Title 26—Internal Revenue--Volume 1
PART 1—INCOME TAXES
§ 1.25A-4   Lifetime Learning Credit.
(a) Amount of the credit —(1) Taxable years beginning before January 1, 2003. Subject to the phaseout of the education tax credit described in § 1.25A-1(c), for taxable years beginning before 2003, the Lifetime Learning Credit amount is 20 percent of up to $5,000 of qualified tuition and related expenses paid during the taxable year for education furnished to the taxpayer, the taxpayer's spouse, and any claimed dependent during any academic period beginning in the taxable year (or treated as beginning in the taxable year, see § 1.25A-5(e)(2)).
(2) Taxable years beginning after December 31, 2002. Subject to the phaseout of the education tax credit described in § 1.25A-1(c), for taxable years beginning after 2002, the Lifetime Learning Credit amount is 20 percent of up to $10,000 of qualified tuition and related expenses paid during the taxable year for education furnished to the taxpayer, the taxpayer's spouse, and any claimed dependent during any academic period beginning in the taxable year (or treated as beginning in the taxable year, see § 1.25A-5(e)(2)).
(3) Coordination with the Hope Scholarship Credit. Expenses paid with respect to a student for whom the Hope Scholarship Credit is claimed are not eligible for the Lifetime Learning Credit.
(4) Examples. The following examples illustrate the rules of this paragraph (a). In each example, assume that all the requirements to claim a Lifetime Learning Credit or a Hope Scholarship Credit, as applicable, are met. The examples are as follows:
(b) Credit allowed for unlimited number of taxable years. There is no limit to the number of taxable years that a taxpayer may claim a Lifetime Learning Credit with respect to any student.
(c) Both degree and nondegree courses are eligible for the credit —(1) In general. For purposes of the Lifetime Learning Credit, amounts paid for a course at an eligible educational institution are qualified tuition and related expenses if the course is either part of a postsecondary degree program or is not part of a postsecondary degree program but is taken by the student to acquire or improve job skills.
(2) Examples. The following examples illustrate the rule of this paragraph (c). In each example, assume that all the requirements to claim a Lifetime Learning Credit are met. The examples are as follows:
(d) Effective date. The Lifetime Learning Credit is applicable for qualified tuition and related expenses paid after June 30, 1998, for education furnished in academic periods beginning after June 30, 1998.
§ 1.25A-5   Special rules relating to characterization and timing of payments.
(a) Educational expenses paid by claimed dependent. For any taxable year for which the student is a claimed dependent of another taxpayer, qualified tuition and related expenses paid by the student are treated as paid by the taxpayer to whom the deduction under section 151 is allowed.
(b) Educational expenses paid by a third party —(1) In general. Solely for purposes of section 25A, if a third party (someone other than the taxpayer, the taxpayer's spouse if the taxpayer is treated as married within the meaning of section 7703, or a claimed dependent) makes a payment directly to an eligible educational institution to pay for a student's qualified tuition and related expenses, the student is treated as receiving the payment from the third party and, in turn, paying the qualified tuition and related expenses to the institution.
(2) Special rule for tuition reduction included in gross income of employee. Solely for purposes of section 25A, if an eligible educational institution provides a reduction in tuition to an employee of the institution (or to the spouse or dependent child of an employee, as described in section 132(h)(2)) and the amount of the tuition reduction is included in the employee's gross income, the employee is treated as receiving payment of an amount equal to the tuition reduction and, in turn, paying such amount to the institution.
(3) Examples. The following examples illustrate the rules of this paragraph (b). In each example, assume that all the requirements to claim an education tax credit are met. The examples are as follows:
(c) Adjustment to qualified tuition and related expenses for certain excludable educational assistance —(1) In general. In determining the amount of an education tax credit, qualified tuition and related expenses for any academic period must be reduced by the amount of any tax-free educational assistance allocable to such period. For this purpose, tax-free educational assistance means—
(i) A qualified scholarship that is excludable from income under section 117;
(ii) A veterans' or member of the armed forces' educational assistance allowance under chapter 30, 31, 32, 34 or 35 of title 38, United States Code, or under chapter 1606 of title 10, United States Code;
(iii) Employer-provided educational assistance that is excludable from income under section 127; or
(iv) Any other educational assistance that is excludable from gross income (other than as a gift, bequest, devise, or inheritance within the meaning of section 102(a)).
(2) No adjustment for excludable educational assistance attributable to expenses paid in a prior year. A reduction is not required under paragraph (c)(1) of this section if the amount of excludable educational assistance received during the taxable year is treated as a refund of qualified tuition and related expenses paid in a prior taxable year. See paragraph (f)(5) of this section.
(3) Scholarships and fellowship grants. For purposes of paragraph (c)(1)(i) of this section, a scholarship or fellowship grant is treated as a qualified scholarship excludable under section 117 except to the extent—
(i) The scholarship or fellowship grant (or any portion thereof) may be applied, by its terms, to expenses other than qualified tuition and related expenses within the meaning of section 117(b)(2) (such as room and board) and the student reports the grant (or the appropriate portion thereof) as income on the student's federal income tax return if the student is required to file a return; or
(ii) The scholarship or fellowship grant (or any portion thereof) must be applied, by its terms, to expenses other than qualified tuition and related expenses within the meaning of section 117(b)(2) (such as room and board) and the student reports the grant (or the appropriate portion thereof) as income on the student's federal income tax return if the student is required to file a return.
(4) Examples. The following examples illustrate the rules of this paragraph (c). In each example, assume that all the requirements to claim an education tax credit are met. The examples are as follows:
(d) No double benefit. Qualified tuition and related expenses do not include any expense for which a deduction is allowed under section 162, section 222, or any other provision of chapter 1 of the Internal Revenue Code.
(e) Timing rules —(1) In general. Except as provided in paragraph (e)(2) of this section, an education tax credit is allowed only for payments of qualified tuition and related expenses for an academic period beginning in the same taxable year as the year the payment is made. Except for certain individuals who do not use the cash receipts and disbursements method of accounting, qualified tuition and related expenses are treated as paid in the year in which the expenses are actually paid. See § 1.461-1(a)(1).
(2) Prepayment rule —(i) In general. If qualified tuition and related expenses are paid during one taxable year for an academic period that begins during the first three months of the taxpayer's next taxable year ( i.e., in January, February, or March of the next taxable year for calendar year taxpayers), an education tax credit is allowed with respect to the qualified tuition and related expenses only in the taxable year in which the expenses are paid.
(ii) Example. The following example illustrates the rule of this paragraph (e)(2). In the example, assume that all the requirements to claim an education tax credit are met. The example is as follows:
(3) Expenses paid with loan proceeds. An education tax credit may be claimed for qualified tuition and related expenses paid with the proceeds of a loan only in the taxable year in which the expenses are paid, and may not be claimed in the taxable year in which the loan is repaid. Loan proceeds disbursed directly to an eligible educational institution will be treated as paid on the date the institution credits the proceeds to the student's account. For example, in the case of any loan issued or guaranteed as part of a Federal student loan program under title IV of the Higher Education Act of 1965, loan proceeds will be treated as paid on the date of disbursement (as defined in 34 CFR 668.164(a), revised as of July 1, 2002) by the eligible educational institution. If a taxpayer does not know the date the institution credits the student's account, the taxpayer must treat the qualified tuition and related expenses as paid on the last date for payment prescribed by the institution.
(4) Expenses paid through third party installment payment plans —(i) In general. A taxpayer, an eligible educational institution, and a third party installment payment company may enter into an agreement in which the company agrees to collect installment payments of qualified tuition and related expenses from the taxpayer and to remit the installment payments to the institution. If the third party installment payment company is the taxpayer's agent for purposes of paying qualified tuition and related expenses to the eligible educational institution, the taxpayer is treated as paying the qualified expenses on the date the company pays the institution. However, if the third party installment payment company is the eligible educational institution's agent for purposes of collecting payments of qualified tuition and related expenses from the taxpayer, the taxpayer is treated as paying the qualified expenses on the date the taxpayer pays the company.
(ii) Example. The following example illustrates the rule of this paragraph (e)(4). The example is as follows:
(f) Refund of qualified tuition and related expenses—(1) Payment and refund of qualified tuition and related expenses in the same taxable year. With respect to any student, the amount of qualified tuition and related expenses for a taxable year is calculated by adding all qualified tuition and related expenses paid for the taxable year, and subtracting any refund of such expenses received from the eligible educational institution during the same taxable year (including refunds of loan proceeds described in paragraph (f)(4) of this section).
(2) Payment of qualified tuition and related expenses in one taxable year and refund in subsequent taxable year before return filed for prior taxable year. If, in a taxable year, a taxpayer or someone other than the taxpayer receives a refund (including refunds of loan proceeds described in paragraph (f)(4) of this section) of qualified tuition and related expenses paid on behalf of a student in a prior taxable year and the refund is received before the taxpayer files a federal income tax return for the prior taxable year, the amount of the qualified tuition and related expenses for the prior taxable year is reduced by the amount of the refund.
(3) Payment of qualified tuition and related expenses in one taxable year and refund in subsequent taxable year —(i) In general. If, in a taxable year (refund year), a taxpayer or someone other than the taxpayer receives a refund (including refunds of loan proceeds described in paragraph (f)(4) of this section) of qualified tuition and related expenses paid on behalf of a student for which the taxpayer claimed an education tax credit in a prior taxable year, the tax imposed by chapter 1 of the Internal Revenue Code for the refund year is increased by the recapture amount.
(ii) Recapture amount. The recapture amount is the difference in tax liability for the prior taxable year (taking into account any redetermination of such tax liability by audit or amended return) that results when the tax liability for the prior year is calculated using the taxpayer's redetermined credit. The redetermined credit is computed by reducing the amount of the qualified tuition and related expenses taken into account in determining any credit claimed in the prior taxable year by the amount of the refund of the qualified tuition and related expenses (redetermined qualified expenses), and computing the allowable credit using the redetermined qualified expenses and the relevant facts and circumstances of the prior taxable year, such as modified adjusted gross income (redetermined credit).
(4) Refund of loan proceeds treated as refund of qualified tuition and related expenses. If loan proceeds used to pay qualified tuition and related expenses (as described in paragraph (e)(3) of this section) during a taxable year are refunded by an eligible educational institution to a lender on behalf of the borrower, the refund is treated as a refund of qualified tuition and related expenses for purposes of paragraphs (f)(1), (2), and (3) of this section.
(5) Excludable educational assistance received in a subsequent taxable year treated as a refund. If, in a taxable year, a taxpayer or someone other than the taxpayer receives any excludable educational assistance (described in paragraph (c)(1) of this section) for the qualified tuition and related expenses paid on behalf of a student during a prior taxable year (or attributable to enrollment at an eligible educational institution during a prior taxable year), the educational assistance is treated as a refund of qualified tuition and related expenses for purposes of paragraphs (f)(2) and (3) of this section. If the excludable educational assistance is received before the taxpayer files a federal income tax return for the prior taxable year, the amount of the qualified tuition and related expenses for the prior taxable year is reduced by the amount of the excludable educational assistance as provided in paragraph (f)(2) of this section. If the excludable educational assistance is received after the taxpayer has filed a federal income tax return for the prior taxable year, any education tax credit claimed for the prior taxable year is subject to recapture as provided in paragraph (f)(3) of this section.
(6) Examples. The following examples illustrate the rules of this paragraph (f). In each example, assume that all the requirements to claim an education tax credit are met. The examples are as follows:
(i) Adding all qualified expenses paid during the taxable year ($2,000 + 1,000 = $3,000);
(ii) Adding all refunds of qualified tuition and related expenses received during the taxable year ($750 + $250 = $1,000); and, then
(iii) Subtracting paragraph (ii) of this Example 1 from paragraph (i) of this Example 1 ($3,000 −$1,000 = $2,000). Therefore, Student A's qualified tuition and related expenses for 1998 are $2,000.
(ii) Student B calculates the increase in tax for 1999 by—
(A) Calculating the redetermined qualified expenses for 1998 ($2,000 − $500 = $1,500);
(B) Calculating the redetermined credit for the redetermined qualified expenses ($1,500 × .20 = $300); and
(C) Calculating the difference in tax liability for 1998 resulting from the redetermined credit. Because Student B's tax liability for 1998 was reduced by the full amount of the $400 education tax credit claimed on her 1998 income tax return, the difference in tax liability can be determined by subtracting the redetermined credit from the credit claimed in 1998 ($400−$300 = $100).
(iii) Therefore, Student B must increase the tax on her 1999 federal income tax return by $100.
§ 1.25E-0   Table of contents.
This section lists the captions contained in §§ 1.25E-1 through 1.25E-3.
(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.
(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.
(a) In general.
(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.
§ 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 § 1.25E-3(b)(1).
(2) Credit transfer election. Credit transfer election means credit transfer election as defined in § 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 § 1.25E-3(b)(3).
(5) Electing taxpayer. Electing taxpayer means electing taxpayer as defined in § 1.25E-3(b)(4).
(6) Eligible entity. Eligible entity means eligible entity as defined in § 1.25E-3(b)(5).
(7) Excessive payment. Excessive payment means excessive payment as defined in § 1.25E-3(g)(2)(iii).
(8) Incentive —(i) For purposes of sale price. For purposes of the definition of sale price in § 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 § 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 § 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 § 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 § 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 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 §§ 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 § 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 § 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 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 § 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.
§ 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 § 601.601 of this chapter); and
(D) The taxpayer cannot make a credit transfer election under section 25E(f) and § 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 § 1.25E-3, if applicable, will be treated as nullified and any advance payment made pursuant to section 25E(f) and § 1.25E-3, if applicable, will be collected from the eligible entity as an excessive payment pursuant to § 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 § 1.25E-3, if applicable, will remain in effect and any advance payment made pursuant to section 25E(f) and § 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 § 1.25E-3(g)(1). For excessive payment rules that apply in the case of an advance payment made to an eligible entity, see § 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 § 601.601 of this chapter) for purposes of filing seller reports (as defined in § 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 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 § 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 § 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 § 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.
§ 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 § 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 § 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 § 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 § 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 § 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 § 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 § 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 § 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) Clection 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 § 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 § 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 § 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 § 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 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 § 601.601 of this chapter);
(iii) The registered dealer meets any other requirements set forth in guidance published in the Internal Revenue Bulletin (see § 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 § 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 the limitation based on modified adjusted gross income in section 25E(b) and § 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% × $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 § 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.
§ 1.28-0   Credit for clinical testing expenses for certain drugs for rare diseases or conditions; table of contents.
In order to facilitate use of § 1.28-1, this section lists the paragraphs, subparagraphs, and subdivisions contained in § 1.28-1.
(a) General rule.
(b) Qualified clinical testing expenses.
(1) In general.
(2) Modification of section 41(b).
(3) Exclusion for amounts funded by another person.
(i) In general.
(ii) Clinical testing in which taxpayer retains no rights.
(iii) Clinical testing in which taxpayer retains substantial rights.
(A) In general.
(B) Drug by drug determination.
(iv) Funding for qualified clinical testing expenses determinable only in subsequent taxable years.
(4) Special rule governing the application of section 41(b) beyond its expiration date.
(c) Clinical testing.
(1) In general.
(2) Definition of “human clinical testing”.
(3) Definition of “carried out under” section 505(i).
(d) Definition and special rules.
(1) Definition of “rare disease or condition”.
(i) In general.
(ii) Cost of developing and making available the designated drug.
(A) In general.
(B) Exclusion of costs funded by another person.
(C) Computation of cost.
(D) Allocation of common costs. Costs for developing and making available the designated drug for both the disease or condition for which it is designated and one or more other diseases or conditions.
(iii) Recovery from sales.
(iv) Recordkeeping requirements.
(2) Tax liability limitation.
(i) Taxable years beginning after December 31, 1986.
(ii) Taxable years beginning before January 1, 1987, and after December 31, 1983.
(iii) Taxable years beginning before January 1, 1984.
(3) Special limitations on foreign testing.
(i) Clinical testing conducted outside the United States—In general.
(ii) Insufficient testing population in the United States.
(A) In general.
(B) “Insufficient testing population”.
(C) “Unrelated to the taxpayer”.
(4) Special limitations for certain corporations.
(i) Corporations to which section 936 applies.
(ii) Corporations to which section 934(b) applies.
(5) Aggregation of expenditures.
(i) Controlled group of corporations: organizations under common control.
(A) In general.
(B) Definition of controlled group of corporations.
(C) Definition of organization.
(D) Determination of common control.
(ii) Tax accounting periods used.
(A) In general.
(B) Special rule where the timing of clinical testing is manipulated.
(iii) Membership during taxable year in more than one group.
(iv) Intra-group transactions.
(A) In general.
(B) In-house research expenses.
(C) Contract research expenses.
(D) Lease payments.
(E) Payments for supplies.
(6) Allocations.
(i) Pass-through in the case of an S corporation
(ii) Pass-through in the case of an estate or a trust.
(iii) Pass-through in the case of a partnership.
(A) In general.
(B) Certain partnership non-business expenditures.
(C) Apportionment.
(iv) Year in which taken into account.
(v) Credit allowed subject to limitation.
(7) Manner of making an election.
§ 1.28-1   Credit for clinical testing expenses for certain drugs for rare diseases or conditions.
(a) General rule. Section 28 provides a credit against the tax imposed by chapter 1 of the Internal Revenue Code. The amount of the credit is equal to 50 percent of the qualified clinical testing expenses (as defined in paragraph (b) of this section) for the taxable year. The credit applies to qualified clinical testing expenses paid or incurred by the taxpayer after December 31, 1982, and before January 1, 1991. The credit may not exceed the taxpayer's tax liability for the taxable year (as determined under paragraph (d)(2) of this section).
(b) Qualified clinical testing expenses —(1) In general. Except as otherwise provided in paragraph (b)(3) of this section, the term “qualified clinical testing expenses” means the amounts which are paid or incurred during the taxable year which would constitute “qualified research expenses” within the meaning of section 41(b) (relating to the credit for increasing research activities) as modified by section 28(b)(1)(B) and paragraph (b)(2) of this section. For example, amounts paid or incurred for the acquisition of depreciable property used in the conduct of clinical testing (as defined in paragraph (c) of this section) are not qualified clinical testing expenses.
(2) Modification of section 41(b). For purposes of paragraph (b)(1) of this section, section 41(b) is modified by substituting “clinical testing” for “qualified research” each place it appears in paragraph (2) of section 41(b) (relating to in-house research expenses) and paragraph (3) of section 41(b) (relating to contract research expenses). In addition, “100 percent” is substituted for “65 percent” in paragraph (3)(A) of section 41(b).
(3) Exclusion for amounts funded by another person —(i) In general. The term “qualified clinical testing expenses” shall not include any amount which would otherwise constitute qualified clinical testing expenses, to the extent such amount is funded by a grant, contract, or otherwise by another person (or any governmental entity). The determination of the extent to which an amount is funded shall be made in light of all the facts and circumstances. For a special rule regarding funding between commonly controlled businesses, see paragraph (d)(5)(iv) of § 1.28-1.
(ii) Clinical testing in which taxpayer retains no rights. If a taxpayer conducting clinical testing with respect to the designated drug for another person retains no substantial rights in the clinical testing under the agreement providing for the clinical testing the taxpayer's clinical testing expenses are treated as fully funded for purposes of section 28(b)(1)(C). Thus, for example, if the taxpayer incurs clinical testing expenses under an agreement that confers on another person the exclusive right to exploit the results of the clinical testing, those expenses do not constitute qualified clinical testing expenses because they are fully funded under this paragraph (b)(3)(ii). Incidental benefits to the taxpayer from the conduct of the clinical testing (for example, increased experience in the field of human clinical testing) do not constitute substantial rights in the clinical testing.
(iii) Clinical testing in which taxpayer retains substantial rights —(A) In general. If a taxpayer conducting clinical testing with respect to the designated drug for another person retains substantial rights in the clinical testing under the agreement providing for the clinical testing, the clinical testing expenses are funded to the extent of the payments (and fair market value of any property at the time of transfer) to which the taxpayer becomes entitled by conducting the clinical testing. The taxpayer shall reduce the amount paid or incurred by the taxpayer for the clinical testing expenses that would, but for section 28(b)(1)(C) constitute qualified clinical testing expenses of the taxpayer by the amount of the funding determined under the preceding sentence. Rights retained in the clinical testing are not treated as property for purposes of this paragraph (b)(3)(iii)(A). If the property that is transferred to the taxpayer is to be consumed in the clinical testing (for example, supplies), the taxpayer should exclude the value of that property from both the payments received and the expenses paid or incurred for the clinical testing.
(B) Drug by drug determination. The provisions of this paragraph (b)(3) shall be applied separately to each designated drug tested by the taxpayer.
(iv) Funding for qualified clinical testing expenses determinable only in subsequent taxable years. If, at the time the taxpayer files its return for a taxable year, it is impossible to determine to what extent some or all of the qualified clinical testing expenses may be funded, the taxpayer shall treat the clinical testing expenses as fully funded for purposes of that return. When the amount of funding for qualified clinical testing expenses is finally determined, the taxpayer should amend the return and any interim returns to reflect the amount of funding for qualified clinical testing expenses.
(4) Special rule governing the application of section 41(b) beyond its expiration date. For purposes of section 28 and this section, section 41(b), as amended, and the regulations thereunder shall be deemed to remain in effect after December 31, 1988.
(c) Clinical testing —(1) In general. The term “clinical testing” means any human clinical testing which—
(i) Is carried out under an exemption under section 505(i) of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355(i)) and the regulations relating thereto (21 CFR part 312) for the purpose of testing a drug for a rare disease or condition as defined in paragraph (d)(1) of this section,
(ii) Occurs after the date the drug is designated as a drug for a rare disease or condition under section 526 of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 360bb),
(iii) Occurs before the date on which an application for the designated drug is approved under section 505(b) of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355(b)) or, if the drug is a biological product (other than a radioactive biological product intended for human use), before the date on which a license for such drug is issued under section 351 of the Public Health Services Act (42 U.S.C. 262), and
(iv) Is conducted by or on behalf of the taxpayer to whom the designation under section 526 of the Federal Food, Drug, and Cosmetic Act applies.
(2) Definition of “human clinical testing.” Testing is considered to be human clinical testing only to the extent that it uses human subjects to determine the effect of the designated drug on humans and is necessary for the designated drug either to be approved under section 505(b) of the Federal Food, Drug, and Cosmetic Act and the regulations thereunder (21 CFR part 314), or if the designated drug is a biological product (other than a radioactive biological product intended for human use), to be licensed under section 351 of the Public Health Services Act and the regulations thereunder (21 CFR part 601). For purposes of this paragraph (c)(2), a human subject is an individual who is a participant in research, either as a recipient of the drug or as a control. A subject may be either a healthy individual or a patient.
(3) Definition of “carried out under” section 505(i). Human clinical testing is not carried out under section 505(i) of the Federal Food, Drug, and Cosmetic Act and the regulations thereunder (21 CFR part 312) unless the primary purpose of the human clinical testing is to ascertain the data necessary to qualify the designated drug for sale in the United States, and not to ascertain data unrelated or only incidentally related to that needed to qualify the designated drug. Whether or not this primary purpose test is met shall be determined in light of all of the facts and circumstances.
(d) Definition and special rules —(1) Definition of “rare disease or condition” —(i) In general. The term “rare disease or condition” means any disease or condition which—
(A) Afflicts 200,000 or fewer persons in the United States, or
(B) Afflicts more than 200,000 persons in the United States but for which there is no reasonable expectation that the cost of developing and making available in the United States (as defined in section 7701(a)(9)) a drug for such disease or condition will be recovered from sales in the United States (as so defined) of such drug.
(ii) Cost of developing and making available the designated drug —(A) In general. Except as otherwise provided in this paragraph (d)(1)(ii), the taxpayer's computation of the cost of developing and making available in the United States the designated drug shall include only the costs that the taxpayer (or any person whose right to make sales of the drug is directly or indirectly derived from the taxpayer, e.g., a licensee or transferee) has incurred or reasonably expects to incur in developing and making available in the United States the designated drug for the disease or condition for which it is designated. For example, if, prior to designation under section 526, the taxpayer incurred costs of $125,000 to test the drug for the rare disease or condition for which it is subsequently designated and incurred $500,000 to test the same drug for other diseases, and if, on the date of designation, the taxpayer expects to incur costs of $1.2 million to test the drug for the rare disease or condition for which it is designated, the taxpayer shall include in its cost computation both the $125,000 incurred prior to designation and the $1.2 million expected to be incurred after designation to test the drug for the rare disease or condition for which it is designated. The taxpayer shall not include the $500,000 incurred to test the drug for other diseases.
(B) Exclusion of costs funded by another person. In computing the cost of developing and making available in the United States the designated drug, the taxpayer shall not include any cost incurred or expected to be incurred by the taxpayer to the extent that the cost is funded or is reasonably expected to be funded (determined under the principles of paragraph (b)(3)) by a grant, contract, or otherwise by another person (or any governmental entity).
(C) Computation of cost. The cost computation shall use only reasonable costs incurred after the first indication of an orphan application for the designated drug. Such costs shall include the costs of obtaining data needed, and of meetings to be held, in connection with a request for FDA assistance under section 525 of the Federal, Food, Drug, and Cosmetic Act (21 U.S.C. 360aa) or a request for orphan designation under section 526 of that Act; costs of determining patentability of the drug; costs of screening, animal and clinical studies; costs associated with preparation of a Notice of Claimed Investigational Exemption for a New Drug (IND) and a New Drug Application (NDA); costs of possible distribution of drug under a “treatment” protocol; costs of development of a dosage form; manufacturing costs; distribution costs; promotion costs; costs to maintain required records and reports; and costs of the taxpayer in acquiring the right to market a drug from the owner of that right prior to designation. The taxpayer shall also include general overhead, depreciation costs and premiums for insurance against liability losses to the extent that the taxpayer can demonstrate that these costs are properly allocable to the designated drug under the established standards of financial accounting and reporting of research and development costs.
(D) Allocation of common costs. Costs for developing and making available the designated drug for both the disease or condition for which it is designated and one or more other diseases or conditions. In the case where the costs incurred or expected to be incurred in developing and making available the designated drug for the disease or condition for which it is designated are also incurred or expected to be incurred in developing and making available in the United States the same drug for one or more other diseases or conditions (whether or not they are also designated or expected to be designated), the costs shall be allocated between the cost of developing and making available the designated drug for the disease or condition for which the drug is designated and the cost of developing and making available the designated drug for the other diseases or conditions. The amount of the common costs to be allocated to the cost of developing and making available the designated drug for the disease or condition for which it is designated is determined by multiplying the common costs by a fraction the numerator of which is the sum of the expected amount of sales in the United States of the designated drug for the disease or condition for which the drug is designated and the denominator of which is the total expected amount of sales in the United States of the designated drug. For example, if prior to designation, the taxpayer incurs (among other costs) costs of $100,000 in testing the designated drug for its toxic effect on animals (without reference to any disease or condition), and if the taxpayer expects to recover $500,000 from sales in the United States of the designated drug for disease X, the disease for which the drug is designated, and further expects to recover another $1.5 million from the sales in the United States of the designated drug for disease Y, the taxpayer must allocate a proportionate amount of the common costs of $100,000 to the cost of developing and making available the designated drug for both disease X and disease Y. Since the ratio of the expected amount of sales in the United States of the designated drug for disease X to the total of both the expected amount of sales in the United States of the designated drug for disease X and the expected amount of sales in the United States of the designated drug for disease Y is $500,000/$2,000,000, 25% of the common costs of $100,000 ( i.e., $25,000) is allocated to the cost of developing and making available the designated drug for disease X.
(iii) Recovery from sales. In determining whether the taxpayer's cost described in paragraph (d)(1)(ii) of this section will be recovered from sales in the United States of the designated drug for the disease or condition for which the drug is designated, the taxpayer shall include anticipated sales by the taxpayer or any person whose right to make such sales is directly or indirectly derived from the taxpayer (such as a licensee or transferee). The anticipated sales shall be based upon the size of the anticipated patient population for which the designated drug would be useful, including the following factors: the degree of effectiveness and safety of the designated drug, if known: the projected fraction of the anticipated patient population expected to be given the designated drug and to continue to take it; other available agents and other types of therapy; the likelihood that superior agents will become available within a few years; and the number of years during which the designated drug would be exclusively available, e.g., under a patent.
(iv) Recordkeeping requirements. The taxpayer shall keep records sufficient to substantiate the cost and sales estimates made pursuant to this paragraph (d)(1). The records required by this paragraph (d)(1)(iv) shall be retained so long as the contents thereof may become material in the administration of section 28.
(2) Tax liability limitation —(i) Taxable years beginning after December 31, 1986. The credit allowed by section 28 shall not exceed the excess (if any) of—
(A) The taxpayer's regular tax liability for the taxable year (as defined in section 26(b)), reduced by the sum of the credits allowable under—
( 1 ) Section 21 (relating to expenses for household and dependent care services necessary for gainful employment),
( 2 ) Section 22 (relating to the elderly and permanently and totally disabled),
( 3 ) Section 23 (relating to residential energy),
( 4 ) Section 25 (relating to interest on certain home mortgages), and
( 5 ) Section 27 (relating to taxes on foreign countries and possessions of the United States), over
(B) The tentative minimum tax for the taxable year (as determined under section 55(b)(1)).
(ii) Taxable years beginning before January 1, 1987, and after December 31, 1983. The credit allowed by section 28 shall not exceed the taxpayer's tax liability for the taxable year (as defined in section 26 (b) prior to its amendment by the Tax Reform Act of 1986 (Pub. L. 99-514)), reduced by the sum of the credits allowable under—
(A) Section 21 (relating to expenses for household dependent care services necessary for gainful employment),
(B) Section 22 (relating to the elderly and permanently and totally disabled),
(C) Section 23 (relating to residential energy),
(D) Section 24 (relating to contributions to candidates for public office),
(E) Section 25 (relating to interest on certain home mortgages), and
(F) Section 27 (relating to the taxes on foreign countries and possessions of the United States).
(iii) Taxable years beginning before January 1, 1984. The credit allowed by section 28 shall not exceed the amount of the tax imposed by chapter 1 of the Internal Revenue Code for the taxable year, reduced by the sum of the credits allowable under the following sections as designated prior to the enactment of the Tax Reform Act of 1984 (Pub. Law 98-369):
(A) Section 32 (relating to tax withheld at source on nonresident aliens and foreign corporations and on tax-free convenant bonds),
(B) Sections 33 (relating to taxes of foreign countries and possessions of the United States),
(C) Section 37 (relating to the retirement income),
(D) Section 38 (relating to investment in certain depreciable property),
(E) Section 40 (relating to expenses of work incentive programs).
(F) Section 41 (relating to contributions to candidates for public office).
(G) Section 44 (relating to purchase of new principal residence).
(H) Section 44A (relating to expenses for household and dependent care services necessary for gainful employment).
(I) Section 44B (relating to employment of certain new employees).
(J) Section 44C (relating to residential energy).
(K) Section 44D (relating to producing fuel from a nonconventional source).
(L) Section 44E (relating to alcohol used as fuel).
(M) Section 44F (relating to increasing research activities), and
(N) Section 44G (relating to employee stock ownership).
(3) Special limitations on foreign testing —(i) Clinical testing conducted outside of the United States—In general. Except as otherwise provided in this paragraph (d)(3), expenses paid or incurred with respect to clinical testing conducted outside the United States (as defined in section 7701(a)(9)) are not eligible for credit under this section. Thus, for example, wages paid an employee clinical investigator for clinical testing conducted in medical facilities in the United States and Mexico generally must be apportioned between the clinical testing conducted within the United States and the clinical testing conducted outside the United States, and only the wages apportioned to the clinical testing conducted within the United States are qualified clinical testing expenses.
(ii) Insufficient testing population in the United States —(A) In general. If clinical testing is conducted outside of the United States because there is an insufficient testing population in the United States, and if the clinical testing is conducted by a United States person (as defined in section 7701(a)(30)) or is conducted by any other person unrelated to the taxpayer to whom the designation under section 526 of the Federal Food, Drug, and Cosmetic Act applies, then the expenses paid or incurred for clinical testing conducted outside of the United States are eligible for the credit provided by section 28.
(B) “ Insufficient testing population. ” The testing population in the United States is insufficient if there are not within the United States the number of available and appropriate human subjects needed to produce reliable data from the clinical investigation.
(C) “ Unrelated to the taxpayer. ” For the purpose of determining whether a person is unrelated to the taxpayer to whom the designation under section 526 of the Federal Food, Drug, and Cosmetic Act and the regulations thereunder applies, the rules of section 613A(d)(3) shall apply except that the number “5” in section 613A(d)(3) (A), (B), and (C) shall be deleted and the number “10” inserted in lieu thereof.
(4) Special limitations for certain corporations —(i) Corporations to which section 936 applies. Expenses paid or incurred for clinical testing conducted either inside or outside the United States by a corporation to which section 936 (relating to Puerto Rico and possessions tax credit) applies are not eligible for the credit under section 28.
(ii) Corporations to which section 934(b) applies. For taxable years beginning before January 1, 1987, expenses paid or incurred for clinical testing conducted either inside or outside the United States by a corporation to which section 934(b) (relating to the limitation on reduction in income tax liability incurred to the Virgin Islands), as in effect prior to its amendment by the Tax Reform Act of 1986, applies are not eligible for the credit under section 28. For taxable years beginning after December 31, 1986, see section 1277(c)(1) of the Tax Reform Act of 1986 (100 Stat. 2600) which makes the rule set forth in the preceding sentence inapplicable with respect to corporations created or organized in the Virgin Islands only if (and so long as) an implementing agreement described in that section is in effect between the United States and the Virgin Islands.
(5) Aggregation of expenditures —(i) Controlled group of corporations; organizations under common control —(A) In general. In determining the amount of the credit allowable with respect to an organization that at the end of its taxable year is a member of a controlled group of corporations or a member of a group of organizations under common control, all members of the group are treated as a single taxpayer and the credit (if any) allowable to the member is determined on the basis of its proportionate share of the qualified clinical testing expenses of the aggregated group.
(B) Definition of controlled group of corporations. For purposes of this section, the term “controlled group of corporations” shall have the meaning given to the term by section 41(f)(5).
(C) Definition of organization. For purposes of this section, an organization is a sole proprietorship, a partnership, a trust, an estate, or a corporation, that is carrying on a trade or business (within the meaning of section 162). For purposes of this section, any corporation that is a member of a commonly controlled group shall be deemed to be carrying on a trade or business if any other member of that group is carrying on any trade or business.
(D) Determination of common control. Whether organizations are under common control shall be determined under the principles set forth in paragraphs (b) through (g) of 26 CFR 1.52-1.
(ii) Tax accounting periods used —(A) In general. The credit allowable to a member of a controlled group of corporations or a group of organizations under common control is that member's share of the aggregate credit computed as of the end of such member's taxable year.
(B) Special rule where the timing of clinical testing is manipulated. If the timing of clinical testing by members using different tax accounting periods is manipulated to generate a credit in excess of the amount that would be allowable if all members of the group used the same tax accounting period, the district director may require all members of the group to calculate the credit in the current taxable year and all future years by using the “conformed years” method. Each member computing a credit under the “conformed years” method shall compute the credit as if all members of the group had the same taxable year as the computing member.
(iii) Membership during taxable year in more than one group. An organization may be a member of only one group for a taxable year. If, without application of this paragraph (d)(5)(iii), an organization would be a member of more than one group at the end of its taxable year, the organization shall be treated as a member of the group in which it was included for its preceding taxable year. If the organization was not included for its preceding taxable year in any group in which it could be included as of the end of its taxable year, the organization shall designate in its timely filed return the group in which it is being included. If the return for a taxable year is due before May 1, 1985, the organization may designate its group membership through an amended return for that year filed on or before April 30, 1985. If the organization does not so designate, then the district director with audit jurisdiction of the return will determine the group in which the business is to be included.
(iv) Intra-group transactions —(A) In general. Because all members of a group under common control are treated as a single taxpayer for purposes of determining the credit, transactions between members of the group are generally disregarded.
(B) In-house research expenses. If one member of a group conducts clinical testing on behalf of another member, the member conducting the clinical testing shall include in its qualified clinical testing expenses any in-house research expenses for that work and shall not treat any amount received or accrued from the other member as funding the clinical testing. Conversely, the member for whom the clinical testing is conducted shall not treat any part of any amount paid or incurred as a contract research expense. For purposes of determining whether the in-house research for that work is clinical testing, the member performing the clinical testing shall be treated as carrying on any trade or business carried on by the member on whose behalf the clinical testing is performed.
(C) Contract research expenses. If a member of a group pays or incurs contract research expenses to a person outside the group in carrying on the member's trade or business, that member shall include those expenses as qualified clinical testing expenses. However, if the expenses are not paid or incurred in carrying on any trade or business of that member, those expenses may be taken into account as contract research expenses by another member of the group provided that the other member—
( 1 ) Reimburses the member paying or incurring the expenses, and
( 2 ) Carries on a trade or business to which the clinical testing relates.
(D) Lease payments. Amounts paid or incurred to another member of the group for the lease of personal property owned by a person outside the group shall be taken into account as in-house research expenses for purposes of section 28 only to the extent of the lesser of—
( 1 ) The amount paid or incurred to the other member, or
( 2 ) The amount of the lease expense paid to a person outside the group.
The amount paid or incurred to another member of the group for the lease of personal property owned by a member of the group is not taken into account for purposes of section 28.
(E) Payment for supplies. Amounts paid or incurred to another member of the group for supplies shall be taken into account as in-house research expenses for purposes of section 28 only to the extent of the lesser of—
( 1 ) The amount paid or incurred to the other member, or
( 2 ) The amount of the other member's basis in the supplies.
(6) Allocations —(i) Pass-through in the case of an S corporation. In the case of an S corporation (as defined in section 1361), the amount of the credit for qualified clinical testing expenses computed for the corporation for any taxable year shall be allocated among the persons who are shareholders of the corporation during the taxable year according to the provisions of section 1366 and section 1377.
(ii) Pass-through in the case of an estate or a trust. In the case of an estate or a trust, the amount of the credit for qualified clinical testing expenses computed for the estate or trust for any taxable year shall be apportioned between the estate or trust and the beneficiaries on the basis of the income of the estate or trust allocable to each.
(iii) Pass-through in the case of a partnership —(A) In general. In the case of a partnership, the credit for qualified clinical testing expenses computed for the partnership for any taxable year shall be apportioned among the persons who are partners during the taxable year in accordance with section 704 and the regulations thereunder.
(B) Certain partnership non-business expenditures. A partner's share of an in-house research expense or contract research expense paid or incurred by a partnership other than in carrying on a trade or business of the partnership constitutes a qualified clinical testing expense of the partner if—
( 1 ) The partner is entitled to make independent use of the result of the clinical testing, and
( 2 ) The clinical testing expense paid or incurred in carrying on the clinical testing would have been paid or incurred by the partner in carrying on a trade or business of the partner if the partner had carried on the clinical testing that was in fact carried on by the partnership.
(C) Apportionment. Qualified clinical testing expenses to which paragraph (d)(6)(iii)(B) of this section applies shall be apportioned among the persons who are partners during the taxable year in accordance with section 704 and the regulations thereunder. For purposes of section 28, these expenses shall be treated as paid or incurred directly by the partners rather than by the partnership. Thus, the partnership shall disregard these expenses in computing the credit to be apportioned under paragraph (d)(6)(iii)(A) of this section, and each partner shall aggregate the portion of these expenses allocated to the partner with other qualified clinical testing expenses of the partner in making the computations under section 28.
(iv) Year in which taken into account. An amount apportioned to a person under paragraph (d)(6) of this section shall be taken into account by the person in the taxable year of such person in which or with which the taxable year of the corporation, estate, trust, or partnership (as the case may be) ends.
(v) Credit allowed subject to limitation. Any person to whom any amount has been apportioned under paragraph (d)(6)(i), (ii), or (iii) of this section is allowed, subject to the limitation provided in section 28(d)(2), a credit for that amount.
(7) Manner of making an election. To make an election to have section 28 apply for its taxable year, the taxpayer shall file Form 6765 (Credit for Increasing Research Activities (or for claiming the orphan drugs credit)) containing all the information required by that form.
§ 1.30-1   Definition of qualified electric vehicle and recapture of credit for qualified electric vehicle.
(a) Definition of qualified electric vehicle. A qualified electric vehicle is a motor vehicle that meets the requirements of section 30(c). Accordingly, a qualified electric vehicle does not include any motor vehicle that has ever been used (for either personal or business use) as a non-electric vehicle.
(b) Recapture of credit for qualified electric vehicle —(1) In general —(i) Addition to tax. If a recapture event occurs with respect to a taxpayer's qualified electric vehicle, the taxpayer must add the recapture amount to the amount of tax due in the taxable year in which the recapture event occurs. The recapture amount is not treated as income tax imposed on the taxpayer by chapter 1 of the Internal Revenue Code for purposes of computing the alternative minimum tax or determining the amount of any other allowable credits for the taxable year in which the recapture event occurs.
(ii) Reduction of carryover. If a recapture event occurs with respect to a taxpayer's qualified electric vehicle, and if a portion of the section 30 credit for the cost of that vehicle was disallowed under section 30(b)(3)(B) and consequently added to the taxpayer's minimum tax credit pursuant to section 53(d)(1)(B)(iii), the taxpayer must reduce its minimum tax credit carryover by an amount equal to the portion of any minimum tax credit carryover attributable to the disallowed section 30 credit, multiplied by the recapture percentage for the taxable year of recapture. Similarly, the taxpayer must reduce any other credit carryover amounts (such as under section 469) by the portion of the carryover attributable to section 30, multiplied by the recapture percentage.
(2) Recapture event —(i) In general. A recapture event occurs if, within 3 full years from the date a qualified electric vehicle is placed in service, the vehicle ceases to be a qualified electric vehicle. A vehicle ceases to be a qualified electric vehicle if—
(A) The vehicle is modified so that it is no longer primarily powered by electricity;
(B) The vehicle is used in a manner described in section 50(b); or
(C) The taxpayer receiving the credit under section 30 sells or disposes of the vehicle and knows or has reason to know that the vehicle will be used in a manner described in paragraph (b)(2)(i)(A) or (B) of this section.
(ii) Exception for disposition. Except as provided in paragraph (b)(2)(i)(C) of this section, a sale or other disposition (including a disposition by reason of an accident or other casualty) of a qualified electric vehicle is not a recapture event.
(3) Recapture amount. The recapture amount is equal to the recapture percentage times the decrease in the credits allowed under section 30 for all prior taxable years that would have resulted solely from reducing to zero the cost taken into account under section 30 with respect to such vehicle, including any credits allowed attributable to section 30 (such as under sections 53 and 469).
(4) Recapture date. The recapture date is the actual date of the recapture event unless a recapture event described in paragraph (b)(2)(i)(B) of this section occurs, in which case the recapture date is the first day of the recapture year.
(5) Recapture percentage. For purposes of this section, the recapture percentage is—
(i) 100, if the recapture date is within the first full year after the date the vehicle is placed in service;
(ii) 66 2/3 , if the recapture date is within the second full year after the date the vehicle is placed in service; or
(iii) 33 1/3 , if the recapture date is within the third full year after the date the vehicle is placed in service.
(6) Basis adjustment. As of the first day of the taxable year in which the recapture event occurs, the basis of the qualified electric vehicle is increased by the recapture amount and the carryover reductions taken into account under paragraphs (b)(1)(i) and (ii) of this section, respectively. For a vehicle that is of a character that is subject to an allowance for depreciation, this increase in basis is recoverable over the remaining recovery period for the vehicle beginning as of the first day of the taxable year of recapture.
(7) Application of section 1245 for sales and other dispositions. For purposes of section 1245, the amount of the credit allowable under section 30(a) with respect to any qualified electric vehicle that is (or has been) of a character subject to an allowance for depreciation is treated as a deduction allowed for depreciation under section 167. Therefore, upon a sale or other disposition of a depreciable qualified electric vehicle, section 1245 will apply to any gain recognized to the extent the basis of the depreciable vehicle was reduced under section 30(d)(1) net of any basis increase described in paragraph (b)(6) of this section.
(8) Examples. The following examples illustrate the provisions of this section:
(c) Effective date. This section is effective on October 14, 1994. If the recapture date is before the effective date of this section, a taxpayer may use any reasonable method to recapture the benefit of any credit allowable under section 30(a) consistent with section 30 and its legislative history. For this purpose, the recapture date is defined in paragraph (b)(4) of this section.
§§ 1.30C-1--1.30C-2   [Reserved]
§ 1.30C-3   Rules relating to the increased credit amount for prevailing wage and apprenticeship.
(a) In general. If any qualified alternative fuel vehicle refueling project (as defined by section 30C(g)(1)(B)) placed in service during the taxable year satisfies the requirements in paragraph (b) of this section, the credit determined under section 30C(a) for any qualified alternative fuel vehicle refueling property of a character subject to an allowance for depreciation that is part of such project is multiplied by five.
(b) Qualified alternative fuel vehicle refueling project requirements. A qualified alternative fuel vehicle refueling project satisfies the requirements of this paragraph (b) if it is one of the following—
(1) A project the construction of which began prior to January 29, 2023; or
(2) A project that meets the prevailing wage requirements of section 45(b)(7) and § 1.45-7, the apprenticeship requirements of section 45(b)(8) and § 1.45-8, and the recordkeeping and reporting requirements of § 1.45-12, all with respect to the construction of any qualified alternative fuel refueling property within the meaning of section 30C before such project is placed in service.
(c) Applicability date. This section applies to qualified alternative fuel vehicle refueling projects placed in service in taxable years ending after June 25, 2024, and the construction of which begins after June 25, 2024. Taxpayers may apply this section to qualified alternative fuel vehicle refueling projects placed in service in taxable years ending on or before June 25, 2024, and qualified alternative fuel vehicle refueling projects placed in service in taxable years ending after June 25, 2024, the construction of which begins before June 25, 2024, provided that taxpayers follow this section in its entirety and in a consistent manner.
§ 1.30D-0   Table of contents.
This section lists the captions contained in §§ 1.30D-1 through 1.30D-6.
(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.
(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.
(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.
(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.
(i) Facts.
(ii) Analysis.
(g) Severability.
(h) Applicability date.
(1) In general.
(2) Upfront review and traced qualifying value.
(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.
(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.
(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.
(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.
§ 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 § 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 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.
§ 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 § 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 §§ 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 §§ 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 §§ 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 § 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 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 § 601.601 of this chapter).
(14) Credit transfer election. Credit transfer election means credit transfer election as defined in § 1.30D-5(b)(2).
(15) Dealer. Dealer means dealer as defined in § 1.30D-5(b)(3).
(16) Dealer tax compliance. Dealer tax compliance means dealer tax compliance as defined in § 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 § 1.30D-5(b)(5).
(19) Eligible entity. Eligible entity means eligible entity as defined in § 1.30D-5(b)(6).
(20) Excessive payment. Excessive payment means excessive payment as defined in § 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 § 1.30D-5(b)(7).
(27) Incremental value. Incremental value means incremental value as defined in § 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 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 § 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, § 1(1).
(35) North American battery component. North American battery component means North American battery component as defined in § 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 § 1.30D-3(c)(1)(i).
(39) Qualifying battery component content. Qualifying battery component content means qualifying battery component content as defined in § 1.30D-3(c)(2)(iii).
(40) Qualifying critical mineral. Qualifying critical mineral means qualifying critical mineral as defined in § 1.30D-3(c)(1)(ii).
(41) Qualifying critical mineral content. Qualifying critical mineral content means qualifying critical mineral content as defined in § 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 §§ 1.30D-3(d) and 1.30D-6(d), at the time and in the manner provided in the Internal Revenue Bulletin (see § 601.601 of this chapter). See § 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 §§ 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 §§ 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 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 §§ 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 § 1.30D-5(b)(8).
(45) Section 30D regulations. Section 30D regulations means § 1.30D-1, this section, and §§ 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 § 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 § 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 § 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 § 1.30D-3(c)(2)(v).
(50) Total traced qualifying value. Total traced qualifying value means total traced qualifying value as defined in § 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 § 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 § 1.30D-3(c)(1)(vi).
(53) Traced qualifying value. Traced qualifying value means traced qualifying value as defined in § 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 § 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.
§ 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 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 § 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 § 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 § 1.30D-2(b)(23)) within North America.
(iv) End point for determination. For a clean vehicle battery that contains a 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 § 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 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 § 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 § 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.
(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 § 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 § 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.
§ 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.
(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 § 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 § 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 § 601.601 of this chapter); and
(D) The taxpayer cannot make a credit transfer election under section 30D(g) and § 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 § 601.601 of this chapter); and
(D) A credit transfer election under 30D(g) and § 1.30D-5(d), if applicable, will be treated as nullified and any advance payment made pursuant to section 30D(g) and § 1.30D-5(f), if applicable, will be collected from the eligible entity as an excessive payment pursuant to § 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 § 1.30D-5(d), if applicable, will remain in effect and any advance payment made pursuant to section 30D(g) and § 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 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 § 1.30D-5(g)(1). For excessive payment rules that apply in the case of an advance payment made to an eligible entity, see § 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 § 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 § 601.601 of this chapter) for purposes of filing seller reports (as defined in § 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 § 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 § 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 § 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.