Section 45X Advanced Manufacturing Production Credit, 86844-86868 [2023-27498]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 88, Number 240 (Friday, December 15, 2023)]
[Proposed Rules]
[Pages 86844-86868]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-27498]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-107423-23]
RIN 1545-BQ85


Section 45X Advanced Manufacturing Production Credit

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and public hearing.

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SUMMARY: This document contains proposed regulations to implement the 
advanced manufacturing production credit established by the Inflation 
Reduction Act of 2022 to incentivize the production of eligible 
components within the United States. Eligible components include 
certain solar energy components, wind energy components, inverters, 
qualifying battery components, and applicable critical minerals. The 
proposed regulations would affect eligible taxpayers who produce and 
sell eligible components and intend to claim the benefit of an advanced 
manufacturing production credit, including by making elective payment 
or credit transfer elections. This document also provides notice of a 
public hearing on the proposed regulations.

DATES: Written or electronic comments must be received by February 13, 
2024.
    A public hearing on this proposed regulation has been scheduled for 
February 22, 2024, at 10 a.m. ET. Requests to speak and outlines of 
topics to be discussed at the public hearing must be received by 
February 13, 2024. If no outlines are received by February 13, 2024, 
the public hearing will be cancelled.
    Requests to attend the public hearing must be received by 5 p.m. ET 
on February 20, 2024. The public hearing will be made accessible to 
people with disabilities. Requests for special assistance during the 
public hearing must be received by 5 p.m. ET on February 16, 2024.

ADDRESSES: Commenters are strongly encouraged to submit public comments 
electronically via the Federal eRulemaking Portal at https://www.regulations.gov (indicate IRS and REG-107423-23) by following the 
online instructions for submitting comments. Requests for a public 
hearing must be submitted as prescribed in the ``Comments and Public 
Hearing'' section. Once submitted to the Federal eRulemaking Portal, 
comments cannot be edited or withdrawn. The Department of the Treasury 
(Treasury Department) and the IRS will publish for public availability 
any comments submitted to the IRS's public docket. Send paper 
submissions to: CC:PA:01:PR (REG-107423-23), Room 5203, Internal 
Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 
20044.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Mindy Chou, John Deininger, or Alexander Scott at (202) 317-6853 (not a 
toll-free number); concerning submissions of comments or the public 
hearing, Vivian Hayes at (202) 317-6901 (not a toll-free number) or by 
email to [email protected] (preferred).

SUPPLEMENTARY INFORMATION: 

Background

    This document contains proposed amendments to the Income Tax 
Regulations (26 CFR part 1) to implement section 45X of the Internal 
Revenue Code (Code). Section 45X was added to the Code on August 16, 
2022, by section 13502(a) of Public Law 117-169, 136 Stat. 1818, 1971, 
commonly referred to as the Inflation Reduction Act of 2022 (IRA). 
Section 13502(c) of the IRA provides that section 45X applies to 
components produced and sold after December 31, 2022.

I. Overview of Section 45X

    Section 45X(a)(1) provides that, for purposes of the general 
business credit under section 38 of the Code, the advanced 
manufacturing production credit (section 45X credit) for any taxable 
year is an amount equal to the sum of the credit amounts determined 
under section 45X(b) with respect to each eligible component, as 
defined in section 45X(c)(1), which is produced by the taxpayer, and 
during the taxable year, sold by such taxpayer to an unrelated person. 
Section 45X(a)(2) provides that any eligible component produced and 
sold by the taxpayer is taken into account only if the production and 
sale is in a trade or business of the taxpayer.
    Section 45X(a)(3) provides rules regarding the sale of components 
to an unrelated person, and generally provides a special rule that, for 
purposes of section 45X(a), treats a taxpayer as selling a component to 
an unrelated person if that component is sold to the unrelated person 
by a person related to the taxpayer. Under section 45X(a)(3)(B), if a 
taxpayer makes an election in the form and manner prescribed by the 
Secretary of the Treasury or her delegate (Secretary), a sale of 
components by the taxpayer to a related person will be treated as if 
made to an unrelated person for purposes of section 45X(a) (Related 
Person Election). As a condition of, and prior to, a taxpayer making 
the Related Person Election, the Secretary may require such information 
or registration as the Secretary deems necessary for purposes of 
preventing duplication, fraud, or any improper or excessive credit 
amount.
    Section 45X(b)(1)(A) through (M) and section 45X(b)(2) set forth 
the credit amounts for each type of eligible component, which amounts, 
except for purposes of determining the credit amount for any applicable 
critical mineral, are subject to phase out rules set forth in section 
45X(b)(3). For any eligible component (except applicable critical 
minerals) sold after December 31, 2029, the credit amount for such 
component equals the product of the amount determined under section 
45X(b)(1) for such component multiplied by the applicable phase out 
percentage under section 45X(b)(3)(B)(i) through (iv). In the case of 
an eligible component sold during calendar year 2030, 2031, and 2032, 
the phase out percentages are 75 percent, 50 percent, and 25 percent, 
respectively. In the case of an eligible component sold after December 
31, 2032, the phase out percentage is zero percent. Thus, current law 
provides no section 45X credit after 2032 for eligible components other 
than for applicable critical minerals.
    Section 45X(b)(4) provides capacity limitations used to compute the 
credit amount for eligible battery cells and battery modules under 
sections 45X(b)(1)(K)(ii) and (L)(ii). To compute the credit for these 
eligible components, section 45X(b)(4)(A) provides that the capacity 
determined with respect to a battery cell or battery module must not 
exceed a capacity-to-power-ratio of 100:1. Section 45X(b)(4)(B) defines 
the term ``capacity-to-power-ratio'' as the ratio of the capacity of a 
battery cell or battery module to the maximum discharge amount of such 
cell or module.
    Section 45X(c)(1)(A) defines the term ``eligible component'' to 
mean any solar energy component, any wind energy component, any 
inverter described in section 45X(c)(2)(B) through (G), any

[[Page 86845]]

qualifying battery component, and any applicable critical mineral. 
Section 45X(c)(1)(B) clarifies that the term ``eligible component'' 
does not include any property that is produced at a facility if the 
basis of any property that is part of such facility is taken into 
account for purposes of the qualifying advanced energy project credit 
allowed under section 48C after August 16, 2022 (the date of enactment 
of the IRA).
    Section 45X(c)(2)(A) generally defines an ``inverter'' as an end 
product that is suitable to convert direct current (DC) electricity 
from one or more solar modules or certified distributed wind energy 
systems into alternating current (AC) electricity. Section 45X(c)(2)(B) 
through (G) define the following different types of eligible inverters: 
central inverter, commercial inverter, distributed wind inverter, 
microinverter, residential inverter, and utility inverter.
    Section 45X(c)(3)(A) defines a ``solar energy component'' as a 
solar module, photovoltaic cell, photovoltaic wafer, solar grade 
polysilicon, torque tube, structural fastener, or polymeric backsheet. 
Section 45X(c)(3)(B) defines these different types of eligible solar 
energy components as well as the term ``solar tracker.''
    Section 45X(c)(4)(A) defines a ``wind energy component'' as blades, 
nacelles, towers, offshore wind foundations, and related offshore wind 
vessels. Section 45X(c)(4)(B) defines these different types of eligible 
wind energy components.
    Section 45X(c)(5)(A) defines a ``qualifying battery component'' as 
electrode active materials, battery cells, and battery modules. Section 
45X(c)(5)(B) defines these different types of qualifying battery 
components.
    Section 45X(c)(6) provides the following list of 50 minerals that 
if converted or purified to specified purities are considered an 
``applicable critical mineral'' for purposes of the section 45X credit: 
aluminum, antimony, arsenic, barite, beryllium, bismuth, cerium, 
cesium, chromium, cobalt, dysprosium, erbium, europium, fluorspar, 
gadolinium, gallium, germanium, graphite, hafnium, holmium, indium, 
iridium, lanthanum, lithium, lutetium, magnesium, manganese, neodymium, 
nickel, niobium, palladium, platinum, praseodymium, rhodium, rubidium, 
ruthenium, samarium, scandium, tantalum, tellurium, terbium, thulium, 
tin, titanium, tungsten, vanadium, ytterbium, yttrium, zinc, and 
zirconium.
    Section 45X(d) provides special rules that are applicable to the 
section 45X credit. Section 45X(d)(1) provides that persons are treated 
as related to each other if they would be treated as a single employer 
under the regulations prescribed under section 52(b) of the Code. 
Section 52(b) generally provides that trades or businesses that are 
partnerships, trusts, estates, corporations, or sole proprietorships 
under common control are members of a controlled group and are treated 
as a single employer. See Sec.  1.52-1(b). Section 52(b) requires the 
regulations under section 52(b) to be based on principles similar to 
the principles that apply for purposes of section 52(a), which 
generally provides that corporations that are members of a controlled 
group of corporations are treated as a single employer. Section 52(a) 
provides that a controlled group of corporations is defined with 
reference to section 1563(a) of the Code. Section 52(b) and Sec.  1.52-
1 provide rules similar to those under section 52(a), but with certain 
modifications to account for different types of ownership interests.
    Section 45X(d)(2) provides that sales of eligible components are 
taken into account under section 45X only for eligible components that 
are produced within the United States (including continental shelf 
areas described in section 638(1) of the Code), or a U.S. territory 
(including continental shelf areas described in section 638(2)). (For 
purposes of this document, the term ``U.S. territory'' has the meaning 
of the term ``possession'' as defined in section 638(2).) Section 
45X(d)(3) directs the Secretary to promulgate regulations adopting 
rules similar to the rules of section 52(d) to apportion credit amounts 
between estates or trusts and their beneficiaries on the basis of the 
income of the estates or trusts allocable to each, and to pass-thru any 
apportioned credit amounts to the beneficiaries. Section 45X(d)(4) 
provides that for purposes of the section 45X credit, a person is 
treated as having sold an eligible component to an unrelated person if 
such component is integrated, incorporated, or assembled into another 
eligible component that is sold to an unrelated person.

II. Notice 2022-47

    On October 24, 2022, the Treasury Department and the IRS published 
Notice 2022-47, 2022-43 I.R.B. 312. The notice requested general 
comments on issues arising under section 45X, as well as specific 
comments concerning: (1) definitions (including the definitions of 
eligible components); (2) the Related Person Election; (3) capacity-to-
power ratios for battery cells or battery modules; (4) credit amount 
for components used in systems of varying capacity; (5) offshore wind 
vessels; (6) applicable critical minerals; and (7) apportionment and 
pass-thru of credit amounts to beneficiaries of estates or trusts. The 
Treasury Department and the IRS received over 300 comments from 
industry participants and other stakeholders. The Treasury Department 
and the IRS appreciate the commenters' interest and engagement on these 
issues. These comments have been carefully considered in the 
preparation of these proposed regulations.

III. Notices 2023-18 and 2023-44

    On March 6, 2023, the Treasury Department and the IRS published 
Notice 2023-18, 2023-10 I.R.B. 508, to establish the qualifying 
advanced energy projects program (section 48C(e) program). On June 20, 
2023, the Treasury Department and the IRS published Notice 2023-44, 
2023-25 I.R.B. 924, to provide additional guidance on the section 
48C(e) program, including rules for the interaction between sections 
45X and 48C. The rules regarding the interaction between sections 45X 
and 48C provided in Notices 2023-18 and 2023-44 have been incorporated 
into these proposed regulations and upon finalization of this 
rulemaking, section 5.05 of Notice 2023-18 and section 3 of Notice 
2023-44 will be superseded.

Explanation of Provisions

I. Overview of Proposed Regulations

    Consistent with section 45X(a)(1), these proposed regulations would 
provide that for purposes of section 38, the section 45X credit for any 
taxable year is an amount equal to the sum of the credit amounts 
determined under section 45X(b) with respect to each eligible 
component, as defined in section 45X(c), produced by the taxpayer, and, 
during the taxable year, sold by that taxpayer to an unrelated person. 
Consistent with section 45X(a)(2), only eligible components that are 
produced and sold in a trade or business of the taxpayer are taken into 
account for purposes of the section 45X credit.
    These proposed regulations are organized into four sections, 
proposed Sec. Sec.  1.45X-1 through 1.45X-4. Proposed Sec.  1.45X-1 
would provide general rules applicable to the section 45X credit, 
including the definition of the term ``produced by the taxpayer'' for 
both primary and secondary production. Primary production involves 
producing an eligible component using non-recycled materials while 
secondary production involves producing an eligible component using 
recycled

[[Page 86846]]

materials. Proposed Sec.  1.45X-2 would provide rules for sales to 
unrelated persons through a person related to the taxpayer, including 
the rules for a taxpayer to make an election to treat sales of eligible 
components to related persons (Related Person Election) as if made to 
unrelated persons. Proposed Sec.  1.45X-3 would provide definitions and 
credit amounts for certain eligible components, including solar energy 
components, wind energy components, inverters, and qualifying battery 
components, and phase-out rules. Proposed Sec.  1.45X-4 would provide 
definitions and credit amounts for applicable critical minerals that 
are eligible components.

II. General Rules Applicable to the Advanced Manufacturing Production 
Credit

A. Overview
    Proposed Sec.  1.45X-1(a) would provide an overview of the general 
rules regarding the advanced manufacturing production credit under 
section 45X.
B. Credit Amount
    Proposed Sec.  1.45X-1(b) would explain how to calculate the amount 
of the credit provided under section 45X for any taxable year.
C. Definition of Produced by the Taxpayer
    Proposed Sec.  1.45X-1(c) would define the term ``produced by the 
taxpayer'' for both primary and secondary production. Proposed Sec.  
1.45X-1(c)(1) would provide the general definition of the term. 
Proposed Sec.  1.45X-1(c)(1)(i) would state that partial transformation 
that does not result in a substantial transformation of inputs into a 
complete and distinct eligible component is not included in the 
definition of ``produced by the taxpayer.'' Proposed Sec.  1.45X-
1(c)(1)(ii) would state that neither minor assembly of constituent 
inputs nor superficial modification of a final eligible component are 
included in the definition of ``produced by the taxpayer.'' Proposed 
Sec.  1.45X-1(c)(1)(iii) would provide examples illustrating the 
definition of ``produced by the taxpayer.'' Proposed Sec.  1.45X-
1(c)(2) would provide a special rule for applying the definition of 
``produced by the taxpayer'' for solar grade polysilicon, electrode 
active materials, and applicable critical minerals.
    Proposed Sec.  1.45X-1(c)(3)(i) would state that the taxpayer 
claiming a section 45X credit with respect to an eligible component 
must be the person that performs the actual production activities that 
bring about a substantial transformation resulting in the eligible 
component and that sells such eligible component to an unrelated 
person. Proposed Sec.  1.45X-1(c)(3)(ii)(A) would provide that if the 
production of an eligible component is performed in whole or in part 
subject to a contract that is a contract manufacturing arrangement, 
then the party to such contract that may claim the section 45X credit 
with respect to such eligible component, provided all other 
requirements in section 45X are met, is the taxpayer that performs the 
actual production activities that bring about a substantial 
transformation resulting in the eligible component. This proposed rule 
is intended to provide an administrable rule that provides taxpayers 
clarity and certainty in determining which taxpayer may claim the 
section 45X credit in a contract manufacturing arrangement.
    Proposed Sec.  1.45X-1(c)(3)(ii)(B) would define the term 
``contract manufacturing arrangement'' to mean any agreement providing 
for the production of an eligible component if the agreement is entered 
into before the production of the eligible component to be delivered 
under the contract is completed. Proposed Sec.  1.45X-1(c)(3)(ii)(B) 
would further provide that a routine purchase order for off-the-shelf 
property is not treated as a contract manufacturing arrangement for 
purposes of proposed Sec.  1.45X-1(c)(3). Proposed Sec.  1.45X-
1(c)(3)(ii)(B) would also provide that an agreement will be treated as 
a routine purchase order for off-the-shelf property if the contractor 
is required to make no more than de minimis modifications to the 
property to tailor it to the customer's specific needs, or if at the 
time the agreement is entered into, the contractor knows or has reason 
to know that the contractor can satisfy the agreement out of existing 
stocks or normal production of finished goods. This definition of the 
term ``routine purchase order'' is based on the definition found in 
Sec.  1.263A-2(a)(1)(ii)(B)(2)(ii). The Treasury Department and the IRS 
request comments on whether this definition should be further clarified 
or modified.
    Proposed Sec.  1.45X-1(c)(3)(iii) would explain the special rule 
allowing parties to a contract manufacturing arrangement to agree on 
which party to the contract will claim the section 45X credit for 
eligible components produced subject to such contract. Proposed Sec.  
1.45X-1(c)(3)(iv) would explain the certification requirements for the 
special rule. Proposed Sec.  1.45X-1(c)(3)(v) would provide examples 
illustrating the application of the special rule.
    Proposed Sec.  1.45X-1(c)(4)(i) would explain the requirements for 
the timing of production and sale of eligible components. Proposed 
Sec.  1.45X-1(c)(4)(ii) would provide an example illustrating the 
application of these requirements.
D. Produced in the United States
    Proposed Sec.  1.45X-1(d)(1) would state that sales are taken into 
account for purposes of the section 45X credit only for eligible 
components produced within the United States, as defined in section 
638(1) of the Code, or a United States territory, which for purposes of 
section 45X has the meaning of the term ``possession'' provided in 
section 638(2) of the Code. Proposed Sec.  1.45X-1(d)(2) would clarify 
that constituent elements, materials and subcomponents used in the 
production of eligible components are not subject to the domestic 
production rule. It would also be permissible for elements, materials, 
and subcomponents used in the production of eligible components to be 
recycled rather than newly created elements, materials, and 
subcomponents.
E. Production and Sale in a Trade or Business
    Proposed Sec.  1.45X-1(e) would state that an eligible component 
must be produced and sold in a trade or business of the taxpayer, with 
the term ``trade or business'' defined as a trade or business within 
the meaning of section 162 of the Code.
F. Integrated, Incorporated, or Assembled
    Proposed Sec.  1.45X-1(f)(1) would state that a taxpayer is treated 
as having produced and sold an eligible component to an unrelated 
person if such component is integrated, incorporated, or assembled into 
another eligible component that is then sold to an unrelated person. 
This proposed rule would further define the term ``integrated, 
incorporated, or assembled'' to mean the production activities by which 
eligible components that are constituent elements, materials, or 
subcomponents are substantially transformed into another complete and 
distinct eligible component functionally different from that which 
would result from mere assembly or superficial modification of the 
eligible components used as elements, materials or subcomponents and 
other elements, materials or subcomponents. Proposed Sec.  1.45X-
1(f)(2)(i) would clarify that a taxpayer may claim a section 45X credit 
for each eligible component the taxpayer produces and sells to an 
unrelated person, including any eligible component the taxpayer 
produces that was used as a constituent element,

[[Page 86847]]

material, or subcomponent and integrated, incorporated, or assembled 
into another complete and distinct eligible component or another 
complete and distinct product that the taxpayer also produces and sells 
to an unrelated person. Proposed Sec.  1.45X-1(f)(2)(ii) would provide 
an example of the credit eligibility of a sale of a product with 
incorporated eligible components to an unrelated person.
G. Interaction Between Sections 48C and 45X
    Proposed Sec.  1.45X-1(g)(1) would, consistent with section 
45X(c)(1)(B), provide that for purposes of section 45X, an eligible 
component must be produced at a section 45X facility and does not 
include any property (produced property) that is produced at a facility 
if the basis of any property that is part of the production unit that 
produces the produced property is eligible property that is included in 
a section 48C facility and is taken into account for purposes of a 
credit allowed under section 48C (section 48C credit) after August 16, 
2022. Proposed Sec.  1.45X-1(g)(2)(i) would define a section 45X 
facility to include all tangible property that comprises an 
independently functioning production unit that produces one or more 
eligible components. Proposed Sec.  1.45X-1(g)(2)(ii) would provide 
that a production unit is comprised of the tangible property that 
substantially transforms material inputs to complete the production 
process of an eligible component. Proposed Sec.  1.45X-1(g)(3)(i) would 
define a section 48C facility to include all eligible property included 
in a qualifying advanced energy project for which a taxpayer receives 
an allocation of section 48C credits and claims such credits after 
August 16, 2022. Proposed Sec.  1.45X-1(g)(3)(ii) would define eligible 
property included in a section 48C facility. Proposed Sec.  1.45X-
1(g)(4) would provide examples to illustrate the application of these 
rules.
H. Pass-Thru From Estates and Trusts
    The Treasury Department and the IRS intend to provide rules 
addressing how the section 45X credit applies in the case of pass-thru 
from estates and trusts. The Treasury Department and the IRS request 
comments on how such rules should be implemented and whether there are 
any special considerations for estates and trusts claiming the section 
45X credit. Proposed Sec.  1.45X-1(h) is reserved for this purpose.
I. Anti-Abuse Rule
    Proposed Sec.  1.45X-1(i)(1) provides a general anti-abuse rule 
that would make the section 45X credit unavailable in extraordinary 
circumstances in which, based on a consideration of all the facts and 
circumstances, the primary purpose of the production and sale of an 
eligible component is to obtain the benefit of the section 45X credit 
in a manner that is wasteful, such as discarding, disposing of, or 
destroying the eligible component without putting it to a productive 
use.
    In cases where the cost of producing certain eligible components is 
less than the amount of the section 45X credit that would be available, 
the Treasury Department and the IRS are concerned that taxpayers may 
have an incentive to produce such components solely for the purpose of 
exploiting the section 45X credit in a manner that is inconsistent with 
a purpose of section 45X, which is to provide an incentive to produce 
eligible components that contribute to the development of secure and 
resilient supply chains. Producing and selling eligible components with 
the primary purpose of obtaining the benefit of the section 45X credit 
in a wasteful manner would not satisfy the requirement for the eligible 
component to be produced and sold in a trade or business of the 
taxpayer under section 45X(a)(2) in certain circumstances. Proposed 
Sec.  1.45X-1(i)(2) would provide an example illustrating this anti-
abuse rule.
III. Sale to An Unrelated Person
    Proposed Sec.  1.45X-2(a) would state the general rule that the 
amount of the section 45X credit for any taxable year is equal to the 
sum of the credit amounts determined under section 45X(b) (and 
described in Sec. Sec.  1.45X-3 and 1.45X-4) with respect to each 
eligible component that is produced by the taxpayer and, during the 
taxable year, sold by the taxpayer to an unrelated person (as defined 
in section 45X(a)(3) and described in Sec.  1.45X-2(b)(3)).
A. Definitions
    Section 45X(d)(1) provides that persons are treated as related to 
each other if such persons would be treated as a single employer under 
the regulations prescribed under section 52(b). Proposed Sec.  1.45X-
2(b) would provide definitions of the terms ``person,'' ``related 
person,'' and ``unrelated person'' for purposes of the section 45X 
credit.
B. Special Rule for Sale to Related Person
    Section 45X(a)(3)(A) provides a special rule for purposes of 
section 45X that a taxpayer is treated as selling components to an 
unrelated person if such component is sold to such person by a person 
related to the taxpayer. Proposed Sec.  1.45X-2(c) would provide this 
rule and an example to illustrate its application.
C. Related Person Election
    Section 45X(a)(3)(B)(i) provides that at the election of the 
taxpayer (in such form and manner as the Secretary may prescribe), a 
sale of components by such taxpayer to a related person is treated as 
if made by the taxpayer to an unrelated person for purposes of section 
45X(a) (Related Person Election). Thus, the Related Person Election is 
only available if an eligible component is sold by a taxpayer to a 
related person. The Related Person Election is not available if a 
taxpayer does not actually sell the eligible component to another 
person, for example, if an eligible component is transferred between a 
person and an entity that is not regarded as separate from the person 
under Sec.  301.7701-3 of the Procedure and Administration Regulations 
(26 CFR part 301) or between divisions of a single corporation. Section 
45X(a)(3)(B)(ii) provides that as a condition of, and prior to, any 
election described in clause (i), the Secretary may require such 
information or registration as the Secretary deems necessary for 
purposes of preventing duplication, fraud, or any improper or excessive 
amount determined under section 45X(a)(1).
    Proposed Sec.  1.45X-2(d)(1) would provide that the Related Person 
Election must be made in the form and manner prescribed in guidance. 
The term ``guidance'' is defined as guidance published in the Federal 
Register or Internal Revenue Bulletin, as well as administrative 
guidance such as forms, instructions, publications, or other guidance 
on the IRS.gov website. See Sec. Sec.  601.601 and 601.602 of the 
Statement of Procedural Rules (26 CFR part 601). For members of a 
consolidated group (as defined in Sec.  1.1502-1(h)), the election is 
made by each member, in the manner set forth in proposed Sec.  1.45X-
2(d)(4)(i). In addition, if a member of a consolidated group sells 
eligible components to another member of the group, the selling member 
may make the Related Person Election to claim the section 45X credit in 
the taxable year of sale. Proposed Sec.  1.45X-2(d)(1) would also 
provide that as a condition of, and prior to, a taxpayer making a 
Related Person Election, the Secretary may require such information or 
registration as the Secretary deems necessary for purposes of 
preventing duplication, fraud, or any improper or excessive credit 
amount determined under section 45X(a)(1).
    Proposed Sec.  1.45X-2(d)(2) would provide the time and manner for 
a

[[Page 86848]]

taxpayer to make the Related Person Election. Proposed Sec.  1.45X-
2(d)(2)(i) would state that a taxpayer must make an affirmative Related 
Person Election annually in the form and manner prescribed in guidance 
(currently Form 7207, Advanced Manufacturing Production Credit, and its 
instructions), and filed with the taxpayer's timely filed original 
Federal income tax return, including extensions. Proposed Sec.  1.45X-
2(d)(2)(i) would also provide that the Related Person Election will be 
applicable to all sales of eligible components to related persons by 
the taxpayer for each trade or business that the taxpayer engages in 
during the taxable year that resulted in a credit claim and for which 
the taxpayer has made the Related Person Election. Proposed Sec.  
1.45X-2(d)(2)(ii) would provide the required information to make a 
Related Person Election.
    Proposed Sec.  1.45X-2(d)(3) would describe the scope and effect of 
the Related Person Election and provide that a separate Related Person 
Election must be made with respect to related person sales made by a 
taxpayer in each eligible trade or business of the taxpayer. Proposed 
Sec.  1.45X-2(d)(3) would also provide that a Related Person Election 
applies to all sales to related persons (including between members of 
the same consolidated group, notwithstanding the rules provided in 
Sec.  1.1502-13) of eligible components produced by the taxpayer during 
the taxable year for which that election is made and is irrevocable for 
that taxable year. Additionally, proposed Sec.  1.45X-2(d)(3) would 
provide that a Related Person Election applies solely for purposes of 
the section 45X credit, the provisions of proposed Sec. Sec.  1.45X-1 
through 1.45X-4, and so much of sections 6417 and 6418 and the 
regulations under sections 6417 and 6418 related to the section 45X 
credit.
    Proposed Sec.  1.45X-2(d)(3)(ii) and (iii) would apply the 
provisions of proposed Sec.  1.45X-2(d)(2) and (d)(3)(i) to 
consolidated groups and partnerships. Proposed Sec.  1.45X-2(d)(3)(ii) 
would apply the provisions of proposed Sec.  1.45X-2(d)(2) and 
(d)(3)(i) to consolidated groups by providing that for a trade or 
business of a consolidated group (as defined in Sec.  1.1502-1(h)), a 
Related Person Election is made by the agent for the group on behalf of 
the member claiming the section 45X credit and filed with the group's 
timely filed original Federal income tax return, including extensions, 
with respect to each trade or business that the consolidated group 
conducts. See Sec.  1.1502-77 (providing rules regarding the status of 
the common parent as agent for its members). A separate election must 
be filed on behalf of each member claiming the section 45X credit, and 
each election must include the name and employer identification number 
(EIN) of the agent for the group and the member on whose behalf the 
form is being filed.
    Proposed Sec.  1.45X-2(d)(3)(iii) would apply the provisions of 
proposed Sec.  1.45X-2(d)(2) and (d)(3)(i) to partnerships by stating 
that an election for a partnership must be filed with the partnership's 
timely filed original Federal income tax return, including extensions, 
with respect to each trade or business that the partnership conducts. 
Additionally, proposed Sec.  1.45X-2(d)(3)(iii) provides that an 
election by a partnership does not apply to any trade or business 
conducted by a partner outside the partnership.
    Proposed Sec.  1.45X-2(d)(4) would provide an anti-abuse rule for 
the Related Person Election that is necessary for preventing 
duplication, fraud, or any improper or excessive amount of the section 
45X credit. This anti-abuse rule would make the Related Person Election 
unavailable in extraordinary cases where a taxpayer seeks to use the 
Related Person Election to exploit the section 45X credit in an 
improper and wasteful manner or sell defective components to a related 
person. Proposed Sec.  1.45X-2(d)(4)(i) would provide that a Related 
Person Election may not be made if the taxpayer fails to provide the 
information required by proposed Sec.  1.45X-2(d)(2) with respect to 
the relevant eligible components, the taxpayer provides information 
that shows such components were put to an improper use or were 
defective, or such components were actually put to an improper use or 
were defective.
    Proposed Sec.  1.45X-2(d)(4)(ii) would provide that an eligible 
component is put to an improper use if it is so used by the related 
person to which the eligible component is sold. The term ``improper 
use'' would mean a use that is wasteful, such as discarding, disposing 
of, or destroying the eligible component without putting it to a 
productive use.
    As discussed previously, in cases in which the cost of producing 
certain eligible components may be less than the amount of the section 
45X credit that is available, the Treasury Department and the IRS are 
concerned that taxpayers may have an incentive to produce such 
components solely for the purpose of exploiting the section 45X credit 
without putting such components to a productive use. In such cases, the 
Related Person Election would remove an important safeguard against the 
improper and wasteful production of eligible components that an 
unrelated-person-sale requirement would provide. The Treasury 
Department and the IRS request comments on this definition of the term 
``improper use'' and whether any clarifications to its scope are 
necessary.
    Proposed Sec.  1.45X-2(d)(4)(iii) would provide that an eligible 
component is ``defective'' if it does not meet the requirements of 
section 45X. The Treasury Department and the IRS are concerned that the 
Related Person Election may be used by taxpayers to claim a credit for 
eligible components that are defective, not capable of being used for 
its intended purpose, do not meet the requirements for the section 45X 
credit, and therefore are not eligible for the section 45X credit. For 
example, a taxpayer that mass produces a large quantity of an eligible 
component may find that some of those components are defective, cannot 
be used for its intended purposes, and are not eligible for the section 
45X. Such components could also be difficult to sell to an unrelated 
person because they are defective. In such cases, the Related Person 
Election would remove an important safeguard against improper credit 
claims for defective components that an unrelated-person-sale 
requirement would provide. The Treasury Department and the IRS request 
comments on the definition of the term ``defective components'' and 
whether clarifications to its scope are necessary.
D. Related Person Sale of Integrated Components
    Section 45X(d)(4) provides that for purposes of section 45X, a 
person is treated as having sold an eligible component to an unrelated 
person if such component is integrated, incorporated, or assembled into 
another eligible component that is sold to an unrelated person. See 
part II.F of this Explanation of Provisions for rules applicable to 
eligible components that are integrated, incorporated or assembled into 
other eligible components and sold to an unrelated person.
    Proposed Sec.  1.45X-2(e)(1) would provide that a taxpayer that 
produces and then sells an eligible component to a related person who 
then integrates, incorporates, or assembles the taxpayer's eligible 
component into another complete and distinct eligible component that is 
subsequently sold to an unrelated person may claim a section 45X credit 
in the taxable year of the sale to the unrelated person. Proposed

[[Page 86849]]

Sec.  1.45X-2(e)(2) would provide examples to illustrate the treatment 
of sales of multiple incorporated eligible components to related and 
unrelated persons if the taxpayer makes the Related Person Election.
    Proposed Sec.  1.45X-2(e)(3)(i) would provide that if a taxpayer 
makes the Related Person Election and produces and sells an eligible 
component to a related person who then integrates, incorporates, or 
assembles the taxpayer's eligible component into another complete and 
distinct eligible component that is subsequently sold to an unrelated 
person, the taxpayer's sale of the eligible component to the related 
person would be treated as if made to an unrelated person in the 
taxable year in which the sale to the related person occurs. Proposed 
Sec.  1.45X-2(e)(3)(ii) would provide an example to illustrate the 
treatment of sales of multiple integrated eligible components to 
related and unrelated persons with a Related Person Election.

IV. Eligible Components

    For solar energy components, wind energy components, inverters, and 
qualifying battery components, proposed Sec.  1.45X-3 would provide 
definitions, rules for determining the credit amount, and documentation 
requirements. Proposed Sec.  1.45X-3 would also provide rules for 
applying the phase out of the section 45X credit. Proposed Sec.  1.45X-
4 would provide such information for applicable critical minerals 
(other than rules for applying the phase out which do not apply to 
applicable critical minerals).
A. Eligible Components Generally
    Proposed Sec.  1.45X-3(a) defines the term ``eligible component'' 
as any solar energy component, any wind energy component, any inverter, 
any qualifying battery component, and any applicable critical mineral.
B. Solar
    Proposed Sec.  1.45X-3(b) would define the term ``solar energy 
component'' as a solar module, photovoltaic cell, photovoltaic wafer, 
solar grade polysilicon, torque tube, structural fastener, or polymeric 
backsheet. Proposed Sec.  1.45X-3(b) would clarify the definition of 
each type of solar energy component.
    Proposed Sec.  1.45X-3(b) would also clarify the calculation of the 
credit amount for each type of solar energy component. Proposed Sec.  
1.45X-3(b)(1)(ii) and (b)(5)(ii) would require the capacity of a solar 
module or photovoltaic cell to be determined by the nameplate capacity 
in direct current watts using Standard Test Conditions, as defined by 
the International Electrotechnical Commission.
    Proposed Sec.  1.45X-3(b) would also require taxpayers to maintain 
specific documentation with respect to certain solar energy components. 
For example, for structural fasteners to be eligible for the section 
45X credit, section 45X(c)(3)(B)(vii)(II) provides that structural 
fasteners must be used (1) to connect the mechanical and drive system 
components of a solar tracker to the foundation of such solar tracker, 
(2) to connect torque tubes to drive assemblies, or (3) to connect 
segments of torque tubes to one another. Proposed Sec.  1.45X-
3(b)(8)(iii) would require taxpayers to document that a structural 
fastener meets this use requirement with a bill of sale, or other 
similar documentation that explicitly describes such use. Proposed 
Sec.  1.45X-3(b)(7)(iii) would apply similar documentation rules to 
torque tubes because section 45X(c)(3)(B)(vii)(I)(aa) requires a torque 
tube to be ``part of a solar tracker'' to be eligible for the section 
45X credit.
C. Wind
    Proposed Sec.  1.45X-3(c) would define the term ``wind energy 
component'' as a blade, nacelle, tower, offshore wind foundation, or 
related offshore wind vessel. Proposed Sec.  1.45X-3(c) would clarify 
the definition of each type of wind energy component.
    Proposed Sec.  1.45X-3(c)(4)(i) would clarify the definition of the 
term ``related offshore wind vessel.'' Section 45X(c)(4)(B)(iv) defines 
the term ``related offshore wind vessel'' as any vessel that is 
purpose-built or retrofitted for purposes of the development, 
transport, installation, operation, or maintenance of offshore wind 
energy components. Proposed Sec.  1.45X-3(c)(4)(i) would clarify that a 
vessel is purpose-built for development, transport, installation, 
operation, or maintenance of offshore wind energy components if it is 
built to be capable of performing such functions and it is of a type 
that is commonly used in the offshore wind industry. Proposed Sec.  
1.45X-3(c)(4)(i) would further clarify that a vessel is retrofitted for 
development, transport, installation, operation, or maintenance of 
offshore wind energy components if such vessel was incapable of 
performing such functions prior to being retrofitted, the retrofit 
causes the vessel to be capable of performing such functions, and the 
retrofitted vessel is of a type that is commonly used in the offshore 
wind industry.
    Proposed Sec.  1.45X-3(c) would also clarify the calculation of the 
credit amount for each type of wind energy component. The credit amount 
for a blade, nacelle, tower, or offshore wind foundation is based on 
the total rated capacity of the completed wind turbine for which such 
component is designed. Proposed Sec.  1.45X-3(c)(6) would define 
``total rated capacity of the completed wind turbine'' as, for the 
completed wind turbine for which a blade, nacelle, offshore wind 
foundation, or tower was manufactured and sold, the nameplate capacity 
at the time of sale as certified to the relevant national or 
international standards, such as International Electrotechnical 
Commission (IEC) 61400, or ANSI/ACP 101-1-2021, the Small Wind Turbine 
Standard. Certification of the turbine to such standards must be 
documented by a certificate issued by an accredited certification body. 
The total rated capacity of a wind turbine must be expressed in watts.
    For a related offshore wind vessel, the credit amount is equal to 
10 percent of the sales price of the vessel. The sales price of the 
vessel does not include the price of maintenance or other services that 
may be sold with the vessel. Proposed Sec.  1.45X-3(c)(4)(ii) would 
confirm that, for a related offshore wind vessel with respect to which 
a Related Person Election (as discussed in part III.C of this 
Explanation of Provisions) has been made, the effect of the election is 
limited to allowing the related person sale to qualify for a credit 
under section 45X (despite the fact that it is not actually between 
unrelated persons) and, therefore, the election does not also treat the 
sale price as an arm's length price that was determined between 
uncontrolled taxpayers for purposes of section 482 of the Code and the 
regulations thereunder.
    For blades, nacelles, offshore wind foundations, or towers, 
proposed Sec.  1.45X-3(c)(7) would require a taxpayer to document the 
turbine model for which such component is designed and the total rated 
capacity of the completed wind turbine in technical documentation 
associated with the sale of such component.
D. Inverters
    Proposed Sec.  1.45X-3(d) would define the term ``inverter'' as an 
end product that is suitable to convert DC electricity from one or more 
solar modules or certified distributed wind energy systems into AC 
electricity. An end product is suitable to convert DC electricity from 
one or more solar modules or certified distributed wind energy systems 
into AC electricity if, in the form sold by the manufacturer, it is 
able to connect with such modules or systems and convert DC electricity 
to

[[Page 86850]]

AC electricity from such connected source. For purposes of section 45X, 
the term inverter includes a central inverter, commercial inverter, 
distributed wind inverter, microinverter, or residential inverter. 
Proposed Sec.  1.45X-3(d) would clarify the definition of each of these 
types of inverters.
    Section 45X(c)(2) requires certain types of inverters be ``suitable 
to'' or ``suitable for'' a statutorily required use or application to 
be considered an eligible component. For example, section 45X(c)(2)(B) 
requires a central inverter to be ``suitable for large utility-scale 
systems.'' Proposed Sec.  1.45X-3(d)(2)(i) would clarify that an 
inverter is suitable for large utility-scale systems if, in the form 
sold by the manufacturer, it is capable of serving as a component in a 
large utility-scale system and meets the core engineering 
specifications for such application.
    Proposed Sec.  1.45X-3(d)(5) would clarify that a direct current 
optimized inverter system (DC optimized inverter system) may qualify as 
a microinverter. Proposed Sec.  1.45X-3(d)(5)(i) would define a 
microinverter as an inverter that is suitable to connect with one solar 
module, has a rated output of 120 or 240 volt single-phase power, or 
208 or 480 volt three-phase power, and has a capacity, expressed on an 
AC watt basis, that is not greater than 650 watts. Proposed Sec.  
1.45X-3(d)(5)(iii)(A) would clarify that an inverter is suitable to 
connect to one solar module if, in the form sold by the manufacturer, 
it is capable of connecting to one or more solar modules and regulating 
the DC electricity from each module independently before that 
electricity is converted into alternating current electricity. Proposed 
Sec.  1.45X-3(d)(5)(iii)(B) would provide that a DC optimized inverter 
system is an inverter that is comprised of an inverter connected to 
multiple DC optimizers that are each designed to connect to one solar 
module.
    Proposed Sec.  1.45X-3(d)(5)(iv)(B) would clarify how to determine 
the credit amount for a DC optimized inverter system that qualifies as 
a microinverter. For a DC optimized inverter system to qualify as a 
microinverter, the inverter must meet the requirements of section 
45X(c)(2)(E) and a taxpayer must produce and sell the inverter and the 
DC optimizers in the DC optimized inverter system together as a single 
end product.
    Proposed Sec.  1.45X-3(d)(5) would clarify that, similar to a DC 
optimized inverter system, a multi-module inverter may also qualify as 
a microinverter. The term ``multi-module inverter'' means an inverter 
that is comprised of an inverter with independent connections and DC 
optimizing components for two or more modules. Proposed Sec.  1.45X-
3(d)(5)(iv)(C) would provide that the credit amount for a multi-module 
inverter that qualifies as a microinverter is equal to the product of 
11 cents multiplied by the total alternating current capacity of the DC 
optimizers in the multi-module inverter when paired with the inverter 
in the multi-module inverter.
    Proposed Sec.  1.45X-3(d) would also clarify the calculation of the 
credit amount for each type of inverter. In general, the credit amount 
for each type of inverter would be equal to the product of the 
inverter's total rated capacity and the amount prescribed in section 
45X(b)(2)(B) for such inverter.
    Proposed Sec.  1.45X-3(d) would generally require taxpayers to 
document whether an inverter is suitable to or suitable for a 
statutorily required use or application, the inverter's rated output, 
and the inverter's capacity, as applicable, in a specification sheet, 
bill of sale, or other similar documentation.
E. Battery Components
    Proposed Sec.  1.45X-3(e)(1) would define the term ``qualifying 
battery component'' as electrode active materials, battery cells, or 
battery modules. Proposed Sec.  1.45X-3(e)(2)(i)(A) would define the 
term ``electrode active materials'' to include cathode electrode 
materials, anode electrode materials, and electrochemically active 
materials that contribute to the electrochemical processes necessary 
for energy storage. In general, electrode active materials are 
materials that are capable of being used within a battery for energy 
storage. Proposed Sec.  1.45X-3(e)(2)(i)(A) would also provide that the 
following materials in a battery or vehicle would not qualify for the 
section 45X credit as an electrode active material: battery management 
systems, terminal assemblies, cell containments, gas release valves, 
module containments, module connectors, compression plates, straps, 
pack terminals, bus bars, thermal management systems, and pack jackets.
    Proposed Sec.  1.45X-3(e)(2)(i)(B) would define ``cathode electrode 
materials'' to mean the materials that comprise the cathode of a 
commercial battery technology, such as binders, and current collectors 
(that is, cathode foils). Proposed Sec.  1.45X-3(e)(2)(i)(C) would 
define ``anode electrode materials'' to mean the materials that 
comprise the anode of a commercial battery technology, including anode 
foils. Proposed Sec.  1.45X-3(e)(2)(i)(D) would define 
``electrochemically active materials that contribute to the 
electrochemical processes necessary for energy storage'' to mean the 
battery-grade materials that enable the electrochemical storage within 
a commercial battery technology. In addition to the list of 
electrochemically active materials provided in section 45X(c)(5)(B)(i) 
(solvents, additives, and electrolytic salts), these may include 
electrolytes, catholytes, anolytes, separators, and metal salts and 
oxides. Proposed Sec.  1.45X-3(e)(2)(i)(E) would also include an 
example illustrating this concept. Proposed Sec.  1.45X-3(e)(2)(i)(F) 
would define ``battery-grade materials'' to mean the processed 
materials found in a final battery cell or an analogous unit, or the 
direct battery-grade precursors to those processed materials.
    Proposed Sec.  1.45X-3(e)(2)(v) would clarify that a taxpayer may 
claim only one section 45X credit with respect to a material that 
qualifies as both an electrode active material and an applicable 
critical mineral.
F. Production Costs Incurred
    Proposed Sec.  1.45X-3(e)(2)(ii) would provide that for an 
electrode active material the credit amount is equal to 10 percent of 
the costs incurred by the taxpayer with respect to production of such 
materials. Proposed Sec.  1.45X-3(e)(2)(iii) would also provide the 
definition of purified and converted with respect to electrode active 
materials. Proposed Sec.  1.45X-3(e)(2)(iv) would clarify that the 
costs incurred for purposes of determining the credit amount includes 
costs as defined in Sec.  1.263A-1(e) that are paid or incurred within 
the meaning of section 461 of the Code by the taxpayer for the 
production of an electrode active material only. Thus, production costs 
with respect to an electrode active material would not include any 
costs incurred after the production of the electrode active material. 
For example, the costs to incorporate the electrode active material 
into a battery component would not be taken into account as costs 
incurred in producing the electrode active material. These proposed 
regulations apply section 263A and the regulations under section 263A 
(section 263A regulations) solely to identify the types of costs that 
are includible in production costs incurred for purposes of computing 
the amount of the section 45X credit, but do not apply section 263A or 
the section 263A regulations for any other purposes, such as to 
determine whether a taxpayer is engaged in production activities.
    Direct material costs as defined in Sec.  1.263A-1(e)(2)(i)(A), or 
indirect material costs as defined in Sec.  1.263A-1(e)(3)(ii)(E), and 
any costs related to the extraction or acquisition of raw

[[Page 86851]]

materials would not be taken into account as production costs. A wide 
range of costs that are attributable to the production of an electrode 
active material would be taken into account as a cost incurred in 
producing the electrode active material, including, but not limited to, 
labor, electricity used in the production of the electrode active 
material, storage costs, depreciation or amortization, recycling, and 
overhead. However, the cost of acquiring the raw material used to 
produce the electrode active material, the cost of materials used for 
conversion, purification, or recycling of the raw material, and other 
material costs related to the production of the electrode active 
material would not be taken into account.
    The Treasury Department and the IRS seek to appropriately provide a 
credit for the costs associated with production activities that add 
value to the electrode active material and are conducted by the 
taxpayer that produces the electrode active material. Merely purchasing 
raw materials may enable a taxpayer to produce an electrode active 
material but it is not by itself an activity that adds value. Excluding 
material costs would also mitigate the risk of crediting the same costs 
multiple times. For example, if material costs are included in 
production costs for electrode active materials, the costs of producing 
an applicable critical mineral that is later incorporated into an 
electrode active material could be credited more than once, and such 
material costs could make up a significant share of the cost of 
producing the electrode active material.
    The Treasury Department and the IRS recognize that a wide range of 
costs are incurred in the production of electrode active materials. The 
Treasury Department and the IRS request comments on this proposed rule 
for determining the costs incurred with respect to the production of 
electrode active materials, specifically whether and how extraction and 
other similar value-added activities in the production of raw materials 
used in electrode active materials should be taken into account. The 
Treasury Department and the IRS welcome an assessment of the magnitude 
of extraction costs and other direct and indirect material costs 
relative to the overall costs incurred in the production of an 
electrode active material, and the extent to which these costs are 
incurred by the taxpayer that also produces the electrode active 
material and add value to the electrode active material. The Treasury 
Department and the IRS also welcome comments on how extraction should 
be defined for this purpose, and whether it should be defined 
consistent with proposed Sec.  1.30D-3(c)(8).
    The Treasury Department and the IRS are considering including in 
production costs the costs of extraction and other similar value-added 
activities in the production of raw materials used in electrode active 
materials. However, such costs would only be included if the IRS could 
effectively administer such an approach and there are sufficient 
assurances that adopting such an approach would pose a limited risk of 
(i) crediting the same production costs multiple times and (ii) 
increasing other forms of fraud, waste, and abuse. The Treasury 
Department and the IRS request comments on whether and to what extent 
including these costs might raise such risks.
    The Treasury Department and the IRS intend for the production cost 
incurred rules in proposed Sec.  1.45X-3(e)(2) to apply to a credit 
claimant in a contract manufacturing arrangement. The Treasury 
Department and the IRS request comments on whether the proposed rules 
need further clarification or modification as applied to contract 
manufacturing arrangements.
G. Battery Cells and Modules
    Proposed Sec.  1.45X-3(e)(3) and (4) would provide definitions, 
rules for measuring capacity, and documentation requirements for 
battery cells and battery modules. Proposed Sec.  1.45X-3(e)(4)(i) 
would define a ``battery module'' as a module, in the case of a module 
using battery cells, with two or more battery cells that are configured 
electrically, in series or parallel, to create voltage or current, as 
appropriate, to a specified end use, or a module with no battery cells, 
and, in each case, with an aggregate capacity of not less than 7 
kilowatt-hours (or, in the case of a module for a hydrogen fuel cell 
vehicle, not less than 1 kilowatt-hour). Proposed Sec.  1.45X-
3(e)(4)(i)(A) would define a ``module using battery cells'' as a module 
with two or more battery cells that are configured electrically, in 
series or parallel, to create voltage or current (as appropriate), to a 
specified end use, meaning an end-use configuration of battery 
technologies. An end-use configuration is the product that ultimately 
serves a specified end use. It is the collection of interconnected 
cells, configured to that specific end-use and interconnected with the 
necessary hardware and software required to deliver the required energy 
and power (voltage and current) for that use. As applied to batteries 
commonly used in electric vehicles, proposed Sec.  1.45X-3(e)(4)(i)(A) 
would permit a credit for the production and sale of the battery pack 
in the electric vehicle, but it would not permit a credit for the 
production of a module that is not the end-use configuration. The 
Treasury Department and the IRS request comments on this proposed 
interpretation of the phrase ``to a specified end use'' in section 
45X(c)(5)(B)(iii)(I)(aa).
    Proposed Sec.  1.45X-3(e)(4)(i)(B) would define the term ``module 
with no battery cells'' as a product with a standardized manufacturing 
process and form that is capable of storing and dispatching useful 
energy, that contains an energy storage medium that remains in the 
module (for example, it is not consumed through combustion), and that 
is not a custom-built electricity generation or storage facility. This 
proposed definition would allow battery technologies such as flow 
batteries and thermal batteries to be eligible for the section 45X 
credit, but it would not permit technologies that do not meet this 
definition such as standalone fuel storage tanks or fuel tanks 
connected to engines or generation systems to qualify as a module with 
no battery cells.
    Proposed Sec.  1.45X-3(e) would clarify how capacity must be 
determined for battery cells and battery modules. Proposed Sec.  1.45X-
3(e)(3)(ii) would provide that taxpayers must measure the capacity of a 
battery cell in accordance with a national or international standard, 
such as IEC 60086-1 (Primary Batteries), or an equivalent standard. 
Taxpayers can reference the United States Advanced Battery Consortium 
(USABC) Battery Test Manual for additional guidance. Proposed Sec.  
1.45X-3(e)(4)(ii)(A) would provide that, for modules using battery 
cells, taxpayers must measure the capacity of a module using battery 
cells with a testing procedure that complies with a national or 
international standard published by a recognized standard setting 
organization. The capacity of a battery module using battery cells may 
not exceed the total capacity of the battery cells in the module. 
Proposed Sec.  1.45X-3(e)(4)(ii)(B) would provide that, for modules 
with no battery cells, taxpayers must measure the capacity using a 
testing procedure that complies with a national or international 
standard published by a recognized standard setting organization. If no 
such standard applies to a type of module with no battery cells, 
taxpayers must measure the capacity of such module as the Secretary may 
prescribe in regulations or other guidance. The Treasury Department and 
the IRS request comments on what recognized national or international 
standards are currently available for measuring capacity of modules 
with no battery cells and

[[Page 86852]]

whether further guidance may be required.
H. Phase Out
    Proposed Sec.  1.45X-3(f) would provide the rules for the phase out 
of the section 45X credit. In the case of any eligible component that 
is not an applicable critical mineral and is sold after December 31, 
2029, the amount of the section 45X credit determined with respect to 
such eligible component would be equal to the product of the amount 
determined under proposed Sec.  1.45X-3 with respect to such eligible 
component, multiplied by the phase out percentage. Proposed Sec.  
1.45X-3(f)(2) would provide the phase out percentages. The phase out 
percentage would be equal to 75 percent for eligible components sold 
during calendar year 2030; 50 percent for eligible components sold 
during calendar year 2031; 25 percent for eligible components sold 
during calendar year 2032, and zero percent for eligible components 
sold after calendar year 2032. The phase out percentages would be 
determined based on the year the eligible component is sold rather than 
the year in which the eligible component is produced by the taxpayer. 
Proposed Sec.  1.45X-3(f)(3) would clarify that the phase out rules 
described in proposed Sec.  1.45X-3(f) do not apply to applicable 
critical minerals as defined in proposed Sec.  1.45X-4(b).

V. Applicable Critical Minerals

A. In General
    Section 45X(c)(6) defines applicable critical minerals that are 
eligible components for purposes of the section 45X credit. Congress 
enacted section 45X to incentivize the domestic production of eligible 
components, including certain applicable critical minerals, that are 
vital to strengthening the country's renewable energy and energy 
storage supply chains. In addition, Congress amended section 30D in the 
IRA to provide that section 30D credit eligibility and credit amount is 
based in part on the sourcing of applicable critical minerals contained 
in the battery of new clean vehicles from secure and resilient supply 
chains, with applicable critical minerals defined by cross-reference to 
section 45X(c)(6). See section 30D(d)(7)(A) and (e)(1). The Treasury 
Department and the IRS interpret the applicable critical minerals 
described in section 45X(c)(6) through this lens.
    Proposed Sec.  1.45X-4(b) adopts, with some clarifications, the 
definitions of applicable critical minerals provided in section 
45X(c)(6). In particular, section 45X(c)(6)(N) provides that the term 
``graphite'' means graphite (both natural and synthetic) that is 
purified to a minimum purity of 99.9 percent graphitic carbon by mass. 
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. After consulting with 
experts at the Department of Energy, U.S. Geological Survey, and 
Department of the Interior, the Treasury Department and the IRS are 
unaware of a current application in the energy sector for graphite that 
is at least 99.9 percent carbon in the graphitic form. However, 
graphite that is at least 99.9 percent carbon by mass is used in 
electric vehicle batteries to facilitate the electrochemical processes 
necessary for energy storage, as well as in other energy sector 
applications. Consistent with the general intent of section 45X, 
proposed Sec.  1.45X-4(b)(14) would clarify that the term ``99.9 
percent graphitic carbon by mass'' means graphite that is 99.9 percent 
carbon by mass. This interpretation reflects that various forms of 
matter are 99.9 percent carbon, such as carbon black, so the word 
``graphitic'' is providing additional clarification regarding the 
particular application of the carbon. This interpretation provides an 
incentive for the domestic production of the type of graphite that is 
used in the renewable energy and energy storage industry, including 
both synthetic and natural graphite for use in electric vehicle 
batteries. This interpretation also supports the secure supply chain 
objectives expressed by Congress in amendments to section 30D that 
cross-reference the section 45X definition of applicable critical 
minerals.
    Section 45X(c)(6)(A) provides that aluminum that is converted from 
bauxite to a minimum purity of 99 percent alumina by mass or purified 
to a minimum purity of 99.9 percent aluminum by mass, qualifies as an 
applicable critical mineral. Some stakeholders have requested 
clarification whether commercial grade aluminum that is 99.7 percent 
aluminum by mass may qualify as an applicable critical mineral under 
section 45X(c)(6)(A).
    Section 45X(c)(6)(A) should be interpreted in light of the dynamics 
of the aluminum industry and the role that critical materials like 
aluminum play in the renewable energy and energy storage industry. 
Aluminum oxide, commonly known as alumina, is a form of aluminum that 
is referred to in section 45X(c)(6)(A)(i). Proposed Sec.  1.45X-4(b)(1) 
would interpret section 45X(c)(6)(A) to mean aluminum, including 
commodity-grade aluminum, described in section 45X(c)(6)(A)(i) and 
(ii). Proposed Sec.  1.45X-4(b)(1) would define ``commodity-grade 
aluminum'' as aluminum that has been produced directly from aluminum 
that is described in proposed Sec.  1.45X-4(b)(1)(i) or (ii) and is in 
a form that is sold on international commodity exchanges, which would 
include commercial grade aluminum that is 99.7 percent aluminum by 
mass.
    Proposed Sec.  1.45X-4(b)(1) clarifies that the term ``commodity-
grade aluminum'' is limited to primary production of unwrought forms by 
specifying that commodity-grade aluminum must be ``produced directly'' 
from certain forms of aluminum. The Treasury Department and the IRS 
currently understand that the ability to ascertain and substantiate the 
process or processes used in an earlier point in the lifecycle of 
feedstock aluminum for secondary production is limited. Such 
limitations would pose significant substantiation and administrability 
issues if secondary production were permitted for commodity-grade 
aluminum under proposed Sec.  1.45X-4(b)(1). Excluding secondary 
production would also avoid significant administrability challenges 
that would arise if the process or processes used at previous points in 
the lifecycle of feedstock aluminum used in secondary production had to 
be verified to determine eligibility for the section 45X credit.
    The Treasury Department and the IRS request comments on this 
interpretation of section 45X(c)(6)(A).
B. Credit Amount
    Section 45X(b)(1) generally provides the credit amount determined 
with respect to any eligible component, including any eligible 
component it incorporates, subject to the credit phase out provided at 
section 45X(b)(3). Section 45X(b)(3)(C) provides that the credit phase 
out does not apply with respect to any applicable critical mineral.
    Section 45X(b)(1)(M) provides that in the case of any applicable 
critical mineral, the credit amount is an amount equal to 10 percent of 
the costs incurred by the taxpayer with respect to production of such 
mineral.
    Proposed Sec.  1.45X-4(c)(1) would provide that for an applicable 
critical mineral the credit amount is equal to 10 percent of the costs 
incurred by the taxpayer with respect to production of such materials. 
Proposed Sec.  1.45X-4(c)(2) would provide definitions of production 
processes for applicable critical minerals. Proposed Sec.  1.45X-
1(c)(2)(i)

[[Page 86853]]

would provide that for purposes of section 45X, the term ``conversion'' 
means a chemical transformation from one species to another. Proposed 
Sec.  1.45X-1(c)(2)(ii) would provide that for purposes of section 45X, 
the term ``purification'' means increasing the mass fraction of a 
certain element.
C. Production Costs Incurred
    Proposed Sec.  1.45X-4(c)(3) would clarify that the costs incurred 
for purposes of determining the credit amount includes costs as defined 
in Sec.  1.263A-1(e) that are paid or incurred within the meaning of 
section 461 of the Code by the taxpayer for the production of an 
applicable critical mineral only. Thus, production costs with respect 
to an applicable critical mineral would not include any costs incurred 
after the production of the applicable critical mineral. For example, 
the costs to incorporate the applicable critical mineral into another 
product would not be taken into account as costs incurred in producing 
the applicable critical mineral. These proposed regulations apply 
section 263A and the section 263A regulations solely to identify the 
types of costs that are includible in production costs incurred for 
purposes of computing the credit amount, but do not apply section 263A 
or the section 263A regulations for any other purposes, such as to 
determine whether a taxpayer is engaged in production activities.
    Direct or indirect materials costs as defined in Sec.  1.263A-
1(e)(2)(i)(A) and (e)(3)(ii)(E), respectively, and any costs related to 
the extraction or acquisition of raw materials would not be taken into 
account as production costs. A wide range of costs that are 
attributable to the production of an applicable critical mineral would 
be taken into account as a cost incurred in producing the applicable 
critical mineral, including, but not limited to, labor, electricity 
used in the production of the applicable critical mineral, storage 
costs, depreciation or amortization, recycling, and overhead. However, 
the cost of acquiring the raw material used to produce the applicable 
critical mineral, the cost of materials used for conversion, 
purification, or recycling of the raw material, and other material 
costs related to the production of the applicable critical mineral 
would not be taken into account.
    The Treasury Department and the IRS seek to appropriately provide a 
credit for the costs associated with production activities that add 
value to the applicable critical mineral and are conducted by the 
taxpayer that produces the applicable critical mineral. Merely 
purchasing raw materials may enable a taxpayer to produce an applicable 
critical mineral but it is not by itself an activity that adds value. 
Excluding material costs would also mitigate the risk of crediting the 
same costs multiple times. For example, if material costs are included 
in production costs for an applicable critical mineral, the costs of 
producing an applicable critical mineral that is later incorporated 
into another applicable critical mineral could be credited more than 
once, and such material costs could make up a significant share of the 
cost of producing the applicable critical mineral. This might be the 
case if, for instance, Taxpayer 1 produces Applicable Critical Mineral 
1 and then sells it to Taxpayer 2 who uses it to create Applicable 
Critical Mineral 2. The cost of producing Applicable Critical Mineral 1 
would be credited twice if material costs are included in production 
costs, once by Taxpayer 1 for the initial production of Applicable 
Critical Mineral 1 and then again by Taxpayer 2 because Taxpayer 2 
would include its cost of purchasing Applicable Critical Mineral 1 in 
its production costs for Applicable Critical Mineral 2.
    The Treasury Department and the IRS recognize that a wide range of 
costs are incurred in the production of applicable critical minerals. 
The Treasury Department and the IRS request comments on this proposed 
rule for determining the costs incurred with respect to the production 
of applicable critical minerals, specifically whether and how 
extraction and other similar value-added activities in the production 
of raw materials used in applicable critical minerals should be taken 
into account. The Treasury Department and the IRS welcome an assessment 
of the magnitude of extraction costs and other direct and indirect 
material costs relative to the overall costs incurred in the production 
of an applicable critical mineral, and the extent to which these costs 
are incurred by the taxpayer that also produces the applicable critical 
mineral and add value to the applicable critical mineral. The Treasury 
Department and the IRS also welcome comments on how extraction should 
be defined, and whether it should be defined consistent with proposed 
Sec.  1.30D-3(c)(8).
    The Treasury Department and the IRS are considering including in 
production costs the costs of extraction and other similar value-added 
activities in the production of raw materials used in applicable 
critical minerals. However, such costs would only be included if the 
IRS could effectively administer such an approach and there are 
sufficient assurances that adopting such an approach would pose a 
limited risk of (i) crediting the same production costs multiple times 
and (ii) increasing other forms of fraud, waste, and abuse. The 
Treasury Department and the IRS request comments on whether and to what 
extent including these costs might raise such risks.
    Proposed Sec.  1.45X-4(c)(3) would also provide that the rules 
regarding ownership and property produced under a contract with a 
taxpayer under Sec.  1.263A-2(a)(1)(ii) that are used to determine 
whether a taxpayer is engaged in production or resale activities for 
purposes of section 263A do not apply for purposes of determining the 
taxpayer that is engaged in production activities for purposes of 
section 45X and the section 45X regulations.
D. Substantiation
    Proposed Sec.  1.45X-4(c)(4) would require the taxpayer to document 
that their product meets the criteria for an applicable critical 
mineral as described in section 45X(c)(6) with a certificate of 
analysis (COA) provided by the taxpayer to the person to which the 
taxpayer sold the applicable critical mineral. The Treasury Department 
and the IRS request comments on this substantiation requirement, 
including whether a similar requirement should be applied to electrode 
active materials.

VI. Substantiation Required Under Section 6001

    Section 6001 of the Code provides that every person liable for any 
tax imposed by the Code, or for the collection thereof, must keep such 
records as the Secretary may from time to time prescribe. Section 
1.6001-1(a) provides that any person subject to income tax must keep 
such permanent books of account or records as are sufficient to 
establish the amount of gross income, deductions, credits, or other 
matters required to be shown by such person in any return of such tax. 
Section 1.6001-1(e) provides that the books and records required by 
Sec.  1.6001-1 must be retained so long as the contents thereof may 
become material in the administration of any internal revenue law. 
Various provisions under proposed Sec. Sec.  1.45X-1 through 1.45X-4 
would require taxpayers to maintain specific documentation regarding 
certain eligible components that are produced by a taxpayer. These 
requirements would be part of the general recordkeeping requirements

[[Page 86854]]

under section 6001 and the regulations under section 6001.

Severability

    If any provision in this proposed rulemaking is held to be invalid 
or unenforceable facially, or as applied to any person or circumstance, 
it shall be severable from the remainder of this rulemaking, and shall 
not affect the remainder thereof, or the application of the provision 
to other persons not similarly situated or to other dissimilar 
circumstances.

Effect on Other Documents

    Section 5.05 of Notice 2023-18 and section 3 of Notice 2023-44, 
which relate to the interaction between sections 45X and 48C, will be 
superseded upon the publication in the Federal Register of a Treasury 
Decision addressing the interaction between sections 45X and 48C.

Proposed Applicability Dates

    Each of proposed Sec. Sec.  1.45X-1 through 1.45X-4 is proposed to 
apply to eligible components for which production is completed and 
sales occur after December 31, 2022, and during taxable years ending on 
or after the date of publication of the final regulations in the 
Federal Register.

Special Analyses

I. Regulatory Planning and Review--Economic Analysis

    Pursuant to the Memorandum of Agreement, Review of Treasury 
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory 
actions issued by the IRS are not subject to the requirements of 
section 6 of Executive Order 12866, as amended. Therefore, a regulatory 
impact assessment is not required.

II. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) (PRA) 
generally requires that a Federal agency obtain the approval of the 
Office of Management and Budget (OMB) before collecting information 
from the public, whether such collection of information is mandatory, 
voluntary, or required to obtain or retain a benefit. The collections 
of information in these proposed regulations contain reporting and 
recordkeeping requirements that are required to validate eligibility to 
claim a section 45X credit. These collections of information would 
generally be used by the IRS for tax compliance purposes and by 
taxpayers to facilitate proper reporting and compliance. The general 
recordkeeping requirements mentioned within these proposed regulations 
are considered general tax records under Sec.  1.6001-1(e). Specific 
certification statements under Sec.  1.45X-1(c)(3) are considered 
general tax records and are required for the IRS to validate the 
taxpayer that may claim a section 45X credit. For PRA purposes, general 
tax records are already approved by OMB under 1545-0074 for 
individuals, 1545-0123 for business entities, and under 1545-0092 for 
trust and estate filers.
    These proposed regulations also provide reporting requirements 
related to making the Related Person Election as described in Sec.  
1.45X-2(d) and calculating the section 45X credit amount as described 
in Sec.  1.45X-1. The Related Person Election will be made by taxpayers 
with Forms 1040, 1041, 1120-S, 1065, and 1120, on Form 7207 (or any 
successor forms); and credit calculations will be made on Form 3800 and 
supporting forms including Form 7207 (and any successor forms). These 
forms are approved under 1545-0074 for individuals, 1545-0123 for 
business entities, 1545-2306 for trust and estate filers of Form 7207, 
and 1545-0895 for trust and estate filers of Form 3800. These proposed 
regulations are not changing or creating new collection requirements 
not already approved by OMB or will be approved under 5 CFR 1320.10 by 
OMB.

III. Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes 
certain requirements with respect to Federal rules that are subject to 
the notice and comment requirements of section 553(b) of the 
Administrative Procedure Act (5 U.S.C. 551 et seq.) and that are likely 
to have a significant economic impact on a substantial number of small 
entities. Unless an agency determines that a proposal is not likely to 
have a significant economic impact on a substantial number of small 
entities, section 603 of the RFA requires the agency to present an 
initial regulatory flexibility analysis (IRFA) of the proposed rule. 
The Treasury Department and the IRS have not determined whether the 
proposed rule, when finalized, will likely have a significant economic 
impact on a substantial number of small entities. This determination 
requires further study. However, because there is a possibility of 
significant economic impact on a substantial number of small entities, 
an IRFA is provided in these proposed regulations. The Treasury 
Department and the IRS invite comments on both the number of entities 
affected and the economic impact on small entities.
    Pursuant to section 7805(f) of the Code, this notice of proposed 
rulemaking has been submitted to the Chief Counsel of the Office of 
Advocacy of the Small Business Administration for comment on its impact 
on small business.
A. Need for and Objectives of the Rule
    The proposed regulations would provide greater clarity to taxpayers 
that intend to claim a section 45X credit. The proposed regulations 
would provide necessary definitions, the time and manner to make the 
Related Person Election and rules regarding the determination of credit 
amounts. The Treasury Department and the IRS intend and expect that 
giving taxpayers guidance that allows them to claim the section 45X 
credit will beneficially impact various industries. In particular, the 
section 45X credit encourages the domestic production of eligible 
components and incentivizes taxpayers to invest in clean energy 
projects that generate eligible credits.
B. Affected Small Entities
    The RFA directs agencies to provide a description of, and if 
feasible, an estimate of, the number of small entities that may be 
affected by the proposed rules, if adopted. The Small Business 
Administration's Office of Advocacy estimates in its 2023 Frequently 
Asked Questions that 99.9 percent of American businesses meet its 
definition of a small business. The applicability of these proposed 
regulations does not depend on the size of the business, as defined by 
the Small Business Administration.
    As described more fully in the preamble to this proposed regulation 
and in this IRFA, section 45X and these proposed regulations may affect 
a variety of different entities across several different clean energy 
industries as multiple types of eligible components are provided for 
under the statute and manufacturers may produce more than one type. 
Although there is uncertainty as to the exact number of small 
businesses within this group, the current estimated number of 
respondents to these proposed rules is 13,450 taxpayers. The estimated 
total annual reporting burden and estimated average annual burden per 
respondent will be computed when Form 7207 and the instructions to Form 
7207 are updated to reflect these proposed regulations.
    The Treasury Department and the IRS expect to receive more 
information on the impact on small businesses through comments on this 
proposed rule and after taxpayers start to claim the section 45X credit 
using the guidance and

[[Page 86855]]

procedures provided in these proposed regulations.
C. Impact of the Rules
    The proposed regulations provide rules for how taxpayers can claim 
the section 45X credit. Taxpayers that claim the section 45X credit 
will have administrative costs related to reading and understanding the 
rules as well as recordkeeping and reporting requirements because of 
the Related Person Election, computation of the section 45X credit and 
tax return requirements. The costs will vary across different-sized 
entities and across the type of production activities in which such 
entities are engaged.
    The Related Person Election allows a taxpayer to make an 
irrevocable election annually with their Federal income tax return by 
providing the information required on Form 7207 (or any successor 
form), including, for example, the name, EIN of the taxpayer; a 
description of the taxpayer's trade or business; the name, address and 
EINs of all related persons; a list of the eligible components that are 
sold, and the intended purpose of the eligible components sold by the 
related person. To make the Related Person Election and claim the 
section 45X credit, the taxpayer must file an annual Federal income tax 
return. The reporting and recordkeeping requirements for that Federal 
income tax return would be required for any taxpayer that is claiming a 
general business credit, regardless of whether the taxpayer was making 
a Related Person Election under section 45X.
D. Alternatives Considered
    The Treasury Department and the IRS considered alternatives to the 
proposed regulations. For example, the Treasury Department and the IRS 
considered whether to impose certain pre-return filing requirements as 
a condition of making the Related Person Election as authorized in 
section 45X(a)(3)(B)(ii) to prevent duplication, fraud, or improper or 
excessive credits. The proposed regulations were designed to minimize 
burdens for taxpayers while ensuring that the IRS has sufficient 
information to determine eligibility for the section 45X credit. The 
Treasury Department and the IRS determined that requiring registration 
before a taxpayer makes the Related Person Election is unnecessary at 
this time. The proposed regulations would allow taxpayers to make an 
irrevocable Related Person Election annually with their Federal income 
tax return by providing the information required on Form 7207 (or any 
successor form), which would provide the IRS with sufficient 
information to assist in preventing duplication, fraud, or the claiming 
of improper or excessive credits if eligible components are produced 
and then sold to related persons.
    Comments are requested on the requirements in the proposed 
regulations, including specifically, whether there are less burdensome 
alternatives that ensure the IRS has sufficient information to 
administer the advanced manufacturing production credit.
E. Duplicative, Overlapping, or Conflicting Federal Rules
    The proposed rule would not duplicate, overlap, or conflict with 
any relevant Federal rules. As discussed above, the proposed rule would 
merely provide procedures and definitions to allow taxpayers to claim 
the section 45X credit. The Treasury Department and the IRS invite 
input from interested members of the public about identifying and 
avoiding overlapping, duplicative, or conflicting requirements.

IV. Unfunded Mandates Reform Act

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) 
requires that agencies assess anticipated costs and benefits and take 
certain other actions before issuing a final rule that includes any 
Federal mandate that may result in expenditures in any one year by a 
State, local, or Indian Tribal government, in the aggregate, or by the 
private sector, of $100 million (updated annually for inflation). This 
proposed rule does not include any Federal mandate that may result in 
expenditures by State, local, or Indian Tribal governments, or by the 
private sector in excess of that threshold.

V. Executive Order 13132: Federalism

    Executive Order 13132 (Federalism) prohibits an agency from 
publishing any rule that has federalism implications if the rule either 
imposes substantial, direct compliance costs on State and local 
governments, and is not required by statute, or preempts State law, 
unless the agency meets the consultation and funding requirements of 
section 6 of the Executive order. This proposed rule does not have 
federalism implications and does not impose substantial direct 
compliance costs on State and local governments or preempt State law 
within the meaning of the Executive order.

VI. Executive Order 13175: Consultation and Coordination With Indian 
Tribal Governments

    Executive Order 13175 (Consultation and Coordination With Indian 
Tribal Governments) prohibits an agency from publishing any rule that 
has Tribal implications if the rule either imposes substantial, direct 
compliance costs on Indian Tribal governments, and is not required by 
statute, or preempts Tribal law, unless the agency meets the 
consultation and funding requirements of section 5 of the Executive 
order. This proposed rule does not have substantial direct effects on 
one or more federally recognized Indian tribes and does not impose 
substantial direct compliance costs on Indian Tribal governments within 
the meaning of the Executive order.

Comments and Public Hearing

    Before these proposed amendments to the regulations are adopted as 
final regulations, consideration will be given to comments regarding 
the notice of proposed rulemaking that are submitted timely to the IRS 
as prescribed in this preamble under the ADDRESSES section. The 
Treasury Department and the IRS request comments on all aspects of the 
proposed regulations. All comments will be made available at https://www.regulations.gov. Once submitted to the Federal eRulemaking Portal, 
comments cannot be edited or withdrawn.
    A public hearing with respect to this notice of proposed rulemaking 
has been scheduled for February 22, 2024, beginning at 10 a.m. ET, in 
the Auditorium at the Internal Revenue Building, 1111 Constitution 
Avenue NW, Washington, DC. Due to building security procedures, 
visitors must enter at the Constitution Avenue entrance. In addition, 
all visitors must present photo identification to enter the building. 
Because of access restrictions, visitors will not be admitted beyond 
the immediate entrance area more than 30 minutes before the hearing 
starts. Participants may alternatively attend the public hearing by 
telephone.
    The rules of 26 CFR 601.601(a)(3) apply to the public hearing. 
Persons who wish to present oral comments at the public hearing must 
submit an outline of the topics to be discussed and the time to be 
devoted to each topic by February 13, 2024. A period of 10 minutes will 
be allotted to each person for making comments. An agenda showing the 
scheduling of the speakers will be prepared after the deadline for 
receiving outlines has passed. Copies of the agenda will be available 
free of

[[Page 86856]]

charge at the public hearing. If no outline of the topics to be 
discussed at the public hearing is received by February 13, 2024, the 
public hearing will be cancelled. If the public hearing is cancelled, a 
notice of cancellation of the public hearing will be published in the 
Federal Register.
    Individuals who want to testify in person at the public hearing 
must send an email to [email protected] to have your name added to 
the building access list. The subject line of the email must contain 
the regulation number REG-107423-23 and the language TESTIFY In Person. 
For example, the subject line may say: Request to TESTIFY In Person at 
Hearing for REG-107423-23.
    Individuals who want to testify by telephone at the public hearing 
must send an email to [email protected] to receive the telephone 
number and access code for the public hearing. The subject line of the 
email must contain the regulation number REG-107423-23 and the language 
TESTIFY Telephonically. For example, the subject line may say: Request 
to TESTIFY Telephonically at Hearing for REG-107423-23.
    Individuals who want to attend the public hearing in person without 
testifying must also send an email to [email protected] to have 
your name added to the building access list. The subject line of the 
email must contain the regulation number REG-107423-23 and the language 
ATTEND In Person. For example, the subject line may say: Request to 
ATTEND Hearing In Person for REG-107423-23. Requests to attend the 
public hearing must be received by 5 p.m. ET on February 20, 2024.
    Individuals who want to attend the public hearing by telephone 
without testifying must also send an email to [email protected] to 
receive the telephone number and access code for the public hearing. 
The subject line of the email must contain the regulation number REG-
107423-23 and the language ATTEND Hearing Telephonically. For example, 
the subject line may say: Request to ATTEND Hearing Telephonically for 
REG-107423-23. Requests to attend the public hearing must be received 
by 5 p.m. ET on February 20, 2024.
    Public hearings will be made accessible to people with 
disabilities. To request special assistance during a public hearing 
please contact the Publications and Regulations Branch of the Office of 
Associate Chief Counsel (Procedure and Administration) by sending an 
email to [email protected] (preferred) or by telephone at (202) 
317-6901 (not a toll-free number) and must be received by 5 p.m. ET on 
February 16, 2024.

Statement of Availability of IRS Documents

    Guidance cited in this preamble is published in the Internal 
Revenue Bulletin and is available from the Superintendent of Documents, 
U.S. Government Publishing Office, Washington, DC 20402, or by visiting 
the IRS website at https://www.irs.gov.

Drafting Information

    The principal authors of these proposed regulations are Mindy Chou, 
John Deininger and Alexander Scott, Office of the Associate Chief 
Counsel (Passthroughs and Special Industries). However, other personnel 
from the Treasury Department and the IRS participated in their 
development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, the Treasury Department and the IRS propose to amend 
26 CFR part 1 as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 is amended by adding 
entries in numerical order for Sec. Sec.  1.45X-1 through 1.45X-4 to 
read in part as follows:

    Authority:  26 U.S.C. 7805 * * *
    Section 1.45X-1 also issued under 26 U.S.C. 45X.
    Section 1.45X-2 also issued under 26 U.S.C. 45X(b) and (d) and 
1502.
    Section 1.45X-3 also issued under 26 U.S.C. 45X(b) and (c).
    Section 1.45X-4 also issued under 26 U.S.C. 45X(b) and (c).
* * * * *

0
Par. 2. Sections 1.45X-0 through 1.45X-4 are added to read as follows:
Sec.
* * * * *
1.45X-0 Table of contents.
1.45X-1 General rules applicable to the advanced manufacturing 
production credit.
1.45X-2 Sale to unrelated person.
1.45X-3 Eligible components.
1.45X-4 Applicable critical minerals.
* * * * *


Sec.  1.45X-0   Table of contents.

    This section lists the captions contained in Sec. Sec.  1.45X-1 
through 1.45X-4.

Sec.  1.45X-1 General rules applicable to the advanced manufacturing 
production credit.

    (a) Overview.
    (b) Credit amount.
    (c) Definition of produced by the taxpayer.
    (d) Produced in the United States.
    (e) Production and sale in a trade or business.
    (f) Sale of integrated components.
    (g) Interaction between sections 45X and 48C.
    (h) [Reserved]
    (i) Anti-abuse rule.
    (j) Severability.
    (k) Applicability date.

Sec.  1.45X-2 Sale to unrelated person.

    (a) In general.
    (b) Definitions.
    (c) Special rule for sale to related person.
    (d) Related person election.
    (e) Sales of integrated components to related person.
    (f) Severability.
    (g) Applicability date.

Sec.  1.45X-3 Eligible components.

    (a) In general.
    (b) Solar energy components.
    (c) Wind energy components.
    (d) Inverters.
    (e) Qualifying battery component.
    (f) Phase out rule.
    (g) Severability.
    (h) Applicability date.

Sec.  1.45X-4 Applicable critical minerals.

    (a) In general.
    (b) Definitions.
    (c) Credit amount.
    (d) Severability.
    (e) Applicability date.


Sec.  1.45X-1   General rules applicable to the advanced manufacturing 
production credit.

    (a) Overview--(1) In general. This section provides general rules 
regarding the advanced manufacturing production credit determined under 
section 45X of the Code (section 45X credit). Paragraph (a)(2) of this 
section provides definitions of certain terms that apply for purposes 
of section 45X and the section 45X regulations (defined in paragraph 
(a)(2)(xiv) of this section). Paragraphs (b) through (j) of this 
section provide the basic rules regarding the section 45X credit, 
including the definition of the term produced by the taxpayer, and 
rules to determine the taxpayer that produces an eligible component and 
whether such taxpayer is entitled to claim a section 45X credit in 
contract manufacturing arrangements; where the production of eligible 
components must occur; the treatment of integrated, incorporated or 
assembled eligible components; and the interaction between sections 45X 
and 48C of the Code. See Sec.  1.45X-2 for rules regarding sales to 
unrelated persons, sales to related persons, and the Related Person 
Election, including rules regarding the time, place, and manner of 
making the

[[Page 86857]]

Related Person Election. See Sec.  1.45X-3 for the definitions of all 
eligible components (except applicable critical minerals) and the 
credit amounts available for each of these eligible components, 
including certain phase-out percentages. See Sec.  1.45X-4 for the 
definitions of applicable critical minerals and the rules regarding the 
determination of the credit amount for applicable critical minerals.
    (2) Generally applicable definitions. This paragraph (a)(2) 
provides definitions of terms that apply for purposes of section 45X 
and the section 45X regulations.
    (i) Applicable critical mineral. The term applicable critical 
mineral means any of the minerals that are listed in section 45X(c)(6) 
and defined in Sec.  1.45X-4(b).
    (ii) Code. The term Code means the Internal Revenue Code.
    (iii) Contract manufacturing arrangement. The term contract 
manufacturing arrangement is defined in paragraph (c)(3)(ii)(B) of this 
section.
    (iv) Electrode active materials. The term electrode active 
materials is defined in Sec.  1.45X-3(e)(2).
    (v) Eligible component. The term eligible component is defined in 
section 45X(c)(1)(A) and described in Sec. Sec.  1.45X-3 and 1.45X-4.
    (vi) Eligible taxpayer. The term eligible taxpayer is defined in 
paragraph (c)(3) of this section.
    (vii) Guidance. The term guidance means guidance published in the 
Federal Register or Internal Revenue Bulletin, as well as 
administrative guidance such as forms, instructions, publications, or 
other guidance on the IRS.gov website. See Sec. Sec.  601.601 and 
601.602 of this chapter.
    (viii) IRA. The term IRA means Public Law 117-169, commonly known 
as the Inflation Reduction Act of 2022.
    (ix) IRS. The term IRS means the Internal Revenue Service.
    (x) Produced by the taxpayer. The term produced by the taxpayer is 
defined in paragraph (c) of this section, and the related terms 
production activities and production process have the meaning given 
those terms in paragraph (c) of this section.
    (xi) Related person. The term related person is defined in Sec.  
1.45X-2(b)(2).
    (xii) Related Person Election. The term Related Person Election is 
defined in Sec.  1.45X-2(d)(1).
    (xiii) Secretary. The term Secretary means the Secretary of the 
Treasury or her delegate.
    (xiv) Section 45X regulations. The term section 45X regulations 
means the provisions of this section, Sec. Sec.  1.45X-2 through 1.45X-
4, and the regulations in this chapter under sections 6417 and 6418 of 
the Code that relate to the section 45X credit.
    (xv) Unrelated person. The term unrelated person is defined in 
section 45X(a)(3) and described in Sec.  1.45X-2(b)(3).
    (b) Credit amount. Except as otherwise provided in section 
45X(b)(3) and Sec.  1.45X-3(f), for purposes of section 38 of the Code, 
the amount of the section 45X credit for any taxable year is equal to 
the sum of the credit amounts provided under section 45X(b) and 
described in Sec. Sec.  1.45X-3 and 1.45X-4 with respect to each 
eligible component that is produced by the taxpayer and, within the 
taxable year, sold by the taxpayer to an unrelated person. See Sec.  
1.45X-2 for rules regarding sales of eligible components to related 
persons that may be treated as if sold to unrelated persons for 
purposes of section 45X(a).
    (c) Definition of produced by the taxpayer--(1) In general. The 
term produced by the taxpayer means a process conducted by the taxpayer 
that substantially transforms constituent elements, materials, or 
subcomponents into a complete and distinct eligible component that is 
functionally different from that which would result from mere assembly 
or superficial modification of the elements, materials, or 
subcomponents.
    (i) Partial transformation. The term produced by the taxpayer does 
not include partial transformation that does not result in substantial 
transformation of constituent elements, materials, or subcomponents 
into a complete and distinct eligible component as described in this 
paragraph (c)(1).
    (ii) Mere assembly or superficial modification. The term produced 
by the taxpayer does not include minor assembly of two or more 
constituent elements, materials, or subcomponents, or superficial 
modification of the final eligible component, if the taxpayer does not 
also engage in the process resulting in a substantial transformation 
described in this paragraph (c)(1).
    (iii) Examples. The following examples illustrate the application 
of this paragraph (c)(1).
    (A) Example 1. Taxpayers X, Y, and Z each produce one of three 
sections of a wind tower that together make up the wind tower. No 
taxpayer has produced an eligible component within the meaning of 
section 45X(a)(1)(A) because no taxpayer has produced all sections of 
the wind tower.
    (B) Example 2. Same facts as paragraph (c)(1)(iii)(A) of this 
section (Example 1), but taxpayers X, Y, and Z instead form Partnership 
XYZ. Partnership XYZ produces all three sections of the wind tower. 
Partnership XYZ has produced an eligible component within the meaning 
of section 45X(a)(1)(A).
    (C) Example 3. Taxpayer V puts the external casing on a battery 
module (within the meaning of Sec.  1.45X-3(e)(4)(i)(A)) that already 
had cells, battery management systems, and other components integrated 
into it. Taxpayer V has engaged in minor assembly and has not produced 
an eligible component within the meaning of section 45X(a)(1)(A).
    (D) Example 4. Taxpayer U purchases two finished halves of a wind 
turbine nacelle and combines them into a single nacelle. Taxpayer U has 
engaged in minor assembly and has not produced an eligible component 
within the meaning of section 45X(a)(1)(A).
    (E) Example 5. Taxpayer T purchases a dry cell battery and fills 
the electrolyte of the battery. Taxpayer T has engaged in minor 
assembly and has not produced an eligible component within the meaning 
of section 45X(a)(1)(A).
    (F) Example 6. Taxpayer W purchases a prefabricated wind turbine 
blade and applies paint and finishes. Taxpayer W has engaged in 
superficial modification of the blade and has not produced an eligible 
component within the meaning of section 45X(a)(1)(A).b
    (2) Special rule for certain eligible components. For solar grade 
polysilicon, electrode active materials, and applicable critical 
minerals, the term produced by the taxpayer means processing, 
conversion, refinement, or purification of source materials, such as 
brines, ores, or waste streams, to derive a distinct eligible 
component.
    (3) Eligible taxpayer--(i) In general. Except as otherwise provided 
in paragraph (c)(3)(iii) of this section, a taxpayer claiming a section 
45X credit with respect to an eligible component must be the taxpayer 
that directly performs the production activities that bring about a 
substantial transformation resulting in the eligible component, and 
must sell such eligible component to an unrelated person.
    (ii) Contract manufacturing arrangement--(A) In general. If the 
production of an eligible component is performed in whole or in part 
pursuant to a contract that is a contract manufacturing arrangement, 
then, provided the other requirements of section 45X are met, the party 
to such contract that may claim the section 45X credit with respect to 
such eligible component is the party that performs the actual 
production activities that bring about a substantial transformation 
resulting in the eligible component.

[[Page 86858]]

    (B) Contract manufacturing arrangement defined. The term contract 
manufacturing arrangement means any agreement (or agreements) providing 
for the production of an eligible component if the agreement is entered 
into before the production of the eligible component to be delivered 
under the contract is completed. A routine purchase order for off-the-
shelf property is not treated as a contract manufacturing arrangement 
for purposes of this paragraph (c)(3). An agreement will be treated as 
a routine purchase order for off-the-shelf property if the contractor 
is required to make no more than de minimis modifications to the 
property to tailor it to the customer's specific needs, or if at the 
time the agreement is entered into, the contractor knows or has reason 
to know that the contractor can satisfy the agreement out of existing 
stocks or normal production of finished goods.
    (iii) Special rule for contract manufacturing arrangements. If an 
eligible component is produced by a taxpayer pursuant to a contract 
manufacturing arrangement, the parties to such agreement may determine 
by agreement the party that may claim the section 45X credit. If a 
taxpayer enters into contract manufacturing arrangements with multiple 
fabricators to produce an eligible component, the parties to such 
agreements may determine by agreement the party that may claim the 
section 45X credit. The IRS will not challenge the agreement of the 
parties provided all the parties submit signed certification statements 
(as described in paragraph (c)(3)(iv) of this section) indicating that 
all parties agree as to the party that may claim the section 45X 
credit.
    (iv) Certification statement requirements. A certification 
statement indicating that all parties to a contract manufacturing 
arrangement agree as to the party that will claim the section 45X 
credit must include--
    (A) All required information set forth in guidance; and
    (B) A properly signed penalty of perjury statement.
    (v) Examples. The following examples illustrate the application of 
this paragraph (c)(3).
    (A) Example 1: Contract manufacturing with sale. Taxpayers X, Y and 
Z are unrelated C corporations that have calendar year taxable years. 
In 2024, pursuant to a contract manufacturing arrangement as described 
in paragraph (c)(3)(ii)(B) of this section, X hires Y to produce a 
solar module. The contract is a tolling arrangement and provides that Y 
will produce the solar module according to X's designs and 
specifications and using the materials and subcomponents that X 
provides. X and Y enter an agreement providing that X is the sole party 
that may claim a section 45X credit for the production and sale of the 
solar module, and X and Y each sign a certification statement as 
described in paragraph (c)(3)(iv) of this section reflecting this 
agreement. In 2025, Y produces and delivers the solar module to X, and 
in 2026, X sells the solar module to Z. X may claim a section 45X 
credit in taxable year 2026 for the solar module it sold to Z provided 
all other requirements of section 45X are met and the certification 
statements signed by X and Y meet the requirements described in 
paragraph (c)(3)(iv) of this section and are properly submitted by X. 
Similarly, Y could claim a section 45X credit if the agreement between 
X and Y had designated Y as the sole party that could claim a section 
45X credit for the production and sale of the solar module provided all 
other requirements of section 45X are met and the certification 
statements signed by X and Y meet the requirements described in 
paragraph (c)(3)(iv) of this section and are properly submitted by Y.
    (B) Example 2: Contract manufacturing with no sale. Assume the 
facts are the same as in paragraph (c)(3)(v)(A) of this section 
(Example 1), except that X does not sell the solar module and instead X 
uses it to generate electricity for use in X's trade or business. 
Because there has been no sale, neither X nor Y may claim a section 45X 
credit for the solar module regardless of whether X and Y submit signed 
certification statements described in paragraph (c)(3)(iv) of this 
section.
    (C) Example 3: Multiple contract manufacturing arrangements. 
Taxpayers V, W, X, Y and Z are unrelated C corporations that have 
calendar year taxable years. In 2024, pursuant to three separate 
contract manufacturing arrangements as described in paragraph 
(c)(3)(ii)(B) of this section, V hires W, X, and Y to produce the 
bottom, middle and top segments, respectively, of a single wind tower 
that V designed. W, X, Y and V enter into an agreement providing that V 
is the sole party that may claim a section 45X credit for the 
production and sale of the wind tower, and W, X, Y and V each sign a 
certification statement as described in paragraph (c)(3)(iv) of this 
section reflecting this agreement. In 2024, W and X both produce and 
deliver their respective wind tower segments to the installation site, 
and in 2025, Y produces and delivers its wind tower segment to the 
installation site. In 2026, V sells the completed wind tower to Z. V 
may claim a section 45X credit in taxable year 2026 for the wind tower 
it sold to Z provided all other requirements of section 45X are met and 
the certification statements signed by V, W, X and Y meet the 
requirements described in paragraph (c)(3)(iv) of this section and are 
properly submitted by V. Similarly, W or X or Y could be the party that 
could claim a section 45X credit if the agreement between V, W, X and Y 
had designated W or X or Y as the sole party that could claim a section 
45X credit for the production and sale of the wind tower provided all 
other requirements of section 45X are met and the certification 
statements signed by V, W, X and Y meet the requirements described in 
paragraph (c)(3)(iv) of this section and are properly submitted by the 
party designated as the sole party that could claim a section 45X 
credit.
    (4) Timing of production and sale--(i) In general. Production of 
eligible components for which a taxpayer is claiming a section 45X 
credit may begin before December 31, 2022. Production of eligible 
components must be completed, and sales of eligible components must 
occur, after December 31, 2022.
    (ii) Example. Taxpayer X has a calendar year taxable year. Taxpayer 
X begins production of a related offshore wind vessel (as defined in 
section 45X(4)(B)(iv) and described in Sec.  1.45X-3(c)(4)) in January 
2022. Production is completed in December 2024 and the sale to an 
unrelated person occurs in 2025. Taxpayer X is eligible to claim the 
section 45X credit in 2025, assuming that all other requirements of 
section 45X are met.
    (d) Produced in the United States--(1) In general. Sales are taken 
into account for purposes of the section 45X credit only for eligible 
components that are produced within the United States, as defined in 
section 638(1) of the Code, or a United States territory, which for 
purposes of section 45X and the section 45X regulations has the meaning 
of the term possession provided in section 638(2).
    (2) Subcomponents. Constituent elements, materials, and 
subcomponents used in the production of eligible components are not 
subject to the domestic production requirement provided in paragraph 
(d)(1) of this section.
    (e) Production and sale in a trade or business. An eligible 
component produced and sold by the taxpayer is taken into account for 
purposes of the section 45X credit only if the production and sale are 
in a trade or business (within the meaning of section 162 of the Code) 
of the taxpayer.

[[Page 86859]]

    (f) Sale of integrated components--(1) In general. For purposes of 
the section 45X credit, section 45X(d)(4) provides that a taxpayer is 
treated as having produced and sold an eligible component to an 
unrelated person if such component is integrated, incorporated, or 
assembled into another eligible component that is then sold to an 
unrelated person.
    (i) Integrated, incorporated, or assembled. The term integrated, 
incorporated, or assembled means the production activities by which an 
eligible component that is a constituent element, material, or 
subcomponent is substantially transformed into another complete and 
distinct eligible component that is not solar grade polysilicon, an 
electrode active material, or an applicable critical mineral. The term 
integrated, incorporated, or assembled does not mean the mere assembly 
or superficial modification of an eligible component used as an 
element, material, or subcomponent and other elements, materials, or 
subcomponents that results in a distinct product.
    (ii) Special rule for eligible components resulting in solar grade 
polysilicon, electrode active materials, or applicable critical 
minerals. For solar grade polysilicon, electrode active material, and 
applicable critical minerals, the term integrated, incorporated, or 
assembled means the production activities in which an eligible 
component is processed, converted, refined, or purified to derive a 
distinct eligible component that is solar grade polysilicon, an 
electrode active material, or an applicable critical mineral. The term 
integrated, incorporated, or assembled does not mean mere assembly or 
superficial modification of an eligible component used as an element, 
material, or subcomponent and other elements, materials, or 
subcomponents that results in a distinct product.
    (2) Application--(i) In general. A taxpayer may claim a section 45X 
credit for each eligible component the taxpayer produces and sells to 
an unrelated person, including any eligible component the taxpayer 
produces that was used as a constituent element, material, or 
subcomponent and integrated, incorporated, or assembled into another 
complete and distinct eligible component or another complete and 
distinct product (that is not itself an eligible component) that the 
taxpayer also produces and sells to an unrelated person.
    (ii) Example: Sale of product with incorporated eligible components 
to unrelated person. In 2022, X, a domestic corporation that has a 
calendar year taxable year, begins production of electrode active 
materials (EAMs) that are completed in 2023 and incorporated into 
battery cells that X also produces. In 2024, X incorporates those 
battery cells into battery modules (within the meaning of Sec.  1.45X-
3(e)(4)(i)(A)) and integrates the battery modules into electric 
vehicles. X sells the electric vehicles to Z, an unrelated person, in 
2024. X may claim a section 45X credit for the EAMs, the battery cells, 
and the battery modules in 2024.
    (g) Interaction between sections 45X and 48C--(1) In general. For 
purposes of the section 45X credit, consistent with section 
45X(c)(1)(B), an eligible component--
    (i) Must be produced by a section 45X facility; and
    (ii) Does not include any property (produced property) that is 
produced at a facility if the basis of any property that is part of the 
production unit (within the meaning of paragraph (g)(2)(ii) of this 
section) that produces the produced property--
    (A) Is eligible property that is included in a section 48C 
facility; and
    (B) Is taken into account for purposes of the credit allowed under 
section 48C (section 48C credit) after August 16, 2022.
    (2) Section 45X facility--(i) In general. A section 45X facility 
includes all tangible property that comprises an independently 
functioning production unit that produces one or more eligible 
components.
    (ii) Production unit. The production unit is the tangible property 
that substantially transforms the material inputs to complete the 
production process of an eligible component.
    (3) Section 48C facility--(i) In general. A section 48C facility 
includes all eligible property included in a qualifying advanced energy 
project for which a taxpayer receives an allocation of section 48C 
credits under the allocation program established under section 48C(e) 
and claims such credits after August 16, 2022.
    (ii) Eligible property. Eligible property is property that--
    (A) Is necessary for the production or recycling of property 
described in section 48C(c)(1)(A)(i), re-equipping an industrial or 
manufacturing facility described in section 48C(c)(1)(A)(ii), or re-
equipping, expanding, or establishing an industrial facility described 
in section 48C(c)(1)(A)(iii);
    (B) Is tangible personal property, or other tangible property (not 
including a building or its structural components), but only if such 
property is used as an integral part of the qualified investment credit 
facility; and
    (C) With respect to which depreciation (or amortization in lieu of 
depreciation) is allowable.
    (4) Examples. The following examples illustrate the application of 
this paragraph (g):
    (i) Example 1: Two independent production units--(A) Facts. 
Taxpayer owns and operates a manufacturing site that contains 
Production Unit A and Production Unit B, each of which function 
independently and are arranged in serial fashion. Photovoltaic wafers 
produced by Production Unit A are utilized in Production Unit B to 
manufacture photovoltaic cells. Taxpayer was allocated a section 48C 
credit under the section 48C(e) program for a section 48C facility that 
includes Production Unit A and subsequently placed the section 48C 
facility and Production Unit A in service in taxable year 2026. 
Taxpayer claimed a section 48C credit for Production Unit A for taxable 
year 2026.
    (B) Analysis. Production Unit A is eligible property that is 
include in Taxpayer's section 48C facility. Therefore, Production Unit 
A cannot qualify as a section 45X facility under section 45X(c)(1)(B) 
and paragraph (g)(2) of this section. Production Unit B, however, is 
tangible property that comprises an independently functioning 
production unit that produces eligible components. Production Unit B 
can be treated as a section 45X facility because the tangible property 
comprising Production Unit B is not eligible property that is included 
in a section 48C facility.
    (ii) Example 2: Single production unit--(A) Facts. Taxpayer owns 
and operates two manufacturing sites. Manufacturing Site 1 includes 
tangible property that forms ingots from polysilicon to partially 
produce photovoltaic wafers. Manufacturing Site 2 completes the 
production process of the photovoltaic wafers. Taxpayer was allocated a 
section 48C credit under the section 48C(e) program for tangible 
property that is used to produce the ingots at Manufacturing Site 1.
    (B) Analysis. Manufacturing Site 1 and Manufacturing Site 2 
comprise a single production unit. As a result, Taxpayer may not claim 
the section 45X credit for the photovoltaic wafers it produced at 
Manufacturing Site 1 and Manufacturing Site 2 because Taxpayer claimed 
the section 48C credit for the tangible property that was used to 
produce the ingots at Manufacturing Site 1, which is part of a single 
production unit.

[[Page 86860]]

    (iii) Example 3: Independent production units and production of 
subcomponent--(A) Facts. Taxpayer owns and operates two manufacturing 
sites. Manufacturing Site 1 contains Production Unit A and Production 
Unit B, which are arranged in parallel fashion and each produce 
photovoltaic cells. Manufacturing Site 2 contains Production Unit C and 
Production Unit D, which are arranged in serial fashion. Production 
Unit C produces photovoltaic cells. Production Unit D produces solar 
modules, in part, by combining the photovoltaic cells produced by 
Production Units A, B and C. Taxpayer was allocated a section 48C 
credit under the section 48C(e) program for a section 48C facility that 
includes Production Unit C. Subsequently, Taxpayer places the section 
48C facility and Production Unit C in service in taxable year 2026. 
Taxpayer claimed a section 48C credit for Production Unit C in taxable 
year 2026.
    (B) Analysis. Production Units A and B each comprise a single 
production unit that produces eligible components. Production Units A 
and B can be treated as a section 45X facility because the tangible 
property comprising Production Units A and B are not eligible property 
that is included in a section 48C facility. Production Unit C cannot 
qualify as a section 45X facility under section 45X(c) because 
Production Unit C is eligible property that is included in a section 
48C facility. Production Unit D is tangible property that comprises an 
independently functioning production unit that produces eligible 
components utilizing subcomponents produced by Taxpayer in a separate, 
independently functioning production unit. Therefore, Production Unit D 
can be treated as a section 45X facility because the tangible property 
comprising Production Unit D is not eligible property that is included 
in a section 48C facility.
    (iv) Example 4: Two independent production units manufacturing 
under a contract manufacturing arrangement--(A) Facts. X is hired by Y 
to manufacture photovoltaic cells. X owns and operates a manufacturing 
site that contains Production Unit A and Production Unit B. Production 
Unit A and Production Unit B function independently and are arranged in 
serial fashion. Photovoltaic wafers produced by Production Unit A are 
utilized in Production Unit B to manufacture photovoltaic cells. X was 
allocated a section 48C credit under the section 48C(e) program for a 
section 48C facility that includes Production Unit A and subsequently 
placed the section 48C Facility and Production Unit A in service in 
taxable year 2026. X claimed a section 48C credit for Production Unit A 
in taxable year 2026.
    (B) Analysis. Production Unit A is eligible property that is 
included in X's section 48C facility. Therefore, Production Unit A 
cannot qualify as a section 45X facility under section 45X(c)(1)(B) and 
paragraph (g)(2) of this section and X does not qualify for a section 
45X credit with respect to Production Unit A. Production Unit B is, 
however, tangible property that comprises an independently functioning 
production unit that produces eligible components. Production Unit B 
can be treated as a section 45X facility by X, the party who produces 
the eligible components, because the tangible property comprising 
Production Unit B is not eligible property that is included in a 
section 48C facility.
    (v) Example 5: Two independent production units manufacturing under 
a contract manufacturing arrangement--(A) Facts. Assume the facts are 
the same as in paragraph (g)(4)(iv) of this section (Example 4), except 
that Y owns Production Units A and B and hires X to operate Production 
Units A and B to produce the eligible components.
    (B) Analysis. Production Unit A is eligible property that is 
included in Y's section 48C facility. Y claimed a section 48C credit 
for Production Unit A in taxable year 2026. Therefore, Production Unit 
A cannot qualify as a section 45X facility under section 45X(c)(1)(B) 
and paragraph (g)(2) of this section and X does not qualify for a 
section 45X credit with respect to Production Unit A. Production Unit 
B, however, is tangible property that comprises an independently 
functioning production unit that produces eligible components. 
Production Unit B can be treated as a section 45X facility by X (and 
not Y) because the tangible property comprising Production Unit B is 
not eligible property that is included in a section 48C facility.
    (h) [Reserved]
    (i) Anti-abuse rule--(1) In general. The rules of section 45X and 
the section 45X regulations must be applied in a manner consistent with 
the purposes of section 45X and the section 45X regulations (and the 
regulations in this chapter under sections 6417 and 6418 related to the 
section 45X credit). A purpose of section 45X and the section 45X 
regulations (and the regulations in this chapter under sections 6417 
and 6418 related to the section 45X credit) is to provide taxpayers an 
incentive to produce eligible components in a manner that contributes 
to the development of secure and resilient supply chains. Accordingly, 
the section 45X credit is not allowable if the primary purpose of the 
production and sale of an eligible component is to obtain the benefit 
of the section 45X credit in a manner that is wasteful, such as 
discarding, disposing of, or destroying the eligible component without 
putting it to a productive use. A determination of whether the 
production and sale of an eligible component is inconsistent with the 
purposes of section 45X and the section 45X regulations (and the 
regulations in this chapter under sections 6417 and 6418 related to the 
section 45X credit) is based on all facts and circumstances.
    (2) Example--(i) Facts. Taxpayer is engaged in the activity of 
producing and selling multiple units of Eligible Component 1 (EC1). 
Taxpayer engages in no other activities. The cost of producing each 
unit of EC1 is less than the amount of the section 45X credit that 
would be available if each EC1 qualified for the section 45X credit. 
Taxpayer sells some of its units of EC1 to related persons and makes a 
Related Person Election pursuant to section 45X(a)(3)(B)(i). Taxpayer 
also sells some of its units of EC1 to unrelated persons. Taxpayer 
sells all units of EC1 at an amount equal to cost plus a markup to 
reflect an anticipated accommodation fee and establishes corresponding 
accounts receivable at the time of the respective sales. In addition, 
Taxpayer knows or reasonably expects that after acquiring the units of 
EC1, the related and unrelated transferees will not resell the units of 
EC1 or use them in their trades or businesses. Taxpayer intends to 
obtain the benefit from the section 45X credit by claiming such credits 
itself or monetizing such credits through an election under sections 
6417 or 6418. Taxpayer eliminates the aforementioned accounts 
receivable at the time it claims the section 45X credit or receives 
related payments attributable to the section 45X credit, and further 
makes payments to the related and unrelated transferees as 
accommodation fees computed as a percentage of such benefits.
    (ii) Analysis. Based on all of the facts and circumstances in 
paragraph (i)(2)(i) of this section, the primary purpose of Taxpayer's 
production and sale of EC1 is to obtain the benefit of the section 45X 
credit in a manner that is wasteful and will not be treated as the 
production and sale of eligible components in a trade or business of 
Taxpayer for purposes of section 45X(a)(1) and (2). Taxpayer is not 
eligible for the section 45X credit with respect to units of EC1 that 
it produced and sold. See sections 6417(d)(6)

[[Page 86861]]

(excessive payments) and 6418(g)(2) (excessive credit transfer).
    (j) Severability. The provisions of this section are separate and 
severable from one another. If any provision of this section is stayed 
or determined to be invalid, it is the agencies' intention that the 
remaining provisions shall continue in effect.
    (k) Applicability date. This section applies to eligible components 
for which production is completed and sales occur after December 31, 
2022, and during a taxable year ending on or after [date of publication 
of final regulations in the Federal Register].


Sec.  1.45X-2   Sale to unrelated person.

    (a) In general. The amount of the section 45X credit for any 
taxable year is equal to the sum of the credit amounts determined under 
section 45X(b) (and described in Sec. Sec.  1.45X-3 and 1.45X-4) with 
respect to each eligible component that is produced by the taxpayer 
and, during the taxable year, sold by the taxpayer to an unrelated 
person. Applicable Federal income tax principles apply to determine 
whether a transaction is in substance a sale (or the provision of a 
service, or some other disposition). See Sec.  1.45X-1(d) and (e) for 
additional requirements relating to sales.
    (b) Definitions. This paragraph (b) provides definitions of terms 
that apply for purposes of this section.
    (1) Person. The term person means an individual, a trust, estate, 
partnership, association, company or corporation, as provided in 
section 7701(a)(1) of the Code. For purposes of this section, an entity 
disregarded as separate from a person (for example, under Sec.  
301.7701-3 of this chapter) is not a person.
    (2) Related person. The term related person means a person who is 
related to another person if such persons would be treated as a single 
employer under the regulations in this chapter under section 52(b) of 
the Code.
    (3) Unrelated person. The term unrelated person means a person who 
is not a related person as defined in paragraph (b)(2) of this section.
    (c) Special rule for sale to related person--(1) In general. For 
purposes of section 45X(a), a taxpayer is treated as selling an 
eligible component to an unrelated person if such component is sold to 
such person by a person who is a related person with respect to the 
taxpayer.
    (2) Example. X and Y are members of a group of trades or businesses 
under common control under section 52(b), and thus are related persons 
under section 45X(d)(1). Each of X and Y has a calendar year taxable 
year. Z is an unrelated person. X is in the trade or business of 
producing and selling solar modules. X produces and sells solar modules 
to Y in 2023. Y sells the solar modules to Z in 2024. X may claim a 
section 45X credit for the sale of the solar modules in 2024, the 
taxable year of X in which Y sells the solar modules to Z.
    (d) Related person election--(1) Availability of election--(i) In 
general. In such form and manner as the Secretary may prescribe, a 
taxpayer may make an election under section 45X(a)(3)(B) (Related 
Person Election), to treat a sale of eligible components by such 
taxpayer to a related person as if made to an unrelated person. As a 
condition of, and prior to, a taxpayer making a Related Person Election 
(as described in paragraph (d)(2) of this section), the Secretary may 
require such information or registration as the Secretary deems 
necessary for purposes of preventing duplication, fraud, or any 
improper or excessive credit amount determined under section 45X(a)(1).
    (ii) Members of a consolidated group. A Related Person Election is 
made by a member of a consolidated group (as defined in Sec.  1.1502-
1(h)) in the manner described in paragraph (d)(3)(ii) of this section. 
A member of a consolidated group that sells eligible components in an 
intercompany transaction (as defined in Sec.  1.1502-13(b)(1)) may make 
the Related Person Election to claim the section 45X credit in the year 
of the intercompany sale. For the treatment of the selling member's 
gain or loss from that sale, see Sec.  1.1502-13.
    (2) Time and manner of making election--(i) In general. A taxpayer 
must make an affirmative Related Person Election annually on the 
taxpayer's timely filed original Federal income tax return, including 
extensions in such form and in such manner as may be prescribed in 
Internal Revenue Service forms or instructions or in publications or 
guidance published in the Internal Revenue Bulletin. See Sec.  601.601 
of this chapter. The Related Person Election will be applicable to all 
sales of eligible components to related persons by the taxpayer for 
each trade or business that the taxpayer engages in during the taxable 
year that resulted in a credit claim and for which the taxpayer has 
made the Related Person Election.
    (ii) Required information. For all sales of eligible components to 
related persons, the taxpayer must provide all required information set 
forth in guidance. Such information may include, for example, the 
taxpayer's name, employer identification number (EIN), a description of 
the taxpayer's trade or business (including principal business activity 
code); the name(s) and EINs of all related persons; a listing of the 
eligible components that are sold; and the intended purpose of any 
sales of eligible components to or from related persons.
    (3) Scope and effect of election--(i) In general. A separate 
Related Person Election must be made with respect to related person 
sales made by a taxpayer for each eligible trade or business of the 
taxpayer. The election applies only to such trade or business for which 
the Related Person Election is made. An election under this section 
applies to all sales to related persons (including between members of 
the same consolidated group) of eligible components produced by the 
taxpayer during the taxable year with respect to each trade or business 
for which the Related Person Election is made and is irrevocable for 
the taxable year for which the election is made. An election under 
paragraph (d)(2)(i) of this section applies solely for purposes of the 
section 45X credit and the section 45X regulations (and the regulations 
in this chapter under sections 6417 and 6418 related to the section 45X 
credit).
    (ii) Application to consolidated groups. For a trade or business of 
a consolidated group, a Related Person Election must be made by the 
agent for the group on behalf of the members claiming the section 45X 
credit and filed with the group's timely filed original Federal income 
tax return, including extensions, with respect to each trade or 
business that the consolidated group conducts. See Sec.  1.1502-77 
(providing rules regarding the status of the common parent as agent for 
its members). A separate election must be filed on behalf of each 
member claiming the section 45X credit, and each election must include 
the name and EIN of the agent for the group and the member on whose 
behalf the election is being made.
    (iii) Application to partnerships. The Related Person Election for 
a partnership must be made on the partnership's timely filed original 
Federal income tax return, including extensions, with respect to each 
trade or business that the partnership conducts. The election applies 
only to such trade or business for which the Related Person Election is 
made. An election by a partnership does not apply to any trade or 
business conducted by a partner outside the partnership.
    (4) Anti-abuse rule--(i) In general. A Related Person Election may 
not be made if, with respect to the eligible components relevant to 
such election, the taxpayer fails to provide the information described 
in paragraph

[[Page 86862]]

(d)(2) of this section, provides information described in paragraph 
(d)(2) of this section that shows that such components are described in 
paragraph (d)(4)(ii) or (iii) of this section, or such components are 
described in paragraph (d)(4)(ii) or (iii) of this section.
    (ii) Improper use. For purposes of this paragraph (d)(4) the term 
improper use means a use that is wasteful, such as discarding, 
disposing of, or destroying the eligible component without putting it 
to a productive use by the related person to which the eligible 
component is sold.
    (iii) Defective components. The term defective component means a 
component that does not meet the requirements of section 45X and the 
section 45X regulations.
    (e) Sales of integrated components to related person--(1) In 
general. For purposes of section 45X and the section 45X regulations 
(and the regulations in this chapter under sections 6417 and 6418 
related to the section 45X credit), a taxpayer that produces and then 
sells an eligible component to a related person, who then integrates, 
incorporates, or assembles the taxpayer's eligible component into 
another complete and distinct eligible component that is subsequently 
sold to an unrelated person, may claim a section 45X credit (or make an 
election under section 6417 or 6418) with respect to the taxable year 
in which the related person's sale to the unrelated person occurs.
    (2) Examples. The following examples illustrate the rules provided 
in paragraph (e)(1) of this section.
    (i) Example 1: Sales of multiple incorporated eligible components 
to related persons. X and Y are C corporations that are members of a 
group of trades or businesses under common control under section 52(b), 
and thus are related persons under section 45X(d)(1) and paragraph 
(b)(2) of this section. Each of X and Y has a calendar year taxable 
year. Z is an unrelated person. X and Y are in the trade or business of 
producing and selling photovoltaic wafers and cells. X produces and 
sells photovoltaic wafers to Y in 2023. Y incorporates the photovoltaic 
wafers into photovoltaic cells and sells the photovoltaic cells to Z in 
2024. X may claim a section 45X credit for the sale of the photovoltaic 
wafers in 2024, the taxable year of X in which Y sells the photovoltaic 
cells to Z.
    (ii) Example 2: Sales of multiple incorporated eligible components 
to related and unrelated persons. W, X, and Y are domestic C 
corporations that are members of a group of trades or businesses under 
common control under section 52(b), and thus are related persons under 
section 45X(d)(1) and paragraph (b)(2) of this section. Each of W, X, 
and Y has a calendar year taxable year. W produces electrode active 
materials (EAMs) and sells the EAMs to X in 2023. In 2024, X 
incorporates the EAMs into battery cells that it produces and sells the 
battery cells to Y. In 2025, Y incorporates the battery cells into 
battery modules (within the meaning of Sec.  1.45X-3(e)(4)(i)(A)) that 
it produces and sells the battery modules to Z, an unrelated person. W 
may claim a section 45X credit for EAMs sold to X, X may claim a 
section 45X credit for the battery cells sold to Y, and Y may claim a 
section 45X credit for the battery modules sold to Z in 2025, the 
taxable year of each of W, X, and Y in which the battery modules are 
sold to Z.
    (3) Special rules applicable to related person election--(i) In 
general. If a taxpayer makes a valid Related Person Election under 
section 45X(a)(3)(B)(i) and paragraph (d)(1) of this section, and the 
taxpayer produces and then sells an eligible component to a related 
person, who then integrates, incorporates, or assembles the taxpayer's 
eligible component into another complete and distinct eligible 
component that is subsequently sold to an unrelated person, the 
taxpayer's sale of the eligible component to the related person is 
treated (solely for purposes of the section 45X credit and the section 
45X regulations, and the regulations in this chapter under sections 
6417 and 6418 related to the section 45X credit) as if made to an 
unrelated person in the taxable year in which the sale to the related 
person occurs.
    (ii) Example: Sales of multiple integrated eligible components to 
related and unrelated persons with a related person election. W, X, and 
Y are domestic C corporations that are members of a group of trades or 
businesses under common control and thus are related persons under 
section 45X(d)(1) and paragraph (b)(2) of this section. Each of W, X, 
and Y has a calendar year taxable year. W produces electrode active 
materials (EAMs) and sells the EAMs to X in 2023. W makes a valid 
Related Person Election under paragraph (d)(1) of this section in 2023 
with regard to the sale. In 2024, X incorporates the EAMs into battery 
cells that it produces and sells the battery cells to Y. X makes a 
valid Related Person Election under paragraph (d)(1) of this section in 
2024 with regard to the sale. In 2025, Y incorporates the battery cells 
into battery modules that it produces and sells the battery modules to 
Z, an unrelated person. W may claim a section 45X credit for the sale 
of the EAMs in 2023 because the sale to X is treated as if made to an 
unrelated person solely for purposes of section 45X(a). X may claim a 
section 45X credit for the sale of the battery cells in 2024 because 
the sale to Y is treated as if made to an unrelated person solely for 
purposes of section 45X(a). Y may claim a section 45X credit for the 
sale of battery modules in 2025 because Z is an unrelated person.
    (f) Severability. The provisions of this section are separate and 
severable from one another. If any provision of this section is stayed 
or determined to be invalid, it is the agencies' intention that the 
remaining provisions shall continue in effect.
    (g) Applicability date. This section applies to eligible components 
for which production is completed and sales occur after December 31, 
2022, and during a taxable year ending on or after [date of publication 
of the final regulations in the Federal Register].


Sec.  1.45X-3   Eligible components.

    (a) In general. For purposes of the section 45X credit, eligible 
component means any solar energy component (as defined in paragraph (b) 
of this section), any wind energy component (as defined in paragraph 
(c) of this section), any inverter (as defined in paragraph (d) of this 
section), any qualifying battery component (as defined in paragraph (e) 
of this section), and any applicable critical mineral (as defined in 
Sec.  1.45X-4(b)). See paragraph (f) of this section for certain phase-
out rules applicable to eligible components other than applicable 
critical minerals.
    (b) Solar energy components. Solar energy component means a solar 
module, photovoltaic cell, photovoltaic wafer, solar grade polysilicon, 
torque tube, structural fastener, or polymeric backsheet, each as 
defined in this paragraph (b).
    (1) Photovoltaic cell--(i) Definition. Photovoltaic cell means the 
smallest semiconductor element of a solar module that performs the 
immediate conversion of light into electricity that is either a thin 
film photovoltaic cell or a crystalline photovoltaic cell.
    (ii) Credit amount. For a photovoltaic cell, the credit amount is 
equal to the product of 4 cents multiplied by the capacity of such 
photovoltaic cell. The capacity of each photovoltaic cell is expressed 
on a direct current watt basis. Capacity is the nameplate capacity in 
direct current watts using Standard Test Conditions, as defined by the 
International Electrotechnical Commission. In the case of a tandem

[[Page 86863]]

technology produced in serial fashion, such as a monolithic 
multijunction cell composed of two or more sub-cells, capacity must be 
measured at the point of sale at the end of the single cell production 
unit. In the case of a four-terminal tandem technology produced by 
mechanically stacking two distinct cells or interconnected layers, 
capacity must be measured for each cell at each point of sale.
    (iii) Substantiation. The taxpayer must document the capacity of a 
photovoltaic cell in a bill of sale or design documentation, such as an 
International Electrotechnical Commission certification (for example, 
IEC 61215 or IEC 60904).
    (2) Photovoltaic wafer--(i) Definition. Photovoltaic wafer means a 
thin slice, sheet, or layer of semiconductor material of at least 240 
square centimeters that comprises the substrate or absorber layer of 
one or more photovoltaic cells. A photovoltaic wafer must be produced 
by a single manufacturer by forming an ingot from molten polysilicon 
(for example, Czochralski method) and then subsequently slicing it into 
wafers, forming molten or evaporated polysilicon into a sheet or layer, 
or depositing a thin-film semiconductor photon absorber into a sheet or 
layer (that is, thin-film deposition).
    (ii) Credit amount. For a photovoltaic wafer, the credit amount is 
$12 per square meter.
    (3) Polymeric backsheet--(i) Definition. Polymeric backsheet means 
a sheet on the back of a solar module that acts as an electric 
insulator and protects the inner components of such module from the 
surrounding environment.
    (ii) Credit amount. For a polymeric backsheet, the credit amount is 
40 cents per square meter.
    (4) Solar grade polysilicon--(i) Definition. Solar grade 
polysilicon means silicon that is suitable for use in photovoltaic 
manufacturing and purified to a minimum purity of 99.999999 percent 
silicon by mass.
    (ii) Credit amount. For solar grade polysilicon, the credit amount 
is $3 per kilogram.
    (5) Solar module--(i) Definition. Solar module means the connection 
and lamination of photovoltaic cells into an environmentally protected 
final assembly that is--
    (A) Suitable to generate electricity when exposed to sunlight; and
    (B) Ready for installation without an additional manufacturing 
process.
    (ii) Credit amount. For a solar module, the credit amount is equal 
to the product of 7 cents multiplied by the capacity of such module. 
The capacity of each solar module is expressed on a direct current watt 
basis. Capacity is the nameplate capacity in direct current watts using 
Standard Test Conditions, as defined by the International 
Electrotechnical Commission.
    (iii) Substantiation. The taxpayer must document the capacity of a 
solar module in a bill of sale or design documentation, such as an 
International Electrotechnical Commission certification (for example, 
IEC 61215 or IEC 61646).
    (6) Solar tracker. Solar tracker means a mechanical system that 
moves solar modules according to the position of the sun and to 
increase energy output. A torque tube (as defined in paragraph (b)(7) 
of this section) or structural fastener (as defined in paragraph (b)(8) 
of this section) are solar tracker components that are eligible 
components for purposes of the section 45X credit.
    (7) Torque tube--(i) Definition. Torque tube means a structural 
steel support element (including longitudinal purlins) that--
    (A) Is part of a solar tracker;
    (B) Is of any cross-sectional shape;
    (C) May be assembled from individually manufactured segments;
    (D) Spans longitudinally between foundation posts;
    (E) Supports solar panels and is connected to a mounting attachment 
for solar panels (with or without separate module interface rails); and
    (F) Is rotated by means of a drive system.
    (ii) Credit amount. For a torque tube, the credit amount is 87 
cents per kilogram.
    (iii) Substantiation. The taxpayer must document that a torque tube 
is part of a solar tracker with a specification sheet, bill of sale, or 
other similar documentation that explicitly describes its application 
as part of a solar tracker.
    (8) Structural fastener--(i) Definition. Structural fastener means 
a component that is used--
    (A) To connect the mechanical and drive system components of a 
solar tracker to the foundation of such solar tracker;
    (B) To connect torque tubes to drive assemblies; or
    (C) To connect segments of torque tubes to one another.
    (ii) Credit amount. For a structural fastener, the credit amount is 
$2.28 per kilogram.
    (iii) Substantiation. The taxpayer must document that a structural 
fastener is used in a manner described in paragraph (b)(8)(i)(A), (B), 
or (C) of this section with a bill of sale or other similar 
documentation that explicitly describes such use.
    (c) Wind energy components. Wind energy component means a blade, 
nacelle, tower, offshore wind foundation, or related offshore wind 
vessel, each as defined in this paragraph (c).
    (1) Blade--(i) Definition. Blade means an airfoil-shaped blade that 
is responsible for converting wind energy to low-speed rotational 
energy.
    (ii) Credit amount. For a blade, the credit amount is equal to the 
product of 2 cents multiplied by the total rated capacity of the 
completed wind turbine for which the blade is designed.
    (2) Offshore wind foundation--(i) Definition. Offshore wind 
foundation means the component (including transition piece) that 
secures an offshore wind tower and any above-water turbine components 
to the seafloor using--
    (A) Fixed platforms, such as offshore wind monopiles, jackets, or 
gravity-based foundations; or
    (B) Floating platforms and associated mooring systems.
    (ii) Credit amount. For a fixed offshore wind foundation platform, 
the credit amount is equal to the product of 2 cents multiplied by the 
total rated capacity of the completed wind turbine for which the fixed 
offshore wind foundation platform is designed. For a floating offshore 
wind foundation platform, the credit amount is equal to the product of 
4 cents multiplied by the total rated capacity of the completed wind 
turbine for which the floating offshore wind foundation platform is 
designed.
    (3) Nacelle--(i) Definition. Nacelle means the assembly of the 
drivetrain and other tower-top components of a wind turbine (with the 
exception of the blades and the hub) within their cover housing.
    (ii) Credit amount. For a nacelle, the credit amount is equal to 
the product of 5 cents multiplied by the total rated capacity of the 
completed wind turbine for which the nacelle is designed.
    (4) Related offshore wind vessel--(i) Definition. Related offshore 
wind vessel means any vessel that is purpose-built or retrofitted for 
purposes of the development, transport, installation, operation, or 
maintenance of offshore wind energy components. A vessel is purpose-
built for development, transport, installation, operation, or 
maintenance of offshore wind energy components if it is built to be 
capable of performing such functions and it is of a type that is 
commonly used in the offshore wind industry. A vessel is retrofitted 
for development, transport, installation, operation, or maintenance of 
offshore wind energy components if such vessel was incapable of 
performing

[[Page 86864]]

such functions prior to being retrofitted, the retrofit causes the 
vessel to be capable of performing such functions, and the retrofitted 
vessel is of a type that is commonly used in the offshore wind 
industry.
    (ii) Credit amount. For a related offshore wind vessel, the credit 
amount is equal to 10 percent of the sales price of the vessel. The 
sales price of the vessel does not include the price of maintenance, 
services, or other similar items that may be sold with the vessel. For 
a related offshore wind vessel with respect to which an election under 
section 45X(a)(3)(B)(i) has been made, such election shall not cause 
the sale price of such vessel to be treated as having been determined 
with respect to a transaction between uncontrolled taxpayers for 
purposes of section 482 of the Code and the regulations in this 
chapter.
    (5) Tower--(i) Definition. Tower means a tubular or lattice 
structure that supports the nacelle and rotor of a wind turbine.
    (ii) Credit amount. For a tower, the credit amount is equal to the 
product of 3 cents multiplied by the total rated capacity of the 
completed wind turbine for which the tower is designed.
    (6) Total rated capacity of the completed wind turbine. For 
purposes of this section, total rated capacity of the completed wind 
turbine means, for the completed wind turbine for which a blade, 
nacelle, offshore wind foundation, or tower was manufactured and sold, 
the nameplate capacity at the time of sale as certified to the relevant 
national or international standards, such as International 
Electrotechnical Commission (IEC) 61400, or ANSI/ACP 101-1-2021, the 
Small Wind Turbine Standard. Certification of the turbine to such 
standards must be documented by a certificate issued by an accredited 
certification body. The total rated capacity of a wind turbine must be 
expressed in watts.
    (7) Substantiation. Taxpayers must maintain specific documentation 
regarding wind energy components for which a section 45X credit is 
claimed. For blades, nacelles, offshore wind foundations, or towers, a 
taxpayer must document the turbine model for which such component is 
designed and the total rated capacity of the completed wind turbine in 
technical documentation associated with the sale of such component.
    (d) Inverters--(1) In general. Inverter means an end product that 
is suitable to convert direct current (DC) electricity from 1 or more 
solar modules or certified distributed wind energy systems into 
alternating current electricity. An end product is suitable to convert 
DC electricity from 1 or more solar modules or certified distributed 
wind energy systems into alternating current electricity if, in the 
form sold by the manufacturer, it is able to connect with such modules 
or systems and convert DC electricity to alternating current 
electricity from such connected source. The term inverter includes a 
central inverter, commercial inverter, distributed wind inverter, 
microinverter, or residential inverter. Only an inverter that meets at 
least one of the requirements in paragraphs (d)(2) through (7) of this 
section is an eligible component for purposes of the section 45X 
credit.
    (2) Central inverter--(i) Definition. Central inverter means an 
inverter that is suitable for large utility-scale systems and has a 
capacity that is greater than 1,000 kilowatts. The capacity of a 
central inverter is expressed on an alternating current watt basis. An 
inverter is suitable for large utility-scale systems if, in the form 
sold by the manufacturer, it is capable of serving as a component in a 
large utility-scale system and meets the core engineering 
specifications for such application.
    (ii) Credit amount. For a central inverter the total rated capacity 
of which is expressed on an alternating current watt basis, the credit 
amount is equal to the product of 0.25 cents multiplied by the total 
rated capacity of the central inverter.
    (iii) Substantiation. The taxpayer must document that a central 
inverter meets the core engineering specifications for use in a large 
utility-scale system and has a capacity that is greater than 1,000 
kilowatts with a specification sheet, bill of sale, or other similar 
documentation that explicitly describes such specifications and 
capacity.
    (3) Commercial inverter--(i) Definition. Commercial inverter means 
an inverter that--
    (A) Is suitable for commercial or utility-scale applications;
    (B) Has a rated output of 208, 480, 600, or 800 volt three-phase 
power; and
    (C) Has a capacity expressed on an alternating current watt basis 
that is not less than 20 kilowatts and not greater than 125 kilowatts.
    (ii) Suitable for commercial or utility-scale applications. An 
inverter is suitable for commercial or utility-scale applications if, 
in the form sold by the manufacturer, it is capable of serving as a 
component in commercial or utility-scale systems and meets the core 
engineering specifications for such application.
    (iii) Credit amount. For a commercial inverter the total rated 
capacity of which is expressed on an alternating current watt basis, 
the credit amount is equal to the product of 2 cents multiplied by the 
total rated capacity of the commercial inverter.
    (iv) Substantiation. The taxpayer must document that a commercial 
inverter meets the core engineering specifications for use in 
commercial or utility-scale applications, the inverter's rated output, 
and the inverter's capacity in a specification sheet, bill of sale, or 
other similar documentation.
    (4) Distributed wind inverter--(i) In general. Distributed wind 
inverter means an inverter that is used in a residential or non-
residential system that utilizes 1 or more certified distributed wind 
energy systems and has a total rated output, expressed on an 
alternating current watt basis, of not greater than 150 kilowatts.
    (ii) Certified distributed wind energy system. Certified 
distributed wind energy system means a wind energy system that is 
certified by an accredited certification agency to meet Standard 9.1-
2009 of the American Wind Energy Association; International 
Electrotechnical Commission 61400-1, 61400-2, 61400-11, 61400-12; or 
ANSI/ACP 101-1-2021, the Small Wind Turbine Standard, including any 
subsequent revisions to or modifications of such Standard that have 
been approved by the American National Standards Institute.
    (iii) Credit amount. For a distributed wind inverter the total 
rated capacity of which is expressed on an alternating current watt 
basis, the credit amount is equal to the product of 11 cents multiplied 
by the total rated capacity of the distributed wind inverter.
    (iv) Substantiation. The taxpayer must document that a distributed 
wind inverter is used in a residential or non-residential system that 
utilizes one or more certified distributed wind energy systems with a 
specification sheet, bill of sale, or other similar documentation that 
explicitly describes such use and the total rated output of the 
inverter on an alternating current watt basis.
    (5) Microinverter--(i) Definition. Microinverter means an inverter 
that--
    (A) Is suitable to connect with one solar module;
    (B) Has a rated output described in paragraph (d)(5)(ii) of this 
section; and
    (C) Has a capacity, expressed on an alternating current watt basis, 
that is not greater than 650 watts.
    (ii) Rated output. For purposes of paragraph (d)(5)(i)(B) of this 
section, for an inverter to be a microinverter, the inverter must have 
a rated output of--

[[Page 86865]]

    (A) 120 or 240 volt single-phase power; or
    (B) 208 or 480 volt three-phase power.
    (iii) Suitable to connect to one solar module--(A) In general. An 
inverter is suitable to connect to one solar module if, in the form 
sold by the manufacturer, it is capable of connecting to one or more 
solar modules and regulating the DC electricity from each module 
independently before that electricity is converted into alternating 
current electricity.
    (B) Application to direct current (DC) optimized inverter systems. 
A DC optimized inverter system means an inverter that is comprised of 
an inverter connected to multiple DC optimizers that are each designed 
to connect to one solar module. A DC optimized inverter system is 
suitable to connect with one solar module if, in the form sold by the 
manufacturer, it is capable of connecting to one or more solar modules 
and regulating the DC electricity from each module independently before 
that electricity is converted into alternating current electricity.
    (C) Application to multi-module inverters. A multi-module inverter 
means an inverter that is comprised of an inverter with independent 
connections and DC optimizing components for two or more modules. A 
multi-module microinverter is suitable to connect with one solar module 
if it is capable of connecting to one or more solar modules and 
regulating the DC electricity from each module independently before 
that electricity is converted into alternating current electricity.
    (iv) Credit amount--(A) In general. For a microinverter the total 
rated capacity of which is expressed on an alternating current watt 
basis, the credit amount is equal to the product of 11 cents multiplied 
by the total rated capacity of the microinverter.
    (B) DC optimized inverter systems. A DC optimized inverter system 
qualifies as a microinverter if it meets the requirements of paragraph 
(d)(5)(i) of this section. For purposes of paragraph (d)(5)(i)(C) of 
this section, a DC optimized inverter system's capacity is determined 
separately for each DC optimizer paired with the inverter in a DC 
optimized inverter system. If each DC optimizer paired with the 
inverter in a DC optimized inverter system meets the requirements of 
paragraph (d)(5)(i) of this section, then the DC optimized inverter 
system qualifies as a microinverter. The credit amount for a DC 
optimized inverter system that qualifies as a microinverter is equal to 
the product of 11 cents multiplied by the lesser of the sum of the 
alternating current capacity of each DC optimizer when paired with the 
inverter in the DC optimized inverter system or the alternating current 
capacity of the inverter in the DC optimized inverter system. For 
purposes of this paragraph (d)(5)(iv)(B), capacity must be measured in 
watts of alternating current converted from DC electricity by the 
inverter in a DC optimized inverter system. For a DC optimized inverter 
system to qualify as a microinverter, a taxpayer must produce and sell 
the inverter and the DC optimizers in the DC optimized inverter system 
together as a combined end product.
    (C) Multi-module inverters. A multi-module inverter qualifies as a 
microinverter if it meets the requirements of paragraph (d)(5)(i) of 
this section. For purposes of paragraph (d)(5)(i)(C) of this section, a 
multi-module inverter's capacity is determined separately for each 
internal DC optimizer paired with the inverter. The credit amount for a 
multi-module inverter is equal to the product of 11 cents multiplied by 
the total alternating current capacity of the DC optimizers in the 
multi-module inverter when paired with the inverter in the system. For 
purposes of this paragraph (d)(5)(iv)(C), capacity must be measured in 
watts of alternating current converted from DC electricity by the 
inverter in a multi-module microinverter.
    (v) Substantiation. The taxpayer must document that a microinverter 
meets the core engineering specifications to be suitable to connect 
with one solar module, the inverter's rated output, and the inverter's 
capacity in a specification sheet, bill of sale, or other similar 
documentation. In the case of a DC optimized inverter system, the 
taxpayer must also document that the DC optimizers and the inverter in 
such system were sold as a combined end product.
    (6) Residential inverter--(i) Definition. Residential inverter 
means an inverter that--
    (A) Is suitable for a residence;
    (B) Has a rated output of 120 or 240 volt single-phase power; and
    (C) Has a capacity expressed on an alternating current watt basis 
that is not greater than 20 kilowatts.
    (ii) Suitable for a residence. An inverter is suitable for a 
residence if, in the form sold by the manufacturer, it is capable of 
serving as a component in a residential system and meets the core 
engineering specifications for such application.
    (iii) Credit amount. For a residential inverter the total rated 
capacity of which is expressed on an alternating current watt basis, 
the credit amount is equal to the product of 6.5 cents multiplied by 
the total rated capacity of the residential inverter.
    (iv) Substantiation. The taxpayer must document that a residential 
inverter meets the core engineering specifications for use in a 
residence, the inverter's rated output, and the inverter's capacity in 
a specification sheet, bill of sale, or other similar documentation.
    (7) Utility inverter--(i) Definition. Utility inverter means an 
inverter that--
    (A) Is suitable for commercial or utility-scale systems;
    (B) Has a rated output of not less than 600 volt three-phase power; 
and
    (C) Has a capacity expressed on an alternating current watt basis 
that is greater than 125 kilowatts and not greater than 1000 kilowatts.
    (ii) Suitable for commercial or utility-scale systems. An inverter 
is suitable for commercial or utility-scale systems if, in the form 
sold by the manufacturer, it is capable of serving as a component in 
such systems and meets the core engineering specifications for such 
application.
    (iii) Credit amount. For a utility inverter the total rated 
capacity of which is expressed on an alternating current watt basis, 
the credit amount is equal to the product of 1.5 cents multiplied by 
the total rated capacity of the utility inverter.
    (iv) Substantiation. The taxpayer must document that a utility 
inverter meets the core engineering specifications for use in 
commercial or utility-scale systems, the inverter's rated output, and 
the inverter's capacity in a specification sheet, bill of sale, or 
other similar documentation.
    (e) Qualifying battery component--(1) In general. Qualifying 
battery component means electrode active materials, battery cells, or 
battery modules, each as defined in this paragraph (e).
    (2) Electrode active materials--(i) Definitions--(A) Electrode 
active materials. Electrode active materials means cathode electrode 
materials, anode electrode materials, and electrochemically active 
materials that contribute to the electrochemical processes necessary 
for energy storage. Electrode active materials do not include battery 
management systems, terminal assemblies, cell containments, gas release 
valves, module containments, module connectors, compression plates, 
straps, pack terminals, bus bars, thermal management systems, and pack 
jackets.
    (B) Cathode electrode materials. Cathode electrode materials means 
the

[[Page 86866]]

materials that comprise the cathode of a commercial battery technology, 
such as binders, and current collectors (for example, cathode foils).
    (C) Anode electrode materials. Anode electrode materials means the 
materials that comprise the anode of a commercial battery technology, 
including anode foils.
    (D) Electrochemically active materials. Electrochemically active 
materials that contribute to the electrochemical processes necessary 
for energy storage means battery-grade materials that enable the 
electrochemical storage within a commercial battery technology. In 
addition to solvents, additives, and electrolyte salts, 
electrochemically active materials that contribute to the 
electrochemical processes necessary for energy storage may include 
electrolytes, catholytes, anolytes, separators, and metal salts and 
oxides.
    (E) Example. A commercial battery technology contains Cathode 
Active Material (CAM), which is a powder used in the battery that is 
made by processing and combining Battery-Grade Materials A and B. 
Battery-Grade Material A is a derivative of Material C, which has been 
refined to the necessary level to enable electrochemical storage. The 
production costs for CAM and its direct inputs (Battery-Grade Material 
A and Battery-Grade Material B) are eligible for the section 45X credit 
for electrode active materials, but the unrefined Material C is not.
    (F) Battery-grade materials. Battery-grade materials means the 
processed materials found in a final battery cell or an analogous unit, 
or the direct battery-grade precursors to those processed materials.
    (ii) Credit amount. For an electrode active material, the credit 
amount is equal to 10 percent of the costs incurred by the taxpayer 
with respect to production of such materials.
    (iii) Production processes for electrode active materials--(A) 
Conversion. For purposes of section 45X, the term conversion means a 
chemical transformation from one species to another.
    (B) Purification. For purposes of section 45X, the term 
purification means increasing the mass fraction of a certain element.
    (iv) Production costs incurred. Costs incurred by the taxpayer with 
respect to production of electrode active materials includes all costs 
as defined in Sec.  1.263A-1(e) that are paid or incurred within the 
meaning of section 461 of the Code by the taxpayer for the production 
of an electrode active material only, except direct materials costs as 
defined in Sec.  1.263A-1(e)(2)(i)(A), or indirect materials costs as 
defined in Sec.  1.263A-1(e)(3)(ii)(E), and any costs related to the 
extraction of raw materials. Section 263A of the Code and the 
regulations in this chapter under section 263A apply solely to identify 
the types of costs that are includible in production costs incurred for 
purposes of computing the amount of the section 45X credit, but do not 
apply for any other purpose, such as to determine whether a taxpayer is 
engaged in production activities.
    (v) Materials that are both electrode active materials and 
applicable critical minerals--(A) In general. A material that qualifies 
as an electrode active material and an applicable critical material is 
eligible for the section 45X credit. A taxpayer may claim the section 
45X credit with respect to such material either as an electrode active 
material or an applicable critical material, but not both.
    (B) Example. Lithium carbonate is an electrode active material 
because it is a direct battery-grade precursor to electrolyte salts, 
which are processed materials found in a final battery cell. Lithium 
carbonate is also eligible for the 45X critical minerals credit. A 
taxpayer who produces and sells lithium carbonate may claim either the 
electrode active material credit or the critical mineral credit for its 
production and sale of lithium carbonate but may not take both credits.
    (3) Battery cells--(i) Definition. Battery cell means an 
electrochemical cell--
    (A) Comprised of one or more positive electrodes and one or more 
negative electrodes;
    (B) With an energy density of not less than 100 watt-hours per 
liter; and
    (C) Capable of storing at least 12 watt-hours of energy.
    (ii) Capacity measurement. Taxpayers must measure the capacity of a 
battery cell in accordance with a national or international standard, 
such as IEC 60086-1 (Primary Batteries), or an equivalent standard. 
Taxpayers can reference the United States Advanced Battery Consortium 
(USABC) Battery Test Manual for additional guidance.
    (iii) Credit amount. For a battery cell, the credit amount is equal 
to the product of $35 multiplied by the capacity of such battery cell, 
subject to the limitation provided in paragraph (e)(5) of this section. 
The capacity of a battery cell is expressed on a kilowatt-hour basis.
    (4) Battery module definitions and applicable rules--(i) Battery 
module defined. The term battery module means a module described in 
paragraph (e)(4)(i)(A) or (B) of this section with an aggregate 
capacity of not less than 7 kilowatt-hours (or, in the case of a module 
for a hydrogen fuel cell vehicle, not less than 1 kilowatt-hour).
    (A) Modules using battery cells. A module using battery cells, is a 
module with two or more battery cells that are configured electrically, 
in series or parallel, to create voltage or current, as appropriate, to 
a specified end use, meaning an end-use configuration of battery 
technologies. An end-use configuration is the product that ultimately 
serves a specified end use. It is the collection of interconnected 
cells, configured to that specific end-use and interconnected with the 
necessary hardware and software required to deliver the required energy 
and power (voltage and current) for that use.
    (B) Modules with no battery cells. A module with no battery cells 
means a product with a standardized manufacturing process and form that 
is capable of storing and dispatching useful energy, that contains an 
energy storage medium that remains in the module (for example, it is 
not consumed through combustion), and that is not a custom-built 
electricity generation or storage facility. For example, neither 
standalone fuel storage tanks nor fuel tanks connected to engines or 
generation systems qualify as modules with no battery cells.
    (ii) Capacity measurement--(A) Modules using battery cells. 
Taxpayers must measure the capacity of a module using battery cells 
with a testing procedure that complies with a national or international 
standard published by a recognized standard setting organization. The 
capacity of a battery module may not exceed the total capacity of the 
battery cells in the module. Taxpayers must measure the capacity of a 
battery cell in accordance with a national or international standard, 
such as IEC 60086-1 (Primary Batteries), or an equivalent standard. 
Taxpayers can reference the USABC Battery Test Manual for additional 
guidance.
    (B) Modules with no battery cells. Taxpayers must measure the 
capacity of a module with no battery cells with a testing procedure 
that complies with a national or international standard published by a 
recognized standard setting organization. If no such standard applies 
to a type of module with no battery cells, taxpayers must measure the 
capacity of such module as the Secretary may prescribe in regulations 
or other guidance.
    (iii) Credit amount--(A) Modules using battery cells. For a battery 
module with cells, the credit amount is equal to the product of $10 
multiplied by the

[[Page 86867]]

capacity of such battery module, subject to the limitation provided in 
paragraph (e)(5) of this section. The capacity of each battery module 
is expressed on a kilowatt-hour basis.
    (B) Modules with no battery cells. For a battery module without 
cells, the credit amount is equal to the product of $45 multiplied by 
the capacity of such battery module, subject to the limitation provided 
in paragraph (e)(5) of this section. The capacity of each battery 
module is expressed on a kilowatt-hour basis.
    (5) Limitation on capacity of battery cells and battery modules--
(i) In general. For purposes of paragraphs (e)(3)(iii) and (e)(4)(iii) 
of this section, the capacity determined with respect to a battery cell 
or battery module must not exceed a capacity-to-power ratio of 100:1.
    (ii) Capacity to power ratio. For purposes of paragraph (e)(5)(i) 
of this section, capacity-to-power ratio means, with respect to a 
battery cell or battery module, the ratio of the capacity of such cell 
or module to the maximum discharge amount of such cell or module.
    (f) Phase out rule--(1) In general. Except as provided in paragraph 
(f)(3) of this section, in the case of any eligible component sold 
after December 31, 2029, the amount of the section 45X credit 
determined with respect to such eligible component must be equal to the 
product of--
    (i) The amount determined under this section with respect to such 
eligible component, multiplied by;
    (ii) The phase out percentage under paragraph (f)(2) of this 
section.
    (2) Phase out percentages. The phase out percentage is equal to 75 
percent for eligible components sold during calendar year 2030; 50 
percent for eligible components sold during calendar year 2031; 25 
percent for eligible components sold during calendar year 2032, and 
zero percent for eligible components sold after calendar year 2032.
    (3) Exception for applicable critical minerals. The phase out rules 
described in paragraphs (f)(1) and (2) of this section apply to all 
eligible components except applicable critical minerals.
    (g) Severability. The provisions of this section are separate and 
severable from one another. If any provision of this section is stayed 
or determined to be invalid, it is the agencies' intention that the 
remaining provisions shall continue in effect.
    (h) Applicability date. This section applies to eligible components 
for which production is completed and sales occur after December 31, 
2022, and during a taxable year ending on or after [date of publication 
of the final regulations in the Federal Register].


Sec.  1.45X-4   Applicable critical minerals.

    (a) In general. The term applicable critical mineral means any of 
the minerals that are listed in section 45X(c)(6) and defined in 
paragraph (b) of this section.
    (b) Definitions--(1) Aluminum. The term commodity-grade aluminum 
means aluminum that has been produced directly from aluminum described 
in paragraph (b)(1)(i) or (ii) of this section and is in a form that is 
sold on international commodity exchanges. The term aluminum means 
aluminum, including commodity-grade aluminum, that is--
    (i) Converted from bauxite to a minimum purity of 99 percent 
alumina by mass; or
    (ii) Purified to a minimum purity of 99.9 percent aluminum by mass.
    (2) Antimony. The term antimony means antimony that is--
    (i) Converted to antimony trisulfide concentrate with a minimum 
purity of 90 percent antimony trisulfide by mass; or
    (ii) Purified to a minimum purity of 99.65 percent antimony by 
mass.
    (3) Barite. The term barite means barite that is barium sulfate 
purified to a minimum purity of 80 percent barite by mass.
    (4) Beryllium. The term beryllium means beryllium that is--
    (i) Converted to copper-beryllium master alloy; or
    (ii) Purified to a minimum purity of 99 percent beryllium by mass.
    (5) Cerium. The term cerium means cerium that is--
    (i) Converted to cerium oxide that is purified to a minimum purity 
of 99.9 percent cerium oxide by mass; or
    (ii) Purified to a minimum purity of 99 percent cerium by mass.
    (6) Cesium. The term cesium means cesium that is--
    (i) Converted to cesium formate or cesium carbonate; or
    (ii) Purified to a minimum purity of 99 percent cesium by mass.
    (7) Chromium. The term chromium means chromium that is--
    (i) Converted to ferrochromium consisting of not less than 60 
percent chromium by mass; or
    (ii) Purified to a minimum purity of 99 percent chromium by mass.
    (8) Cobalt. The term cobalt means cobalt that is--
    (i) Converted to cobalt sulfate; or
    (ii) Purified to a minimum purity of 99.6 percent cobalt by mass.
    (9) Dysprosium. The term dysprosium means dysprosium that is--
    (i) Converted to not less than 99 percent pure dysprosium iron 
alloy by mass; or
    (ii) Purified to a minimum purity of 99 percent dysprosium by mass.
    (10) Europium. The term europium means europium that is--
    (i) Converted to europium oxide that is purified to a minimum 
purity of 99.9 percent europium oxide by mass; or
    (ii) Purified to a minimum purity of 99 percent of europium by 
mass.
    (11) Fluorspar. The term fluorspar means fluorspar that is--
    (i) Converted to fluorspar that is purified to a minimum purity of 
97 percent calcium fluoride by mass; or
    (ii) Purified to a minimum purity of 99 percent fluorspar by mass.
    (12) Gadolinium. The term gadolinium means gadolinium that is--
    (i) Converted to gadolinium oxide that is purified to a minimum 
purity of 99.9 percent gadolinium oxide by mass; or
    (ii) Purified to a minimum purity of 99 percent gadolinium by mass.
    (13) Germanium. The term germanium means germanium that is--
    (i) Converted to germanium tetrachloride; or
    (ii) Purified to a minimum purity of 99.99 percent germanium by 
mass.
    (14) Graphite. The term graphite means natural or synthetic 
graphite that is purified to a minimum purity of 99.9 percent graphitic 
carbon by mass. The term 99.9 percent graphitic carbon by mass means 
graphite that is 99.9 percent carbon by mass.
    (15) Indium. The term indium means indium that is--
    (i) Converted to--
    (A) Indium tin oxide; or
    (B) Indium oxide that is purified to a minimum purity of 99.9 
percent indium oxide by mass; or
    (ii) Purified to a minimum purity of 99 percent indium by mass.
    (16) Lithium. The term lithium means lithium that is--
    (i) Converted to lithium carbonate or lithium hydroxide; or
    (ii) Purified to a minimum purity of 99.9 percent lithium by mass.
    (17) Manganese. The term manganese means manganese that is--
    (i) Converted to manganese sulphate; or
    (ii) Purified to a minimum purity of 99.7 percent manganese by 
mass.
    (18) Neodymium. The term neodymium means neodymium that is--
    (i) Converted to neodymium-praseodymium oxide that is purified to a 
minimum purity of 99 percent neodymium-praseodymium oxide by mass;
    (ii) Converted to neodymium oxide that is purified to a minimum 
purity of

[[Page 86868]]

99.5 percent neodymium oxide by mass; or
    (iii) Purified to a minimum purity of 99.9 percent neodymium by 
mass.
    (19) Nickel. The term nickel means nickel that is--
    (i) Converted to nickel sulphate; or
    (ii) Purified to a minimum purity of 99 percent nickel by mass.
    (20) Niobium. The term niobium means niobium that is--
    (i) Converted to ferronibium; or
    (ii) Purified to a minimum purity of 99 percent niobium by mass.
    (21) Tellurium. The term tellurium means tellurium that is--
    (i) Converted to cadmium telluride; or
    (ii) Purified to a minimum purity of 99 percent tellurium by mass.
    (22) Tin. The term tin means tin that purified to low alpha 
emitting tin that--
    (i) Has a purity of greater than 99.99 percent by mass; and
    (ii) Possesses an alpha emission rate of not greater than 0.01 
counts per hour per centimeter square.
    (23) Tungsten. The term tungsten means tungsten that is converted 
to ammonium paratungstate or ferrotungsten.
    (24) Vanadium. The term vanadium means vanadium that is converted 
to ferrovanadium or vanadium pentoxide.
    (25) Yttrium. The term yttrium means yttrium that is--
    (i) Converted to yttrium oxide that is purified to a minimum purity 
of 99.999 percent yttrium oxide by mass; or
    (ii) Purified to a minimum purity of 99.9 percent yttrium by mass.
    (26) Other minerals. The following minerals are also applicable 
critical minerals provided that such mineral is purified to a minimum 
purity of 99 percent by mass:
    (i) Arsenic.
    (ii) Bismuth.
    (iii) Erbium.
    (iv) Gallium.
    (v) Hafnium.
    (vi) Holmium.
    (vii) Iridium.
    (viii) Lanthanum.
    (ix) Lutetium.
    (x) Magnesium.
    (xi) Palladium.
    (xii) Platium.
    (xiii) Praseodymium.
    (xiv) Rhodium.
    (xv) Rubidium.
    (xvi) Ruthemium.
    (xvii) Samarium.
    (xviii) Scandium.
    (xix) Tantalum.
    (xx) Terbium.
    (xxi) Thulium.
    (xxii) Titanium.
    (xxiii) Ytterbium.
    (xxiv) Zinc.
    (xxv) Zirconium.
    (c) Credit amount--(1) In general. For any applicable critical 
mineral, the credit amount is equal to 10 percent of the costs incurred 
by the taxpayer with respect to production of such mineral.
    (2) Production processes for applicable critical minerals--(i) 
Conversion. For purposes of section 45X, the term conversion means a 
chemical transformation from one species to another.
    (ii) Purification. For purposes of section 45X, the term 
purification means increasing the mass fraction of a certain element.
    (3) Production costs incurred. Costs incurred by the taxpayer with 
respect to the production of applicable critical minerals includes all 
costs as defined in Sec.  1.263A-1(e) that are paid or incurred within 
the meaning of section 461 of the Code by the taxpayer for the 
production of an applicable critical mineral only, except direct or 
indirect materials costs as defined in Sec.  1.263A-1(e)(2)(i)(A) and 
(e)(3)(ii)(E), respectively, and any costs related to the extraction of 
raw materials. Section 263A of the Code and the regulations in this 
chapter under section 263A apply solely to identify the types of costs 
that are includible in production costs incurred for purposes of 
computing the amount of the section 45X credit, but do not apply for 
any other purpose, such as to determine whether a taxpayer is engaged 
in production activities.
    (4) Substantiation. The taxpayer must document that an applicable 
critical mineral meets the requirements of section 45X(c)(6) with a 
certificate of analysis provided by the taxpayer to the person to which 
the taxpayer sold the applicable critical mineral.
    (d) Severability. The provisions of this section are separate and 
severable from one another. If any provision of this section is stayed 
or determined to be invalid, it is the agencies' intention that the 
remaining provisions shall continue in effect.
    (e) Applicability date. This section applies to eligible components 
for which production is completed and sales occur after December 31, 
2022, and during a taxable year ending on or after [date of publication 
of the final regulations in the Federal Register].

Douglas W. O'Donnell,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2023-27498 Filed 12-14-23; 8:45 am]
BILLING CODE 4830-01-P