Clean Vehicle Credits Under Sections 25E and 30D; Transfer of Credits; Critical Minerals and Battery Components; Foreign Entities of Concern, 37706-37775 [2024-09094]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 89, Number 88 (Monday, May 6, 2024)]
[Rules and Regulations]
[Pages 37706-37775]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-09094]



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Vol. 89

Monday,

No. 88

May 6, 2024

Part V





Department of the Treasury





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Internal Revenue Service





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26 CFR Parts 1 and 301





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

Federal Register / Vol. 89, No. 88 / Monday, May 6, 2024 / Rules and 
Regulations

[[Page 37706]]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 301

[TD 9995]
RIN 1545-BQ52; RIN 1545-BQ86; RIN 1545-BQ99


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

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations regarding Federal 
income tax credits under the Inflation Reduction Act of 2022 (IRA) for 
the purchase of qualifying new and previously-owned clean vehicles, 
including new and previously-owned plug-in electric vehicles powered by 
an electric battery meeting certain requirements and new qualified fuel 
cell motor vehicles. In addition, the final regulations provide 
guidance for taxpayers who purchase qualifying vehicles and intend to 
transfer the amount of any previously-owned clean vehicle credit or new 
clean vehicle credit to dealers that are entities eligible to receive 
advance payments of either credit. The final regulations also provide 
guidance for dealers to become eligible entities to receive advance 
payments of previously-owned clean vehicle credits or new clean vehicle 
credits, and rules regarding recapture of the credits. Finally, the 
final regulations provide guidance on the meaning of three new 
definitions added to the exclusive list of mathematical or clerical 
errors relating to certain assessments of tax without a notice of 
deficiency.

DATES: 
    Effective date: These regulations are effective on July 5, 2024.
    Applicability dates: For dates of applicability, see Sec. Sec.  
1.25E-1(h), 1.25E-2(i), 1.25E-3(k), 1.30D-1(d), 1.30D-2(d), 1.30D-3(h), 
1.30D-4(j), 1.30D-5(k), 1.30D-6(j), and 301.6213-2(c).

FOR FURTHER INFORMATION CONTACT: Rika Valdman or Maggie Stehn of the 
Office of Associate Chief Counsel (Passthroughs & Special Industries) 
at (202) 317-6853 (not a toll-free number).

SUPPLEMENTARY INFORMATION: 

Background

    This document contains amendments to the Income Tax Regulations (26 
CFR part 1) under sections 25E and 30D of the Internal Revenue Code 
(Code), and to the Procedure and Administration Regulations (26 CFR 
part 301) under section 6213 of the Code.

I. Section 25E

    Section 13402 of Public Law 117-169, 136 Stat. 1818 (August 16, 
2022), commonly known as the IRA, added section 25E to the Code. The 
credit under section 25E (section 25E credit) is a personal credit 
allowable under subpart A of the Code.
    Section 25E(a) provides that, in the case of a qualified buyer who 
during a taxable year places in service a previously-owned clean 
vehicle, an income tax credit is allowed for the taxable year equal to 
the lesser of: (1) $4,000, or (2) the amount equal to 30 percent of the 
sale price with respect to such vehicle.
    Section 25E(b)(1) sets a limitation based on modified adjusted 
gross income (Modified AGI) and provides that no credit is allowed for 
any taxable year if (A) the lesser of (i) the Modified AGI of the 
taxpayer for such taxable year, or (ii) the Modified AGI of the 
taxpayer for the preceding taxable year, exceeds (B) the threshold 
amount. The threshold amount is set forth in section 25E(b)(2) and 
varies based on a taxpayer's filing status. In the case of a taxpayer 
filing a joint return or who is a surviving spouse (as defined in 
section 2(a) of the Code), the threshold amount is $150,000. In the 
case of a taxpayer who is a head of household (as defined in section 
2(b)), the threshold amount is $112,500. In the case of any other 
taxpayer, the threshold amount is $75,000. Section 25E(b)(3) defines 
Modified AGI as adjusted gross income (AGI) increased by any amount 
excluded from gross income under section 911, 931, or 933 of the Code.
    Section 25E(c) defines certain terms for purposes of the section 
25E credit. Section 25E(c)(1) defines ``previously-owned clean 
vehicle'' as a motor vehicle:
    (A) the model year of which is at least 2 years earlier than the 
calendar year in which the taxpayer acquires such vehicle;
    (B) the original use of which commences with a person other than 
the taxpayer;
    (C) that is acquired by the taxpayer in a qualified sale; and
    (D) that (i) meets the requirements of section 30D(d)(1)(C), (D), 
(E), (F), and (H) (except for section 30D(d)(1)(H)(iv)), or (ii) is a 
motor vehicle that (I) satisfies the requirements under section 
30B(b)(3)(A) and (B), and (II) has a gross vehicle weight rating (GVWR) 
of less than 14,000 pounds.
    Section 25E(c)(2) defines a ``qualified sale'' as a sale of a motor 
vehicle (A) by a dealer (as defined in section 30D(g)(8)); (B) for a 
sale price that does not exceed $25,000; and (C) that is the first 
transfer since the date of enactment of the IRA to a qualified buyer 
other than the person with whom the original use of such vehicle 
commenced.
    Under section 25E(c)(3), ``qualified buyer'' means, with respect to 
a sale of a motor vehicle, a taxpayer (A) who is an individual; (B) who 
purchases such vehicle for use and not for resale; (C) with respect to 
whom no deduction is allowable with respect to another taxpayer under 
section 151 of the Code; and (D) who has not been allowed a section 25E 
credit for any sale during the 3-year period ending on the date of the 
sale of such vehicle.
    Section 25E(c)(4) defines ``motor vehicle'' and ``capacity'' to 
have the meaning given such terms in section 30D(d)(2) and (4), 
respectively.
    Section 25E(d) provides that no credit is allowed under section 
25E(a) with respect to any vehicle unless the taxpayer includes the 
vehicle identification number (VIN) of such vehicle on the return of 
tax for the taxable year.
    Section 25E(e) and (f) provide, respectively, that rules similar to 
the rules of section 30D(f) (without regard to paragraph (10) or (11) 
thereof) and the rules of section 30D(g) apply for purposes of section 
25E. Section 13402(e)(2) of the IRA provides that the ability of a 
taxpayer to elect to transfer a section 25E credit under section 25E(f) 
applies to vehicles placed in service by the taxpayer after December 
31, 2023.
    Section 25E(g) provides that no section 25E credit is allowed with 
respect to a vehicle acquired after December 31, 2032.

II. Section 30D

A. In General
    Section 30D(a) provides a credit (section 30D credit) with respect 
to each new clean vehicle that a taxpayer purchases and places in 
service. The credit is determined and allowable with respect to the 
taxable year in which the taxpayer places the new clean vehicle in 
service.
    Section 30D was originally enacted by section 205(a) of the Energy 
Improvement and Extension Act of 2008, Division B of Public Law 110-
343, 122 Stat. 3765, 3835 (October 3, 2008), to provide a credit for 
the purchase and placing in service of new qualified plug-in electric 
drive motor vehicles. Section 30D has been amended several times

[[Page 37707]]

since its enactment, most recently by section 13401 of the IRA.
    The amount of the section 30D credit is treated as a personal 
credit or a general business credit, depending on the character of the 
vehicle. In general, the section 30D credit is treated as a personal 
credit allowable under subpart A of the Code. Section 30D(c)(2). 
However, the amount of the section 30D credit that is attributable to 
property that is of a character subject to an allowance for 
depreciation is treated as a current year business credit under section 
38(b) instead of being allowed under section 30D(a). Section 30D(c)(1). 
Section 38(b)(30) lists as a current year business credit the portion 
of the section 30D credit to which section 30D(c)(1) applies. The IRA 
did not amend section 30D(c)(1) or (2).
B. IRA Amendments to Section 30D
1. Credit Amount and Critical Minerals and Battery Components 
Requirements
    The IRA amends the rules for determining the amount of the section 
30D credit. Prior to the amendments to section 30D made by section 
13401(a) and (e) of the IRA, the amount of the section 30D credit was 
calculated based on the vehicle's battery capacity. The base amount was 
$2,500, plus $417 for a battery with a capacity of at least 5 kilowatt 
hours, and an additional $417 for each kilowatt hour of capacity in 
excess of 5 kilowatt hours, up to a maximum credit of $7,500 per 
vehicle. Section 13401(a) of the IRA amends section 30D(b) to provide a 
maximum credit of $7,500 per vehicle, consisting of $3,750 in the case 
of a vehicle that meets certain requirements relating to critical 
minerals and $3,750 in the case of a vehicle that meets certain 
requirements relating to battery components. The amendments made by 
section 13401(a) of the IRA apply to vehicles placed in service after 
the date on which the Secretary of the Treasury or her delegate 
(Secretary) issues proposed guidance described in new section 
30D(e)(3)(B) of the Code relating to the new critical minerals 
requirements described in new section 30D(e)(1)(A) (Critical Minerals 
Requirement) and the new battery components requirements described in 
new section 30D(e)(2)(A) (Battery Components Requirement). See section 
13401(k)(3) of the IRA.
    New section 30D(e)(1)(A) provides that the Critical Minerals 
Requirement with respect to the battery from which the electric motor 
of a vehicle draws electricity is satisfied if the percentage of the 
value of the applicable critical minerals (as defined in section 
45X(c)(6) of the Code) contained in such battery that were (i) 
extracted or processed in the United States, or in any country with 
which the United States has a free trade agreement in effect, or (ii) 
recycled in North America, is equal to or greater than the applicable 
percentage (as certified by the qualified manufacturer, in such form or 
manner as prescribed by the Secretary). The applicable percentage for 
the Critical Minerals Requirement is set forth in section 
30D(e)(1)(B)(i) through (v), and varies based on when the vehicle is 
placed in service. In the case of a vehicle placed in service after the 
date of issuance of the proposed guidance described in new section 
30D(e)(3)(B) and before January 1, 2024, the applicable percentage is 
40 percent. In the case of a vehicle placed in service during calendar 
year 2024, 2025, and 2026, the applicable percentage is 50 percent, 60 
percent, and 70 percent, respectively. In the case of a vehicle placed 
in service after December 31, 2026, the applicable percentage is 80 
percent.
    New section 30D(e)(2)(A) provides that the Battery Components 
Requirement with respect to the battery from which the electric motor 
of a vehicle draws electricity is satisfied if the percentage of the 
value of the components contained in such battery that were 
manufactured or assembled in North America is equal to or greater than 
the applicable percentage (as certified by the qualified manufacturer, 
in such form or manner as prescribed by the Secretary). The applicable 
percentage for the Battery Components Requirement is set forth in 
section 30D(e)(2)(B)(i) through (vi) and varies based on when the 
vehicle is placed in service. In the case of a vehicle placed in 
service after the date of issuance of the proposed guidance described 
in new section 30D(e)(3)(B) of the Code and before January 1, 2024, the 
applicable percentage is 50 percent. In the case of a vehicle placed in 
service during calendar year 2024 or 2025, the applicable percentage is 
60 percent. In the case of a vehicle placed in service during calendar 
year 2026, 2027, and 2028, the applicable percentage is 70 percent, 80 
percent, and 90 percent, respectively. In the case of a vehicle placed 
in service after December 31, 2028, the applicable percentage is 100 
percent.
2. New Clean Vehicle Definition
    Section 13401(c) of the IRA amends section 30D(d) of the Code by 
making the credit applicable to ``new clean vehicles,'' instead of 
``new qualified plug-in electric drive motor vehicles.'' This amendment 
is applicable to vehicles placed in service after December 31, 2022. As 
amended by section 13401(c) and (g)(2) of the IRA, section 30D(d)(1) of 
the Code defines a ``new clean vehicle'' as a motor vehicle that 
satisfies the eight requirements set forth in section 30D(d)(1)(A) 
through (H) of the Code: the original use of the motor vehicle must 
commence with the taxpayer; the motor vehicle must be acquired for use 
or lease by the taxpayer and not for resale; the motor vehicle must be 
made by a qualified manufacturer; the motor vehicle must be treated as 
a motor vehicle for purposes of title II of the Clean Air Act; the 
motor vehicle must have a gross vehicle weight rating of less than 
14,000 pounds; the motor vehicle must be propelled to a significant 
extent by an electric motor that draws electricity from a battery that 
has a capacity of not less than 7 kilowatt hours, and is capable of 
being recharged from an external source of electricity; the final 
assembly of the motor vehicle must occur within North America; and the 
person who sells any vehicle to the taxpayer must furnish a report to 
the taxpayer and to the Secretary, at such time and in such manner as 
the Secretary provides, containing specifically enumerated items.
    With respect to the requirement that the motor vehicle must be made 
by a qualified manufacturer, the IRA creates new requirements for 
manufacturers of vehicles eligible for the section 30D credit that are 
applicable to vehicles placed in service after December 31, 2022. As 
amended by section 13401(c) of the IRA, section 30D(d)(3) of the Code 
defines a ``qualified manufacturer'' as any manufacturer (within the 
meaning of the regulations prescribed by the Administrator of the 
Environmental Protection Agency (EPA) for purposes of the 
administration of title II of the Clean Air Act (42 U.S.C. 7521 et 
seq.)) that enters into a written agreement with the Secretary under 
which such manufacturer agrees to make periodic written reports to the 
Secretary (at such times and in such manner as the Secretary may 
provide) providing vehicle identification numbers and such other 
information related to each vehicle manufactured by such manufacturer 
as the Secretary may require.
    The IRA requires new clean vehicles to undergo final assembly in 
North America to be eligible for the section 30D credit. This 
requirement is applicable to vehicles sold after August 16, 2022. See 
section 13401(k)(2) of the IRA. New section 30D(d)(5) defines ``final 
assembly'' as the process by which a manufacturer produces a new

[[Page 37708]]

clean vehicle at, or through the use of, a plant, factory, or other 
place from which the vehicle is delivered to a dealer or importer with 
all component parts necessary for the mechanical operation of the 
vehicle included with the vehicle, whether or not the component parts 
are permanently installed in or on the vehicle.
    The IRA provides that certain fuel cell vehicles may qualify for 
the section 30D credit. Section 13401(c) of the IRA adds new section 
30D(d)(6) to the Code, which includes in the definition of the term 
``new clean vehicle'' applicable to vehicles placed in service after 
December 31, 2022, any ``new qualified fuel cell motor vehicle'' (as 
defined in section 30B(b)(3)) that meets the requirements under section 
30D(d)(1)(G) and (H) (North American final assembly and seller 
reporting requirements).
    The IRA disqualifies certain vehicles from the section 30D credit 
if the battery of the vehicle contains critical minerals or battery 
components from a foreign entity of concern (FEOC). As amended by 
section 13401(e) of the IRA, section 30D(d)(7) of the Code excludes, 
after certain specified dates, vehicles placed in service with 
batteries containing certain critical minerals or battery components 
from a FEOC from the definition of the term ``new clean vehicle.'' In 
particular, amended section 30D(d)(7) (FEOC Restriction) provides that 
the term ``new clean vehicle'' does not include (A) any vehicle placed 
in service after December 31, 2024, with respect to which any of the 
applicable critical minerals contained in the battery of such vehicle 
(as described in section 30D(e)(1)(A)) were extracted, processed, or 
recycled by a FEOC (as defined in section 40207(a)(5) of the 
Infrastructure Investment and Jobs Act (42 U.S.C. 18741(a)(5))), or (B) 
any vehicle placed in service after December 31, 2023, with respect to 
which any of the components contained in the battery of such vehicle 
(as described in section 30D(e)(2)(A)) were manufactured or assembled 
by a FEOC (as so defined).
3. Elimination of Phaseout
    The IRA eliminates the phaseout of the section 30D credit for 
vehicles made by manufacturers that have sold at least 200,000 vehicles 
eligible for the credit for use in the United States after December 31, 
2009. Pursuant to section 13401(d) of the IRA this limitation does not 
apply to vehicles sold after December 31, 2022. See section 13401(k)(5) 
of the IRA.
4. Special Rules
    The IRA adds four new special rules under section 30D(f) applicable 
to vehicles placed in service after December 31, 2022. First, section 
30D(f)(8) permits only one section 30D credit to be claimed for each 
VIN. Second, section 30D(f)(9) requires taxpayers to include on the 
taxpayer's return for the taxable year the VIN of the vehicle for which 
the section 30D credit is claimed.
    Third, section 30D(f)(10) denies the section 30D credit to certain 
high-income taxpayers. More specifically, section 30D(f)(10)(A) 
provides that no credit is allowed for any taxable year if (i) the 
lesser of (I) the Modified AGI of the taxpayer for such taxable year, 
or (II) the Modified AGI of the taxpayer for the preceding taxable 
year, exceeds (ii) the threshold amount. New section 30D(f)(10)(B) 
provides that the threshold amount is: (i) in the case of a joint 
return or a surviving spouse (as defined in section 2(a) of the Code), 
$300,000, (ii) in the case of a head of household (as defined in 
section 2(b) of the Code), $225,000, and (iii) in the case of any other 
taxpayer, $150,000. New section 30D(f)(10)(C) defines Modified AGI as 
AGI increased by any amount excluded from gross income under sections 
911, 931, or 933.
    Fourth, section 30D(f)(11) excludes from the section 30D credit 
vehicles that exceed certain manufacturer's suggested retail price 
(MSRP) thresholds. New section 30D(f)(11)(A) provides that no credit is 
allowed for a vehicle if the MSRP of the vehicle exceeds the applicable 
limitation. New section 30D(f)(11)(B) provides that the applicable 
limitation for each vehicle classification is as follows: in the case 
of a van, $80,000; in the case of a sport utility vehicle, $80,000; in 
the case of a pickup truck, $80,000; and in the case of any other 
vehicle, $55,000. New section 30D(f)(11)(C) authorizes the Secretary to 
prescribe such regulations or other guidance as the Secretary 
determines necessary to determine vehicle classifications using 
criteria similar to that employed by the EPA and the Department of the 
Energy (DOE) to determine size and class of vehicles.
5. Transfer of Credit
    The IRA added new section 30D(g) to the Code, which allows the 
taxpayer to elect to transfer the section 30D credit in certain 
situations for vehicles placed in service after December 31, 2023.
    Section 30D(g)(1) provides that subject to such regulations or 
other guidance as the Secretary determines necessary, a taxpayer may 
elect to transfer a section 30D credit with respect to a new clean 
vehicle to an eligible entity (credit transfer election).\1\ If the 
taxpayer who acquires a new clean vehicle makes a credit transfer 
election under section 30D(g) with respect to such vehicle, the section 
30D credit that would otherwise be allowed to such taxpayer with 
respect to such vehicle is allowed to the eligible entity specified in 
such election (and not the taxpayer).
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    \1\ As discussed in section VIII of this Background section, on 
October 10, 2023, the Treasury Department and the IRS published a 
notice of proposed rulemaking (REG-113064-23) in the Federal 
Register (88 FR 70310), that referred to this election as the 
``vehicle transfer election.'' However, ``credit transfer election'' 
is a more descriptive and appropriate term, so these final 
regulations adopt the defined term ``credit transfer election'' to 
refer to the election by a taxpayer to transfer a section 25E or 
section 30D credit to an eligible entity.
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    Section 30D(g)(2) defines an ``eligible entity'' with respect to 
the vehicle for which the section 30D credit is allowed as the dealer 
that sold such vehicle to the taxpayer and that satisfies the following 
four requirements set forth in section 30D(g)(2)(A) through (D): (i) 
the dealer, subject to section 30D(g)(4), must be registered with the 
Secretary for purposes of section 30D(g)(2), at such time, and in such 
form and manner, as the Secretary prescribes; (ii) the dealer, prior to 
the credit transfer election and not later than at the time of sale, 
must have disclosed to the taxpayer purchasing such vehicle the 
manufacturer's suggested retail price, the value of the section 30D 
credit allowed and any other incentive available for the purchase of 
such vehicle, and the amount provided by the dealer to such taxpayer as 
a condition of the credit transfer election; (iii) the dealer, not 
later than at the time of sale, must have paid the taxpayer (whether in 
cash or in the form of a partial payment or down payment for the 
purchase of such vehicle) an amount equal to the credit otherwise 
allowable to such taxpayer; and (iv) the dealer with respect to any 
incentive otherwise available for the purchase of a vehicle for which a 
section 30D credit is allowed, including any incentive in the form of a 
rebate or discount provided by the dealer or manufacturer, must have 
ensured that the availability or use of such incentive does not limit 
the ability of a taxpayer to make a credit transfer election, and such 
election does not limit the value or use of such incentive.
    Section 30D(g)(3) addresses the timing of the transfer and provides 
that any credit transfer election cannot be made by the taxpayer any 
later than the date on which the vehicle for which the section 30D 
credit is allowed is purchased.

[[Page 37709]]

    Section 30D(g)(4) provides that upon determination by the Secretary 
that a dealer has failed to comply with the requirements described in 
section 30D(g)(2), the Secretary may revoke the dealer's registration.
    Section 30D(g)(5) provides that with respect to any payment 
described in section 30D(g)(2)(C), such payment is not includible in 
the gross income of the taxpayer and is not deductible with respect to 
the dealer.
    Section 30D(g)(6) addresses the application of certain other 
requirements to the transfer of credit and provides that in the case of 
any credit transfer election with respect to any vehicle: (i) the basis 
reduction and no double benefit requirements of section 30D(f)(1) and 
(2) apply to the taxpayer who acquired the vehicle in the same manner 
as if the section 30D credit determined with respect to such vehicle 
were allowed to such taxpayer; (ii) the election in section 30D(f)(6) 
to not take the section 30D credit does not apply; and (iii) the VIN 
requirement of section 30D(f)(9) is treated as satisfied if the 
eligible entity provides the VIN of such vehicle to the Secretary in 
such manner as the Secretary may provide.
    Section 30D(g)(7)(A) provides for the establishment of a program to 
make advance payments to eligible entities in an amount equal to the 
cumulative amount of the credits allowed with respect to any vehicles 
sold by such entity for which a credit transfer election described in 
section 30D(g)(1) has been made. Section 30D(g)(7)(B) provides that 
rules similar to the rules of section 6417(d)(6) of the Code apply for 
purposes of the advance payment rules, and section 30D(g)(7)(C) 
provides that for purposes of 31 U.S.C. 1324, the payments under 
section 30D(g)(7)(A) are treated in the same manner as a refund due 
from a credit provision referred to in 31 U.S.C. 1324(b)(2).
    Section 30D(g)(8) defines the term ``dealer'' as a person licensed 
by a State, the District of Columbia, the Commonwealth of Puerto Rico, 
any other territory or possession of the United States, an Indian 
tribal government, or any Alaska Native Corporation (as defined in 
section 3 of the Alaska Native Claims Settlement Act (43 U.S.C. 
1602(m)) to engage in the sale of vehicles. Section 30D(g)(9) defines 
an ``Indian tribal government'' as the recognized governing body of any 
Indian or Alaska Native tribe, band, nation, pueblo, village, 
community, component band, or component reservation, individually 
identified (including parenthetically) in the list published most 
recently as of the date of enactment of section 30D(g) (that is, August 
16, 2022) pursuant to section 104 of the Federally Recognized Indian 
Tribe List Act of 1994 (25 U.S.C. 5131).
    Section 30D(g)(10) provides that in the case of any taxpayer who 
has made a credit transfer election with respect to a new clean vehicle 
and received a payment from an eligible entity, if the section 30D 
credit would otherwise (but for section 30D(g)) not be allowable to 
such taxpayer pursuant to the application of the Modified AGI 
limitation of section 30D(f)(10), the income tax imposed on such 
taxpayer under chapter 1 of the Code for the taxable year in which such 
vehicle was placed in service must be increased by the amount of the 
payment received by such taxpayer.
    Section 13401(k)(4) of the IRA provides that the ability for a 
taxpayer to elect to transfer a section 30D credit under section 30D(g) 
applies to vehicles placed in service after December 31, 2023.
6. Termination
    The IRA added new section 30D(h) to the Code, which provides that 
no credit is allowed with respect to any vehicle placed in service 
after December 31, 2032.

III. Section 45W

    Section 13403(a) of the IRA added section 45W to the Code, which is 
effective for vehicles acquired after December 31, 2022, and before 
January 1, 2033. A taxpayer can claim a section 45W credit for 
purchasing and placing in service a qualified commercial clean vehicle, 
as defined in section 45W(c), during the taxable year. Section 45W(e) 
provides that no section 45W credit is allowed with respect to any 
vehicle unless the taxpayer includes the VIN of such vehicle on the tax 
return for the taxable year.

IV. Section 6213(g)(2)

    Section 6213(b)(1) authorizes the IRS to make certain assessments 
of mathematical or clerical errors without first issuing a notice of 
deficiency under section 6213(a). Section 13401(i)(4) of the IRA 
amended section 6213(g)(2) to provide the IRS with math error authority 
for the omission of a correct VIN required under sections 25E(d), 
30D(f)(9), and 45W(e) to be included on a return. See section 
6213(g)(2)(T)-(V).

V. Notice 2022-46

    On October 24, 2022, the Treasury Department and the IRS published 
Notice 2022-46, 2022-43 I.R.B. 306. The notice requested general 
comments on issues arising under sections 25E and 30D. Regarding 
section 30D, the notice requested specific comments concerning: (1) 
definitions; (2) critical minerals; (3) battery components; (4) 
applicable values; (5) FEOCs; (6) recordkeeping and reporting; (7) tax-
exempt entities; (8) registered dealers and eligible entities; (9) the 
final assembly requirement; (10) vehicle classifications; (11) 
elections to transfer and advance payments; and (12) recapture. 
Regarding section 25E, the notice requested specific comments 
concerning: (1) qualification as a ``previously-owned clean vehicle''; 
(2) the rules of section 30D(f) that should be applied under section 
25E(e); (3) the rules of section 30D(g) that should be applied under 
section 25E; and (4) terms that may require definitions or further 
guidance. Stakeholders submitted more than 800 comments in response to 
Notice 2022-46. Those comments informed the development of the notices 
of proposed rulemaking relating to sections 25E and 30D discussed in 
section VII of this Background section.

VI. Revenue Procedures

    On December 27, 2022, the Treasury Department and the IRS published 
Revenue Procedure 2022-42, 2022-52 I.R.B. 565, which sets forth the 
procedures under section 30D(d)(3) for qualified manufacturers to enter 
into a written agreement with the Secretary under which such 
manufacturer agrees to make periodic written reports to the Secretary 
providing VINs and such other information related to each vehicle 
manufactured by such manufacturer as the Secretary may require. The 
revenue procedure also provides the procedures for persons selling 
vehicles to report the information required to be reported to the IRS 
in order for such vehicles to be eligible for the section 25E credit or 
the section 30D credit.
    On October 23, 2023, the Treasury Department and the IRS published 
Revenue Procedure 2023-33, 2023-43 I.R.B. 1135. The revenue procedure 
sets forth the procedures under sections 25E(f) and 30D(g) for the 
transfer of the section 25E credit and the 30D credit from the taxpayer 
to an eligible entity. In addition, the revenue procedure supersedes 
certain provisions of Rev. Proc. 2022-42.
    On December 18, 2023, the Treasury Department and the IRS published 
Revenue Procedure 2023-38, 2023-51 I.R.B. 1544. The revenue procedure 
provides procedural rules for qualified manufacturers of new clean 
vehicles to comply with the reporting, certification, and attestation 
requirements regarding the excluded entity restriction, under which the 
IRS, with analytical

[[Page 37710]]

assistance from the DOE, will review compliance with the excluded 
entity restrictions. In addition, Rev. Proc. 2023-38 updates and 
consolidates the procedural rules for qualified manufacturers with 
respect to the section 25E credit, the section 30D credit, and the 
qualified commercial clean vehicle credit under section 45W. The 
revenue procedure supersedes certain provisions of Rev. Proc. 2022-42 
and Rev. Proc. 2023-33.
    On February 26, 2024, the Treasury Department and the IRS published 
Revenue Procedure 2024-12, 2024-9 I.R.B. 677. The revenue procedure 
provides a temporary extension of time to submit seller reports to the 
IRS under the procedures set out in Rev. Proc. 2022-42 and Rev. Proc. 
2023-33 for the transfer of section 25E credits and 30D credits.

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

    On January 17, 2023, the Treasury Department and the IRS published 
Notice 2023-1, 2023-3 I.R.B. 373, which describes definitions for 
certain terms in section 30D that the Treasury Department and the IRS 
intended to include in proposed regulations.
    The Treasury Department also released a white paper on the 
anticipated direction of the proposed guidance on the Critical Minerals 
Requirement and Battery Components Requirement and the process for 
determining whether vehicles qualify under these requirements, as of 
December 29, 2022. See ``Anticipated Direction of Forthcoming Proposed 
Guidance on Critical Mineral and Battery Component Value Calculations 
for the New Clean Vehicle Credit,'' Dec. 29, 2022, https://home.treasury.gov/system/files/136/30DWhite-Paper.pdf (last accessed 
March 16, 2024).
    On February 21, 2023, the Treasury Department and the IRS published 
Notice 2023-16, 2023-8 I.R.B. 479, which modifies Notice 2023-1 by 
revising the vehicle classification standard that the Treasury 
Department and the IRS intended to provide in proposed regulations.

VIII. Notices of Proposed Rulemaking

    On April 17, 2023, the Treasury Department and the IRS published a 
notice of proposed rulemaking (REG-120080-22) in the Federal Register 
(88 FR 23370), containing proposed regulations under section 30D (April 
Proposed Regulations). The April Proposed Regulations provided proposed 
definitions for certain terms related to section 30D; proposed rules 
regarding personal and business use of new clean vehicles and other 
special rules; and additional proposed rules related to the Critical 
Minerals and Battery Components Requirements of section 30D(e) in 
proposed Sec.  1.30D-3.
    On October 10, 2023, the Treasury Department and the IRS published 
a notice of proposed rulemaking (REG-113064-23) in the Federal Register 
(88 FR 70310), which provided proposed guidance for elections to 
transfer clean vehicle credits under sections 25E(f) and 30D(g) 
(October Proposed Regulations). The October Proposed Regulations 
provided proposed guidance for taxpayers intending to transfer the 
section 25E credit and the section 30D credit to dealers that are 
entities eligible to receive advance payments of such credits. The 
October Proposed Regulations also provided proposed guidance for how 
dealers become eligible entities to receive advance payments of the 
section 25E credit and the section 30D credit. In addition, the October 
Proposed Regulations provided proposed guidance regarding basic and 
definitional provisions in for section 25E, recapture of the section 
25E and section 30D credits, and math error authority under section 
6213.
    On December 4, 2023, the Treasury Department and the IRS published 
a notice of proposed rulemaking (REG-118492-23) in the Federal Register 
(88 FR 84098), which provided guidance regarding the excluded entities 
limitation of section 30D(d)(7) (December Proposed Regulations). The 
December Proposed Regulations provided proposed definitions and 
proposed rules for qualified manufacturers of vehicles to determine 
eligibility for the section 30D clean vehicle credit regarding the 
excluded entity restrictions, under which vehicles placed in service 
beginning in 2024 are not eligible if the battery contains battery 
components manufactured or assembled by a FEOC, and vehicles placed in 
service beginning in 2025 are not eligible if the battery contains 
applicable critical minerals extracted, processed, or recycled by a 
FEOC.

IX. Department of Energy Guidance

    Concurrently with the release of the December Proposed Regulations, 
the DOE released proposed guidance in the Federal Register, which 
provides proposed interpretations of certain terms used in the 
definition of FEOC set forth in section 40207(a)(5) of the 
Infrastructure Investment and Jobs Act (IIJA), and as cross-referenced 
in section 30D(d)(7). Concurrently with the release of these final 
regulations, the DOE is releasing final regulations under section 
40207(a)(5) of the IIJA.
    Section 40207(a)(5) of the IIJA defines FEOC to include foreign 
entities covered by specific designations, inclusions, and allegations 
by Federal agencies as described in section 40207(a)(5)(A), (B), and 
(D), as well as foreign entities ``owned by, controlled by, or subject 
to the jurisdiction or direction of a government'' of a covered nation 
under section 40207(a)(5)(C). Covered nations are defined in 10 U.S.C. 
4872(d)(2) as the People's Republic of China, the Russian Federation, 
the Democratic People's Republic of Korea, and the Islamic Republic of 
Iran, as of the date of publication of the these final regulations and 
the DOE final guidance. Finally, section 40207(a)(5)(E) of the IIJA 
provides that a FEOC includes a foreign entity that the Secretary of 
Energy, in consultation with the Secretary of Defense and the Director 
of National Intelligence, determines is engaged in unauthorized conduct 
that is detrimental to the national security or foreign policy of the 
United States. The DOE final guidance provides an interpretation of 
section 40207(a)(5)(C) of the IIJA. In particular, the DOE final 
guidance provides definitions for the terms ``government of a foreign 
country,'' ``foreign entity,'' ``subject to the jurisdiction,'' and 
``owned by, controlled by, or subject to the direction of.'' In 
general, an entity incorporated in, headquartered in, or performing the 
relevant activities in a covered nation would be classified as a FEOC. 
For purposes of these rules, an entity would be ``owned by, controlled 
by, or subject to the direction'' of another entity if 25 percent or 
more of the entity's board seats, voting rights, or equity interest are 
cumulatively held by such other entity. In addition, licensing 
agreements or other contractual agreements may also create control. 
Finally, ``government of a foreign country'' is defined to include 
subnational governments and certain current or former senior foreign 
political figures.

Summary of Comments and Explanation of Revisions

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

[[Page 37711]]

    After full consideration of the comments received on the proposed 
regulations and the testimony presented at the public hearing, this 
Treasury Decision adopts the proposed regulations with clarifying 
changes and additional modifications in response to the comments and 
testimony as described in this Summary of Comments and Explanation of 
Revisions.
    Unless otherwise indicated in this Summary of Comments and 
Explanation of Revisions, provisions of the proposed regulations for 
which no comments were received are adopted without substantive change. 
Comments that merely summarize the proposed regulations, recommend 
statutory revisions to section 25E, section 30D, or other statutes, 
address issues that are outside the scope of this rulemaking (such as 
proposed changes to other guidance), or recommend changes to IRS forms, 
are beyond the scope of these regulations and are not adopted. In 
addition, comments that relate to the revenue procedures or notices 
described in section VI and VII of this Background section are beyond 
the scope of these regulations and are not adopted. The final 
regulations include non-substantive modifications, including 
modifications that promote consistency across definitions, rules, and 
examples, rearrange provisions, and improve the overall clarity of the 
guidance. Such modifications are not addressed in the Summary of 
Comments and Explanation of Revisions.
    Section I of this Summary of Comments and Explanation of Revisions 
addresses the comments and revisions applicable only to section 25E. 
Section II of this Summary of Comments and Explanation of Revisions 
addresses the comments and revisions applicable to both section 25E and 
section 30D. Section III of this Summary of Comments and Explanation of 
Revisions addresses the comments and revisions applicable only to 
section 30D. Section IV of this Summary of Comments and Explanation of 
Revisions addresses the comments and revisions applicable to section 
6213. Section V of this Summary of Comments and Explanation of 
Revisions addresses the applicability dates of these final regulations.

I. Section 25E Credit

A. Definitions
1. Previously-Owned Clean Vehicle
    Proposed Sec.  1.25E-1(b)(5) defined the term ``previously-owned 
clean vehicle'' by reference to the statutory definition provided in 
section 25E(c)(1). A commenter noted that the proposed definition of 
``previously-owned clean vehicle'' does not address whether a 
previously-owned vehicle purchased from a dealership would be eligible 
for the section 25E credit. Another commenter requested that the 
Treasury Department and the IRS provide a definition of ``vehicle.''
    Section 25E(c)(1) provides a definition of ``previously-owned clean 
vehicle'' and criteria to be considered a ``motor vehicle.'' Section 
25E(c)(4) defines ``motor vehicle'' by reference to section 30D(d)(2), 
which defines that term as any vehicle that is manufactured primarily 
for use on public streets, roads, and highways (not including a vehicle 
operated exclusively on a rail or rails) and that has at least four 
wheels. Further, section 25E(c)(2) defines ``qualified sale'' in part, 
as a sale of a motor vehicle by the dealer. Under the plain language of 
section 25E, a sale of a previously-owned clean vehicle by a dealer is 
eligible for the section 25E credit, provided the other requirements of 
section 25E are satisfied. Accordingly, the final regulations do not 
adopt these comments.
    The final regulations clarify that vehicles that may qualify as 
previously-owned clean vehicles include battery electric vehicles, 
plug-in hybrid electric vehicles, fuel cell motor vehicles, and plug-in 
hybrid fuel cell motor vehicles.
2. Qualified Sale
i. Motor Vehicle Reference and Price Cap
    Section 25E(c)(2) defines ``qualified sale'' as a sale of a motor 
vehicle by a dealer (as defined in section 30D(g)(8)), for a sale price 
that does not exceed $25,000, and that is the first transfer since 
August 16, 2022 (the date of enactment of section 25E), to a qualified 
buyer other than the person with whom the original use of such vehicle 
commenced. Proposed Sec.  1.25E-1(b)(8)(i) tracked the statutory 
definition.
    A commenter recommended that the final regulations substitute 
``previously-owned clean vehicle'' for ``motor vehicle'' in the 
definition of ``qualified sale'' in proposed Sec.  1.25E-1(b)(8)(i). In 
addition, multiple commenters requested changes to the $25,000 maximum 
sale price amount in the definition of ``qualified sale.''
    Section 25E(c)(2) uses the term ``motor vehicle'' in the definition 
of ``qualified sale.'' In order to maintain consistency with the 
statutory definition of ``qualified sale,'' the final regulations do 
not adopt this comment. With regard to the comments suggesting a change 
to the sale price limitation, section 25E(c)(2)(B) provides that the 
sale price may not exceed $25,000. Because the $25,000 sale price 
limitation is statutory, the final regulations do not adopt this 
comment.
ii. First Transfer Rule
    Proposed Sec.  1.25E-1(b)(8)(ii) provided that to be a qualified 
sale, a transfer must be the first transfer since August 16, 2022, as 
shown by vehicle history, of a previously-owned clean vehicle after the 
sale to the person with whom the original use of such vehicle 
commenced. The proposed regulation further provided that the taxpayer 
may rely on the dealer's provision of the vehicle history in 
determining whether the first transfer rule is satisfied.
    A commenter recommended that the final regulations change the term 
``vehicle history'' to ``vehicle history report'' in proposed Sec.  
1.25E-1(b)(8)(ii) and define ``vehicle history report'' as a report 
``issued by an approved provider at www.vehiclehistory.bja/ojp.gov/nmvtis_vehiclehistory.'' The website recommended by the commenter 
provides a list of National Motor Vehicle Title Information System 
(NMVTIS) approved data providers. This website is maintained by the 
Department of Justice. The commenter further suggested removing the 
dealer limitation from the last sentence of proposed Sec.  1.25E-
1(b)(8)(ii) and tying the vehicle history report to the time of sale.
    Proposed Sec.  1.25E-1(b)(8)(ii) identified ``vehicle history'' as 
the mechanism for verifying whether a transfer is the first transfer of 
the vehicle for purposes of the qualified sale definition. The Treasury 
Department and the IRS agree that substituting the term ``vehicle 
history report'' for ``vehicle history'' adds clarity to the rule. The 
Treasury Department and the IRS further agree that requiring the 
taxpayer to obtain the vehicle history report from the dealer is overly 
restrictive, and that the vehicle history report should be obtained at 
the time of sale or as part of the sale transaction in order to satisfy 
the first transfer rule. Accordingly, the final regulations adopt these 
comments. Further, the Treasury Department and the IRS have determined 
that vehicle history reports issued by NMVTIS-approved data providers 
may be used to verify whether a transfer is the first transfer of the 
vehicle. However, the Treasury Department and the IRS lack sufficient 
information to determine whether limiting vehicle history reports to 
those issued by NMVTIS-approved data providers would place an undue 
burden on taxpayers. As a result, the final regulations adopt the 
comment, in part, by adding a definition of ``vehicle

[[Page 37712]]

history report'' and clarifying that the term includes reports from 
NMVTIS-approved data providers.
    Another commenter expressed concern that the proposed first 
transfer rule is more restrictive than the statutory language and could 
severely limit the applicability of the section 25E credit. The 
commenter suggested that the most straightforward way to determine if a 
car had previously been sold to a qualified buyer would be to exclude 
vehicles for which a credit under 25E had previously been claimed. The 
commenter recommended that the final regulations allow one section 25E 
credit per VIN (regardless of whether the credit is claimed with 
respect to the first transfer since August 16, 2022, or the first 
transfer to a qualified buyer) in place of the proposed first transfer 
rule.
    One of the statutory requirements to be a qualified sale is that 
the sale be the first transfer to a qualified buyer since the enactment 
of section 25E, other than to the person with whom the original use of 
the vehicle commenced. The commenter's suggestion that the final 
regulations adopt a one section 25E credit per VIN rule is inconsistent 
with the statutory language and Congressional intent, because it would 
allow a transfer to a second qualified buyer to be eligible for the 
credit in situations where the first qualified buyer did not claim the 
section 25E credit or was not eligible to claim the credit (for 
example, if the first qualified buyer's MAGI exceeds the limitation). 
Further, the commenter's suggestion, if adopted, would be 
unadministrable because taxpayers have no way of verifying whether a 
section 25E credit has previously been claimed with respect to a prior 
sale of a particular vehicle. Such information is not part of a vehicle 
history report and is otherwise inaccessible to taxpayers. While the 
IRS has that information, it cannot share that information without 
violating the taxpayer confidentiality restrictions in section 6103. As 
a result, taxpayers making purchasing decisions would not know which 
previously sold vehicles were eligible for the section 25E credit in 
advance of their vehicle purchase, which would disincentivize the 
purchase of previously-owned clean vehicles. Accordingly, the final 
regulations do not adopt this comment.
    As for the commenter's concern that the proposed first transfer 
rule is more restrictive than the statutory language, the first 
transfer rule is consistent with how Congress expected the statute to 
operate \2\ and is necessary to protect confidential taxpayer 
information consistent with section 6103. Once there has been a sale of 
a previously-owned clean vehicle, there is no information source from 
which a subsequent buyer could ascertain or verify whether the prior 
sale was to a qualified buyer. For example, vehicle history reports do 
not include information as to whether a previous buyer was an 
individual, whether the previous buyer was a dependent, or whether the 
previous buyer had claimed the section 25E credit in the prior three 
years. As noted above, in cases where the previous buyer has claimed 
the section 25E credit, the IRS would have the information necessary to 
determine whether the prior transfer was to a qualified buyer, but such 
taxpayer information is protected from disclosure by statute, under 
section 6103. The first transfer rule, by allowing the section 25E 
credit to the first transfer after the date of enactment of 25E as 
determined by the vehicle's vehicle history report, provides certainty 
to buyers and dealers in a manner that is consistent with the taxpayer 
confidentiality mandates of section 6103. In addition, the proposed 
first transfer rule is consistent with Congressional intent to 
incentivize the deployment of clean vehicles.
---------------------------------------------------------------------------

    \2\ See Joint Committee on Taxation, General Explanation of Tax 
Legislation Enacted in the 117th Congress (JCS-1-23), December 2023 
at page 254.
---------------------------------------------------------------------------

    The final regulations thus adopt the proposed first transfer rule 
without substantive change. As noted earlier, the first transfer rule 
is an element of the definition of ``qualified sale.'' The final 
regulations merge proposed Sec.  1.25E-1(b)(8)(i) and (ii) and finalize 
the definition of ``qualified sale'' as Sec.  1.25E-1(b)(14). Further, 
the final regulations move the language regarding taxpayer reliance on 
the vehicle history report from the definition of ``qualified sale'' to 
a standalone rule in Sec.  1.25E-1(f), and clarify that reliance on a 
vehicle history report applies in the case where there has been a prior 
sale and return or resale described in Sec.  1.25E-2(c). For additional 
clarity, the final regulations add an example that illustrates how the 
first transfer rule works in the context of dealer-to-dealer transfers.
3. Sale Price
    Section 25E(a)(2) and (c)(2)(B) provide that the sale price of a 
previously-owned clean vehicle is taken into account for purposes of 
determining the amount of the section 25E credit and whether a 
particular sale is a qualified sale of the vehicle. Proposed Sec.  
1.25E-1(b)(9) defined the ``sale price'' of a previously-owned clean 
vehicle as the total sale price agreed upon by the buyer and dealer in 
a written contract at the time of sale, including any delivery charges 
and after the application of any incentives, but excluding separately-
stated taxes and fees required by law. Under the proposed definition, 
the sale price of a previously-owned clean vehicle was determined 
before the application of any trade-in value. Proposed Sec.  1.25E-
1(b)(2) provided that for purposes of the definition of ``sale price,'' 
the term ``incentive'' means any reduction in total sale price offered 
to and accepted by a taxpayer from the dealer or manufacturer, other 
than a reduction, whether in the form of a partial payment or down 
payment for the purchase of a previously-owned clean vehicle or 
otherwise, pursuant to section 25E(f) and Sec.  1.25E-3.
    One commenter requested clarification regarding the term 
``incentives,'' noting that manufacturer and distributor rebates and 
incentives are typically not available for previously-owned vehicles. 
The commenter did not reference the proposed definition of 
``incentive'' in its comment letter. The proposed definition addresses 
the commenter's concern by broadly defining ``incentive'' to include 
reductions in price by manufacturers and dealers. In other words, the 
proposed definition does not limit incentives to price reductions 
provided by manufacturers and distributors. Therefore, no clarification 
is needed. However, because the term ``incentive'' is relevant to both 
sale price determinations for purposes the $25,000 sale price cap in 
section 25E(c)(2)(B) and the eligible entity definition in section 
30D(g)(2)(B)(ii) and (D), the final regulations include separate 
definitions of ``incentive'' that apply to those provisions. In 
addition, with regard to the definition of ``incentive'' for purposes 
of sale price determinations, the final regulations clarify that an 
``incentive'' means any reduction in price offered to and accepted by a 
taxpayer from the dealer or manufacturer. This clarification is 
necessary because the proposed definition only looked to incentives 
available to taxpayers from the dealer or manufacturer, which could 
disadvantage consumers by artificially lowering the $25,000 sale price 
cap in cases where the incentive was not accepted by the taxpayer.
    Several commenters requested modifications to the proposed 
definition of ``sale price.'' Two commenters requested a narrower 
definition. Specifically, one commenter suggested that the proposed 
definition of sale

[[Page 37713]]

price be amended so that fees and charges allowed by a state or 
locality, such as titling and registration charges for out-of-state 
buyers and charges associated with perfecting a lienholder's security 
interest, be excluded from the sale price because the amount of such 
fees is not easily knowable at the time of sale. Another commenter 
recommended modifying the proposed definition of ``sale price'' to 
exclude documentation fees because of long-standing practice in the 
automotive industry to charge such fees to cover a dealer's processing 
and administrative costs associated with a sale. The inclusion of 
dealer document fees and charges allowed by a state or locality in the 
sale price would allow dealers to allocate a portion of the sale price 
of the vehicle to such fees in order to avoid the $25,000 sale price 
cap in section 25E(c)(2)(B). Accordingly, the final regulations do not 
adopt these comments.
    A commenter suggested the proposed definition of ``sale price'' be 
amended to include the total transaction amount, less any government-
imposed taxes or fees, and including all add-ons and any non-government 
fees to prevent dealers from capturing a large portion of the credit as 
profit. The proposed definition already effectively does what the 
commenter suggests by excluding only separately-stated taxes and fees 
as required by law. Accordingly, the final regulations do not adopt 
this comment.
4. Other Definitions Applicable to Section 25E
    The Treasury Department and the IRS received comments related to 
other definitions applicable to section 25E that are also applicable to 
section 30D. Section II of this Summary of Comments and Explanation of 
Revisions discusses comments received and modifications made to 
definitions applicable to both section 25E and section 30D.
B. Limitations Based on Modified AGI
    The proposed regulations restated the Modified AGI limitation of 
section 25E(b) at proposed Sec.  1.25E-1(b)(3) and (c)(1).
    Several commenters suggested that the qualifying income threshold 
for the section 25E credit should be increased. Because these 
limitations are statutory, the final regulations do not adopt this 
comment.
C. Branded Title
    Proposed Sec.  1.25E-2(d) provided that a title to a previously-
owned clean vehicle indicating that such vehicle has been damaged or is 
otherwise a branded title does not impact the vehicle's eligibility for 
a section 25E credit.
    A commenter suggested that the section 25E credit program should 
not be used to incentivize consumers to purchase unsafe or unreliable 
vehicles, such as those that have been determined to be a total loss, 
salvage, or junk, and encouraged the Treasury Department and the IRS to 
consider making such vehicles ineligible for the section 25E credit. 
The commenter further suggested that title status reflected in the 
NMVTIS should be determinative because all states, insurance companies, 
and junk and salvage yards are required by law to regularly report 
information about vehicles that have been determined to be a total 
loss, salvage, or junk to NMVTIS.
    Vehicle titles indicate whether the title is clean (meaning the 
vehicle has never been declared a total loss) or branded (indicating 
the vehicle has sustained serious damage, such as in the case of 
salvage title, or that there is some other significant problem with the 
vehicle, as in the case of a lemon title brand). State law generally 
governs the titling of vehicles. Each State and the District of 
Columbia has different standards for determining when a vehicle title 
must be branded. Further, although there are broad categories of title 
brands that are common across jurisdictions, such as salvage title, the 
thresholds for applying those title brands varies. These variations can 
lead to the practice of title washing, which is a method of removing a 
title brand by retitling the vehicle in a jurisdiction that does not 
recognize the title brand. The Treasury Department and the IRS do not 
want to incentivize the purchase of unsafe or unreliable vehicles. 
However, modifying proposed Sec.  1.25E-2(d) to exclude certain title 
brands could lead to an increase in title washing, which, in turn, 
could lead to increased fraud regarding previously-owned vehicles. This 
would negatively impact consumers of previously-owned clean vehicles. 
Moreover, the statute does not exclude branded titles, and there is no 
indication that Congress intended to exclude such vehicles. 
Accordingly, the final regulations do not adopt these comments.

II. Crossover Provisions in Section 25E and Section 30D

A. Definitions
    This section of the Summary of Comments and Explanation of 
Revisions addresses definitions that apply to both section 25E and 
section 30D. Unless otherwise specified, the final regulations move the 
definitions relating to section 30D from Sec. Sec.  1.30D-2, 1.30D-
3(c), 1.30D-5(a), and 1.30D-6(a) to Sec.  1.30D-2(b).
1. Dealer
    Section 25E(c)(2)(A) cross references section 30D(g)(8) with regard 
to the term ``dealer.'' Under section 30D(g)(8), the term ``dealer'' 
means a person licensed by a State, the District of Columbia, the 
Commonwealth of Puerto Rico, or any other territory or possession of 
the United States, an Indian tribal government, or any Alaska Native 
Corporation to engage in the sale of vehicles.
    Proposed Sec. Sec.  1.25E-1(b)(1) and 1.30D-5(a)(2) defined 
``dealer'' as provided in section 30D(g)(8), except that the proposed 
term did not include persons licensed solely by a territory of the 
United States.\3\ Under the proposed regulations, the term included a 
dealer licensed in any jurisdiction described in section 30D(g)(8) 
(other than one licensed solely by a territory of the United States) 
that makes sales at sites outside of the jurisdiction in which its 
licensed. The definition of dealer in the proposed regulations did not 
include persons licensed solely by a territory because clean vehicle 
credits generally are not allowed for vehicles used predominantly 
outside of the 50 States and the District of Columbia. See sections 
30D(f)(4), 25E(e), 50(b)(1), and 7701(a)(9) of the Code.
---------------------------------------------------------------------------

    \3\ Section 30D(g)(8) uses the term ``territory or possession,'' 
but the proposed regulations and these final regulations use the 
term ``territory'' since both terms have the same meaning.
---------------------------------------------------------------------------

    A commenter suggested that the definition of ``dealer'' should 
include licensed dealers in territories or possessions of the United 
States, but only for purposes of vehicles sold for use and not for 
resale in the 50 states or the District of Columbia.
    Such a rule would create verification issues for the IRS and place 
administrative burdens on certain dealers and purchasers of clean 
vehicles. At a minimum, buyers purchasing clean vehicles from dealers 
licensed in territories of the United States would be required to 
provide an attestation or certificate to the dealer indicating that the 
buyer intended to use the vehicle in the United States and not resell 
it. In addition, predominant use of the vehicle in a territory 
subsequent to such a statement of intent would make the vehicle 
ineligible for a clean vehicle credit. Pursuant to section 30D(g)(1), 
the Secretary has authority to prescribe necessary regulations with 
respect to that subsection. Accordingly, the final regulations do not 
adopt this comment.

[[Page 37714]]

    A separate comment requested guidance on the circumstances in which 
an original equipment manufacturer (OEM) is considered a ``dealer'' for 
purposes of section 30D(g)(8). In response to this comment, the 
Treasury Department and the IRS note that an OEM may be a dealer if 
licensed in any jurisdiction described in section 30D(g)(8) and 
Sec. Sec.  1.25E-1(b) or 1.30D-2(b), as applicable.
2. Placed in Service
    The year in which a vehicle is placed in service is relevant for a 
number of rules under section 25E and section 30D, including the 
applicable percentages for the Critical Minerals and Battery Components 
Requirements of section 30D(e) and the FEOC Restriction, which impose 
manufacturer sourcing requirements for the clean vehicle battery.
    Proposed Sec. Sec.  1.25E-1(b)(4) and 1.30D-2(e) provided that a 
vehicle is considered to be placed in service on the date the taxpayer 
takes possession of the vehicle. The proposed definition is consistent 
with the meaning of ``placed in service'' for purposes of other Code 
provisions. See Sec.  1.46-3(d)(1)(ii) and (4)(i) and Sec.  1.179-4(e) 
(property is considered placed in service when ``placed in a condition 
or state of readiness and availability for a specifically assigned 
function''); Sec.  145.4051-1(c)(2) (``a vehicle shall be considered 
placed in service on the date on which the owner of the vehicle took 
actual possession of the vehicle''); see also Sec.  1.1250-4(b)(2) 
(``property is placed in service on the date on which it is first 
used''); Consumers Power Co. v. Commissioner, 89 T.C. 710 (1987); Noell 
v. Commissioner, 66 T.C. 718, 728-729 (1976).
    The proposed definition is also consistent with the IRS's and the 
Tax Court's interpretation of ``placed in service'' as used in section 
30D(a), which was not amended by the IRA, and while not precedential or 
binding, reflects the prevailing view. See e.g., Trout v. Comm'r of 
Internal Revenue, T.C. Summ. Op. 2015-66, 2015 WL 7423818, at *4 (T.C. 
Nov. 19, 2015) (``[t]he Court will look at whether the vehicle was `in 
a condition or state of readiness and availability' for the 
`specifically assigned function' for which petitioners purchased it to 
determine when petitioners placed the [vehicle] in service.''); Podraza 
v. Comm'r of Internal Revenue, T.C. Summ. Op. 2015-67, 2015 WL 7423525 
(T.C. Nov. 19, 2015) (same); IRS PLR 201312034 (Mar. 22, 2013) (``the 
taxable year in which the taxpayer may claim the credit on their return 
is defined as the year in which the vehicle is `placed in service,' 
which requires that the taxpayer have actual possession of the vehicle. 
. .'').
    The Treasury Department and the IRS received several comments 
regarding the definition of ``placed in service.'' One commenter 
suggested that for purposes of the section 30D credit, the definition 
of ``placed in service'' be modified to mean the date of vehicle 
manufacture. The commenter further noted that the proposed definition 
will cause significant confusion for consumers if the clean vehicle 
they want to buy is no longer credit-eligible because the vehicle was 
not placed in service at the correct time.
    Several other commenters requested that ``placed in service'' be 
defined as the date of manufacture for purposes of the vehicle 
manufacturing requirements (specifically, the Critical Minerals and 
Battery Components Requirements and the FEOC Restriction) of section 
30D. Another commenter raised concerns with the proposed definition of 
``placed in service'' based on vehicle possession because some 
taxpayers: (1) may never take possession of the vehicle, such as cases 
involving leases and gifts, (2) may take possession before a vehicle is 
sold, (3) may take possession at the time a vehicle is sold, or (4) may 
take possession after a vehicle is sold, such as cases in which the 
taxpayer preorders a vehicle. The commenter recommended that the 
definition of ``placed in service'' be the date on which a vehicle is 
registered by a United States jurisdiction that administers on-road 
vehicle registration laws.
    The final regulations adopt the definition in proposed Sec. Sec.  
1.25E-1(b)(4) and 1.30D-2(e), with minor clarifying changes, because 
the definition is consistent with existing guidance, as well as case 
law relating to when a vehicle is placed in service. Further, the 
Treasury Department and the IRS do not adopt a definition of ``placed 
in service'' for purposes of the Critical Minerals and Battery 
Components Requirements and the FEOC Restriction that differs from the 
definition for purposes of section 30D(a), because in cases in which 
the same term is used in a single section the term is presumed to have 
the same meaning throughout. Mertens v. Hewitt Assocs., 508 U.S. 248, 
260, 113 S.Ct. 2063, 124 L.Ed.2d 161 (1993). Accordingly, the final 
regulations do not adopt these comments.
3. Sale
    The term ``sale'' is not defined in section 25E, section 30D, or 
the proposed regulations applicable to those sections. A commenter 
suggested that a definition of the term ``sale'' be added to the final 
regulations for purposes of sections 25E and 30D. The commenter 
recommended that the term ``sale'' be defined as ``an enforceable 
contract to transfer ownership of a vehicle from a dealer to a 
taxpayer.''
    The term ``sale'' is relevant to the determination of whether there 
is a qualified sale for purposes of section 25E(c)(2) and the 
applicable recapture provisions under sections 25E and 30D. The 
commenter's proposed definition is overly broad and would not require 
that the transfer of ownership be made for consideration provided by 
the buyer. Further, section 25E(a) provides that the section 25E credit 
is only allowed for a qualified sale of a previously-owned clean 
vehicle. Section 25E(c)(2)(A) defines the term ``qualified sale,'' in 
part, as a sale by a dealer. Similarly, the credit transfer election 
framework incentivizes the purchase of previously-owned clean vehicles 
and new clean vehicles from dealers. Dealers have well-established 
practices with regard to vehicle sales and what constitutes a sale 
transaction. Based on the foregoing, the Treasury Department and the 
IRS have determined that a definition of ``sale'' is unnecessary. 
Accordingly, the final regulations do not adopt this comment.
B. Special Rules
1. Recapture
    Section 25E(e) provides that, for purposes of section 25E, rules 
similar to the rules of section 30D(f) apply. Section 30D(f)(5) 
instructs the Secretary to provide regulations for recapturing the 
benefit of any section 30D credit with respect to any property that 
ceases to be eligible for the section 30D credit. Proposed Sec. Sec.  
1.25E-2(c) and 1.30D-4(d) provided corresponding rules under section 
30D(f)(5) for cancelled sales, returns, and resales of the vehicle. The 
final regulations clarify that for purposes of section 30D(f)(5), and 
by extension, section 25E(e), the amount of the benefit recaptured due 
to such an event is considered an increase to tax imposed by chapter 1 
of the Code.
i. Cancelled Sale
    Proposed Sec. Sec.  1.25E-2(c)(1)(i) and 1.30D-4(d)(1)(i) provided 
the Federal income tax consequences that apply if the sale of a vehicle 
between the taxpayer and seller is cancelled before the taxpayer places 
the vehicle in service (that is, before the taxpayer takes possession 
of the vehicle).
    A commenter recommended that part of the definition of ``cancelled 
sale'' be changed from ``taxpayer places the

[[Page 37715]]

vehicle in service'' to ``the vehicle is placed in service.'' Section 
25E(a) expressly requires the previously-owned clean vehicle to be 
placed in service by a qualified buyer. Similarly, section 30D(a) 
expressly requires the new clean vehicle to be placed in service by the 
taxpayer. Accordingly, the final regulations do not adopt this comment 
because a clean vehicle placed in service by someone other than the 
qualified buyer or taxpayer, as applicable, would not qualify for the 
credit.
ii. Vehicle Returns
    Proposed Sec. Sec.  1.25E-2(c)(1)(ii) and 1.30D-4(d)(1)(ii) 
addressed the Federal income tax consequences that apply if the 
taxpayer returns the vehicle to the seller within 30 days of placing 
the vehicle in service.
    The Treasury Department and the IRS received multiple comments 
regarding the proposed vehicle return rules in proposed Sec. Sec.  
1.25E-2(c)(1)(ii) and 1.30D-4(d)(1)(ii). A commenter requested that the 
final regulations clarify that once a contract for the purchase of a 
clean vehicle is signed by the buyer and seller, the 30-day return 
period is for credit recapture purposes only and that state contract 
law governs whether the buyer can void the sale. One commenter agreed 
that 30 days is an appropriate length of time for qualified vehicle 
returns. Another commenter recommended deleting the 30-day limitation. 
That commenter also suggested changing ``of placing such vehicle in 
service'' to ``after it is placed in service'' and ``the vehicle 
history'' to ``a vehicle history report as of the date of such sale.'' 
In addition, a commenter recommended that, in general, the Treasury 
Department and the IRS regulate returns after the vehicle is 
registered.
    Dealers generally have return policies that range from several days 
up to 30 days, so the proposed rules regarding returns within 30 days 
reflect industry practice. The final regulations maintain the 30-day 
return rule, with one modification. Specifically, the final 
regulations, for purposes of 25E, modify the reference to ``the vehicle 
history'' by changing it to ``a vehicle history report obtained on the 
date of such subsequent sale or as part of such subsequent sale 
transaction'' to conform with modifications to the definition of 
``qualified sale'' described in section I.A.2 of this Summary of 
Comments and Explanation of Revisions. The final regulations also add a 
definition of ``vehicle history report'' and clarify that the term 
includes reports from NMVTIS-approved data providers. In addition, the 
Treasury Department and the IRS confirm that the vehicle return rules 
in the final regulations relate only to the section 25E and 30D credits 
and have no impact on the voidability of the sales contract for the 
clean vehicle, which is governed by state contract law. Otherwise, the 
final regulations do not adopt these comments.
2. Resales
    Proposed Sec. Sec.  1.25E-2(c)(1)(iii) and 1.30D-4(d)(1)(iii) treat 
the taxpayer as having purchased a clean vehicle with an intent to 
resell such vehicle if the resale occurs within 30 days of the taxpayer 
placing the vehicle in service.
    A commenter noted that it largely agreed with the proposed resale 
rules, but suggested that for purposes of section 25E, the final 
regulations include an exception for subsequent sales by dealers that 
are unaware of prior resales as of the date of the subsequent sale. The 
commenter did not suggest an exception for purposes of section 30D 
resales given that a resale of a vehicle will render it used, thereby 
making the vehicle ineligible for the section 30D credit. The commenter 
also suggested changing ``placing the vehicle'' in service to ``it 
being placed'' in service. Another commenter stated that 30 days is an 
appropriate length of time for the resale rule.
    The recapture rule in proposed Sec.  1.25E-2(c)(1)(iii) did not 
address sales by dealers. Proposed Sec.  1.25E-2(c)(1)(iii) addressed 
sales by individual buyers within 30 days and provided that recapture 
in the event of such resale is recaptured from the taxpayer, not the 
dealer. Accordingly, the final regulations retain the rules in proposed 
Sec. Sec.  1.25E-2(c)(1)(iii) and 1.30D-4(d)(1)(iii) and do not adopt 
these comments.
3. Other Returns or Resales
    Proposed Sec. Sec.  1.25E-2(c)(1)(iv) and 1.30D-4(d)(iv) provided a 
rule for returns or resales occurring more than 30 days after the date 
on which the taxpayer places the vehicle in service. Generally, 
taxpayers returning or reselling a clean vehicle more than 30 days 
after the date the taxpayer places it in service will remain eligible 
for the section 25E or section 30D credit for the purchase of such 
vehicle. The proposed regulations provided that, in the case of a new 
clean vehicle that is returned or resold, the vehicle, once returned or 
resold, is not available for original use by another taxpayer and, 
therefore, is not eligible for a section 30D credit. Similarly, in the 
case of a previously-owned clean vehicle that is returned or resold, 
the vehicle, once returned or resold, is generally not eligible for the 
section 25E credit upon a subsequent sale pursuant to the first 
transfer rule described in proposed Sec.  1.25E-1(b)(8)(ii). In the 
case of a return occurring more than 30 days after the date on which 
the taxpayer places the vehicle in service, the seller report is not 
required to be updated because the taxpayer generally will be eligible 
for the clean vehicle credit in this circumstance. In addition, in the 
case of a resale of such vehicle, the seller report is not required to 
be updated because the seller would not have knowledge of the 
subsequent resale. Finally, if the taxpayer made an election to 
transfer the clean vehicle credit, that credit transfer election 
remains in effect and the value of any transferred credit pursuant to 
the clean vehicle credit transfer rules generally is not subject to 
recapture and is not an excessive payment.
    Although the proposed regulations did not provide an automatic 
clean vehicle credit recapture rule for returns or resales more than 30 
days after a return or resale, the IRS may determine, based upon the 
facts and circumstances of a particular case, that a clean vehicle was 
purchased with the intent to return or resell and may disallow the 
clean vehicle credit in such case.
    One commenter noted that dealers regularly place new clean vehicles 
in use for longer than 30 days as loaners, rentals, or company 
vehicles, and that the period of time the vehicle is in use varies but 
is normally longer than 30 days. The commenter suggested that the 
section 30D credit obtained by the dealer on its purchase of the 
vehicle should not be recaptured if, after a period of more than 30 
days of use as a loaner, the dealer reclassifies the vehicle as used 
and subsequently sells it to a third party. The commenter requested the 
addition of an example to the final regulations addressing this 
scenario.
    The final regulations adopt the comment and add an example to Sec.  
1.30D-4(e) that illustrates the application of the vehicle return rules 
to a scenario in which the dealer purchases a new clean vehicle, uses 
it as a demonstrator, and later sells the vehicle.
4. Recapture After Transfer Election
    One commenter requested that an example be added to the final 
regulations that addresses who would be responsible for repaying a 
credit in the event the taxpayer made an election to transfer the 
credit and later learned that the sale of the previously-owned

[[Page 37716]]

clean vehicle to the taxpayer was not a qualified sale.
    In general, whether the sale of a previously-owned clean vehicle is 
a qualified sale will be determined at the time of sale. For example, 
the taxpayer may rely on the vehicle history report obtained at the 
time of sale or as part of the sale transaction to determine whether 
the first transfer rule is satisfied. In the case of recapture, as 
described in Sec. Sec.  1.25E-2(c) and 1.30D-4(e), responsibility for 
recapture of a clean vehicle credit depends upon the circumstances of 
recapture. In the case of a vehicle return within 30 days of placing a 
clean vehicle in service in which the taxpayer made a credit transfer 
election, the eligible entity must repay the amount of the credit as an 
excessive payment. In contrast, if the taxpayer resells the vehicle 
within 30 days of placing the clean vehicle in service rather than 
returning it to the eligible entity, the amount of the transferred 
credit is recaptured from the taxpayer.
    Another commenter requested additional information about specific 
procedures regarding recapture, including clarification as to whether 
both parties would be notified, how such notification might occur, and 
when recapture would occur.
    Generally, recapture is reported via self-assessment by the 
eligible entity or taxpayer. In the event of recapture from the 
eligible entity, the eligible entity must report the recapture via the 
dealer registration system as described in Sec. Sec.  1.25E-3(c)(1) and 
1.30D-5(c)(1), as finalized. In the event of recapture from the 
taxpayer, the taxpayer must report the recapture amount as an increase 
in tax imposed by chapter 1 of the Code on the taxpayer's Federal 
income tax return for the taxable year in which the recapture occurred.
    A commenter requested that the final regulations clarify whether a 
taxpayer would be liable for repayment of the credit or a portion of 
the credit if a transfer election is made but the taxpayer's regular 
tax liability is less than the total amount of the credit transferred. 
With respect to the section 25E credit, this situation is addressed in 
proposed Sec.  1.25E-3(e)(1)(i) and proposed Sec.  1.25E-3(e)(5) 
Example 1. With respect to the section 30D credit, this situation is 
addressed in proposed Sec.  1.30D-5(e)(1)(i) and Sec.  1.30D-5(e)(5) 
Example 1. These provisions and examples are adopted in the final 
regulations at Sec.  1.25E-3(e)(1)(i), Sec.  1.25E-3(e)(5) Example 1, 
Sec.  1.30D-5(e)(1)(i), and Sec.  1.30D-5(e)(5) Example 1. Accordingly, 
no additional clarification is needed and the final regulations do not 
adopt this comment.
5. Requirement To File a Complete Income Tax Return
    Proposed Sec. Sec.  1.25E-2(f) and 1.30D-4(g) provided that 
taxpayers must file an income tax return, together with Schedule A 
(Form 8936), Clean Vehicle Credit Amount, or successor form, and any 
additional forms, schedules, or statements prescribed by the 
Commissioner for the purpose of making a return to report the tax under 
chapter 1 of the Code that includes all of the information required on 
the forms and in the instructions, for the taxable year in which the 
clean vehicle is placed in service to be entitled to the credit under 
section 25E or section 30D. The final regulations under section 30D 
clarify that this requirement also applies to information returns 
because a partnership or S corporation may claim a section 30D credit 
as a general business credit under section 38.
    A commenter noted that some taxpayers may transfer a credit to a 
dealer and then fail to file a return or fail to attach Form 8936 to 
their return, and that dealers will have little incentive to inform 
taxpayers of their future filing obligations in order to qualify for 
the credit. The commenter recommended that the final regulations 
clarify that failing to file a return or failing to attach Form 8936 to 
a return will not alone subject the taxpayer to the credit recapture 
rules.
    Proposed Sec. Sec.  1.25E-3(h) and 1.30D-5(g) provide a reporting 
requirement for taxpayers who transfer a section 25E credit or section 
30D credit to a dealer, but do not provide for recapture of the credit 
as a consequence of failing to fulfill these requirements. Although a 
taxpayer may not otherwise be required to file an income tax return for 
a particular taxable year, the taxpayer is required to file an income 
tax return and attach a Form 8936 and Schedule A (Form 8936) to ensure 
timely processing of their tax return and to demonstrate their 
eligibility for the credit. This reporting requirement assists the IRS 
in the collection of accurate information necessary to effectively 
administer the section 25E and section 30D credits. The statutory text 
provides the IRS with sufficient authority to impose this requirement 
to ensure program integrity, including the ability to recapture the 
credit where necessary. See sections 25E(f), 30D(g)(1) and 30D(g)(10); 
see also section 6011. Accordingly, a clarification has been made in 
the final regulations. The final regulations regarding credit transfer 
elections under section 30D also clarify that this includes information 
returns.
C. Transfer Rules
1. Disclosure and Assurance
    Section 30D(g) generally establishes a set of rules under which a 
taxpayer may transfer a section 30D credit to certain dealers, referred 
to as eligible entities, in which case the eligible entity (and not the 
taxpayer) is allowed the section 30D credit. In exchange, the eligible 
entity must pay the taxpayer an amount equal to the transferred section 
30D credit (with such payment being made either in cash or in the form 
of a partial payment or down payment for the purchase of the vehicle). 
Section 25E(f) provides that, for purposes of section 25E, rules 
similar to the rules of section 30D(g) apply.
    Proposed Sec. Sec.  1.25E-3 and 1.30D-5 provided transfer rules 
under section 30D(g) (and section 25E(f) by cross reference to section 
30D(g)), including the establishment of an advance payment program for 
such transfers. The proposed regulations did not specifically address 
the requirements under section 30D(g)(2)(B)(ii) and (D) relating to the 
disclosure by the dealer of other incentives.
    A commenter requested that the final regulations define the term 
``incentive'' for purposes of the disclosure requirement and suggested 
a definition similar to the one in proposed Sec.  1.25E-1(b)(2). The 
commenter also requested that the final regulations provide an 
attestation for dealers and taxpayers to use in conjunction with 
creditable sales to satisfy the assurance requirement.
    The Treasury Department and the IRS agree that the final 
regulations should include a definition of ``incentive'' for purposes 
of section 30D(g)(2)(B)(ii) and (D). Because the section 30(g) credit 
transfer rules also apply to section 25E by reason of the cross 
reference in section 25E(f), the definition of ``incentive'' for the 
section 25E and 30D eligible entity requirements should align. 
Accordingly, the final regulations add a definition of ``incentive'' to 
Sec. Sec.  1.25E-1(b) and 1.30D-5(b) that applies for purposes of the 
eligible entity requirements. Under that definition, ``incentive'' 
means any reduction in price available to the taxpayer from the dealer 
or manufacturer, including as in combination with other incentives, 
other than a reduction in the form of a partial payment or down payment 
for the purchase of a clean vehicle pursuant to section 30D(g)(2)(C).

[[Page 37717]]

2. Definitions
    Proposed Sec. Sec.  1.25E-3(b) and 1.30D-5(a) provided definitions 
that apply for purposes of the transfer of a clean vehicle credit.
i. Advance Payment Program
    Proposed Sec. Sec.  1.25E-3(b)(1) and 1.30D-5(a)(1) defined 
``advance payment program'' as the program described in section 
30D(g)(7) (and section 25E(f) by cross reference to section 30D(g)) and 
the proposed regulations under which an eligible entity may receive an 
advance payment from the IRS in the case of a credit transfer election 
made by an electing taxpayer. The advance payment program is the 
exclusive means by which an eligible entity may receive a transferred 
clean vehicle credit.
    Several commenters requested that the section 25E and 30D credits 
be refundable regardless of tax liability. Other commenters requested 
that the credits be available for a taxpayer to use as a down payment 
at the time of the sale. In contrast, another commenter, requested that 
taxpayers without sufficient tax liability be required to repay the 
excess credit amount because, the commenter argued, Congress intended 
for the credit to be a non-refundable credit. One commenter requested 
clarification on how the credit will work in 2024 and beyond compared 
to previous years. Another commenter suggested that the proposed 
regulations allow 30D credits to be carried forward.
    The section 25E and 30D credits are nonrefundable credits under the 
Code that cannot be carried forward; however, pursuant to sections 
25E(f) and 30D(g), such credits may be transferred to an eligible 
entity beginning in 2024, regardless of the tax liability of the 
taxpayer or the eligible entity for the applicable tax year. Sections 
25E(f) and 30D(g) do not provide for repayment in the event of 
insufficient tax liability. In exchange for the transferred credit, the 
eligible entity must pay the taxpayer an amount equal to the 
transferred clean vehicle credit, with such payment being made either 
in cash or in the form of a partial payment or down payment for the 
purchase of the vehicle. The proposed regulations described the 
transfer of the clean vehicle credits, including examples of cases in 
which a taxpayer may not have sufficient tax liability to claim the 
full amount of the credit (for example, Example 1 of proposed Sec.  
1.30D-5(d)(5)(i)). Accordingly, the final regulations do not adopt the 
comment to require repayment of an excess credit amount. Proposed 
Sec. Sec.  1.25E-3 and 1.30D-5 already provided the other rules 
requested by commenters, and no additional clarification is needed. 
Accordingly, no changes are needed in the final regulations to address 
these comments.
ii. Electing Taxpayer
    Under proposed Sec. Sec.  1.25E-3(b)(3) and 1.30D-5(a)(4), 
``electing taxpayer'' means the individual that purchases and places in 
service a clean vehicle and that elects to transfer a clean vehicle 
credit associated with that vehicle that would otherwise be allowable 
to that individual.
    A commenter requested that businesses that purchase new clean 
vehicles be allowed to use the credit transfer option under section 
30D(g). Because the election to transfer a credit under section 30D(g) 
is limited to the credit allowable under section 30D, the Treasury 
Department and the IRS have determined that a taxpayer may not elect to 
transfer a general business credit for a new clean vehicle allowable 
under section 38 pursuant to section 30D(c)(1). Proposed Sec.  1.30D-
1(b)(1) provided that in the event a depreciable vehicle's use is 50 
percent or more business use in the taxable year the vehicle is placed 
in service, it will be creditable entirely under section 38 as a 
general business credit rather than under section 30D. Thus, the use of 
a new clean vehicle must be predominantly personal for a taxpayer to be 
able to make the election to transfer the credit under section 30D(g). 
Accordingly, the final regulations do not adopt this comment.
iii. Eligible Entity
    Under proposed Sec. Sec.  1.25E-3(b)(4) and 1.30D-5(a)(5), 
``eligible entity'' means a registered dealer that meets certain 
requirements and, by reason of meeting those requirements, is eligible 
to receive advance payments from the IRS under the advance payment 
program.
    A commenter suggested clarifying that an eligible entity is a 
registered dealer that is eligible to receive payments under the 
advance payment program by virtue of meeting the statutory and 
regulatory requirements. Proposed Sec. Sec.  1.25E-3(b)(4) and 1.30D-
5(a)(5) already provided the rule requested in this comment, and no 
additional clarification is needed. Accordingly, the final regulations 
do not adopt this comment.
iv. Time of Sale
    Under proposed Sec. Sec.  1.25E-3(b)(6) and 1.30D-5(a)(7), ``time 
of sale'' means the date the clean vehicle is placed in service. Under 
the proposed regulations, the date the clean vehicle is placed in 
service is the date the taxpayer takes possession of the vehicle.
    A commenter suggested that ``time of sale'' be defined as the date 
of sale on the seller report, and noted that physical possession may 
occur before, after, or at the time of sale (or at no time) and is not 
relevant to when a sale has occurred. The date a taxpayer takes 
possession of the vehicle is a date certain that completes the 
transaction of purchasing a vehicle, whereas a date on the seller 
report does not guarantee the taxpayer will take possession of the 
vehicle and place it in service. As discussed in section II.A.2 of this 
Summary of Comments and Explanation of Revisions, defining ``placed in 
service'' as the date a taxpayer takes possession of the vehicle is 
consistent with other provisions of the Code and prior interpretations 
of section 30D(a). Accordingly, the final regulations do not adopt this 
comment.
3. Dealer Registration
    Proposed Sec. Sec.  1.25E-3(c)(2) and 1.30D-5(b)(2) provided rules 
regarding dealer tax compliance. Specifically, the proposed regulations 
provided that if the dealer is not in dealer tax compliance for any of 
the taxable periods during the most recent five taxable years, the 
dealer may register nonetheless to become a registered dealer. However, 
the proposed regulations provided that in such cases the dealer cannot 
receive advance payments under the advance payment program until the 
dealer's tax compliance issue is resolved. This is because the dealer, 
while registered, is not an eligible entity until it comes into dealer 
tax compliance.
    One commenter suggested creating an exemption from the dealer tax 
compliance requirement to address the unique nature of its sales model 
in which all advance payments of transferred credits ultimately reside 
with the corporate parent and not with one of the subsidiaries in the 
organization structure that may be deemed out of tax compliance.
    A commenter asserted that dealers play a purely ministerial role in 
the credit transfer process, and their tax compliance status does not 
impact the dealer's ability to facilitate a credit transfer. The 
commenter requested that to the extent the final regulations do not 
remove the dealer tax compliance provision, the compliance lookback 
period should be for a maximum of three years rather than the five 
provided in the proposed regulations. In addition, the commenter 
requested that the final regulations clarify that the dealer tax 
compliance requirement applies for

[[Page 37718]]

advance payment purposes only and has no impact on a registered 
dealer's sales or seller reporting.
    Pursuant to section 30D(g)(1) and (g)(7), participation in the 
advance payment program is elective and is subject to the requirements 
and conditions that the Secretary determines necessary. An advance 
payment system for dealers presents unique tax administration 
challenges because it involves the IRS making payments to dealers 
regardless of their tax liability and doing so outside of the normal 
tax filing system, with its built-in compliance and enforcement 
mechanisms. The dealer tax compliance requirement ensures that the 
entities receiving advance payments have satisfied their own Federal 
tax obligations, which aids in fraud prevention and tax administration. 
For these reasons, the final regulations retain the dealer tax 
compliance requirement. Further, the final regulations retain the five-
year lookback period because the longer period better facilitates the 
IRS's ability to determine whether there are enforcement concerns with 
regard to a particular dealer. The final regulations also add an 
express statement that dealer tax compliance is required before 
describing the consequences of noncompliance. No clarification is 
needed regarding the scope of the dealer tax compliance requirement 
because it is clear from the placement of the requirement in the 
provisions relating to the transfer of the section 25E and 30D credits 
that such requirement applies only for purposes of the advance payment 
program and not for other dealer activities, such as the issuance of 
seller reports.
4. Form of Payment From Eligible Entity to Electing Taxpayer
    Proposed Sec. Sec.  1.25E-3(e)(3) and 1.30D-5(d)(3) provided that 
the Federal income tax treatment of the payments associated with a 
credit transfer election are the same regardless of whether the payment 
is made in cash or in the form of a partial payment or down payment for 
the purchase of the clean vehicle.
    A commenter noted that in some states, dealers are prohibited under 
state law to promise to pay or otherwise tender cash if a vehicle is 
financed. The commenter recommended that the credit transfer election 
be available only for a reduction in sale price without the payment of 
cash in states where cash payments from dealers for financed vehicles 
are prohibited under state law. Proposed Sec. Sec.  1.25E-3(e)(3) and 
1.30D-5(d)(3) included examples that illustrate the application of the 
payment rules referenced by the commenter. The examples in proposed 
Sec. Sec.  1.25E-3(e)(5)(ii) and 1.30D-5(d)(5)(ii) address a scenario 
in which the eligible entity makes the payment to the electing taxpayer 
in the form of a reduction in sale price (rather than as cash) and 
concluded that the eligible entity is eligible to receive an advance 
payment. Although addressed in the examples, reductions in sale price 
are not explicitly addressed in proposed Sec. Sec.  1.25E-3(e)(3) and 
1.30D-5(d)(3), which articulate the rules illustrated in the examples. 
Accordingly, the final regulations adopt proposed Sec. Sec.  1.25E-
3(e)(3) and 1.30D-5(d)(3) with language clarifying that reductions in 
sale price are acceptable forms of payment by an eligible entity.
5. Vehicle Identification Number Requirement
    Proposed Sec. Sec.  1.25E-2(e)(4) and 1.30D-5(d)(4) impose certain 
additional requirements for credit transfer elections. Among those 
rules, the proposed regulations provided that the vehicle 
identification number requirements of section 30D(f)(9) and, by reason 
of section 25E(e), section 25E(d), would be treated as satisfied if the 
eligible entity provides the vehicle identification number of such 
vehicle to the IRS in the form and manner set forth in guidance 
published in the Internal Revenue Bulletin. The final regulations, 
consistent with the Secretary's general authority under section 
30D(g)(1), provide that the electing taxpayer must provide its vehicle 
identification number with its Federal income tax return for the 
taxable year in which the vehicle is placed in service. Reporting of 
the vehicle identification number by both the electing taxpayer and the 
eligible entity is necessary to reconcile the advance payments under 
the credit transfer program with the eligibility of the electing 
taxpayer, which helps safeguard program integrity.
6. Increases in Tax
i. Recapture From Taxpayer
    Section 30D(g)(10) provides that, in the case of any taxpayer who 
has made a credit transfer election and received a payment from an 
eligible entity, if the section 30D credit would otherwise (but for 
section 30D(g)) not be allowable to such taxpayer pursuant to the 
application of the Modified AGI limitation, the tax imposed on such 
taxpayer under chapter 1 of the Code for the taxable year in which such 
vehicle was placed in service will be increased by the amount of the 
payment received by such taxpayer. Because section 25E(f) cross 
references to section 30D(g), similar rules apply with respect to the 
section 25E credit.
    Proposed Sec. Sec.  1.25E-3(g)(1) and 1.30D-5(f)(1) provided that, 
in the case of a clean vehicle credit that would otherwise not be 
allowable to a taxpayer that made a credit transfer election because 
the taxpayer exceeds the limitation based on Modified AGI, the income 
tax imposed on the taxpayer under chapter 1 of the Code for the taxable 
year in which the vehicle was placed in service is increased by the 
amount of the payment received by the taxpayer pursuant to the credit 
transfer election. The taxpayer in such a case must report recapture of 
the additional amount on its income tax return for the taxable year 
during which the vehicle was placed in service.
    A commenter suggested that Sec. Sec.  1.25E-3(g)(1) and 1.30D-
5(f)(1) should be revised to apply recapture to taxpayers purchasing 
clean vehicles for resale or for primarily nonpersonal use. Regarding 
the purchase for resale aspect of this comment, proposed Sec. Sec.  
1.25E-2(c)(1)(iii)(E) and 1.30D-4(f)(1)(iii)(E) provided that the value 
of any transferred credit will be collected from the taxpayer in the 
event the taxpayer resells the vehicle within 30 days of placing the 
vehicle in service. Therefore, the proposed regulations already 
addressed the purchase for resale aspect of this comment and further 
clarification is not necessary. Regarding the aspect of the comment 
related to recapture in the event of primary nonpersonal use of the 
vehicle, Revenue Procedure 2023-33 provides that a taxpayer must attest 
to the IRS under penalty of perjury that the taxpayer is an individual 
for purposes of section 25E, or that the taxpayer will use the vehicle 
predominantly for personal use for purposes of section 30D. Because 
nonpersonal use of vehicles is adequately addressed in sub-regulatory 
guidance, additional clarification is not necessary. Accordingly, the 
final regulations do not adopt this comment.
    Another commenter requested that the final regulations clarify who 
is responsible for recapture and under what circumstances. The final 
regulations, as described in this section of the Summary of Comments 
and Explanation of Revisions, make clear who is subject to recapture. 
Accordingly, the final regulations do not adopt this comment.
    Based on the foregoing, the final regulations adopt proposed 
Sec. Sec.  1.25E-2(c)(1)(iii)(E) and 1.30D-4(f)(1)(iii)(E) without 
modification.

[[Page 37719]]

ii. Excessive Payment to an Eligible Entity
    Section 30D(g)(7)(B) and section 25E(f) (by cross reference to 
section 30D(g)) provide that rules similar to the rules of section 
6417(d)(6) apply for purposes of the advance payment program. Proposed 
Sec. Sec.  1.25E-3(g)(2) and 1.30D-5(f)(2) provided that, in the case 
of any advance payment that the IRS determines constitutes an excessive 
payment, the tax imposed on the eligible entity by chapter 1 of the 
Code, for the taxable year in which such determination is made will be 
increased by the sum of the amount of the excessive payment, plus an 
amount equal to 20 percent of such excessive payment. The proposed 
regulations further provided that the rule applies regardless of 
whether such entity would otherwise be subject to chapter 1 tax. The 
additional amount of 20 percent, however, will not apply if the 
eligible entity demonstrates to the IRS that the excessive payment was 
due to reasonable cause, which is presumed to be the case for a clean 
vehicle returned within 30 days of placing such vehicle in service. See 
proposed Sec. Sec.  1.25E-3(g)(2)(ii) and 1.30D-5(f)(2)(ii).
    The proposed regulations provided that an excessive payment means, 
with respect to an advance payment to an eligible entity pursuant to a 
credit transfer election made by an electing taxpayer, an advance 
payment made to a registered dealer that fails to meet the requirements 
to be an eligible entity. Additionally, the proposed regulations define 
``excessive payment'' as an advance payment to an eligible entity with 
respect to a clean vehicle to the extent the payment exceeds the amount 
of the clean vehicle credit that would be otherwise allowable to the 
electing taxpayer with respect to the vehicle. See proposed Sec. Sec.  
1.25E-3(g)(2)(iii) and 1.30D-5(f)(2)(iii). However, any excess payment 
attributable to a taxpayer exceeding the limitation based on Modified 
AGI is not treated as an excessive payment to an eligible entity.
    A commenter requested clarification that ``reasonable cause'' 
includes an eligible entity's reliance on a manufacturer's calculations 
for purposes of the Critical Minerals and Battery Components 
Requirements, as shown on https://fueleconomy.gov or elsewhere. 
Specifically, the commenter requested that the final regulations 
clearly provide that eligible entities will not be liable for mistaken 
determinations with respect to those requirements.
    Section 4.03 of Revenue Procedure 2022-42 provides that a taxpayer 
may rely on the information and certifications (which include 
certifications with respect to the Critical Minerals and Battery 
Components Requirements and the FEOC Restriction) contained in the 
qualified manufacturer's periodic written reports. Therefore, in the 
case of a mistaken calculation by the qualified manufacturer in a 
periodic written report, the taxpayer is not denied the section 30D 
credit. Accordingly, if that taxpayer transfers the credit under the 
advance payment program, the excess of the advance payment to the 
dealer over the credit otherwise allowable to the taxpayer would be 
zero, and there is no excessive payment under proposed Sec.  1.30D-
5(f)(2)(iii). Consequently, the eligible entity would have no liability 
and no need to demonstrate reasonable cause. For clarity, the final 
regulations incorporate the provisions of section 4.03 of Revenue 
Procedure 2022-42 regarding taxpayer reliance on manufacturer 
certifications regarding qualified manufacturer status, and 
certifications and information a qualified manufacturer provides to the 
IRS in periodic written reports. The final regulations also delineate 
what taxpayer reliance means in this context. In addition, the final 
regulations add an example to Sec. Sec.  1.25E-2(g) and 1.30D-5(g)(3) 
that illustrate that an excessive payment does not arise in the 
situation described by the commenter.
7. Two Credit Transfer Elections per Year
    Proposed Sec. Sec.  1.25E-3(i) and 1.30D-5(h) provided that a 
taxpayer may make no more than two credit transfer elections per 
taxable year. The proposed regulations further provided that in the 
case of a joint income tax return, each spouse may make two transfer 
elections per taxable year, for a maximum of four credit transfer 
elections in a taxable year. These proposed rules were intended to 
ensure program integrity by limiting credit transfer elections to 
vehicle sales that appear to be for legitimate nonbusiness individual 
use.
    A commenter recommended that the requirements of proposed 
Sec. Sec.  1.25E-3(i) and 1.30D-5(h) be deleted because there is no 
basis in section 25E or section 30D for these restrictions. The 
commenter noted that an eligible entity working with a taxpayer on a 
credit transfer would have no ability to determine whether the taxpayer 
would have already made two transfer elections. Section 30D(g)(1) 
provides that the credit transfer election is ``[s]ubject to such 
regulations or other guidance as the Secretary determines necessary.'' 
Section 25E(f) adopts section 30D(g) by reference. Therefore, the 
Treasury Department and the IRS have the authority to regulate the 
credit transfer election to ensure program integrity and sound tax 
administration. Moreover, pursuant to Revenue Procedure 2023-33, the 
taxpayer will attest to the IRS directly that they have not made more 
than two transfer elections per year, and the dealer may rely on the 
taxpayer's attestation. Accordingly, the final regulations do not adopt 
this comment.

III. New Clean Vehicle Credit--Section 30D

A. Definitions
    Section 1.30D-2 of the April Proposed Regulations provided general 
definitions related to the section 30D credit. Section 1.30D-3(c) of 
the April Proposed Regulations provided definitions applicable for 
purposes of the Critical Minerals and Battery Components Requirements. 
Section 1.30D-6(a) of the December Proposed Regulations provided 
definitions applicable for purposes of the FEOC Restriction. In the 
Explanation of Provisions to the December Proposed Regulations, the 
Treasury Department and the IRS noted that terms relevant to both the 
Critical Minerals and Battery Components Requirements described in 
proposed Sec.  1.30D-3 and the FEOC Restriction of proposed Sec.  
1.30D-6 should be interpreted consistently between those provisions.
    Consistent with this statement, the final regulations retain 
proposed Sec.  1.30D-2, with certain modifications described in this 
section of the Summary of Comments and Explanation of Revisions, and 
generally move the definitions from proposed Sec.  1.30D-3 and proposed 
Sec.  1.30D-6 to Sec.  1.30D-2(b). However, the final regulations, 
under Sec.  1.30D-3, retain certain definitions that are directly 
relevant to the calculations under the Critical Minerals and Battery 
Components Requirements; those definitions are cross-referenced in 
Sec.  1.30D-2(b). Section 1.30D-2(b) also cross-references definitions 
in proposed Sec.  1.30D-5, which provides rules for the credit transfer 
election (described in section II.C of this Summary of Comments and 
Explanation of Revisions).
    The discussion in this section of the Summary of Comments and 
Explanation of Revisions only addresses new definitions, definitions 
that have been modified, or definitions for which comments were 
received.
1. Applicable Critical Mineral
    Proposed Sec. Sec.  1.30D-3(c)(1) and 1.30D-6(a)(1), consistent 
with section

[[Page 37720]]

30D(e)(1), defined an ``applicable critical mineral'' as an applicable 
critical mineral defined in section 45X(c)(6).
    In addition, proposed Sec.  1.30D-6(c)(4)(ii)(A) provided that the 
determination of whether an applicable critical mineral is FEOC-
compliant takes into account each step of extraction, processing, or 
recycling through the step in which such mineral is processed or 
recycled into a constituent material, even if the mineral is not in a 
form listed in section 45X(c)(6) at every step. Proposed Sec.  1.30D-
6(c)(4)(ii)(A) provided an exception to this general rule in the case 
of recycling (as discussed in this Summary of Comments and Explanation 
of Revisions at section III.A.25). Proposed Sec.  1.30D-6(c)(4)(ii)(C) 
further provided that, for purposes of determining whether an 
applicable critical mineral is FEOC-compliant, an applicable critical 
mineral is disregarded if it is fully consumed in the production of the 
constituent material or battery component and no longer remains in any 
form in the battery.
    Several commenters asked for clarification with respect to 
graphite. Specifically, the commenters requested clarification as to 
whether graphite that is of a purity of less than 99.9 percent 
graphitic carbon, but that is purified to a minimum purity of 99.9 
percent carbon, is an applicable critical mineral under section 
45X(c)(6) and thus section 30D. These comments were considered in the 
context of the section 45X proposed regulations. As explained in the 
Explanation of Provisions to the section 45X proposed regulations: 
``Some stakeholders have questioned whether this definition could be 
interpreted to refer to a particular crystalline structure of carbon, 
that is, 99.9 percent carbon in a graphitic form. [. . .] Consistent 
with the general intent of section 45X, proposed Sec.  1.45X-4(b)(14) 
would clarify that the term `99.9 percent graphitic carbon by mass' 
means graphite that is 99.9 percent carbon by mass.'' The Treasury 
Department and the IRS will continue to consider this issue as part of 
finalizing of the section 45X regulations. The form of graphite that is 
an applicable critical mineral for the purposes of section 30D will be 
the form that is determined to be an applicable critical mineral in the 
45X final regulations.
    Several commenters requested clarity as to whether synthetic 
graphite is an applicable critical mineral. Those commenters requested 
that the final regulations explicitly state that both graphite 
variations, synthetic and natural, qualify as an applicable critical 
mineral. A separate commenter suggested that, because natural and 
synthetic graphite have entirely different processing procedures, 
synthetic graphite should not be categorized as an applicable critical 
mineral. These comments were also considered in the context of the 
section 45X proposed regulations. Proposed Sec.  1.45X-4(b)(14) would 
provide that ``[t]he term graphite means natural or synthetic graphite 
that is purified to a minimum purity of 99.9 percent graphitic carbon 
by mass.'' The Treasury Department and the IRS will continue to 
consider this issue as part of finalizing of the section 45X 
regulations. The form of graphite that is an applicable critical 
mineral for the purposes of section 30D will be the form that is 
determined to be an applicable critical mineral in the section 45X 
final regulations.
    Several commenters requested clarification on whether other 
critical minerals are subject to the Critical Minerals Requirement and 
the FEOC Restriction. One commenter requested that the final 
regulations provide clarification with respect to hydrofluoric acid 
(HF). HF may be produced from fluorspar that is purified to a minimum 
purity of 97 percent calcium fluoride by mass. In these cases, the 
fluorspar is an applicable critical mineral (under section 
45X(c)(6)(K)) and the HF would be an associated constituent material, 
both of which would be subject to the Critical Minerals Requirement and 
the FEOC Restriction. The commenter noted that in other cases, HF may 
be made with lower purity fluorspar or through phosphate mining 
(without fluorspar). The commenter requested clarification that such HF 
is still subject to the Critical Minerals Requirement and the FEOC 
Restriction. Similarly, another commenter requested clarity as to 
whether nickel, manganese, cobalt, and lithium that do not meet the 
purity requirements of section 45X(c)(6) are subject to the Critical 
Minerals Requirement and the FEOC Restriction. This commenter 
recommended that such lower-purity minerals not be subject to these 
rules.
    One commenter recommended expanding the definition of ``applicable 
critical mineral'' to include other chemical forms of the critical 
minerals identified in section 45X(c)(6), such as nitrates, hydroxides, 
oxides, oxide hydroxides, carbonates, and chlorides. Another commenter 
stated that the critical minerals list excludes important minerals, 
such as iron and phosphorous, that are prevalent in FEOC-made 
batteries, and that this exclusion may introduce a loophole whereby 
FEOC-made batteries using non-listed critical minerals may be eligible 
for the critical mineral portion of the 30D credit. That commenter 
requested that the Treasury Department and the IRS issue additional 
rules to address non-U.S. critical minerals. Finally, one commenter 
noted that many minerals that enter battery supply chains prior to 
attaining the purity level listed in section 45X or becoming an 
associated constituent material come from FEOCs. That commenter 
expressed support for extending FEOC-compliance for critical minerals 
throughout production, even if the mineral is not in a final form 
listed in section 45X(c)(6) during each step.
    In response to these comments, the Treasury Department and the IRS 
note that under the plain language of sections 30D(e)(1) and 45X(c)(6), 
minerals other than those specified in section 45X(c)(6) are not 
applicable critical minerals, and are therefore not subject to the 
Critical Minerals Requirement and the FEOC Restriction. In addition, 
the rules of proposed Sec. Sec.  1.30D-6(c)(4)(ii)(A) and 1.30D-
6(c)(4)(ii)(C) provided additional clarity regarding classification as 
an applicable critical mineral in cases in which the form of the 
mineral changes during the steps of extraction, processing, or 
recycling. The final regulations extend this clarification to the 
Critical Minerals Requirement by incorporating it into the definition 
of ``applicable critical mineral.''
    The final regulations adopt the definition in proposed Sec. Sec.  
1.30D-3(a)(1), 1.30D-6(c)(1), 1.30D-6(c)(4)(ii)(A), and 1.30D-
3(c)(4)(ii)(C), with the modification described above, consolidate it, 
and move it to Sec.  1.30D-2(b) with the modification described 
previously. Specifically, the final regulations, like the proposed 
regulations, provide that ``applicable critical mineral'' means an 
applicable critical mineral defined in section 45X(c)(6). The final 
regulations clarify that the requirements under Sec. Sec.  1.30D-3 and 
1.30D-6 with respect to an applicable critical mineral take into 
account each step of extraction, processing, or recycling through the 
step in which such mineral is processed or recycled into an associated 
constituent material, even if the mineral is not in a form listed in 
section 45X(c)(6) at every step of production. The final regulations 
further clarify that an applicable critical mineral is disregarded for 
purposes of the Critical Minerals Requirement and the FEOC Restriction 
if it is fully consumed in the production of the constituent material 
or battery component and no longer remains in any form in the battery.

[[Page 37721]]

    In addition, the final regulations incorporate the special rule for 
recycling in proposed Sec.  1.30D-6(c)(4)(ii)(A) into the definition of 
``recycling'' in Sec.  1.30D-2(b). The final regulations also provide 
an example that illustrates when the determinations under the Critical 
Minerals Requirement and the FEOC Restriction take place with respect 
to an applicable critical mineral.
2. Assembly
    Proposed Sec. Sec.  1.30D-3(c)(2) and 1.30D-6(a)(2) defined 
``assembly,'' with respect to battery components, as the process of 
combining battery components into battery cells and battery modules. 
The final regulations adopt the definition of ``assembly'' in proposed 
Sec. Sec.  1.30D-3(c)(2) and 1.30D-6(a)(2), consolidate it into a 
single provision, and move it to Sec.  1.30D-2(b).
    One commenter stated that the definition of ``assembly'' could 
allow for abuse under the Battery Components Requirement by allowing a 
North American manufacturer, for example, to simply affix two Chinese 
batteries together, which would be considered assembly of a North 
American battery component. However, in this situation, the incremental 
value, for purposes of determining the total incremental value of North 
American battery components (that is, the numerator in the qualifying 
battery component content that is compared to the applicable 
percentages of section 30D(e)(2)(B)), would only be the value of the 
affixed batteries, less the value of the batteries prior to assembly. 
Because that incremental value would be minimal, the potential for 
abuse as described by the commenter would also be minimal. Accordingly, 
the final regulations do not adopt this comment.
3. Associated Constituent Materials
    Proposed Sec.  1.30D-6(c)(4)(ii)(B) provided that in determining 
whether an applicable critical mineral is FEOC-compliant, a constituent 
material is associated with an applicable critical mineral if the 
applicable critical mineral has been processed or recycled into a 
constituent material, even if that processing or recycling transformed 
the mineral into a form not listed in section 45X(c)(6).
    The Critical Minerals Requirement under proposed Sec.  1.30D-3 
incorporated the same concept by providing that the portion of an 
applicable critical mineral that is a qualifying critical mineral must 
be determined separately for each procurement chain. Proposed Sec.  
1.30D-3(c)(14) defined ``procurement chain'' as a common sequence of 
extraction, processing, or recycling activities that occur in a common 
set of locations with respect to an applicable critical mineral, 
concluding in the production of constituent materials.
    These determinations necessarily encompass steps in the procurement 
chain in which the applicable critical mineral is transformed into a 
form not listed in section 45X(c)(6). Accordingly, the final 
regulations add a definition of ``associated constituent material'' to 
Sec.  1.30D-2(b), which provides that, with respect to an applicable 
critical mineral, an ``associated constituent material'' is a 
constituent material that has been processed or recycled from such 
mineral into the constituent material with which it is associated, even 
if that processing or recycling transformed such mineral into a form 
not listed in section 45X(c)(6).
4. Battery
    Proposed Sec. Sec.  1.30D-3(c)(3) and 1.30D-6(a)(3) defined 
``battery,'' for purposes of a new clean vehicle, as a collection of 
one or more battery modules, each of which has two or more electrically 
configured battery cells in series or parallel, to create voltage or 
current. Under proposed Sec. Sec.  1.30D-3(c)(3) and 1.30D-6(a)(3), the 
term ``battery'' did not include items such as thermal management 
systems or other parts of a battery cell or module that do not directly 
contribute to the electrochemical storage of energy within the battery, 
such as battery cell cases, cans, or pouches. The final regulations 
adopt the definition of ``battery'' in Sec. Sec.  1.30D-3(c)(3) and 
1.30D-6(a)(3), consolidate it into a single provision, and move the 
definition to Sec.  1.30D-2(b).
    The Treasury Department and the IRS received comments both in 
support of and in opposition to the proposed definition of ``battery.'' 
Several commenters requested a broader definition of ``battery,'' while 
other commenters criticized the definition of battery as too broad. 
Similarly, several commenters disagreed with the definition of 
``battery'' and recommended that it be defined as a complete battery 
pack. The Explanation of Provisions to the April Proposed Regulations 
noted that the proposed definition of ``battery'' is consistent with 
the language and purpose of section 30D because battery modules and 
cells are the sources ``from which the electric motor of such vehicle 
draws electricity.'' See sections 30D(e)(1)(A) and (2)(A). Consistent 
with this, items that do not directly contribute to the electrochemical 
storage of energy within the battery are not the subject of the IRA's 
incentives to shift to more secure and resilient electric vehicle 
battery supply chains. Such items are generally low-value commodities 
that are specific to the end-use of the energy storage technology, 
rather than the process of storing energy. The proposed definition of 
``battery'' is in keeping with the statutory purpose of incentivizing 
the resiliency and security of the highest-value and most specialized 
portions of the battery supply chain. In addition, the functional 
definition of ``battery'' in the proposed regulations allows for 
technological changes, as the definition will not be obsolete if 
battery pack structures change in the future, but is also consistent 
with current industry practice, as electrochemical batteries are 
currently standard. Accordingly, the final regulations do not adopt 
these comments.
    In addition, one commenter requested that the definition of 
``battery'' exclude thermal management systems and other components 
that do not directly contribute to energy storage. Because the 
definition of ``battery'' already excludes such systems and such other 
components, no modification to the definition of ``battery'' is 
required.
    Finally, one commenter noted the necessity of future conversations 
about the definitions of ``battery'' and ``battery component'' to 
reflect technological advances. The Treasury Department and the IRS 
will continue to monitor technology in this area in coordination with 
the DOE. The Treasury Department and the IRS welcome additional 
comments in the future that discuss technological changes with respect 
to electric vehicle batteries.
5. Battery Cell
    Proposed Sec. Sec.  1.30D-3(c)(4) and 1.30D-6(a)(4) defined 
``battery cell'' as a combination of battery components (other than 
battery cells) capable of electrochemically storing energy from which 
the electric motor of a new clean vehicle draws electricity. This 
proposed definition of battery cell encompassed the smallest 
combination of battery components necessary for the function of energy 
storage. The final regulations adopt the definition of ``battery cell'' 
in proposed Sec. Sec.  1.30D-3(c)(4) and 1.30D-6(a)(4), consolidate it 
into a single provision, and move it to Sec.  1.30D-2(b).
    A commenter requested that the guidance align the definitions of 
``battery cell'' and ``battery component'' with those in section 
45X(c)(5). However, section 30D does not adopt those definitions by 
reference. As noted in section III.A.4 of this Summary of Comments and 
Explanation of Revisions, items that do not directly contribute to the 
electrochemical storage of energy within the battery, which are

[[Page 37722]]

generally low-value commodities, are not the subject of the IRA's 
incentives to shift to more secure and resilient electric vehicle 
battery supply chains. For this reason, the Treasury Department and the 
IRS have determined that the section 30D definitions should be limited 
to electrochemical energy storage batteries that that are used in 
electric vehicles, and do not need to encompass concepts that are 
pertinent to other forms of energy storage that are included in the 
definitions in section 45X(c)(5) (for example, thermal batteries). 
Accordingly, the final regulations do not adopt this comment.
6. Battery Component
    Proposed Sec. Sec.  1.30D-3(c)(5) and 1.30D-6(a)(6) defined 
``battery component'' as a component that forms part of a battery and 
that is manufactured or assembled from one or more components or 
constituent materials that are combined through industrial, chemical, 
and physical assembly steps. Battery components include, but are not 
limited to, a cathode electrode, anode electrode, solid metal 
electrode, separator, liquid electrolyte, solid state electrolyte, 
battery cell, and battery module. Constituent materials are not 
considered a type of battery component, although constituent materials 
could be manufactured or assembled into battery components. Some 
battery components could be made entirely of inputs that do not contain 
constituent materials. Battery components include any piece of the 
assembled battery cell that contributes to electrochemical energy 
storage.
    The Treasury Department and the IRS received a number of comments 
regarding the definition of ``battery component.'' Several commenters 
were supportive of the definition. The proposed definition of ``battery 
component'' included a non-exhaustive list of specific components, and 
many commenters proposed additions to the list. One commenter suggested 
that the list specifically include cathode and anode foil. Other 
commenters requested clarity with respect to lead tabs (for battery 
cells), metal components (for battery modules), and cap assemblies (for 
the manufacture of canister battery cells). Other items suggested for 
inclusion were separator coatings, binders, electrolyte solvents and 
electrolyte salts, current collectors, cell contacting layers, voltage 
sense harnessing, and battery management systems. Another commenter 
noted that the inclusion of ``but not be limited to'' language creates 
uncertainty for automakers and instead asked for a full list of 
components. In response, the final regulations add a new definition of 
``battery materials'' (described in section III.A.7 of this Summary of 
Comments and Explanation of Revisions) to Sec.  1.30D-2(b). In 
addition, the final regulations clarify that battery materials without 
applicable critical minerals are not battery components, as they are 
not manufactured or assembled. The final regulations do not provide a 
complete list of battery components because electric vehicle battery 
components may vary depending on the battery chemistry, especially as 
battery technology continues to evolve. The illustrative list of 
battery components in the final regulation allows for future 
innovation.
    Several commenters raised concerns regarding the limitation of 
battery components to items that contribute to electrochemical energy 
storage. A commenter supported the limitation as important to both the 
workability of and intent behind the Battery Components Requirement. On 
the other hand, another commenter requested that the final regulations 
expand the definition of ``battery component'' to include additional 
enabling technologies, such as thermal management, cooling, and housing 
and enclosure components. The commenter, mentioned previously, that 
requested clarity with respect to lead tabs and metal components stated 
that ambiguity with respect to the phrase ``electrochemical storage 
components'' made it difficult to determine whether these items were 
battery components. Similarly, commenters suggested that, under the 
language of section 30D, battery components should include thermal 
barriers. As noted previously, the proposed definition of ``battery,'' 
which informs the definition of ``battery component,'' is consistent 
with the statute because battery modules and cells are the sources 
``from which the electric motor of such vehicle draws electricity.'' 
Section 30D(e)(1)(A) and (2)(A). In addition, this definition is 
consistent with the purpose of section 30D to provide incentives to 
move toward more secure and resilient electric vehicle battery inputs. 
Inputs that do not directly contribute to the electrochemical processes 
necessary for energy storage (for example, thermal management systems, 
battery management systems, housing/enclosure components) are generally 
lower-value and specific to the end use of the battery, rather than the 
process of storing energy. The same reasoning applies to battery 
components. As noted by the Joint Committee on Taxation, the battery 
components requirement in section 30D(e)(2)(A) is ``intended to 
incentivize the manufacturing or assembly of high-value battery 
components, such as battery cells, in North America.'' \4\ Accordingly, 
because the proposed definition is consistent with the statutory text 
and purpose, the final regulations do not adopt these comments.
---------------------------------------------------------------------------

    \4\ Joint Committee on Taxation, Joint Committee on Taxation, 
General Explanation of Tax Legislation Enacted in the 117 Congress 
(JCS 1-23), December 2023, at 252, n.1070.
---------------------------------------------------------------------------

    Finally, multiple commenters raised questions and provided 
recommendations relating to separators, many of which relate to the 
determination under the Battery Components Requirement (discussed in 
section III.B.2 of this Summary of Comments and Explanation of 
Revisions). One commenter requested clarification as to the incremental 
value of a coated separator, and recommended that the incremental value 
be determined by subtracting the value of an uncoated separator (a 
lithium-ion battery separator) from the value of the coated separator 
(a ceramic coated separator). Another commenter, noting that 
``substantially all'' in the definition of ``North American Battery 
Component'' was vague, requested that the final regulations state that 
a separator coated in North America is a North American Battery 
Component (regardless of where the pre-coated separator was 
manufactured). This commenter stated that up to 60 percent of the value 
added by the separator comes from the coating process. In contrast, 
another commenter requested that the final regulations clarify that 
coating a separator is not manufacturing or assembly, to ensure that a 
separator coated in North America is not considered a North American 
Battery Component if the pre-coated separator was manufactured outside 
of North America. A different commenter advocated against the inclusion 
of base film and coating materials used to make such separator in the 
definition of ``battery component'' for purposes of the Battery 
Components Requirement and the FEOC Restriction. In addition, one 
commenter requested that the bare film and binders incorporated into a 
ceramic-coated separator be classified as battery sub-components and 
noted that these items should qualify under either the Critical 
Minerals Requirement or the Battery Components Requirement if 
manufactured in North America or a country with which the United States 
has a free trade agreement in effect. This commenter also made 
suggestions with respect to various other government

[[Page 37723]]

rules that may apply to coated separators, which are outside the scope 
of these final regulations.
    In response to these comments, the Treasury Department and the IRS 
note that a coated separator is a battery component. In general, the 
base film and coating are battery materials, not battery components, 
because they are processed rather than manufactured or assembled. If 
those battery materials contain applicable critical minerals, those 
battery materials are constituent materials. The final regulations 
clarify this in the definition of ``battery component'' and the new 
definition of ``battery materials.''
    Finally, several commenters discussed the relationship between the 
Battery Components Requirement and the FEOC Restriction. One commenter 
encouraged the Treasury Department and the IRS to use the same 
definition of ``battery component'' for purposes of the Battery 
Components Requirement and the FEOC Restriction. In contrast, another 
commenter suggested that the final regulations adopt a broader 
definition of ``battery component'' for purposes of the FEOC 
Restriction that includes components otherwise included in the 
definition of ``constituent material'' for purposes of the Critical 
Minerals Requirements. As noted in the Explanation of Provisions to the 
December Proposed Regulations, the Treasury Department and the IRS 
intend that terms relevant to both the Critical Minerals and Battery 
Components Requirement and the FEOC Restriction be interpreted 
consistently. Consistent with that, the final regulations include one 
general definition of ``battery component'' for purposes of section 
30D, and do not adopt the comment suggesting a broader definition for 
purposes of the FEOC Restriction.
    The final regulations, in Sec.  1.30D-2(b), adopt a definition of 
``battery component'' that clarifies the treatment of separators and 
incorporates the new definition of ``battery materials.'' The 
definition is modified to improve clarity regarding the relationship 
between battery components, constituent materials, and battery 
materials.
7. Battery Materials
    To further clarify the line between battery components and 
constituent materials, the final regulations add a definition of 
``battery materials'' to Sec.  1.30D-2(b). The final regulations define 
``battery materials'' as direct and indirect inputs to battery 
components that are produced through processing, rather than 
manufacturing or assembly. Battery materials are not considered a type 
of battery component, although battery materials may be manufactured or 
assembled into battery components. The three categories of battery 
materials are applicable critical minerals, constituent materials, and 
battery materials without applicable critical minerals. Examples of 
battery materials that may or may not contain applicable critical 
minerals include a separator base film (if not manufactured or 
assembled) and separator coating. Examples of battery materials without 
applicable critical minerals include conductive additives, copper foils 
prior to graphite deposition, and electrolyte solvents.
8. Clean Vehicle Battery
    The final regulations add a definition of ``clean vehicle battery'' 
to Sec.  1.30D-2(b). Consistent with section 30D(d)(1)(F) and 30D(e), 
the final regulations define ``clean vehicle battery,'' with respect to 
a new clean vehicle, means the battery from which the electric motor of 
the vehicle draws electricity to propel such vehicle.
9. Compliant-Battery Ledger
    Proposed Sec.  1.30D-6(a)(7) defined ``compliant-battery ledger,'' 
for a qualified manufacturer for a calendar year, as a ledger that 
tracks the number of available FEOC-compliant batteries for such 
calendar year. Proposed Sec.  1.30D-6(d) set forth rules applicable to 
compliant-battery ledgers. The Treasury Department and the IRS received 
several comments about the rules for establishing, updating, and 
reconciling the compliant-battery ledger. These comments are included 
as part of the discussion of proposed Sec.  1.30D-6(d) in section 
III.D.3 of this Summary of Comments and Explanation of Revisions.
    The final regulations adopt the proposed definition and move it to 
Sec.  1.30D-2(b).
10. Constituent Materials
    Proposed Sec. Sec.  1.30D-3(c)(6) and 1.30D-6(a)(8) defined 
``constituent materials'' as materials that contain applicable critical 
minerals and are employed directly in the manufacturing of battery 
components. Constituent materials could include, but are not limited 
to, powders of cathode active materials, powders of anode active 
materials, foils, metals for solid electrodes, binders, electrolyte 
salts, and electrolyte additives, as required for a battery cell. As 
explained in the Explanation of Provisions to the April Proposed 
Regulations, the definition of ``constituent materials'' describes the 
materials that distinguish the steps of extraction, processing, and 
recycling of critical minerals from the subsequent steps of 
manufacturing and assembly of battery components. Constituent materials 
are the final products relevant for calculating the value of the 
applicable critical minerals in the battery.
    The Treasury Department and the IRS received multiple comments with 
respect to the definition of ``constituent materials.'' Several 
commenters expressed support for the proposed definition. However, 
other commenters criticized the definition as not supported by the 
statute; as at odds with section 45X, which includes ``electrode active 
materials'' as qualifying battery components; and as an inappropriate 
reclassification of items that should be battery components, and thus 
subject to the Battery Components Requirement. One commenter suggested 
that constituent materials be included within the definition of 
``battery component'' or otherwise phased in to allow for additional 
time to relocate production facilities to North America. Another 
commenter indicated that the definition of ``constituent materials'' 
could be exploited to exclude critical minerals.
    In response to these comments, the Treasury Department and the IRS 
note that although section 30D does not define ``battery component,'' 
it consistently refers to components as ``manufactured or assembled,'' 
and it consistently refers to ``applicable critical minerals'' as 
``extracted, processed, or recycled.'' To avoid a gap in the supply 
chain between applicable critical minerals and battery components, the 
proposed regulations introduced the concept of constituent materials to 
make clear that materials downstream of applicable critical minerals, 
but still processed rather than manufactured or assembled, belong in 
the analysis of a battery's applicable critical minerals. Section 30D 
looks to a material's production steps to determine its status as an 
applicable critical mineral or a battery component. The constituent 
materials concept does not alter how the statute works; rather, it 
clarifies how the statute applies to certain materials.
    One commenter suggested modifying the definition of ``constituent 
materials'' to include domestic alternatives that serve the same 
purpose as constituent materials but do not contain applicable critical 
minerals. The final regulations do not adopt this comment because the 
commenter's proposal would be at odds with the Critical Minerals 
Requirement and the FEOC Restriction (as applicable to applicable 
critical minerals).

[[Page 37724]]

    Other commenters raised questions with respect to whether specific 
materials are constituent materials. One commenter asked for 
clarification as to whether foils, such as a copper foil that does not 
contain any applicable critical minerals, are constituent materials. 
Another commenter asked for clarity with respect to polyvinylidene 
fluoride (PVDF). Noting that PVDF made from fluorine (in the form of an 
applicable critical mineral) would be a constituent material, the 
commenter asked for clarification about the classification of PVDF that 
is not made from an applicable critical mineral, such as PVDF sourced 
from phosphate rock. The final regulations clarify that battery 
materials may not contain applicable critical minerals. Further, the 
Treasury Department and the IRS note that the materials referenced by 
these commenters (foils and PVDF) would both be considered battery 
materials without applicable critical minerals.
    One commenter sought clarification of whether lithium 
hexafluorophosphate is considered an electrolyte salt for purposes of 
the definition of constituent materials. If an applicable critical 
mineral in a form specified in section 45X(c)(6) is used to produce 
lithium hexafluorophosphate, and this material is integrated into a 
battery component, the material would be considered a constituent 
material.
    A separate commenter requested that the final regulations clarify 
that carboxymethylcellulose (CMC), made from wood pulp or linter pulp, 
is not a constituent material. The commenter notes that CMC does not 
contain applicable critical minerals. The Treasury Department and the 
IRS note that, while CMC is used in the manufacture of a battery 
component as a binder or coating for the production of anode electrodes 
by deposition of anode active material onto copper foil, CMC itself 
does not contain an applicable critical mineral, and therefore would 
not be considered a constituent material.
    Finally, one commenter requested clarification with respect to 
powders of cathode active materials (CAM), which is listed as a 
constituent material. The commenter noted that the list does not 
expressly include precursor materials used for making CAM or other 
intermediate materials incorporating the critical minerals that are 
used to produce the CAM. The commenter specifically recommended adding 
these items to the list and including references to the relevant 
applicable critical minerals by revising the definition to include 
powders of precursor cathode active materials and any other 
intermediate products incorporating critical minerals such as 
manganese, nickel, or cobalt, powders of cathode active materials. The 
final regulations provide, in the definition of ``applicable critical 
mineral,'' that determinations under the Critical Minerals Requirement 
and the FEOC Restriction with respect to an applicable critical mineral 
take into account each step of extraction, processing, or recycling 
through the step in which such mineral is processed or recycled into a 
constituent material. Thus, the final regulations clarify that these 
precursor or other intermediate materials are relevant for both the 
Critical Minerals Requirement and the FEOC Restriction.
    The final regulations adopt the definition of ``constituent 
materials'' in proposed Sec. Sec.  1.30D-3(a)(8) and 1.30D-6(c)(6), 
consolidate it into a single provision, and move it to Sec.  1.30D-
2(b). In addition, the final regulations clarify that battery materials 
without applicable critical minerals are not constituent materials.
12. Country With Which the United States Has a Free Trade Agreement in 
Effect
    Proposed Sec.  1.30D-3(c)(7) defined the term ``country with which 
the United States has a free trade agreement in effect'' and listed the 
countries with which the United States has free trade agreements in 
effect. As noted in the Explanation of Provisions to the April Proposed 
Regulations, the term free trade agreement is not defined in the IRA or 
in the Code. Proposed Sec.  1.30D-3(c)(7)(i) set forth criteria for the 
identification of a country with which the United States has a free 
trade agreement in effect, including whether an agreement between the 
United States and another country, as to the critical minerals 
contained in electric vehicle batteries or more generally, and in the 
context of the overall commercial and economic relationship between 
that country and the United States: (A) reduces or eliminates trade 
barriers on a preferential basis, (B) commits the parties to refrain 
from imposing new trade barriers, (C) establishes high-standard 
disciplines in key areas affecting trade (such as core labor and 
environmental protections), and/or (D) reduces or eliminates 
restrictions on exports or commits the parties to refrain from imposing 
such restrictions on exports.
    Proposed Sec.  1.30D-3(c)(7)(ii) identified twenty countries with 
which the United States has comprehensive free trade agreements (that 
is, agreements covering substantially all trade in goods and services 
between the parties, including trade in critical minerals). In 
addition, the Treasury Department and the IRS proposed to include 
additional countries identified by the Secretary, after consideration 
of the listed criteria, and identified Japan as an additional country. 
On March 28, 2023, the United States and Japan concluded a Critical 
Minerals Agreement (CMA), which contained robust obligations to help 
ensure free trade in critical minerals.\5\
---------------------------------------------------------------------------

    \5\ Agreement Between the Government of the United States of 
America and the Government of Japan on Strengthening Critical 
Minerals Supply Chains, concluded March 28, 2023, https://ustr.gov/sites/default/files/2023-03/US%20Japan%20Critical%20Minerals%20Agreement%202023%2003%2028.pdf.
---------------------------------------------------------------------------

    Proposed Sec.  1.30D-3(c)(7)(iii) provided that the list of 
identified countries in paragraph (c)(7)(ii) may be revised and updated 
through appropriate guidance published in the Federal Register or in 
the Internal Revenue Bulletin (see Sec.  601.601 of the Statement of 
Procedural Rules (26 CFR part 601)).
    The final regulations adopt this definition and move it to Sec.  
1.30D-2(b). At this time, the Treasury Department and the IRS have not 
identified any additions to the list of identified countries. The final 
regulations continue to include Japan on the list of countries with 
which the United States has free trade agreements in effect. After 
consulting with the United States Trade Representative in applying the 
relevant factors for identifying free trade agreements, the Treasury 
Department and the IRS have concluded that Japan is a country with 
which the United States has a free trade agreement in effect. The 
Treasury Department and the IRS specifically sought comments on the 
proposed criteria for identifying countries with which the United 
States has free trade agreements in effect, other potential approaches 
for identifying those countries, and the list of countries set forth in 
proposed Sec.  1.30D-3(c)(7)(ii).
    The Treasury Department and the IRS received several comments with 
respect to this definition. One comment requested guidance identifying 
at what stage a trade agreement is considered in effect, noting the 
signature date of an agreement is frequently different from the trade 
agreement's implementation date. The commenter requested that the 
completion date be considered the date that a trade agreement is in 
effect. As an initial matter, international agreements to which the 
United States is a party, including those referred to in the Sec.  
1.30D-2(b) definition of ``country with which the United States has a 
free trade agreement in effect,'' ordinarily identify the date on which 
they enter into force

[[Page 37725]]

and therefore are ``in effect,'' as that term is used in section 30D. 
Consistent with the approach described in the proposed rules and 
adopted in the final rules, the Treasury Department and the IRS will 
also ``make any necessary amendments to the list . . . including adding 
any additional countries as any new qualifying international agreements 
enter into force and the Secretary determines that the [applicable] 
factors have been met.'' The Treasury Department and the IRS have 
determined that the assessment of whether an agreement is in effect is 
something that the Secretary will evaluate in the context of individual 
agreements that may be considered in determining whether to add 
individual countries to the list of countries with which the United 
States has free trade agreements in effect.
    One commenter requested defining ``country'' to include 
geographical areas that are of an international nature and do not 
belong to any one country, such as international waters. The ordinary 
meaning of ``country'' does not include areas beyond national 
jurisdiction. Therefore, the final regulations do not adopt this 
comment.
    Several comments suggested that the proposed definition of ``free 
trade agreement'' expands the regulatory regime and undercuts 
Congressional intent. Relatedly, a comment specifically criticized the 
inclusion of Japan on the list on the basis of the CMA. Other 
commenters supported the inclusion of Japan on the basis of the CMA. 
Another commenter suggested that the proposed regulations impermissibly 
expand the Secretary's authority to define ``free trade agreement,'' 
and that the regulatory definition departs from its accepted meaning. 
Several commenters suggested defining free trade agreements to include 
arrangements, including plurilateral agreements, in which the United 
States and a foreign economy agree to at least some strategic and/or 
economic partnerships, including government procurement, even if the 
agreement was not labeled a free trade agreement.
    As noted earlier in this discussion and in the Explanation of 
Provisions to the April Proposed Regulations, the term ``free trade 
agreement'' is not defined in the IRA or in the Code, and the 
definition in the proposed regulations is consistent with the statute 
and its purpose, as reflected in the term's ordinary meaning, use, and 
context in section 30D and in the broader IRA. As also noted in the 
Explanation of Provisions to the April Proposed Regulations, the 
purpose of the IRA's amendments to section 30D is to expand the 
incentives for taxpayers to purchase new clean vehicles and for vehicle 
manufacturers to increase their reliance on supply chains in the United 
States and in countries with which the United States has reliable and 
trusted economic relationships, which is essential for our national 
security, our economic security, and our technological leadership. The 
proposed definition of ``country with which the United States has a 
free trade agreement in effect'' is consistent with these statutory 
purposes. In particular, the criteria identified in the proposed 
definition that must be met for an instrument to be determined to be a 
free trade agreement include whether an agreement between the United 
States and another country includes commitments related to reducing or 
eliminating trade barriers on a preferential basis, refraining from 
imposing new trade barriers, establishing high-standard disciplines in 
trade-related areas, and reducing or eliminating restrictions on 
exports or committing the parties to refrain from imposing such 
restrictions, all in the context of the overall commercial and economic 
relationship between the country in question and the United States. 
Based on the criteria above, Japan was identified as a country with 
which the United States has a free trade agreement in effect. In 
particular, the United States-Japan CMA was identified as a free trade 
agreement under these criteria because it includes robust obligations, 
such as a commitment to refrain from imposing duties on exports of 
critical minerals that are currently essential to the electric vehicle 
battery supply chain, and a commitment for the United States and Japan 
to confer on best practices regarding review of investments in the 
critical minerals sector for purposes of assisting a determination of 
the effect of such investments on national security. The CMA also 
includes detailed terms related to the relationships of labor and 
environmental laws to trade in critical minerals and cooperation on 
non-market policies and practices of non-parties affecting trade in 
critical minerals. The CMA was concluded in the context of an earlier 
trade agreement the United States concluded with Japan in 2019, a 
related 2019 agreement on digital trade, and the U.S.-Japan Partnership 
on Trade announced in November 2021.
    Several commenters addressed issues relating to labor standards, 
environmental standards, economic and national security, transparency, 
and enforceability. One commenter requested that the United States 
Geological Survey be consulted as to the environmental standards and 
compliance and enforcement histories of specified non-domestic sources. 
Another commenter encouraged the Treasury Department and the IRS to 
collaborate with the Department of State to leverage the Minerals 
Security Partnership (MSP) to secure supply chains needed to scale 
domestic battery production while establishing higher labor standards, 
greater transparency, improved environmental practices, and greater 
value-added benefits for communities located in countries with 
significant mineral endowments. The Treasury Department and the IRS 
appreciate these concerns and note that they are appropriately 
reflected in the criteria identified in the proposed regulations, 
specifically as high-standard disciplines in key areas affecting trade. 
The Treasury Department and the IRS will consult with appropriate 
agencies across the Federal government in applying the listed criteria 
in the future.
    Relatedly, several commenters raised concerns about whether 
countries with which the United States does not have free trade 
agreements in effect could launder applicable critical minerals through 
procurement chains involving countries with which the United States has 
free trade agreements in effect. The Treasury Department and the IRS 
have determined that the upfront review process in Sec.  1.30D-3(d) of 
the final regulations (described in section III.B.3 of this Summary of 
Comments and Explanation of Revisions), which involves due diligence 
and requires documentation of critical mineral supply chains, will 
promote accurate tracing of the full critical mineral supply chain.
    Another commenter suggested including a broad set of critical 
minerals in any future critical minerals agreement. The commenter noted 
that limiting future critical mineral agreements to a limited subset of 
applicable critical minerals has the potential to limit innovation. In 
response to this comment, the Treasury Department and the IRS note that 
the determination under the Critical Minerals Requirement with respect 
to ``any country with which the United States has a free trade 
agreement in effect,'' would not be limited in the case of critical 
minerals agreements by the scope of minerals covered by such critical 
minerals agreement. Once the Secretary determines that a country 
qualifies as a country with which the United States has a free trade 
agreement

[[Page 37726]]

in effect, any applicable critical minerals within the meaning of 
section 45X(c)(6) extracted or processed in that country are eligible. 
Finally, several commenters requested that additional countries be 
added to the list, including Argentina, the Philippines, members of the 
European Union, and the United Kingdom. At this time, the Treasury 
Department and the IRS have not identified agreements in effect with 
the suggested countries within the meaning of section 30D. The Treasury 
Department and the IRS will continue to work with the United States 
Trade Representative and across the Federal government to apply the 
listed criteria to determine if it is appropriate to list additional 
countries.
13. Extraction
    Proposed Sec. Sec.  1.30D-3(c)(8) and 1.30D-6(a)(9) defined 
``extraction'' as the activities performed to extract or harvest 
minerals or natural resources from the ground or a body of water, 
including, but not limited to, by operating equipment to extract 
minerals or natural resources from mines and wells, or to extract or 
harvest minerals or natural resources from the waste or residue of 
prior extraction. Under the proposed definition, extraction concludes 
when activities are performed to convert raw mined or harvested 
products or raw well effluent to substances that can be readily 
transported or stored for direct use in applicable critical mineral 
processing. Extraction includes the beneficiation or other physical 
processes that allow the extracted materials, including ores, clays, 
and brines, to become transportable. Extraction also includes the 
physical processes involved in refining, but not the chemical and 
thermal processes involved in refining.
    Several commenters requested clarity on the line between extraction 
and processing. Section III.A.22 of the Summary of Comments and 
Explanation of Revisions addresses these comments.
    One commenter suggested that the definition of ``extraction'' be 
expanded to include critical minerals not physically taken from the 
ground, citing innovations in producing graphite from biomass that no 
longer require physical ground extraction. The proposed definition of 
``extraction'' includes the extraction of minerals or natural resources 
from the waste or residue of prior extraction. Therefore, it is 
unnecessary to modify the definition of ``extraction'' in the manner 
the commenter suggests. However, the final regulations clarify that 
extraction also includes crude oil extraction to the extent processes 
applied to that crude oil yield an applicable critical mineral as a 
byproduct. The final regulations also clarify that extraction does not 
include activities that begin with a recyclable commodity (as such 
activities themselves constitute recycling).
    The final regulations adopt the definition of ``extraction'' in the 
proposed regulations, consolidate it into a single provision with the 
clarification described previously, and move it to Sec.  1.30D-2(b).
14. Final Assembly
    Proposed Sec.  1.30D-2(b) provided that, consistent with section 
30D(d)(5), ``final assembly'' means the process by which a manufacturer 
produces a new clean vehicle at, or through the use of, a plant, 
factory, or other place from which the vehicle is delivered to a dealer 
or importer with all component parts necessary for the mechanical 
operation of the vehicle included with the vehicle, whether or not the 
component parts are permanently installed in or on the vehicle. To 
establish where final assembly of a new clean vehicle occurred, the 
proposed regulations provided that a taxpayer could rely on the 
following information: (1) the vehicle's plant of manufacture as 
reported in the VIN pursuant to 49 CFR 565; or (2) the final assembly 
point reported on the label affixed to the vehicle as described in 49 
CFR 583.5(a)(3). The final regulations adopt the proposed definition of 
``final assembly'' without change.
    The proposed regulations provided two different methods for 
determining whether a vehicle meets the North American final assembly 
requirement, either via the VIN or the vehicle label, to ensure that 
this information was available and accessible for taxpayers. For nearly 
all vehicles, both methods will provide the same final assembly 
location. The vehicle's plant of manufacture as reported in the VIN 
means the plant where the manufacturer affixes the VIN. See 49 CFR 
565.12. The plant of manufacture is reported in the VIN pursuant to 49 
CFR 565.15(d)(2). The DOE, Alternative Fuels Data Center (AFDC), and 
the Department of Transportation, National Highway Traffic Safety 
Administration (NHSTA), each provide a VIN decoder to the public, which 
can be used to identify a vehicle's plant of manufacture. AFDC, VIN 
Decoder, https://afdc.energy.gov/laws/electric-vehicles-for-tax-credit; 
NHTSA, VIN Decoder, https://www.nhtsa.gov/vin-decoder. Labeling 
requirements in 49 CFR 583.5 require the final assembly point to be 
reported on the label affixed to a passenger motor vehicle as defined 
in 49 U.S.C. 32304(11) (which limits such vehicles to those with GVWR 
of 8,500 pounds or less). Final assembly point means the plant, 
factory, or other place, which is a building or series of buildings in 
close proximity, where a new passenger motor vehicle is produced or 
assembled from passenger motor vehicle equipment and from which such 
vehicle is delivered to a dealer or importer in such a condition that 
all component parts necessary to the mechanical operation of such 
automobile are included with such vehicle, whether or not such 
component parts are permanently installed in or on such vehicle. For 
multi-stage vehicles, the labeling requirements provide that the final 
assembly point is the location where the first stage vehicle is 
assembled. 49 CFR 583.4(b)(5). Multi-stage vehicles are vehicles 
manufactured in two or more stages by which an incomplete vehicle 
becomes a completed vehicle and may involve multiple manufacturers. See 
49 CFR 567.3 for definitions of ``incomplete vehicle'' and ``completed 
vehicle.''
    A commenter stated that the proposed rule would allow taxpayers to 
use the vehicle's plant of manufacture reported on the VIN, rather than 
the final assembly point, for multi-stage vehicles. However, existing 
vehicle labeling requirements in 49 CFR part 583 apply to both single-
stage and multi-stage vehicles with GVWR of 8,500 pounds or less. 
Therefore, such requirements provide a final assembly point for both 
types of vehicles. The proposed regulations provided flexibility to 
taxpayers in determining whether the section 30D credit final assembly 
requirement is met by allowing taxpayers to look to either the plant of 
manufacture identified in the VIN or the vehicle label final assembly 
point. In the limited situations in which the VIN and vehicle label may 
provide different final assembly locations, the proposed regulations 
allowed taxpayers to choose the standard that is more favorable to 
them. Moreover, the VIN and vehicle labels will diverge only in certain 
limited situations with respect to a multi-stage vehicle, and most 
multi-stage vehicles have a GVWR of more than 8,500 pounds, and are, 
therefore, not subject to the part 583 vehicle labeling requirements. 
Furthermore, it is important to leverage existing standards that 
provide accessible information to taxpayers, and such information is 
more accessible if taxpayers have multiple ways to obtain it. 
Accordingly, the final regulations do not adopt this comment.
    Another commenter requested that the final regulations define 
``final assembly'' more broadly, to include

[[Page 37727]]

assembly of body panels, painting, chassis assembly, trim installation, 
and other assembly and fabrication processes that are currently found 
in established final assembly plants, to maximize the incentive for 
production in the United States. Section 30D(d)(5) and the proposed 
definition of ``final assembly'' look to the plant, factory, or other 
place at which all component parts necessary for the mechanical 
operation of the vehicle are included with the vehicle. Consistent with 
the commenter's suggestion, this is generally the location where the 
chassis of the vehicle is assembled, because at that point the vehicle 
may be mechanically operable. In addition, the two reliance standards 
described in the proposed regulations, the vehicle's plant of 
manufacture as reported in the VIN, and the final assembly point 
reported on the vehicle label, generally also look to the location 
where the chassis of the vehicle is assembled. The other processes 
suggested by the commenter (body panel assembly, painting, and trim 
installation) do not affect mechanical operation of the vehicle and 
therefore are inconsistent with the definition of ``final assembly'' 
for purposes of 30D. Moreover, the VIN and labeling standards also 
would not consider such processes in determining the vehicle's plant of 
manufacture or final assembly point. To provide accessible information 
to taxpayers and to create an administrable rule, especially because 
the final assembly rule was immediately effective upon passage of the 
IRA,\6\ the Treasury Department and the IRS determined it was necessary 
to leverage existing reporting of final assembly rather than create an 
alternative definition that relies on information that is not currently 
available to the public. The Treasury Department and the IRS consulted 
with the Department of Transportation in developing the proposed and 
final regulations regarding final assembly. Because the proposed 
definition of ``final assembly'' is consistent with the statutory 
definition and provides an administrable rule, the final regulations do 
not adopt this comment with respect to processes other than chassis 
assembly.
---------------------------------------------------------------------------

    \6\ The final assembly requirement amendments made to section 
30D in the IRA were applicable to vehicles sold after the date of 
enactment of the IRA. Public Law 117-169 Sec.  13401(k)(2).
---------------------------------------------------------------------------

    Another commenter stated that entities already in the process of 
constructing production facilities should not be held at a disadvantage 
given the economic opportunity of creating additional domestic jobs. 
The North American final assembly requirement in section 30D(d)(1)(G) 
is prescribed by statute, and the IRA provided an immediately 
applicable effective date for this provision (August 17, 2022). 
Accordingly, the final regulations do not adopt this comment.
15. Foreign Entity of Concern
    Proposed Sec.  1.30D-6(a)(10), consistent with section 30D(d)(7), 
defined ``foreign entity of concern'' to have the same meaning as in 
section 40207(a)(5) of the Infrastructure Investment and Jobs Act and 
guidance promulgated thereunder by the DOE. The final regulations adopt 
the proposed definition and move it to Sec.  1.30D-2(b).
    The definition of ``foreign entity of concern'' under section 
40207(a)(5) of the Infrastructure Investment and Jobs Act is under the 
jurisdiction of the DOE. On December 1, 2023, contemporaneous with the 
issuance of the December Proposed Regulations, the DOE issued proposed 
interpretative guidance relating to the definition. 88 FR 84082 
(published December 4, 2023). A number of commenters to the December 
Proposed Regulations made requests or suggestions with respect to the 
definition. These comments are outside of the scope of these 
regulations, and are not further addressed in this Summary of Comments 
and Explanation of Revisions.
    Similarly, several commenters requested more detailed thresholds 
and processes for determining the involvement of FEOC entities based on 
entity ownership, control of, and/or acting jurisdiction. The 
determination of whether an entity is owned by, controlled by, or 
subject to the jurisdiction of a FEOC is within the jurisdiction of the 
DOE and its interpretive guidance. Accordingly, the comments are 
outside of the scope of these final regulations. One commenter also 
requested that the final regulations address the potential for 
arbitrage by artificially increasing the value of a critical mineral or 
battery component not based in or under the control of a FEOC. Because 
the FEOC Restriction is not based on value of materials, the final 
regulations do not adopt this comment.
16. FEOC-Compliant
    Proposed Sec.  1.30D-6(a)(11), adopted and moved to Sec.  1.30D-
2(b) of the final regulations, defined ``FEOC-compliant'' to mean in 
compliance with the applicable excluded entity requirement under 
section 30D(d)(7). The definition provided specific rules with respect 
to a clean vehicle battery, a battery component (other than a battery 
cell), a battery cell, and an applicable critical mineral. A number of 
commenters raised questions with respect to the due diligence required 
to determine if an item is FEOC-compliant or commented on the FEOC 
Restriction. These comments are addressed in section III.D of this 
Summary of Comments and Explanation of Revisions.
17. Manufacturer
    Proposed Sec.  1.30D-2(k) provided, consistent with section 
30D(d)(3), that ``manufacturer'' means any manufacturer within the 
meaning of the regulations prescribed by the EPA for purposes of the 
administration of title II of the Clean Air Act (CAA) (42 U.S.C. 7521 
et seq.) and as defined in 42 U.S.C. 7550(1).
    Under 42 U.S.C. 7550(1) and 40 CFR 1068.30 under the CAA 
regulations, multiple parties may be a manufacturer with respect to a 
vehicle. To address this situation, the proposed definition also 
provided that, if multiple manufacturers are involved in the production 
of a vehicle, the requirements provided in section 30D(d)(3), which 
must be met for a vehicle to qualify for the section 30D, 45W and 25E 
credits, must be met by the manufacturer who satisfies the reporting 
requirements of the greenhouse gas emissions standards (CAA emissions 
reporting requirements) set by the EPA under the CAA for the subject 
vehicle. The purpose of the proposed multiple manufacturer rule was to 
provide a clear rule for OEMs and other parties that may be considered 
a manufacturer under the CAA regulations.
    One commenter suggested that the final regulations modify the 
definition of ``manufacturer'' to include upstream members of the 
critical mineral supply chain, including cell manufacturers, cathode 
manufacturers, and anode manufacturers, in addition to the OEMs. 
Because the proposed regulations define a manufacturer by referring to 
the CAA regulations, if an upstream manufacturer is covered by the CAA 
regulations, that party will be a manufacturer under section 30D. 
However, if the upstream manufacturer is not covered by the CAA 
regulations, the statute would not include such manufacturers in the 
definition of ``manufacturer.'' Accordingly, the final regulations do 
not adopt this comment.
    Another commenter requested that the multiple manufacturer rule be 
modified to include upfitters as manufacturers. Upfitters purchase new 
internal combustion engine (ICE) motor vehicles from manufacturers and 
then modify them into clean vehicles prior to the vehicle being placed 
in service by

[[Page 37728]]

the ultimate purchaser. Because the ICE vehicle manufacturer is subject 
to the CAA emissions reporting requirements, neither the upfitter nor 
the ICE vehicle manufacturer would be able to meet the requirements of 
section 30D(d)(1)(C) and (3) under the multiple manufacturer rule in 
the proposed regulations. As a result, the vehicles modified by the 
upfitter would be ineligible for the section 25E, 30D, and 45W credits.
    The Treasury Department and the IRS have concluded that including 
upfitters in the definition of ``manufacturer'' is consistent with the 
statutory language of section 30D and the CAA regulations, as well as 
Congressional intent to incentivize the development and purchase of 
non-ICE vehicles. Accordingly, the final regulations modify the 
multiple manufacturer rule to allow a manufacturer that modifies a new 
vehicle into either a new clean vehicle or a qualified commercial clean 
vehicle to enter into an agreement under section 30D(d)(3) if such 
modification occurs prior to the new motor vehicle being placed in 
service.
    The same commenter requested that the final regulations allow this 
rule to apply retroactively for purposes of the section 45W credit for 
upfitters that modify new vehicles into qualified commercial clean 
vehicles. Section III.A.23 of this Summary of Comments and Explanation 
of Revisions concerning the definition of qualified manufacturer 
addresses this comment.
    One commenter suggested that final regulations provide robust 
oversight of OEMs, including mandatory reporting of certain economic 
impacts including the collective bargaining status of final assembly 
plants, and repurposing the EPA's Clean School Bus Program's OEM Job 
Quality and Workforce Development questionnaire. This comment is beyond 
the scope of the final regulations and is not adopted.
    The final regulations adopt the proposed definition of 
``manufacturer'' with the modification regarding upfitters. In 
addition, the final regulations move the definition to Sec.  1.30D-
2(b).
18. Manufacturer's Suggested Retail Price (MSRP)
    Proposed Sec.  1.30D-2(c) provided that for purposes of the MSRP 
limitation in section 30D(f)(11)(A), ``manufacturer's suggested retail 
price'' means the sum of: (A) the retail price of the automobile 
suggested by the manufacturer as described in 15 U.S.C. 1232(f)(1); and 
(B) the retail delivered price suggested by the manufacturer for each 
accessory or item of optional equipment, physically attached to such 
automobile at the time of its delivery to the dealer, which is not 
included within the price of such automobile as stated pursuant to 15 
U.S.C. 1232(f)(1), as described in 15 U.S.C. 1232(f)(2). This price 
information is reported on the label that is affixed to the windshield 
or side window of the vehicle, as described in 15 U.S.C. 1232.17.
    One commenter stated that the determination of MSRP by 
manufacturers is not well-regulated, and that the final regulations 
should restrict manufacturers from setting an artificially low MSRP. 
The commenter suggested that the MSRP should be the actual out the door 
price paid, and should be limited so that the average cash price paid 
by consumers does not exceed the MSRP set by manufacturers. Another 
commenter suggested that the vehicle's base price (exclusive of 
accessories) be used to determine whether a vehicle's price is under 
the limitation to be eligible for the section 30D credit.
    Section 30D(f)(11) restricts vehicle eligibility for the section 
30D credit on the basis of MSRP, not on the basis of actual price paid. 
In addition, the Treasury Department and the IRS have determined that 
the MSRP should include not just the base MSRP described in 15 U.S.C. 
1232(f)(1), but also the portion of the MSRP described in 15 U.S.C. 
1232(f)(2) (each accessory or item of optional equipment, physically 
attached to the automobile at the time of its delivery to the dealer) 
because looking solely at base MSRP could encourage manufacturers to 
artificially lower the base MSRP and increase the amount of the MSRP 
allocated to accessories or items of optional equipment in an attempt 
to circumvent the MSRP limitations. Accordingly, the final regulations 
do not adopt the comments.
    The final regulations adopt the proposed definition and move it to 
Sec.  1.30D-2(b).
19. New Clean Vehicle
    Proposed Sec.  1.30D-2(m) defined ``new clean vehicle'' as a 
vehicle that meets the requirements described in section 30D(d). Under 
the proposed regulations, a new clean vehicle would not include any 
vehicle for which the qualified manufacturer: (1) fails to provide a 
periodic written report for such vehicle prior to the vehicle being 
placed in service, reporting the VIN of such vehicle and certifying 
compliance with the requirements of section 30D(d); (2) provides 
incorrect information with respect to the periodic written report for 
such vehicle; (3) fails to update its periodic written report in the 
event of a material change with respect to such vehicle; or (4) fails 
to meet the requirements of proposed Sec.  1.30D-6(d) for new clean 
vehicles placed in service after December 31, 2024. For purposes of 
section 30D(d)(6), the term ``new clean vehicle'' includes any new 
qualified fuel cell motor vehicle (as defined in section 30B(b)(3)) 
that meets the requirements under section 30D(d)(1)(G) and (H).
    Several commenters suggested that the Treasury Department and the 
IRS not allow leased vehicles to bypass the stringent domestic-sourcing 
requirements under section 30D by making the section 45W credit 
available for such vehicles. Another commenter asked whether the 
Modified AGI limitation would apply to the lessor or lessee if a clean 
vehicle is leased to individuals and, if used for business purposes, 
would fall within section 45W. Section 30D and section 45W each include 
a no double benefit rule. See section 30D(f)(2) and section 45W(d)(3). 
This demonstrates that under the statutory framework, certain vehicles 
may qualify for both the section 30D credit and the section 45W credit, 
and that in such instances, the taxpayer must choose which credit to 
claim. Further, as described in IRS Fact Sheet FS-2023-22, Topic G, Q5-
7, a taxpayer that leases clean vehicles to its customers as its 
business may be eligible to claim the section 45W credit if the 
taxpayer is the owner of such vehicles for Federal income tax purposes. 
The owner of the vehicle is determined based on whether the lease is 
respected as a lease or is recharacterized as a sale for Federal income 
tax purposes. The Modified AGI limitation, if applicable, applies to 
the owner of the vehicle who places it in service for use or lease, and 
not to the lessee. Accordingly, the final regulations do not adopt 
these comments.
    One commenter expressed concern that vehicles used in a courtesy 
transportation program would be ineligible for the section 30D credit 
upon a later sale due to the original use rule of section 30D(d)(1)(A). 
Because the original use rule is statutory, the final regulations do 
not adopt this comment. However, the owner of the vehicle that is used 
in a courtesy transportation program may itself be able to claim a 
section 30D credit.
    Section 30D(d)(1)(F) requires the vehicle to be propelled to a 
significant extent by an electric motor that draws electricity from a 
battery that has a capacity of not less than 7 kilowatt hours, and is 
capable of being recharged from an external source of electricity.

[[Page 37729]]

One commenter requested that the final regulations define ``significant 
extent'' in the context of section 30D(d)(1)(F), but did not propose a 
definition. Given the purpose of this requirement to distinguish ICE 
vehicles from battery electric vehicles and plug-in hybrid electric 
vehicles, and the possibility for technical change in this area, it 
would be impracticable to precisely define the term. For these reasons, 
the final regulations do not adopt this comment.
    Finally, one commenter suggested making the VINs of eligible 
vehicles available in an accessible, dealer-facing database, which 
would allow dealers to use a common source to readily identify which 
vehicles are eligible for the section 30D credit, reduce confusion, and 
improve deployment. This comment is outside of the scope of these final 
regulations. However, the Treasury Department and the IRS, together 
with the DOE, have provided public-facing information regarding vehicle 
eligibility via the IRS website and https://fueleconomy.gov and will 
continue to develop such information in a way that is accessible to 
dealers and taxpayers.
    The final regulations adopt the proposed definition of ``new clean 
vehicle'' with clarifying language that new clean vehicles include 
battery electric vehicles, plug-in hybrid electric vehicles, fuel cell 
motor vehicles, and plug-in hybrid fuel cell motor vehicles.
20. New Qualified Fuel Cell Motor Vehicle
    To provide additional clarity to taxpayers, the final regulations 
add a definition of a ``new qualified fuel cell motor vehicle'' to 
Sec.  1.30D-2(b) that is consistent with section 30D(d)(6). 
Specifically, the final regulations define ``new qualified fuel cell 
motor vehicle'' to be any new qualified fuel cell motor vehicle (as 
defined in section 30B(b)(3)) that meets the requirements under section 
30D(d)(1)(G) (that is, the final assembly in North America requirement) 
and (H) (that is, the seller report requirement), and that does not 
have a clean vehicle battery. This definition includes otherwise 
qualifying vehicles that have only a ``start-stop'' battery, because 
such a battery is not a clean vehicle battery.
21. Non-Traceable Battery Materials/Impracticable-to-Trace Battery 
Materials
    Proposed Sec.  1.30D-6(a)(13)(i) defined ``non-traceable battery 
materials'' to mean specifically identified low-value battery materials 
that may originate from multiple sources and are often commingled 
during refining, processing, or other production processes by suppliers 
to such a degree that the qualified manufacturer cannot, due to current 
industry practice, feasibly determine and attest to the origin of such 
battery materials. Proposed Sec.  1.30D-6(a)(13)(ii), which was 
reserved, would have provided the specific list of identified non-
traceable battery materials. In the Explanation of Provisions to the 
December Proposed Regulations, the Treasury Department and the IRS, 
after extensive consultation with the DOE, stated that they would 
consider whether the following applicable critical minerals (and 
associated constituent materials) may be designated as identified non-
traceable battery materials: applicable critical minerals contained in 
electrolyte salts, electrode binders, and electrolyte additives.
    The Treasury Department and the IRS received a number of comments 
with respect to the definition of ``non-traceable battery materials'' 
as well as the related FEOC Restriction transition rule for non-
traceable battery materials. Section III.D of this Summary of Comments 
and Explanation of Revisions discusses these comments.
    Consistent with the expectation and requirement that OEMs will 
develop thorough tracing processes in the future, even while such 
processes do not now exist, the final regulations retain the list but 
change the name to ``impracticable-to-trace battery materials.'' The 
final regulations adopt the proposed definition and move it to Sec.  
1.30D-2(b). Specifically, the final regulations define ``identified 
impracticable-to-trace battery materials'' as applicable critical 
minerals in the following circumstances: graphite contained in anode 
materials (both synthetic and natural) and applicable critical minerals 
contained in electrolyte salts, electrode binders, and electrolyte 
additives.
22. Processing
    Proposed Sec. Sec.  1.30D-3(c)(13) and 1.30D-6(a)(14) defined 
``processing'' as the non-physical processes involved in the refining 
of non-recycled substances or materials, including the treating, 
baking, and coating processes used to convert such substances and 
materials into constituent materials. The proposed regulations further 
provided that processing begins when chemical or thermal processes, or 
the combination of them, are used on extracted minerals or natural 
resources or manmade minerals or resources to create a new product 
that, through subsequent steps in the applicable critical minerals 
supply chain, will be processed into a final constituent material. 
Under the proposed regulations, processing included the chemical or 
thermal processes involved in refining, but did not include the 
physical processes involved in refining.
    One commenter requested that the final regulations include high 
temperature heat treatment among the listed non-physical processes 
involved in refining that constitute processing to ensure that 
graphitization is included as processing. High temperature heat 
treatment is a thermal process, so it is already included in the 
definition of processing. Therefore, the commenter's requested 
modification is unnecessary.
    Another commenter specifically requested that the final regulations 
address a fact pattern in which lithium carbonate is procured from an 
ally of the United States that is not a country with which the United 
States has a free trade agreement in effect, but is processed into both 
lithium hydroxide and cathode active material in the United States or a 
country with which the United States has a free trade agreement in 
effect. Lithium carbonate is a form of an applicable critical mineral 
specified in 45X(c)(6); therefore, it is subject to the Critical 
Minerals Requirement. Lithium carbonate that is procured from a region 
that is not in the United States or a country with which the United 
States has a free trade agreement in effect but is processed in the 
United States may be counted in the numerator of the qualifying 
critical mineral content calculation to the extent of the value added 
in the United States.
    A number of commenters requested clarification on the line between 
extraction and processing. One commenter requested that the final 
regulations clarify that minor treatments necessary to render raw 
materials transportable are not processing (as chemical or thermal 
refining), but are instead extraction (as beneficiation). Another 
commenter noted that evolving technologies, such as glycine leaching 
technology, simplify value chains and may not uniquely fit into the 
proposed definitions of ``extraction'' or ``processing.'' One commenter 
recommended narrowing the definition of ``processing'' to exclude 
processes performed during battery manufacturing. Another commenter 
requested that the final regulations provide additional examples of 
different procurement chains that illustrate where the extraction and 
processing steps begin and end. Finally, another commenter proposed 
alternative definitions of ``extraction'' and ``processing'' that 
conform with the commenter's view of industry practice, rather than 
distinguish between physical and non-physical processes. That same 
commenter requested that the

[[Page 37730]]

final regulations clarify that smelting nickel is extraction rather 
than processing, again consistent with the commenter's view of industry 
practice. The Treasury Department and the IRS note that smelting nickel 
is a thermal process and is therefore already included in the proposed 
definition of ``processing.'' Further, the proposed regulations 
expressly list, in the definitions of ``extraction'' and 
``processing,'' production steps that are generally high value add, and 
it is likely not possible to generate an exhaustive list given the 
variety of production steps that may apply to the various applicable 
critical minerals. Moreover, the proposed regulations are more 
administrable than a rule based on industry standards, which may change 
in the future. Accordingly, the final regulations do not adopt these 
comments.
    The final regulations adopt the definition of ``processing'' in 
proposed Sec. Sec.  1.30D-3(c)(13) and 1.30D-6(a)(14), consolidate it 
into a single provision, and move it to Sec.  1.30D-2(b).
23. Qualified Manufacturer
    Proposed Sec.  1.30D-3(c)(15), applicable to the Critical Minerals 
and Battery Components Requirements, defined a ``qualified 
manufacturer'' as a manufacturer described in section 30D(d)(3). 
Proposed Sec.  1.30D-2(l), applicable as a general definition for 
section 30D purposes, similarly defined a ``qualified manufacturer'' as 
a manufacturer that meets the requirements described in section 
30D(d)(3). In addition, proposed Sec.  1.30D-2(l) provided that the 
term ``qualified manufacturer'' does not include any manufacturer whose 
qualified manufacturer status has been terminated by the IRS for fraud, 
intentional disregard, or gross negligence with respect to any 
requirements of section 30D, including with respect to the periodic 
written reports described in section 30D(d)(3) and proposed Sec.  
1.30D-2(m), and any attestations, documentation, or certifications 
described in proposed Sec. Sec.  1.30D-3(e) and 1.30D-6(d), at the time 
and in the manner provided in the Internal Revenue Bulletin (see Sec.  
601.601 of this chapter).
    As in discussed in section III.A.17 of this Summary of Comments and 
Explanation of Revisions concerning the definition of ``manufacturer,'' 
a commenter requested that the proposed multiple manufacturer rule be 
modified to include upfitters as manufacturers. The same commenter 
requested that the final regulations allow upfitters to rely on any 
final regulations as of January 1, 2023, register as qualified 
manufacturers after the final regulations are published, and include in 
such upfitters' first periodic written report to the IRS information 
regarding all vehicles that the upfitter asserts are eligible for the 
section 45W credit. This comment is outside the scope of the final 
regulations because (i) it pertains to the section 45W credit, and (ii) 
the qualified manufacturer registration process is addressed in Revenue 
Procedure 2023-33 and other sub-regulatory guidance. Accordingly, the 
final regulations do not adopt this comment.
    However, in considering the comment regarding upfitters, the 
Treasury Department and the IRS have determined that it is necessary to 
clarify when qualified manufacturer status is determined. Accordingly, 
the final regulations clarify that, for purposes of determining whether 
the qualified manufacturer requirement of section 30D(d)(1)(C) is met, 
a new clean vehicle is made by a qualified manufacturer if it is made 
by a manufacturer that is a qualified manufacturer at the time a 
written report is submitted to the IRS under a qualified manufacturer 
agreement, as described in section 30D(d)(3). This rule is consistent 
with section 30D, as well as its underlying purpose of incentivizing 
clean vehicle deployment. Further, under this rule, a vehicle made by a 
manufacturer that was not a qualified manufacturer at the time of 
production may still qualify as a new clean vehicle, provided the 
manufacturer becomes a qualified manufacturer and submits a written 
report to the IRS prior to the time the vehicle is sold. In addition, 
The Treasury Department and the IRS lack authority to provide 
retroactive relief with respect to vehicles that were sold prior to the 
time the qualified manufacturer submitted a periodic written report to 
the IRS under the qualified manufacturer agreement. Finally, the 
qualified manufacturer requirements of sections 30D(d)(1)(C) and 
30D(d)(3), and therefore these final regulations, also apply for 
purposes of sections 25E and 45W. See sections 25E(c)(1)(D)(i) and 
45W(c)(1). Therefore, a vehicle made by a manufacturer that was not a 
qualified manufacturer at the time of production--including a vehicle 
produced prior to enactment of the IRA, when there were no qualified 
manufacturer rules with respect to section 30D--may qualify as a 
previously-owned clean vehicle, provided the manufacturer becomes a 
qualified manufacturer and submits a written report to the IRS prior to 
the time the vehicle is sold. Consistent with this rule and with the 
statute, the final regulations provide that the IRS may terminate 
qualified manufacturer status for fraud, intentional disregard, or 
gross negligence with respect to any requirement of section 25E or 
section 45W or any regulations thereunder.
    The final regulations adopt the proposed definition of ``qualified 
manufacturer'' with the modification described previously, and move it 
Sec.  1.30D-2(b).
24. Recycling
    Proposed Sec. Sec.  1.30D-6(a)(15) and 1.30D-3(c)(19) defined 
``recycling'' as the series of activities during which recyclable 
materials containing applicable critical minerals are transformed into 
specification-grade commodities and consumed in lieu of virgin 
materials to create new constituent materials; such activities result 
in new constituent materials contained in the battery from which the 
electric motor of a new clean vehicle draws electricity. Under the 
proposed regulations, all physical, chemical, and thermal treatments or 
modifications that convert recycled feedstocks to specification grade 
constituent materials are included in recycling. The Explanation of 
Provisions to the April Proposed Regulations noted that this definition 
aligns with the current methods of direct, hydrometallurgical, or 
pyrometallurgical recycling that are utilized commercially for reuse of 
materials for battery applications.
    In addition, proposed Sec.  1.30D-6(c)(4)(ii)(D), provided that, 
for purposes of the FEOC Restriction, an applicable critical mineral 
and associated constituent material that is recycled is subject to the 
FEOC-compliance determination if the recyclable material (1) contains 
an applicable critical mineral, (2) contains material that was 
transformed from an applicable critical mineral, or (3) is used to 
produce an applicable critical mineral at any point during the 
recycling process. Under the proposed regulations, the determination of 
whether an applicable critical mineral or associated constituent 
material that is incorporated into a battery via recycling is FEOC-
compliant took into account only activities that occurred during the 
recycling process.
    One commenter noted that the definition of ``recycling'' is vague 
and does not clearly define which recycling steps (for example, 
shredding, separating, producing black mass, and critical mineral 
refinement processing) can and cannot occur within a FEOC. The 
commenter requested that the final regulations clarify that all 
recycling

[[Page 37731]]

activities must occur in a non-FEOC facility for the recycled material 
to qualify as FEOC-compliant in a new clean vehicle battery. Under the 
proposed regulations, the determination of whether an applicable 
critical mineral or associated constituent material that is 
incorporated into a battery via recycling is FEOC-compliant already 
takes into account all recycling activities. Accordingly, the suggested 
clarification is unnecessary.
    Another commenter recommended that the Treasury Department and the 
IRS work with the DOE and other agencies to develop safeguards to 
prevent batteries from being recycled before the end of their useful 
lives by entities seeking to convert non-FEOC-compliant batteries into 
FEOC-compliant batteries through recycling. Critical minerals and 
associated constituent materials are subject to both the Critical 
Minerals Requirement and the FEOC Restriction. The Critical Minerals 
Requirement generally looks to the value of the recycled materials. Due 
to this requirement, as well as market forces, it will generally be 
uneconomical to recycle batteries before the end of their useful lives 
for purposes of the FEOC Restriction. Accordingly, the final 
regulations do not adopt this comment.
    The final regulations consolidate the definition of ``recycling'' 
in proposed Sec. Sec.  1.30D-3(c)(19), 1.30D-6(a)(15), and 1.30D-
6(c)(4)(ii)(D) into a single provision, and move it to Sec.  1.30D-
2(b). Specifically, the final regulations define ``recycling'' as the 
series of activities during which recyclable materials containing 
applicable critical minerals are transformed into specification-grade 
commodities and consumed in lieu of virgin materials to create new 
constituent materials; such activities result in new constituent 
materials contained in the clean vehicle battery. Under the final 
regulations, all physical, chemical, and thermal treatments or 
modifications that convert recycled feedstocks to specification-grade 
constituent materials are included in recycling. Further, recycled 
applicable critical minerals and associated constituent materials are 
only subject to the requirements under Sec. Sec.  1.30D-3 and 1.30D-6 
if the recyclable material contains an applicable critical mineral, 
contains material that was transformed from an applicable critical 
mineral, or if the recyclable material is used to produce an applicable 
critical mineral at any point during the recycling process. The 
requirements under Sec. Sec.  1.30D-3 and 1.30D-6 only take into 
account activities that occurred during the recycling process.
    The final regulations also add an example that illustrates which 
activities are taken into account with respect to recycling for 
purposes of the Critical Minerals Requirement and the FEOC Restriction.
25. Section 30D Regulations
    Proposed Sec.  1.30D-2(f) defined ``section 30D regulations'' to 
mean Sec. Sec.  1.30D-1 through 1.30D-4. The final regulations modify 
the definition to mean Sec. Sec.  1.30D-1 through 1.30D-6, and move it 
to Sec.  1.30D-2(b).
26. Seller Report
    Proposed Sec.  1.30D-2(j) defined ``seller report'' as the report 
described in section 30D(d)(1)(H) and provided by the seller of a 
vehicle to the taxpayer and the IRS in the manner provided in, and 
containing the information described in, guidance published in the 
Internal Revenue Bulletin (see Sec.  601.601 of this chapter). The 
proposed regulations further provided that the seller report must be 
provided to the IRS electronically. In addition, the proposed 
regulations provided that the term ``seller report'' does not include a 
report rejected by the IRS due to the information contained therein not 
matching IRS records. The final regulations adopt the proposed 
definition and move it to Sec.  1.30D-2(b).
    One commenter requested that the IRS issue a form, with related 
instructions, for making seller reports to taxpayer/purchasers as 
required by Sec.  30(D)(d)(1)(H). The Treasury Department and the IRS 
have issued such a form, Form 15400, Clean Vehicle Seller Report.
27. Value
    Proposed Sec.  1.30D-3 defined ``value,'' with respect to property, 
as the arm's-length price that was paid or would be paid for the 
property by an unrelated purchaser determined in accordance with the 
principles of section 482 of the Code and regulations thereunder. The 
final regulations adopt the proposed definition and move it to Sec.  
1.30D-2(b).
    One commenter recommended that the Treasury Department and the IRS 
consider how the term ``value'' might be defined in a manner that 
accommodates and incentivizes further technological innovation, 
increased performance and efficiency, and minimization of environmental 
impacts. The commenter, however, did not propose a specific 
modification to the definition. The final regulations, consistent with 
the proposed regulations, define ``value'' in accordance with 
longstanding tax law principles.
28. Vehicle Classifications
    Proposed Sec.  1.30D-2(g) provided that the vehicle classification 
of a new clean vehicle is to be determined consistent with the EPA's 
fuel economy labeling rules and definitions provided in 40 CFR 600.315-
08 for vans, sport utility vehicles, pickup trucks, and other vehicles. 
Specifically, ``van'' means a vehicle classified as a van or minivan 
under 40 CFR 600.315-08(a)(2)(iii) and (iv), or otherwise so classified 
by the Administrator of the EPA pursuant to 40 CFR 600.315-
08(a)(3)(ii); ``sport utility vehicle'' means a vehicle classified as a 
small sport utility vehicle or standard sport utility vehicle under 40 
CFR 600.315-08(a)(2)(v) and (vi), or otherwise so classified by the 
Administrator of the EPA pursuant to 40 CFR 600.315-08(a)(3)(ii); 
``pickup truck'' means a vehicle classified as a small pickup truck or 
standard pickup truck under 40 CFR 600.315-08(a)(2)(i) and (ii), or 
otherwise so classified by the Administrator of the EPA pursuant to 40 
CFR 600.315-08(a)(3)(ii); and ``other vehicle'' means any vehicle 
classified in one of the classes of passenger automobiles listed in 40 
CFR 600.315-08(a)(1), or otherwise so classified by the Administrator 
of the EPA pursuant to 40 CFR 600.315-08(a)(3)(ii).
    One commenter commended the Treasury Department's and the IRS's 
decision to align the section 30D vehicle classification definitions 
with existing EPA regulations, which incorporate certain classification 
flexibility. For added clarity, the commenter recommended that the 
final regulations adopt by reference less specific pin cites in the EPA 
fuel economy labeling regulations to better reflect EPA's general 
classification authority. In particular, the commenter suggested that 
the final regulations define a sport utility vehicle by citing 40 CFR 
600.315-08(a)(1), which states that the EPA Administrator may classify 
passenger automobiles by car line into one of the classes based on 
interior volume index or seating capacity except for those that the 
Administrator determines are most appropriately placed in a different 
classification. Additionally, the commenter suggested that the final 
regulations define pickup truck by citing 40 CFR 600.315-08(a)(2) or 40 
CFR 600.315-08 generally rather than 40 CFR 600.315-08(a)(3)(ii). After 
consultation with the EPA, the Treasury Department and the IRS agree 
that a more general cross-reference to EPA's classification authority 
is warranted, given the authority not only in 40 CFR 600.315-
08(a)(3)(ii) but also in 40 CFR 600.315-08(a)(1) and (2). The final

[[Page 37732]]

regulations adopt the comment and modify the definitions accordingly.
    Another commenter requested that the MSRP limitation under section 
30D(f)(11)(B) be expanded to apply to all crossover vehicles similar to 
the regime described in 40 CFR 600.315-08, which would further 
incentivize automakers to onshore electric vehicle supply chains by 
making additional vehicles eligible for the section 30D credit. The 
Treasury Department and the IRS note that crossover vehicles are 
included in the vehicle classifications subject to the appropriate MSRP 
limitation. Under the EPA fuel economy labeling regulations, crossover 
vehicles may be categorized as either a sport utility vehicle or other 
vehicle. The Treasury Department and the IRS adopted the EPA fuel 
economy labeling definitions in part because they are reported on the 
vehicle label and are accessible on https://fueleconomy.gov, making the 
classification accessible to both consumers and the IRS. In addition, 
the EPA fuel economy labeling definitions provide some discretion, 
which EPA may exercise to align its classifications with consumer 
expectations regarding vehicle type. Because the proposed regulations 
already adopt the regime suggested by commenters and because the MSRP 
limitation is prescribed by statute, the final regulations do not adopt 
this comment.
    A different commenter requested that low-speed vehicles be included 
in the ``other vehicles'' classification under proposed Sec.  1.30D-
2(g)(5), noting that they are commercial, street-legal vehicles. 
However, as the commenter notes, a new clean vehicle must be treated as 
a motor vehicle for purpose of title II of the Clean Air Act as 
described in section 30D(d)(1)(D). Under section 216 of the title II of 
the Clean Air Act, a motor vehicle is defined as ``any self-propelled 
vehicle designed for transporting persons or property on a street or 
highway.'' 42 U.S.C. 7550(2). EPA regulations at 40 CFR 85.1703(e)(1) 
further define a motor vehicle under title II of the Clean Air Act to 
exclude vehicles with maximum speeds of 25 miles per hour, which 
excludes low-speed vehicles. Because section 30D requires new clean 
vehicles to meet Clean Air Act standards, which exclude low-speed 
vehicles, the final regulations do not adopt this comment.
    Some commenters praised the proposed implementation of the fuel 
economy labeling regime, whereas others claimed there is a potential 
for misclassifying vehicles given the lessened emphasis on weight and 
other physical characteristics as major classification factors under 
EPA standards as compared to gas-powered vehicles. In particular, a 
commenter stated the proposed vehicle classification regime is 
arbitrary and unreliable, due to the EPA's subjective authority granted 
without explicit authorization found in title I of the IRA. The 
commenter requested that the final regulations use objective vehicle 
classification standards, such as those found in 40 CFR 600.002, rather 
than subjective EPA determinations. An additional commenter stated that 
light trucks and SUVs in particular may be misclassified as passenger 
cars if physical characteristics are overlooked for emissions.
    The Treasury Department and the IRS previously considered adopting 
the vehicle classification definitions used by the CAFE standards in 40 
CFR 600.002, as described in Notice 2023-1. After consultation with the 
DOE and the EPA, as provided for in section 30D(f)(11)(C), the Treasury 
Department and the IRS determined that the fuel economy labeling 
standards in 40 CFR 600.315-08 better reflect consumer expectations and 
marketing practices regarding vehicle classifications. In addition, the 
vehicle classification, as determined under the fuel economy labeling 
standards, is shown on the vehicle label and is otherwise accessible on 
https://fueleconomy.gov, making the classification accessible to both 
consumers and the IRS. In contrast, a particular vehicle's 
classification under the CAFE standard is not publicly available 
information under current practices. For these reasons, the final 
regulations do not adopt the comments.
    The final regulations adopt the proposed definition, with more 
general cross-references to EPA's classification authority, and move it 
to Sec.  1.30D-2(b).
B. Critical Minerals and Battery Components Requirements
    Section 30D(e) provides requirements for critical minerals and 
battery components with respect to clean vehicle batteries. The 
Critical Minerals and Battery Components Requirements apply to 
applicable critical minerals and battery components, respectively, 
contained in a battery. The April Proposed Regulations set forth rules 
for the Critical Minerals and Battery Components Requirements in 
proposed Sec.  1.30D-3. The final regulations reorganize the rules of 
the Critical Minerals and Battery Components Requirements.
    First, the proposed regulations included, in proposed Sec.  1.30D-
3(c), definitions applicable for purposes of the Critical Minerals and 
Battery Components Requirements. As noted previously in section III.A 
of this Summary of Comments and Explanation of Revisions, the final 
regulations move many of these definitions to Sec.  1.30D-2(b), as 
general definitions for purposes of section 30D and the section 30D 
regulations. The final regulations retain the definitions applicable to 
the calculations of the Critical Minerals Requirement in Sec.  1.30D-
3(c)(1), and the definitions applicable to and the Battery Components 
Requirement in Sec.  1.30D-3(c)(2). Second, the final regulations 
include rules for the calculation of qualifying critical mineral 
content for purposes of the Critical Minerals Requirement in Sec.  
1.30D-3(a), and for the calculation of qualifying battery component 
content for purposes of the Battery Components Requirement in Sec.  
1.30D-3(b). Third, the final regulations finalize, as Sec.  1.30D-
3(d),\7\ the rules for upfront review of the Critical Minerals and 
Battery Components Requirements. Fourth, the final regulations add a 
new rule for new qualified fuel cell motor vehicles as Sec.  1.30D-
3(e). Finally, in response requests from commenters, the final 
regulations add examples that illustrate the calculations under the 
Critical Minerals and Battery Components Requirements as Sec.  1.30D-
3(f).
---------------------------------------------------------------------------

    \7\ The April Proposed Regulations reserved proposed Sec.  
1.30D-3(d) for excluded entities. The December Proposed Regulations 
modified proposed Sec.  1.30D-3(d) to include a cross reference to 
the rules for excluded entities in proposed Sec.  1.30D-6. These 
final regulations finalize those rules in Sec.  1.30D-6; Sec.  
1.30D-3(d) is deleted as unnecessary.
---------------------------------------------------------------------------

1. Critical Minerals Requirement
    Proposed Sec.  1.30D-3(a)(1) provided that that Critical Minerals 
Requirement was met if the qualifying critical mineral content of the 
clean vehicle battery of the vehicle is equal to or exceeds the 
applicable critical minerals percentage provided in section 
30D(e)(1)(B) and proposed Sec.  1.30D-3(a)(2). Proposed Sec.  1.30D-
3(c)(18) defined ``qualifying critical mineral content'' as the 
percentage of the value of the applicable critical minerals contained 
in the clean vehicle battery that were extracted or processed in the 
United States, or in any country with which the United States has a 
free trade agreement in effect, or were recycled in North America.
    The April Proposed Regulations provided a three-step process (50% 
Value Added Test) for determining the qualifying critical mineral 
content of a clean vehicle battery.
    First, qualified manufacturer would determine the procurement chain 
or chains for each applicable critical

[[Page 37733]]

mineral. Proposed Sec.  1.30D-3(c)(14) defined a ``procurement chain'' 
as a common sequence of extraction, processing, or recycling activities 
that occur in a common set of locations, concluding in the production 
of constituent materials. In addition, proposed Sec.  1.30D-3(c)(14) 
clarified that sources of a single applicable critical mineral may have 
multiple procurement chains if, for example, one source of the 
applicable critical mineral undergoes the same extraction, processing, 
or recycling process in different locations. Each applicable critical 
mineral procurement chain would be evaluated separately pursuant to 
proposed Sec.  1.30D-3(a)(3)(ii).
    Second, qualified manufacturers would evaluate each applicable 
critical mineral procurement chain in the clean vehicle battery to 
determine whether critical minerals procured from the chain have been 
(1) extracted or processed in the United States, or in any country with 
which the United States has a free trade agreement in effect, or (2) 
recycled in North America. Applicable critical minerals that satisfy 
this requirement are considered qualifying critical minerals. Proposed 
Sec.  1.30D-3(c)(17) defined ``qualifying critical mineral'' as an 
applicable critical mineral that is extracted or processed in the 
United States, or in any country with which the United States has a 
free trade agreement in effect, or that is recycled in North America. 
Proposed Sec.  1.30D-3(c)(17) used a 50 percent threshold to determine 
whether an applicable critical mineral is a ``qualifying critical 
mineral.'' Thus, under the proposed regulations, an applicable critical 
mineral was treated as extracted or processed in the United States, or 
in any country with which the United States has a free trade agreement 
in effect, if: (1) 50 percent or more of the value added to the 
applicable critical mineral by extraction is derived from extraction 
that occurred in the United States or in any country with which the 
United States has a free trade agreement in effect; or (2) 50 percent 
or more of the value added to the applicable critical mineral by 
processing is derived from processing that occurred in the United 
States or in any country with which the United States has a free trade 
agreement in effect. An applicable critical mineral would be treated as 
recycled in North America if 50 percent or more of the value added to 
the applicable critical mineral by recycling is derived from recycling 
that occurred in North America. Proposed Sec.  1.30D-3(c)(25) defined 
``value added,'' with respect to recycling, extraction, or processing 
of an applicable critical mineral, as the increase in the value of the 
applicable critical mineral attributable to the relevant activity.
    Third, qualified manufacturers would calculate qualifying critical 
mineral content. Under proposed Sec.  1.30D-3(a)(3)(i), qualifying 
critical mineral content would be calculated as the percentage that 
results from dividing the total value of qualifying critical minerals 
by the total value of critical minerals. Proposed Sec.  1.30D-3(c)(23) 
defined ``total value of qualifying critical minerals'' as the sum of 
the values of all the qualifying critical minerals contained in a 
battery described in proposed Sec.  1.30D-3(a)(1). Proposed Sec.  
1.30D-3(c)(22) defined ``total value of critical minerals'' as the sum 
of the values of all applicable critical minerals contained in a 
battery described in proposed Sec.  1.30D-3(a)(1).
    Proposed Sec.  1.30D-3(a)(3)(iii) required qualified manufacturers 
to select a date for determining the values associated with the total 
value of qualifying critical minerals (determined separately for each 
procurement chain) and the total value of critical minerals. Such date 
needs to be after the final processing or recycling step for the 
applicable critical minerals relevant to the certification described in 
section 30D(e)(1)(A) of the Code and should be uniformly applied for 
all applicable critical minerals contained in the battery.
    Proposed Sec.  1.30D-3(a)(3)(iv) provided that a qualified 
manufacturer may determine qualifying critical mineral content based on 
the value of the applicable critical minerals actually contained in the 
clean vehicle battery of a specific vehicle. Alternatively, for 
purposes of calculating the qualifying critical mineral content for 
batteries in a group of vehicles, a qualified manufacturer could 
average the qualifying critical mineral content calculation over a 
limited period of time (for example, a year, quarter, or month) with 
respect to vehicles from the same model line, plant, class, or some 
combination of thereof, with final assembly (as defined in section 
30D(d)(5) of the Code and proposed Sec.  1.30D-2(b)) within North 
America.
    The Treasury Department and the IRS received numerous comments with 
respect to the Critical Minerals Requirement. To the extent comments 
relate to general definitions, such as ``constituent material,'' 
``extraction,'' or ``processing,'' they are addressed in section III.A 
of this Summary of Comments and Explanation of Revisions.
    Many commenters expressed criticism or concerns relating to the 
Critical Minerals Requirement. Several criticized the requirement as 
too strict. For example, one commenter stated that classifying the 
supply chains of the United States' allies as non-qualifying would 
damage the development of a North American supply chain. Section 
30D(e)(1) requires an analysis of the location of supply chain 
activities (that is, extraction, processing, and recycling). 
Accordingly, the final regulations do not adopt these comments.
    Similarly, one commenter requested that the Critical Minerals 
Requirement be restricted to nickel, cobalt, lithium, manganese, and 
graphite, as minerals. Because section 30D(e)(1)(A) defines 
``applicable critical minerals'' by reference to section 45X(c)(6), 
which includes a broader list of minerals than the five noted by the 
commenter, the final regulations do not adopt this comment.
    Many comments addressed the 50% Value Added Test. Multiple comments 
were supportive of the tests, while others recommended that the final 
regulations adopt a different rule. One commenter suggested that, for 
lithium and nickel, the final regulations replace the 50% Value Added 
Test with rules that specify which combinations of extraction and 
processing are necessary for qualification as qualifying critical 
mineral content. Two commenters recommended that the 50% Value Added 
Test be replaced with a determination based on change in tariff 
classifications. Several comments asserted that the 50% Value Added 
Test was not strict enough. One commenter stated that the 50% Value 
Added Test impermissibly stretches the statute by substantially 
diluting the applicable percentage requirement of section 30D(e)(1)(B). 
Similarly, another commenter states that the 50% Value Added Test 
improperly dilutes section 30D(e)(1)(B), and that it improperly 
bifurcates the Critical Minerals Requirement into separate tests for 
extraction and processing. Several commenters proposed that the 50% 
Value Added Test be increased to a higher percentage. Another commenter 
requested that the 50% Value Added Test be eliminated entirely after 
2024. A different commenter requested that guidance describing a more 
stringent test under the Critical Minerals Requirement be provided as 
soon as possible, in order to provide clarity to taxpayers, OEMs, and 
battery suppliers. However, another commenter suggested that the IRS 
and the Treasury Department refrain from drafting a replacement to the 
50% Value Add Test until supply chains are more mature.

[[Page 37734]]

    An applicable critical mineral may undergo multiple steps of each 
of extraction, processing, or recycling that occur in multiple 
locations, and section 30D(e)(1)(A) does not specify how to determine 
whether an applicable critical mineral was extracted, processed, or 
recycled in a statutorily-required location. To account for this, the 
50% Value Added Test was developed to determine whether an applicable 
critical mineral procurement chain was sufficiently produced in a 
statutory-required location to count toward meeting the Critical 
Minerals Requirement. The 50% Value Added Test allows qualified 
manufacturers to make an objective determination of when an applicable 
critical mineral was produced in a manner that would qualify under 
section 30D(e)(1)(A). While some commenters have criticized the 50 
percent threshold as too low, this percentage, as noted in the 
Explanation of Provisions to the April Proposed Regulations, was 
intended as a transition rule while ensuring that a significant portion 
of the extraction, processing, or recycling activities was performed in 
a statutorily required location. The percentage was designed with the 
purposes of section 30D(e)(1) in mind and to allow qualified 
manufacturers time to transition supply chains in anticipation of a 
more stringent rule.
    The final regulations adopt the Traced Qualifying Value Test, 
described more fully after the discussion of comments in this section 
of the Summary of Comments and Explanation of Revisions. This test is 
more precise than the 50% Value Added Test, as it requires an OEM to 
fully trace any value added in each procurement chain that it applies 
toward the Critical Minerals Requirement. It is also generally more 
stringent, because the OEM may treat as qualifying only a percentage of 
value of an applicable critical mineral, and not the full value. The 
Traced Qualifying Value Test credits the share of value added by 
extraction or processing in the United States or a country with which 
the United States has a free trade agreement in effect, or recycling in 
North America, in determining whether the Critical Minerals Requirement 
is met. By looking to the highest value-added percentage of the three 
specified activities (extraction, processing, or recycling) for each 
applicable critical mineral procurement chain, the Traced Qualifying 
Value Test appropriately implements the statutory language requiring 
only one of the three specified activities with respect to an 
applicable critical mineral to occur in a qualifying place in order to 
have the value of an applicable critical mineral count toward 
satisfying the Critical Minerals Requirement.
    In response to comments suggesting alternative approaches to 
determining whether the Critical Minerals Requirement is satisfied, the 
Treasury Department and the IRS have determined that specifying 
combinations of extraction and processing steps would not be 
administrable given the potential number of permutations. Moreover, 
specifying combinations only for certain minerals would be at odds with 
the rules of section 30D(e)(1), which apply to all critical minerals. 
Similarly, the Treasury Department and the IRS have determined that 
determining qualifying mineral content based on a change in tariff 
classification would not be administrable or provide certainty to OEMs 
because changes in tariff classification may not provide the clear 
standards required for purposes of tax credit eligibility 
determinations.
    The final regulations adopt the Traced Qualifying Value Test, which 
is described further below after the discussion of comments in this 
section of the Summary of Comments and Explanation of Revisions, for 
taxable years ending after May 6, 2024. In response to commenters who 
supported the 50% Value Added Test or who supported a longer transition 
period, the final regulations permit use of the 50% Value Added Test as 
an optional transition rule for vehicles for which a qualified 
manufacturer provides a periodic written report prior to January 1, 
2027, and require the 50% Value Added Test for vehicles for which a 
qualified manufacturer provides a periodic written report prior to May 
6, 2024.
    Several commenters to the April Proposed Regulations raised 
questions about how the FEOC Restriction applied to applicable critical 
minerals. These questions were answered in the December Proposed 
Regulations, which are finalized herein.
    Several commenters raised questions relating to the calculation 
under the 50% Value Added Test. These questions may be relevant under 
these final regulations for either the 50% Value Added Test (as it is 
retained as a transition rule) or for the Traced Qualifying Value Test, 
and so are addressed herein. For example, one commenter requested 
clarification on whether lithium carbonate or lithium ore corresponding 
to lithium carbonate should be used to calculate the total value of 
qualifying critical minerals. The final regulations clarify, in the 
definition of ``applicable critical mineral'' in Sec.  1.30D-2(b), that 
the Critical Minerals Requirement and FEOC Restriction determinations 
with respect to an applicable critical mineral take into account each 
step of extraction, processing, or recycling through the step in which 
such mineral is processed or recycled into an associated constituent 
material, even if the mineral is not in a form listed in section 
45X(c)(6) at every step of production. Thus, both the lithium carbonate 
and lithium ore should be taken into account. Several commenters raised 
specific questions about specific components of the calculation. 
Another commenter requested that the final regulations clarify that, 
under step three of the 50% Value Added Test calculation, the total 
value of qualifying critical minerals and total value of critical 
minerals means the value of the corresponding constituent materials. 
Because a constituent material may be composed of an applicable 
critical mineral that has multiple procurement chains, or of multiple 
critical minerals, their values may not necessarily correspond to the 
value of the associated constituent material. Accordingly, the final 
regulations do not adopt this comment. Another commenter asked whether 
a weighted average is used for purposes of the 50% Value Added Test if 
an applicable critical mineral has two or more procurement chains. The 
same commenter asked if the 50% Value Added Test can be satisfied by 
adding percentages across extraction and processing. Under both the 
proposed and final regulations, the 50% Value Added Test does not use a 
weighted average, and the percentages must be examined separately for 
each of extraction, processing, or recycling. Relatedly, two commenters 
noted that the proposed regulations did not provide a methodology for 
distributing the value-add across procurement chains. The proposed 
regulations required a separate analysis of each procurement chain and 
did not allow for analysis across procurement chains. Because allowing 
analysis across procurement chains would be at odds with the supply-
chain tracing requirements of section 30D(e)(1), the final regulations 
do not adopt these comments.
    One commenter asked for clarification on how to determine value 
added in cases in which multiple applicable critical minerals are 
processed together, and recommended that the final regulations provide 
that value added be allocated to each applicable critical

[[Page 37735]]

mineral based on weight. The proposed regulations defined ``value 
added'' with respect to recycling, extracting, or processing of an 
applicable critical mineral as the increase in the value of the 
applicable critical mineral attributable to the relevant activity; the 
proposed regulations did not provide a specific rule for a case in 
which multiple applicable critical minerals are processed together. In 
response to this comment, the final regulations clarify that, in the 
case in which multiple applicable critical mineral procurement chains 
are part of the same processing or recycling activity, value added 
should be allocated to each procurement chain based on relative mass.
    The proposed regulations allowed qualified manufacturers to average 
qualifying critical mineral content over a limited period of time (for 
example, a year, quarter, or month) with respect to vehicles from the 
same model line, plant, class, or some combination of thereof. The 
Treasury Department and the IRS received a number of comments on this 
rule. Several commenters were supportive of the proposed rule or sought 
a broader averaging rule. One commenter asked that the final 
regulations expressly allow for an 18-month averaging period. One 
commenter requested that the final regulations consider also allowing 
qualified manufacturers to average critical mineral content over 
batteries produced at a particular facility. Similarly, another 
commenter requested that the final regulations allow automakers to 
calculate, on a companywide basis, their volume or percentage of 
qualifying critical minerals and allocate such minerals to specific 
batteries or vehicles on a unit-by-unit or VIN-by-VIN basis. On the 
other hand, several commenters raised concerns that the averaging rule 
could allow for manipulation. One commenter suggested limitations on 
the averaging rule, and requested that the final regulations require 
automakers to offer a clear explanation of how they perform the 
calculation, and demonstrate to the IRS that the calculation will 
neither exclude any vehicles with a battery that the automaker brings 
to market, nor double count any vehicles. The commenter also suggested 
that the IRS limit an automaker's ability to switch between groupings 
of vehicles (for purpose of calculating the average) to minimize the 
opportunity to manipulate the calculation. The commenter further 
recommended that automakers be allowed to choose a test period 
(preferably as late as possible in the year) over which to calculate 
average values to take advantage of growing qualifying supply chains, 
but with sufficient time to ensure the automaker can determine vehicle 
eligibility for the tax credit before the beginning of a calendar year. 
Another commenter noted that averaging qualifying critical mineral 
content by alternative periods of time by model line, plant, class, or 
combination thereof with final assembly in North America may prove an 
administrative burden and result in an increased risk of manipulation, 
citing how anode and cathode critical minerals could move through the 
procurement supply chain to manipulate value calculations. A separate 
commenter expressed concern that the averaging rules could allow OEMs 
to source critical minerals from outside the United States and 
countries with which the United States has free trade agreements in 
effect, yet still satisfy the Critical Minerals Requirement. The 
Treasury Department and the IRS have determined that the proposed rules 
reflect a reasonable balancing of these considerations by allowing 
averaging, but limiting it to groups of vehicles that may share the 
same procurement chains (that is, vehicles from the same model line, 
plant, class, or some combination of thereof). In addition, the upfront 
review process, finalized as Sec.  1.30D-3(d), provides a mechanism for 
review and verification of OEM calculations, which will prevent 
manipulation. Finally, the time periods of a year, quarter, or month 
are exemplary and do not prevent averaging over a different time 
period. However, the averaging period should be consistent with any 
rules and procedures established by the upfront review process. 
Accordingly, the final regulations do not adopt these comments.
    Several commenters raised concerns with respect to the volatility 
of mineral pricing. One such commenter requested that qualified 
manufacturers be given the option to elect to average the most common 
critical mineral's value with the historical values of that material 
based on previous annual contracts. Others requested a historical 
lookback period of between eighteen months to five years. Another 
commenter requested that the Treasury Department and the IRS allow for 
multiple methods of calculation to address market fluctuations. 
Specifically, the commenter recommended that to address market 
fluctuations, the previous year's average mineral price could be used, 
or a five-year average. The commenter further noted that this would 
take into account the very large difference in the value of the 
different materials, but mitigate against market volatility. A 
commenter suggested the Treasury Department and the IRS provide the 
option to use widely-recognized and trusted market indices to serve as 
an acceptable estimation of the price of a particular step in the 
procurement chain for which actual prices for certain procurement 
chains or portions of the procurement chain cannot be determined by the 
manufacturer. The commenter noted that contracts with suppliers usually 
indicate what the ``controllable piece'' is, essentially what cost of 
that supplier's value-add is within the overall cost of the supplied 
product. However, contracts typically do not provide a set cost for 
inputs, as those inputs are price flexible based on the mineral 
markets, meaning that using an established mineral market index for 
cost estimation would more closely reflect the real-world prices paid 
for that material. The commenter indicated that these indices may 
include those commonly cited in U.S. Geological Survey reports. 
Finally, commenters proposed adopting a safe harbor provision due to 
the price volatility of critical minerals, which would enable producers 
of critical minerals to relocate sourcing operations to the United 
States or countries with which the United States has free trade 
agreements in effect. The Treasury Department and the IRS acknowledge 
these commenters' concerns relating to mineral valuation and 
volatility. The averaging rules of the proposed and final regulations 
are intended, in part, to address these concerns by allowing qualified 
manufacturers to determine qualifying critical mineral content based on 
an average value (rather than the value at a specific time that may be 
unusually high or low) and by allowing qualified manufacturer 
flexibility in determining the averaging period. Similarly, the 
proposed and final regulations allow qualified manufacturers to choose 
a date, after the final processing or recycling step, for the 
determination of value, which also provides flexibility. Accordingly, 
the final regulations do not adopt these comments.
    Several commenters commented on sourcing and OEM due diligence. One 
commenter suggested that the final regulations require qualified 
manufacturers to engage in detailed tracing, and provide related 
documentation to the IRS. That commenter suggested that the processes 
of the EU Battery Regulation could provide a model. Another commenter 
encouraged the Treasury Department

[[Page 37736]]

and the IRS to work closely with the DOE, Environmental Protection 
Agency, and Department of Transportation to explore how a digital 
battery identifier could help facilitate material sourcing transparency 
and improve the efficiency of battery repurposing and recycling. 
Several commenters suggested adopting standards based on Organisation 
for Economic Co-operation and Development (OECD) standards. A commenter 
requested clarification on what due diligence is required with respect 
to battery supply chains, particularly in instances in which 
intermediate materials may not be sold on an open market. The upfront 
review process of Sec.  1.30D-3(d) is intended to provide clear rules 
and a clear process for automakers to provide information regarding due 
diligence with respect to the Critical Minerals and Battery Components 
Requirements to the IRS. The Treasury Department and the IRS are 
considering future sub-regulatory guidance with respect to the upfront 
review process.
    Finally, one commenter raised concerns that unexpected events could 
affect the supply of either applicable critical minerals or battery 
components, and suggested that the Treasury Department and the IRS 
allow for a temporary waiver request process in such cases, allowing 
the affected minerals or components to be excluded from the calculation 
under the Critical Minerals or Battery Components Requirements. The 
commenter set out a detailed scheme for the waiver process. Another 
commenter similarly requested a waiver process in cases in which 
certain production steps are affected by either market volatility or 
unexpected events. The Treasury Department and the IRS determined that 
the averaging rules under the Critical Minerals and Battery Components 
Requirements allow for flexibility in the case of both price 
fluctuations and unexpected events. In addition, allowing OEMs or their 
suppliers a waiver with respect to certain production steps could be 
subject to manipulation. Accordingly, these comments are not adopted.
    As under the proposed regulations, the final regulations, under 
Sec.  1.30D-3(a)(1), provide that the Critical Minerals Requirement is 
met if the qualifying critical mineral content of the clean vehicle 
battery of the vehicle is equal to or exceeds the applicable critical 
minerals percentage provided in section 30D(e)(1)(B) and Sec.  1.30D-
3(a)(2). The proposed regulations included the 50% Value Added Test for 
determination of the qualifying critical mineral content. In the 
Explanation of Provisions to the April Proposed Regulations, the 
Treasury Department and the IRS anticipated that the 50% Value Added 
Test would serve as a transition rule, which would provide 
manufacturers time to develop the necessary capability to certify 
compliance with the Critical Minerals Requirement throughout their 
supply chains, and the final regulations would move to a more stringent 
test. Certain commenters criticized the April NPRM rules as 
inconsistent with the statute, while others have been supportive. 
Several commenters asked for additional clarity as to how to make the 
calculations and for specific examples. Others asked that the 
calculation in the proposed rule be made permanent. Other than as 
described above, commenters generally did not identify alternative 
proposals for the Critical Minerals requirement. Consistent with this, 
and taking into account the comments received, the final regulations 
adopt the following rules for determining qualifying critical mineral 
content.
    For vehicles for which a qualified manufacturer provides a periodic 
written report on or after May 6, 2024, Sec.  1.30D-3(a)(3), as 
finalized, provides a three-step process (Traced Qualifying Value Test) 
for the calculation under the Critical Minerals Requirement.
    First, the qualified manufacturer determines each procurement 
chain, as defined in Sec.  1.30D-3(c)(1)(i), consistent with the April 
Proposed Regulations.
    Second, the qualified manufacturer must determine the ``traced 
qualifying value'' of all applicable critical minerals'' and the 
``total traced qualifying value.'' These definitions are introduced in 
the final regulations. ``Traced qualifying value'' is defined, in Sec.  
1.30D-3(c)(1)(vii) as, with respect to an applicable critical mineral 
that is extracted and processed into a constituent material, the value 
of the applicable critical mineral multiplied by the greater of (A) the 
value added to the applicable critical mineral by extraction that 
occurred in the United States or in any country with which the United 
States has a free trade agreement in effect, divided by the total value 
added from extraction of the applicable critical mineral; or (B) the 
value added to the applicable critical mineral by processing that 
occurred in the United States or in any country with which the United 
States has a free trade agreement in effect, divided by the total value 
added from processing of the applicable critical mineral. ``Traced 
qualifying value'' is defined as, with respect to an applicable 
critical mineral that is recycled into an associated constituent 
material, the value of the applicable critical mineral multiplied by 
the percentage obtained by dividing the value added to the applicable 
critical mineral by recycling that occurred in North America by the 
total value added from recycling of the applicable critical mineral. 
``Valued added'' is defined in Sec.  1.30D-3(c)(1)(viii), consistent 
with the April Proposed Regulations. Section 1.30D-3(a)(3)(ii) provides 
that the traced qualifying value of an applicable critical mineral, 
including the percentage or percentages necessary to determine the 
traced qualifying value, must be determined separately for each 
procurement chain. ``Total traced qualifying value,'' in Sec.  1.30D-
3(c)(1)(iv), is defined as the sum of the traced qualifying values of 
all applicable critical minerals contained in the clean vehicle 
battery.
    Third, the qualified manufacturer determines the qualifying 
critical mineral content. Section 1.30D-3(a)(3)(i) provides that 
qualifying critical mineral content is determined by dividing the total 
traced qualifying value (calculated in step 2) by the total value of 
critical minerals. The final regulations, consistent with the proposed 
regulations, provide in Sec.  1.30D-3(c)(1)(v) that the ``total value 
of critical minerals'' means the sum of the values of all applicable 
critical minerals contained in a clean vehicle battery.
    Section 1.30D-3(a)(3)(iii) requires qualified manufacturers to 
select a date for determining the values associated with the total 
traced qualifying value (determined separately for each procurement 
chain) and the total value of critical minerals. Such date would need 
to be after the final processing or recycling step for the applicable 
critical minerals relevant to the certification described in section 
30D(e)(1)(A) of the Code. This date would need to be uniformly applied 
for all applicable critical minerals contained in the battery.
    Section 1.30D-3(a)(3)(iv) provides that a qualified manufacturer 
may determine qualifying critical mineral content based on the value of 
the applicable critical minerals actually contained in the clean 
vehicle battery of a specific vehicle. Alternatively, for purposes of 
calculating the qualifying critical mineral content for batteries in a 
group of vehicles, a qualified manufacturer could average the 
qualifying critical mineral content calculation over a limited period 
of time (for example, a year, calendar quarter, or month) with respect 
to vehicles from the same model line, plant, class, or some combination 
of thereof, with final assembly within North America.

[[Page 37737]]

    As noted above, the Traced Qualifying Value Test is more precise 
than the 50% Value Added Test, as it requires an OEM to fully trace any 
value added in each procurement chain that it applies toward the 
Critical Minerals Requirement. It is also generally more stringent, 
because the OEM may treat as qualifying only a percentage of value of 
an applicable critical mineral, and not the full value. The Treasury 
Department and the IRS also considered adapting the 50% Value Added 
Test to require a higher threshold percentage than 50%, but such an 
approach results in a ``cliff effect'' whereby the value of applicable 
critical minerals just below the threshold percentages is not applied 
toward the Critical Minerals Requirement while the full value of 
applicable critical minerals just above the threshold percentage is 
treated as qualifying, which could lead to counter-intuitive results 
and increased potential for gaming. By contrast, the Traced Qualifying 
Value Test incentivizes each incremental increase in value-added 
activities in the United States and free trade agreement partner 
countries or in North America, as applicable. For these reasons, the 
Treasury Department and the IRS have determined that this test is the 
most effective of the potential alternatives considered in furthering 
the statutory purpose of transitioning to secure clean vehicle battery 
supply chains in the United States and allied countries.
    In order to allow for a transition to the Traced Qualifying Value 
Test, the final regulations provide that, for vehicles for which a 
qualified manufacturer provides a periodic written report on or after 
May 6, 2024 and prior to January 1, 2027, a qualified manufacturer may 
calculate qualifying critical mineral content under the 50% Value Added 
Test. Finally, the regulations finalize the 50% Value Added Test for 
vehicles for which a qualified manufacturer provides a periodic written 
report prior to May 6, 2024.
2. Battery Components Requirement
    The final regulations adopt the Battery Components Requirement of 
the April Proposed Regulations without change. Section Sec.  1.30D-
3(c)(2)(iii) defines ``qualifying battery component content'' as the 
percentage of the value of the battery components contained in the 
clean vehicle battery that were manufactured or assembled in North 
America. As finalized in Sec.  1.30D-3(b)(1), the Battery Components 
Requirement is met if the qualifying battery component content of a 
clean vehicle battery is equal to or exceeds the applicable battery 
components percentage provided in section 30D(e)(2)(B) and Sec.  1.30D-
3(a)(2).
    The final regulations provide a four-step process for determining 
the percentage of the value of the battery components in a battery that 
contribute toward meeting the Battery Components Requirement.
    First, qualified manufacturers determine whether each battery 
component in a battery was a ``North American battery component,'' that 
is, a battery component substantially all of the manufacturing or 
assembly of which occurs in North America, without regard to the 
location of the manufacturing or assembly activities of any components 
that make up the particular battery component (as defined in Sec.  
1.30D-3(c)(2)(ii).
    Second, qualified manufacturers determine the ``total incremental 
value of North American battery components,'' that is, the sum of the 
incremental values of each North American battery component contained 
in clean vehicle battery (as defined in Sec.  1.30D-3(c)(2)(v)). 
``Incremental value'' is defined as, with respect to the battery 
component, the value of that battery component minus the value of the 
manufactured or assembled battery components, if any, that are 
contained in that battery component (as defined in Sec.  1.30D-
3(c)(2)(i)).
    Third, qualified manufacturers determine the ``total incremental 
value of battery components,'' that is, the sum of the incremental 
values of each battery component contained in a clean vehicle battery 
(as defined in Sec.  1.30D-3(c)(2)(iv)).
    Fourth, qualified manufacturers determine the qualifying battery 
component content, by dividing the total incremental value of North 
American battery components (determined in step 2) by the total 
incremental value of battery components (determined in step 3), as 
provided in Sec.  1.30D-3(b)(3)(i).
    Section 1.30D-3(b)(3)(ii) requires qualified manufacturers to 
select a date for determining the values associated with the total 
incremental value of North American battery components and the total 
incremental value of battery components. Such date needs to be after 
the last manufacturing or assembly step for the battery components 
relevant to the certification described in section 30D(e)(2)(A). This 
date must be uniformly applied for all battery components contained in 
the battery.
    Section 1.30D-3(b)(3)(iii) provides that a qualified manufacturer 
may determine qualifying battery component content based on the 
incremental values of the battery components actually contained in the 
clean vehicle battery of a specific vehicle. Alternatively, for 
purposes of calculating the qualifying battery component content for 
batteries in a group of vehicles, a qualified manufacturer could 
average the qualifying battery component content calculation over a 
limited period of time (for example, a year, a calendar quarter, or a 
month) with respect to vehicles from the same model line, plant, class, 
or some combination of thereof, with final assembly (as defined in 
section 30D(d)(5) of the Code and Sec.  1.30D-2(b) of the final 
regulations) within North America.
    Finally, the final regulations, in Sec.  1.30D-3(c)(2)(iv), clarify 
that the battery module is the end point for the purpose of calculating 
the value of battery components. This clarification was noted in the 
Explanation of Provisions to the April Proposed Regulations. In 
addition, the final regulations clarify that, in the case of a cell-to-
pack battery design with no modules, the battery cell is the end point 
for the purpose of calculating the value of battery components.
    The Treasury Department and the IRS received a number of comments 
with respect to the Battery Components Requirement. Comments with 
respect to generally applicable definitions, such as ``assembly,'' 
``battery,'' ``battery component,'' or ``manufacturing,'' are discussed 
in section III.A of this Summary of Comments and Explanation of 
Revisions. This section discusses comments with respect to the 
calculation required to determine compliance with the Battery 
Components Requirement.
    One commenter criticized the Battery Components Requirement and 
noted that it may reduce efficiency, cost effectiveness, and innovation 
with respect to battery components. In response to this, the Treasury 
Department and the IRS note that the Battery Components Requirement is 
mandated by the statute. Similarly, another commenter recommended that 
battery components manufactured or assembled in Japan be considered as 
qualifying. However, this is prohibited by the statute because battery 
components must be manufactured or assembled in North America to meet 
the Battery Components Requirement.
    A commenter asked for a more detailed components list along with 
calculation examples that include the components in the list. As 
discussed in section III.A.6 of this Summary of Comments and 
Explanation of Revisions, the Treasury Department and the IRS decline 
to amend the list of

[[Page 37738]]

battery components. However, the final regulations add a new definition 
for the term ``battery materials,'' and clarify that battery materials 
are not battery components. In addition, the Treasury Department and 
the IRS have included in the Summary of Comments and Explanation of 
Revisions to the final regulations an example calculation under the 
Battery Components Requirement that references specific components.
    Proposed Sec.  1.30D-3(b)(3)(iii) provided flexible rules that 
allow a qualified manufacturer to average the qualifying battery 
component content calculation over a limited period of time (for 
example, a year, quarter, or month) with respect to vehicles from the 
same model line, plant, class, or some combination of thereof. One 
commenter raised a concern that these rules were too flexible and could 
create gaming opportunities. The commenter suggested that the final 
regulations clearly describe which vehicle characteristics may be 
averaged together and directly state that any combination of 
characteristics not identified in the final regulations may not be 
averaged together. Because the category of vehicle characteristics is 
open-ended, may vary by manufacturer, and is subject to change in the 
future, it is not practicable to specify certain vehicle 
characteristics that are necessary for grouping. In addition, a 
specified list of vehicle characteristics may not correspond to the 
vehicle procurement chains of particular manufacturers. For these 
reasons, the Treasury Department and the IRS appreciate the concerns 
raised by this comment, but have concluded that the flexibility of the 
proposed rule is necessary in order to provide an administrable rule to 
qualified manufacturers. In addition, the upfront review process 
described in proposed Sec.  1.30D-3(e), discussed in section III.B.3 of 
this Summary of Comments and Explanation of Revisions, will also help 
prevent gaming of the Battery Components Requirement calculations. This 
commenter also suggested that the Treasury Department and the IRS 
maintain the right to update which characteristics may be averaged 
together in the future, should changes be necessary. In response to 
this, the Treasury Department and the IRS will continue to study this 
issue as the Treasury Department and the IRS gain experience with the 
upfront review process.
    Finally, two commenters suggested that the final regulations 
consider allowing for a waiver of the Critical Minerals and Battery 
Components Requirements in certain cases. The statute does not provide 
for a waiver program; thus, the final regulations do not adopt these 
comments. Commenter proposals for a waiver process are discussed in 
more detail in section III.B.1 of this Summary of Comments and 
Explanation of Revisions.
3. Upfront Review
    Proposed Sec.  1.30D-3(e) provided for an upfront review to assess 
a qualified manufacturer's conformance with the Critical Minerals and 
Battery Components Requirements. Specifically, proposed Sec.  1.30D-
3(e) provided that for new clean vehicles placed in service after 
December 31, 2024, the qualified manufacturer must provide 
attestations, certifications, and documentation demonstrating 
compliance with the requirements of section 30D(e), at the time and in 
the manner provided in the Internal Revenue Bulletin (see Sec.  601.601 
of this chapter). The IRS, with analytical assistance from the DOE, 
will review the attestations, certifications, and documentation. This 
rule is finalized as Sec.  1.30D-3(d).
    One commenter stated that, if final regulations require qualified 
manufacturer submissions, the Treasury Department and the IRS should 
develop a system to protect confidential business secrets. In response 
to this, the Treasury Department and the IRS note that they intend to 
continue to engage with OEMs and other stakeholders to develop the 
rules under the upfront review process.
4. Rule for New Qualified Fuel Cell Motor Vehicles
    The final regulations provide in Sec.  1.30D-3(e) that the 
requirements of section 30D(e) and Sec.  1.30D-3 (Critical Minerals and 
Battery Components Requirements) are deemed to be satisfied with 
respect to new qualified fuel cell motor vehicles. Thus, the amount of 
the credit with respect to these vehicles, under section 30D(b), is 
$7,500. However, a qualified fuel cell motor vehicle (as defined in 
section 30B(b)(3)) with a clean vehicle battery, such as a plug-in 
hybrid fuel cell electric vehicle, would be subject to the Critical 
Minerals and Battery Components Requirements because it draws 
electricity from the clean vehicle battery.
    Because new qualified fuel cell motor vehicles do not have a clean 
vehicle battery, these vehicles do not have applicable critical 
minerals or battery components contained in such battery that would be 
subject to the Critical Minerals and Battery Components Requirements. 
The IRA's enactment of section 30D(d)(6), which provides that new 
qualified fuel cell motor vehicles are new clean vehicles if such 
vehicles meet the North American final assembly and seller reporting 
requirements (see section 30D(d)(1)(G) and (H)), indicates that 
Congress intended for these vehicles to be eligible for the section 30D 
credit. Therefore, the better reading of section 30D as a whole is that 
new qualified fuel cell motor vehicles are eligible for the full 
section 30D credit amount of $7,500.
C. Special Rules
    Proposed Sec.  1.30D-4 provided special rules with respect to the 
section 30D credit. Among those rules, proposed Sec.  1.30D-4(b)(5)(i) 
provided that, except as provided in proposed Sec.  1.30D-4(b)(5)(ii), 
in the case of a new clean vehicle that is placed in service by a 
corporation or other taxpayer that is not an individual for whom AGI is 
computed under section 62, the Modified AGI limitation does not apply. 
One commenter expressed concern about individuals circumventing the 
Modified AGI limitation by having a non-grantor trust place in service 
an otherwise qualifying vehicle, suggesting that an anti-abuse rule 
would prevent such occurrences. In response to this comment, the final 
regulations provide that the Modified AGI limitation applies to 
individuals, estates, and non-grantor trusts. For estates and non-
grantor trusts, Modified AGI is AGI as determined under section 67(e) 
of the Code. The final regulations also provide that the $150,000 
threshold amount applies to estates and non-grantor trusts for purposes 
of the Modified AGI limitation, and that an estate or non-grantor trust 
will be treated as having Modified AGI above the threshold amount for 
any year in which it is not in existence. The Treasury Department and 
the IRS will also continue to monitor this issue. In further response 
to this comment, the final regulations also clarify the applicability 
of this credit to grantor trusts, and provide that, to the extent that 
the grantor or another person is treated as owning all or part of a 
trust under sections 671 through 679 of the Code, the section 30D 
credit is allocated to such grantor or other person in accordance with 
Sec.  1.671-3(a)(1). In addition, the Modified AGI limitation applies 
based on the Modified AGI of the grantor or other deemed owner, not the 
Modified AGI of the trust or any other beneficiary.
    The final regulations also clarify that with regard to partnerships 
and S corporations, the Modified AGI limitation applies on a partner or 
shareholder level. Finally, consistent with the preceding, the final 
regulations provide that the Modified AGI

[[Page 37739]]

limitation does not apply to corporations and taxpayers other than 
individuals, estates, trusts, and partners or shareholders of 
passthrough entities.
D. FEOC Restriction
    Section 30D(d)(7), the excluded entities provision or FEOC 
Restriction, excludes from the definition of ``new clean vehicle'' any 
vehicle placed in service after December 31, 2024, with respect to 
which any of the applicable critical minerals contained in the battery 
of such vehicle (as described in section 30D(e)(1)(A)) were extracted, 
processed, or recycled by a FEOC (as defined in section 40207(a)(5) of 
the Infrastructure Investment and Jobs Act), or any vehicle placed in 
service after December 31, 2023, with respect to which any of the 
components contained in the battery of such vehicle (as described in 
section 30D(e)(2)(A)) were manufactured or assembled by a FEOC (as so 
defined).
    Several commenters either criticized the FEOC Restriction or 
requested that these applicability dates be delayed in order to give 
the industry time to reconfigure their supply chains. Similarly, 
commenters noted that the FEOC Restriction may be problematic for land-
based sourcing of nickel, cobalt, and manganese in particular. As the 
FEOC Restriction and its applicability dates are statutory, the final 
regulations do not adopt these comments.
    Proposed Sec.  1.30D-6(a) provided definitions for terms relevant 
to the FEOC Restriction and proposed Sec.  1.30D-6. The final 
regulation moves these definitions to Sec.  1.30D-2(b), and include a 
new Sec.  1.30D-6(a) that is a general statement of the FEOC 
Restriction rules. Otherwise, the final regulations adopt the structure 
and framework of proposed Sec.  1.30D-6, with the modifications 
described herein.
1. Due Diligence and Transition Rule for Non-Traceable Battery 
Materials
    Proposed Sec.  1.30D-6(b) provided due diligence requirements for 
qualified manufacturers to determine compliance with the FEOC 
Restriction. Proposed Sec.  1.30D-6(b)(2) provided a temporary 
exception to the due diligence requirements for identified non-
traceable battery materials.
i. Due Diligence
    Proposed Sec.  1.30D-6(b)(1) provided that the qualified 
manufacturer must conduct due diligence with respect to all battery 
components and applicable critical minerals (and associated constituent 
materials) that are relevant to determining whether such components or 
minerals are FEOC-compliant. This due diligence must comply with 
standards of tracing for battery materials available in the industry at 
the time of the attestation or certification that enable the qualified 
manufacturer to know with reasonable certainty the provenance of 
applicable critical minerals, constituent materials, and battery 
components. As noted in the Explanation of Provisions to the December 
Proposed Regulations, such tracing standards may include international 
battery passport certifications and enhanced battery material and 
component tracking and labeling. Proposed Sec.  1.30D-6(b)(1) specified 
that reasonable reliance on a supplier attestation or certification 
will be considered due diligence if the qualified manufacturer does not 
know or have reason to know after due diligence that such supplier 
attestation or certification is incorrect.
    The due diligence must be conducted by the qualified manufacturer 
prior to its determination of any information to establish a compliant-
battery ledger described in proposed Sec.  1.30D-6(d), and on an 
ongoing basis. A battery is not considered FEOC-compliant unless the 
qualified manufacturer has conducted such due diligence with respect to 
all such components and applicable critical minerals of the battery and 
provided required attestations or certifications described in section 
III.D. of this Summary of Comments and Explanation of Revisions.
    The Treasury Department and the IRS received a number of comments 
relating to the due diligence requirement.
    As noted previously, proposed Sec.  1.30D-6(b)(1) provided that due 
diligence must comply with standards of tracing for battery materials 
available in the industry at the time of the attestation or 
certification. The proposed regulations did not specify a tracing 
system. Several commenters requested that the final regulations create 
an industry standard for due diligence to avoid confusion and provide a 
standardized system. One such commenter suggested that the Catena-X 
battery passport, used in Europe, as a model while another commenter 
recommended against adopting such rules because the commenter 
considered them to be burdensome and largely untested. Another 
commenter suggested defining ``due diligence'' according to certain 
OECD standards. That same commenter suggested requiring use of digital 
battery identifiers (that is, battery passports). Another commenter 
suggested that until mineral supply chain tracing becomes standardized, 
voluntary standards using multi-stakeholder governance with 
independent, publicly available, third-party auditing (such as the 
Initiative for Responsible Mining Assurance's standard), can assist. 
Finally, one commenter expressed a desire to better understand 
expectations for supply chain tracing and offered to assist the 
Treasury Department and qualified manufacturers in implementing 
effective traceability mechanisms.
    The Treasury Department and the IRS appreciate the number of 
comments about due diligence. However, the broad range of perspectives 
offered by the commenters counsels against mandating a universal 
standard at this time. The Treasury Department and the IRS will 
continue to monitor industry standards, battery passports, and other 
methodologies for tracing, and will consider this issue for future 
guidance.
    The Treasury Department and the IRS also received comments with 
respect to the due diligence requirements and upstream suppliers of the 
OEMs. One commenter requested that the final regulations require 
battery manufacturers and suppliers of battery components and 
applicable critical minerals to cooperate and provide information to 
qualified manufacturers. Alternatively, the commenter requested that 
battery manufacturers be required to directly submit information to the 
IRS and provide qualified manufacturers with certification that any 
items are FEOC-compliant. Section 30D does not provide authority to 
require submissions by upstream suppliers, either to the qualified 
manufacturer or to the IRS. Section 30D(d)(3) authorizes information 
reporting to the Secretary regarding new clean vehicles only by 
qualified manufacturers. Qualified manufacturers may seek to 
incorporate reporting and assurances by their battery suppliers as part 
of their supply contracts, but such an arrangement would be outside the 
scope of these regulations. Accordingly, the final regulations do not 
adopt this comment.
    Two commenters raised issues with respect to battery supplier 
reliance on further upstream suppliers. Proposed Sec.  1.30D-6(b)(1) 
specified that reasonable reliance on a supplier attestation or 
certification will be considered due diligence if the qualified 
manufacturer does not know or have reason to know after due diligence 
that such supplier attestation or certification is incorrect. The two 
commenters requested that the reasonable reliance rule be extended to 
third-party manufacturers or suppliers who conduct due diligence under 
proposed Sec.  1.30D-6(c)(5). The Treasury Department and the IRS agree 
with these commenters. Accordingly, the final regulations also specify 
that that

[[Page 37740]]

reasonable reliance on a supplier attestation or certification will 
also be considered due diligence if the third-party manufacturer or 
supplier (described in Sec.  1.30D-6(c)(5)) does not know or have 
reason to know after due diligence that such supplier attestation or 
certification is incorrect.
    One commenter stated that additional clarification is needed to 
identify the elements of reasonable reliance and due diligence beyond 
the attestation of the supplier. For instance, suppliers may, in 
certain circumstances, be reluctant to share certain sourcing 
information as proprietary and competitive in nature. The commenter 
asked whether a supplier statement based on undisclosed information 
could be reasonably relied upon. In addition, the commenter sought more 
information about implications of a qualified manufacturer's reasonable 
reliance on supplier attestations that prove later to be inaccurate, 
such as whether the qualified manufacturer's reasonable reliance would 
act as a shield against a penalty. Another commenter suggested that 
Treasury should consider establishing a process for certifying that 
suppliers are not FEOCs. The commenter posited that such a process 
could mirror existing U.S. government certification, accreditation, or 
registration processes, such as International Traffic in Arms 
Regulations (ITAR) registration or National Institute of Standards and 
Technologies (NIST) certification.
    The Treasury Department and the IRS appreciate the commenters' 
desire for certainty regarding the procedures for establishing 
reasonable reliance and due diligence. As described in proposed Sec.  
1.30D-6(f), the IRS will consider a range of remedial options in the 
event of inaccurate attestations, certification, or documentation, and 
the IRS will exercise discretion in pursuing any of the specified 
options on the basis of the unique facts and circumstances of the 
inaccuracy, including reasonable reliance on supplier information. In 
addition, parties to supply contracts may include a provision for such 
attestations as part of their contracts.
ii. Transition Rule for Impracticable-to Trace-Battery Materials
    Proposed Sec.  1.30D-6(b)(2) provided that for any new clean 
vehicles for which the qualified manufacturer provides a periodic 
written report before January 1, 2027, the due diligence requirement 
may be satisfied by excluding identified non-traceable battery 
materials (and associated constituent materials). In addition, proposed 
Sec.  1.30D-6(c)(2) provided that identified non-traceable battery 
materials (and associated constituent materials) may be excluded from 
the determination of whether a battery cell is FEOC-compliant. To use 
these transition rules, qualified manufacturers must submit a report 
during the up-front review process (described in section III.B.3 of 
this Summary of Comments and Explanation of Revisions) demonstrating 
how the qualified manufacturer will comply with the excluded entity 
restrictions once the transition rule is no longer in effect and once 
all materials must be fully traced through the entire electric vehicle 
battery supply chain.
    Proposed Sec.  1.30D-6(a)(13)(i) defined ``non-traceable battery 
materials'' to mean specifically identified low-value battery materials 
that may originate from multiple sources and are often commingled 
during refining, processing, or other production processes by suppliers 
to such a degree that the qualified manufacturer cannot, due to current 
industry practice, feasibly determine and attest to the origin of such 
battery materials. For this purpose, low-value battery materials are 
those that have low value compared to the total value of the battery. 
Proposed Sec.  1.30D-6(a)(13)(ii) was reserved to contain the specific 
list of identified non-traceable battery materials. While proposed 
Sec.  1.30D-6(a)(13)(ii) was reserved, the Explanation of Provisions to 
the December Proposed Regulations identified as exemplar materials, for 
potential inclusion on the list, applicable critical minerals contained 
in electrolyte salts, electrode binders, and electrolyte additives.
    As noted in section III.A. of this Summary of Comments and 
Explanation of Revisions, consistent with the expectation and 
requirement that OEMs will develop tracing processes in the future, the 
final regulations retain the list but change the name to 
``impracticable-to-trace battery materials,'' in order to better 
describe the rationale underlying the list.
    The Treasury Department and the IRS received many comments with 
respect to the list of identified nontraceable battery materials as 
well as the proposed transition rules.
    Several commenters requested changes to the meaning of ``low 
value.'' \8\ One commenter requested that low value be determined by 
reference to the battery as a whole, and not just the total value of 
applicable critical minerals. Similarly, another commenter requested 
that ``low value'' be defined with respect to a specified percentage 
relative to the value of the battery. Several commenters requested that 
``low value'' be defined as less than 5 percent or 10 percent of the 
value of the battery. However, another commenter proposed that ``low 
value'' be defined as less than 5 percent of the total value of the 
critical minerals in the batteries. Finally, one commenter objected to 
a definition based on value, noting that, apart from certain cathode 
materials, the economic value of every other component in lithium ion 
batteries is low relative to the total value of the battery. The final 
regulations do not adopt these comments, as the determination of low-
value is not an operative rule with respect to the impracticable-to-
trace battery materials list. Instead, the Explanation of Provisions to 
the December Proposed Regulations only noted the low-value of certain 
materials, relative to the value of the clean vehicle battery, for the 
purpose of identifying materials that qualified manufacturers could not 
feasibly trace. However, the as noted in this Summary of Comments and 
Explanation of Revisions, the term ``low-value'' is not defined as a 
specific percentage. Instead, a low-value battery material is one for 
which qualified manufacturers have not historically conducted due 
diligence or tracing, due to its relatively low value in relation to 
either the battery or the applicable critical minerals in the battery.
---------------------------------------------------------------------------

    \8\ The Explanation of Provisions to the December Proposed 
Regulations noted that, where battery materials make up only a very 
small percentage of the value of the battery as a whole, many 
industry participants had little reason to trace the source of these 
materials prior to the passage of the IRA. On the other hand, that 
Explanation of Provisions identified exemplar materials that 
accounted for less than two percent of the value of applicable 
critical minerals in the battery.
---------------------------------------------------------------------------

    Several commenters supported the development of a specific list of 
nontraceable battery materials as this would provide the greatest 
clarity and certainty for the supply chain. Several commenters also 
requested a full enumerated list of materials. Many commenters 
requested certainty as soon as possible. Several commenters requested 
that the non-traceable battery materials rule be made permanent. On the 
other hand, several commenters supported the transition rule for non-
traceable battery materials, agreed with the temporary nature of the 
rule, and were in favor of this approach over other alternatives, such 
as a de minimis rule or set of criteria for exclusion. Many commenters 
agreed with the exemplar materials identified in the Explanation of 
Provisions to the December Proposed Regulations (that is, applicable 
critical minerals contained in electrolyte salts, electrode binders, 
and

[[Page 37741]]

electrolyte additives). A few commenters suggested clarification 
regarding other materials. One commenter requested that the final rule 
exclude low value anode materials from the tracing requirements. Some 
commenters requested that applicable critical minerals contained in 
foils be added to the list. Other commenters recommended that low-value 
materials, comprising less than five or ten percent of the value of all 
critical minerals in a battery, be excluded from sourcing requirements 
under any final rule and specifically lists cobalt, zinc, tungsten, 
yttrium, titanium, graphite, and fluorspar as potential low-value 
materials. Finally, one commenter requested that constituent materials 
be added to the list. That commenter gave the specific example of the 
electrolyte, and noted that the battery manufacturer may have 
difficulty conducting due diligence with respect to electrolytes, due 
to the tiers of upstream suppliers as well as the need to request 
confidential commercial information.
    Other commenters noted that certain minerals or materials should 
not be included in the definition of non-traceable battery materials. 
One commenter noted that consultation with industry is needed to 
develop a list, because many materials either can be traceable or will 
be traceable before 2027. Several commenters took issue with the 
exemplar materials identified in the Explanation of Provisions to the 
April Proposed Regulations. Some commenters disputed the idea that 
applicable critical minerals contained in electrolyte salts and 
electrode binders are non-traceable. One commenter noted that special 
electrolyte salts and additives (SESAs) are never commingled during 
transport or usage and may be traced to the source through a 
certification of origin. Other commenters specifically enumerated 
minerals that they asserted were traceable, including magnesium, 
magnesium sulfate, manganese sulphate monohydrate and related manganese 
materials and manganese oxides; fluorspar, fluorspar-based hydrofluoric 
acid, fluorine compounds, polyvinylidene fluoride (PVDF) and PVDF 
binder technology; rare earth elements; lithium and Lithium 
hexafluorophosphate (LiPF6); cobalt; and nickel. Finally, one commenter 
suggested that the list of non-traceable battery materials only include 
non-essential battery materials that have ready substitutes. The 
commenter contrasted those materials with essential battery materials 
(such as fluorinated salts and fluorinated binders) that are essential 
to making an EV battery and have no meaningful substitutes. The 
commenter recommended that such essential battery materials not be 
added to the nontraceable battery materials list.
    Several comments raised questions relating to the justifications 
for the identified non-traceable battery materials list. One commenter, 
while generally supportive of the proposed rules, stated that all 
materials are in fact able to be traced.
    Finally, several commenters suggested that the final regulations 
adopt a different approach for a transition rule. One commenter 
requested that the final regulations provide a detailed list of low-
value and non-traceable battery materials that form part of constituent 
materials, so that battery manufacturers do not have to trace materials 
to specific upstream suppliers. Another commenter proposed establishing 
a dynamic list of non-traceable battery materials rather than a static 
list. Several commenters also suggested that the final regulations 
provide a list of criteria for manufacturers to apply to determine what 
materials are excludible. Similarly, several commenters recommended 
that the final regulations adopt a de minimis threshold, with some 
suggesting a five percent threshold and others a ten percent threshold. 
One commenter requested that the Treasury Department and the IRS remove 
the non-traceable battery materials transition rule and replace it with 
an exemption from due diligence for battery materials produced by DOE 
Office of Manufacturing Energy and Supply Chains battery grant 
awardees. Finally, one commenter requested a three- to four-year grace 
period for certain applicable critical minerals, such as graphite and 
powders of cathode active materials.
    Balancing all of the varying and opposing considerations reflected 
in these comments, the final regulations do not adopt a de minimis 
percentage threshold. The statute does not provide guidance for 
determining a numerical de minimis percentage. Instead, the statute 
compels qualified manufacturers to conduct due diligence in order to 
determine that vehicles satisfy the FEOC Restriction. The final 
transition rule requires due diligence in light of existing tracing 
capabilities and the practicalities of mineral and battery component 
supply chains, such as the presence of commingling. Instead of adopting 
a numerical de minimis percentage, the final regulations retain the 
proposed list and the related transition rules from the proposed 
regulations, but generally include only the exemplar materials 
identified in the Explanation of Provisions to the April Proposed 
Regulations.
    In addition, however, graphite contained in anode materials is 
added to the list of impracticable-to-trace battery materials. Several 
commenters raised issues relating to graphite. Many commenters that 
supported the transition rule also generally supported including 
graphite on the list. One commenter noted that graphite accounts for 
only 3 to 4 percent of EV battery value, and that it is especially 
difficult to trace because battery cell manufacturers frequently mix 
synthetic and natural graphite together. Another commenter requested 
clarification of whether the FEOC analysis for synthetic graphite (1) 
begins with the petroleum coke from which synthetic graphite is derived 
or, instead, (2) goes all the way upstream to the oil extraction. This 
commenter noted that, in the latter case, tracing would not be 
possible. However, a different commenter stated that the ``battery 
coke'' used by the EV industry to make synthetic graphite is not 
produced from a nontraceable supply chain, and that such battery coke 
(unlike commodity cokes) is not commingled prior to shipment to an end 
user. Taking these comments under consideration, the Treasury 
Department and the IRS have determined that, due to the commingling of 
natural and synthetic graphite, as well as the difficulty of tracing 
synthetic graphite fully upstream, graphite contained in anode 
materials is an impracticable-to-trace material. Consequently, the 
final regulations include graphite contained in anode materials on the 
list of identified impracticable-to-trace battery materials.
    The final regulations add a definition of ``impracticable-to-trace 
battery materials'' to Sec.  1.30D-2(b), and specify identified 
impracticable-to-trace battery materials as applicable critical 
minerals in the following circumstances: graphite contained in anode 
materials and applicable critical minerals contained in electrolyte 
salts, electrode binders, and electrolyte additives. Section 1.30D-
6(b)(2) provides that for any new clean vehicles for which the 
qualified manufacturer provides a periodic written report before 
January 1, 2027, the due diligence requirement may be satisfied by 
excluding identified impracticable-to-trace battery materials (and 
associated constituent materials). Section Sec.  1.30D-6(c)(3)(iii) 
provides that identified impracticable-to-trace battery materials (and 
associated constituent materials) may be excluded from the 
determination of whether a battery cell is FEOC-compliant.

[[Page 37742]]

    In addition, the proposed regulations provided that, to use these 
transition rules, qualified manufacturers must submit a report during 
the up-front review process demonstrating how the qualified 
manufacturer will comply with the FEOC Restriction once the transition 
rules end. The final regulations keep this requirement and further 
clarify that this report must include information about efforts made to 
date to secure a FEOC-compliant battery supply once the transition rule 
is no longer in effect. Additional requirements related to this report 
will be described in guidance published in the Internal Revenue 
Bulletin (see Sec.  601.601 of this chapter). The Treasury Department 
and the IRS anticipate that such requirements will include robust 
documentation of efforts made to date to secure FEOC-compliant battery 
supply, such as potential suppliers engaged, offtake agreements, and 
contracts entered into with domestic or compliant suppliers. Finally, 
the Treasury Department and the IRS note that the inclusion of 
materials on the impracticable-to-trace battery materials list does not 
relieve any person from compliance obligations with respect to any 
other laws or requirements of other federal agencies or international 
organizations, including U.S. sanctions law administered by the 
Treasury Department's Office of Foreign Assets Control (OFAC) (31 CFR 
Chapter V).
2. FEOC Compliance
    Proposed Sec.  1.30D-6(c) provided the rules for determining 
whether battery components, battery cells, and applicable critical 
minerals (and associated constituent materials) are FEOC-compliant. 
These rules generally required the physical tracking of applicable 
critical minerals, battery cells, and battery components. However, 
proposed Sec.  1.30D-6(c)(3)(ii)(A) provided that the determination 
that a battery cell is a FEOC-compliant battery cell may be made 
through an allocation of the available mass of applicable critical 
minerals and associated constituent materials to specific battery cells 
manufactured or assembled in a battery cell production facility, 
without the physical tracking of the mass of applicable critical 
minerals (and associated constituent materials) to specific battery 
cells. This allocation-based determination was an exception to the 
general rule, which required specific tracking. Proposed Sec.  1.30D-
6(c)(3)(ii)(F) provided that the allocation-based exception would be a 
temporary rule for any new clean vehicle for which the qualified 
manufacturer provides a periodic written report before January 1, 2027.
    In the Explanation of Provisions to the December Proposed 
Regulations the Treasury Department and the IRS requested comments on 
whether industry practices are likely to develop that allow for 
physical tracking before December 31, 2032, and, if not, whether the 
allocation-based determination should be included as a permanent 
compliance approach rather than as a temporary transition rule.
    In response, several commenters expressed appreciation for the 
allocation-based determination. Commenters also requested that the rule 
be made permanent, due to the inability to quickly modify supply chains 
and the impracticability or impossibility of physically tracing 
applicable critical minerals. One commenter appreciated the inclusion 
of the transition rule in allowing allocation-based determinations for 
critical minerals and constituent materials, as well as the transition 
rule regarding non-traceable materials. One commenter noted that the 
time frame for the temporary allocation-based approach (ending December 
31, 2026) is very short and was not sure it would be sufficient for 
manufacturers to alter their supply chains, as needed. The commenter 
further recommended that the proposed transition rule for allocation-
based accounting be made permanent for the duration of the section 30D 
tax credit. In response to these comments, these final regulations make 
the allocation-based determination a permanent rule. Informed by the 
consensus view from the comments and consultation with the DOE, the 
Treasury Department and the IRS recognize that it may be difficult to 
de-commingle supply chains by 2027. In addition, it would be difficult 
and impracticable to track individual masses of applicable critical 
minerals through the supply chain in order to determine which masses 
are FEOC-compliant and which are not. Moreover, allocation-based 
accounting is consistent with the purposes of the statute, because it 
encourages OEMs and their suppliers to ensure secure supply chains; 
under an allocation-based accounting rule, the number of new clean 
vehicles that OEMs are able to produce is limited by the supply of the 
lowest-quantity FEOC-compliant critical mineral.
    In addition, several commenters requested changes to the 
calculation-based methodology under the allocation-based accounting 
rule. Two commenters requested that the allocation be of total 
aggregated mass of FEOC-compliant applicable critical minerals, rather 
than limiting the FEOC-compliant battery cells to the critical mineral 
that has the lowest percentage of FEOC-compliant supply. The Treasury 
Department and the IRS disagree with these comments. Under the total 
aggregated mass approach suggested by the commenters, a qualified 
manufacturer with 0 percent FEOC-compliant mass of a specific 
applicable critical mineral would still have FEOC-compliant batteries 
based on the total mass of FEOC-compliant applicable critical minerals. 
This result would be inconsistent with the purposes of section 
30D(d)(7). Accordingly, the final regulations do not adopt these 
comments.
    Two commenters recommended that the final regulations adopt a mass 
balance approach with respect to allocated accounting. A full mass 
balance approach would require full physical tracing across long 
procurement chains for arrays of materials into the battery materials 
production. Given concerns with the ability of manufacturers to 
implement a robust tracking process in the near term to this level of 
specificity, the final regulations do not adopt this approach.
    Proposed Sec.  1.30D-6(c)(3)(iii) provided that for new clean 
vehicles for which the qualified manufacturer provides a periodic 
written report before January 1, 2027, the determination of whether a 
battery cell is FEOC-compliant under proposed Sec.  1.30D-6(c)(3) may 
be satisfied by excluding non-traceable battery materials, and their 
associated constituent materials. As described in section III.D.1.ii. 
of this Summary of Comments and Explanation of Revisions, this rule is 
finalized with respect to identified impracticable-to-trace battery 
materials.
3. Compliant-Battery Ledger
    Proposed Sec.  1.30D-6(d)(1) provided that for new clean vehicles 
placed in service after December 31, 2024, the qualified manufacturer 
must determine and provide information to the IRS to establish a 
compliant-battery ledger for each calendar year, as described in 
proposed Sec.  1.30D-6(d)(2)(i) and (ii). One compliant-battery ledger 
may be established for all vehicles for a calendar year, or there may 
be separate ledgers for specific models or classes of vehicles.
    The Treasury Department and the IRS received several comments with 
respect to the compliant-battery ledger.
    Several commenters noted that the upfront review process is both 
novel and complicated, and will require continued conversation between 
OEMs and the Treasury Department and the IRS. One such commenter 
commended

[[Page 37743]]

the Treasury Department and the IRS's willingness to engage with 
manufacturers to support compliance and also asked for sufficient 
advance notice to qualified manufacturers regarding the upfront review 
process. Another noted that the process of establishing the mechanisms 
of the compliant-battery ledger will be an iterative process. In 
response to this, the Treasury Department and the IRS note that they 
intend to continue to engage with OEMs and other stakeholders to 
develop the rules under the upfront review process.
    One commenter requested further clarification on the administrative 
procedures and necessary documentation requirements on areas such as 
FEOC-compliant certification and compliant-battery ledger. In response, 
the Treasury Department and the IRS generally note that initial 
guidance with respect to the upfront review process was issued in 
Revenue Procedure 2023-38.
    Section 5.08 of Revenue Procedure 2023-38 requires qualified 
manufacturers to report any decrease to the ledger within 30-days of 
discovery. One commenter requested that this 30-day time period be 
extended. Although the comment is outside the scope of these final 
regulations, the Treasury Department and the IRS note that they will 
continue to study how best to administer the rules for establishing and 
updating compliant-battery ledgers.
    One commenter raised a concern that the compliant-battery ledger 
may allow for noncompliance because batteries need not be tracked to 
specific vehicles. Proposed Sec.  1.30D-6(c)(1) requires the physical 
tracking of batteries to specific new clean vehicles via serial number 
or other identification system. Therefore, the commenter's concern is 
already addressed.
    Finally, two commenters requested additional mechanisms for the 
upfront review process. First, one commenter requested that the 
Treasury Department and the IRS create a safe harbor system through 
which sourcing plans and licensing agreements of a proposed transaction 
are submitted for review and clearance. This commenter suggested that 
the Treasury Department's Committee on Foreign Investment in the United 
States process could provide a model. Second, several commenters noted 
that OEMs may have difficulty verifying information due to 
confidentiality obligations as well as the lack of harmonization among 
suppliers, and proposed that the Treasury Department and the IRS create 
an online portal to allow OEMs and suppliers to match information. The 
Treasury Department and the IRS intend that the upfront review process 
will be an iterative process in which attestations, certifications, and 
documentation regarding the section 30D sourcing requirements are 
submitted for review to the IRS, with analytical assistance from the 
DOE. This process allows for additional information to be requested of 
and supplied by qualified manufacturers. In addition, qualified 
manufacturers may rely on determinations provided by third-party 
manufacturers or suppliers, provided the requirements in Sec.  1.30D-
6(c)(5) are met.
4. Rule for New Qualified Fuel Cell Motor Vehicles
    The final regulations add Sec.  1.30D-6(g) to clarify that the FEOC 
Restriction does not apply to new qualified fuel cell motor vehicles. 
However, a qualified fuel cell motor vehicle (as defined in section 
30B(b)(3)) with a clean vehicle battery, such as a plug-in hybrid fuel 
cell electric vehicle, would be subject to the FEOC Restriction.
    Because new qualified fuel cell motor vehicles do not contain clean 
vehicle batteries, these vehicles do not have applicable critical 
minerals or battery components contained in such battery that would 
subject the vehicles to the FEOC Restriction. Thus, the rule regarding 
new qualified fuel cell vehicles flows naturally from the statute.

IV. Section 6213(g)(2)

    The IRA added three new definitions to the exclusive list of 
``mathematical or clerical errors'' in section 6213(g)(2). These new 
definitions are set out in sections 6213(g)(2)(T), (U), and (V). 
Section 6213(g)(2)(T) provides that the term ``mathematical or clerical 
error'' means an omission of a correct VIN required under section 
30D(f)(9) (relating to the credit for new clean vehicles) to be 
included on a return; section 6213(g)(2)(U) provides that the term 
``mathematical or clerical error'' means an omission of a correct VIN 
required under section 25E(d) (relating to the credit for previously-
owned clean vehicles) to be included on a return; and section 
6213(g)(2)(V) provides that the term ``mathematical or clerical error'' 
means an omission of a correct VIN required under section 45W(e) 
(relating to the credit for qualified commercial clean vehicles) to be 
included on a return.
    The flush language added in 1998 to the end of section 6213(g)(2) 
regarding whether a taxpayer is treated as having omitted a correct 
taxpayer identification number does not provide the clarification that 
is necessary to determine the meaning of ``an omission of a correct 
vehicle identification number'' under sections 6213(g)(2)(T) through 
(V). Accordingly, proposed Sec.  301.6213-2 provided rules for 
determining whether the IRS is authorized to use math error authority 
to make a summary assessment if there has been an ``omission of a 
correct vehicle identification number'' on a taxpayer's return on which 
the taxpayer is claiming or electing to transfer the credits under 
sections 30D, 25E and 45W.
    A comment recommended that the proposed regulation be modified to 
clarify how it applies to taxpayers who rely on a seller report 
containing mistakenly entered VINs, or taxpayers who rely on 
manufacturers' incorrect determinations that a vehicle is eligible for 
the section 25E or 30D credit if the vehicle is in fact ineligible for 
either credit.
    Vehicle sellers can prevent the situation described by the 
commenter by submitting the seller report described in Sec. Sec.  
1.25E-1(b)(19) and Sec.  1.30D-2(b)(48), which must be submitted 
electronically by the seller to the IRS at the time of sale. The 
reported VIN's eligibility is checked against qualified manufacturer 
reporting to the IRS at the time of submission of the seller report. 
The taxpayer then receives a copy of the seller report only after VIN 
eligibility is verified through the seller reporting process in real 
time. Accordingly, the seller report should not contain an incorrect 
VIN or VIN for a vehicle that was ineligible for a clean vehicle 
credit. Vehicle sellers are advised to ensure they accurately enter the 
VIN of the clean vehicle the taxpayer is purchasing when submitting the 
seller report and to be cautious in finalizing transactions in any case 
in which a VIN's eligibility has not been confirmed by the IRS through 
an electronically submitted seller report. Taxpayers should also ensure 
that the VIN listed on their seller report matches the VIN of the clean 
vehicle actually purchased. In addition, the taxpayer can rely on the 
information and certifications contained in the qualified manufacturer 
written reports for the sections 25E and 30D credits pursuant to 
Sec. Sec.  1.25E-2(h) and 1.30D-4(h).

V. Applicability Dates

    The final rules modify the applicability dates of the proposed 
rules for uniformity and administrability across the various rules 
included in the April, October, and December Proposed Regulations. 
Consistent with the authority in section 7805(b)(1), the applicability 
dates generally are

[[Page 37744]]

modified to apply to taxable years ending after the latest publication 
date of the proposed regulations to which the section relates. 
Accordingly, the section 25E final regulations generally apply to 
taxable years ending after October 10, 2023, and the section 30D final 
regulations generally apply to taxable years ending after December 4, 
2023.
    The regulatory applicability dates also align with certain 
statutory applicability dates. For example, the rules regarding 
transfer of the section 25E and 30D credits in Sec. Sec.  1.25E-3 and 
1.30D-5 apply to clean vehicles placed in service after December 31, 
2023, in taxable years ending after December 31, 2023, to reflect the 
statutory applicability date of vehicles acquired (section 25E) or 
placed in service (section 30D) after December 31, 2023. Similarly, the 
rules related to the FEOC Restriction in Sec.  1.30D-6 reflect the 
statutory applicability date of vehicles placed in service after 
December 31, 2023.

Special Analyses

I. Regulatory Planning and Review

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

II. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) (PRA) 
generally requires that a Federal agency obtain the approval of the 
Office of Management and Budget (OMB) before collecting information 
from the public, whether such collection of information is mandatory, 
voluntary, or required to obtain or retain a benefit.
    Any collection burden associated with rules described in these 
final regulations is previously accounted for in OMB Control Number 
1545-2137. These final regulations do not alter previously accounted 
for information collection requirements and do not create new 
collection requirements. OMB Control Number 1545-2137 covers Form 8936 
and Form 8936-A regarding electric vehicle credits, including the new 
requirement in section 30D(f)(9) to include on the taxpayer's return 
for the taxable year the VIN of the vehicle for which the section 30D 
credit is claimed. Revenue Procedure 2022-42 describes the procedural 
requirements for qualified manufacturers to make periodic written 
reports to the Secretary to provide information related to each vehicle 
manufactured by such manufacturer that is eligible for the section 30D 
credit as required in section 30D(d)(3), including the critical mineral 
and battery component certification requirements in sections 
30D(e)(1)(A) and (e)(2)(A). In addition, Revenue Procedure 2022-42 
provides the procedures for sellers of new clean vehicles to report 
information required by section 30D(d)(1)(H) for vehicles to be 
eligible for the section 30D credit. The collections of information 
contained in Revenue Procedure 2022-42 are described in that document 
and were submitted to the Office of Management and Budget in accordance 
with the Paperwork Reduction Act under control number 1545-2137.
    The requirement to determine the final assembly location as defined 
in Sec.  1.30D-2(b) by relying on (1) the vehicle's plant of 
manufacture as reported in the VIN pursuant to 49 CFR 565 or (2) the 
final assembly point reported on the label affixed to the vehicle as 
described in 49 CFR 583.5(a)(3) is accounted for by the Department of 
Transportation in OMB Control Numbers 2127-0510 and 2127-0573.
    For purposes of the PRA, the reporting burden associated with the 
collection of information in Sec. Sec.  1.25E-3 and 1.30D-5 regarding 
credit transfer elections will be reflected in the PRA Submissions 
associated with Revenue Procedure 2023-33. The OMB control number for 
Revenue Procedure 2023-33 is 1545-2311.
    A Federal agency may not conduct or sponsor, and a person is not 
required to respond to, a collection of information unless it displays 
a valid control number assigned by the Office of Management and Budget.

III. Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes 
certain requirements with respect to Federal rules that are subject to 
the notice and comment requirements of section 553(b) of the 
Administrative Procedure Act (5 U.S.C. 551 et seq.) and that are likely 
to have a significant economic impact on a substantial number of small 
entities. Unless an agency determines that a proposal will not have a 
significant economic impact on a substantial number of small entities, 
section 603 of the RFA requires the agency to present a final 
regulatory flexibility analysis (FRFA) of the proposed rule.
    In connection with the April and December Proposed Regulations, the 
Secretary certified that these proposed regulations will not have a 
significant economic impact on a substantial number of small entities.
    April Proposed Regulations: The regulations proposed in April 
affect two types of business entities: (1) qualified manufacturers that 
must trace and report on their critical minerals and battery components 
in order to certify that their new clean vehicles qualify for the 
section 30D credit, and (2) businesses that may earn the section 30D 
credit when purchasing and placing in service a new clean vehicle.
    While the tracking and reporting of critical minerals and battery 
components is likely to involve significant administrative costs, 
according to public filings, all qualified manufacturers had total 
revenues above $1 billion in 2022. There are a total of 13 qualified 
manufacturers that have indicated that they manufacture vehicles 
currently eligible for the section 30D credit.
    Qualified manufacturers also have to certify that their vehicles 
qualify under the Critical Minerals and Battery Components 
Requirements. The regulations provide definitions and general rules for 
the section 30D credit, including rules for qualified manufacturers to 
comply with the Critical Minerals and Battery Components Requirements. 
The Treasury Department and the IRS intend that the rules provide 
clarity for qualified manufacturers for consistent application of 
critical minerals and battery components calculations and for taxpayers 
purchasing new clean vehicles that qualify for the section 30D credit. 
The Treasury Department and the IRS have determined that qualified 
manufacturers do not meet the applicable definition of small entity.
    Business purchasers of clean vehicles who take the section 30D 
credit must satisfy reporting requirements that are largely the same as 
those faced by individuals accessing the section 30D credit to purchase 
clean vehicles. Taxpayers will continue to file Form 8936, Clean 
Vehicle Credit, to claim the section 30D credit. As was the case for 
the section 30D credit prior to amendments made by the IRA, taxpayers 
can rely on qualified manufacturers to determine if the vehicle being 
purchased qualifies for the section 30D credit and the credit amount. 
The estimated burden for individual and business taxpayers filing this 
form is approved under OMB control number 1545-0074 and 1545-0123. To 
make it easier for a taxpayer to determine the potential section 30D 
credit available for a specific vehicle, the regulations provide 
business entities with tools and definitions to ascertain

[[Page 37745]]

whether any vehicles purchased would be eligible for the credit. The 
VIN reporting required by section 30D(f)(9) and described in the 
proposed regulations was included in prior section 30D reporting.
    December Proposed Regulations: The regulations proposed in December 
affect qualified manufacturers that must determine their compliance 
with the FEOC Restriction in order to certify that their new clean 
vehicles placed in service after December 31, 2023, qualify for the 
section 30D credit.
    While the tracking and reporting of compliance with the FEOC 
Restriction is likely to involve significant administrative costs, 
according to public filings, every qualified manufacturer had total 
revenues above $1 billion in 2022. There are a total of 13 qualified 
manufacturers that have indicated that they manufacture vehicles 
currently eligible for the section 30D credit. Qualified manufacturers 
also have to certify that their vehicles comply with the FEOC 
Restriction and contain batteries that are FEOC-compliant. The 
regulations provide definitions and general rules for this purposes. 
Accordingly, the Treasury Department and the IRS intend that the rules 
provide clarity for qualified manufacturers for consistent application 
of the FEOC Restriction. The Treasury Department and the IRS have 
determined that qualified manufacturers do not meet the applicable 
definition of small entity.
    For these reasons, it is hereby certified that Sec. Sec.  1.30D-1, 
1.30D-3, 1.30D-4(a)-(e) and 1.30D-6, and the accompanying definitions 
in Sec.  1.30D-2 that were proposed in the April and December Proposed 
Regulations, do not have a significant economic impact on a substantial 
number of small entities.
    In connection with the October Proposed Regulations, the Treasury 
Department and the IRS presented an IRFA to invite comments on both the 
number of entities affected and the economic impact on small entities. 
No comments were received specific to these areas of inquiry. In the 
absence of comments in response to the October Proposed Regulations, 
this FRFA is presented with the final rule.
    In addition, pursuant to section 7805(f) of the Code, the April, 
October, and December proposed regulations preceding this final rule 
were submitted to the Chief Counsel for the Office of Advocacy of the 
Small Business Administration for comment on its impact on small 
business, and no comments were received from the Chief Counsel for the 
Office of Advocacy of the Small Business Administration.
A. Need for and Objectives of the Rule
    The final regulations provide the eligibility rules and key 
definitions regarding the section 25E and section 30D credits to allow 
taxpayers to know whether their purchase of a previously-owned clean 
vehicle or new clean vehicle is eligible for the section 25E and 
section 30D credits, respectively. In addition, the final regulations 
provide rules regarding the recapture authority under sections 25E(e) 
and 30D(f)(5), so that taxpayers and the IRS have clear rules regarding 
when a clean vehicle may cease being eligible for the section 25E and 
section 30D credits. Further, the final regulations provide rules 
regarding the omission of a correct VIN for purposes of math error 
authority as described in section 6213(g)(2). Clear rules regarding the 
exercise of math error authority will provide for efficient and fair 
tax administration.
    The final regulations provide guidance for purposes of taxpayers 
electing to transfer vehicle credits under sections 25E(f) and 30D(g) 
to eligible entities, and for eligible entities participating in the 
advance payment program with respect to those transferred credits. The 
final regulations provide rules regarding the process for taxpayers to 
elect to transfer the credits and for eligible entities to register and 
receive advance payments from the IRS, and rules regarding the Federal 
income tax treatment of the credit transfer election, including 
recapture and excessive payments. The final rules regarding the credit 
transfer election ensure certainty regarding the consequences of the 
transfer election, decrease the risk of fraud, and expedite the process 
by which an eligible entity may receive an advance payment under 
section 25E(f) or 30D(g).
    The final rules are expected to encourage taxpayers to increase the 
placing in service of new and previously-owned clean vehicles. Thus, 
the Treasury Department and the IRS intend and expect that the final 
rules will deliver benefits across the economy and environment that 
will beneficially impact various industries, including clean vehicle 
manufacturers and dealers.
B. Issues Raised by Public Comments in Response to the IRFA
    As previously noted, there were no comments filed that specifically 
addressed the impact of the proposed rules and policies on small 
entities or the number of potentially impacted entities presented in 
the IRFA. Additionally, no comments were filed by the Chief Counsel of 
Advocacy of the Small Business Administration.
C. Affected Small Entities
    The Small Business Administration estimates in its 2023 Small 
Business Profile that 99.9 percent of United States businesses meet its 
definition of a small business. The applicability of these final 
regulations does not depend on the size of the business, as defined by 
the Small Business Administration. As described more fully in the 
Summary of Comments and Explanation of Revisions to this final 
regulation and in this FRFA, these rules may affect a variety of 
different businesses across several different industries, but will 
primarily affect dealers of new and previously-owned clean vehicles 
that would like to be eligible entities to receive a transferred credit 
from the buyers of a clean vehicle. The Treasury Department and the IRS 
currently estimate the number of dealers of new clean vehicles to be 
approximately 16,000, and the number of dealers of previously-owned 
clean vehicles to be approximately 36,000.
    Of the estimated 16,000 dealers of new clean vehicles, we estimate 
that 10,000 will have receipts in excess of $25 million; 3,000 will 
have receipts between $10-$25 million; 1,000 will have receipts between 
$5-10 million, and 2,000 will have receipts under $5 million. Of the 
estimated 36,000 dealers of previously-owned clean vehicles, we 
estimate that 500 will have receipts in excess of $25 million; 1,500 
will have receipts between $10-$25 million; 2,000 will have receipts 
between $5-10 million, and 32,000 will have receipts under $5 million.
    The Treasury Department and the IRS expect to receive more 
information on the impact on small businesses through comments on this 
final rule.
D. Impact of the Rules
    The recordkeeping and reporting requirements would increase for 
taxpayers who elect to transfer the section 25E or 30D credit to an 
eligible entity. In addition, the recordkeeping and reporting 
requirements would increase for dealers who seek to qualify as eligible 
entities and participate in the advance payment program. Although the 
Treasury Department and the IRS do not have sufficient data to 
precisely determine the likely extent of the increased costs of 
compliance, the estimated burden of complying with the recordkeeping 
and reporting requirements are described in section II of the Special 
Analyses regarding the PRA. The Treasury Department and the IRS 
estimate that, based on the total of

[[Page 37746]]

52,000 dealers of new (16,000) and previously-owned (36,000) clean 
vehicles, it will take approximately one hour to register as entities 
eligible to receive advance payments of credits under sections 25E and 
30D, for a total of 52,000 hours total. The Treasury Department and the 
IRS further estimate that there are approximately 950,000 taxpayers who 
will purchase new clean vehicles and 28,750 taxpayers who will purchase 
previously-owned clean vehicles who will elect to transfer their 
respective credits to the eligible entity, for a total of 978,750 
elections annually. The Treasury Department and the IRS estimate each 
election will take approximately 15 minutes to complete, for a total 
burden of approximately 244,688 hours per year.
E. Steps Taken To Minimize Impacts on Small Entities and Alternatives 
Considered
    The Treasury Department and the IRS considered various alternatives 
in promulgating these final regulations. Significant alternatives 
considered include: (1) the sale price definition in Sec.  1.25E-
1(b)(16); (2) the first transfer rule described in Sec.  1.25E-
1(b)(14)(ii); (3) the recapture rules provided in Sec. Sec.  1.25E-2(c) 
and 1.30D-4(e), and (4) the dealer registration requirements provided 
in Sec. Sec.  1.25E-3(c) and 1.30D-5(c).
    Regarding the sale price definition in Sec.  1.25E-1(b)(16), the 
Treasury Department and the IRS considered the appropriate scope of the 
definition and how the definition of sale price should be consistent 
with or diverge from the definition of manufacturer's suggested retail 
price for purposes of section 30D(f)(11). The definition of 
``manufacturer's suggested retail price'' in Sec.  1.30D-2(b) refers to 
a statutory definition in 15 U.S.C. 1232 that is used for purposes of 
vehicle labeling on the vehicle window sticker. That definition 
includes optional accessories or items included by the manufacturer at 
the time of delivery to the dealer but excludes delivery charges to the 
dealer. For previously-owned clean vehicles, however, there are not 
similar vehicle labeling standards that provide a standard for defining 
sale price. In addition, in a previously-owned clean vehicle sale, the 
dealer and buyer may negotiate to characterize a portion of the sale 
price as a separately stated fee or charge (other than those required 
by law) to avoid the section 25E sale price cap of $25,000. To prevent 
this type of recharacterization, Sec.  1.25E-1(b)(16) defines sale 
price to mean the total sale price agreed upon by the buyer and the 
dealer, including any delivery charges. This definition specifically 
excludes separately-stated taxes and fees required by State or local 
law because such taxes and fees are not subject to negotiation or 
recharacterization by the dealer and buyer.
    The Treasury Department and the IRS considered various alternatives 
to the first transfer rule described in Sec.  1.25E-1(b)(14)(ii). This 
rule is necessary to determine whether a sale of a previously-owned 
clean vehicle is a qualified sale pursuant to section 25E(c)(2). One of 
the requirements to be a qualified sale is that the sale be the first 
transfer to a qualified buyer since the enactment of section 25E other 
than to the person with whom the original use of the vehicle commenced. 
However, some of the characteristics of being a qualified buyer are 
unknowable to the dealer and the buyer in a subsequent sale, including 
that a qualified buyer be an individual, not be a dependent, and not 
have claimed the section 25E credit in the prior three years. As a 
result, if a previously-owned clean vehicle is transferred more than 
once after the date of enactment of section 25E, there is no way for 
the parties after the first transfer to know if the first transfer was 
to a qualified buyer. Because the IRS may have access to some 
information necessary to determine whether a first transfer was to a 
qualified buyer, the Treasury Department and the IRS considered 
alternatives to the first transfer rule such as a look-up tool 
regarding prior claims of the section 25E credit for a particular 
vehicle or information regarding prior vehicle purchasers. However, 
disclosure of this information raises significant confidentiality 
issues. Accordingly, the Treasury Department and the IRS have provided 
the first transfer rule to provide certainty to buyers and dealers as 
to which transfer of a previously-owned clean vehicle is the first 
transfer and will qualify for the section 25E credit by relying on the 
vehicle history report.
    The Treasury Department and the IRS considered alternatives to the 
recapture rules provided in Sec. Sec.  1.25E-2(c) and 1.30D-4(e). Given 
the increased availability and benefits of the section 30D credit and 
the new section 25E credit arising because the credit can be 
transferred to an eligible entity and is not limited by the taxpayer's 
tax liability, the Treasury Department and the IRS determined it was 
necessary to provide rules regarding when the value of the clean 
vehicle credits can be recaptured. The Treasury Department and the IRS 
also considered the appropriate length of time within which a return or 
resale of a vehicle would make the taxpayer ineligible for the credit. 
Longer and shorter periods of time were considered. Based on industry 
standard return policies, including money-back guarantees, the Treasury 
Department and the IRS determined that it was appropriate to deny the 
benefit of the credit if the vehicle was returned within 30 days. In 
addition, the Treasury Department and the IRS determined it was 
reasonable to assume an intent to resell the vehicle, making the 
purchase of the vehicle ineligible, if the vehicle was resold within 30 
days.
    Finally, with respect to the dealer registration requirements 
provided in Sec. Sec.  1.25E-3(c) and 1.30D-5(c), the Treasury 
Department and the IRS considered various processes by which a seller 
could become an eligible entity and participate in the advance payment 
program. The Treasury Department and the IRS considered a process that 
did not require submission of a significant amount of information prior 
to the dealer becoming an eligible entity, but such an approach could 
require more back-end compliance. To ensure efficient tax 
administration and reduce fraud, the Treasury Department and the IRS 
determined that an up-front, electronic registration process was 
necessary for the IRS to effectively review and validate eligible 
entity status. In addition, the Treasury Department and the IRS 
determined that dealers must submit identity information and 
attestations regarding their participation in the advance payment 
program to ensure program integrity. Finally, the Treasury Department 
and the IRS determined that dealer tax compliance was necessary to 
ensure that advance payments are being paid only to compliant dealers.
F. Duplicative, Overlapping, or Conflicting Federal Rules
    The final rule does not duplicate, overlap, or conflict with any 
relevant Federal rules. As discussed in the Summary of Comments and the 
Explanation of Revisions, the final rules merely provide requirements, 
procedures, and definitions related to the credit transfer election for 
sections 25E and 30D. 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 requires 
that agencies assess anticipated costs and benefits and take certain 
other actions before issuing a final rule that

[[Page 37747]]

includes any Federal mandate that may result in expenditures in any one 
year by a State, local, or Tribal government, in the aggregate, or by 
the private sector, of $100 million in 1995 dollars, updated annually 
for inflation. In 2023, that threshold is approximately $198 million. 
This final rule does not include any Federal mandate that may result in 
expenditures by State, local, or Tribal governments, or by the private 
sector in excess of that threshold.

V. Executive Order 13132: Federalism

    Executive Order 13132 (Federalism) prohibits an agency (to the 
extent practicable and permitted by law) from promulgating any 
regulation that has federalism implications, unless the agency meets 
the consultation and funding requirements of section 6 of the Executive 
order, if the rule either imposes substantial, direct compliance costs 
on State and local governments, and is not required by statute, or 
preempts State law. This final 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. Regulatory Planning and Review

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

VII. Congressional Review Act

    Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.), 
the Office of Information and Regulatory Affairs designated this rule 
as a major rule as defined by 5 U.S.C. 804(2).

Statement of Availability of IRS Documents

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

Drafting Information

    The principal authors of the regulations are Rika Valdman, Maggie 
Stehn, Nicole Stenchever, Mark C. Frantz, Jr., James Williford, and 
Iris Chung of the Office of Associate Chief Counsel (Passthroughs & 
Special Industries). However, other personnel from the Treasury 
Department and the IRS participated in the development of the final 
regulations.

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 301

    Employment taxes, Estate taxes, Excise taxes, Gift taxes, 
Penalties, Reporting and recordkeeping requirements.

Amendments to the Regulations

    Accordingly, the Treasury Department and the IRS amend 26 CFR parts 
1 and 301 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.  1.25E-1 through 1.25E-3, and 
1.30D-1 through 1.30D-6 to read in part as follows:

    Authority: 26 U.S.C. 7805 * * *
* * * * *
    Section 1.25E-1 also issued under 26 U.S.C. 25E.
    Section 1.25E-2 also issued under 26 U.S.C. 25E.
    Section 1.25E-3 also issued under 26 U.S.C. 25E, 26 U.S.C. 
30D(g)(1) and (g)(10), and 26 U.S.C. 6011.
* * * * *
    Section 1.30D-1 also issued under 26 U.S.C. 30D.
    Section 1.30D-2 also issued under 26 U.S.C. 30D.
    Section 1.30D-3 also issued under 26 U.S.C. 30D.
    Section 1.30D-4 also issued under 26 U.S.C. 30D and 26 U.S.C. 
45W(d)(3).
    Section 1.30D-5 also issued under 26 U.S.C. 30D and 26 U.S.C. 
6011.
    Section 1.30D-6 also issued under 26 U.S.C. 30D.
* * * * *

0
Par 2. Sections 1.25E-0 through 1.25E-3 are added to read as follows:
Sec.
* * * * *
1.25E-0 Table of contents.
1.25E-1 Credit for previously-owned clean vehicles.
1.25E-2 Special rules.
1.25E-3 Transfer of credit.
* * * * *


Sec.  1.25E-0  Table of contents.

    This section lists the captions contained in Sec. Sec.  1.25E-1 
through 1.25E-3.

Sec.  1.25E-1 Credit for previously-owned clean vehicles.

    (a) In general.
    (b) Definitions.
    (1) Advance payment program.
    (2) Credit transfer election.
    (3) Dealer.
    (4) Dealer tax compliance.
    (5) Electing taxpayer.
    (6) Eligible entity.
    (7) Excessive payment.
    (8) Incentive.
    (i) For purposes of sale price.
    (ii) For purposes of eligible entity requirements.
    (9) Modified adjusted gross income.
    (10) Placed in service.
    (11) Previously-owned clean vehicle.
    (12) Qualified buyer.
    (13) Qualified manufacturer.
    (14) Qualified sale.
    (15) Registered dealer.
    (16) Sale price.
    (17) Section 25E regulations.
    (18) Seller report.
    (19) Time of sale.
    (20) Vehicle history report.
    (c) Limitation based on modified adjusted gross income.
    (1) In general.
    (2) Threshold amount.
    (3) Special rule for change in filing status.
    (d) Credit may be claimed on only one tax return.
    (1) In general.
    (2) Seller reporting.
    (e) Examples.
    (1) Example 1: First transfer since enactment of section 25E.
    (2) Example 2: Multiple transfers since enactment of section 
25E.
    (3) Example 3: Multiple transfers; commercial purchaser.
    (4) Example 4: Multiple transfers; buyer exceeds modified 
adjusted gross income limitation.
    (5) Example 5: Multiple transfers; buyer elects to not take 
credit.
    (6) Example 6: Multiple transfers; sale between dealers.
    (f) Reliance on vehicle history report for purposes of 
determining whether sale is a qualified sale.
    (g) Severability.
    (h) Applicability date.

Sec.  1.25E-2 Special rules.
    (a) In general.
    (b) No double benefit.
    (1) In general.
    (2) Interaction between section 25E and 30D credits.
    (c) Recapture.
    (1) In general.
    (i) Cancelled sale.
    (ii) Vehicle return.
    (iii) Resale.
    (iv) Other returns and resales.
    (2) Recapture rules in the case of a credit transfer election.
    (3) Example: Vehicle return.
    (d) Branded title.
    (e) Seller registration.
    (f) Requirement to file income tax return.
    (g) Taxpayer reliance on manufacturer certifications and 
periodic written reports to IRS.
    (h) Severability.
    (i) Applicability date.

Sec.  1.25E-3 Transfer of credit.

    (a) In general.

[[Page 37748]]

    (b) Definitions.
    (1) Advance payment program.
    (2) Credit transfer election.
    (3) Dealer tax compliance.
    (4) Electing taxpayer.
    (5) Eligible entity.
    (6) Registered dealer.
    (7) Time of sale.
    (c) Dealer registration.
    (1) In general.
    (2) Dealer tax compliance required.
    (3) Suspension of registration.
    (4) Revocation of registration.
    (d) Credit transfer election by electing taxpayer.
    (e) Federal income tax consequences of credit transfer election.
    (1) Tax consequences for electing taxpayer.
    (2) Tax consequences for eligible entity.
    (3) Form of payment from eligible entity to electing taxpayer.
    (4) Additional requirements.
    (5) Examples.
    (i) Example 1: Electing taxpayer's regular tax liability less 
than amount of credit.
    (A) Facts.
    (B) Analysis.
    (ii) Example 2: Non-cash payment by eligible entity to electing 
taxpayer.
    (A) Facts.
    (B) Analysis.
    (iii) Example 3: Eligible entity is a partnership.
    (A) Facts.
    (B) Analysis.
    (f) Advance payments received by eligible entities.
    (1) In general.
    (2) Requirements for a registered dealer to become an eligible 
entity.
    (g) Increase in tax.
    (1) Recapture if electing taxpayer exceeds modified adjusted 
gross income limitation.
    (2) Excessive payments.
    (i) In general.
    (ii) Reasonable cause.
    (iii) Excessive payment defined.
    (iv) Special rule for cases in which electing taxpayer's 
modified adjusted gross income exceeds the limitation.
    (3) Examples.
    (i) Example 1: Registered dealer is not an eligible entity.
    (A) Facts.
    (B) Analysis.
    (ii) Example 2: Incorrect manufacturer certifications.
    (A) Facts.
    (B) Analysis.
    (h) Return requirement.
    (i) Two credit transfer elections per year.
    (j) Severability.
    (k) Applicability date.


Sec.  1.25E-1  Credit for previously-owned clean vehicles.

    (a) In general. Section 25E(a) of the Internal Revenue Code (Code) 
allows as a credit against the tax imposed by chapter 1 of the Code 
(chapter 1) for the taxable year of a taxpayer an amount equal to the 
lesser of $4,000, or the amount equal to 30 percent of the sale price 
of a previously-owned clean vehicle, if that previously-owned clean 
vehicle is placed in service during the taxable year by a taxpayer that 
acquired the previously-owned clean vehicle in a qualified sale in 
which that taxpayer is a qualified buyer. This section provides 
definitions and generally applicable rules that apply for purposes of 
determining the credit under section 25E and the section 25E 
regulations (section 25E credit). Section 1.25E-2 provides special 
rules under section 25E(e) and other special rules with respect to the 
section 25E credit. Section 1.25E-3 provides rules under section 
25E(f).
    (b) Definitions. The definitions in this paragraph (b) apply for 
purposes of section 25E and the section 25E regulations.
    (1) Advance payment program. Advance payment program means advance 
payment program as defined in Sec.  1.25E-3(b)(1).
    (2) Credit transfer election. Credit transfer election means credit 
transfer election as defined in Sec.  1.25E-3(b)(2).
    (3) Dealer. Dealer has the meaning provided in section 25E(c)(2)(A) 
by reference to section 30D(g)(8) of the Code, except that the term 
does not include persons licensed solely by a territory of the United 
States, and includes a dealer licensed by any jurisdiction described in 
section 30D(g)(8) (other than one licensed solely by a territory of the 
United States) that makes sales at sites outside of the jurisdiction in 
which it is licensed.
    (4) Dealer tax compliance. Dealer tax compliance means dealer tax 
compliance as defined in Sec.  1.25E-3(b)(3).
    (5) Electing taxpayer. Electing taxpayer means electing taxpayer as 
defined in Sec.  1.25E-3(b)(4).
    (6) Eligible entity. Eligible entity means eligible entity as 
defined in Sec.  1.25E-3(b)(5).
    (7) Excessive payment. Excessive payment means excessive payment as 
defined in Sec.  1.25E-3(g)(2)(iii).
    (8) Incentive--(i) For purposes of sale price. For purposes of the 
definition of sale price in Sec.  1.25E-1(b)(16), incentive means any 
reduction in price offered to and accepted by a taxpayer from the 
dealer or manufacturer, other than a reduction in the form of a partial 
payment or down payment for the purchase of a previously-owned clean 
vehicle pursuant to section 25E(f) and Sec.  1.25E-3.
    (ii) For purposes of eligible entity requirements. For purposes of 
the eligible entity requirements for a credit transfer election 
pursuant to sections 25E(f) and 30D(g)(2)(B) and (D), incentive means 
any reduction in price offered to the taxpayer by the dealer or 
manufacturer of the previously-owned clean vehicle, including in 
combination with other incentives, other than a reduction in the form 
of a partial payment or down payment for the purchase of a previously-
owned clean vehicle pursuant to section 25E(f) and Sec.  1.25E-3.
    (9) Modified adjusted gross income. Modified adjusted gross income 
means adjusted gross income (as defined in section 62 of the Code) 
increased by any amount excluded from gross income under section 911, 
931, or 933 of the Code.
    (10) Placed in service. A previously-owned clean vehicle is 
considered to be placed in service on the date the taxpayer takes 
possession of the vehicle.
    (11) Previously-owned clean vehicle. Previously-owned clean vehicle 
has the meaning provided in section 25E(c)(1). Vehicles that may 
qualify as previously-owned clean vehicles include battery electric 
vehicles, plug-in hybrid electric vehicles, fuel cell motor vehicles, 
and plug-in hybrid fuel cell motor vehicles.
    (12) Qualified buyer. Qualified buyer means, with respect to a sale 
of a motor vehicle, a taxpayer--
    (i) Who is an individual;
    (ii) Who purchases such vehicle for use and not for resale;
    (iii) With respect to whom no deduction is allowable to another 
taxpayer under section 151 of the Code; and
    (iv) Who has not been allowed a credit under section 25E and this 
section for any sale during the three-year period beginning three years 
before the date of the sale of such vehicle and ending on the date of 
the sale of such vehicle.
    (13) Qualified manufacturer. Qualified manufacturer means qualified 
manufacturer as defined in Sec.  1.30D-2(b)(42).
    (14) Qualified sale. Qualified sale means a sale of a motor 
vehicle--
    (i) By a dealer;
    (ii) For a sale price that does not exceed $25,000; and
    (iii) That is a sale to a qualified buyer (other than the person 
with whom the original use of such vehicle commenced), and that is the 
first transfer of the motor vehicle since August 16, 2022 (other than a 
transfer to a dealer).
    (15) Registered dealer. Registered dealer means registered dealer 
as defined in Sec.  1.25E-3(b)(6).
    (16) Sale price. The sale price of a previously-owned clean vehicle 
means the total price agreed upon by the taxpayer and dealer in a 
written contract at the time of sale, including any delivery charges 
and after the

[[Page 37749]]

application of any incentives. The sale price of a previously-owned 
clean vehicle does not include separately stated taxes and fees 
required by State or local law. The sale price of a previously-owned 
clean vehicle is determined before the application of any trade-in 
value.
    (17) Section 25E regulations. Section 25E regulations means this 
section and Sec. Sec.  1.25E-2 and 1.25E-3.
    (18) Seller report. Seller report means the report described in 
section 25E(c)(1)(D)(i) by reference to section 30D(d)(1)(H) that the 
seller of a previously-owned clean vehicle provides to the taxpayer and 
the IRS in the manner provided in, and containing the information 
described in, guidance published in the Internal Revenue Bulletin (see 
Sec.  601.601 of this chapter). The seller report must be transmitted 
to the IRS electronically. The term seller report does not include a 
report rejected by the IRS due to the information contained therein not 
matching IRS records.
    (19) Time of sale. Time of sale means time of sale as defined in 
Sec.  1.25E-3(b)(7).
    (20) Vehicle history report. Vehicle history report means a report 
that provides the ownership history of a motor vehicle. Vehicle history 
report includes a vehicle history report issued by a data provider 
approved by the National Motor Vehicle Title Information System.
    (c) Limitation based on modified adjusted gross income--(1) In 
general. Under section 25E(b)(1), no section 25E credit is allowed for 
any taxable year if--
    (i) The lesser of--
    (A) The modified adjusted gross income of the taxpayer for such 
taxable year, or
    (B) The modified adjusted gross income of the taxpayer for the 
preceding taxable year, exceeds
    (ii) The threshold amount.
    (2) Threshold amount. For purposes of section 25E(b)(1) and 
paragraph (c)(1) of this section, the threshold amount is determined 
based on the taxpayer's return filing status for the taxable year, as 
set forth in paragraphs (c)(2)(i) through (iii) of this section. See 
section 25E(b)(2).
    (i) In the case of a joint return or a surviving spouse (as defined 
in section 2(a) of the Code), the threshold amount is $150,000.
    (ii) In the case of a head of household (as defined in section 
2(b)), the threshold amount is $112,500.
    (iii) In the case of a taxpayer not described in paragraph 
(c)(2)(i) or (ii) of this section, the threshold amount is $75,000.
    (3) Special rule for change in filing status. If the taxpayer's 
filing status for the taxable year differs from the taxpayer's filing 
status in the preceding taxable year, then the taxpayer satisfies the 
limitation in section 25E(b)(1) and paragraph (c)(1) of this section if 
the taxpayer's modified adjusted gross income does not exceed the 
threshold amount in either year based on the applicable filing status 
for that taxable year.
    (d) Credit may be claimed on only one tax return--(1) In general. 
The amount of the section 25E credit attributable to a previously-owned 
clean vehicle may be claimed on only one Federal income tax return, 
including on a joint return for which one of the spouses is listed on 
the seller report. In the event a previously-owned clean vehicle is 
placed in service by multiple taxpayers who do not file a joint return, 
such as married individuals filing separate returns, no allocation or 
proration of the section 25E credit is available.
    (2) Seller reporting. The name and taxpayer identification number 
of the taxpayer claiming the section 25E credit must be listed on the 
seller report pursuant to sections 25E(c)(1)(D)(i) and 30D(d)(1)(H). 
The credit will be allowed only on the Federal income tax return of the 
taxpayer listed in the seller report.
    (e) Examples. The following examples illustrate the application of 
the rules in this section.
    (1) Example 1: First transfer since enactment of section 25E. On 
August 1, 2022, a dealer sells a previously-owned vehicle that 
satisfies the requirements of section 25E(c)(1)(A), (B), and (D). On 
May 7, 2024, a dealer sells the vehicle to a qualified buyer, X, for a 
sale price of $24,000. X places the vehicle in service the same day. 
The May 7, 2024, sale to X is the first transfer of the vehicle since 
the enactment of section 25E.. The May 7, 2024, sale is a qualified 
sale pursuant to section 25E(c)(2) and paragraph (b)(14) of this 
section. As a result, the vehicle also satisfies the requirement of 
section 25E(c)(1)(C) and is a previously-owned clean vehicle as defined 
in section 25E(c)(1) and paragraph (b)(11) of this section.
    (2) Example 2: Multiple transfers since enactment of section 25E. 
On July 1, 2023, a dealer sells a previously-owned vehicle that 
satisfies the requirements of section 25E(c)(1)(A), (B), and (D) to an 
individual, X, for a sale price of $30,000. X places the vehicle in 
service the same day. This is the first transfer of the vehicle since 
the enactment of section 25E. On May 7, 2024, a dealer sells the 
vehicle to an individual, Y, for a sale price of $24,500. The July 1, 
2023, sale of the vehicle to X is not a qualified sale because the sale 
price exceeds the $25,000 limitation described in section 25E(c)(2)(B) 
and paragraph (b)(14) of this section. The May 7, 2024, sale to Y is 
not a qualified sale because it is not the first transfer since the 
enactment of section 25E.
    (3) Example 3: Multiple transfers; commercial purchaser. The facts 
are the same as in paragraph (e)(2) of this section (Example 2), except 
that X is a partnership and the July 1, 2023, sale is for a sale price 
of $24,000. Although the vehicle is a previously-owned clean vehicle as 
defined in section 25E(c)(1) and paragraph (b)(11) of this section, no 
section 25E credit is allowed in relation to the sale because X is not 
a qualified buyer. The May 7, 2024, sale to Y is not a qualified sale 
because it is not the first transfer since enactment of section 25E.
    (4) Example 4: Multiple transfers; buyer exceeds modified adjusted 
gross income limitation. The facts are the same as in paragraph (e)(2) 
of this section (Example 2), except the July 1, 2023, sale is for a 
sale price of $24,000 and X's modified adjusted gross income exceeds 
the limitation described in section 25E(b)(2) and paragraph (c) of this 
section. No section 25E credit is allowed in relation to the July 1, 
2023, sale to X because X's modified adjusted gross income exceeds the 
limitation described in section 25E(b)(2) and paragraph (c) of this 
section. The May 7, 2024, sale to Y is not a qualified sale because it 
is not the first transfer since the enactment of section 25E.
    (5) Example 5: Multiple transfers; buyer elects to not take credit. 
The facts are the same as in paragraph (e)(2) of this section (Example 
2), except the July 1, 2023, sale is for a sale price of $24,000 and X 
elects to not claim the section 25E credit. The May 7, 2024, sale to Y 
is not a qualified sale because it is not the first transfer since the 
enactment of section 25E.
    (6) Example 6: Multiple transfers; sale between dealers. On July 1, 
2023, a dealer, D1, sells a previously-owned vehicle that satisfies the 
requirements of section 25E(c)(1)(A), (B), and (D) to another dealer, 
D2, for $18,000. D1 and D2 are not individuals. On August 1, 2024, D2 
sells the vehicle to an individual, Y, for a sale price of $24,500. Y 
places the vehicle in service the same day. Y satisfies the modified 
adjusted gross income limitation in section 25E(b)(2) and paragraph (c) 
of this section. The July 1, 2023, sale to D2 is ignored because it is 
a transfer

[[Page 37750]]

between dealers. Further, with regard to the July 1, 2023, sale, D2 is 
not a qualified buyer because D2 is not an individual. The May 7, 2024, 
sale to Y is a qualified sale because it is the first transfer that is 
regarded since the enactment of section 25E.
    (f) Reliance on vehicle history report for purposes of determining 
whether sale is a qualified sale. A taxpayer may rely on a vehicle 
history report obtained on the date of sale or as part of the sale 
transaction to determine whether the requirements of section 
25E(c)(2)(C) and paragraph (b)(14) of this section are satisfied, 
including in the case where there has been a prior sale and return or 
resale described in Sec.  1.25E-2(c).
    (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 previously-owned 
clean vehicles placed in service after December 31, 2022, in taxable 
years ending after October 10, 2023.


Sec.  1.25E-2  Special rules.

    (a) In general. This section provides guidance under section 25E(e) 
of the Internal Revenue Code (Code), which incorporates rules similar 
to the rules of section 30D(f) of the Code, other than section 
30D(f)(10) or 30D(f)(11). Unless otherwise provided in this section, 
the rules of section 30D(f) apply to section 25E and the section 25E 
regulations in the same manner by replacing, if applicable, any 
reference to section 30D or the section 30D credit with a reference to 
section 25E or the section 25E credit. This section also provides 
guidance regarding other special rules with respect to the section 25E 
credit.
    (b) No double benefit--(1) In general. Under sections 25E(e) and 
30D(f)(2), the amount of any deduction or other credit allowable under 
chapter 1 of the Code (chapter 1) for a vehicle for which a section 25E 
credit is allowable must be reduced by the amount of the section 25E 
credit allowed for such vehicle.
    (2) Interaction between section 25E and section 30D credits. A 
section 30D credit that has been allowed with respect to a vehicle in a 
taxable year before the year in which a section 25E credit is allowable 
for that vehicle does not reduce the amount allowable under section 
25E.
    (c) Recapture--(1) In general. This paragraph (c) provides rules 
regarding the recapture of the section 25E credit.
    (i) Cancelled sale. If the sale of a previously-owned clean vehicle 
between the taxpayer and dealer is cancelled before the taxpayer places 
the vehicle in service, then--
    (A) The taxpayer may not claim the section 25E credit with respect 
to the vehicle;
    (B) The sale will be treated as not having occurred (and no 
transfer of the vehicle is considered to have occurred by reason of the 
cancelled sale), and the vehicle will, therefore, still be eligible for 
the section 25E credit upon a subsequent sale meeting the requirements 
of section 25E and the section 25E regulations;
    (C) The seller report must be rescinded by the seller in the manner 
set forth in guidance published in the Internal Revenue Bulletin (see 
Sec.  601.601 of this chapter); and
    (D) The taxpayer cannot make a credit transfer election under 
section 25E(f) and Sec.  1.25E-3 with respect to the cancelled sale.
    (ii) Vehicle return. If a taxpayer returns a previously-owned clean 
vehicle to the dealer within 30 days of placing such vehicle in 
service, then--
    (A) The taxpayer cannot claim the section 25E credit with respect 
to the vehicle;
    (B) The sale will be treated as having occurred (and a transfer of 
the vehicle is therefore considered to have occurred by reason of the 
sale), and the vehicle will not qualify for the section 25E credit upon 
a subsequent sale;
    (C) The seller report must be updated by the seller; and
    (D) A credit transfer election made pursuant to section 25E(f) and 
Sec.  1.25E-3, if applicable, will be treated as nullified and any 
advance payment made pursuant to section 25E(f) and Sec.  1.25E-3, if 
applicable, will be collected from the eligible entity as an excessive 
payment pursuant to Sec.  1.25E-3(g)(2).
    (iii) Resale. If a taxpayer resells a previously-owned clean 
vehicle within 30 days of placing the vehicle in service, then the 
taxpayer is treated as having purchased such vehicle with the intent to 
resell, and--
    (A) The taxpayer cannot claim the section 25E credit with respect 
to the vehicle;
    (B) The sale to the taxpayer will be treated as having occurred 
(and a transfer of the vehicle is therefore considered to have occurred 
by reason of the sale), and the vehicle will not qualify for the 
section 25E credit upon a subsequent sale;
    (C) The seller report will not be updated;
    (D) A credit transfer election made pursuant to section 25E(f) and 
Sec.  1.25E-3, if applicable, will remain in effect and any advance 
payment made pursuant to section 25E(f) and Sec.  1.25E-3 will not be 
collected from the eligible entity; and
    (E) The amount of any transferred credit will be collected from the 
taxpayer as an increase in tax imposed by chapter 1 of the Code for the 
taxable year in which the vehicle was placed in service.
    (iv) Other returns and resales. In the case of a vehicle return not 
described in paragraph (c)(1)(ii) of this section or a resale not 
described in paragraph (c)(1)(iii) of this section, the previously-
owned clean vehicle will not be eligible for the section 25E credit 
upon a subsequent sale.
    (2) Recapture rules in the case of a credit transfer election. For 
additional recapture rules that apply in the case of a credit transfer 
election, see Sec.  1.25E-3(g)(1). For excessive payment rules that 
apply in the case of an advance payment made to an eligible entity, see 
Sec.  1.25E-3(g)(2).
    (3) Example: Vehicle return. On May 1, 2024, a dealer, D, sells a 
vehicle that satisfies the requirements of section 25E(c)(1) to a 
qualified buyer, X. X returns the vehicle to D within 30 days of 
placing the vehicle in service, and does not claim the section 25E 
credit. On July 9, 2024, D sells the vehicle to a qualified buyer, Y, 
for a sale price of $24,000. The vehicle history report obtained on 
July 9, 2024, reflects the May 1, 2024, sale and subsequent return of 
the vehicle. The July 9, 2024, sale of the vehicle is not a qualified 
sale because it is not the first transfer of the vehicle after the 
enactment of section 25E. Therefore, no section 25E credit is allowed 
in relation to that sale. It is irrelevant that X did not claim the 
section 25E credit with respect to the May 1, 2024, sale.
    (d) Branded title. A title to a previously-owned clean vehicle 
indicating that such vehicle has been damaged, or is otherwise a 
branded title, does not impact the vehicle's eligibility for a section 
25E credit.
    (e) Seller registration. A seller must register with the IRS in the 
manner set forth in guidance published in the Internal Revenue Bulletin 
(see Sec.  601.601 of this chapter) for purposes of filing seller 
reports (as defined in Sec.  1.25E-1(b)(18)).
    (f) Requirement to file income tax return. No section 25E credit is 
allowed unless the taxpayer claiming such credit files a Federal income 
tax return for the taxable year in which the previously-owned clean 
vehicle is placed in service. The taxpayer must attach to such return a 
completed Form 8936, Clean Vehicle Credits, or successor

[[Page 37751]]

form, that includes all information required by the form and 
instructions. The taxpayer must also attach a completed Schedule A 
(Form 8936), Clean Vehicle Credit Amount, or successor form or 
schedule, that includes all information required by the schedule and 
instructions, such as the vehicle identification number of the 
previously-owned clean vehicle.
    (g) Taxpayer reliance on manufacturer certifications and periodic 
written reports to IRS. A taxpayer who acquires a previously-owned 
clean vehicle in a qualified sale and places it in service may rely on 
the manufacturer's certification concerning the manufacturer's status 
as a qualified manufacturer. A taxpayer also may rely on the 
information and certifications contained in the qualified 
manufacturer's periodic written reports to the IRS for purposes of 
determining whether a vehicle is a previously-owned clean vehicle. The 
procedures for such written reports are established in guidance 
published in the Internal Revenue Bulletin (see Sec.  601.601 of this 
chapter). To the extent a taxpayer relies on such certifications or 
information, the previously-owned clean vehicle the taxpayer acquires 
will be deemed to meet the requirements of section 25E(c)(1)(D) (except 
the section 30D(d)(1)(H) requirement cross-referenced in section 
25E(c)(1)(D)(i), which must be satisfied separately), provided the 
certifications or information relied upon by the taxpayer support this 
result. See Sec.  1.25E-3(g)(3)(ii) for an example that illustrates the 
interplay between the rule in this paragraph (g) and the excessive 
payment rule in Sec.  1.25E-3(g)(2).
    (h) Severability. The provisions of this section are separate and 
severable from one another. If any provision of this section is stayed 
or determined to be invalid, it is the agencies' intention that the 
remaining provisions shall continue in effect.
    (i) Applicability date. This section applies to previously-owned 
clean vehicles placed in service after December 31, 2022, in taxable 
years ending after October 10, 2023.


Sec.  1.25E-3  Transfer of credit.

    (a) In general. This section provides rules related to the transfer 
and advance payment of the section 25E credit pursuant to section 
25E(f) of the Internal Revenue Code (Code) by cross reference to 
section 30D(g) of the Code. Under the rules of section 30D(g) and this 
section, a taxpayer may elect to transfer a section 25E credit to an 
eligible entity, and the eligible entity may receive an advance payment 
for such credit, provided certain requirements are met. See paragraph 
(d) of this section for rules applicable to credit transfer elections. 
See paragraph (f) of this section for rules applicable to advance 
payments of transferred section 25E credits. Section 30D(g)(2) sets 
forth certain requirements that a dealer must satisfy to be an eligible 
entity for credit transfer and advance payment purposes. Section 
30D(g)(2)(A) requires registration with the IRS. See paragraph (c) of 
this section for rules related to dealer registration. Section 
30D(g)(2)(B) through (D) and paragraph (f)(2) of this section impose 
additional requirements that a registered dealer must satisfy in order 
to be an eligible entity for credit transfer and advance payment 
purposes.
    (b) Definitions. This paragraph (b) provides definitions that apply 
for purposes of section 25E(f) and this section. See Sec.  1.25E-1(b) 
for definitions that are generally applicable to section 25E and the 
section 25E regulations.
    (1) Advance payment program. Advance payment program means the 
program described in paragraph (f)(1) of this section.
    (2) Credit transfer election. Credit transfer election has the 
meaning provided in sections 25E(f) and 30D(g), and paragraph (d) of 
this section.
    (3) Dealer tax compliance. Dealer tax compliance means that the 
dealer has filed all required Federal information and tax returns, 
including for Federal income and employment tax purposes, and the 
dealer has paid all Federal tax, penalties, and interest due as of the 
time of sale. A dealer that has entered into an installment agreement 
with the IRS for which a dealer is current on its obligations 
(including required filings) is treated as being in dealer tax 
compliance.
    (4) Electing taxpayer. Electing taxpayer means an individual who 
purchases and places in service a previously-owned clean vehicle and 
elects to transfer the section 25E credit that would otherwise be 
allowable to such individual to an eligible entity pursuant to section 
25E(f) and paragraph (d) of this section. A taxpayer is an electing 
taxpayer only if the taxpayer makes certain attestations to the 
registered dealer, pursuant to procedures provided in guidance 
published in the Internal Revenue Bulletin (see Sec.  601.601 of this 
chapter), including that the taxpayer does not anticipate exceeding the 
modified adjusted gross income limitation of section 25E(b)(1) and 
Sec.  1.25E-1(b).
    (5) Eligible entity. Eligible entity has the meaning provided in 
section 30D(g)(2) and paragraph (f)(2) of this section.
    (6) Registered dealer. Registered dealer means a dealer that has 
completed registration with the IRS as provided in paragraph (c) of 
this section.
    (7) Time of sale. Time of sale means the date the previously-owned 
clean vehicle is placed in service, as defined in Sec.  1.25E-1(b)(10).
    (c) Dealer registration--(1) In general. A dealer must register 
with the IRS in the manner set forth in guidance published in the 
Internal Revenue Bulletin (see Sec.  601.601 of this chapter) for the 
dealer to receive credits transferred by an electing taxpayer pursuant 
to section 25E(f) and paragraph (d) of this section.
    (2) Dealer tax compliance required. A dealer must be in dealer tax 
compliance to complete and maintain its registration with the IRS. If 
the dealer is not in dealer tax compliance for any of the taxable 
periods during the last five taxable years, then the dealer may 
complete its initial registration with the IRS, but the dealer will not 
be eligible for the advance payment program (and, therefore, the dealer 
will not be eligible to receive transferred section 25E credits) until 
the compliance issue is resolved. The IRS will notify the dealer in 
writing that the dealer is not in dealer tax compliance, and the dealer 
will have the opportunity to address any failure through regular 
procedures. If the failure is corrected, the IRS will complete the 
dealer's registration, and, provided all other requirements of section 
25E(f) and this section are met, the dealer will then be allowed to 
receive transferred section 25E credits and participate in the advance 
payment program. Additional procedural guidance regarding this 
paragraph is set forth in guidance published in the Internal Revenue 
Bulletin (see Sec.  601.601 of this chapter).
    (3) Suspension of registration. A registered dealer's registration 
may be suspended pursuant to the procedures described in guidance 
published in the Internal Revenue Bulletin (see Sec.  601.601 of this 
chapter). Any decision made by the IRS relating to the suspension of a 
registered dealer's registration is not subject to administrative 
appeal to the IRS Independent Office of Appeals unless the IRS and the 
IRS Independent Office of Appeals agree that such review is available 
and the IRS provides the time and manner for such review.
    (4) Revocation of registration. A registered dealer's registration 
may be revoked pursuant to the procedures described in guidance 
published in the Internal Revenue Bulletin (see Sec.  601.601). Any 
decision made by the IRS relating to the revocation of a

[[Page 37752]]

dealer's registration is not subject to administrative appeal to the 
IRS Independent Office of Appeals unless the IRS and the IRS 
Independent Office of Appeals agree that such review is available and 
the IRS provides the time and manner for such review.
    (d) Credit transfer election by electing taxpayer. For a 
previously-owned clean vehicle placed in service after December 31, 
2023, an electing taxpayer may elect to apply the rules of section 
25E(f) and this section to make a credit transfer election with respect 
to the vehicle so that the section 25E credit is allowed to the 
eligible entity specified in the credit transfer election (and not to 
the electing taxpayer) pursuant to the advance payment program 
described in paragraph (f) of this section. The electing taxpayer, as 
part of the credit transfer election, must transfer the entire amount 
of the credit that would otherwise be allowable to the electing 
taxpayer under section 25E with respect to the vehicle, and the 
eligible entity specified in the credit transfer election must pay the 
electing taxpayer an amount equal to the amount of the credit included 
in the credit transfer election. A credit transfer election must be 
made no later than the time of sale, and must be made in the manner set 
forth in guidance published in the Internal Revenue Bulletin (see Sec.  
601.601 of this chapter). Once made, a credit transfer election is 
irrevocable.
    (e) Federal income tax consequences of credit transfer election--
(1) Tax consequences for electing taxpayer. In the case of a credit 
transfer election, the Federal income tax consequences for the electing 
taxpayer are as follows--
    (i) The amount of the section 25E credit that the electing taxpayer 
elects to transfer to the eligible entity under section 30D(g) (by 
reason of section 25E(f)) and paragraph (d) of this section may exceed 
the electing taxpayer's regular tax liability (as defined in section 
26(b)(1) of the Code) for the taxable year in which the sale occurs, 
and the excess, if any, is not subject to recapture on the basis that 
it exceeded the electing taxpayer's regular tax liability;
    (ii) The payment made by an eligible entity to an electing taxpayer 
under section 30D(g)(2)(C) (by reason of 25E(f)) and paragraph (d) of 
this section to an electing taxpayer pursuant to a credit transfer 
election is not includible in the gross income of the electing 
taxpayer; and
    (iii) The payment made by an eligible entity under section 
30D(g)(2)(C) (by reason of section 25E(f)) and paragraph (d) of this 
section is treated as repaid by the electing taxpayer to the eligible 
entity as partial payment of the sale price of the previously-owned 
clean vehicle. Thus, the repayment by the electing taxpayer is included 
in the electing taxpayer's basis in the previously-owned clean vehicle 
prior to the application of the basis reduction rule of section 
30D(f)(1) that applies by reason of section 25E(e) and Sec.  1.25E-
2(a).
    (2) Tax consequences for eligible entity. In the case of a credit 
transfer election, the Federal income tax consequences for the eligible 
entity are as follows--
    (i) The eligible entity is allowed the section 25E credit with 
respect to the previously-owned clean vehicle and may receive an 
advance payment pursuant to section 30D(g)(7) (by reason of section 
25E(f)) and paragraph (f) of this section;
    (ii) Advance payments received by the eligible entity are not 
treated as a tax credit in the hands of the eligible entity and may 
exceed the eligible entity's regular tax liability (as defined in 
section 26(b)(1)) for the taxable year in which the sale occurs;
    (iii) An advance payment received by the eligible entity is not 
included in the gross income of the eligible entity;
    (iv) The payment made by an eligible entity under section 
30D(g)(2)(C) (by reason of section 25E(f)) and paragraph (d) of this 
section to an electing taxpayer is not deductible by the eligible 
entity;
    (v) The payment made by an eligible entity to the electing taxpayer 
under section 30D(g)(2)(C) (by reason of section 25E(f)) and paragraph 
(d) of this section is treated as paid by the electing taxpayer to the 
eligible entity as partial payment of the sale price of the previously-
owned clean vehicle. Thus, the repayment by the electing taxpayer is 
treated as an amount realized by the eligible entity under section 1001 
of the Code and the regulations under section 1001; and
    (vi) If the eligible entity is a partnership or an S corporation, 
then--
    (A) The IRS will make the advance payment to such partnership or S 
corporation equal to the amount of the section 25E credit allowed that 
is transferred to the eligible entity;
    (B) Such section 25E credit is reduced to zero and is, for any 
other purpose of the Code, deemed to have been allowed solely to such 
entity (and not allocated or otherwise allowed to its partners or 
shareholders) for such taxable year; and
    (C) The amount of the advance payment is not treated as tax exempt 
income to the partnership or S corporation for purposes of the Code.
    (3) Form of payment from eligible entity to electing taxpayer. The 
tax treatment of the payment made by the eligible entity to the 
electing taxpayer described in paragraphs (e)(1) and (2) of this 
section is the same regardless of whether the payment is made in cash, 
in the form of a partial payment or down payment for the purchase of 
the previously-owned clean vehicle, or as a reduction in sale price 
(without the payment of cash) of the previously-owned clean vehicle.
    (4) Additional requirements. In the case of a credit transfer 
election, the following additional rules apply:
    (i) The requirements of section 30D(f)(1) (regarding basis 
reduction) and 30D(f)(2) (regarding no double benefit), by reason of 
section 25E(e), apply to the electing taxpayer as if the credit 
transfer election were not made (so, for example, the electing taxpayer 
must reduce the electing taxpayer's basis in the vehicle by the amount 
of the section 25E credit, regardless of the credit transfer election).
    (ii) Section 30D(f)(6) (regarding the election not to take the 
credit), by reason of section 25E(e), will not apply (in other words, 
by electing to transfer the credit, the electing taxpayer is electing 
to take the credit).
    (iii) Section 30D(f)(9) (regarding the vehicle identification 
number requirement), by reason of section 25E(e), and section 25E(d) 
(regarding the vehicle identification number requirement) will be 
treated as satisfied if the eligible entity provides the vehicle 
identification number of such vehicle to the IRS in the form and manner 
set forth in guidance published in the Internal Revenue Bulletin (see 
Sec.  601.601 of this chapter). The electing taxpayer must also provide 
the vehicle identification number with their Federal income tax return 
for the taxable year in which the vehicle is placed in service. See 
section 6213(g)(2)(U) of the Code and Sec.  301.6213-2 of this chapter 
for rules relating to the omission of a correct vehicle identification 
number.
    (5) Examples. The following examples illustrate the rules of 
paragraph (e) of this section.
    (i) Example 1: Electing taxpayer's regular tax liability less than 
amount of credit--(A) Facts. T, an individual, purchases a previously-
owned clean vehicle from a dealer, D, which is a C corporation. T 
satisfies the requirements to be an electing taxpayer and elects to 
transfer the section 25E credit to D. D is a registered dealer and 
satisfies the requirements to be an eligible entity. The sale price of 
the vehicle is $24,000. The section 25E credit otherwise allowable to T 
is $4,000. D makes the payment required to be made to T in the form of 
a cash payment of $4,000. T

[[Page 37753]]

uses the $4,000 as a partial payment for the vehicle. T pays D an 
additional $20,000 from other funds. T's regular tax liability for the 
year is less than $4,000.
    (B) Analysis. Under paragraph (e)(1)(i) of this section, T may 
transfer the credit to D, even though T's regular tax liability is less 
than $4,000, and no amount of the credit will be recaptured from T on 
the basis that the allowable credit exceeded T's regular tax liability. 
D's $4,000 payment to T is not included in T's gross income, and the 
sale price of the vehicle is $24,000 (including both the $4,000 payment 
and the additional $20,000 paid by T from other funds), prior to the 
application of the basis reduction rule of section 30D(f)(1) (by reason 
of section 25E(e)). After application of the basis reduction rule, T's 
basis in the vehicle is $20,000. D is eligible to receive an advance 
payment of $4,000 for the transferred section 25E credit as provided in 
section 30D(g)(7) (by reason of section 25E(e)) and paragraph (f) of 
this section. Under paragraph (e)(2) of this section, D may receive the 
advance payment regardless of whether D's regular tax liability is less 
than $4,000. The advance payment is not treated as a credit toward D's 
tax liability (if any), nor is it included in D's gross income. 
Further, D's $4,000 payment to T is not deductible, and D's amount 
realized is $24,000 upon the sale of the vehicle (including both the 
$4,000 payment from D to T that T uses as a partial payment, and the 
additional $20,000 paid by T from other funds).
    (ii) Example 2: Non-cash payment by eligible entity to electing 
taxpayer--(A) Facts. The facts are the same as in paragraph 
(e)(5)(i)(A) of this section (facts of Example 1), except that D makes 
the payment to T in the form of a reduction in the sale price of the 
vehicle (rather than as a cash payment).
    (B) Analysis. Paragraph (e)(3) of this section provides that the 
application of paragraphs (e)(1) and (2) of this section is not 
dependent on the form of payment from an eligible entity to an electing 
taxpayer (for example, a payment in cash or a payment in the form of a 
reduction in sale price). Thus, the analysis is the same as in 
paragraph (e)(5)(i)(B) of this section (analysis of Example 1).
    (iii) Example 3: Eligible entity is a partnership--(A) Facts. The 
facts are the same as in paragraph (e)(5)(i)(A) of this section (facts 
of Example 1), except that D is a partnership.
    (B) Analysis. The analysis as to T is the same as in paragraph 
(e)(5)(i)(B) of this section (analysis of Example 1). Because D is a 
partnership, paragraph (e)(2)(vi) of this section applies. Thus, the 
advance payment is made to the partnership, the credit is reduced to 
zero and is, for any other purpose of the Code, deemed to have been 
allowed solely to the partnership (and not allocated or otherwise 
allowed to its partners) for such taxable year. The amount of the 
advance payment is not treated as tax exempt income to the partnership 
for purposes of the Code.
    (f) Advance payments received by eligible entities--(1) In general. 
An eligible entity may receive advance payments from the IRS 
(corresponding to the amount of the section 25E credit for which a 
credit transfer election was made by an electing taxpayer to transfer 
the credit to the eligible entity pursuant to section 30D(g) (by reason 
of section 25E(f)) and paragraph (d) of this section) before the 
eligible entity files its Federal income tax return or information 
return, as appropriate, for the taxable year with respect to which the 
credit transfer election corresponds. This advance payment program is 
the exclusive mechanism for an eligible entity to receive the section 
25E credit transferred pursuant to section 25E(f) and paragraph (d) of 
this section. An eligible entity receiving a transferred section 25E 
credit may not claim the credit on a tax return.
    (2) Requirements for a registered dealer to become an eligible 
entity. A registered dealer qualifies as an eligible entity, and may 
therefore receive an advance payment in connection with a credit 
transfer election, if it meets the following requirements:
    (i) The registered dealer submits all required registration 
information and is in dealer tax compliance;
    (ii) The registered dealer retains information regarding the credit 
transfer election for three calendar years beginning with the year 
immediately after the year in which the vehicle is placed in service, 
as described in guidance published in the Internal Revenue Bulletin 
(see Sec.  601.601 of this chapter);
    (iii) The registered dealer meets any other requirements set forth 
in guidance published in the Internal Revenue Bulletin (see Sec.  
601.601 of this chapter) or in forms and instructions; and
    (iv) The registered dealer meets any other requirements of section 
25E(f) by reference to section 30D(g), including those in section 
30D(g)(2)(B) through (E).
    (g) Increase in tax--(1) Recapture if electing taxpayer exceeds 
modified adjusted gross income limitation. If an electing taxpayer has 
modified adjusted gross income that exceeds the limitation in section 
25E(b) and Sec.  1.25E-1(b), then the income tax imposed on such 
taxpayer under chapter 1 of the Code (chapter 1) for the taxable year 
in which the vehicle was placed in service is increased by the amount 
of the payment received by the taxpayer. The electing taxpayer must 
recapture such amounts on the Federal income tax return described in 
paragraph (h) of this section.
    (2) Excessive payments--(i) In general. This paragraph provides 
rules under section 25E(f) by reference to section 30D(g)(7)(B), which 
provides that rules similar to the rules of section 6417(d)(6) of the 
Code apply to the advance payment program. In the case of any advance 
payment to an eligible entity that the IRS determines constitutes an 
excessive payment, the tax imposed on the eligible entity under chapter 
1, regardless of whether such entity would otherwise be subject to tax 
under chapter 1, for the taxable year in which such determination is 
made will be increased by the sum of the following amounts--
    (A) The amount of the excessive payment; plus
    (B) An amount equal to 20 percent of such excessive payment.
    (ii) Reasonable cause. The amount described in paragraph 
(g)(2)(i)(B) of this section will not apply to an eligible entity if 
the eligible entity demonstrates to the satisfaction of the IRS that 
the excessive payment resulted from reasonable cause. In the case of a 
previously-owned clean vehicle (with respect to which a credit transfer 
election was made by the electing taxpayer) that is returned to the 
eligible entity within 30 days of being placed in service, the eligible 
entity will be treated as having demonstrated that the excessive 
payment resulted from reasonable cause.
    (iii) Excessive payment defined. Excessive payment means an advance 
payment made--
    (A) To a registered dealer that fails to meet the requirements to 
be an eligible entity provided in paragraph (f)(2) of this section; or
    (B) Except as provided in paragraph (g)(2)(iv) of this section, to 
an eligible entity with respect to a previously-owned clean vehicle to 
the extent the payment exceeds the amount of the credit that, without 
application of section 25E(f) and this section, would be otherwise 
allowable to the electing taxpayer with respect to the vehicle for such 
tax year.
    (iv) Special rule for cases in which electing taxpayer's modified 
adjusted gross income exceeds the limitation. Any excess described in 
paragraph (g)(2)(iii)(B) of this section that arises due to the 
electing taxpayer exceeding

[[Page 37754]]

the limitation based on modified adjusted gross income in section 
25E(b) and Sec.  1.25E-1(b) is not an excessive payment. Instead, the 
amount of the advance payment is recaptured from the taxpayer under 
section 25E(e) and paragraph (g)(1) of this section.
    (3) Examples. The following examples illustrate the excessive 
payment rules in paragraph (g)(2) of this section.
    (i) Example 1: Registered dealer is not an eligible entity--(A) 
Facts. In 2024, D, a registered dealer, receives an advance payment of 
$4,000 with respect to a credit transferred pursuant to section 25E(f) 
and paragraph (d) of this section for a previously-owned clean vehicle, 
vehicle V. In 2025, the IRS determines that D was not an eligible 
entity with respect to vehicle V at the time it received the advance 
payment in 2024 because D failed to satisfy one of the requirements of 
section 30D(g)(2) (applicable by reason of section 25E(e)) and 
paragraph (f)(2) of this section. D is unable to show reasonable cause 
for the failure.
    (B) Analysis. Under paragraph (g)(2)(i) of this section, the tax 
imposed on D is increased by the amount of the excessive payment if the 
advance payment received by D constitutes an excessive payment. Under 
paragraph (g)(2)(iii) of this section, the entire amount of the $4,000 
advance payment received by D is an excessive payment because D did not 
meet the requirements to be an eligible entity under section 30D(g)(2) 
(applicable by reason of section 25E(f) and paragraph (f)(2) of this 
section). Additionally, because D cannot show reasonable cause for its 
failure to meet these requirements, the tax imposed under chapter 1 on 
D is increased by $4,800 in 2025 (the taxable year of the IRS 
determination). This is comprised of the $4,000 excessive payment plus 
the $800 penalty, calculated as 20% of the $4,000 excessive payment 
(20% x $4,000 = $800). This treatment applies regardless of whether D 
is otherwise subject to tax under chapter 1 (for example, if D is a 
partnership).
    (ii) Example 2: Incorrect manufacturer certifications--(A) Facts. 
In 2024, T, a taxpayer, makes an election to transfer a $4,000 credit 
pursuant to section 25E(f) and paragraph (d) of this section to 
registered dealer, E, with respect to vehicle V. M, the manufacturer of 
vehicle V, certified to the IRS that vehicle V has a battery with a 
capacity of not less than 7 kilowatt hours (kwh). T and vehicle V 
otherwise meet the eligibility requirements for the section 25E credit. 
T, in reliance on the manufacturer's certification to the IRS regarding 
vehicle V's battery capacity, transfers the section 25E credit to E. 
Subsequent to T's purchase of vehicle V and election to transfer the 
$4,000 credit to E, M reports to the IRS that vehicle V has a battery 
capacity of less than 7 kwh.
    (B) Analysis. Section 1.25E-2(g) provides that T may rely on the 
information and certifications provided in M's written report to the 
IRS for purposes of determining whether vehicle V is a previously-owned 
clean vehicle, as defined in section 25E(c)(1) and Sec.  1.25E-
1(b)(11). Because T relied on M's certification to the IRS regarding 
vehicle V's battery capacity and T and vehicle V otherwise meet the 
eligibility requirements for the section 25E credit, vehicle V is 
deemed to meet the requirements of section 30D(d)(1)(F) (as cross-
referenced in section 25E(c)(1)(D)(i)). Under paragraph (g)(2)(iii)(B) 
of this section, an advance payment to an eligible entity with respect 
to a vehicle is an excessive payment to the extent the payment exceeds 
the amount of the credit that, without a credit transfer election, 
would be otherwise allowable to the electing taxpayer with respect to 
the vehicle for such taxable year. Because the amount of the credit 
that would be allowable to T for 2024 is $4,000, and T transferred the 
$4,000 credit to E, there is no excessive payment with respect to E.
    (h) Return requirement. An electing taxpayer that makes a credit 
transfer election must file a Federal income tax return for the taxable 
year in which the credit transfer election is made and indicate such 
election on the return in accordance with the instructions to the form 
on which the return is made. The electing taxpayer must attach to such 
return a completed Form 8936, Clean Vehicle Credits, or successor form, 
that includes all information required by the form and instructions. 
The electing taxpayer must also attach a completed Schedule A (Form 
8936), Clean Vehicle Credit Amount, or successor form or schedule, that 
includes all information required by the schedule and instructions, 
such as the vehicle identification number of the previously-owned clean 
vehicle.
    (i) Two credit transfer elections per year. A taxpayer may make no 
more than two credit transfer elections per taxable year, consisting of 
either two elections to transfer section 30D credits, or one section 
30D credit and one election to transfer a section 25E credit. In the 
case of taxpayers who file a joint return, each individual taxpayer may 
make no more than two credit transfer elections per taxable year.
    (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 will continue in effect.
    (k) Applicability date. This section applies to previously-owned 
vehicles placed in service after December 31, 2023, in taxable years 
ending after December 31, 2023.

0
Par 3. Sections 1.30D-0 through 1.30D-6 are added to read as follows:


Sec.  1.30D-0  Table of contents.

    This section lists the captions contained in Sec. Sec.  1.30D-1 
through 1.30D-6.

Sec.  1.30D-1 Credit for new clean vehicles.

    (a) In general.
    (b) Application with other credits.
    (1) Business credit treated as part of general business credit.
    (2) Apportionment of section 30D credit.
    (3) Personal credit limited based on tax liability.
    (c) Severability.
    (d) Applicability date.

Sec.  1.30D-2 Definitions for purposes of section 30D.

    (a) In general.
    (b) Definitions.
    (1) Advance payment program.
    (2) Applicable critical mineral.
    (i) In general.
    (ii) Example: Form of applicable critical mineral.
    (3) Assembly.
    (4) Associated constituent material.
    (5) Battery.
    (6) Battery cell.
    (7) Battery cell production facility.
    (8) Battery component.
    (9) Battery materials.
    (10) Clean vehicle battery.
    (11) Compliant-battery ledger.
    (12) Constituent materials.
    (13) Country with which the United States has a free trade 
agreement in effect.
    (i) In general.
    (ii) Free trade agreements in effect.
    (iii) Updates.
    (14) Credit transfer election.
    (15) Dealer.
    (16) Dealer tax compliance.
    (17) Depreciable vehicle.
    (18) Electing taxpayer.
    (19) Eligible entity.
    (20) Excessive payment.
    (21) Extraction.
    (22) FEOC-compliant.
    (23) Final assembly.
    (24) Foreign entity of concern.
    (25) Impracticable-to-trace battery materials.
    (i) In general.
    (ii) Identified impracticable-to-trace battery materials.
    (26) Incentive.
    (27) Incremental value.
    (28) Manufacturer.
    (i) In general.

[[Page 37755]]

    (ii) Modification of a new motor vehicle.
    (29) Manufacturer's suggested retail price.
    (i) In general.
    (ii) Retail price.
    (iii) Retail delivered price.
    (30) Manufacturing.
    (31) Modified adjusted gross income.
    (i) Individuals.
    (ii) Estates and trusts.
    (32) New clean vehicle.
    (33) New qualified fuel cell motor vehicle.
    (34) North America.
    (35) North American battery component.
    (36) Placed in service.
    (37) Processing.
    (38) Procurement chain.
    (39) Qualifying battery component content.
    (40) Qualifying critical mineral.
    (41) Qualifying critical mineral content.
    (42) Qualified manufacturer.
    (43) Recycling.
    (i) In general.
    (ii) Example: Recycling of applicable critical mineral.
    (44) Registered dealer.
    (45) Section 30D regulations.
    (46) Seller report.
    (47) Time of sale.
    (48) Total incremental value of battery components.
    (49) Total incremental value of North American battery 
components.
    (50) Total traced qualifying value.
    (51) Total value of critical minerals.
    (52) Total value of qualifying critical minerals.
    (53) Traced qualifying value.
    (54) Value.
    (55) Value added.
    (56) Vehicle classification.
    (i) In general.
    (ii) Van.
    (iii) Sport utility vehicle.
    (iv) Pickup truck.
    (v) Other vehicle.
    (c) Severability.
    (d) Applicability date.

Sec.  1.30D-3 Critical minerals and battery components requirements.

    (a) Critical minerals requirement.
    (1) In general.
    (2) Applicable critical minerals percentage.
    (i) In general.
    (ii) Vehicles placed in service between April 18, 2023, and 
December 31, 2023.
    (iii) Vehicles placed in service during calendar year 2024.
    (iv) Vehicles placed in service during calendar year 2025.
    (v) Vehicles placed in service during calendar year 2026.
    (vi) Vehicles placed in service during calendar year 2027 and 
later.
    (3) Determining qualifying critical mineral content.
    (i) In general.
    (ii) Separate determinations required for each procurement 
chain.
    (iii) Time for determining value.
    (iv) Application of qualifying critical mineral content to 
vehicles.
    (4) Temporary safe harbor for determining qualifying critical 
mineral content for vehicles for which a qualified manufacturer 
submits a periodic written report on or after May 6, 2024 and before 
January 1, 2027.
    (i) In general.
    (ii) Separate determinations required for each procurement 
chain.
    (iii) Time for determining value.
    (iv) Application of qualifying critical mineral content to 
vehicles.
    (v) Consistent determination required for all procurement 
chains.
    (5) Rule for determining qualifying critical mineral content for 
vehicles for which a qualified manufacturer submitted a periodic 
written report before May 6, 2024.
    (b) Battery components requirement.
    (1) In general.
    (2) Applicable battery components percentage.
    (i) In general.
    (ii) Vehicles placed in service between April 18, 2023, and 
December 31, 2023.
    (iii) Vehicles placed in service during calendar year 2024 or 
2025.
    (iv) Vehicles placed in service during calendar year 2026.
    (v) Vehicles placed in service during calendar year 2027.
    (vi) Vehicles placed in service during calendar year 2028.
    (vii) Vehicles placed in service in calendar year 2029 and 
later.
    (3) Determining qualifying battery component content.
    (i) In general.
    (ii) Time for determining value.
    (iii) Application of qualifying battery component content to 
vehicles.
    (iv) End point for determination.
    (c) Definitions.
    (1) Certain terms relevant to the critical minerals requirement.
    (i) Procurement chain.
    (ii) Qualifying critical mineral.
    (A) In general.
    (B) Extracted or processed in the United States or in any 
country with which the United States has a free trade agreement in 
effect.
    (C) Recycled in North America.
    (iii) Qualifying critical mineral content.
    (iv) Total traced qualifying value.
    (v) Total value of critical minerals.
    (vi) Total value of qualifying critical minerals.
    (vii) Traced qualifying value.
    (A) Extracted or processed in the United States or in any 
country with which the United States has a free trade agreement in 
effect.
    (B) Recycled in North America.
    (viii) Value added.
    (2) Certain terms relevant to the battery components 
requirement.
    (i) Incremental value.
    (ii) North American battery component.
    (iii) Qualifying battery component content.
    (iv) Total incremental value of battery components.
    (v) Total incremental value of North American battery 
components.
    (d) Upfront review of critical minerals and battery components 
requirements.
    (e) New qualified fuel cell motor vehicles.
    (f) Examples.
    (1) Example 1: Critical minerals requirement.
    (i) Facts.
    (ii) Analysis.
    (2) Example 2: Critical minerals requirement temporary safe 
harbor.
    (i) Facts.
    (ii) Analysis.
    (3) Example 3: Battery components requirement. Kelley -Payroll 
No: -Folios: 1006-1008 -Date: 05/01/24[FEDREG][VOL]*[/VOL][NO]*[/
NO][DATE]*[/DATE][RULES][RULE][PREAMB][AGENCY]*[/AGENCY][SUBJECT]*[/
SUBJECT][/PREAMB][SUPLINF][HED]*[/HED][REGTEXT][EXTRACT][P]*[/P]?>
    (i) Facts.
    (ii) Analysis.
    (g) Severability.
    (h) Applicability date.
    (1) In general.
    (2) Upfront review and traced qualifying value.

Sec.  1.30D-4 Special rules.
    (a) No double benefit.
    (1) In general.
    (2) Interaction between section 30D and section 25E credits.
    (3) Interaction between section 30D and section 45W credits.
    (b) Limitation based on modified adjusted gross income.
    (1) In general.
    (2) Threshold amount.
    (3) Special rule for change in filing status.
    (4) Application to estates and trusts.
    (i) Estates and non-grantor trusts.
    (ii) Grantor trusts.
    (5) Application to passthrough entities.
    (6) Other taxpayers.
    (c) Credit may generally be claimed on only one tax return.
    (1) In general.
    (2) Exception for passthrough entities.
    (3) Seller reporting.
    (i) In general.
    (ii) Passthrough entities.
    (4) Example.
    (d) Grantor trusts.
    (e) Recapture rules.
    (1) In general.
    (i) Cancelled sale.
    (ii) Vehicle return.
    (iii) Resale.
    (iv) Other vehicle returns and resales.
    (2) Recapture rules in the case of a credit transfer election.
    (3) Example: Demonstrator vehicle.
    (f) Seller registration.
    (g) Requirement to file return.
    (h) Taxpayer reliance on manufacturer certifications and 
periodic written reports to the IRS.
    (i) Severability.
    (j) Applicability date.

Sec.  1.30D-5 Transfer of credit.

    (a) In general.
    (b) Definitions.
    (1) Advance payment program.
    (2) Credit transfer election.
    (3) Dealer.
    (4) Dealer tax compliance.
    (5) Electing taxpayer.
    (6) Eligible entity.
    (7) Incentive.
    (8) Registered dealer.
    (9) Sale price.
    (10) Time of sale.
    (c) Dealer registration.
    (1) In general.
    (2) Dealer tax compliance required.
    (3) Suspension of registration.
    (4) Revocation of registration.
    (d) Credit transfer election by electing taxpayer.
    (e) Federal income tax consequences of the credit transfer 
election.

[[Page 37756]]

    (1) Tax consequences for electing taxpayer.
    (2) Tax consequences for eligible entity.
    (3) Form of payment from eligible entity to electing taxpayer.
    (4) Additional requirements.
    (5) Examples.
    (i) Example 1: Electing taxpayer's regular tax liability less 
than amount of credit.
    (A) Facts.
    (B) Analysis.
    (ii) Example 2: Non-cash payment by eligible entity to electing 
taxpayer.
    (A) Facts.
    (B) Analysis.
    (iii) Example 3: Eligible entity is a partnership.
    (A) Facts.
    (B) Analysis.
    (f) Advance payments received by eligible entities.
    (1) In general.
    (2) Requirements for a registered dealer to become an eligible 
entity.
    (3) Suspension of registered dealer eligibility.
    (4) Revocation of registered dealer eligibility.
    (g) Increase in tax.
    (1) Recapture if electing taxpayer exceeds modified adjusted 
gross income limitation.
    (2) Excessive payments.
    (i) In general.
    (ii) Reasonable cause.
    (iii) Excessive payment defined.
    (iv) Special rule for cases in which the electing taxpayer's 
modified adjusted gross income exceeds the limitation.
    (3) Examples.
    (i) Example 1: Registered dealer is not an eligible entity.
    (A) Facts.
    (B) Analysis.
    (ii) Example 2: Incorrect manufacturer certifications.
    (A) Facts.
    (B) Analysis.
    (h) Return requirement.
    (i) Two credit transfer elections per year.
    (j) Severability.
    (k) Applicability date.

Sec.  1.30D-6 Foreign entity of concern restriction.

    (a) In general.
    (b) Due diligence required.
    (1) In general.
    (2) Transition rule for impracticable-to-trace battery 
materials.
    (c) FEOC compliance.
    (1) In general.
    (i) Step 1.
    (ii) Step 2.
    (iii) Step 3.
    (2) FEOC-compliant batteries.
    (3) FEOC-compliant battery cells.
    (i) In general.
    (ii) Allocation-based determination for applicable critical 
minerals and associated constituent materials of a battery cell.
    (A) In general.
    (B) Allocation limited to applicable critical minerals in the 
battery cell.
    (C) Separate allocation required for each type of associated 
constituent material.
    (1) In general.
    (2) Example.
    (D) Allocation within each product line of battery cells.
    (E) Limitation on number of FEOC-compliant battery cells.
    (iii) Transition rule for impracticable-to-trace battery 
materials.
    (4) FEOC-compliant battery components and applicable critical 
minerals.
    (i) In general.
    (ii) Timing of determination of FEOC or FEOC-compliant status.
    (iii) Example: Timing of FEOC compliance determination.
    (5) Third-party manufacturers or suppliers.
    (i) Due diligence required.
    (ii) Provision of required information to qualified 
manufacturer.
    (iii) Contractual obligations.
    (iv) Additional requirements in case of multiple third-party 
manufacturers or suppliers.
    (d) Compliant-battery ledger.
    (1) In general.
    (2) Determination of number of batteries.
    (i) In general.
    (ii) Upfront review.
    (iii) Decrease or increase to compliant-battery ledger.
    (3) Tracking FEOC-compliant batteries.
    (4) Reconciliation of battery estimates.
    (e) Rule for 2024.
    (1) In general.
    (2) Determination.
    (f) Inaccurate attestations, certifications, or documentation.
    (1) In general.
    (2) Inadvertence.
    (i) Inaccurate information may be cured by qualified 
manufacturer.
    (ii) Consequences if errors not cured.
    (3) Intentional disregard or fraud.
    (i) All vehicles ineligible for credit.
    (ii) Termination of written agreement.
    (g) Rules inapplicable to new qualified fuel cell motor 
vehicles.
    (h) Examples.
    (1) Example 1: In general.
    (i) Facts.
    (ii) Analysis.
    (2) Example 2: Rules for third-party suppliers.
    (i) Facts.
    (ii) Analysis.
    (3) Example 3: Applicable critical minerals.
    (i) Facts.
    (ii) Analysis.
    (4) Example 4: Comprehensive example.
    (i) Facts.
    (ii) Analysis.
    (i) Severability.
    (j) Applicability date.


Sec.  1.30D-1  Credit for new clean vehicles.

    (a) In general. Section 30D(a) of the Internal Revenue Code (Code) 
allows as a credit against the tax imposed by chapter 1 of the Code 
(chapter 1) for the taxable year of a taxpayer an amount equal to the 
sum of the credit amounts determined under section 30D(b) with respect 
to each new clean vehicle purchased by the taxpayer that the taxpayer 
places in service during the taxable year. This section provides 
generally applicable rules that apply for purposes of determining the 
credit under section 30D and the section 30D regulations (section 30D 
credit). Section 1.30D-2 provides definitions that apply for purposes 
of section 30D and the section 30D regulations. Section 1.30D-3 
provides rules regarding the critical minerals and battery components 
requirements of section 30D(e). Section 1.30D-4 provides guidance 
regarding the limitations and special rules in section 30D(f) as well 
as other special rules with respect to the section 30D credit. Section 
1.30D-5 provides rules for the credit transfer election and advance 
payment program and for recapture. Section 1.30D-6 provides rules 
regarding the foreign entities of concern (FEOC) restriction of section 
30D(d)(7).
    (b) Application with other credits--(1) Business credit treated as 
part of general business credit. Section 30D(c)(1) requires that so 
much of the section 30D credit that would be allowed under section 
30D(a) for any taxable year (determined without regard to section 
30D(c) and this paragraph (b)) that is attributable to a depreciable 
vehicle must be treated as a general business credit under section 38 
of the Code that is listed in section 38(b)(30) for such taxable year 
(and not allowed under section 30D(a)). In the case of a depreciable 
vehicle the use of which is 50 percent or more business use in the 
taxable year such vehicle is placed in service, the section 30D credit 
that would be allowed under section 30D(a) for that taxable year 
(determined without regard to section 30D(c) and this paragraph (b)) 
that is attributable to such depreciable vehicle must be treated as a 
general business credit under section 38(b)(30) for such taxable year 
(and not allowed under section 30D(a)). See paragraph (b)(2) of this 
section for rules applicable in the case of a depreciable vehicle the 
use of which is less than 50 percent business use in the taxable year 
such vehicle is placed in service. See paragraph (b)(3) of this section 
for rules applicable to a section 30D credit allowed under section 
30D(a) pursuant to section 30D(c)(2) or paragraph (b)(2)(ii) or (b)(3) 
of this section.
    (2) Apportionment of section 30D credit. Unless the taxpayer has 
elected to transfer the credit pursuant to section 30D(g) and Sec.  
1.30D-5(d), in the case of a depreciable vehicle the business use of 
which is less than 50 percent of a taxpayer's total use of the vehicle 
for the taxable year in which the vehicle is placed in service, the 
taxpayer's section 30D credit for that taxable year with respect to 
that vehicle must be apportioned as follows:
    (i) The portion of the section 30D credit corresponding to the 
percentage

[[Page 37757]]

of the taxpayer's business use of the vehicle is treated as a general 
business credit under section 30D(c)(1) and paragraph (b)(1) of this 
section (and not allowed under section 30D(a) or paragraph (b)(3) of 
this section).
    (ii) The portion of the section 30D credit corresponding to the 
percentage of the taxpayer's personal use of the vehicle is treated as 
a section 30D credit allowed under section 30D(a) pursuant to section 
30D(c)(2) and paragraph (b)(3) of this section.
    (3) Personal credit limited based on tax liability. Section 26 of 
the Code limits the aggregate amount of credits allowed to a taxpayer 
by subpart A of part IV of subchapter A of chapter 1 (subpart A) based 
on the taxpayer's tax liability. Under section 26(a), the aggregate 
amount of credits allowed to a taxpayer by subpart A cannot exceed the 
sum of the taxpayer's regular tax liability (as defined in section 
26(b)) for the taxable year reduced by the foreign tax credit allowable 
under section 27 of the Code, and the alternative minimum tax imposed 
by section 55(a) of the Code for the taxable year. Section 30D(c)(2) 
provides that the section 30D credit allowed under section 30D(a) for 
any taxable year (determined after application of section 30D(c)(1) and 
paragraphs (b)(1) and (2) of this section) is treated as a credit 
allowable under subpart A for such taxable year, and the section 30D 
credit allowed under section 30D(a) is therefore subject to the 
limitation imposed by section 26.
    (c) 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.
    (d) Applicability date. This section applies to taxable years 
ending after December 4, 2023.


Sec.  1.30D-2  Definitions for purposes of section 30D.

    (a) In general. The definitions in this section apply for purposes 
of section 30D of the Internal Revenue Code (Code) and the section 30D 
regulations.
    (b) Definitions--(1) Advance payment program. Advance payment 
program means advance payment program as defined in Sec.  1.30D-
5(b)(1).
    (2) Applicable critical mineral--(i) In general. Applicable 
critical mineral means an applicable critical mineral as defined in 
section 45X(c)(6) of the Code. The requirements of Sec. Sec.  1.30D-
3(a) and 1.30D-6 with respect to an applicable critical mineral take 
into account each step of extraction, processing, or recycling through 
the step in which such mineral is processed or recycled into a 
constituent material, even if the mineral is not in a form listed in 
section 45X(c)(6) at every step of production. However, an applicable 
critical mineral is disregarded for purposes of the requirements of 
Sec. Sec.  1.30D-3(a) and 1.30D-6 if it is fully consumed in the 
production of the constituent material or battery component and no 
longer remains in any form in the battery.
    (ii) Example: Form of applicable critical mineral. Mineral Y is 
extracted and is intended to be incorporated into the battery of an 
electric vehicle. Mineral Y is not in a form listed in section 
45X(c)(6) at the time of such extraction, but subsequently it is 
refined into an applicable critical mineral form listed in section 
45X(c)(6). Both the extraction and processing are taken into account 
for purposes of the requirements of Sec. Sec.  1.30D-3(a) and 1.30D-6.
    (3) Assembly. Assembly, with respect to battery components, means 
the process of combining battery components into battery cells and 
battery modules.
    (4) Associated constituent material. Associated constituent 
material, with respect to an applicable critical mineral, means a 
constituent material that has been processed or recycled from such 
mineral into the constituent material with which it is associated, even 
if that processing or recycling transformed such mineral into a form 
not listed in section 45X(c)(6).
    (5) Battery. Battery, for purposes of a new clean vehicle, means a 
collection of one or more battery modules, each of which has two or 
more electrically configured battery cells in series or parallel, to 
create voltage or current. The term battery does not include items such 
as thermal management systems or other parts of a battery cell or 
module that do not directly contribute to the electrochemical storage 
of energy within the battery, such as battery cell cases, cans, or 
pouches.
    (6) Battery cell. Battery cell means a combination of battery 
components (other than battery cells) capable of electrochemically 
storing energy from which the electric motor of a new clean vehicle 
draws electricity.
    (7) Battery cell production facility. Battery cell production 
facility means a facility in which battery cells are manufactured or 
assembled.
    (8) Battery component. Battery component means a component that 
forms part of a clean vehicle battery and that is manufactured or 
assembled from one or more components or battery materials that are 
combined through industrial, chemical, and physical assembly steps. 
Battery components may include, but are not limited to, a cathode 
electrode, anode electrode, solid metal electrode, coated separator, 
liquid electrolyte, solid state electrolyte, battery cell, and battery 
module.
    (9) Battery materials. Battery materials means direct and indirect 
inputs to battery components that are produced through processing 
rather than through manufacturing or assembly. Battery materials are 
not considered a type of battery component, although battery materials 
may be manufactured or assembled into battery components. The three 
categories of battery materials are applicable critical minerals, 
constituent materials, and battery materials without applicable 
critical minerals. Examples of battery materials that may or may not 
contain applicable critical minerals include a separator base film (if 
not manufactured or assembled) and separator coating. Examples of 
battery materials without applicable critical minerals include 
conductive additives, copper foils prior to graphite deposition, and 
electrolyte solvents.
    (10) Clean vehicle battery. Clean vehicle battery, with respect to 
a new clean vehicle, means the battery from which the electric motor of 
the vehicle draws electricity to propel such vehicle.
    (11) Compliant-battery ledger. A compliant-battery ledger, for a 
qualified manufacturer for a calendar year, is a ledger established 
under the rules of Sec.  1.30D-6(d) that tracks the number of available 
FEOC-compliant batteries for such calendar year.
    (12) Constituent materials. Constituent materials means battery 
materials that contain applicable critical minerals. Constituent 
materials may include, but are not limited to, powders of cathode 
active materials, powders of anode active materials, foils, metals for 
solid electrodes, binders, electrolyte salts, and electrolyte 
additives, as required for a battery cell. Battery materials without 
applicable critical minerals are not constituent materials.
    (13) Country with which the United States has a free trade 
agreement in effect--(i) In general. The term country with which the 
United States has a free trade agreement in effect means any of those 
countries identified in paragraph (b)(13)(ii) of this section or that 
the Secretary of the Treasury or her delegate (Secretary) may identify 
in the future. The criteria the Secretary will consider in determining 
whether to identify a country under this paragraph (b)(13) include 
whether an agreement between the United States and that country, as to 
the critical minerals contained in clean vehicle batteries or more 
generally, and in the context of the overall commercial

[[Page 37758]]

and economic relationship between that country and the United States:
    (A) Reduces or eliminates trade barriers on a preferential basis;
    (B) Commits the parties to refrain from imposing new trade 
barriers;
    (C) Establishes high-standard disciplines in key areas affecting 
trade (such as core labor and environmental protections); and/or
    (D) Reduces or eliminates restrictions on exports or commits the 
parties to refrain from imposing such restrictions.
    (ii) Free trade agreements in effect. The countries with which the 
United States currently has free trade agreements in effect are: 
Australia, Bahrain, Canada, Chile, Colombia, Costa Rica, Dominican 
Republic, El Salvador, Guatemala, Honduras, Israel, Japan, Jordan, 
South Korea, Mexico, Morocco, Nicaragua, Oman, Panama, Peru, and 
Singapore.
    (iii) Updates. The list of countries in paragraph (b)(13)(ii) of 
this section may be revised and updated through guidance published in 
the Federal Register or in the Internal Revenue Bulletin (see Sec.  
601.601 of this chapter).
    (14) Credit transfer election. Credit transfer election means 
credit transfer election as defined in Sec.  1.30D-5(b)(2).
    (15) Dealer. Dealer means dealer as defined in Sec.  1.30D-5(b)(3).
    (16) Dealer tax compliance. Dealer tax compliance means dealer tax 
compliance as defined in Sec.  1.30D-5(b)(4).
    (17) Depreciable vehicle. Depreciable vehicle means a vehicle of a 
character subject to an allowance for depreciation.
    (18) Electing taxpayer. Electing taxpayer means electing taxpayer 
as defined in Sec.  1.30D-5(b)(5).
    (19) Eligible entity. Eligible entity means eligible entity as 
defined in Sec.  1.30D-5(b)(6).
    (20) Excessive payment. Excessive payment means excessive payment 
as defined in Sec.  1.30D-5(g)(2)(iii).
    (21) Extraction. Extraction means the activities performed to 
harvest minerals or natural resources from the ground or from a body of 
water. Extraction includes, but is not limited to, operating equipment 
to harvest minerals or natural resources from mines and wells and the 
physical processes involved in refining. Extraction also includes 
operating equipment to extract minerals or natural resources from the 
waste or residue of prior extraction, including crude oil extraction to 
the extent that processes applied to that crude oil yield an applicable 
critical mineral as a byproduct. Extraction concludes when activities 
are performed to convert raw mined or harvested products or raw well 
effluent to substances that can be readily transported or stored for 
direct use in critical mineral processing. Extraction does not include 
activities that begin with a recyclable commodity (as such activities 
are recycling). Extraction does not include the chemical and thermal 
processes involved in refining.
    (22) FEOC-compliant. FEOC-compliant means in compliance with the 
applicable excluded entity requirement under section 30D(d)(7). In 
particular--
    (i) A battery component (other than a battery cell), with respect 
to a new clean vehicle placed in service after December 31, 2023, is 
FEOC-compliant if it is not manufactured or assembled by a FEOC;
    (ii) An applicable critical mineral, with respect to a new clean 
vehicle placed in service after December 31, 2024, is FEOC-compliant if 
it is not extracted, processed, or recycled by a FEOC;
    (iii) A battery cell, with respect to a new clean vehicle placed in 
service after December 31, 2023, and before January 1, 2025, is FEOC-
compliant if it is not manufactured or assembled by a FEOC and it 
contains only FEOC-compliant battery components;
    (iv) A battery cell, with respect to a new clean vehicle placed in 
service after December 31, 2024, is FEOC-compliant if it is not 
manufactured or assembled by a FEOC and it contains only FEOC-compliant 
battery components and FEOC-compliant applicable critical minerals; and
    (v) A clean vehicle battery, with respect to a new clean vehicle 
placed in service after December 31, 2023, is FEOC-compliant if it 
contains only FEOC-compliant battery components (other than battery 
cells) and FEOC-compliant battery cells (as described in paragraph 
(b)(22)(iii) or (iv) of this section, as applicable).
    (23) Final assembly. Final assembly means the process by which a 
manufacturer produces a new clean vehicle at, or through the use of, a 
plant, factory, or other place from which the vehicle is delivered to a 
dealer or importer with all component parts necessary for the 
mechanical operation of the vehicle included with the vehicle, whether 
or not the component parts are permanently installed in or on the 
vehicle. To establish where final assembly of a new clean vehicle 
occurred for purposes of the requirement in section 30D(d)(1)(G) that 
final assembly of a new clean vehicle occur within North America, the 
taxpayer may rely on the following information:
    (i) The vehicle's plant of manufacture as reported in the vehicle 
identification number pursuant to 49 CFR 565; or
    (ii) The final assembly point reported on the label affixed to the 
vehicle as described in 49 CFR 583.5(a)(3).
    (24) Foreign entity of concern. Foreign entity of concern (FEOC) 
has the meaning provided in section 40207(a)(5) of the Infrastructure 
Investment and Jobs Act (42 U.S.C. 18741(a)(5)) and guidance 
promulgated thereunder by the Department of Energy (DOE).
    (25) Impracticable-to-trace battery materials--(i) In general. 
Impracticable-to-trace battery materials means specifically identified, 
low-value battery materials that originate from multiple sources and 
are commingled during refining, processing, or other production 
processes by suppliers to such a degree that the qualified manufacturer 
cannot, due to current industry practice, feasibly determine and attest 
to the origin of such battery materials. For this purpose, 
impracticable-to-trace battery materials are those that have low value 
compared to the total value of the clean vehicle battery.
    (ii) Identified impracticable-to-trace battery materials. 
Identified impracticable-to-trace battery materials means applicable 
critical minerals in the following circumstances: graphite contained in 
anode materials, and applicable critical minerals contained in 
electrolyte salts, electrolyte binders, or electrolyte additives.
    (26) Incentive. Incentive means incentive as defined in Sec.  
1.30D-5(b)(7).
    (27) Incremental value. Incremental value means incremental value 
as defined in Sec.  1.30D-3(c)(2)(i).
    (28) Manufacturer--(i) In general. A manufacturer means any 
manufacturer within the meaning of the regulations prescribed by the 
Administrator of the Environmental Protection Agency (EPA) for purposes 
of the administration of title II of the Clean Air Act (42 U.S.C. 7521 
et seq.) and as defined in 42 U.S.C. 7550(1). Except as provided in 
paragraph (b)(28)(ii) of this section, if multiple manufacturers are 
involved in the production of a vehicle, the requirements of section 
30D(d)(3) must be met by the manufacturer that satisfies the reporting 
requirements of the greenhouse gas emissions standards set by the EPA 
under the Clean Air Act (42 U.S.C. 7521 et seq.) for the subject 
vehicle.
    (ii) Modification of a new motor vehicle--(A) If a manufacturer 
modifies a new motor vehicle (as defined in 42 U.S.C. 7550(3)) that 
does not satisfy the requirements of section 30D(d)(1)(F) or (d)(6) so 
that the new motor vehicle, after modification, does satisfy such

[[Page 37759]]

requirements, then such manufacturer may satisfy the requirements of 
section 30D(d)(3) if the modification occurred prior to the new motor 
vehicle being placed in service.
    (B) If a manufacturer modifies a new motor vehicle (as defined in 
42 U.S.C. 7550(3)) that does not satisfy the requirements of 45W(c)(3) 
so that the new motor vehicle, after modification, does satisfy such 
requirements, then such manufacturer may satisfy the requirements of 
30D(d)(3) if the modification occurred prior to the new motor vehicle 
being placed in service.
    (29) Manufacturer's suggested retail price--(i) In general. 
Manufacturer's suggested retail price means the sum of the retail price 
and the retail delivered price (as defined in paragraphs (b)(29)(ii) 
and (iii) of this section) as reported on the label that is affixed to 
the windshield or side window of the vehicle, as described in 15 U.S.C. 
1232.
    (ii) Retail price. Retail price, for purposes of paragraph 
(b)(29)(i) of this section, means the retail price of the automobile 
suggested by the manufacturer as described in 15 U.S.C. 1232(f)(1).
    (iii) Retail delivered price. Retail delivered price, for purposes 
of paragraph (b)(29)(i) of this section, means the retail delivered 
price suggested by the manufacturer for each accessory or item of 
optional equipment physically attached to such automobile at the time 
of its delivery to the dealer that is not included within the price of 
such automobile as stated pursuant to 15 U.S.C. 1232(f)(1), as 
described in 15 U.S.C. 1232(f)(2).
    (30) Manufacturing. Manufacturing, with respect to a battery 
component, means the industrial and chemical steps taken to produce a 
battery component.
    (31) Modified adjusted gross income--(i) Individuals. Modified 
adjusted gross income, in the case of an individual, means adjusted 
gross income (as defined in section 62 of the Code) increased by any 
amount excluded from gross income under section 911, 931, or 933 of the 
Code.
    (ii) Estates and trusts. Modified adjusted gross income, in the 
case of an estate or non-grantor trust, means adjusted gross income (as 
defined in section 67(e) of the Code).
    (32) New clean vehicle. New clean vehicle means a vehicle that 
meets the requirements described in section 30D(d). Vehicles that may 
qualify as new clean vehicles include battery electric vehicles, plug-
in hybrid electric vehicles, fuel cell motor vehicles, and plug-in 
hybrid fuel cell motor vehicles. A vehicle does not meet the 
requirements of section 30D(d) if--
    (i) The qualified manufacturer fails to provide a periodic written 
report for such vehicle prior to the vehicle being placed in service 
reporting the vehicle identification number of such vehicle and 
certifying compliance with the requirement of section 30D(d);
    (ii) The qualified manufacturer provides incorrect information with 
respect to the periodic written report for such vehicle;
    (iii) The qualified manufacturer fails to update its periodic 
written report in the event of a material change with respect to such 
vehicle; or
    (iv) For new clean vehicles placed in service after December 31, 
2024, the qualified manufacturer fails to meet the requirements of 
Sec.  1.30D-6(d).
    (33) New qualified fuel cell motor vehicle. New qualified fuel cell 
motor vehicle means any new qualified fuel cell motor vehicle (as 
defined in section 30B(b)(3)) that meets the requirements under section 
30D(d)(1)(G) (that is, the final assembly in North America requirement) 
and (H) (that is, the seller report requirement), and that does not 
have a clean vehicle battery.
    (34) North America. North America means the territory of the United 
States, Canada, and Mexico as defined in 19 CFR part 182, Appendix A, 
Sec.  1(1).
    (35) North American battery component. North American battery 
component means North American battery component as defined in Sec.  
1.30D-3(c)(2)(ii).
    (36) Placed in service. A new clean vehicle is considered to be 
placed in service on the date the taxpayer takes possession of the 
vehicle.
    (37) Processing. Processing means the non-physical processes 
involved in the refining of non-recycled substances or materials, 
including the treating, baking, and coating processes used to convert 
such substances and materials into constituent materials. Processing 
includes the chemical or thermal processes involved in refining. 
Processing does not include the physical processes involved in 
refining.
    (38) Procurement chain. Procurement chain means procurement chain 
as defined in Sec.  1.30D-3(c)(1)(i).
    (39) Qualifying battery component content. Qualifying battery 
component content means qualifying battery component content as defined 
in Sec.  1.30D-3(c)(2)(iii).
    (40) Qualifying critical mineral. Qualifying critical mineral means 
qualifying critical mineral as defined in Sec.  1.30D-3(c)(1)(ii).
    (41) Qualifying critical mineral content. Qualifying critical 
mineral content means qualifying critical mineral content as defined in 
Sec.  1.30D-3(c)(1)(iii).
    (42) Qualified manufacturer. A qualified manufacturer means a 
manufacturer that meets the requirements described in section 30D(d)(3) 
at the time the manufacturer submits a periodic written report to the 
IRS under a written agreement described in section 30D(d)(3). The term 
qualified manufacturer does not include any manufacturer whose 
qualified manufacturer status has been terminated by the IRS. The IRS 
may terminate qualified manufacturer status for fraud, intentional 
disregard, or gross negligence with respect to any requirements of 
section 30D, the section 30D regulations, or any guidance under section 
30D, including with respect to the periodic written reports described 
in section 30D(d)(3) and paragraph (b)(32) of this section and any 
attestations, documentation, or certifications described in Sec. Sec.  
1.30D-3(d) and 1.30D-6(d), at the time and in the manner provided in 
the Internal Revenue Bulletin (see Sec.  601.601 of this chapter). See 
Sec.  1.30D-6(f) for additional rules regarding inaccurate 
determinations and documentation. The IRS may also terminate qualified 
manufacturer status for fraud, intentional disregard, or gross 
negligence with respect to any requirement of section 25E or section 
45W or any regulations thereunder.
    (43) Recycling--(i) In general. Recycling means the series of 
activities during which recyclable materials containing critical 
minerals are transformed into specification-grade commodities and 
consumed in lieu of virgin materials to create new constituent 
materials; such activities result in new constituent materials 
contained in the clean vehicle battery. All physical, chemical, and 
thermal treatments or modifications that convert recycled feedstocks to 
specification grade constituent materials are included in recycling. 
However, recycled applicable critical minerals and associated 
constituent materials are only subject to the requirements under 
Sec. Sec.  1.30D-3(a) and 1.30D-6 if the recyclable material contains 
an applicable critical mineral, contains material that was transformed 
from an applicable critical mineral, or if the recyclable material is 
used to produce an applicable critical mineral at any point during the 
recycling process. The requirements under Sec. Sec.  1.30D-3(a) and 
1.30D-6 only take into account activities that occurred during the 
recycling process.
    (ii) Example: Recycling of applicable critical mineral. Mineral Z, 
an applicable critical mineral in a form

[[Page 37760]]

listed in section 45X(c)(6), was processed by A in a prior production 
process. Mineral Z subsequently was derived from recyclable material in 
a form not listed in section 45X(c)(6). Mineral Z was recycled by B. 
The requirements under Sec. Sec.  1.30D-3 and 1.30D-6 only take into 
account the activities conducted by B.
    (44) Registered dealer. Registered dealer means registered dealer 
as defined in Sec.  1.30D-5(b)(8).
    (45) Section 30D regulations. Section 30D regulations means Sec.  
1.30D-1, this section, and Sec. Sec.  1.30D-3 through 1.30D-6.
    (46) Seller report. Seller report means the report described in 
section 30D(d)(1)(H) that the seller of a new clean vehicle provides to 
the taxpayer and the IRS in the manner provided in, and containing the 
information described in, guidance published in the Internal Revenue 
Bulletin (see Sec.  601.601 of this chapter). The seller report must be 
transmitted to the IRS electronically. The term seller report does not 
include a report rejected by the IRS due to the information contained 
therein not matching IRS records.
    (47) Time of sale. Time of sale means time of sale as defined in 
Sec.  1.30D-5(b)(9).
    (48) Total incremental value of battery components. Total 
incremental value of battery components means total incremental value 
of battery components as defined in Sec.  1.30D-3(c)(2)(iv).
    (49) Total incremental value of North American battery components. 
Total incremental value of North American battery components means 
total incremental value of North American battery components as defined 
in Sec.  1.30D-3(c)(2)(v).
    (50) Total traced qualifying value. Total traced qualifying value 
means total traced qualifying value as defined in Sec.  1.30D-
3(c)(1)(iv).
    (51) Total value of critical minerals. Total value of critical 
minerals means total value of critical minerals as defined in Sec.  
1.30D-3(c)(1)(v).
    (52) Total value of qualifying critical minerals. Total value of 
qualifying critical minerals means total value of qualifying critical 
minerals as defined in Sec.  1.30D-3(c)(1)(vi).
    (53) Traced qualifying value. Traced qualifying value means traced 
qualifying value as defined in Sec.  1.30D-3(c)(1)(vii).
    (54) Value. Value, with respect to property, means the arm's-length 
price that was paid or would be paid for the property by an unrelated 
purchaser determined in accordance with the principles of section 482 
of the Code and regulations thereunder.
    (55) Value added. Value added means value added as defined in Sec.  
1.30D-3(c)(1)(viii).
    (56) Vehicle classification--(i) In general. Vehicle classification 
means the vehicle classification of a new clean vehicle determined 
consistent with the rules and definitions provided in 40 CFR 600.315-08 
and this paragraph (b)(56) for vans, sport utility vehicles, pickup 
trucks, and other vehicles.
    (ii) Van. Van means a vehicle classified as a van or minivan under 
40 CFR 600.315-08(a)(2)(iii) and (iv), or otherwise so classified by 
the Administrator of the EPA pursuant to 40 CFR 600.315-08(a).
    (iii) Sport utility vehicle. Sport utility vehicle means a vehicle 
classified as a small sport utility vehicle or standard sport utility 
vehicle under 40 CFR 600.315-08(a)(2)(v) and (vi), or otherwise so 
classified by the Administrator of the EPA pursuant to 40 CFR 600.315-
08(a).
    (iv) Pickup truck. Pickup truck means a vehicle classified as a 
small pickup truck or standard pickup truck under 40 CFR 600.315-
08(a)(2)(i) and (ii), or otherwise so classified by the Administrator 
of the EPA pursuant to 40 CFR 600.315-08(a).
    (v) Other vehicle. Other vehicle means any vehicle classified in 
one of the classes of passenger automobiles listed in 40 CFR 600.315-
08(a)(1), or otherwise so classified by the Administrator of the EPA 
pursuant to 40 CFR 600.315-08(a).
    (c) 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.
    (d) Applicability date. This section applies to taxable years 
ending after December 4, 2023.


Sec.  1.30D-3  Critical minerals and battery components requirements.

    (a) Critical minerals requirement--(1) In general. The critical 
minerals requirement described in section 30D(e)(1)(A) of the Internal 
Revenue Code (Code), with respect to a clean vehicle battery, is met if 
the qualifying critical mineral content of such battery is equal to or 
greater than the applicable critical minerals percentage (as defined in 
paragraph (a)(2) of this section), as certified by the qualified 
manufacturer, in such form or manner as prescribed by the Secretary of 
the Treasury or her delegate (Secretary).
    (2) Applicable critical minerals percentage--(i) In general. For 
purposes of paragraph (a)(1) of this section, the applicable critical 
minerals percentage, which is based on the year in which a vehicle is 
placed in service by the taxpayer, is set forth in paragraphs 
(a)(2)(ii) through (vi) of this section. See section 30D(e)(1)(B).
    (ii) Vehicles placed in service between April 18, 2023, and 
December 31, 2023. In the case of a vehicle placed in service after 
April 17, 2023, and before January 1, 2024, the applicable critical 
minerals percentage is 40 percent.
    (iii) Vehicles placed in service during calendar year 2024. In the 
case of a vehicle placed in service during calendar year 2024, the 
applicable critical minerals percentage is 50 percent.
    (iv) Vehicles placed in service during calendar year 2025. In the 
case of a vehicle placed in service during calendar year 2025, the 
applicable critical minerals percentage is 60 percent.
    (v) Vehicles placed in service during calendar year 2026. In the 
case of a vehicle placed in service during calendar year 2026, the 
applicable critical minerals percentage is 70 percent.
    (vi) Vehicles placed in service during calendar year 2027 and 
later. In the case of a vehicle placed in service after December 31, 
2026, the applicable critical minerals percentage is 80 percent.
    (3) Determining qualifying critical mineral content--(i) In 
general. Qualifying critical mineral content with respect to a clean 
vehicle battery is calculated as the percentage that results from 
dividing:
    (A) The total traced qualifying value, by
    (B) The total value of critical minerals.
    (ii) Separate determinations required for each procurement chain. 
The traced qualifying value of an applicable critical mineral, 
including the percentage or percentages necessary to determine the 
traced qualifying value, must be determined separately for each 
procurement chain.
    (iii) Time for determining value. A qualified manufacturer must 
select a date for determining the values described in paragraphs 
(a)(3)(i)(A) and (B) of this section. Such date must be after the final 
processing or recycling step for the applicable critical minerals 
relevant to the certification described in section 30D(e)(1)(A).
    (iv) Application of qualifying critical mineral content to 
vehicles. A qualified manufacturer may determine qualifying

[[Page 37761]]

critical mineral content based on the value of the applicable critical 
minerals actually contained in the clean vehicle battery of a specific 
vehicle. Alternatively, for purposes of calculating the qualifying 
critical mineral content for clean vehicle batteries in a group of 
vehicles, a qualified manufacturer may average the qualifying critical 
mineral content under this paragraph (a)(3)(iv) over a period of time 
(for example, a year, a calendar quarter, or a month) with respect to 
vehicles from the same model line, plant, class, or some combination 
thereof, with final assembly (as defined in section 30D(d)(5) of the 
Code and Sec.  1.30D-2(b)(23)) within North America.
    (4) Temporary safe harbor for determining qualifying critical 
mineral content for vehicles for which a qualified manufacturer submits 
a periodic written report on or after May 6, 2024 and before January 1, 
2027--(i) In general. For vehicles for which a qualified manufacturer 
submits a periodic written report on or after May 6, 2024 and before 
January 1, 2027, qualifying critical mineral content with respect to a 
clean vehicle battery may be calculated as the percentage that results 
from dividing:
    (A) The total value of qualifying critical minerals, by
    (B) The total value of critical minerals.
    (ii) Separate determinations required for each procurement chain. 
The portion of an applicable critical mineral that is a qualifying 
critical mineral must be determined separately for each procurement 
chain.
    (iii) Time for determining value. A qualified manufacturer must 
select a date for determining the values described in paragraphs 
(a)(4)(i)(A) and (B) of this section. Such date must be after the final 
processing or recycling step for the applicable critical minerals 
relevant to the certification described in section 30D(e)(1)(A).
    (iv) Application of qualifying critical mineral content to 
vehicles. A qualified manufacturer may determine qualifying critical 
mineral content based on the value of the applicable critical minerals 
actually contained in the clean vehicle battery of a specific vehicle. 
Alternatively, for purposes of calculating the qualifying critical 
mineral content for clean vehicle batteries in a group of vehicles, a 
qualified manufacturer may average the qualifying critical mineral 
content calculation over a period of time (for example, a year, 
quarter, or month) with respect to vehicles from the same model line, 
plant, class, or some combination of thereof, with final assembly (as 
defined in section 30D(d)(5) of the Code and Sec.  1.30D-2(b)(23)) 
within North America.
    (v) Consistent determination required for all procurement chains. A 
qualified manufacturer that makes a determination under this paragraph 
(a)(4) must use the rules of this paragraph for all procurement chains 
of the clean vehicle battery. If a qualified manufacturer averages 
qualifying critical mineral content as described in paragraph 
(a)(4)(iv) of this section, the qualified manufacturer must use the 
rules of such paragraph for all procurement chains for all clean 
vehicle batteries in the group of vehicles. Therefore, the qualified 
manufacturer may not use the rules of paragraph (a)(3) for some 
procurement chains and the rules of paragraph (a)(4) for other 
procurement chains for the same clean vehicle battery or clean vehicle 
batteries in the group of vehicles, as applicable.
    (5) Rule for determining qualifying critical mineral content for 
vehicles for which a qualified manufacturer submitted a periodic 
written report before May 6, 2024. For vehicles for which a qualified 
manufacturer submitted a periodic written report before May 6, 2024, 
qualifying critical mineral content with respect to a clean vehicle 
battery must be calculated using the method described in paragraph 
(a)(4) of this section.
    (b) Battery components requirement--(1) In general. The battery 
components requirement described in section 30D(e)(2)(A), with respect 
to a clean vehicle battery, is met if the qualifying battery component 
content of such battery is equal to or greater than the applicable 
battery components percentage (as defined in paragraph (b)(2) of this 
section), as certified by the qualified manufacturer, in such form or 
manner as prescribed by the Secretary.
    (2) Applicable battery components percentage--(i) In general. For 
purposes of paragraph (b)(1) of this section, section 30D(e)(2)(B) 
provides the applicable battery components percentage, which is based 
on the year in which a vehicle is placed in service by the taxpayer as 
set forth in paragraphs (b)(2)(ii) through (vii) of this section.
    (ii) Vehicles placed in service between April 18, 2023, and 
December 31, 2023. In the case of a vehicle placed in service after 
April 17, 2023, and before January 1, 2024, the applicable battery 
components percentage is 50 percent.
    (iii) Vehicles placed in service during calendar year 2024 or 2025. 
In the case of a vehicle placed in service during calendar year 2024 or 
2025, the applicable battery components percentage is 60 percent.
    (iv) Vehicles placed in service during calendar year 2026. In the 
case of a vehicle placed in service during calendar year 2026, the 
applicable battery components percentage is 70 percent.
    (v) Vehicles placed in service during calendar year 2027. In the 
case of a vehicle placed in service during calendar year 2027, the 
applicable battery components percentage is 80 percent.
    (vi) Vehicles placed in service during calendar year 2028. In the 
case of a vehicle placed in service during calendar year 2028, the 
applicable battery components percentage is 90 percent.
    (vii) Vehicles placed in service in calendar year 2029 and later. 
In the case of a vehicle placed in service after December 31, 2028, the 
applicable battery components percentage is 100 percent.
    (3) Determining qualifying battery component content--(i) In 
general. Qualifying battery component content with respect to a clean 
vehicle battery of the vehicle is calculated as the percentage that 
results from dividing--
    (A) The total incremental value of North American battery 
components, by
    (B) The total incremental value of battery components.
    (ii) Time for determining value. A qualified manufacturer must 
select a date for determining the incremental values described in 
paragraphs (b)(3)(i)(A) and (B) of this section. Such date must be 
after the last manufacturing or assembly step for the battery 
components relevant to the certification described in section 
30D(e)(2)(A).
    (iii) Application of qualifying battery component content to 
vehicles. A qualified manufacturer may determine qualifying battery 
component content based on the incremental values of the battery 
components actually contained in the clean vehicle battery of a 
specific vehicle. Alternatively, for purposes of calculating the 
qualifying battery component content for clean vehicle batteries in a 
group of vehicles, a qualified manufacturer may average the qualifying 
battery component content calculation over a period of time (for 
example, a year, quarter, or month) with respect to vehicles from the 
same model line, plant, class, or some combination of thereof, with 
final assembly (as defined in section 30D(d)(5) of the Code and Sec.  
1.30D-2(b)(23)) within North America.
    (iv) End point for determination. For a clean vehicle battery that 
contains a

[[Page 37762]]

battery module or modules containing battery cells, the calculation 
under this paragraph (b) takes into account the value of the module and 
battery components contained in the module. In the case of a clean 
vehicle battery that contains battery cells but no battery modules, the 
calculation under this paragraph (b) takes into account the value of 
the battery cells and battery components contained in the battery 
cells.
    (c) Definitions--(1) Certain terms relevant to the critical 
minerals requirement. The following definitions apply for purposes of 
the rules of section 30D(e)(1) and paragraph (a) of this section:
    (i) Procurement chain. Procurement chain means a common sequence of 
extraction, processing, or recycling activities that occur in a common 
set of locations with respect to an applicable critical mineral, 
concluding in the production of constituent materials. Sources of a 
single applicable critical mineral may have multiple procurement chains 
if, for example, one source of the applicable critical mineral 
undergoes the same extraction, processing, or recycling process in 
different locations.
    (ii) Qualifying critical mineral--(A) In general. Qualifying 
critical mineral means an applicable critical mineral that is extracted 
or processed in the United States, or in any country with which the 
United States has a free trade agreement in effect, or that is recycled 
in North America.
    (B) Extracted or processed in the United States or in any country 
with which the United States has a free trade agreement in effect. An 
applicable critical mineral is extracted or processed in the United 
States, or in any country with which the United States has a free trade 
agreement in effect, if:
    (1) Fifty percent or more of the value added to the applicable 
critical mineral by extraction is derived from extraction that occurred 
in the United States or in any country with which the United States has 
a free trade agreement in effect; or
    (2) Fifty percent or more of the value added to the applicable 
critical mineral by processing is derived from processing that occurred 
in the United States or in any country with which the United States has 
a free trade agreement in effect.
    (C) Recycled in North America. An applicable critical mineral is 
recycled in North America if 50 percent or more of the value added to 
the applicable critical mineral by recycling is derived from recycling 
that occurred in North America.
    (iii) Qualifying critical mineral content. Qualifying critical 
mineral content means the percentage of the value of the applicable 
critical minerals contained in a clean vehicle battery that is 
extracted or processed in the United States, or in any country with 
which the United States has a free trade agreement in effect, or that 
is recycled in North America.
    (iv) Total traced qualifying value. Total traced qualifying value 
means the sum of the traced qualifying values of all applicable 
critical minerals contained in a clean vehicle battery.
    (v) Total value of critical minerals. Total value of critical 
minerals means the sum of the values of all applicable critical 
minerals contained in a clean vehicle battery.
    (vi) Total value of qualifying critical minerals. Total value of 
qualifying critical minerals means the sum of the values of all the 
qualifying critical minerals contained in a clean vehicle battery.
    (vii) Traced qualifying value--(A) Extracted or processed in the 
United States or in any country with which the United States has a free 
trade agreement in effect. Traced qualifying value means, with respect 
to an applicable critical mineral that is extracted and processed into 
a constituent material, the value of the applicable critical mineral 
multiplied by the greater of:
    (1) The value added to the applicable critical mineral by 
extraction that occurred in the United States or in any country with 
which the United States has a free trade agreement in effect, divided 
by the total value added by from extraction of the applicable critical 
mineral; or
    (2) The value added to the applicable critical mineral by 
processing that occurred in the United States or in any country with 
which the United States has a free trade agreement in effect, divided 
by the total value added by processing of the applicable critical 
mineral.
    (B) Recycled in North America. Traced qualifying value means, with 
respect to an applicable critical mineral that is recycled into a 
constituent material, the value of the applicable critical mineral 
multiplied by the percentage obtained by dividing the value added to 
the applicable critical mineral by recycling that occurred in North 
America by the total value added by recycling of the applicable 
critical mineral.
    (viii) Value added. Value added, with respect to recycling, 
extraction, or processing of an applicable critical mineral, means the 
increase in the value of the applicable critical mineral attributable 
to the relevant activity. In the case of multiple applicable critical 
mineral procurement chains that are part of the same processing or 
recycling activity, value added should be allocated to each procurement 
chain based on relative mass.
    (2) Certain terms relevant to the battery components requirement. 
The following definitions apply for purposes of the rules of section 
30D(e)(2) and paragraph (b) of this section:
    (i) Incremental value. Incremental value, with respect to a battery 
component, means the value determined by subtracting from the value of 
that battery component the value of the manufactured or assembled 
battery components, if any, that are contained in that battery 
component.
    (ii) North American battery component. North American battery 
component means a battery component substantially all of the 
manufacturing or assembly of which occurs in North America, without 
regard to the location of the manufacturing or assembly activities of 
any components that make up the particular battery component.
    (iii) Qualifying battery component content. Qualifying battery 
component content means the percentage of the value of the battery 
components contained in a clean vehicle battery that were manufactured 
or assembled in North America.
    (iv) Total incremental value of battery components. Total 
incremental value of battery components means the sum of the 
incremental values of each battery component contained in a clean 
vehicle battery.
    (v) Total incremental value of North American battery components. 
Total incremental value of North American battery components means the 
sum of the incremental values of each North American battery component 
contained in a clean vehicle battery.
    (d) Upfront review of critical minerals and battery components 
requirements. For new clean vehicles anticipated to be placed in 
service after December 31, 2024, the qualified manufacturer must 
provide attestations, certifications, and documentation demonstrating 
compliance with the requirements of section 30D(e), at the time and in 
the manner provided in the Internal Revenue Bulletin (see Sec.  601.601 
of this chapter). The IRS, with analytical assistance from the 
Department of Energy, will review the attestations, certifications, and 
documentation.
    (e) New qualified fuel cell motor vehicles. The requirements of 
section 30D(e) and this section are deemed to be satisfied with respect 
to new qualified fuel cell motor vehicles. The amount of

[[Page 37763]]

the credit with respect to such vehicles, under section 30D(b), is 
$7,500.
    (f) Examples. The following examples illustrate the rules of this 
section.
    (1) Example 1: Critical minerals requirement--(i) Facts. In 2028, 
Company A uses a clean vehicle battery that contains three applicable 
critical minerals, which are used for the clean vehicle batteries of 
the same group of vehicles for the purposes of averaging qualifying 
critical mineral content under paragraph (a)(3)(iv) of this section.
    (A) Applicable critical mineral 1 (ACM-1) has a value of $100. ACM-
1 has one procurement chain; in this procurement chain, extraction 
accounts for 20% ($20) of the total value added of ACM-1 and processing 
accounts for 80% ($80) of the total value added of ACM-1. Of the value 
added by extraction, 100% ($20) is in the United States or in a country 
with which the United States has a free trade agreement in effect. Of 
the value added by processing, 100% ($80) is in the United States or in 
a country with which the United States has a free trade agreement in 
effect.
    (B) Applicable critical mineral 2 (ACM-2) has a value of $200. ACM-
2 has two procurement chains. The value of ACM-2 is $100 per 
procurement chain. In the first procurement chain for ACM-2, extraction 
accounts for 50% ($50) of the value added, while processing accounts 
for 50% ($50). Of the value added by extraction, 50% ($25) is in United 
States or in a country with which the United States has a free trade 
agreement in effect. Of the value added by processing, 25% ($12.50) is 
in the United States or in a country with which the United States has a 
free trade agreement in effect. In the second procurement chain for 
ACM-2, extraction accounts for 50% ($50) of the value added, and 
processing accounts for 50% ($50) of the value added. Of the value 
added by extraction, 75% ($37.50) is in the United States or in a 
country with which the United States has a free trade agreement in 
effect. Of the value added by processing, 100% ($50) is in the United 
States or in a country with which the United States has a free trade 
agreement in effect.
    (C) Applicable critical mineral 3 (ACM-3) has a value of $100. ACM-
3 has one procurement chain. Extraction accounts for 10% ($10) of the 
value added and processing accounts for 90% ($90) of the value added. 
Of the value added by extraction, 50% ($5) is in the United States or 
in a country with which the United States has a free trade agreement in 
effect. Of the value added by processing, 75% ($67.50) is in the United 
States or in a country with which the United States has a free trade 
agreement in effect.
    (ii) Analysis--(A) First, Company A determines each procurement 
chain. ACM-1 has one procurement chain. ACM-2 has two procurement 
chains. ACM-3 has one procurement chain.
    (B) Second, Company A determines, for each procurement chain, the 
traced qualifying value, and then determines the total traced 
qualifying value.
    (1) With respect to ACM-1, Company A divides the value added by 
extraction that is in the United States or in any country with which 
the United States has a free trade agreement in effect by the total 
value added from extraction of the applicable critical mineral: $20/
$20, which equals 100%. Company A divides the value added by processing 
that is in the United States or in any country with which the United 
States has a free trade agreement in effect by the total value added 
from processing of the applicable critical mineral: $80/$80, which 
equals 100%. Because the percentages for extraction and processing are 
equal, that percentage (100%) is used to determine traced qualifying 
value. Therefore, Company A multiplies 100% by the total value of the 
applicable critical mineral ($100) to obtain $100 as the traced 
qualifying value for the procurement chain of ACM-1.
    (2) With respect to the first procurement chain of ACM-2, Company A 
divides the value added by extraction that is in the United States or a 
country with which the United States has a free trade agreement in 
effect by the total value added from extraction of the applicable 
critical mineral: $25/$50, which equals 50%. Company A divides the 
value added by processing that is in the United States or a country 
with which the United States has a free trade agreement in effect by 
the total value added from processing of the applicable critical 
mineral: $12.50/$50, which equals 25%. Of these percentages, the one 
for extraction is greater (50%). Therefore, Company A multiplies 50% by 
the total value of the applicable critical minerals ($100) to obtain 
$50 as the traced qualifying value for the first procurement chain of 
ACM-2.
    (3) With respect to the second procurement chain of ACM-2, Company 
A divides the value added by extraction that is in the United States or 
a country with which the United States has a free trade agreement in 
effect by the total value added from extraction of the applicable 
critical mineral: $37.50/$50, which equals 75%. Company A divides the 
value added by processing that is in the United States or a country 
with which the United States has a free trade agreement in effect by 
the total value added from processing of the applicable critical 
mineral: $50/$50, which equals 100%. Of these percentages, the one for 
processing is greater (100%). Therefore, Company A multiplies 100% by 
the total value of the applicable critical mineral ($100) to obtain 
$100 as the traced qualifying value for the second procurement chain of 
ACM-2.
    (4) With respect to ACM-3, Company A divides the value added by 
extraction that is in the United States or a country with which the 
United States has a free trade agreement in effect by the total value 
added from extraction of the applicable critical mineral: $5/$10, which 
equals 50%. Company A divides the value added by processing that is in 
the United States or a country with which the United States has a free 
trade agreement in effect by the total value added from processing of 
the applicable critical mineral: $67.50/$90, which equals 75%. Of these 
percentages, the one for processing is greater (75%). Company A 
therefore multiplies 75% by the total value of the applicable critical 
mineral ($100) to obtain $75 as the traced qualifying value for the 
procurement chain of ACM-3.
    (5) The total traced qualifying value is the sum of the traced 
qualifying values of all applicable critical minerals contained in the 
clean vehicle battery of the vehicle, or $325 ($100 + $50 + $100 + 
$75).
    (C) Third, Company A determines the qualifying critical mineral 
content by taking the total traced qualifying value ($325, determined 
in step 2) divided by the total value of the critical minerals in the 
battery ($400). The qualifying critical mineral content is therefore 
81.25%. Company A uses this percentage to calculate the average 
qualifying critical mineral content for the clean vehicle batteries of 
a group of vehicles and compares that average percentage to the 
applicable critical minerals percentage of section 30D(e)(2) and Sec.  
1.30D-3(a)(2).
    (2) Example 2: Critical minerals requirement temporary safe 
harbor--(i) Facts. The facts are the same as in paragraph (f)(1)(i) of 
this section (facts of Example 1). However, Company A is eligible to 
apply the temporary safe harbor of Sec.  1.30D-3(a)(4) to determine its 
qualifying critical mineral content and chooses to do so. The 
applicable critical minerals are used for the clean vehicle batteries 
of the same group of vehicles for the purposes of averaging qualifying 
critical mineral content under paragraph (a)(4)(iv) of this section.

[[Page 37764]]

    (ii) Analysis--(A) First, Company A determines each procurement 
chain, as in paragraph (f)(1) of this section (Example 1).
    (B) Second, Company A determines whether ACM-1, ACM-2, and ACM-3 
are qualifying critical minerals. ACM-1 is a qualifying critical 
mineral because, for both extraction and processing, 100% of the value 
added is derived from extraction and processing that occurs in the 
United States or in a country with which the United States has a free 
trade agreement in effect. With respect to its first procurement chain, 
ACM-2 is a qualifying critical mineral because 50% of the value added 
from extraction is derived from extraction that occurs in the United 
States or a country with which the United States has a free trade 
agreement in effect. With respect to its second procurement chain, ACM-
2 is a qualifying critical mineral because 75% of the value added from 
extraction, and 100% of the value added from processing are derived 
from extraction and processing, respectively, that occur in the United 
States or in a country with which the United States has a free trade 
agreement in effect. ACM-3 is a qualifying critical mineral because 50% 
of the value added for extraction, and 75% of the value added for 
processing, are derived from extraction and processing, respectively, 
that occur in the United States or in a country with which the United 
States has a free trade agreement in effect. The total value of the 
qualifying critical minerals is the sum of the value of all of the 
qualifying critical minerals contained in the clean vehicle battery of 
the vehicle, or $400 ($100 + $100 + $100 + $100).
    (C) Third, Company A determines qualifying critical mineral content 
by taking the total value of qualifying critical minerals ($400, 
determined in step 2) and dividing by the total value of critical 
minerals in the battery ($400). The qualifying critical mineral content 
of the battery is 100%. Company A uses this percentage to calculate 
average qualifying critical mineral content for the clean vehicle 
batteries of a group of vehicles and compares that average percentage 
to the applicable critical minerals percentage of section 30D(e)(2) and 
Sec.  1.30D-3(a)(2).
    (3) Example 3: Battery components requirement--(i) Facts. Company B 
uses a battery cell comprised of a cathode electrode, anode electrode, 
separator, and electrolyte. The cathode electrode has a value of $4,000 
and is manufactured in North America. The anode electrode has a value 
of $1,000 and is manufactured outside of North America. The separator 
has a value of $1,000 and is manufactured in North America. The 
electrolyte has a value of $800 and is manufactured in North America. 
The battery cell has a value of $7,500 and is manufactured in North 
America. The battery components are used for the clean vehicle 
batteries of the same group of vehicles for the purposes of averaging 
qualifying critical mineral content under paragraph (b)(3)(iii) of this 
section.
    (ii) Analysis--(A) First, Company B determines whether each battery 
component in a battery is a North American battery component. The 
cathode electrode, separator, and battery cell are North American 
battery components.
    (B) Second, Company B determines the total incremental value of 
North American battery components. The incremental value of the battery 
cell ($700) is determined by subtracting from the value of the battery 
cell ($7,500) the total value of its battery components ($6,800). The 
incremental value of the cathode electrode is $4,000. The incremental 
value of the separator is $1,000. The incremental value of the 
electrolyte is $800. The total incremental value of North American 
battery components is $6,500 ($700 + $4,000 + $1,000 + $800).
    (C) Third, Company B determines the total incremental value of 
battery components. The anode electrode is not a North American battery 
component because it is manufactured outside of North America. The 
incremental value of the anode electrode is $1,000. The total 
incremental value of battery components is $6,500 plus $1,000 or 
$7,500.
    (D) Fourth, Company B determines the qualifying battery component 
content by taking the total incremental value of North American battery 
components ($6,500, determined in Step 2) divided by the total 
incremental value of battery components ($7,500, determined in Step 3). 
The qualifying battery component content is therefore 86.7%. Company B 
uses this percentage to calculate the average battery component content 
for the clean vehicle batteries of a group of vehicles and compares 
that average percentage to the applicable battery components percentage 
of section 30D(e)(2) and Sec.  1.30D-3(b)(2).
    (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--(1) In general. Except as provided in 
paragraph (h)(2) of this section, this section applies to new clean 
vehicles placed in service after April 17, 2023, in taxable years 
ending after April 17, 2023.
    (2) Upfront review and traced qualifying value. Paragraphs (a)(3) 
and (4) (relating to traced qualifying value test) and (d) (relating to 
upfront review of critical minerals and battery components 
requirements) of this section apply to taxable years ending after May 
6, 2024.


Sec.  1.30D-4  Special rules.

    (a) No double benefit--(1) In general. Under section 30D(f)(2) of 
the Internal Revenue Code (Code), the amount of any deduction or other 
credit allowable under chapter 1 of the Code for a vehicle for which a 
credit is allowable under section 30D(a) must be reduced by the amount 
of the section 30D credit allowed for such vehicle (determined without 
regard to section 30D(c)).
    (2) Interaction between section 30D and section 25E credits. A 
section 30D credit that has been allowed with respect to a vehicle in a 
taxable year before the year in which a credit under section 25E of the 
Code is allowable for that vehicle does not reduce the amount allowable 
under section 25E.
    (3) Interaction between section 30D and section 45W credits. 
Pursuant to section 45W(d)(3) of the Code, no credit is allowed under 
section 45W with respect to any vehicle for which a credit was allowed 
under section 30D.
    (b) Limitation based on modified adjusted gross income--(1) In 
general. Under section 30D(f)(10)(A), no credit is allowed under 
section 30D(a) for any taxable year if--
    (i) The lesser of--
    (A) The modified adjusted gross income of the taxpayer for such 
taxable year, or
    (B) The modified adjusted gross income of the taxpayer for the 
preceding taxable year, exceeds
    (ii) The threshold amount.
    (2) Threshold amount. For purposes of section 30D(f)(10)(A) and 
paragraph (b)(1) of this section, the threshold amount applies to 
taxpayers based on the return filing status for the taxable year, as 
set forth in paragraphs (b)(2)(i) through (iii) of this section. See 
section 30D(f)(10)(B).
    (i) In the case of a joint return or a surviving spouse (as defined 
in section 2(a) of the Code), the threshold amount is $300,000,
    (ii) In the case of a head of household (as defined in section 
2(b)), the threshold amount is $225,000.
    (iii) In the case of a taxpayer not described in paragraph 
(b)(2)(i) or (ii) of this section, the threshold amount is $150,000.

[[Page 37765]]

    (3) Special rule for change in filing status. If the taxpayer's 
filing status for the taxable year differs from the taxpayer's filing 
status in the preceding taxable year, then the taxpayer satisfies the 
limitation described in section 30D(f)(10) and paragraph (b)(1) of this 
section if the taxpayer's modified adjusted gross income does not 
exceed the threshold amount in either year based on the applicable 
filing status for that taxable year.
    (4) Application to estates and trusts--(i) Estates and non-grantor 
trusts. In the case of a new clean vehicle placed in service by an 
estate or a non-grantor trust, the threshold amount of paragraph 
(b)(2)(iii) of this section applies for purposes of the modified 
adjusted gross income limitation of section 30D(f)(10) and this 
paragraph (b). For purposes of the modified adjusted gross income 
limitation, an estate or non-grantor trust is treated as having 
modified adjusted gross income above the threshold amount for any year 
in which the estate or non-grantor trust is not in existence.
    (ii) Grantor trusts. In the case of a new clean vehicle placed in 
service by a grantor trust, the modified adjusted gross income 
limitation of section 30D(f)(10) and this paragraph (b) applies based 
on the modified adjusted gross income of the grantor or other deemed 
owner of the trust, and not the modified adjusted gross income of the 
trust or any beneficiary of the trust other than the grantor or other 
deemed owner.
    (5) Application to passthrough entities. In the case of a new clean 
vehicle placed in service by a partnership or an S corporation, if the 
section 30D credit is claimed by individuals, non-grantor trusts, or 
estates who are direct or indirect partners of that partnership or 
shareholders of that S corporation, the modified gross income 
limitation of section 30D(f)(10) and this paragraph (b) applies at the 
partner or shareholder level in accordance with the rules of this 
paragraph (b).
    (6) Other taxpayers. The modified adjusted gross income limitation 
of this paragraph (b) does not apply in the case of a new clean vehicle 
placed in service by a corporation or by a taxpayer that is not an 
individual, estate, trust, or entity as provided in paragraph (b)(4) or 
(b)(5) of this section.
    (c) Credit may generally be claimed on only one tax return--(1) In 
general. Except as provided in paragraph (c)(2) of this section, the 
amount of the section 30D credit attributable to a new clean vehicle 
may be claimed on only one Federal income tax return, including on a 
joint return in which one of the spouses is listed on the seller 
report. In the event a new clean vehicle is placed in service by 
multiple taxpayers who do not file a joint tax return (for example, in 
the case of married individuals filing separate returns), no allocation 
or proration of the section 30D credit is available.
    (2) Exception for passthrough entities. In the case of a new clean 
vehicle placed in service by a partnership or an S corporation, the 
section 30D credit is allocated among the partners of the partnership 
under Sec.  1.704-1(b)(4)(ii), or among the shareholder(s) of the S 
corporation under sections 1366(a) and 1377(a) of the Code, and claimed 
on the Federal income tax returns of the individual partners or S 
corporation shareholder(s).
    (3) Seller reporting--(i) In general. The name and taxpayer 
identification number of the taxpayer claiming the section 30D credit 
must be listed on the seller report pursuant to section 30D(d)(1)(H). 
The credit will be allowed only on the Federal income tax return of the 
taxpayer listed in the seller report.
    (ii) Passthrough entities. In the case of a new clean vehicle 
placed in service by a partnership or S corporation, the name and tax 
identification number of the partnership or S corporation that placed 
the new clean vehicle in service must be listed on the seller report 
pursuant to section 30D(d)(1)(H).
    (4) Example. A married couple jointly purchases and places in 
service a new clean vehicle that qualifies for the section 30D credit 
and puts both of their names on the title. The couple files separate 
Federal income tax returns by using the married filing separately 
filing status. Only one spouse may claim the section 30D credit with 
respect to the new clean vehicle on that spouse's respective return, 
and the other spouse may not claim any amount of the section 30D credit 
with respect to that new clean vehicle. The spouse that claims the 
section 30D credit must be the same spouse listed on the seller report.
    (d) Grantor trusts. To the extent that the grantor or another 
person is treated as owning all or part of a trust under sections 671 
through 679 of the Code, the section 30D credit is allocated to such 
grantor or other person in accordance with Sec.  1.671-3(a)(1).
    (e) Recapture rules--(1) In general. This paragraph (e) provides 
rules under section 30D(f)(5) regarding the recapture of the section 
30D credit.
    (i) Cancelled sale. If the sale of a vehicle between the taxpayer 
and seller is cancelled before the taxpayer places the vehicle in 
service, then--
    (A) The taxpayer may not claim the section 30D credit with respect 
to the vehicle;
    (B) The sale will be treated as not having occurred and the vehicle 
will be considered available for original use by another taxpayer 
(regardless of the cancelled sale), and the vehicle will, therefore, 
still be eligible for the section 30D credit upon a subsequent sale 
that meets the requirements of section 30D and the section 30D 
regulations;
    (C) The seller report must be rescinded by the seller in the manner 
set forth in guidance published in the Internal Revenue Bulletin (see 
Sec.  601.601 of this chapter); and
    (D) The taxpayer cannot make a credit transfer election under 
section 30D(g) and Sec.  1.30D-5(d) with respect to the cancelled sale.
    (ii) Vehicle return. If a taxpayer returns to the seller a vehicle 
within 30 days of placing such vehicle in service, then--
    (A) The taxpayer cannot claim the section 30D credit with respect 
to the vehicle;
    (B) The vehicle will no longer be considered available for original 
use by another taxpayer, and, therefore, the vehicle will no longer be 
eligible for the section 30D credit;
    (C) The seller report must be updated by the seller in the manner 
set forth in guidance published in the Internal Revenue Bulletin (see 
Sec.  601.601 of this chapter); and
    (D) A credit transfer election under 30D(g) and Sec.  1.30D-5(d), 
if applicable, will be treated as nullified and any advance payment 
made pursuant to section 30D(g) and Sec.  1.30D-5(f), if applicable, 
will be collected from the eligible entity as an excessive payment 
pursuant to Sec.  1.30D-5(g)(2).
    (iii) Resale. If a taxpayer resells a vehicle within 30 days of 
placing the vehicle in service, then the taxpayer is treated as having 
purchased such vehicle with the intent to resell, and--
    (A) The taxpayer cannot claim the section 30D credit with respect 
to the vehicle;
    (B) The vehicle will no longer be considered available for original 
use by another taxpayer, and, therefore, the vehicle will no longer be 
eligible for the section 30D credit;
    (C) The seller report will not be updated;
    (D) A credit transfer election under 30D(g) and Sec.  1.30D-5(d), 
if applicable, will remain in effect and any advance payment made 
pursuant to section 30D(g) and Sec.  1.30D-5(f) will not be collected 
from the eligible entity; and
    (E) The value of any transferred credit will be collected from the 
taxpayer as an

[[Page 37766]]

increase in tax imposed by chapter 1 of the Code for the taxable year 
in which the vehicle is placed in service.
    (iv) Other vehicle returns and resales. In the case of a return of 
a new clean vehicle not described in paragraph (e)(1)(ii) of this 
section or a resale not described in paragraph (e)(1)(iii) of this 
section, the vehicle will no longer be considered available for 
original use by another taxpayer, and, therefore, will no longer be 
eligible for the section 30D credit upon a subsequent sale.
    (2) Recapture rules in the case of a credit transfer election. For 
additional recapture rules that apply in the case of a credit transfer 
election, see Sec.  1.30D-5(g)(1). For excessive payment rules that 
apply in the case of an advance payment made to an eligible entity, see 
Sec.  1.30D-5(g)(2).
    (3) Example: Demonstrator vehicle. A dealer purchases, registers, 
and titles a vehicle in its name and uses it as a demonstrator vehicle 
for customers. The dealer resells the vehicle more than 30 days after 
placing the vehicle in service. The dealer claimed the section 30D 
credit on its Federal tax return for the tax year the vehicle is placed 
in service. The credit recapture provision in Sec.  1.30D-4(e)(1)(iii) 
does not apply because the vehicle was resold more than 30 days after 
being placed in service.
    (f) Seller registration. A seller must register with the IRS in the 
manner set forth in guidance published in the Internal Revenue Bulletin 
(see Sec.  601.601 of this chapter) for purposes of filing seller 
reports (as defined in Sec.  1.30D-2(b)(46)).
    (g) Requirement to file return. No section 30D credit is allowed 
unless the taxpayer claiming such credit files a Federal income tax 
return or information return, as appropriate, for the taxable year in 
which the new clean vehicle is placed in service. The taxpayer must 
attach to such return a completed Form 8936, Clean Vehicle Credits, or 
successor form that includes all information required by the form and 
instructions. The taxpayer must also attach a completed Schedule A 
(Form 8936), Clean Vehicle Credit Amount, or successor form or schedule 
that includes all information required by the schedule and 
instructions, such as the vehicle identification number of the 
previously-owned clean vehicle.
    (h) Taxpayer reliance on manufacturer certifications and periodic 
written reports to the IRS. A taxpayer that acquires a new clean 
vehicle and places it in service may rely on the manufacturer's 
certification concerning the manufacturer's status as a qualified 
manufacturer. A taxpayer also may rely on the information and 
certifications contained in the qualified manufacturer's written 
reports to the IRS. The procedures for such periodic written reports 
are established in guidance published in the Internal Revenue Bulletin 
(see Sec.  601.601 of this chapter). To the extent a taxpayer relies on 
certifications or attestations from the qualified manufacturer 
regarding certain section 30D requirements, the new clean vehicle the 
taxpayer acquires will be deemed to meet the requirements of section 
30D(d)(1)(C) through (F), (d)(7), and (e). See Sec.  1.30D-5(g)(3)(ii) 
for an example that illustrates the interplay between the rule in this 
paragraph (h) and the excessive payment rule in Sec.  1.30D-3(g)(2).
    (i) 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.
    (j) Applicability date. This section applies to taxable years 
ending after December 4, 2023.


Sec.  1.30D-5  Transfer of credit.

    (a) In general. This section provides rules related to the transfer 
and advance payment of the section 30D credit pursuant to section 
30D(g) of the Internal Revenue Code (Code). Under the rules of section 
30D(g) and this section, a taxpayer may elect to transfer a section 30D 
credit to an eligible entity, and the eligible entity may receive an 
advance payment for such credit, provided certain requirements are met. 
See paragraph (d) of this section for rules applicable to credit 
transfer elections. See paragraph (f) of this section for rules 
applicable to advance payments of transferred section 30D credits. 
Section 30D(g)(2) sets forth certain requirements that a dealer must 
satisfy to be an eligible entity for credit transfer and advance 
payment purposes. Section 30D(g)(2)(A) requires registration with the 
IRS. See paragraph (c) of this section for rules related to dealer 
registration. Section 30D(g)(2)(B) through (D) and paragraph (f)(2) of 
this section impose additional requirements that a registered dealer 
must satisfy in order to be an eligible entity for credit transfer and 
advance payment purposes.
    (b) Definitions. This paragraph (b) provides definitions that apply 
for purposes of section 30D(g) and this section. See Sec.  1.30D-2(b) 
for definitions that are generally applicable to section 30D and the 
section 30D regulations.
    (1) Advance payment program. Advance payment program means the 
program described in paragraph (f)(1) of this section.
    (2) Credit transfer election. Credit transfer election has the 
meaning provided in section 30D(g) and paragraph (d) of this section.
    (3) Dealer. Dealer has the meaning provided in section 30D(g)(8), 
except that, for purposes of this section, the term does not include 
persons licensed solely by a territory of the United States, and 
includes a dealer licensed by any jurisdiction (other than one licensed 
solely by a territory of the United States) that makes sales at sites 
outside of the jurisdiction in which it is licensed.
    (4) Dealer tax compliance. Dealer tax compliance means the dealer 
has filed all required Federal information and tax returns, including 
for Federal income and employment tax purposes, and the dealer has paid 
all Federal tax, penalties, and interest due as of the time of sale. A 
dealer that has entered into an installment agreement with the IRS for 
which a dealer is current on its obligations (including filing 
obligations) is treated as in dealer tax compliance.
    (5) Electing taxpayer. Electing taxpayer means an individual who 
purchases and places in service a new clean vehicle and elects to 
transfer the section 30D credit that would otherwise be allowable to 
such individual to an eligible entity pursuant to section 30D(g) and 
paragraph (d) of this section. A taxpayer is an electing taxpayer only 
if the taxpayer makes certain attestations to the registered dealer, 
pursuant to procedures provided in guidance published in the Internal 
Revenue Bulletin (see Sec.  601.601 of this chapter), including that 
the taxpayer does not anticipate exceeding the modified adjusted gross 
income limitation of section 30D(b)(1) and Sec.  1.30D-4(b) and that 
the taxpayer will use the vehicle predominantly for personal use.
    (6) Eligible entity. Eligible entity has the meaning provided in 
section 30D(g)(2) and paragraph (f)(2) of this section.
    (7) Incentive. For purposes of the eligible entity requirements of 
section 30D(g)(2)(B)(ii) and (D), incentive means any reduction in 
price available to the taxpayer from the dealer or manufacturer, 
including in combination with other incentives, other than a reduction 
in the form of a partial payment or down payment for the purchase of a 
new clean vehicle pursuant to section 30D(g)(2)(C).
    (8) Registered dealer. Registered dealer means a dealer that has 
completed registration with the IRS as provided in paragraph (c) of 
this section.

[[Page 37767]]

    (9) Sale price. The sale price of a new clean vehicle means the 
total price agreed upon by the taxpayer and dealer in a written 
contract at the time of sale, including any delivery charges and after 
the application of any incentives. The sale price of a new clean 
vehicle does not include separately stated taxes and fees required by 
State or local law. The sale price of a new clean vehicle is determined 
before the application of any trade-in value.
    (10) Time of sale. Time of sale means the date the new clean 
vehicle is placed in service, as defined in Sec.  1.30D-2(b)(36).
    (c) Dealer registration--(1) In general. A dealer must register 
with the IRS in the manner set forth in guidance published in the 
Internal Revenue Bulletin (see Sec.  601.601 of this chapter) for the 
dealer to receive credits transferred by an electing taxpayer pursuant 
to section 30D(g) and paragraph (d) of this section.
    (2) Dealer tax compliance required. A dealer must be in dealer tax 
compliance to complete and maintain its registration with the IRS and 
paragraph (d) of this section. If the dealer is not in dealer tax 
compliance for any of the taxable periods during the last five taxable 
years, then the dealer may complete its initial registration with the 
IRS, but the dealer will not be eligible for the advance payment 
program (and, therefore, the dealer will not be eligible to receive 
transferred section 30D credits) until the compliance issue is 
resolved. The IRS will notify the dealer in writing that the dealer is 
not in dealer tax compliance, and the dealer will have the opportunity 
to address any failure through regular procedures. If the failure is 
corrected, the IRS will complete the dealer's registration, and, 
provided all other requirements of section 30D(g) and this section are 
met, the dealer will then be allowed to receive transferred section 30D 
credits and participate in the advance payment program. Additional 
procedural guidance regarding this paragraph is set forth in guidance 
published in the Internal Revenue Bulletin (see Sec.  601.601 of this 
chapter).
    (3) Suspension of registration. A registered dealer's registration 
may be suspended pursuant to the procedures described in guidance 
published in the Internal Revenue Bulletin (see Sec.  601.601 of this 
chapter). Any decision made by the IRS relating to the suspension of a 
registered dealer's registration is not subject to administrative 
appeal to the IRS Independent Office of Appeals unless the IRS and the 
IRS Independent Office of Appeals agree that such review is available 
and the IRS provides the time and manner for such review.
    (4) Revocation of registration. A registered dealer's registration 
may be revoked pursuant to the procedures described in guidance 
published in the Internal Revenue Bulletin (see Sec.  601.601). Any 
decision made by the IRS relating to the revocation of a dealer's 
registration is not subject to administrative appeal to the IRS 
Independent Office of Appeals unless the IRS and the IRS Independent 
Office of Appeals agree that such review is available and the IRS 
provides the time and manner for such review.
    (d) Credit transfer election by electing taxpayer. For a new clean 
vehicle placed in service after December 31, 2023, an electing taxpayer 
may elect to apply the rules of section 30D(g) and this section to make 
a credit transfer election with respect to the vehicle so that the 
section 30D credit with respect to the vehicle is allowed to the 
eligible entity specified in the credit transfer election (and not to 
the electing taxpayer) pursuant to the advance payment program 
described in paragraph (f) of this section. The electing taxpayer, as 
part of the credit transfer election, must transfer the entire amount 
of the credit that would otherwise be allowable to the electing 
taxpayer under section 30D with respect to the vehicle, and the 
eligible entity specified in the credit transfer election must pay the 
electing taxpayer an amount equal to the amount of the credit included 
in the credit transfer election. A credit transfer election must be 
made no later than the time of sale, and must be made in the manner set 
forth in guidance published in the Internal Revenue Bulletin (see Sec.  
601.601 of this chapter). Once made, a credit transfer election is 
irrevocable. No credit transfer election may be made to transfer an 
amount of credit that would otherwise be allowed to the electing 
taxpayer under section 38.
    (e) Federal income tax consequences of the credit transfer 
election--(1) Tax consequences for electing taxpayer. In the case of a 
credit transfer election, the Federal income tax consequences for the 
electing taxpayer are as follows--
    (i) The credit amount under section 30D that the electing taxpayer 
elects to transfer to the eligible entity under section 30D(g) and 
paragraph (d) of this section may exceed the electing taxpayer's 
regular tax liability (as defined in section 26(b)(1) of the Code) for 
the taxable year in which the sale occurs, and the excess, if any, is 
not subject to recapture on the basis that it exceeded the electing 
taxpayer's regular tax liability;
    (ii) The payment made by an eligible entity to an electing taxpayer 
under section 30D(g)(2)(C) and paragraph (d) of this section to an 
electing taxpayer pursuant to the credit transfer election is not 
includible in the gross income of the electing taxpayer; and
    (iii) The payment made by an eligible entity to an electing 
taxpayer under section 30D(g)(2)(C) and paragraph (d) of this section 
is treated as repaid by the electing taxpayer to the eligible entity as 
partial payment of the sale price of the new clean vehicle. Thus, the 
repayment by the electing taxpayer is included in the electing 
taxpayer's basis in the new clean vehicle prior to the application of 
the basis reduction rule in section 30D(f)(1).
    (2) Tax consequences for eligible entity. In the case of a credit 
transfer election, the Federal income tax consequences for the eligible 
entity are as follows--
    (i) The eligible entity is allowed the section 30D credit with 
respect to the new clean vehicle and may receive an advance payment 
pursuant to section 30D(g)(7) and paragraph (f) of this section;
    (ii) Advance payments received by the eligible entity are not 
treated as a tax credit in the hands of the eligible entity and may 
exceed the eligible entity's regular tax liability (as defined in 
section 26(b)(1)) for the taxable year in which the sale occurs;
    (iii) An advance payment received by the eligible entity is not 
included in the gross income of the eligible entity;
    (iv) The payment made by an eligible entity under section 
30D(g)(2)(C) and paragraph (d) of this section to an electing taxpayer 
is not deductible by the eligible entity;
    (v) The payment made by an eligible entity to an electing taxpayer 
under section 30D(g)(2)(C) and paragraph (d) of this section is treated 
as repaid by the electing taxpayer to the eligible entity as partial 
payment of the sale price of the new clean vehicle. Thus, the repayment 
by the electing taxpayer is treated as an amount realized by the 
eligible entity under section 1001 of the Code and the regulations 
under section 1001; and
    (vi) If the eligible entity is a partnership or an S corporation, 
then--
    (A) The IRS will make the advance payment to such partnership or S 
corporation equal to the amount of the section 30D credit allowed that 
is transferred to the eligible entity;
    (B) Such section 30D credit is reduced to zero and is, for any 
other purpose of the Code, deemed to have been allowed solely to such 
entity (and not allocated or otherwise allowed to its partners or 
shareholders) for such taxable year; and

[[Page 37768]]

    (C) The amount of the advance payment is not treated as tax exempt 
income to the partnership or S corporation for purposes of the Code.
    (3) Form of payment from eligible entity to electing taxpayer. The 
tax treatment of the payment made by the eligible entity to the 
electing taxpayer described in paragraphs (e)(1) and (2) of this 
section is the same regardless of whether the payment is made in cash, 
in the form of a partial payment or down payment for the purchase of 
the new clean vehicle, or as a reduction in sale price (without the 
payment of cash) of the new clean vehicle.
    (4) Additional requirements. In the case of a credit transfer 
election, the following additional rules apply--
    (i) The requirements of section 30D(f)(1) (regarding basis 
reduction) and 30D(f)(2) (regarding no double benefit) apply to the 
electing taxpayer as if the credit transfer election were not made (so, 
for example, the electing taxpayer must reduce the electing taxpayer's 
basis in the vehicle by the amount of the section 30D credit, 
regardless of the credit transfer election);
    (ii) Section 30D(f)(6) (regarding the election not to take the 
credit) will not apply (in other words, by electing to transfer the 
credit, the electing taxpayer is electing to take the credit);
    (iii) Section 30D(f)(9) (regarding the vehicle identification 
number requirement) will be treated as satisfied if the eligible entity 
provides the vehicle identification number of such vehicle to the IRS 
in the form and manner set forth in guidance published in the Internal 
Revenue Bulletin (see Sec.  601.601 of this chapter). The electing 
taxpayer must also provide the vehicle identification number with their 
tax return for the taxable year in which the vehicle is placed in 
service. See section 6213(g)(2)(T) of the Code and Sec.  301.6213-2 of 
this chapter for rules relating to the omission of a correct vehicle 
identification number.
    (5) Examples. The following examples illustrate the rules of 
paragraph (e) of this section.
    (i) Example 1: Electing taxpayer's regular tax liability less than 
amount of credit--(A) Facts. T, an individual, purchases a new clean 
sport utility vehicle from a dealer, D, which is a C corporation. T 
satisfies the requirements to be an electing taxpayer and elects to 
transfer the section 30D credit to D. D is a registered dealer and 
satisfies the requirements to be an eligible entity. The sale price of 
the vehicle is $57,500. The section 30D credit otherwise allowable to T 
is $7,500. D makes the payment required to be made to T in the form of 
a cash payment of $7,500. T uses the $7,500 as a partial payment for 
the vehicle. T pays D an additional $50,000 from other funds. T's 
regular tax liability for the year is less than $7,500.
    (B) Analysis. Under paragraph (e)(1)(i) of this section, T may 
transfer the credit to D, even though T's regular tax liability is less 
than $7,500, and no amount of the credit will be recaptured from T on 
the basis that the allowable credit exceeds T's regular tax liability. 
D's $7,500 payment to T is not included in T's gross income, and the 
sale price of the vehicle is $57,500 (including both the $7,500 payment 
and the additional $50,000 paid by T from other funds), prior to the 
application of the basis reduction rule of section 30D(f)(1). After 
application of the basis reduction rule, T's basis in the vehicle is 
$50,000. D is eligible to receive an advance payment of $7,500 for the 
transferred section 30D credit as provided in section 30D(g)(7) and 
paragraph (f) of this section. Under paragraph (e)(2) of this section, 
D may receive the advance payment irrespective of the fact that D's 
regular tax liability is less than $7,500. The advance payment is not 
treated as a credit toward D's tax liability (if any), nor is it 
included in D's gross income. Further, D's $7,500 payment to T is not 
deductible, and D's amount realized is $57,500 upon the sale of the 
vehicle (including both the $7,500 payment from D to T that T uses as a 
partial payment, and the additional $50,000 paid by T from other 
funds).
    (ii) Example 2: Non-cash payment by eligible entity to electing 
taxpayer--(A) Facts. The facts are the same as in paragraph 
(e)(5)(i)(A) of this section (facts of Example 1), except that D makes 
the payment to T in the form of a reduction in the sale price of the 
vehicle (rather than as a cash payment).
    (B) Analysis. Paragraph (e)(3) of this section provides that the 
application of paragraphs (e)(1) and (2) of this section is not 
dependent on the form of payment from an eligible entity to an electing 
taxpayer (for example, a payment in cash or a payment in the form of a 
reduction in sale price). Thus, the analysis is the same as in 
paragraph (e)(5)(i)(B) of this section (analysis of Example 1).
    (iii) Example 3: Eligible entity is a partnership--(A) Facts. The 
facts are the same as in paragraph (e)(5)(i)(A) of this section (facts 
of Example 1), except that D is a partnership.
    (B) Analysis. The analysis as to T is the same as in paragraph 
(e)(5)(i)(B) of this section (analysis of Example 1). Because D is a 
partnership, paragraph (e)(2)(vi) of this section applies. Thus, the 
advance payment is made to the partnership, the credit is reduced to 
zero and is, for any other purpose of the Code, deemed to have been 
allowed solely to the partnership (and not allocated or otherwise 
allowed to its partners) for such taxable year. The amount of the 
advance payment is not treated as tax-exempt income to the partnership 
for purposes of the Code.
    (f) Advance payments received by eligible entities--(1) In general. 
An eligible entity may receive advance payments from the IRS 
(corresponding to the amount of the section 30D credit for which a 
credit transfer election was made by an electing taxpayer to transfer 
the credit to the eligible entity pursuant to section 30D(g) and 
paragraph (d) of this section) before the eligible entity files its 
Federal income tax return or information return, as appropriate, for 
the taxable year with respect to which the credit transfer election 
corresponds. This advance payment program is the exclusive mechanism 
for an eligible entity to receive the section 30D credit transferred 
pursuant to section 30D(g) and paragraph (d) of this section. An 
eligible entity receiving a transferred section 30D credit may not 
claim the credit on a tax return.
    (2) Requirements for a registered dealer to become an eligible 
entity. A registered dealer qualifies as an eligible entity, and may 
therefore receive an advance payment, in connection with a credit 
transfer election, if it meets the following requirements:
    (i) The registered dealer submits required registration information 
and is in dealer tax compliance;
    (ii) The registered dealer retains information regarding the credit 
transfer election for three calendar years beginning with the year 
immediately after the year in which the vehicle is placed in service, 
as described in guidance published in the Internal Revenue Bulletin 
(see Sec.  601.601 of this chapter);
    (iii) The registered dealer meets any other requirements set forth 
in guidance published in the Internal Revenue Bulletin (see Sec.  
601.601 of this chapter) or in forms and instructions; and
    (iv) The registered dealer meets any other requirements of section 
30D(g), including those in section 30D(g)(2)(B) through (E).
    (g) Increase in tax--(1) Recapture if electing taxpayer exceeds 
modified adjusted gross income limitation. If an electing taxpayer has 
modified adjusted gross income that exceeds the limitation in section 
30D(f)(10) and Sec.  1.30D-4(b), then the income tax imposed on such 
taxpayer under chapter 1 of the Code (chapter 1) for the taxable year 
in which such vehicle was placed in service is

[[Page 37769]]

increased by the amount of the payment received by the taxpayer. The 
electing taxpayer must recapture such amounts on the return described 
in paragraph (h) of this section.
    (2) Excessive payments--(i) In general. This paragraph provides 
rules under section 30D(g)(7)(B), which provides that rules similar to 
the rules of section 6417(d)(6) of the Code apply to the advance 
payment program. In the case of any advance payment to an eligible 
entity that the IRS determines constitutes an excessive payment, the 
tax imposed on the eligible entity under chapter 1, regardless of 
whether such entity would otherwise be subject to tax under chapter 1, 
for the taxable year in which such determination is made will be 
increased by the sum of the following amounts--
    (A) The amount of the excessive payment; plus
    (B) An amount equal to 20 percent of such excessive payment.
    (ii) Reasonable cause. The amount described in paragraph 
(g)(2)(i)(B) of this section will not apply to an eligible entity if 
the eligible entity demonstrates to the satisfaction of the IRS that 
the excessive payment resulted from reasonable cause. In the case of a 
new clean vehicle (with respect to which a credit transfer election was 
made by the electing taxpayer) that is returned to the eligible entity 
within 30 days of being placed in service, the eligible entity will be 
treated as having demonstrated that the excessive payment resulted from 
reasonable cause.
    (iii) Excessive payment defined. Excessive payment means an advance 
payment made--
    (A) To a registered dealer that fails to meet the requirements to 
be an eligible entity provided in section 30D(g)(2) and paragraph 
(f)(2) of this section, or
    (B) Except as provided in paragraph (g)(2)(iv) of this section, to 
an eligible entity with respect to a new clean vehicle to the extent 
the payment exceeds the amount of the credit that, without application 
of section 30D(g) and this section, would be otherwise allowable to the 
electing taxpayer with respect to the vehicle for such tax year.
    (iv) Special rule for cases in which the electing taxpayer's 
modified adjusted gross income exceeds the limitation. Any excess 
described in paragraph (g)(2)(iii)(B) of this section that arises due 
to the electing taxpayer exceeding the limitation based on modified 
adjusted gross income in section 30D(f)(10) and Sec.  1.30D-4(b) is not 
an excessive payment. Instead, the amount of the advance payment is 
recaptured from the electing taxpayer under section 30D(g)(10) and 
paragraph (g)(1) of this section.
    (3) Examples. The following examples illustrate the excessive 
payment rules in paragraph (g)(2) of this section.
    (i) Example 1: Registered dealer is not an eligible entity--(A) 
Facts. In 2024, D, a registered dealer, receives an advance payment of 
$7,500 with respect to a credit transferred under section 30D(g)(1) and 
paragraph (d) of this section for a new clean vehicle V. In 2025, the 
IRS determines that D was not an eligible entity with respect to new 
clean vehicle V at the time of the receipt of the advance payment in 
2024, because D failed to satisfy one of the requirements of section 
30D(g)(2) and paragraph (f)(2) of this section. D is unable to show 
reasonable cause for the failure.
    (B) Analysis. Under paragraph (g)(2)(i) of this section, the tax 
imposed on D is increased by the amount of the excessive payment if the 
advance payment received by D constitutes an excessive payment. Under 
paragraph (g)(2)(iii) of this section, the entire amount of the $7,500 
advance payment received by D is an excessive payment because D did not 
meet the requirements to be an eligible entity under section 30D(g)(2) 
and paragraph (f)(2) of this section. Additionally, because D cannot 
show reasonable cause for its failure to meet these requirements, the 
tax imposed under chapter 1 on D is increased by $9,000 in 2025 (the 
taxable year of the IRS determination). This is comprised of the $7,500 
value of the credit plus the $1,500 penalty, calculated as a 20% 
penalty on such $7,500 (20% x $7,500 = $1,500). This treatment applies 
regardless of whether D is otherwise subject to tax under chapter 1 
(for example, if D is a partnership).
    (ii) Example 2: Incorrect manufacturer certifications--(A) Facts. 
In 2024, T, a taxpayer, makes an election to transfer a credit under 
section 30D(g)(1) and paragraph (d) of this section to E, a registered 
dealer, for a new clean vehicle V. M, the manufacturer of such vehicle, 
certified to the IRS that vehicle V was eligible for a $7,500 credit 
because it met both the critical minerals and the battery components 
requirements. T transfers the $7,500 credit to E. Subsequent to T's 
purchase and election to transfer the $7,500 credit to E, M reports to 
the IRS that vehicle V was only eligible for a $3,750 credit because it 
did not meet the critical minerals requirement.
    (B) Analysis. Under Sec.  1.30D-4(h), T may rely on the information 
and certifications provided in M's written report to the IRS regarding 
vehicle V's eligibility for the section 30D credit. Under paragraph 
(g)(2)(iii)(B) of this section, an advance payment to an eligible 
entity with respect to a vehicle is an excessive payment to the extent 
the payment exceeds the amount of the credit that, without a credit 
transfer election, would be otherwise allowable to the electing 
taxpayer with respect to the vehicle for such taxable year. Because the 
amount of the credit that would be allowable to T for 2024 is $7,500, 
and T transferred the $7,500 credit to E, there is no excessive payment 
with respect to E.
    (h) Return requirement. An electing taxpayer that makes a credit 
transfer election must file a Federal income tax return or information 
return, as appropriate, for the taxable year in which the credit 
transfer election is made and indicate such election on the return in 
accordance with the instructions to the form on which the return is 
made. The electing taxpayer must attach a completed Form 8936, Clean 
Vehicle Credits, or successor form, and a completed Schedule A (Form 
8936), Clean Vehicle Credit Amount, or successor form or schedule, 
including the vehicle identification number of the new clean vehicle 
and such other information as provided in forms and instructions.
    (i) Two credit transfer elections per year. A taxpayer may make no 
more than two credit transfer elections per taxable year, consisting of 
either two elections to transfer section 30D credits, or one election 
to transfer a section 30D credit and one election to transfer a section 
25E credit. In the case of taxpayers who file a joint return, each 
individual taxpayer may make no more than two credit transfer elections 
per taxable year.
    (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 will continue in effect.
    (k) Applicability date. This section applies to new clean vehicles 
placed in service after December 31, 2023, in taxable years ending 
after December 31, 2023.


Sec.  1.30D-6  Foreign entity of concern restriction.

    (a) In general. This section provides rules related to the excluded 
entities provision of section 30D(d)(7) of the Internal Revenue Code 
(Code), which imposes certain restrictions on the extraction, 
processing, or recycling of applicable critical minerals, and the 
manufacturing or assembly of battery

[[Page 37770]]

components contained in a clean vehicle battery by a foreign entity of 
concern (FEOC). Specifically, section 30D(d)(7) provides that the term 
new clean vehicle does not include any vehicle placed in service after 
December 31, 2023, with respect to which any of the battery components 
in the clean vehicle battery were manufactured or assembled by a FEOC, 
or any vehicle placed in service after December 31, 2024, with respect 
to which any of the applicable critical minerals contained in the clean 
vehicle battery were extracted, processed, or recycled by a FEOC (FEOC 
restriction). See Sec.  1.30D-2(b) for definitions applicable to 
section 30D(d)(7) and this section.
    (b) Due diligence required--(1) In general. The qualified 
manufacturer must conduct due diligence with respect to all battery 
components and applicable critical minerals (and associated constituent 
materials) that are relevant to determining whether such components or 
minerals are FEOC-compliant. Such due diligence must comply with 
standards of tracing for battery materials available in the industry at 
the time of the attestation or certification that enables the qualified 
manufacturer to know with reasonable certainty the provenance of 
applicable critical minerals, associated constituent materials, and 
battery components. Reasonable reliance on a supplier attestation or 
certification will be considered due diligence if the qualified 
manufacturer, or any third-party manufacturer or supplier, does not 
know or have reason to know that such supplier attestation or 
certification is incorrect. See paragraph (c)(5) of this section for 
rules related to third-party manufacturers and suppliers. The qualified 
manufacturer must conduct due diligence prior to the qualified 
manufacturer determining the information necessary to establish any 
compliant-battery ledger under paragraph (d) of this section, and the 
qualified manufacturer must continue to conduct due diligence on an 
ongoing basis.
    (2) Transition rule for impracticable-to-trace battery materials. 
For any new clean vehicles for which the qualified manufacturer 
provides a periodic written report before January 1, 2027, the due 
diligence requirement of paragraph (b)(1) of this section may be 
satisfied by excluding identified impracticable-to-trace battery 
materials. To use this transition rule, a qualified manufacturer must 
submit a report during the up-front review process described in 
paragraph (d)(2)(ii) of this section demonstrating how the qualified 
manufacturer will comply with the FEOC restriction of section 30D(d)(7) 
and this section, including information about efforts made to date to 
secure a FEOC-compliant supply of these battery materials once the 
transition rule is no longer in effect.
    (c) FEOC compliance--(1) In general. In the case of any new clean 
vehicle placed in service after December 31, 2023, the clean vehicle 
battery or batteries of the vehicle must be FEOC-compliant. A serial 
number or other identification system must be used to physically track 
FEOC-compliant batteries to specific new clean vehicles. The 
determination that a clean vehicle battery is FEOC-compliant is made as 
follows:
    (i) Step 1. The qualified manufacturer determines whether battery 
components and applicable critical minerals (and associated constituent 
materials) are FEOC-compliant, in accordance with paragraph (c)(4) of 
this section.
    (ii) Step 2. The FEOC-compliant battery components and FEOC-
compliant applicable critical minerals (and associated constituent 
materials) are physically tracked to specific battery cells, in 
accordance with paragraph (c)(3)(i) of this section. Alternatively, 
FEOC-compliant applicable critical minerals and associated constituent 
materials (but not battery components) may be allocated to battery 
cells, without physical tracking, in accordance with paragraph 
(c)(3)(ii) of this section. In addition, the determination of whether a 
battery cell is FEOC-compliant may be made by applying the transition 
rule for impracticable-to-trace battery materials, in accordance with 
paragraph (c)(3)(iii) of this section.
    (iii) Step 3. The battery components, including battery cells, are 
physically tracked to specific clean vehicle batteries, in accordance 
with paragraph (c)(2) of this section.
    (2) FEOC-compliant batteries. The determination that a clean 
vehicle battery is FEOC-compliant must be made by physically tracking 
FEOC-compliant battery components (including battery cells) to such 
battery. With respect to battery cells, a serial number or other 
identification system must be used to physically track FEOC-compliant 
battery cells to such batteries.
    (3) FEOC-compliant battery cells--(i) In general. Except as 
provided in paragraph (c)(3)(ii) of this section, the determination 
that a battery cell contains FEOC-compliant battery components and 
FEOC-compliant applicable critical minerals and their associated 
constituent materials must be made by physically tracking FEOC-
compliant battery components to specific battery cells, and by 
physically tracking the mass of FEOC-compliant applicable critical 
minerals and their associated constituent materials to specific battery 
cells.
    (ii) Allocation-based determination for applicable critical 
minerals and associated constituent materials of a battery cell--(A) In 
general. The determination that a battery cell is FEOC-compliant may be 
based on an allocation of available mass, procured or contracted for, 
of applicable critical minerals and their associated constituent 
materials to specific battery cells manufactured or assembled in a 
battery cell production facility, without the physical tracking of mass 
of applicable critical minerals and associated constituent materials to 
specific battery cells.
    (B) Allocation limited to applicable critical minerals in the 
battery cell. The rules of this paragraph (c)(3)(ii) are limited to 
applicable critical minerals and their associated constituent materials 
that are incorporated into a battery cell or its battery components. 
Battery components must be physically tracked.
    (C) Separate allocation required for each type of associated 
constituent material--(1) In general. Any allocation under this 
paragraph (c)(3)(ii) with respect to the mass of an applicable critical 
mineral must be made within the type of associated constituent material 
(such as powders of cathode active materials, powders of anode active 
materials, or foils) in which such applicable critical mineral is 
contained. Masses of an applicable critical mineral may not be 
aggregated across constituent materials with which such applicable 
critical mineral is not associated, and an allocation of a mass of an 
applicable critical mineral may not be made from one type of 
constituent material to another.
    (2) Example. M, a qualified manufacturer, operates a battery cell 
production facility. M manufactures a line of battery cells that 
contains applicable critical mineral Z (ACM-Z) in constituent material 
1 and in constituent material 2. With respect to constituent material 
1, M procures 20,000,000 kilograms (kg) of ACM-Z for the battery cell 
production facility, of which 4,000,000 kg are FEOC-compliant and 
16,000,000 kg are not FEOC-compliant. With respect to constituent 
material 2, M procures another 15,000,000 kg of ACM-Z for the battery 
cell production facility, of which 7,500,000 kg are FEOC-compliant and 
7,500,000 kg are not FEOC-complian