.9 percent
graphitic carbon, but that is purified to a minimum purity of 99.9
percent carbon, is an applicable critical mineral under section
45X(c)(6) and thus section 30D. These comments were considered in the
context of the section 45X proposed regulations. As explained in the
Explanation of Provisions to the section 45X proposed regulations:
``Some stakeholders have questioned whether this definition could be
interpreted to refer to a particular crystalline structure of carbon,
that is, 99.9 percent carbon in a graphitic form. [. . .] Consistent
with the general intent of section 45X, proposed Sec. 1.45X-4(b)(14)
would clarify that the term `99.9 percent graphitic carbon by mass'
means graphite that is 99.9 percent carbon by mass.'' The Treasury
Department and the IRS will continue to consider this issue as part of
finalizing of the section 45X regulations. The form of graphite that is
an applicable critical mineral for the purposes of section 30D will be
the form that is determined to be an applicable critical mineral in the
45X final regulations.
Several commenters requested clarity as to whether synthetic
graphite is an applicable critical mineral. Those commenters requested
that the final regulations explicitly state that both graphite
variations, synthetic and natural, qualify as an applicable critical
mineral. A separate commenter suggested that, because natural and
synthetic graphite have entirely different processing procedures,
synthetic graphite should not be categorized as an applicable critical
mineral. These comments were also considered in the context of the
section 45X proposed regulations. Proposed Sec. 1.45X-4(b)(14) would
provide that ``[t]he term graphite means natural or synthetic graphite
that is purified to a minimum purity of 99.9 percent graphitic carbon
by mass.'' The Treasury Department and the IRS will continue to
consider this issue as part of finalizing of the section 45X
regulations. The form of graphite that is an applicable critical
mineral for the purposes of section 30D will be the form that is
determined to be an applicable critical mineral in the section 45X
final regulations.
Several commenters requested clarification on whether other
critical minerals are subject to the Critical Minerals Requirement and
the FEOC Restriction. One commenter requested that the final
regulations provide clarification with respect to hydrofluoric acid
(HF). HF may be produced from fluorspar that is purified to a minimum
purity of 97 percent calcium fluoride by mass. In these cases, the
fluorspar is an applicable critical mineral (under section
45X(c)(6)(K)) and the HF would be an associated constituent material,
both of which would be subject to the Critical Minerals Requirement and
the FEOC Restriction. The commenter noted that in other cases, HF may
be made with lower purity fluorspar or through phosphate mining
(without fluorspar). The commenter requested clarification that such HF
is still subject to the Critical Minerals Requirement and the FEOC
Restriction. Similarly, another commenter requested clarity as to
whether nickel, manganese, cobalt, and lithium that do not meet the
purity requirements of section 45X(c)(6) are subject to the Critical
Minerals Requirement and the FEOC Restriction. This commenter
recommended that such lower-purity minerals not be subject to these
rules.
One commenter recommended expanding the definition of ``applicable
critical mineral'' to include other chemical forms of the critical
minerals identified in section 45X(c)(6), such as nitrates, hydroxides,
oxides, oxide hydroxides, carbonates, and chlorides. Another commenter
stated that the critical minerals list excludes important minerals,
such as iron and phosphorous, that are prevalent in FEOC-made
batteries, and that this exclusion may introduce a loophole whereby
FEOC-made batteries using non-listed critical minerals may be eligible
for the critical mineral portion of the 30D credit. That commenter
requested that the Treasury Department and the IRS issue additional
rules to address non-U.S. critical minerals. Finally, one commenter
noted that many minerals that enter battery supply chains prior to
attaining the purity level listed in section 45X or becoming an
associated constituent material come from FEOCs. That commenter
expressed support for extending FEOC-compliance for critical minerals
throughout production, even if the mineral is not in a final form
listed in section 45X(c)(6) during each step.
In response to these comments, the Treasury Department and the IRS
note that under the plain language of sections 30D(e)(1) and 45X(c)(6),
minerals other than those specified in section 45X(c)(6) are not
applicable critical minerals, and are therefore not subject to the
Critical Minerals Requirement and the FEOC Restriction. In addition,
the rules of proposed Sec. Sec. 1.30D-6(c)(4)(ii)(A) and 1.30D-
6(c)(4)(ii)(C) provided additional clarity regarding classification as
an applicable critical mineral in cases in which the form of the
mineral changes during the steps of extraction, processing, or
recycling. The final regulations extend this clarification to the
Critical Minerals Requirement by incorporating it into the definition
of ``applicable critical mineral.''
The final regulations adopt the definition in proposed Sec. Sec.
1.30D-3(a)(1), 1.30D-6(c)(1), 1.30D-6(c)(4)(ii)(A), and 1.30D-
3(c)(4)(ii)(C), with the modification described above, consolidate it,
and move it to Sec. 1.30D-2(b) with the modification described
previously. Specifically, the final regulations, like the proposed
regulations, provide that ``applicable critical mineral'' means an
applicable critical mineral defined in section 45X(c)(6). The final
regulations clarify that the requirements under Sec. Sec. 1.30D-3 and
1.30D-6 with respect to an applicable critical mineral take into
account each step of extraction, processing, or recycling through the
step in which such mineral is processed or recycled into an associated
constituent material, even if the mineral is not in a form listed in
section 45X(c)(6) at every step of production. The final regulations
further clarify that an applicable critical mineral is disregarded for
purposes of the Critical Minerals Requirement and the FEOC Restriction
if it is fully consumed in the production of the constituent material
or battery component and no longer remains in any form in the battery.
[[Page 37721]]
In addition, the final regulations incorporate the special rule for
recycling in proposed Sec. 1.30D-6(c)(4)(ii)(A) into the definition of
``recycling'' in Sec. 1.30D-2(b). The final regulations also provide
an example that illustrates when the determinations under the Critical
Minerals Requirement and the FEOC Restriction take place with respect
to an applicable critical mineral.
2. Assembly
Proposed Sec. Sec. 1.30D-3(c)(2) and 1.30D-6(a)(2) defined
``assembly,'' with respect to battery components, as the process of
combining battery components into battery cells and battery modules.
The final regulations adopt the definition of ``assembly'' in proposed
Sec. Sec. 1.30D-3(c)(2) and 1.30D-6(a)(2), consolidate it into a
single provision, and move it to Sec. 1.30D-2(b).
One commenter stated that the definition of ``assembly'' could
allow for abuse under the Battery Components Requirement by allowing a
North American manufacturer, for example, to simply affix two Chinese
batteries together, which would be considered assembly of a North
American battery component. However, in this situation, the incremental
value, for purposes of determining the total incremental value of North
American battery components (that is, the numerator in the qualifying
battery component content that is compared to the applicable
percentages of section 30D(e)(2)(B)), would only be the value of the
affixed batteries, less the value of the batteries prior to assembly.
Because that incremental value would be minimal, the potential for
abuse as described by the commenter would also be minimal. Accordingly,
the final regulations do not adopt this comment.
3. Associated Constituent Materials
Proposed Sec. 1.30D-6(c)(4)(ii)(B) provided that in determining
whether an applicable critical mineral is FEOC-compliant, a constituent
material is associated with an applicable critical mineral if the
applicable critical mineral has been processed or recycled into a
constituent material, even if that processing or recycling transformed
the mineral into a form not listed in section 45X(c)(6).
The Critical Minerals Requirement under proposed Sec. 1.30D-3
incorporated the same concept by providing that the portion of an
applicable critical mineral that is a qualifying critical mineral must
be determined separately for each procurement chain. Proposed Sec.
1.30D-3(c)(14) defined ``procurement chain'' as a common sequence of
extraction, processing, or recycling activities that occur in a common
set of locations with respect to an applicable critical mineral,
concluding in the production of constituent materials.
These determinations necessarily encompass steps in the procurement
chain in which the applicable critical mineral is transformed into a
form not listed in section 45X(c)(6). Accordingly, the final
regulations add a definition of ``associated constituent material'' to
Sec. 1.30D-2(b), which provides that, with respect to an applicable
critical mineral, an ``associated constituent material'' is a
constituent material that has been processed or recycled from such
mineral into the constituent material with which it is associated, even
if that processing or recycling transformed such mineral into a form
not listed in section 45X(c)(6).
4. Battery
Proposed Sec. Sec. 1.30D-3(c)(3) and 1.30D-6(a)(3) defined
``battery,'' for purposes of a new clean vehicle, as a collection of
one or more battery modules, each of which has two or more electrically
configured battery cells in series or parallel, to create voltage or
current. Under proposed Sec. Sec. 1.30D-3(c)(3) and 1.30D-6(a)(3), the
term ``battery'' did not include items such as thermal management
systems or other parts of a battery cell or module that do not directly
contribute to the electrochemical storage of energy within the battery,
such as battery cell cases, cans, or pouches. The final regulations
adopt the definition of ``battery'' in Sec. Sec. 1.30D-3(c)(3) and
1.30D-6(a)(3), consolidate it into a single provision, and move the
definition to Sec. 1.30D-2(b).
The Treasury Department and the IRS received comments both in
support of and in opposition to the proposed definition of ``battery.''
Several commenters requested a broader definition of ``battery,'' while
other commenters criticized the definition of battery as too broad.
Similarly, several commenters disagreed with the definition of
``battery'' and recommended that it be defined as a complete battery
pack. The Explanation of Provisions to the April Proposed Regulations
noted that the proposed definition of ``battery'' is consistent with
the language and purpose of section 30D because battery modules and
cells are the sources ``from which the electric motor of such vehicle
draws electricity.'' See sections 30D(e)(1)(A) and (2)(A). Consistent
with this, items that do not directly contribute to the electrochemical
storage of energy within the battery are not the subject of the IRA's
incentives to shift to more secure and resilient electric vehicle
battery supply chains. Such items are generally low-value commodities
that are specific to the end-use of the energy storage technology,
rather than the process of storing energy. The proposed definition of
``battery'' is in keeping with the statutory purpose of incentivizing
the resiliency and security of the highest-value and most specialized
portions of the battery supply chain. In addition, the functional
definition of ``battery'' in the proposed regulations allows for
technological changes, as the definition will not be obsolete if
battery pack structures change in the future, but is also consistent
with current industry practice, as electrochemical batteries are
currently standard. Accordingly, the final regulations do not adopt
these comments.
In addition, one commenter requested that the definition of
``battery'' exclude thermal management systems and other components
that do not directly contribute to energy storage. Because the
definition of ``battery'' already excludes such systems and such other
components, no modification to the definition of ``battery'' is
required.
Finally, one commenter noted the necessity of future conversations
about the definitions of ``battery'' and ``battery component'' to
reflect technological advances. The Treasury Department and the IRS
will continue to monitor technology in this area in coordination with
the DOE. The Treasury Department and the IRS welcome additional
comments in the future that discuss technological changes with respect
to electric vehicle batteries.
5. Battery Cell
Proposed Sec. Sec. 1.30D-3(c)(4) and 1.30D-6(a)(4) defined
``battery cell'' as a combination of battery components (other than
battery cells) capable of electrochemically storing energy from which
the electric motor of a new clean vehicle draws electricity. This
proposed definition of battery cell encompassed the smallest
combination of battery components necessary for the function of energy
storage. The final regulations adopt the definition of ``battery cell''
in proposed Sec. Sec. 1.30D-3(c)(4) and 1.30D-6(a)(4), consolidate it
into a single provision, and move it to Sec. 1.30D-2(b).
A commenter requested that the guidance align the definitions of
``battery cell'' and ``battery component'' with those in section
45X(c)(5). However, section 30D does not adopt those definitions by
reference. As noted in section III.A.4 of this Summary of Comments and
Explanation of Revisions, items that do not directly contribute to the
electrochemical storage of energy within the battery, which are
[[Page 37722]]
generally low-value commodities, are not the subject of the IRA's
incentives to shift to more secure and resilient electric vehicle
battery supply chains. For this reason, the Treasury Department and the
IRS have determined that the section 30D definitions should be limited
to electrochemical energy storage batteries that that are used in
electric vehicles, and do not need to encompass concepts that are
pertinent to other forms of energy storage that are included in the
definitions in section 45X(c)(5) (for example, thermal batteries).
Accordingly, the final regulations do not adopt this comment.
6. Battery Component
Proposed Sec. Sec. 1.30D-3(c)(5) and 1.30D-6(a)(6) defined
``battery component'' as a component that forms part of a battery and
that is manufactured or assembled from one or more components or
constituent materials that are combined through industrial, chemical,
and physical assembly steps. Battery components include, but are not
limited to, a cathode electrode, anode electrode, solid metal
electrode, separator, liquid electrolyte, solid state electrolyte,
battery cell, and battery module. Constituent materials are not
considered a type of battery component, although constituent materials
could be manufactured or assembled into battery components. Some
battery components could be made entirely of inputs that do not contain
constituent materials. Battery components include any piece of the
assembled battery cell that contributes to electrochemical energy
storage.
The Treasury Department and the IRS received a number of comments
regarding the definition of ``battery component.'' Several commenters
were supportive of the definition. The proposed definition of ``battery
component'' included a non-exhaustive list of specific components, and
many commenters proposed additions to the list. One commenter suggested
that the list specifically include cathode and anode foil. Other
commenters requested clarity with respect to lead tabs (for battery
cells), metal components (for battery modules), and cap assemblies (for
the manufacture of canister battery cells). Other items suggested for
inclusion were separator coatings, binders, electrolyte solvents and
electrolyte salts, current collectors, cell contacting layers, voltage
sense harnessing, and battery management systems. Another commenter
noted that the inclusion of ``but not be limited to'' language creates
uncertainty for automakers and instead asked for a full list of
components. In response, the final regulations add a new definition of
``battery materials'' (described in section III.A.7 of this Summary of
Comments and Explanation of Revisions) to Sec. 1.30D-2(b). In
addition, the final regulations clarify that battery materials without
applicable critical minerals are not battery components, as they are
not manufactured or assembled. The final regulations do not provide a
complete list of battery components because electric vehicle battery
components may vary depending on the battery chemistry, especially as
battery technology continues to evolve. The illustrative list of
battery components in the final regulation allows for future
innovation.
Several commenters raised concerns regarding the limitation of
battery components to items that contribute to electrochemical energy
storage. A commenter supported the limitation as important to both the
workability of and intent behind the Battery Components Requirement. On
the other hand, another commenter requested that the final regulations
expand the definition of ``battery component'' to include additional
enabling technologies, such as thermal management, cooling, and housing
and enclosure components. The commenter, mentioned previously, that
requested clarity with respect to lead tabs and metal components stated
that ambiguity with respect to the phrase ``electrochemical storage
components'' made it difficult to determine whether these items were
battery components. Similarly, commenters suggested that, under the
language of section 30D, battery components should include thermal
barriers. As noted previously, the proposed definition of ``battery,''
which informs the definition of ``battery component,'' is consistent
with the statute because battery modules and cells are the sources
``from which the electric motor of such vehicle draws electricity.''
Section 30D(e)(1)(A) and (2)(A). In addition, this definition is
consistent with the purpose of section 30D to provide incentives to
move toward more secure and resilient electric vehicle battery inputs.
Inputs that do not directly contribute to the electrochemical processes
necessary for energy storage (for example, thermal management systems,
battery management systems, housing/enclosure components) are generally
lower-value and specific to the end use of the battery, rather than the
process of storing energy. The same reasoning applies to battery
components. As noted by the Joint Committee on Taxation, the battery
components requirement in section 30D(e)(2)(A) is ``intended to
incentivize the manufacturing or assembly of high-value battery
components, such as battery cells, in North America.'' \4\ Accordingly,
because the proposed definition is consistent with the statutory text
and purpose, the final regulations do not adopt these comments.
---------------------------------------------------------------------------
\4\ Joint Committee on Taxation, Joint Committee on Taxation,
General Explanation of Tax Legislation Enacted in the 117 Congress
(JCS 1-23), December 2023, at 252, n.1070.
---------------------------------------------------------------------------
Finally, multiple commenters raised questions and provided
recommendations relating to separators, many of which relate to the
determination under the Battery Components Requirement (discussed in
section III.B.2 of this Summary of Comments and Explanation of
Revisions). One commenter requested clarification as to the incremental
value of a coated separator, and recommended that the incremental value
be determined by subtracting the value of an uncoated separator (a
lithium-ion battery separator) from the value of the coated separator
(a ceramic coated separator). Another commenter, noting that
``substantially all'' in the definition of ``North American Battery
Component'' was vague, requested that the final regulations state that
a separator coated in North America is a North American Battery
Component (regardless of where the pre-coated separator was
manufactured). This commenter stated that up to 60 percent of the value
added by the separator comes from the coating process. In contrast,
another commenter requested that the final regulations clarify that
coating a separator is not manufacturing or assembly, to ensure that a
separator coated in North America is not considered a North American
Battery Component if the pre-coated separator was manufactured outside
of North America. A different commenter advocated against the inclusion
of base film and coating materials used to make such separator in the
definition of ``battery component'' for purposes of the Battery
Components Requirement and the FEOC Restriction. In addition, one
commenter requested that the bare film and binders incorporated into a
ceramic-coated separator be classified as battery sub-components and
noted that these items should qualify under either the Critical
Minerals Requirement or the Battery Components Requirement if
manufactured in North America or a country with which the United States
has a free trade agreement in effect. This commenter also made
suggestions with respect to various other government
[[Page 37723]]
rules that may apply to coated separators, which are outside the scope
of these final regulations.
In response to these comments, the Treasury Department and the IRS
note that a coated separator is a battery component. In general, the
base film and coating are battery materials, not battery components,
because they are processed rather than manufactured or assembled. If
those battery materials contain applicable critical minerals, those
battery materials are constituent materials. The final regulations
clarify this in the definition of ``battery component'' and the new
definition of ``battery materials.''
Finally, several commenters discussed the relationship between the
Battery Components Requirement and the FEOC Restriction. One commenter
encouraged the Treasury Department and the IRS to use the same
definition of ``battery component'' for purposes of the Battery
Components Requirement and the FEOC Restriction. In contrast, another
commenter suggested that the final regulations adopt a broader
definition of ``battery component'' for purposes of the FEOC
Restriction that includes components otherwise included in the
definition of ``constituent material'' for purposes of the Critical
Minerals Requirements. As noted in the Explanation of Provisions to the
December Proposed Regulations, the Treasury Department and the IRS
intend that terms relevant to both the Critical Minerals and Battery
Components Requirement and the FEOC Restriction be interpreted
consistently. Consistent with that, the final regulations include one
general definition of ``battery component'' for purposes of section
30D, and do not adopt the comment suggesting a broader definition for
purposes of the FEOC Restriction.
The final regulations, in Sec. 1.30D-2(b), adopt a definition of
``battery component'' that clarifies the treatment of separators and
incorporates the new definition of ``battery materials.'' The
definition is modified to improve clarity regarding the relationship
between battery components, constituent materials, and battery
materials.
7. Battery Materials
To further clarify the line between battery components and
constituent materials, the final regulations add a definition of
``battery materials'' to Sec. 1.30D-2(b). The final regulations define
``battery materials'' as direct and indirect inputs to battery
components that are produced through processing, rather than
manufacturing or assembly. Battery materials are not considered a type
of battery component, although battery materials may be manufactured or
assembled into battery components. The three categories of battery
materials are applicable critical minerals, constituent materials, and
battery materials without applicable critical minerals. Examples of
battery materials that may or may not contain applicable critical
minerals include a separator base film (if not manufactured or
assembled) and separator coating. Examples of battery materials without
applicable critical minerals include conductive additives, copper foils
prior to graphite deposition, and electrolyte solvents.
8. Clean Vehicle Battery
The final regulations add a definition of ``clean vehicle battery''
to Sec. 1.30D-2(b). Consistent with section 30D(d)(1)(F) and 30D(e),
the final regulations define ``clean vehicle battery,'' with respect to
a new clean vehicle, means the battery from which the electric motor of
the vehicle draws electricity to propel such vehicle.
9. Compliant-Battery Ledger
Proposed Sec. 1.30D-6(a)(7) defined ``compliant-battery ledger,''
for a qualified manufacturer for a calendar year, as a ledger that
tracks the number of available FEOC-compliant batteries for such
calendar year. Proposed Sec. 1.30D-6(d) set forth rules applicable to
compliant-battery ledgers. The Treasury Department and the IRS received
several comments about the rules for establishing, updating, and
reconciling the compliant-battery ledger. These comments are included
as part of the discussion of proposed Sec. 1.30D-6(d) in section
III.D.3 of this Summary of Comments and Explanation of Revisions.
The final regulations adopt the proposed definition and move it to
Sec. 1.30D-2(b).
10. Constituent Materials
Proposed Sec. Sec. 1.30D-3(c)(6) and 1.30D-6(a)(8) defined
``constituent materials'' as materials that contain applicable critical
minerals and are employed directly in the manufacturing of battery
components. Constituent materials could include, but are not limited
to, powders of cathode active materials, powders of anode active
materials, foils, metals for solid electrodes, binders, electrolyte
salts, and electrolyte additives, as required for a battery cell. As
explained in the Explanation of Provisions to the April Proposed
Regulations, the definition of ``constituent materials'' describes the
materials that distinguish the steps of extraction, processing, and
recycling of critical minerals from the subsequent steps of
manufacturing and assembly of battery components. Constituent materials
are the final products relevant for calculating the value of the
applicable critical minerals in the battery.
The Treasury Department and the IRS received multiple comments with
respect to the definition of ``constituent materials.'' Several
commenters expressed support for the proposed definition. However,
other commenters criticized the definition as not supported by the
statute; as at odds with section 45X, which includes ``electrode active
materials'' as qualifying battery components; and as an inappropriate
reclassification of items that should be battery components, and thus
subject to the Battery Components Requirement. One commenter suggested
that constituent materials be included within the definition of
``battery component'' or otherwise phased in to allow for additional
time to relocate production facilities to North America. Another
commenter indicated that the definition of ``constituent materials''
could be exploited to exclude critical minerals.
In response to these comments, the Treasury Department and the IRS
note that although section 30D does not define ``battery component,''
it consistently refers to components as ``manufactured or assembled,''
and it consistently refers to ``applicable critical minerals'' as
``extracted, processed, or recycled.'' To avoid a gap in the supply
chain between applicable critical minerals and battery components, the
proposed regulations introduced the concept of constituent materials to
make clear that materials downstream of applicable critical minerals,
but still processed rather than manufactured or assembled, belong in
the analysis of a battery's applicable critical minerals. Section 30D
looks to a material's production steps to determine its status as an
applicable critical mineral or a battery component. The constituent
materials concept does not alter how the statute works; rather, it
clarifies how the statute applies to certain materials.
One commenter suggested modifying the definition of ``constituent
materials'' to include domestic alternatives that serve the same
purpose as constituent materials but do not contain applicable critical
minerals. The final regulations do not adopt this comment because the
commenter's proposal would be at odds with the Critical Minerals
Requirement and the FEOC Restriction (as applicable to applicable
critical minerals).
[[Page 37724]]
Other commenters raised questions with respect to whether specific
materials are constituent materials. One commenter asked for
clarification as to whether foils, such as a copper foil that does not
contain any applicable critical minerals, are constituent materials.
Another commenter asked for clarity with respect to polyvinylidene
fluoride (PVDF). Noting that PVDF made from fluorine (in the form of an
applicable critical mineral) would be a constituent material, the
commenter asked for clarification about the classification of PVDF that
is not made from an applicable critical mineral, such as PVDF sourced
from phosphate rock. The final regulations clarify that battery
materials may not contain applicable critical minerals. Further, the
Treasury Department and the IRS note that the materials referenced by
these commenters (foils and PVDF) would both be considered battery
materials without applicable critical minerals.
One commenter sought clarification of whether lithium
hexafluorophosphate is considered an electrolyte salt for purposes of
the definition of constituent materials. If an applicable critical
mineral in a form specified in section 45X(c)(6) is used to produce
lithium hexafluorophosphate, and this material is integrated into a
battery component, the material would be considered a constituent
material.
A separate commenter requested that the final regulations clarify
that carboxymethylcellulose (CMC), made from wood pulp or linter pulp,
is not a constituent material. The commenter notes that CMC does not
contain applicable critical minerals. The Treasury Department and the
IRS note that, while CMC is used in the manufacture of a battery
component as a binder or coating for the production of anode electrodes
by deposition of anode active material onto copper foil, CMC itself
does not contain an applicable critical mineral, and therefore would
not be considered a constituent material.
Finally, one commenter requested clarification with respect to
powders of cathode active materials (CAM), which is listed as a
constituent material. The commenter noted that the list does not
expressly include precursor materials used for making CAM or other
intermediate materials incorporating the critical minerals that are
used to produce the CAM. The commenter specifically recommended adding
these items to the list and including references to the relevant
applicable critical minerals by revising the definition to include
powders of precursor cathode active materials and any other
intermediate products incorporating critical minerals such as
manganese, nickel, or cobalt, powders of cathode active materials. The
final regulations provide, in the definition of ``applicable critical
mineral,'' that determinations under the Critical Minerals Requirement
and the FEOC Restriction with respect to an applicable critical mineral
take into account each step of extraction, processing, or recycling
through the step in which such mineral is processed or recycled into a
constituent material. Thus, the final regulations clarify that these
precursor or other intermediate materials are relevant for both the
Critical Minerals Requirement and the FEOC Restriction.
The final regulations adopt the definition of ``constituent
materials'' in proposed Sec. Sec. 1.30D-3(a)(8) and 1.30D-6(c)(6),
consolidate it into a single provision, and move it to Sec. 1.30D-
2(b). In addition, the final regulations clarify that battery materials
without applicable critical minerals are not constituent materials.
12. Country With Which the United States Has a Free Trade Agreement in
Effect
Proposed Sec. 1.30D-3(c)(7) defined the term ``country with which
the United States has a free trade agreement in effect'' and listed the
countries with which the United States has free trade agreements in
effect. As noted in the Explanation of Provisions to the April Proposed
Regulations, the term free trade agreement is not defined in the IRA or
in the Code. Proposed Sec. 1.30D-3(c)(7)(i) set forth criteria for the
identification of a country with which the United States has a free
trade agreement in effect, including whether an agreement between the
United States and another country, as to the critical minerals
contained in electric vehicle batteries or more generally, and in the
context of the overall commercial and economic relationship between
that country and the United States: (A) reduces or eliminates trade
barriers on a preferential basis, (B) commits the parties to refrain
from imposing new trade barriers, (C) establishes high-standard
disciplines in key areas affecting trade (such as core labor and
environmental protections), and/or (D) reduces or eliminates
restrictions on exports or commits the parties to refrain from imposing
such restrictions on exports.
Proposed Sec. 1.30D-3(c)(7)(ii) identified twenty countries with
which the United States has comprehensive free trade agreements (that
is, agreements covering substantially all trade in goods and services
between the parties, including trade in critical minerals). In
addition, the Treasury Department and the IRS proposed to include
additional countries identified by the Secretary, after consideration
of the listed criteria, and identified Japan as an additional country.
On March 28, 2023, the United States and Japan concluded a Critical
Minerals Agreement (CMA), which contained robust obligations to help
ensure free trade in critical minerals.\5\
---------------------------------------------------------------------------
\5\ Agreement Between the Government of the United States of
America and the Government of Japan on Strengthening Critical
Minerals Supply Chains, concluded March 28, 2023, <a href="https://ustr.gov/sites/default/files/2023-03/US%20Japan%20Critical%20Minerals%20Agreement%202023%2003%2028.pdf">https://ustr.gov/sites/default/files/2023-03/US%20Japan%20Critical%20Minerals%20Agreement%202023%2003%2028.pdf</a>.
---------------------------------------------------------------------------
Proposed Sec. 1.30D-3(c)(7)(iii) provided that the list of
identified countries in paragraph (c)(7)(ii) may be revised and updated
through appropriate guidance published in the Federal Register or in
the Internal Revenue Bulletin (see Sec. 601.601 of the Statement of
Procedural Rules (26 CFR part 601)).
The final regulations adopt this definition and move it to Sec.
1.30D-2(b). At this time, the Treasury Department and the IRS have not
identified any additions to the list of identified countries. The final
regulations continue to include Japan on the list of countries with
which the United States has free trade agreements in effect. After
consulting with the United States Trade Representative in applying the
relevant factors for identifying free trade agreements, the Treasury
Department and the IRS have concluded that Japan is a country with
which the United States has a free trade agreement in effect. The
Treasury Department and the IRS specifically sought comments on the
proposed criteria for identifying countries with which the United
States has free trade agreements in effect, other potential approaches
for identifying those countries, and the list of countries set forth in
proposed Sec. 1.30D-3(c)(7)(ii).
The Treasury Department and the IRS received several comments with
respect to this definition. One comment requested guidance identifying
at what stage a trade agreement is considered in effect, noting the
signature date of an agreement is frequently different from the trade
agreement's implementation date. The commenter requested that the
completion date be considered the date that a trade agreement is in
effect. As an initial matter, international agreements to which the
United States is a party, including those referred to in the Sec.
1.30D-2(b) definition of ``country with which the United States has a
free trade agreement in effect,'' ordinarily identify the date on which
they enter into force
[[Page 37725]]
and therefore are ``in effect,'' as that term is used in section 30D.
Consistent with the approach described in the proposed rules and
adopted in the final rules, the Treasury Department and the IRS will
also ``make any necessary amendments to the list . . . including adding
any additional countries as any new qualifying international agreements
enter into force and the Secretary determines that the [applicable]
factors have been met.'' The Treasury Department and the IRS have
determined that the assessment of whether an agreement is in effect is
something that the Secretary will evaluate in the context of individual
agreements that may be considered in determining whether to add
individual countries to the list of countries with which the United
States has free trade agreements in effect.
One commenter requested defining ``country'' to include
geographical areas that are of an international nature and do not
belong to any one country, such as international waters. The ordinary
meaning of ``country'' does not include areas beyond national
jurisdiction. Therefore, the final regulations do not adopt this
comment.
Several comments suggested that the proposed definition of ``free
trade agreement'' expands the regulatory regime and undercuts
Congressional intent. Relatedly, a comment specifically criticized the
inclusion of Japan on the list on the basis of the CMA. Other
commenters supported the inclusion of Japan on the basis of the CMA.
Another commenter suggested that the proposed regulations impermissibly
expand the Secretary's authority to define ``free trade agreement,''
and that the regulatory definition departs from its accepted meaning.
Several commenters suggested defining free trade agreements to include
arrangements, including plurilateral agreements, in which the United
States and a foreign economy agree to at least some strategic and/or
economic partnerships, including government procurement, even if the
agreement was not labeled a free trade agreement.
As noted earlier in this discussion and in the Explanation of
Provisions to the April Proposed Regulations, the term ``free trade
agreement'' is not defined in the IRA or in the Code, and the
definition in the proposed regulations is consistent with the statute
and its purpose, as reflected in the term's ordinary meaning, use, and
context in section 30D and in the broader IRA. As also noted in the
Explanation of Provisions to the April Proposed Regulations, the
purpose of the IRA's amendments to section 30D is to expand the
incentives for taxpayers to purchase new clean vehicles and for vehicle
manufacturers to increase their reliance on supply chains in the United
States and in countries with which the United States has reliable and
trusted economic relationships, which is essential for our national
security, our economic security, and our technological leadership. The
proposed definition of ``country with which the United States has a
free trade agreement in effect'' is consistent with these statutory
purposes. In particular, the criteria identified in the proposed
definition that must be met for an instrument to be determined to be a
free trade agreement include whether an agreement between the United
States and another country includes commitments related to reducing or
eliminating trade barriers on a preferential basis, refraining from
imposing new trade barriers, establishing high-standard disciplines in
trade-related areas, and reducing or eliminating restrictions on
exports or committing the parties to refrain from imposing such
restrictions, all in the context of the overall commercial and economic
relationship between the country in question and the United States.
Based on the criteria above, Japan was identified as a country with
which the United States has a free trade agreement in effect. In
particular, the United States-Japan CMA was identified as a free trade
agreement under these criteria because it includes robust obligations,
such as a commitment to refrain from imposing duties on exports of
critical minerals that are currently essential to the electric vehicle
battery supply chain, and a commitment for the United States and Japan
to confer on best practices regarding review of investments in the
critical minerals sector for purposes of assisting a determination of
the effect of such investments on national security. The CMA also
includes detailed terms related to the relationships of labor and
environmental laws to trade in critical minerals and cooperation on
non-market policies and practices of non-parties affecting trade in
critical minerals. The CMA was concluded in the context of an earlier
trade agreement the United States concluded with Japan in 2019, a
related 2019 agreement on digital trade, and the U.S.-Japan Partnership
on Trade announced in November 2021.
Several commenters addressed issues relating to labor standards,
environmental standards, economic and national security, transparency,
and enforceability. One commenter requested that the United States
Geological Survey be consulted as to the environmental standards and
compliance and enforcement histories of specified non-domestic sources.
Another commenter encouraged the Treasury Department and the IRS to
collaborate with the Department of State to leverage the Minerals
Security Partnership (MSP) to secure supply chains needed to scale
domestic battery production while establishing higher labor standards,
greater transparency, improved environmental practices, and greater
value-added benefits for communities located in countries with
significant mineral endowments. The Treasury Department and the IRS
appreciate these concerns and note that they are appropriately
reflected in the criteria identified in the proposed regulations,
specifically as high-standard disciplines in key areas affecting trade.
The Treasury Department and the IRS will consult with appropriate
agencies across the Federal government in applying the listed criteria
in the future.
Relatedly, several commenters raised concerns about whether
countries with which the United States does not have free trade
agreements in effect could launder applicable critical minerals through
procurement chains involving countries with which the United States has
free trade agreements in effect. The Treasury Department and the IRS
have determined that the upfront review process in Sec. 1.30D-3(d) of
the final regulations (described in section III.B.3 of this Summary of
Comments and Explanation of Revisions), which involves due diligence
and requires documentation of critical mineral supply chains, will
promote accurate tracing of the full critical mineral supply chain.
Another commenter suggested including a broad set of critical
minerals in any future critical minerals agreement. The commenter noted
that limiting future critical mineral agreements to a limited subset of
applicable critical minerals has the potential to limit innovation. In
response to this comment, the Treasury Department and the IRS note that
the determination under the Critical Minerals Requirement with respect
to ``any country with which the United States has a free trade
agreement in effect,'' would not be limited in the case of critical
minerals agreements by the scope of minerals covered by such critical
minerals agreement. Once the Secretary determines that a country
qualifies as a country with which the United States has a free trade
agreement
[[Page 37726]]
in effect, any applicable critical minerals within the meaning of
section 45X(c)(6) extracted or processed in that country are eligible.
Finally, several commenters requested that additional countries be
added to the list, including Argentina, the Philippines, members of the
European Union, and the United Kingdom. At this time, the Treasury
Department and the IRS have not identified agreements in effect with
the suggested countries within the meaning of section 30D. The Treasury
Department and the IRS will continue to work with the United States
Trade Representative and across the Federal government to apply the
listed criteria to determine if it is appropriate to list additional
countries.
13. Extraction
Proposed Sec. Sec. 1.30D-3(c)(8) and 1.30D-6(a)(9) defined
``extraction'' as the activities performed to extract or harvest
minerals or natural resources from the ground or a body of water,
including, but not limited to, by operating equipment to extract
minerals or natural resources from mines and wells, or to extract or
harvest minerals or natural resources from the waste or residue of
prior extraction. Under the proposed definition, extraction concludes
when activities are performed to convert raw mined or harvested
products or raw well effluent to substances that can be readily
transported or stored for direct use in applicable critical mineral
processing. Extraction includes the beneficiation or other physical
processes that allow the extracted materials, including ores, clays,
and brines, to become transportable. Extraction also includes the
physical processes involved in refining, but not the chemical and
thermal processes involved in refining.
Several commenters requested clarity on the line between extraction
and processing. Section III.A.22 of the Summary of Comments and
Explanation of Revisions addresses these comments.
One commenter suggested that the definition of ``extraction'' be
expanded to include critical minerals not physically taken from the
ground, citing innovations in producing graphite from biomass that no
longer require physical ground extraction. The proposed definition of
``extraction'' includes the extraction of minerals or natural resources
from the waste or residue of prior extraction. Therefore, it is
unnecessary to modify the definition of ``extraction'' in the manner
the commenter suggests. However, the final regulations clarify that
extraction also includes crude oil extraction to the extent processes
applied to that crude oil yield an applicable critical mineral as a
byproduct. The final regulations also clarify that extraction does not
include activities that begin with a recyclable commodity (as such
activities themselves constitute recycling).
The final regulations adopt the definition of ``extraction'' in the
proposed regulations, consolidate it into a single provision with the
clarification described previously, and move it to Sec. 1.30D-2(b).
14. Final Assembly
Proposed Sec. 1.30D-2(b) provided that, consistent with section
30D(d)(5), ``final assembly'' means the process by which a manufacturer
produces a new clean vehicle at, or through the use of, a plant,
factory, or other place from which the vehicle is delivered to a dealer
or importer with all component parts necessary for the mechanical
operation of the vehicle included with the vehicle, whether or not the
component parts are permanently installed in or on the vehicle. To
establish where final assembly of a new clean vehicle occurred, the
proposed regulations provided that a taxpayer could rely on the
following information: (1) the vehicle's plant of manufacture as
reported in the VIN pursuant to 49 CFR 565; or (2) the final assembly
point reported on the label affixed to the vehicle as described in 49
CFR 583.5(a)(3). The final regulations adopt the proposed definition of
``final assembly'' without change.
The proposed regulations provided two different methods for
determining whether a vehicle meets the North American final assembly
requirement, either via the VIN or the vehicle label, to ensure that
this information was available and accessible for taxpayers. For nearly
all vehicles, both methods will provide the same final assembly
location. The vehicle's plant of manufacture as reported in the VIN
means the plant where the manufacturer affixes the VIN. See 49 CFR
565.12. The plant of manufacture is reported in the VIN pursuant to 49
CFR 565.15(d)(2). The DOE, Alternative Fuels Data Center (AFDC), and
the Department of Transportation, National Highway Traffic Safety
Administration (NHSTA), each provide a VIN decoder to the public, which
can be used to identify a vehicle's plant of manufacture. AFDC, VIN
Decoder, <a href="https://afdc.energy.gov/laws/electric-vehicles-for-tax-credit">https://afdc.energy.gov/laws/electric-vehicles-for-tax-credit</a>;
NHTSA, VIN Decoder, <a href="https://www.nhtsa.gov/vin-decoder">https://www.nhtsa.gov/vin-decoder</a>. Labeling
requirements in 49 CFR 583.5 require the final assembly point to be
reported on the label affixed to a passenger motor vehicle as defined
in 49 U.S.C. 32304(11) (which limits such vehicles to those with GVWR
of 8,500 pounds or less). Final assembly point means the plant,
factory, or other place, which is a building or series of buildings in
close proximity, where a new passenger motor vehicle is produced or
assembled from passenger motor vehicle equipment and from which such
vehicle is delivered to a dealer or importer in such a condition that
all component parts necessary to the mechanical operation of such
automobile are included with such vehicle, whether or not such
component parts are permanently installed in or on such vehicle. For
multi-stage vehicles, the labeling requirements provide that the final
assembly point is the location where the first stage vehicle is
assembled. 49 CFR 583.4(b)(5). Multi-stage vehicles are vehicles
manufactured in two or more stages by which an incomplete vehicle
becomes a completed vehicle and may involve multiple manufacturers. See
49 CFR 567.3 for definitions of ``incomplete vehicle'' and ``completed
vehicle.''
A commenter stated that the proposed rule would allow taxpayers to
use the vehicle's plant of manufacture reported on the VIN, rather than
the final assembly point, for multi-stage vehicles. However, existing
vehicle labeling requirements in 49 CFR part 583 apply to both single-
stage and multi-stage vehicles with GVWR of 8,500 pounds or less.
Therefore, such requirements provide a final assembly point for both
types of vehicles. The proposed regulations provided flexibility to
taxpayers in determining whether the section 30D credit final assembly
requirement is met by allowing taxpayers to look to either the plant of
manufacture identified in the VIN or the vehicle label final assembly
point. In the limited situations in which the VIN and vehicle label may
provide different final assembly locations, the proposed regulations
allowed taxpayers to choose the standard that is more favorable to
them. Moreover, the VIN and vehicle labels will diverge only in certain
limited situations with respect to a multi-stage vehicle, and most
multi-stage vehicles have a GVWR of more than 8,500 pounds, and are,
therefore, not subject to the part 583 vehicle labeling requirements.
Furthermore, it is important to leverage existing standards that
provide accessible information to taxpayers, and such information is
more accessible if taxpayers have multiple ways to obtain it.
Accordingly, the final regulations do not adopt this comment.
Another commenter requested that the final regulations define
``final assembly'' more broadly, to include
[[Page 37727]]
assembly of body panels, painting, chassis assembly, trim installation,
and other assembly and fabrication processes that are currently found
in established final assembly plants, to maximize the incentive for
production in the United States. Section 30D(d)(5) and the proposed
definition of ``final assembly'' look to the plant, factory, or other
place at which all component parts necessary for the mechanical
operation of the vehicle are included with the vehicle. Consistent with
the commenter's suggestion, this is generally the location where the
chassis of the vehicle is assembled, because at that point the vehicle
may be mechanically operable. In addition, the two reliance standards
described in the proposed regulations, the vehicle's plant of
manufacture as reported in the VIN, and the final assembly point
reported on the vehicle label, generally also look to the location
where the chassis of the vehicle is assembled. The other processes
suggested by the commenter (body panel assembly, painting, and trim
installation) do not affect mechanical operation of the vehicle and
therefore are inconsistent with the definition of ``final assembly''
for purposes of 30D. Moreover, the VIN and labeling standards also
would not consider such processes in determining the vehicle's plant of
manufacture or final assembly point. To provide accessible information
to taxpayers and to create an administrable rule, especially because
the final assembly rule was immediately effective upon passage of the
IRA,\6\ the Treasury Department and the IRS determined it was necessary
to leverage existing reporting of final assembly rather than create an
alternative definition that relies on information that is not currently
available to the public. The Treasury Department and the IRS consulted
with the Department of Transportation in developing the proposed and
final regulations regarding final assembly. Because the proposed
definition of ``final assembly'' is consistent with the statutory
definition and provides an administrable rule, the final regulations do
not adopt this comment with respect to processes other than chassis
assembly.
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\6\ The final assembly requirement amendments made to section
30D in the IRA were applicable to vehicles sold after the date of
enactment of the IRA. Public Law 117-169 Sec. 13401(k)(2).
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Another commenter stated that entities already in the process of
constructing production facilities should not be held at a disadvantage
given the economic opportunity of creating additional domestic jobs.
The North American final assembly requirement in section 30D(d)(1)(G)
is prescribed by statute, and the IRA provided an immediately
applicable effective date for this provision (August 17, 2022).
Accordingly, the final regulations do not adopt this comment.
15. Foreign Entity of Concern
Proposed Sec. 1.30D-6(a)(10), consistent with section 30D(d)(7),
defined ``foreign entity of concern'' to have the same meaning as in
section 40207(a)(5) of the Infrastructure Investment and Jobs Act and
guidance promulgated thereunder by the DOE. The final regulations adopt
the proposed definition and move it to Sec. 1.30D-2(b).
The definition of ``foreign entity of concern'' under section
40207(a)(5) of the Infrastructure Investment and Jobs Act is under the
jurisdiction of the DOE. On December 1, 2023, contemporaneous with the
issuance of the December Proposed Regulations, the DOE issued proposed
interpretative guidance relating to the definition. 88 FR 84082
(published December 4, 2023). A number of commenters to the December
Proposed Regulations made requests or suggestions with respect to the
definition. These comments are outside of the scope of these
regulations, and are not further addressed in this Summary of Comments
and Explanation of Revisions.
Similarly, several commenters requested more detailed thresholds
and processes for determining the involvement of FEOC entities based on
entity ownership, control of, and/or acting jurisdiction. The
determination of whether an entity is owned by, controlled by, or
subject to the jurisdiction of a FEOC is within the jurisdiction of the
DOE and its interpretive guidance. Accordingly, the comments are
outside of the scope of these final regulations. One commenter also
requested that the final regulations address the potential for
arbitrage by artificially increasing the value of a critical mineral or
battery component not based in or under the control of a FEOC. Because
the FEOC Restriction is not based on value of materials, the final
regulations do not adopt this comment.
16. FEOC-Compliant
Proposed Sec. 1.30D-6(a)(11), adopted and moved to Sec. 1.30D-
2(b) of the final regulations, defined ``FEOC-compliant'' to mean in
compliance with the applicable excluded entity requirement under
section 30D(d)(7). The definition provided specific rules with respect
to a clean vehicle battery, a battery component (other than a battery
cell), a battery cell, and an applicable critical mineral. A number of
commenters raised questions with respect to the due diligence required
to determine if an item is FEOC-compliant or commented on the FEOC
Restriction. These comments are addressed in section III.D of this
Summary of Comments and Explanation of Revisions.
17. Manufacturer
Proposed Sec. 1.30D-2(k) provided, consistent with section
30D(d)(3), that ``manufacturer'' means any manufacturer within the
meaning of the regulations prescribed by the EPA for purposes of the
administration of title II of the Clean Air Act (CAA) (42 U.S.C. 7521
et seq.) and as defined in 42 U.S.C. 7550(1).
Under 42 U.S.C. 7550(1) and 40 CFR 1068.30 under the CAA
regulations, multiple parties may be a manufacturer with respect to a
vehicle. To address this situation, the proposed definition also
provided that, if multiple manufacturers are involved in the production
of a vehicle, the requirements provided in section 30D(d)(3), which
must be met for a vehicle to qualify for the section 30D, 45W and 25E
credits, must be met by the manufacturer who satisfies the reporting
requirements of the greenhouse gas emissions standards (CAA emissions
reporting requirements) set by the EPA under the CAA for the subject
vehicle. The purpose of the proposed multiple manufacturer rule was to
provide a clear rule for OEMs and other parties that may be considered
a manufacturer under the CAA regulations.
One commenter suggested that the final regulations modify the
definition of ``manufacturer'' to include upstream members of the
critical mineral supply chain, including cell manufacturers, cathode
manufacturers, and anode manufacturers, in addition to the OEMs.
Because the proposed regulations define a manufacturer by referring to
the CAA regulations, if an upstream manufacturer is covered by the CAA
regulations, that party will be a manufacturer under section 30D.
However, if the upstream manufacturer is not covered by the CAA
regulations, the statute would not include such manufacturers in the
definition of ``manufacturer.'' Accordingly, the final regulations do
not adopt this comment.
Another commenter requested that the multiple manufacturer rule be
modified to include upfitters as manufacturers. Upfitters purchase new
internal combustion engine (ICE) motor vehicles from manufacturers and
then modify them into clean vehicles prior to the vehicle being placed
in service by
[[Page 37728]]
the ultimate purchaser. Because the ICE vehicle manufacturer is subject
to the CAA emissions reporting requirements, neither the upfitter nor
the ICE vehicle manufacturer would be able to meet the requirements of
section 30D(d)(1)(C) and (3) under the multiple manufacturer rule in
the proposed regulations. As a result, the vehicles modified by the
upfitter would be ineligible for the section 25E, 30D, and 45W credits.
The Treasury Department and the IRS have concluded that including
upfitters in the definition of ``manufacturer'' is consistent with the
statutory language of section 30D and the CAA regulations, as well as
Congressional intent to incentivize the development and purchase of
non-ICE vehicles. Accordingly, the final regulations modify the
multiple manufacturer rule to allow a manufacturer that modifies a new
vehicle into either a new clean vehicle or a qualified commercial clean
vehicle to enter into an agreement under section 30D(d)(3) if such
modification occurs prior to the new motor vehicle being placed in
service.
The same commenter requested that the final regulations allow this
rule to apply retroactively for purposes of the section 45W credit for
upfitters that modify new vehicles into qualified commercial clean
vehicles. Section III.A.23 of this Summary of Comments and Explanation
of Revisions concerning the definition of qualified manufacturer
addresses this comment.
One commenter suggested that final regulations provide robust
oversight of OEMs, including mandatory reporting of certain economic
impacts including the collective bargaining status of final assembly
plants, and repurposing the EPA's Clean School Bus Program's OEM Job
Quality and Workforce Development questionnaire. This comment is beyond
the scope of the final regulations and is not adopted.
The final regulations adopt the proposed definition of
``manufacturer'' with the modification regarding upfitters. In
addition, the final regulations move the definition to Sec. 1.30D-
2(b).
18. Manufacturer's Suggested Retail Price (MSRP)
Proposed Sec. 1.30D-2(c) provided that for purposes of the MSRP
limitation in section 30D(f)(11)(A), ``manufacturer's suggested retail
price'' means the sum of: (A) the retail price of the automobile
suggested by the manufacturer as described in 15 U.S.C. 1232(f)(1); and
(B) the retail delivered price suggested by the manufacturer for each
accessory or item of optional equipment, physically attached to such
automobile at the time of its delivery to the dealer, which is not
included within the price of such automobile as stated pursuant to 15
U.S.C. 1232(f)(1), as described in 15 U.S.C. 1232(f)(2). This price
information is reported on the label that is affixed to the windshield
or side window of the vehicle, as described in 15 U.S.C. 1232.17.
One commenter stated that the determination of MSRP by
manufacturers is not well-regulated, and that the final regulations
should restrict manufacturers from setting an artificially low MSRP.
The commenter suggested that the MSRP should be the actual out the door
price paid, and should be limited so that the average cash price paid
by consumers does not exceed the MSRP set by manufacturers. Another
commenter suggested that the vehicle's base price (exclusive of
accessories) be used to determine whether a vehicle's price is under
the limitation to be eligible for the section 30D credit.
Section 30D(f)(11) restricts vehicle eligibility for the section
30D credit on the basis of MSRP, not on the basis of actual price paid.
In addition, the Treasury Department and the IRS have determined that
the MSRP should include not just the base MSRP described in 15 U.S.C.
1232(f)(1), but also the portion of the MSRP described in 15 U.S.C.
1232(f)(2) (each accessory or item of optional equipment, physically
attached to the automobile at the time of its delivery to the dealer)
because looking solely at base MSRP could encourage manufacturers to
artificially lower the base MSRP and increase the amount of the MSRP
allocated to accessories or items of optional equipment in an attempt
to circumvent the MSRP limitations. Accordingly, the final regulations
do not adopt the comments.
The final regulations adopt the proposed definition and move it to
Sec. 1.30D-2(b).
19. New Clean Vehicle
Proposed Sec. 1.30D-2(m) defined ``new clean vehicle'' as a
vehicle that meets the requirements described in section 30D(d). Under
the proposed regulations, a new clean vehicle would not include any
vehicle for which the qualified manufacturer: (1) fails to provide a
periodic written report for such vehicle prior to the vehicle being
placed in service, reporting the VIN of such vehicle and certifying
compliance with the requirements of section 30D(d); (2) provides
incorrect information with respect to the periodic written report for
such vehicle; (3) fails to update its periodic written report in the
event of a material change with respect to such vehicle; or (4) fails
to meet the requirements of proposed Sec. 1.30D-6(d) for new clean
vehicles placed in service after December 31, 2024. For purposes of
section 30D(d)(6), the term ``new clean vehicle'' includes any new
qualified fuel cell motor vehicle (as defined in section 30B(b)(3))
that meets the requirements under section 30D(d)(1)(G) and (H).
Several commenters suggested that the Treasury Department and the
IRS not allow leased vehicles to bypass the stringent domestic-sourcing
requirements under section 30D by making the section 45W credit
available for such vehicles. Another commenter asked whether the
Modified AGI limitation would apply to the lessor or lessee if a clean
vehicle is leased to individuals and, if used for business purposes,
would fall within section 45W. Section 30D and section 45W each include
a no double benefit rule. See section 30D(f)(2) and section 45W(d)(3).
This demonstrates that under the statutory framework, certain vehicles
may qualify for both the section 30D credit and the section 45W credit,
and that in such instances, the taxpayer must choose which credit to
claim. Further, as described in IRS Fact Sheet FS-2023-22, Topic G, Q5-
7, a taxpayer that leases clean vehicles to its customers as its
business may be eligible to claim the section 45W credit if the
taxpayer is the owner of such vehicles for Federal income tax purposes.
The owner of the vehicle is determined based on whether the lease is
respected as a lease or is recharacterized as a sale for Federal income
tax purposes. The Modified AGI limitation, if applicable, applies to
the owner of the vehicle who places it in service for use or lease, and
not to the lessee. Accordingly, the final regulations do not adopt
these comments.
One commenter expressed concern that vehicles used in a courtesy
transportation program would be ineligible for the section 30D credit
upon a later sale due to the original use rule of section 30D(d)(1)(A).
Because the original use rule is statutory, the final regulations do
not adopt this comment. However, the owner of the vehicle that is used
in a courtesy transportation program may itself be able to claim a
section 30D credit.
Section 30D(d)(1)(F) requires the vehicle to be propelled to a
significant extent by an electric motor that draws electricity from a
battery that has a capacity of not less than 7 kilowatt hours, and is
capable of being recharged from an external source of electricity.
[[Page 37729]]
One commenter requested that the final regulations define ``significant
extent'' in the context of section 30D(d)(1)(F), but did not propose a
definition. Given the purpose of this requirement to distinguish ICE
vehicles from battery electric vehicles and plug-in hybrid electric
vehicles, and the possibility for technical change in this area, it
would be impracticable to precisely define the term. For these reasons,
the final regulations do not adopt this comment.
Finally, one commenter suggested making the VINs of eligible
vehicles available in an accessible, dealer-facing database, which
would allow dealers to use a common source to readily identify which
vehicles are eligible for the section 30D credit, reduce confusion, and
improve deployment. This comment is outside of the scope of these final
regulations. However, the Treasury Department and the IRS, together
with the DOE, have provided public-facing information regarding vehicle
eligibility via the IRS website and <a href="https://fueleconomy.gov">https://fueleconomy.gov</a> and will
continue to develop such information in a way that is accessible to
dealers and taxpayers.
The final regulations adopt the proposed definition of ``new clean
vehicle'' with clarifying language that new clean vehicles include
battery electric vehicles, plug-in hybrid electric vehicles, fuel cell
motor vehicles, and plug-in hybrid fuel cell motor vehicles.
20. New Qualified Fuel Cell Motor Vehicle
To provide additional clarity to taxpayers, the final regulations
add a definition of a ``new qualified fuel cell motor vehicle'' to
Sec. 1.30D-2(b) that is consistent with section 30D(d)(6).
Specifically, the final regulations define ``new qualified fuel cell
motor vehicle'' to be any new qualified fuel cell motor vehicle (as
defined in section 30B(b)(3)) that meets the requirements under section
30D(d)(1)(G) (that is, the final assembly in North America requirement)
and (H) (that is, the seller report requirement), and that does not
have a clean vehicle battery. This definition includes otherwise
qualifying vehicles that have only a ``start-stop'' battery, because
such a battery is not a clean vehicle battery.
21. Non-Traceable Battery Materials/Impracticable-to-Trace Battery
Materials
Proposed Sec. 1.30D-6(a)(13)(i) defined ``non-traceable battery
materials'' to mean specifically identified low-value battery materials
that may originate from multiple sources and are often commingled
during refining, processing, or other production processes by suppliers
to such a degree that the qualified manufacturer cannot, due to current
industry practice, feasibly determine and attest to the origin of such
battery materials. Proposed Sec. 1.30D-6(a)(13)(ii), which was
reserved, would have provided the specific list of identified non-
traceable battery materials. In the Explanation of Provisions to the
December Proposed Regulations, the Treasury Department and the IRS,
after extensive consultation with the DOE, stated that they would
consider whether the following applicable critical minerals (and
associated constituent materials) may be designated as identified non-
traceable battery materials: applicable critical minerals contained in
electrolyte salts, electrode binders, and electrolyte additives.
The Treasury Department and the IRS received a number of comments
with respect to the definition of ``non-traceable battery materials''
as well as the related FEOC Restriction transition rule for non-
traceable battery materials. Section III.D of this Summary of Comments
and Explanation of Revisions discusses these comments.
Consistent with the expectation and requirement that OEMs will
develop thorough tracing processes in the future, even while such
processes do not now exist, the final regulations retain the list but
change the name to ``impracticable-to-trace battery materials.'' The
final regulations adopt the proposed definition and move it to Sec.
1.30D-2(b). Specifically, the final regulations define ``identified
impracticable-to-trace battery materials'' as applicable critical
minerals in the following circumstances: graphite contained in anode
materials (both synthetic and natural) and applicable critical minerals
contained in electrolyte salts, electrode binders, and electrolyte
additives.
22. Processing
Proposed Sec. Sec. 1.30D-3(c)(13) and 1.30D-6(a)(14) defined
``processing'' as the non-physical processes involved in the refining
of non-recycled substances or materials, including the treating,
baking, and coating processes used to convert such substances and
materials into constituent materials. The proposed regulations further
provided that processing begins when chemical or thermal processes, or
the combination of them, are used on extracted minerals or natural
resources or manmade minerals or resources to create a new product
that, through subsequent steps in the applicable critical minerals
supply chain, will be processed into a final constituent material.
Under the proposed regulations, processing included the chemical or
thermal processes involved in refining, but did not include the
physical processes involved in refining.
One commenter requested that the final regulations include high
temperature heat treatment among the listed non-physical processes
involved in refining that constitute processing to ensure that
graphitization is included as processing. High temperature heat
treatment is a thermal process, so it is already included in the
definition of processing. Therefore, the commenter's requested
modification is unnecessary.
Another commenter specifically requested that the final regulations
address a fact pattern in which lithium carbonate is procured from an
ally of the United States that is not a country with which the United
States has a free trade agreement in effect, but is processed into both
lithium hydroxide and cathode active material in the United States or a
country with which the United States has a free trade agreement in
effect. Lithium carbonate is a form of an applicable critical mineral
specified in 45X(c)(6); therefore, it is subject to the Critical
Minerals Requirement. Lithium carbonate that is procured from a region
that is not in the United States or a country with which the United
States has a free trade agreement in effect but is processed in the
United States may be counted in the numerator of the qualifying
critical mineral content calculation to the extent of the value added
in the United States.
A number of commenters requested clarification on the line between
extraction and processing. One commenter requested that the final
regulations clarify that minor treatments necessary to render raw
materials transportable are not processing (as chemical or thermal
refining), but are instead extraction (as beneficiation). Another
commenter noted that evolving technologies, such as glycine leaching
technology, simplify value chains and may not uniquely fit into the
proposed definitions of ``extraction'' or ``processing.'' One commenter
recommended narrowing the definition of ``processing'' to exclude
processes performed during battery manufacturing. Another commenter
requested that the final regulations provide additional examples of
different procurement chains that illustrate where the extraction and
processing steps begin and end. Finally, another commenter proposed
alternative definitions of ``extraction'' and ``processing'' that
conform with the commenter's view of industry practice, rather than
distinguish between physical and non-physical processes. That same
commenter requested that the
[[Page 37730]]
final regulations clarify that smelting nickel is extraction rather
than processing, again consistent with the commenter's view of industry
practice. The Treasury Department and the IRS note that smelting nickel
is a thermal process and is therefore already included in the proposed
definition of ``processing.'' Further, the proposed regulations
expressly list, in the definitions of ``extraction'' and
``processing,'' production steps that are generally high value add, and
it is likely not possible to generate an exhaustive list given the
variety of production steps that may apply to the various applicable
critical minerals. Moreover, the proposed regulations are more
administrable than a rule based on industry standards, which may change
in the future. Accordingly, the final regulations do not adopt these
comments.
The final regulations adopt the definition of ``processing'' in
proposed Sec. Sec. 1.30D-3(c)(13) and 1.30D-6(a)(14), consolidate it
into a single provision, and move it to Sec. 1.30D-2(b).
23. Qualified Manufacturer
Proposed Sec. 1.30D-3(c)(15), applicable to the Critical Minerals
and Battery Components Requirements, defined a ``qualified
manufacturer'' as a manufacturer described in section 30D(d)(3).
Proposed Sec. 1.30D-2(l), applicable as a general definition for
section 30D purposes, similarly defined a ``qualified manufacturer'' as
a manufacturer that meets the requirements described in section
30D(d)(3). In addition, proposed Sec. 1.30D-2(l) provided that the
term ``qualified manufacturer'' does not include any manufacturer whose
qualified manufacturer status has been terminated by the IRS for fraud,
intentional disregard, or gross negligence with respect to any
requirements of section 30D, including with respect to the periodic
written reports described in section 30D(d)(3) and proposed Sec.
1.30D-2(m), and any attestations, documentation, or certifications
described in proposed Sec. Sec. 1.30D-3(e) and 1.30D-6(d), at the time
and in the manner provided in the Internal Revenue Bulletin (see Sec.
601.601 of this chapter).
As in discussed in section III.A.17 of this Summary of Comments and
Explanation of Revisions concerning the definition of ``manufacturer,''
a commenter requested that the proposed multiple manufacturer rule be
modified to include upfitters as manufacturers. The same commenter
requested that the final regulations allow upfitters to rely on any
final regulations as of January 1, 2023, register as qualified
manufacturers after the final regulations are published, and include in
such upfitters' first periodic written report to the IRS information
regarding all vehicles that the upfitter asserts are eligible for the
section 45W credit. This comment is outside the scope of the final
regulations because (i) it pertains to the section 45W credit, and (ii)
the qualified manufacturer registration process is addressed in Revenue
Procedure 2023-33 and other sub-regulatory guidance. Accordingly, the
final regulations do not adopt this comment.
However, in considering the comment regarding upfitters, the
Treasury Department and the IRS have determined that it is necessary to
clarify when qualified manufacturer status is determined. Accordingly,
the final regulations clarify that, for purposes of determining whether
the qualified manufacturer requirement of section 30D(d)(1)(C) is met,
a new clean vehicle is made by a qualified manufacturer if it is made
by a manufacturer that is a qualified manufacturer at the time a
written report is submitted to the IRS under a qualified manufacturer
agreement, as described in section 30D(d)(3). This rule is consistent
with section 30D, as well as its underlying purpose of incentivizing
clean vehicle deployment. Further, under this rule, a vehicle made by a
manufacturer that was not a qualified manufacturer at the time of
production may still qualify as a new clean vehicle, provided the
manufacturer becomes a qualified manufacturer and submits a written
report to the IRS prior to the time the vehicle is sold. In addition,
The Treasury Department and the IRS lack authority to provide
retroactive relief with respect to vehicles that were sold prior to the
time the qualified manufacturer submitted a periodic written report to
the IRS under the qualified manufacturer agreement. Finally, the
qualified manufacturer requirements of sections 30D(d)(1)(C) and
30D(d)(3), and therefore these final regulations, also apply for
purposes of sections 25E and 45W. See sections 25E(c)(1)(D)(i) and
45W(c)(1). Therefore, a vehicle made by a manufacturer that was not a
qualified manufacturer at the time of production--including a vehicle
produced prior to enactment of the IRA, when there were no qualified
manufacturer rules with respect to section 30D--may qualify as a
previously-owned clean vehicle, provided the manufacturer becomes a
qualified manufacturer and submits a written report to the IRS prior to
the time the vehicle is sold. Consistent with this rule and with the
statute, the final regulations provide that the IRS may terminate
qualified manufacturer status for fraud, intentional disregard, or
gross negligence with respect to any requirement of section 25E or
section 45W or any regulations thereunder.
The final regulations adopt the proposed definition of ``qualified
manufacturer'' with the modification described previously, and move it
Sec. 1.30D-2(b).
24. Recycling
Proposed Sec. Sec. 1.30D-6(a)(15) and 1.30D-3(c)(19) defined
``recycling'' as the series of activities during which recyclable
materials containing applicable critical minerals are transformed into
specification-grade commodities and consumed in lieu of virgin
materials to create new constituent materials; such activities result
in new constituent materials contained in the battery from which the
electric motor of a new clean vehicle draws electricity. Under the
proposed regulations, all physical, chemical, and thermal treatments or
modifications that convert recycled feedstocks to specification grade
constituent materials are included in recycling. The Explanation of
Provisions to the April Proposed Regulations noted that this definition
aligns with the current methods of direct, hydrometallurgical, or
pyrometallurgical recycling that are utilized commercially for reuse of
materials for battery applications.
In addition, proposed Sec. 1.30D-6(c)(4)(ii)(D), provided that,
for purposes of the FEOC Restriction, an applicable critical mineral
and associated constituent material that is recycled is subject to the
FEOC-compliance determination if the recyclable material (1) contains
an applicable critical mineral, (2) contains material that was
transformed from an applicable critical mineral, or (3) is used to
produce an applicable critical mineral at any point during the
recycling process. Under the proposed regulations, the determination of
whether an applicable critical mineral or associated constituent
material that is incorporated into a battery via recycling is FEOC-
compliant took into account only activities that occurred during the
recycling process.
One commenter noted that the definition of ``recycling'' is vague
and does not clearly define which recycling steps (for example,
shredding, separating, producing black mass, and critical mineral
refinement processing) can and cannot occur within a FEOC. The
commenter requested that the final regulations clarify that all
recycling
[[Page 37731]]
activities must occur in a non-FEOC facility for the recycled material
to qualify as FEOC-compliant in a new clean vehicle battery. Under the
proposed regulations, the determination of whether an applicable
critical mineral or associated constituent material that is
incorporated into a battery via recycling is FEOC-compliant already
takes into account all recycling activities. Accordingly, the suggested
clarification is unnecessary.
Another commenter recommended that the Treasury Department and the
IRS work with the DOE and other agencies to develop safeguards to
prevent batteries from being recycled before the end of their useful
lives by entities seeking to convert non-FEOC-compliant batteries into
FEOC-compliant batteries through recycling. Critical minerals and
associated constituent materials are subject to both the Critical
Minerals Requirement and the FEOC Restriction. The Critical Minerals
Requirement generally looks to the value of the recycled materials. Due
to this requirement, as well as market forces, it will generally be
uneconomical to recycle batteries before the end of their useful lives
for purposes of the FEOC Restriction. Accordingly, the final
regulations do not adopt this comment.
The final regulations consolidate the definition of ``recycling''
in proposed Sec. Sec. 1.30D-3(c)(19), 1.30D-6(a)(15), and 1.30D-
6(c)(4)(ii)(D) into a single provision, and move it to Sec. 1.30D-
2(b). Specifically, the final regulations define ``recycling'' as the
series of activities during which recyclable materials containing
applicable critical minerals are transformed into specification-grade
commodities and consumed in lieu of virgin materials to create new
constituent materials; such activities result in new constituent
materials contained in the clean vehicle battery. Under the final
regulations, all physical, chemical, and thermal treatments or
modifications that convert recycled feedstocks to specification-grade
constituent materials are included in recycling. Further, recycled
applicable critical minerals and associated constituent materials are
only subject to the requirements under Sec. Sec. 1.30D-3 and 1.30D-6
if the recyclable material contains an applicable critical mineral,
contains material that was transformed from an applicable critical
mineral, or if the recyclable material is used to produce an applicable
critical mineral at any point during the recycling process. The
requirements under Sec. Sec. 1.30D-3 and 1.30D-6 only take into
account activities that occurred during the recycling process.
The final regulations also add an example that illustrates which
activities are taken into account with respect to recycling for
purposes of the Critical Minerals Requirement and the FEOC Restriction.
25. Section 30D Regulations
Proposed Sec. 1.30D-2(f) defined ``section 30D regulations'' to
mean Sec. Sec. 1.30D-1 through 1.30D-4. The final regulations modify
the definition to mean Sec. Sec. 1.30D-1 through 1.30D-6, and move it
to Sec. 1.30D-2(b).
26. Seller Report
Proposed Sec. 1.30D-2(j) defined ``seller report'' as the report
described in section 30D(d)(1)(H) and provided by the seller of a
vehicle to the taxpayer and the IRS in the manner provided in, and
containing the information described in, guidance published in the
Internal Revenue Bulletin (see Sec. 601.601 of this chapter). The
proposed regulations further provided that the seller report must be
provided to the IRS electronically. In addition, the proposed
regulations provided that the term ``seller report'' does not include a
report rejected by the IRS due to the information contained therein not
matching IRS records. The final regulations adopt the proposed
definition and move it to Sec. 1.30D-2(b).
One commenter requested that the IRS issue a form, with related
instructions, for making seller reports to taxpayer/purchasers as
required by Sec. 30(D)(d)(1)(H). The Treasury Department and the IRS
have issued such a form, Form 15400, Clean Vehicle Seller Report.
27. Value
Proposed Sec. 1.30D-3 defined ``value,'' with respect to property,
as the arm's-length price that was paid or would be paid for the
property by an unrelated purchaser determined in accordance with the
principles of section 482 of the Code and regulations thereunder. The
final regulations adopt the proposed definition and move it to Sec.
1.30D-2(b).
One commenter recommended that the Treasury Department and the IRS
consider how the term ``value'' might be defined in a manner that
accommodates and incentivizes further technological innovation,
increased performance and efficiency, and minimization of environmental
impacts. The commenter, however, did not propose a specific
modification to the definition. The final regulations, consistent with
the proposed regulations, define ``value'' in accordance with
longstanding tax law principles.
28. Vehicle Classifications
Proposed Sec. 1.30D-2(g) provided that the vehicle classification
of a new clean vehicle is to be determined consistent with the EPA's
fuel economy labeling rules and definitions provided in 40 CFR 600.315-
08 for vans, sport utility vehicles, pickup trucks, and other vehicles.
Specifically, ``van'' means a vehicle classified as a van or minivan
under 40 CFR 600.315-08(a)(2)(iii) and (iv), or otherwise so classified
by the Administrator of the EPA pursuant to 40 CFR 600.315-
08(a)(3)(ii); ``sport utility vehicle'' means a vehicle classified as a
small sport utility vehicle or standard sport utility vehicle under 40
CFR 600.315-08(a)(2)(v) and (vi), or otherwise so classified by the
Administrator of the EPA pursuant to 40 CFR 600.315-08(a)(3)(ii);
``pickup truck'' means a vehicle classified as a small pickup truck or
standard pickup truck under 40 CFR 600.315-08(a)(2)(i) and (ii), or
otherwise so classified by the Administrator of the EPA pursuant to 40
CFR 600.315-08(a)(3)(ii); and ``other vehicle'' means any vehicle
classified in one of the classes of passenger automobiles listed in 40
CFR 600.315-08(a)(1), or otherwise so classified by the Administrator
of the EPA pursuant to 40 CFR 600.315-08(a)(3)(ii).
One commenter commended the Treasury Department's and the IRS's
decision to align the section 30D vehicle classification definitions
with existing EPA regulations, which incorporate certain classification
flexibility. For added clarity, the commenter recommended that the
final regulations adopt by reference less specific pin cites in the EPA
fuel economy labeling regulations to better reflect EPA's general
classification authority. In particular, the commenter suggested that
the final regulations define a sport utility vehicle by citing 40 CFR
600.315-08(a)(1), which states that the EPA Administrator may classify
passenger automobiles by car line into one of the classes based on
interior volume index or seating capacity except for those that the
Administrator determines are most appropriately placed in a different
classification. Additionally, the commenter suggested that the final
regulations define pickup truck by citing 40 CFR 600.315-08(a)(2) or 40
CFR 600.315-08 generally rather than 40 CFR 600.315-08(a)(3)(ii). After
consultation with the EPA, the Treasury Department and the IRS agree
that a more general cross-reference to EPA's classification authority
is warranted, given the authority not only in 40 CFR 600.315-
08(a)(3)(ii) but also in 40 CFR 600.315-08(a)(1) and (2). The final
[[Page 37732]]
regulations adopt the comment and modify the definitions accordingly.
Another commenter requested that the MSRP limitation under section
30D(f)(11)(B) be expanded to apply to all crossover vehicles similar to
the re
[…truncated; see source link]Indexed from Federal Register on May 6, 2024.
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