On May 29, 2024, the Department of the Treasury (Treasury) and the IRS released proposed rules for the section 45Y clean electricity production tax credit (“Section 45Y Credit”) and the section 48E clean electricity investment tax credit (“Section 48E Credit”). These credits are informally referred to as tech-neutral credits because they do not specify particular technologies eligible for credits, unlike the existing production and investment tax credits. Below we summarize certain important provisions in these proposed rules and some of their implications for project finance for constructing facilities with net-zero greenhouse gas (“GHG”) emissions, such as a need for emissions accounting and monitoring. Comments are due on August 2, 2024, and a public hearing is scheduled to be held on August 12 and 13.Continue Reading When Is the Greenhouse Gas Emissions Rate Not Greater Than Zero? Proposed Regulations on the Tech-Neutral Credits Provide Clarification
Further Clarity to the Electric Vehicle Industry and Consumers Is Here, But It Is Not Done
An additional piece of the section 30D puzzle arrived last Friday when the Department of the Treasury (Treasury) and Department of Energy (DOE) released final rules (Treasury Rule and DOE Rule). Largely tracking the proposed regulations, which we described in our prior blog posts (here and here), but with notable changes, these rules provide further clarity to the electric vehicle sector, essential to foster the widespread EV adoption in the United States.Continue Reading Further Clarity to the Electric Vehicle Industry and Consumers Is Here, But It Is Not Done
The Biden Administration Unveils the Long-Waited Guidance on “Foreign Entity of Concern”
On December 1, the Department of Energy (DOE) and the Department of the Treasury (Treasury) published highly-anticipated proposed rules that will significantly impact China’s and other covered nations’ roles in the battery supply chain for electric vehicles (EVs) sold to U.S. consumers. The proposed DOE Interpretive Rules and proposed Treasury Regulations interpret the term “foreign entity of concern” (FEOC) in the same manner for purposes of the Battery Manufacturing and Recycling Grant program under the Bipartisan Infrastructure Law and the EV credit under section 30D of the Internal Revenue Code introduced by the Inflation Reduction Act (IRA). The proposed rules take a more nuanced approach than the proposed and final rules that appeared in the context of the CHIPS and Science Act over the past year (discussed here, here, and here), but nevertheless purport to adopt bright-line rules. As we have previously noted, adopting a different approach to such term in section 30D is justified to balance the IRA’s dual policy goals of onshoring and “friendshoring” the U.S. EV battery supply chain while making credits sufficiently available to accelerate the electrification of the U.S. consumer vehicle fleet.Continue Reading The Biden Administration Unveils the Long-Waited Guidance on “Foreign Entity of Concern”
Commerce Final Rule Heightens Uncertainty as to How Treasury Will Interpret “Foreign Entity of Concern” for EV Credits Under Section 30D of the Inflation Reduction Act
On September 22, the Commerce Department published a final rule implementing the national security-related restrictions and obligations on recipients of incentive funds under the CHIPS and Science Act of 2022 (the “CHIPS Act”). The final rule clarifies in some respects, and substantially expands in other respects, the definition of “foreign entity of concern” that appeared in Commerce’s proposed rule, issued in March.
When Commerce issued its proposed rule, the Treasury Department cross-referenced Commerce’s definition of “foreign entity of concern” in Treasury’s concurrently proposed regulations for the CHIPS Act’s tax credit under section 48D of the Internal Revenue Code. We commented at the time that if Treasury were to adopt that same definition for the section 30D electric vehicle (EV) credit under the Inflation Reduction Act (the “IRA”), there could be a significant reduction in the number of vehicles eligible for such credits relative to market expectations. Treasury issued proposed regulations for other aspects of the 30D credit one week after the CHIPS Act guidance, but did not include an interpretation of the term “foreign entity of concern,” and to date has yet to do so (though it has signaled an intent to do so later this year).Continue Reading Commerce Final Rule Heightens Uncertainty as to How Treasury Will Interpret “Foreign Entity of Concern” for EV Credits Under Section 30D of the Inflation Reduction Act
Much-Anticipated Proposed Regulations on the 30D EV Tax Credit Have Finally Arrived—but Leave a Key Question Unresolved
Today, the Department of the Treasury and IRS made available for public inspection proposed regulations on the new clean vehicle credit under the Inflation Reduction Act of 2022, as codified in section 30D of the Internal Revenue Code. These proposed regulations will be published in the Federal Register on April 17, 2023, and the due date for comments will be 60 days after the publication (or Friday, June 16, 2023).Continue Reading Much-Anticipated Proposed Regulations on the 30D EV Tax Credit Have Finally Arrived—but Leave a Key Question Unresolved
Will Treasury Adopt the Same Interpretation of “Foreign Entity of Concern” for both the Section 48D Credit under the CHIPS Act and the Section 30D Credit under the Inflation Reduction Act?
Background
Later this week the Department of the Treasury is expected to release guidance on the Inflation Reduction Act (IRA)’s EV tax credit under section 30D of the Internal Revenue Code. Highly consequential for the guidance and practical availability of the credit will be how Treasury interprets the term “foreign entity of concern.” This is because Section 30D(d)(7) excludes from credit eligibility vehicles that are:
- placed in service after December 31, 2024, with respect to which any of the applicable critical minerals contained in the battery of such vehicle . . . were extracted, processed, or recycled by a foreign entity of concern; or
- placed in service after December 31, 2023, with respect to which any of the components contained in the battery of such vehicle . . . were manufactured or assembled by a foreign entity of concern.
Meanwhile, last week, Treasury and the Commerce Department released proposed regulations (here and here, respectively) that interpret “foreign entity of concern” for purposes of various incentive programs under the CHIPS & Science Act (CHIPS Act). Because the IRA’s definition of “foreign entity of concern” mirrors the CHIPS Act’s definition of “foreign entity of concern” interpreted by Commerce, and because Treasury cross-referenced Commerce’s interpretation of “foreign entity of concern” in Treasury’s CHIPS Act guidance, it is reasonable to wonder whether Treasury will adopt the same interpretation of “foreign entity of concern” for purposes of the EV credit exclusion in section 30D(d)(7).
If it does, there could be a dramatic diminution of vehicles eligible for the EV credits. Under Treasury’s proposed CHIPS Act regulations, a foreign entity of concern would include, inter alia, (i) any entity organized under the laws of China or having its principal place of business in China, and (ii) any entity organized outside of China 25% or more of whose voting interests are owned by the Chinese government (as in the case of foreign subsidiaries of Chinese state-owned entities (SOEs)). If that interpretation is used for purposes of section 30D, absent a nearly impossibly fast elimination of Chinese critical minerals and battery components from the EV supply chain, the number of vehicles eligible for the 30D EV credit will sharply decrease in 2024 and will be practically eliminated in 2025.
EV manufacturers and suppliers may wish to flag this concern to Treasury.Continue Reading Will Treasury Adopt the Same Interpretation of “Foreign Entity of Concern” for both the Section 48D Credit under the CHIPS Act and the Section 30D Credit under the Inflation Reduction Act?
Treasury and the IRS provide a safe harbor for determining the incremental cost of a clean vehicle for the commercial clean vehicle credit
Notice 2023-9, “Section 45W Commercial Clean Vehicles and Incremental Cost for 2023”
Concurrent with the white paper and Notice 2023-1, discussed in a separate blog, on December 29, 2022, the IRS released Notice 2023-9, which provides a safe harbor for determining the incremental cost of qualified commercial clean vehicles for the section 45W credit.Continue Reading Treasury and the IRS provide a safe harbor for determining the incremental cost of a clean vehicle for the commercial clean vehicle credit
Treasury and the IRS provide its first set of proposed guidance and a white paper on the clean vehicle credit
On December 29, 2022, Treasury released a white paper indicating the anticipated direction of proposed guidance on the critical mineral and battery component requirements for the new clean vehicle credit under section 30D. The guidance will be critical to automakers and consumers seeking to qualify for tax credits available for purchase of EVs under the Inflation Reduction Act.
Continue Reading Treasury and the IRS provide its first set of proposed guidance and a white paper on the clean vehicle credit
IRS Releases Reporting Requirements to Determine Eligibility for Clean Vehicle Tax Credits
Today, the IRS released Revenue Procedure 2022-42 to address the reporting requirements for vehicle manufacturers and sellers. These reporting requirements are prerequisites for purchasers’ eligibility for clean vehicle tax credits under Sections 25E, 30D, and 45W. Section 30D(d)(3) requires that a manufacturer enter into a written agreement to become a qualified manufacturer, which requires periodic written reports to the IRS. Similarly, Section 30D(1)(H) requires that the person who sells a vehicle furnish a report to purchasers and the IRS.Continue Reading IRS Releases Reporting Requirements to Determine Eligibility for Clean Vehicle Tax Credits
IRS issues notices requesting comments on IRA clean energy tax credits
On October 5, 2022, the Treasury Department and the IRS issued notices requesting comments on different aspects of the energy tax benefits in the Inflation Reduction Act (“IRA”). All comments are due by Friday, November 4, either electronically on www.regulations.gov or alternatively by mail to the IRS. Written comments submitted after that date will be considered as long as such consideration will not delay the issuance of guidance.Continue Reading IRS issues notices requesting comments on IRA clean energy tax credits