The Department of the Treasury, in collaboration with the Internal Revenue Service (IRS), recently released two items of guidance related to the section 30D clean vehicle credit’s excluded entity restriction, as amended by the Inflation Reduction Act. The guidance clarifies that vehicles will not qualify for the clean vehicle credit if their batteries involve components or critical minerals handled by a foreign entity of concern (FEOC).
The proposed regulations offer definitions and rules for qualified vehicle manufacturers to determine eligibility for the clean vehicle credit concerning the excluded entity restrictions. Specifically, the regulations outline the methods to ascertain whether critical minerals, constituent materials, and battery components comply with FEOC regulations, ensuring they do not violate the excluded entity provision.
Furthermore, the Revenue Procedure 2023-38 provides procedural rules for certified manufacturers of new clean vehicles. These rules pertain to reporting, certification, and attestation requirements regarding the excluded entity restriction. Along with the Department of Energy, the IRS will review compliance with the excluded entity restrictions. This revenue procedure also consolidates procedural rules for manufacturers in relation to the clean vehicle credit, the previously-owned clean vehicle credit, and the qualified commercial clean vehicle credit.
Section 30D offers a credit for new clean vehicles placed in service by the taxpayer during the taxable year, with a maximum credit of $7,500 per vehicle. This consists of $3,750 if specific critical minerals requirements are met and $3,750 if certain battery components requirements are met.
To be eligible for the section 30D credit, starting in 2024, vehicles must not have batteries with components manufactured or assembled by a FEOC. Furthermore, beginning in 2025, vehicles must not have batteries containing applicable critical minerals extracted, processed, or recycled by a FEOC.
The proposed regulations incorporate the statutory definition of FEOC from the IIJA, administered by the Department of Energy (DOE). They also include implementing guidance issued by the DOE. Additionally, the regulations specify due diligence requirements for manufacturers, rules for determining FEOC-compliance of minerals, battery components, cells, and batteries, a review regime for FEOC-compliance determinations, and penalty rules.
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