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

<RULE> DEPARTMENT OF THE TREASURY <SUBAGY>Internal Revenue Service</SUBAGY> <CFR>26 CFR Parts 1 and 301</CFR> <DEPDOC>[TD 9995]</DEPDOC> <RIN>RIN 1545-BQ52; RIN 1545-BQ86; RIN 1545-BQ99</RIN> <SUBJECT>Clean Vehicle Credits Under Sections 25E and 30D; Transfer of Credits; Critical Minerals and Battery Components; Foreign Entities of Concern</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Internal Revenue Service (IRS), Treasury. <HD SOURCE="HED">ACTION:</HD> Final regulations. <SUM> <HD SOURCE="HED">SUMMARY:</HD> 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. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> <E T="03">Effective date:</E> These regulations are effective on July 5, 2024. <E T="03">Applicability dates:</E> For dates of applicability, <E T="03">see</E> §§ 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). </EFFDATE> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Rika Valdman or Maggie Stehn of the Office of Associate Chief Counsel (Passthroughs & Special Industries) at (202) 317-6853 (not a toll-free number). </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">Background</HD> 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. <HD SOURCE="HD2">I. Section 25E</HD> 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. <HD SOURCE="HD2">II. Section 30D</HD> <HD SOURCE="HD3">A. In General</HD> Section 30D(a) provides a credit (section 30D credit) with respect to each new clean vehicle that a taxpayer purchases and places in service. The credit is determined and allowable with respect to the taxable year in which the taxpayer places the new clean vehicle in service. Section 30D was originally enacted by section 205(a) of the Energy Improvement and Extension Act of 2008, Division B of Public Law 110-343, 122 Stat. 3765, 3835 (October 3, 2008), to provide a credit for the purchase and placing in service of new qualified plug-in electric drive motor vehicles. Section 30D has been amended several times since its enactment, most recently by section 13401 of the IRA. The amount of the section 30D credit is treated as a personal credit or a general business credit, depending on the character of the vehicle. In general, the section 30D credit is treated as a personal credit allowable under subpart A of the Code. Section 30D(c)(2). However, the amount of the section 30D credit that is attributable to property that is of a character subject to an allowance for depreciation is treated as a current year business credit under section 38(b) instead of being allowed under section 30D(a). Section 30D(c)(1). Section 38(b)(30) lists as a current year business credit the portion of the section 30D credit to which section 30D(c)(1) applies. The IRA did not amend section 30D(c)(1) or (2). <HD SOURCE="HD3">B. IRA Amendments to Section 30D</HD> <HD SOURCE="HD3">1. Credit Amount and Critical Minerals and Battery Components Requirements</HD> 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). <E T="03">See</E> 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 a ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 529k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━