Key Takeaways

• The U.S. Department of the Treasury and the Internal Revenue Service are accepting public comments on the implementation of electric vehicle (EV) tax credits under the Inflation Reduction Act of 2022 (the IRA).
• This is an opportunity for stakeholders to shape the implementation guidance of the IRA’s critical mineral and battery component requirements for an EV tax credit.

Critical Mineral and Battery Component Requirements

The IRA (signed into law on Aug. 16, 2022) is a significant investment in clean energy and transportation technologies and includes an array of incentives for EVs. One of those incentives is a new $7,500 EV tax credit, formally known as the clean vehicle credit. To be eligible for the new credit, vehicles and consumers must meet certain requirements:

• A vehicle is eligible for one-half of the total credit ($3,750) if it has battery components that are manufactured or assembled in North America.
• To be eligible for the other $3,750, a vehicle must have a certain percentage (increased over time, as detailed below) of critical minerals that were extracted or processed in the U.S. or countries with which the U.S. has a free trade agreement, or it must use critical minerals that were recycled in North America:
  • For vehicles placed in service before Jan. 1, 2024: Eligible critical materials must account for at least 50 percent of the value of all battery components.
  • For vehicles placed in service in 2024 or 2025: The applicable requirement is 60 percent.
  • For vehicles placed in service in 2026, 2027 or 2028: The applicable requirements are 70, 80 and 90 percent, respectively.
  • For vehicles placed in service after Dec. 31, 2028, the applicable requirement is 100 percent.
• Final assembly must take place in North America for a vehicle to be eligible.
• Only cars costing under $55,000 or SUVs, vans and pickup trucks costing under $80,000 are eligible for the credit.
• On the consumer side, the income cap to be eligible for the credit is $150,000 for single filers, $225,000 for head of household and $300,000 for joint filers.

The new requirements for battery components and critical minerals will take effect after the date on which the secretary of the Treasury or her delegate issues proposed guidance on these requirements, which is due no later than Dec. 31, 2022.

Issues To Be Commented On

To promulgate proposed guidance on the critical mineral and battery component requirements, Treasury and the IRS are requesting public input from stakeholders on the following issues:

• Definition of Clean Vehicles Eligible for the Tax Credit: The IRA defines a “new clean vehicle,” in part, as a motor vehicle that is acquired for use or lease by the taxpayer and not for resale. As used in this definition, what, if any, guidance is needed as to the meaning of the terms “acquired,” “use” and “lease”?
• Critical Mineral Requirement:
  • What factors and definitions should be considered to determine the place of extracting or processing such critical minerals and, in particular, to determine whether extracting or processing occurred in the United States or in any country with which the United States has a free trade agreement in effect?
  • What factors and definitions should be considered to determine the place of recycling such critical minerals and, in particular, to determine whether recycling occurred in North America?
  • What factors and definitions should be considered to determine (a) the total value of the critical minerals contained in a vehicle’s battery and (b) the percentage of that total value attributable to critical minerals (i) extracted or processed in the United States or a country with which the United States has a free trade agreement in effect or (ii) recycled in North America?
• Battery Component Requirement:
  • What factors should be considered in defining the components of a battery of a clean vehicle?
  • What factors and definitions should be considered to determine the place of manufacture or assembly of the components of a battery of a clean vehicle and, in particular, to determine whether manufacture or assembly occurred in North America?
  • What factors and definitions should be considered to determine (a) the total value of the components contained in the battery of a clean vehicle and (b) the percentage of that total value attributable to components that were manufactured or assembled in North America?
• Value Percentage Determination: The new critical mineral and battery component requirements are based on value.
  • What existing battery technology supply chain tracking methodologies or regulatory frameworks should be considered in determining applicable values?
• Exclusion of Foreign Entity of Concern: The IRA excludes some vehicles from the tax credit, including when any of the applicable critical minerals contained in the battery were extracted, processed or recycled by a foreign entity of concern (defined in 42 U.S.C. 18741(a)(5)) or if any of the components contained in the battery of such vehicle were manufactured or assembled by a foreign entity of concern:
  • Is guidance needed to clarify the definition of “foreign entity of concern”?
  • What existing regulatory or guidance frameworks for recordkeeping requirements or supply chain tracking methodologies may be useful for a qualified manufacturer to verify that its vehicles are not excluded under § 30D(d)(7)?
• Recordkeeping and Reporting:
  • In addition to vehicle identification numbers, what additional information should the government require a manufacturer to provide to be considered a qualified manufacturer under the IRA?
  • What existing regulatory or guidance frameworks for recordkeeping requirements, information reporting or existing battery technology supply chain tracking methodologies may be useful for developing guidance in this area?
  • What information should be included in the report furnished by the seller of the vehicle to the taxpayer and the government?
• Other issues listed in the request for comments are available at https://www.irs.gov/pub/irs-drop/n-22-46.pdf.

Conclusion

Manufacturers of electric vehicles and components affected by the new IRA requirements should take this opportunity to provide feedback to Treasury and the IRS. Written comments are encouraged to be submitted by Nov. 4, 2022, for full consideration. Comments may be submitted electronically via the Federal eRulemaking Portal at www.regulations.gov (under IRS-2022-0046).

If you have questions about how the new IRA requirements may affect your business or would like assistance in preparing and submitting comments, please feel free to contact us.

Authorship credit: Tung A. Nguyen, Ronald J. Baumgarten and Michael S. Snarr