Clean Vehicle Credits Under Sections 25E and 30D; Transfer of Credits; Critical Minerals and Battery Components; Foreign Entities of Concern

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.

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

§§ 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

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

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).

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.

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.

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

assistance from the DOE, will review compliance with the excluded entity restrictions. In addition, Rev. Proc. 2023-38 updates and consolidates the procedural rules for qualified manufacturers with respect to the section 25E credit, the section 30D credit, and the qualified commercial clean vehicle credit under section 45W. The revenue procedure supersedes certain provisions of Rev. Proc. 2022-42 and Rev. Proc. 2023-33.

On February 26, 2024, the Treasury Department and the IRS published Revenue Procedure 2024-12, 2024-9 I.R.B. 677. The revenue procedure provides a temporary extension of time to submit seller reports to the IRS under the procedures set out in Rev. Proc. 2022-42 and Rev. Proc. 2023-33 for the transfer of section 25E credits and 30D credits.

VII. Notice 2023-1, Notice 2023-16, and 30D White Paper

On January 17, 2023, the Treasury Department and the IRS published Notice 2023-1, 2023-3 I.R.B. 373, which describes definitions for certain terms in section 30D that the Treasury Department and the IRS intended to include in proposed regulations.

The Treasury Department also released a white paper on the anticipated direction of the proposed guidance on the Critical Minerals Requirement and Battery Components Requirement and the process for determining whether vehicles qualify under these requirements, as of December 29, 2022.

See

“Anticipated Direction of Forthcoming Proposed Guidance on Critical Mineral and Battery Component Value Calculations for the New Clean Vehicle Credit,” Dec. 29, 2022,

https://home.treasury.gov/system/files/136/30DWhite-Paper.pdf

(last accessed March 16, 2024).

On February 21, 2023, the Treasury Department and the IRS published Notice 2023-16, 2023-8 I.R.B. 479, which modifies Notice 2023-1 by revising the vehicle classification standard that the Treasury Department and the IRS intended to provide in proposed regulations.

VIII. Notices of Proposed Rulemaking

On April 17, 2023, the Treasury Department and the IRS published a notice of proposed rulemaking (REG-120080-22) in the

Federal Register

(88 FR 23370), containing proposed regulations under section 30D (April Proposed Regulations). The April Proposed Regulations provided proposed definitions for certain terms related to section 30D; proposed rules regarding personal and business use of new clean vehicles and other special rules; and additional proposed rules related to the Critical Minerals and Battery Components Requirements of section 30D(e) in proposed § 1.30D-3.

On October 10, 2023, the Treasury Department and the IRS published a notice of proposed rulemaking (REG-113064-23) in the

Federal Register

(88 FR 70310), which provided proposed guidance for elections to transfer clean vehicle credits under sections 25E(f) and 30D(g) (October Proposed Regulations). The October Proposed Regulations provided proposed guidance for taxpayers intending to transfer the section 25E credit and the section 30D credit to dealers that are entities eligible to receive advance payments of such credits. The October Proposed Regulations also provided proposed guidance for how dealers become eligible entities to receive advance payments of the section 25E credit and the section 30D credit. In addition, the October Proposed Regulations provided proposed guidance regarding basic and definitional provisions in for section 25E, recapture of the section 25E and section 30D credits, and math error authority under section 6213.

On December 4, 2023, the Treasury Department and the IRS published a notice of proposed rulemaking (REG-118492-23) in the

Federal Register

(88 FR 84098), which provided guidance regarding the excluded entities limitation of section 30D(d)(7) (December Proposed Regulations). The December Proposed Regulations provided proposed definitions and proposed rules for qualified manufacturers of vehicles to determine eligibility for the section 30D clean vehicle credit regarding the excluded entity restrictions, under which vehicles placed in service beginning in 2024 are not eligible if the battery contains battery components manufactured or assembled by a FEOC, and vehicles placed in service beginning in 2025 are not eligible if the battery contains applicable critical minerals extracted, processed, or recycled by a FEOC.

IX. Department of Energy Guidance

Concurrently with the release of the December Proposed Regulations, the DOE released proposed guidance in the

Federal Register

, which provides proposed interpretations of certain terms used in the definition of FEOC set forth in section 40207(a)(5) of the Infrastructure Investment and Jobs Act (IIJA), and as cross-referenced in section 30D(d)(7). Concurrently with the release of these final regulations, the DOE is releasing final regulations under section 40207(a)(5) of the IIJA.

Section 40207(a)(5) of the IIJA defines FEOC to include foreign entities covered by specific designations, inclusions, and allegations by Federal agencies as described in section 40207(a)(5)(A), (B), and (D), as well as foreign entities “owned by, controlled by, or subject to the jurisdiction or direction of a government” of a covered nation under section 40207(a)(5)(C). Covered nations are defined in 10 U.S.C. 4872(d)(2) as the People's Republic of China, the Russian Federation, the Democratic People's Republic of Korea, and the Islamic Republic of Iran, as of the date of publication of the these final regulations and the DOE final guidance. Finally, section 40207(a)(5)(E) of the IIJA provides that a FEOC includes a foreign entity that the Secretary of Energy, in consultation with the Secretary of Defense and the Director of National Intelligence, determines is engaged in unauthorized conduct that is detrimental to the national security or foreign policy of the United States. The DOE final guidance provides an interpretation of section 40207(a)(5)(C) of the IIJA. In particular, the DOE final guidance provides definitions for the terms “government of a foreign country,” “foreign entity,” “subject to the jurisdiction,” and “owned by, controlled by, or subject to the direction of.” In general, an entity incorporated in, headquartered in, or performing the relevant activities in a covered nation would be classified as a FEOC. For purposes of these rules, an entity would be “owned by, controlled by, or subject to the direction” of another entity if 25 percent or more of the entity's board seats, voting rights, or equity interest are cumulatively held by such other entity. In addition, licensing agreements or other contractual agreements may also create control. Finally, “government of a foreign country” is defined to include subnational governments and certain current or former senior foreign political figures.

Summary of Comments and Explanation of Revisions

The Treasury Department and the IRS received over 180 written and electronic comments in response to the April Proposed Regulations, the October Proposed Regulations, and the December Proposed Regulations (collectively, the proposed regulations). A public hearing on the proposed regulations was held on January 31, 2024. Copies of written comments and the list of speakers at the public hearing are available at

https://www.regulations.gov

or upon request.

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 § 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 § 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 § 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 § 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 § 1.25E-1(b)(8)(ii) and define “vehicle history report” as a report “issued by an approved provider at

www.vehiclehistory.bja/ojp.gov/nmvtis_vehiclehistory

.” The website recommended by the commenter provides a list of National Motor Vehicle Title Information System (NMVTIS) approved data providers. This website is maintained by the Department of Justice. The commenter further suggested removing the dealer limitation from the last sentence of proposed § 1.25E-1(b)(8)(ii) and tying the vehicle history report to the time of sale.

Proposed § 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

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 § 1.25E-1(b)(8)(i) and (ii) and finalize the definition of “qualified sale” as § 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 § 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 § 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 § 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 § 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 § 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

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 § 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 § 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 § 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 §§ 1.30D-2, 1.30D-3(c), 1.30D-5(a), and 1.30D-6(a) to § 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 §§ 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.

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 §§ 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 §§ 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

§ 1.46-3(d)(1)(ii) and (4)(i) and § 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”); § 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

§ 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 §§ 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 §§ 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 §§ 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

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 §§ 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 §§ 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 §§ 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 § 1.25E-2(c)(1)(iii) did not address sales by dealers. Proposed § 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 §§ 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 §§ 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 § 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 § 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

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 §§ 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 §§ 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 § 1.25E-3(e)(1)(i) and proposed § 1.25E-3(e)(5) Example 1. With respect to the section 30D credit, this situation is addressed in proposed § 1.30D-5(e)(1)(i) and § 1.30D-5(e)(5) Example 1. These provisions and examples are adopted in the final regulations at § 1.25E-3(e)(1)(i), § 1.25E-3(e)(5) Example 1, § 1.30D-5(e)(1)(i), and § 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 §§ 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 §§ 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 §§ 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 § 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 §§ 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).

2. Definitions

Proposed §§ 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 §§ 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 § 1.30D-5(d)(5)(i)). Accordingly, the final regulations do not adopt the comment to require repayment of an excess credit amount. Proposed §§ 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 §§ 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 § 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 §§ 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 §§ 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 §§ 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 §§ 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

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 §§ 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 §§ 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 §§ 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 §§ 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 §§ 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 §§ 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 §§ 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 §§ 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 §§ 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 §§ 1.25E-2(c)(1)(iii)(E) and 1.30D-4(f)(1)(iii)(E) without modification.

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 §§ 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 §§ 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 §§ 1.25E-3(g)(2)(iii) and 1.30D-5(f)(2)(iii). However, any excess payment attributable to a taxpayer exceeding the limitation based on Modified AGI is not treated as an excessive payment to an eligible entity.

A commenter requested clarification that “reasonable cause” includes an eligible entity's reliance on a manufacturer's calculations for purposes of the Critical Minerals and Battery Components Requirements, as shown on

https://fueleconomy.gov

or elsewhere. Specifically, the commenter requested that the final regulations clearly provide that eligible entities will not be liable for mistaken determinations with respect to those requirements.

Section 4.03 of Revenue Procedure 2022-42 provides that a taxpayer may rely on the information and certifications (which include certifications with respect to the Critical Minerals and Battery Components Requirements and the FEOC Restriction) contained in the qualified manufacturer's periodic written reports. Therefore, in the case of a mistaken calculation by the qualified manufacturer in a periodic written report, the taxpayer is not denied the section 30D credit. Accordingly, if that taxpayer transfers the credit under the advance payment program, the excess of the advance payment to the dealer over the credit otherwise allowable to the taxpayer would be zero, and there is no excessive payment under proposed § 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 §§ 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 §§ 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 §§ 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 § 1.30D-3 and the FEOC Restriction of proposed § 1.30D-6 should be interpreted consistently between those provisions.

Consistent with this statement, the final regulations retain proposed § 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 § 1.30D-3 and proposed § 1.30D-6 to § 1.30D-2(b). However, the final regulations, under § 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 § 1.30D-2(b). Section 1.30D-2(b) also cross-references definitions in proposed § 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 §§ 1.30D-3(c)(1) and 1.30D-6(a)(1), consistent with section

30D(e)(1), defined an “applicable critical mineral” as an applicable critical mineral defined in section 45X(c)(6).

In addition, proposed § 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 § 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 § 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 § 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 § 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 §§ 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 §§ 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 § 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 §§ 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.

In addition, the final regulations incorporate the special rule for recycling in proposed § 1.30D-6(c)(4)(ii)(A) into the definition of “recycling” in § 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 §§ 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 §§ 1.30D-3(c)(2) and 1.30D-6(a)(2), consolidate it into a single provision, and move it to § 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 § 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 § 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 § 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 § 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 §§ 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 §§ 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 §§ 1.30D-3(c)(3) and 1.30D-6(a)(3), consolidate it into a single provision, and move the definition to § 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 §§ 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 §§ 1.30D-3(c)(4) and 1.30D-6(a)(4), consolidate it into a single provision, and move it to § 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

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 §§ 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 § 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

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 § 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 § 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 § 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 § 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 § 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 § 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 § 1.30D-2(b).

10. Constituent Materials

Proposed §§ 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).

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 §§ 1.30D-3(a)(8) and 1.30D-6(c)(6), consolidate it into a single provision, and move it to § 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 § 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 § 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 § 1.30D-3(c)(7)(ii) identified twenty countries with which the United States has comprehensive free trade agreements (that is, agreements covering substantially all trade in goods and services between the parties, including trade in critical minerals). In addition, the Treasury Department and the IRS proposed to include additional countries identified by the Secretary, after consideration of the listed criteria, and identified Japan as an additional country. On March 28, 2023, the United States and Japan concluded a Critical Minerals Agreement (CMA), which contained robust obligations to help ensure free trade in critical minerals.

5

5

Agreement Between the Government of the United States of America and the Government of Japan on Strengthening Critical Minerals Supply Chains, concluded March 28, 2023,

https://ustr.gov/sites/default/files/2023-03/US%20Japan%20Critical%20Minerals%20Agreement%202023%2003%2028.pdf.

Proposed § 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 § 601.601 of the Statement of Procedural Rules (26 CFR part 601)).

The final regulations adopt this definition and move it to § 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 § 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 § 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

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 § 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

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 §§ 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 § 1.30D-2(b).

14. Final Assembly

Proposed § 1.30D-2(b) provided that, consistent with section 30D(d)(5), “final assembly” means the process by which a manufacturer produces a new clean vehicle at, or through the use of, a plant, factory, or other place from which the vehicle is delivered to a dealer or importer with all component parts necessary for the mechanical operation of the vehicle included with the vehicle, whether or not the component parts are permanently installed in or on the vehicle. To establish where final assembly of a new clean vehicle occurred, the proposed regulations provided that a taxpayer could rely on the following information: (1) the vehicle's plant of manufacture as reported in the VIN pursuant to 49 CFR 565; or (2) the final assembly point reported on the label affixed to the vehicle as described in 49 CFR 583.5(a)(3). The final regulations adopt the proposed definition of “final assembly” without change.

The proposed regulations provided two different methods for determining whether a vehicle meets the North American final assembly requirement, either via the VIN or the vehicle label, to ensure that this information was available and accessible for taxpayers. For nearly all vehicles, both methods will provide the same final assembly location. The vehicle's plant of manufacture as reported in the VIN means the plant where the manufacturer affixes the VIN.

See

49 CFR 565.12. The plant of manufacture is reported in the VIN pursuant to 49 CFR 565.15(d)(2). The DOE, Alternative Fuels Data Center (AFDC), and the Department of Transportation, National Highway Traffic Safety Administration (NHSTA), each provide a VIN decoder to the public, which can be used to identify a vehicle's plant of manufacture. AFDC, VIN Decoder,

https://afdc.energy.gov/laws/electric-vehicles-for-tax-credit;

NHTSA, VIN Decoder,

https://www.nhtsa.gov/vin-decoder.

Labeling requirements in 49 CFR 583.5 require the final assembly point to be reported on the label affixed to a passenger motor vehicle as defined in 49 U.S.C. 32304(11) (which limits such vehicles to those with GVWR of 8,500 pounds or less). Final assembly point means the plant, factory, or other place, which is a building or series of buildings in close proximity, where a new passenger motor vehicle is produced or assembled from passenger motor vehicle equipment and from which such vehicle is delivered to a dealer or importer in such a condition that all component parts necessary to the mechanical operation of such automobile are included with such vehicle, whether or not such component parts are permanently installed in or on such vehicle. For multi-stage vehicles, the labeling requirements provide that the final assembly point is the location where the first stage vehicle is assembled. 49 CFR 583.4(b)(5). Multi-stage vehicles are vehicles manufactured in two or more stages by which an incomplete vehicle becomes a completed vehicle and may involve multiple manufacturers.

See

49 CFR 567.3 for definitions of “incomplete vehicle” and “completed vehicle.”

A commenter stated that the proposed rule would allow taxpayers to use the vehicle's plant of manufacture reported on the VIN, rather than the final assembly point, for multi-stage vehicles. However, existing vehicle labeling requirements in 49 CFR part 583 apply to both single-stage and multi-stage vehicles with GVWR of 8,500 pounds or less. Therefore, such requirements provide a final assembly point for both types of vehicles. The proposed regulations provided flexibility to taxpayers in determining whether the section 30D credit final assembly requirement is met by allowing taxpayers to look to either the plant of manufacture identified in the VIN or the vehicle label final assembly point. In the limited situations in which the VIN and vehicle label may provide different final assembly locations, the proposed regulations allowed taxpayers to choose the standard that is more favorable to them. Moreover, the VIN and vehicle labels will diverge only in certain limited situations with respect to a multi-stage vehicle, and most multi-stage vehicles have a GVWR of more than 8,500 pounds, and are, therefore, not subject to the part 583 vehicle labeling requirements. Furthermore, it is important to leverage existing standards that provide accessible information to taxpayers, and such information is more accessible if taxpayers have multiple ways to obtain it. Accordingly, the final regulations do not adopt this comment.

Another commenter requested that the final regulations define “final assembly” more broadly, to include

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,

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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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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 § 13401(k)(2).

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 § 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 § 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 n

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