[Federal Register Volume 88, Number 231 (Monday, December 4, 2023)]
[Proposed Rules]
[Pages 84098-84116]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-26513]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-118492-23]
RIN 1545-BQ99


Section 30D Excluded Entities

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document contains proposed regulations that would provide 
guidance regarding the excluded entity provisions with respect to the 
clean vehicle credit as amended by the Inflation Reduction Act of 2022. 
The proposed regulations would also provide clarity on definitions with 
respect to new clean vehicles eligible for the clean vehicle credit. 
The proposed regulations would affect qualified manufacturers of new 
clean vehicles and taxpayers who purchase and place in service new 
clean vehicles.

DATES: Written or electronic comments and requests for a public hearing 
must be received by January 18, 2024. Requests for a public hearing 
must be submitted as prescribed in the ``Comments and Requests for a 
Public Hearing'' section.

ADDRESSES: Commenters are strongly encouraged to submit public comments 
electronically via the Federal eRulemaking Portal at https://www.regulations.gov (indicate IRS and REG-118492-23) by following the 
online instructions for submitting comments. Requests for a public 
hearing must be submitted as prescribed in the ``Comments and Requests 
for a Public Hearing'' section. Once submitted to the Federal 
eRulemaking Portal, comments cannot be edited or withdrawn. The

[[Page 84099]]

Department of the Treasury (Treasury Department) and the IRS will 
publish for public availability any comments submitted to the IRS's 
public docket. Send paper submissions to: CC:PA:01:PR (REG-118492-23), 
Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin 
Station, Washington, DC 20044.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
the Office of Associate Chief Counsel (Passthroughs & Special 
Industries) at (202) 317-6853 (not a toll-free number); concerning 
submissions of comments and requests for a public hearing, call Vivian 
Hayes (202) 317-6901 (not a toll-free number) or send an email to 
<a href="/cdn-cgi/l/email-protection#601015020c090308050112090e0713200912134e070f16"><span class="__cf_email__" data-cfemail="e29297808e8b818a8783908b8c8591a28b9091cc858d94">[email protected]</span></a> (preferred).

SUPPLEMENTARY INFORMATION: 

Background

I. Overview

    Public Law 117-169, 136 Stat. 1818 (August 16, 2022), commonly 
known as the Inflation Reduction Act of 2022 (IRA), amended section 30D 
of the Internal Revenue Code (Code). Section 30D provides a credit 
(section 30D credit) against the tax imposed by chapter 1 of the Code 
(chapter 1) with respect to each new clean vehicle that a taxpayer 
purchases and places in service. The section 30D credit is determined 
and allowable with respect to the taxable year in which the taxpayer 
places the new clean vehicle in service.
    This document contains proposed amendments to the Income Tax 
Regulations (26 CFR part 1) under section 30D. These proposed 
regulations supplement a notice of proposed rulemaking (REG-120080-22) 
published in the Federal Register (88 FR 23370) on April 17, 2023 
(April 2023 proposed regulations) that contains initial proposed 
regulations under section 30D as amended by the IRA, as well as a 
notice of proposed rulemaking (REG-113064-23) published in the Federal 
Register (88 FR 70310) on October 10, 2023 (October 2023 proposed 
regulations) that contains initial and additional proposed regulations 
under sections 25E, 30D, and 6213 of the Code. This notice of proposed 
rulemaking does not address written comments that were submitted in 
response to the April 2023 proposed regulations or the October 2023 
proposed regulations. Any comments received in response to this notice 
of proposed rulemaking will be addressed in the Treasury Decision 
adopting these regulations as final regulations.

II. Section 30D

    Section 30D was enacted by section 205(a) of the Energy Improvement 
and Extension Act of 2008, Division B of Public Law 110-343, 122 Stat. 
3765, 3835 (October 3, 2008), to provide a credit for purchasing and 
placing in service new qualified plug-in electric drive motor vehicles. 
Section 30D has been amended several times since its enactment, most 
recently by section 13401 of the IRA. In general, the amendments made 
by section 13401 of the IRA to section 30D apply to vehicles placed in 
service after December 31, 2022, except as provided in section 
13401(k)(2) through (5) of the IRA.
    Effective beginning on April 18, 2023, section 30D(b) provides a 
maximum credit of $7,500 per new clean vehicle, consisting of $3,750 if 
certain critical minerals requirements are met and $3,750 if certain 
battery components requirements are met. These requirements are 
described in section 30D(e)(1) and (2), respectively, and the preamble 
to the April 2023 proposed regulations.
    The amount of the section 30D credit is treated as a personal 
credit or a general business credit depending on the character of the 
vehicle. In general, under section 30D(c)(2), the section 30D credit is 
treated as a nonrefundable personal credit allowable under subpart A of 
part IV of subchapter A of chapter 1. However, under section 30D(c)(1), 
so much of the credit that would be allowed under section 30D(a) that 
is attributable to property that is of a character subject to an 
allowance for depreciation is treated as a current year general 
business credit under section 38(b) and not allowed under section 
30D(a). Section 38(b)(30) lists as a current year business credit the 
portion of the section 30D credit to which section 30D(c)(1) applies. 
The IRA did not amend section 30D(c)(1) or (2).
    The IRA amended section 30D(d) regarding the definition of a new 
clean vehicle. Section 30D(d)(1) defines ``new clean vehicle'' as a 
motor vehicle that satisfies the following eight requirements set forth 
in section 30D(d)(1)(A) through (H) of the Code:
    <bullet> the original use of the motor vehicle must commence with 
the taxpayer;
    <bullet> the motor vehicle must be acquired for use or lease by the 
taxpayer and not for resale;
    <bullet> the motor vehicle must be made by a qualified 
manufacturer;
    <bullet> the motor vehicle must be treated as a motor vehicle for 
purposes of title II of the Clean Air Act;
    <bullet> the motor vehicle must have a gross vehicle weight rating 
of less than 14,000 pounds;
    <bullet> the motor vehicle must be propelled to a significant 
extent by an electric motor which draws electricity from a battery that 
has a capacity of not less than 7 kilowatt hours, and is capable of 
being recharged from an external source of electricity;
    <bullet> the final assembly of the motor vehicle must occur within 
North America; and
    <bullet> the person who sells any vehicle to the taxpayer must 
furnish a report to the taxpayer and to the Secretary of the Treasury 
or her delegate (Secretary) containing certain specifically enumerated 
items.
    Section 30D(d)(3) defines ``qualified manufacturer'' as 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.)) that enters into a written agreement with the Secretary under 
which such manufacturer agrees to make periodic written reports to the 
Secretary (at such times and in such manner as the Secretary may 
provide) providing vehicle identification numbers and such other 
information related to each vehicle manufactured by such manufacturer 
as the Secretary may require.
    Section 30D(d)(7) excludes from the definition of ``new clean 
vehicle'' any vehicle placed in service after December 31, 2024, with 
respect to which any of the applicable critical minerals contained in 
the battery of such vehicle were extracted, processed, or recycled by a 
foreign entity of concern (as defined in section 40207(a)(5) of the 
Infrastructure Investment and Jobs Act (42 U.S.C. 18741(a)(5))), or any 
vehicle placed in service after December 31, 2023, with respect to 
which any of the components contained in the battery of such vehicle 
were manufactured or assembled by a foreign entity of concern (as so 
defined).
    No section 30D credit is allowed with respect to a vehicle placed 
in service after December 31, 2032.

III. Prior Guidance

A. Notice 2022-46

    On October 5, 2022, the Treasury Department and the IRS published 
Notice 2022-46, 2022-43 I.R.B. 302. The notice requested general 
comments on issues arising under sections 25E and 30D, as well as 
specific comments concerning: (1) definitions; (2) critical minerals 
and battery components; (3) foreign entities of concern; (4) 
recordkeeping and reporting; (5) eligible entities; (6) elections to 
transfer and

[[Page 84100]]

advance payments; and (7) recapture. The Treasury Department and the 
IRS received 884 comments from industry participants, environmental 
groups, individual consumers, and other stakeholders. The Treasury 
Department and the IRS appreciate the commenters' interest and 
engagement on these issues. These comments have been carefully 
considered in the preparation of the proposed regulations.

B. Revenue Procedure 2022-42

    On December 12, 2022, the Treasury Department and the IRS published 
Revenue Procedure 2022-42, 2022-52 I.R.B. 565, providing guidance for 
qualified manufacturers to enter into written agreements with the IRS, 
as required in sections 30D, 25E, and 45W, and to report certain 
information regarding vehicles produced by such manufacturers that may 
be eligible for credits under these sections. In addition, Revenue 
Procedure 2022-42 provides the procedures for sellers of new clean 
vehicles or previously-owned clean vehicles to report certain 
information to the IRS and the purchasers of such clean vehicles.

C. April 2023 Proposed Regulations

    On April 17, 2023, the Treasury Department and the IRS published 
the April 2023 proposed regulations in the Federal Register, which 
provides proposed definitions for certain terms related to section 30D; 
proposed rules regarding personal and business use and other special 
rules; and additional proposed rules related to the critical mineral 
and battery component requirements.

D. Revenue Procedure 2023-33

    On October 6, 2023, the Treasury Department and the IRS released 
Revenue Procedure 2023-33, which was published on October 23, 2023, in 
Internal Revenue Bulletin 2023-43, to provide guidance for taxpayers 
electing to transfer credits under section 25E or 30D and for eligible 
entities receiving advance payments of credits under sections 30D and 
25E. This revenue procedure sets forth the procedures under sections 
30D(g) and 25E(f) for the transfer of the previously-owned clean 
vehicle credit and the new clean vehicle credit from the taxpayer to an 
eligible entity, including the procedures for dealer registration with 
the IRS, the procedures for the revocation and suspension of that 
registration, and the establishment of an advance payment program to 
eligible entities. In addition, this revenue procedure superseded 
sections 5.01 and 6.03 of Revenue Procedure 2022-42, providing new 
information for the time and manner of submission of seller reports, 
respectively. This revenue procedure also superseded sections 6.01 and 
6.02 of Revenue Procedure 2022-42, providing updated information on 
submission of written agreements by manufacturers to the IRS to be 
considered qualified manufacturers, as well as the method of submission 
of monthly reports by qualified manufacturers.

E. October 2023 Proposed Regulations

    On October 10, 2023, the Treasury Department and the IRS published 
the October 2023 proposed regulations in the Federal Register, which 
provide guidance for elections to transfer clean vehicle credits under 
sections 30D(g) and 25E(f). The proposed regulations provide guidance 
for taxpayers intending to transfer the previously-owned clean vehicle 
credit and the new clean vehicle credit to dealers who are entities 
eligible to receive advance payments of either credit. The proposed 
regulations also provide guidance for dealers to become eligible 
entities to receive advance payments of previously-owned clean vehicle 
credits or clean vehicle credits. The proposed regulations also provide 
guidance for recapturing the credit under sections 30D and 25E. 
Finally, proposed Sec.  1.6213-2 defines the term ``omission of a 
correct vehicle identification number'' (VIN) for purposes of section 
6213, under which, in part, the IRS is authorized to make a summary 
assessment when there has been an omission of a correct VIN on a 
taxpayer's return when claiming or electing to transfer a credit under 
section 25E or 30D.

IV. Department of Energy Guidance

    Concurrently with the release of these proposed regulations, the 
Department of Energy (DOE) is releasing proposed guidance in the 
Federal Register, which provides proposed interpretations of certain 
terms used in the definition of ``foreign entity of concern'' (FEOC) 
set forth in section 40207(a)(5) of the Infrastructure Investment and 
Jobs Act (IIJA), 42 U.S.C. 18741(a)(5), and as cross-referenced in 
section 30D(d)(7). Section 40207(a)(5) of the IIJA defines FEOC to 
include foreign entities covered by specific designations, inclusions, 
and allegations by Federal agencies as described in section 
40207(a)(5)(A), (B), and (D), as well as foreign entities ``owned by, 
controlled by, or subject to the jurisdiction or direction of a 
government'' of a covered nation under section 40207(a)(5)(C). Covered 
nations are defined in 10 U.S.C. 4872(d)(2) as the People's Republic of 
China, the Russian Federation, the Democratic People's Republic of 
Korea, and the Islamic Republic of Iran as of the date of publication 
of these proposed regulations. Finally, section 40207(a)(5)(E) of the 
IIJA provides that a FEOC includes a foreign entity that the Secretary 
of Energy, in consultation with the Secretary of Defense and the 
Director of National Intelligence, determines is engaged in 
unauthorized conduct that is detrimental to the national security or 
foreign policy of the United States.
    The DOE proposed guidance provides an interpretation of section 
40207(a)(5)(C) of the IIJA. In particular, the DOE proposed guidance 
provides definitions for the terms ``government of a foreign country,'' 
``foreign entity,'' ``subject to the jurisdiction,'' and ``owned by, 
controlled by, or subject to the direction of.''. In general, an entity 
incorporated in, headquartered in, or performing the relevant 
activities in a covered nation would be classified as a FEOC. For 
purposes of these rules, an entity would be ``owned by, controlled by, 
or subject to the direction'' of another entity if 25 percent or more 
of the entity's board seats, voting rights, or equity interest are 
cumulatively held by such other entity. In addition, licensing 
agreements or other contractual agreements may also create control. 
Finally, ``government of a foreign country'' would be defined to 
include subnational governments and certain current or former senior 
foreign political figures.

Explanation of Provisions

I. Section 1.30D-2 Definitions

    Proposed Sec.  1.30D-2(a) is revised to clarify that all 
definitions in the section apply for purposes of section 30D and the 
section 30D regulations, including any guidance thereunder. Proposed 
Sec.  1.30D-2(f) is revised to include in the definition of ``section 
30D regulations'' the provisions of proposed Sec.  1.30D-5 as set forth 
in the October 2023 proposed regulations and proposed Sec.  1.30D-6 as 
set forth in these proposed regulations. Proposed Sec.  1.30D-2(k) 
would provide, consistent with section 30D(d)(3), that ``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). If multiple 
manufacturers are involved in the production of a vehicle, the 
requirements provided in section

[[Page 84101]]

30D(d)(3) must be met by the manufacturer who satisfies the reporting 
requirements of the greenhouse gas emissions standards set by EPA under 
the Clean Air Act (42 U.S.C. 7521 et seq.) for the subject vehicle.
    Proposed Sec.  1.30D-2(l) would provide that a qualified 
manufacturer means a manufacturer that meets the requirements described 
in section 30D(d)(3). A qualified manufacturer would 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 and the regulations and guidance 
thereunder, including with respect to the periodic written reports 
described in section 30D(d)(3) and proposed Sec.  1.30D-2(m) and any 
attestations, documentation, or certifications described in proposed 
Sec.  1.30D-3(e) and proposed Sec.  1.30D-6(d), at the time and in the 
manner provided in the Internal Revenue Bulletin.
    Proposed Sec.  1.30D-2(m) would provide that a ``new clean 
vehicle'' means a vehicle that meets the requirements described in 
section 30D(d). A new clean vehicle would not include any vehicle for 
which the qualified manufacturer does any of the following: (1) fails 
to provide a periodic written report for such vehicle prior to the 
vehicle being placed in service, reporting the VIN of such vehicle and 
certifying compliance with the requirements of section 30D(d); (2) 
provides incorrect information with respect to the periodic written 
report for such vehicle; (3) fails to update its periodic written 
report in the event of a material change with respect to such vehicle; 
or, (4) for new clean vehicles placed in service after December 31, 
2024, the qualified manufacturer fails to meet the requirements of 
proposed Sec.  1.30D-6(d). For purposes of section 30D(d)(6), the term 
``new clean vehicle'' includes any new qualified fuel cell motor 
vehicle (as defined in section 30B(b)(3)) which meets the requirements 
under section 30D(d)(1)(G) and (H). The Treasury Department and the IRS 
request comment on whether, in the interest of sound tax administration 
and to provide additional transparency to taxpayers, it would be 
feasible and helpful for tax administration if qualified manufacturers 
were to encode eligibility for section 30D through a particular 
calendar year into the VIN using an alphanumeric combination.

II. Section 1.30D-3 Provisions

    Proposed Sec.  1.30D-3(d) would provide rules regarding excluded 
entities by reference to proposed Sec.  1.30D-6.
    Proposed Sec.  1.30D-3(e) would provide for an upfront review of 
conformance with the critical minerals requirement and battery 
components requirement. Specifically, proposed Sec.  1.30D-3(e) would 
provide that for new clean vehicles 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. The IRS, with analytical assistance 
from the DOE, will review the attestations, certifications, and 
documentations.

III. Excluded Entities

A. Definitions

    The proposed regulations would provide definitions for terms 
relevant to the excluded entity provision. To the extent many of these 
terms were defined in the April 2023 proposed regulations, these 
proposed regulations would provide the same definitions for such terms 
as is provided in proposed Sec.  1.30D-3(c). The Treasury Department 
and the IRS intend that terms relevant to both the critical mineral and 
battery component requirements described in proposed Sec.  1.30D-3 and 
the excluded entity restrictions described in these proposed 
regulations are interpreted consistently.
1. Applicable Critical Mineral
    Proposed Sec.  1.30D-6(a)(1) would define ``applicable critical 
mineral'' as an applicable critical mineral as defined in section 
45X(c)(6). Guidance regarding the definition of applicable critical 
minerals, including the applicable critical minerals that are used in 
electric vehicle batteries to facilitate the electrochemical processes 
necessary for energy storage, would be provided in forthcoming proposed 
regulations under section 45X.
2. Assembly
    Proposed Sec.  1.30D-6(a)(2) would define ``assembly'' as, with 
respect to battery components, the process of combining battery 
components into battery cells and battery modules.
3. Battery
    Proposed Sec.  1.30D-6(a)(3) would define ``battery'' as, for 
purposes of a new clean vehicle, 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.
4. Battery Cell
    Proposed Sec.  1.30D-6(a)(4) would define ``battery cell'' as 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.
5. Battery Cell Production Facility
    Proposed Sec.  1.30D-6(a)(5) would define ``battery cell production 
facility'' as a facility in which battery cells are manufactured or 
assembled.
6. Battery Component
    Proposed Sec.  1.30D-6(a)(6) would define ``battery component'' as 
a component that forms part of a battery and that is manufactured or 
assembled from one or more components or constituent materials that are 
combined through industrial, chemical, and physical assembly steps. 
Proposed Sec.  1.30D-6(a)(6) would specify that battery components may 
include, but are not limited to, a cathode electrode, anode electrode, 
solid metal electrode, separator, liquid electrolyte, solid state 
electrolyte, battery cell, and battery module. Constituent materials 
are not a type of battery component, although constituent materials may 
be manufactured or assembled into battery components. Some battery 
components may be made entirely of inputs that do not contain 
constituent materials.
7. Compliant-Battery Ledger
    Proposed Sec.  1.30D-6(a)(7) would define ``compliant-battery 
ledger,'' for a qualified manufacturer for a calendar year, as a ledger 
that tracks the number of available FEOC-compliant batteries for such 
calendar year. A compliant-battery ledger is established under the 
rules of proposed Sec.  1.30D-6(d), described in part III.D. of this 
Explanation of Provisions.
8. Constituent Materials
    Proposed Sec.  1.30D-6(a)(8) would define ``constituent materials'' 
as materials that contain applicable critical minerals and that are 
employed directly in the manufacturing of battery components. Proposed 
Sec.  1.30D-6(a)(8) would specify that constituent materials may 
include, but are not limited to,

[[Page 84102]]

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.
9. Extraction
    Proposed Sec.  1.30D-6(a)(9) would define ``extraction'' to mean 
the activities performed to harvest minerals or natural resources from 
the ground or a body of water. Extraction would include, but would not 
be limited to, operating equipment to harvest minerals or natural 
resources from mines and wells, or to extract minerals or natural 
resources from the waste or residue of prior extraction. Extraction 
would conclude 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 would include the physical processes involved in 
refining. Extraction would not include the chemical and thermal 
processes involved in refining.
10. Foreign Entity of Concern
    Proposed Sec.  1.30D-6(a)(10) would define ``foreign entity of 
concern (FEOC)'' to have the same meaning as defined 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 DOE.
11. FEOC-Compliant
    Proposed Sec.  1.30D-6(a)(11) would define ``FEOC-compliant'' to 
mean in compliance with the applicable excluded entity requirement 
under section 30D(d)(7). In particular, the proposed regulation would 
provide definitions of FEOC-compliant with respect to a battery 
component (other than a battery cell), applicable critical mineral, 
battery cell, or battery. This definition would treat battery cells 
separately from other battery components because battery cells contain 
applicable critical minerals (and associated constituent materials) as 
well as other battery components. Thus, the applicable rules under 
section 30D(d)(7) must be satisfied for such critical minerals and such 
components contained in the battery cell as well as the battery cell 
itself. 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. 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. As described in part 
III.C.4. of this Explanation of Provisions, in general, the 
determination of whether an applicable critical mineral is FEOC-
compliant would 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). 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. 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 applicable critical minerals. A 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.
12. Manufacturing
    Proposed Sec.  1.30D-6(a)(12) would define ``manufacturing'' to 
mean, with respect to a battery component, the industrial and chemical 
steps taken to produce a battery component.
13. Non-Traceable Battery Materials
    Proposed Sec.  1.30D-6(a)(13)(i) would define ``non-traceable 
battery materials'' to mean specifically identified low-value battery 
materials that may originate from multiple sources and are often 
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. Proposed Sec.  1.30D-6(a)(13)(ii), 
which is reserved, would contain the specific list of identified non-
traceable battery materials. Low-value battery materials are those 
that, like the exemplar materials listed below, have low value compared 
to the total value of the battery. Where battery materials make up only 
a very small percentage of the value of the battery as a whole, many 
industry participants, prior to the passage of the IRA, had little 
reason to trace the source of these materials. As a result, unlike with 
higher value battery materials, tracing the source of these low value 
materials is not immediately feasible, which makes it in turn not 
feasible for qualified manufacturers to provide the necessary assurance 
to the IRS that their materials are FEOC-compliant.
    The Treasury Department and the IRS, after extensive consultation 
with the Department of Energy, are considering whether the following 
applicable critical minerals (and associated constituent materials) may 
be designated as identified non-traceable battery materials: applicable 
critical minerals contained in electrolyte salts, electrode binders, 
and electrolyte additives. These exemplar materials each account for 
less than two percent of the value of applicable critical minerals in 
the battery, and the Treasury Department and the IRS understand that 
industry tracing of these particular applicable critical mineral 
production processes is uncommon and third-party standards for doing so 
are underdeveloped. Other materials for inclusion could include, for 
example, other low-value electrode active materials that are also 
subject to the traceability difficulties described in part III.A.13. of 
this Explanation of Provisions. As discussed further below, the 
Treasury Department and the IRS request comment on: (1) whether other 
applicable critical minerals (and associated constituent materials) 
should be designated as identified non-traceable battery materials for 
the same reasons, and (2) whether an approach other than the proposed 
list of non-traceable battery materials would better address the 
traceability issues discussed here. As discussed in part III.B.2. of 
this Explanation of Provisions, some stakeholders have suggested that 
the Treasury Department and the IRS adopt a de minimis exception to the 
excluded entity restrictions based on value, weight, mass, or other 
considerations. In response to these comments, the Treasury Department 
and the IRS have proposed a transition rule that would temporarily 
exclude a specific list of identified non-traceable battery materials 
from the due diligence requirements of the qualified manufacturers.
    The Treasury Department and the IRS request comments on the best 
approach to addressing low-value battery materials for which tracing to 
their source is not immediately feasible. The Treasury Department and 
the IRS request comment on whether the proposed approach is a sound 
method of accounting for non-traceable battery materials, and whether 
other criteria should be used to distinguish between traceable and non-
traceable battery materials. In particular, the Treasury Department and 
the IRS request

[[Page 84103]]

comments that explain whether and why certain battery materials are 
prohibitively difficult to trace at this time given current supply 
chains and current broadly available tools and practices for supply-
chain tracing in the battery sector, and that explain how the supply 
chain may be limited by any such difficulty. The Treasury Department 
and the IRS also request comments explaining how the state of supply 
chains and tools and practices for supply-chain tracing are expected to 
evolve in the coming months and years for battery materials that are 
prohibitively difficult to trace at present. The Treasury Department 
and the IRS further request comments explaining the state of 
recordkeeping that is currently used in the industry to trace supply 
chains, what kind of recordkeeping requirements would facilitate better 
tracing of supply chains in the coming months and years, how to 
encourage manufacturers to adopt appropriate tracing systems as soon as 
practicable, and how these rules incentivize further shifting of supply 
chains in a manner that will strengthen our energy security, national 
security, and domestic manufacturing.
    In addition, the Treasury Department and the IRS request comment on 
whether the listed materials are appropriately characterized as non-
traceable battery materials. The Treasury Department and the IRS 
further request comment on whether any other applicable critical 
minerals, including associated constituent materials, would also be 
appropriately characterized as non-traceable battery materials because 
they meet the required criteria. The Treasury Department and the IRS 
further request comment on whether other criteria should be applied to 
determine what qualifies as non-traceable battery materials, and what 
applicable critical minerals, including associated constituent 
materials, would be appropriately characterized as such materials under 
the suggested criteria. Finally, the Treasury Department and the IRS 
seek comment describing alternative approaches to addressing the 
challenges posed by low-value battery materials that are not currently 
feasible to trace to their origins.
14. Processing
    Proposed Sec.  1.30D-6(a)(14) would define ``processing'' to mean 
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.
15. Recycling
    Proposed Sec.  1.30D-6(a)(15) would define ``recycling'' to mean 
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 battery from which the electric motor of a new clean 
vehicle draws electricity.

B. Due Diligence and Transition Rule for Non-Traceable Battery 
Materials

1. Due Diligence
    Proposed Sec.  1.30D-6(b)(1) would provide that the qualified 
manufacturer must conduct due diligence with respect to all battery 
components and applicable critical minerals (and associated constituent 
materials) that are relevant to determining whether such components or 
minerals are FEOC-compliant. This due diligence must comply with 
standards of tracing for battery materials available in the industry at 
the time of the attestation or certification that enable the qualified 
manufacturer to know with reasonable certainty the provenance of 
applicable critical minerals, constituent materials, and battery 
components. Such tracing standards may include international battery 
passport certifications and enhanced battery material and component 
tracking and labeling. Proposed Sec.  1.30D-6(b)(1) would specify that 
reasonable reliance on a supplier attestation or certification will be 
considered due diligence if the qualified manufacturer does not know or 
have reason to know after due diligence that such supplier attestation 
or certification is incorrect.
    The due diligence must be conducted by the qualified manufacturer 
prior to its determination of any information to establish a compliant-
battery ledger described in proposed Sec.  1.30D-6(d), and on an on-
going basis. A battery is not considered FEOC-compliant unless the 
qualified manufacturer has conducted such due diligence with respect to 
all such components and applicable critical minerals of the battery and 
provided required attestations or certifications described in part 
III.D. of this Explanation of Provisions.
2. Transition Rule For Non-Traceable Battery Materials
    Proposed Sec.  1.30D-6(b)(2) would provide that for any new clean 
vehicles for which the qualified manufacturer provides a periodic 
written report before January 1, 2027, the due diligence requirement 
may be satisfied by excluding identified non-traceable battery 
materials (and associated constituent materials), as defined in 
proposed Sec.  1.30D-6(a)(13)(ii). In addition, as described in part 
III.C.3. of this Explanation of Provisions, identified non-traceable 
battery materials (and associated constituent materials) may be 
excluded from the determination of whether a battery cell is FEOC-
compliant. To use this transition rule, qualified manufacturers must 
submit a report during the up-front review process described in part 
III.D. of this Explanation of Provisions demonstrating how the 
qualified manufacturer will comply with the excluded entity 
restrictions once the transition rule is no longer in effect and all 
materials must be fully traced through the entire electric vehicle 
battery supply chain.
    As described in part III.A.13. of this Explanation of Provisions, 
the Treasury Department and the IRS understand, after extensive 
consultation with the Department of Energy, that industry has not 
developed standards or systems for tracing certain low-value materials 
with precision. This inability to trace is exacerbated by the practice 
of commingling such materials within the materials processing supply 
chain. To address this issue, some stakeholders have suggested that the 
Treasury Department and the IRS adopt a de minimis exception to the 
excluded entity restrictions based on value, weight, mass, or other 
considerations. The Treasury Department and the IRS understand the 
tracing concerns in light of current standards and systems. However, 
these standards and systems may develop to allow for improved tracing 
in the future.
    The Treasury Department and the IRS therefore recognize the 
potential need for a transition rule to enable determination of FEOC 
compliance while detailed tracing practices are being developed to 
allow for full sourcing and tracing of applicable critical mineral 
supply chains. The transition rule in proposed Sec.  1.30D-6(b)(2) and 
(c)(3)(iii) is one option that the Treasury Department and the IRS are 
considering for such a rule. The Treasury Department and the IRS also 
are considering and seeking comment on possible alternative approaches 
for a

[[Page 84104]]

transition rule that would address low-value materials that cannot be 
traced under current industry standards and that would be responsive to 
rapidly changing industry practices regarding specific materials or 
overall battery composition, or no transition rule at all.
    This transition rule in proposed Sec.  1.30D-6(b)(2) is proposed to 
phase out for any new clean vehicles for which the manufacturer is 
required to provide a periodic written report after December 31, 2026. 
The Treasury Department and the IRS request comments on the need for 
and design of this transition rule, including data or other objective 
information to support such comments.
    The Treasury Department and IRS also request comment on whether the 
challenges identified in this Explanation of Provisions related to 
traceability of low-value materials should instead be addressed through 
an alternative approach. The Treasury Department and the IRS request 
comment on whether a transition rule that adopts an alternative to the 
approach of listing materials would better achieve the Treasury 
Department's and IRS's stated goals and the challenges posed by low-
value materials that are not currently feasible to trace. The Treasury 
Department and the IRS specifically request comment describing 
alternative approaches to providing a transition rule that accounts for 
low-value materials that cannot be traced under current industry 
standards and that is responsive to rapidly changing industry practice, 
if commenters believe a different approach could better achieve the 
Treasury Department's and IRS's stated goals. Such alternative 
approaches, which might include ones that use principle-based criteria 
instead of the listing of specific non-traceable battery materials in a 
final regulation, should be narrowly tailored to address the 
traceability challenges identified, enable effective administration by 
the IRS, and phase-out on a schedule consistent with the reasonable 
development of industry standards.

C. Excluded Entity Restriction

1. In General
    Proposed Sec.  1.30D-6(c)(1) would provide that in the case of any 
new clean vehicle placed in service after December 31, 2023, the 
batteries from which the electric motor of such vehicle draws 
electricity must be FEOC-compliant. A serial number or other 
identification system must be used to physically track FEOC-compliant 
batteries to specific new clean vehicles.
    The proposed regulation would provide that the determination that a 
battery is FEOC-compliant is made as follows: First, the qualified 
manufacturer makes a determination of whether battery components and 
applicable critical minerals (and associated constituent materials) are 
FEOC-compliant, in accordance with rules for the determination of FEOC-
compliant battery components and applicable critical minerals, which 
are described in part III.C.4. of this Explanation of Provisions. Next, 
the FEOC-compliant battery components and FEOC-compliant applicable 
critical minerals (and associated constituent materials) are physically 
tracked to specific battery cells, in accordance with rules for the 
determination of FEOC compliant-battery cells, described in part 
III.C.3. of this Explanation of Provisions. Alternatively, FEOC-
compliant applicable critical minerals and associated constituent 
materials (but not battery components) may be allocated to battery 
cells, without physical tracking, in accordance the rules for a 
temporary allocation-based determination for applicable critical 
minerals and associated constituent materials, described in part 
III.C.3.a of this Explanation of Provisions. Finally, the battery 
components, including battery cells, are physically tracked to specific 
batteries, in accordance with the rules for the determination of FEOC-
compliant batteries described in part II.C.2 of this Explanation of 
Provisions.
2. Determination of FEOC-Compliant Batteries
    Proposed Sec.  1.30D-6(c)(2) would provide that the determination 
that a battery is FEOC-compliant must be made by physically tracking 
FEOC-compliant battery components, including battery cells, to such 
battery. With respect to battery cells, a serial number or other 
identification system must be used to physically track FEOC-compliant 
battery cells to such batteries.
3. Determination of FEOC-Compliant Battery Cell
    Proposed Sec.  1.30D-6(c)(3)(i) would provide that, except as 
described in part III.C.3.a. of this Explanation of Provisions, the 
determination that a battery cell contains FEOC-compliant battery 
components and FEOC-compliant applicable critical minerals and their 
associated constituent materials must be made by physically tracking 
FEOC-compliant battery components to specific battery cells and by 
physically tracking the mass of FEOC-compliant applicable critical 
minerals and associated constituent materials to specific battery 
cells.
a. Temporary Allocation-Based Determination for Applicable Critical 
Materials and Associated Constituent Materials of a Battery Cell
    Proposed Sec.  1.30D-6(c)(3)(ii)(A) would provide that the 
determination that a battery cell is a FEOC-compliant battery cell may 
be made through an allocation of available mass of applicable critical 
minerals and associated constituent materials to specific battery cells 
manufactured or assembled in a battery cell production facility, 
without the physical tracking of the mass of applicable critical 
minerals (and associated constituent materials) to specific battery 
cells. This allocation-based determination is an exception to the 
general rule, requiring specific tracking, of proposed Sec.  1.30D-
6(c)(3)(ii)(A). As provided in proposed Sec.  1.30D-6(c)(3)(ii)(F), the 
Treasury Department and the IRS propose that this exception would be a 
temporary rule for any new clean vehicle for which the qualified 
manufacturer provides a periodic written report before January 1, 2027.
    After extensive consultation with the DOE, the Treasury Department 
and the IRS understand that certain applicable critical minerals (and 
associated constituent materials) are commingled prior to delivery to 
or at the battery cell production facility. Thus, while the qualified 
manufacturer and its suppliers can trace such minerals through the 
entire electric vehicle battery supply chain to determine FEOC-
compliance, the manufacturer and suppliers cannot physically track 
specific mass of minerals to specific battery cells or batteries. As a 
result, the qualified manufacturer cannot determine which battery cells 
or batteries are FEOC-compliant, absent an allocation-based 
determination.
    The Treasury Department and the IRS anticipate that industry 
accounting practices may adapt to compliance regimes that require 
physical supply chain tracking in the future, whether through the 
acquisition of wholly-compliant supply, the separation of currently-
commingled supply chains, the development of physical tracking systems, 
or some combination thereof. Accordingly, this exception is proposed to 
phase out for any new clean vehicle for which the qualified 
manufacturer provides a periodic written report after December 31, 
2026. The Treasury Department and the IRS request comments on the need 
for, design, and duration of this temporary rule, including data or 
other objective information to support such comments. The Treasury 
Department and the IRS

[[Page 84105]]

also request comment on whether industry practices are likely to 
develop that allow for physical tracking before December 31, 2032, and, 
if not, whether allocation-based accounting should be included as a 
permanent compliance approach, rather than as a temporary transition 
rule.
    Proposed Sec.  1.30D-6(c)(3)(ii)(B) would provide that the 
temporary allocation-based determination rules are limited to 
applicable critical minerals and associated constituent materials that 
are incorporated into a battery cell or its battery components. Battery 
components must be physically tracked.
    Proposed Sec.  1.30D-6(c)(3)(ii)(C) would provide that any 
allocation with respect to the mass of an applicable critical mineral 
must be made within the type of constituent materials (such as powders 
of cathode active materials, powders of anode active materials, or 
foils) in which such mineral is contained. Masses of an applicable 
critical mineral may not be aggregated across constituent materials 
with which such applicable critical mineral is not associated, and an 
allocation of mass of an applicable critical mineral may not be made 
from one type of constituent material to another. Proposed Sec.  1.30D-
6(c)(3)(ii)(C) also provides an example illustrating this rule.
    Proposed Sec.  1.30D-6(c)(3)(ii)(D) would provide that any 
allocation with respect to applicable critical minerals and their 
associated constituent materials must be allocated within one or more 
specific battery cell product lines of the battery cell production 
facility, such that a particular mass of constituent material is not 
treated as fungible across different battery chemistries and designs.
    Proposed Sec.  1.30D-6(c)(3)(ii)(E) would provide that if a 
qualified manufacturer uses the allocation-based determination rules 
described in this part III.C.3.a., the quantity of FEOC-compliant 
battery cells that can result from this allocation may not exceed the 
number of battery cells for which there is enough FEOC-compliant 
quantity of every applicable critical mineral. That number will 
necessarily be limited by the applicable critical mineral that has the 
lowest percentage of FEOC-compliant supply. For example, if a qualified 
manufacturer allocates all of applicable critical mineral A, that is 20 
percent FEOC-compliant, and all of applicable critical mineral B, that 
is 60 percent FEOC-compliant, to a battery cell product line, no more 
than 20 percent of the battery cells in that battery cell product line 
may be FEOC-compliant.
    Proposed Sec.  1.30D-6(c)(3)(ii)(F) would provide that the rules of 
proposed Sec.  1.30D-6(c)(3)(ii) do not apply with respect to any new 
clean vehicle for which the qualified manufacturer provides a periodic 
written report after December 31, 2026.
b. Transition Rule for Non-Traceable Battery Materials
    Proposed Sec.  1.30D-6(c)(3)(iii) would provide that for new clean 
vehicles for which the qualified manufacturer provides a periodic 
written report before January 1, 2027, the determination of whether a 
battery cell is FEOC-compliant under proposed Sec.  1.30D-6(c)(3) may 
be satisfied by excluding non-traceable battery materials, and their 
associated constituent materials. To use this transition rule, which is 
further discussed in part III.B. of this Explanation of Provisions, 
qualified manufacturers must submit a report during the up-front review 
process described in proposed Sec.  1.30D-6(d)(2)(ii).
4. Determination of FEOC-Compliant Battery Components and Applicable 
Critical Minerals
    Proposed Sec.  1.30D-6(c)(4) would provide that the determination 
that battery components and applicable critical minerals (and their 
associated constituent materials) are FEOC-compliant must be made prior 
to any determination under proposed Sec.  1.30D-6(c)(2) and (3). In 
general, the determination of whether an applicable critical mineral is 
FEOC-compliant would 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)), such as nickel sulphate 
that is used in production of a nickel-manganese-cobalt cathode active 
powder. A constituent material would be associated with an applicable 
critical mineral if the applicable critical mineral has been processed 
or recycled into a constituent material, even if that processing or 
recycling transformed the mineral into a form not listed in section 
45X(c)(6). However, an applicable critical mineral would be disregarded 
for purposes of the determination under proposed Sec.  1.30D-6(c)(4) 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, 
such as certain solvents used in electrode production.
    With respect to recycling, applicable critical minerals and 
associated constituent materials that are recycled would be subject to 
the determination of whether such mineral is FEOC-compliant 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 determination of 
whether an applicable critical mineral or associated constituent 
material that is incorporated into a battery via recycling is FEOC-
compliant takes into account only activities that occurred during the 
recycling process. Thus, for example, an applicable critical mineral 
derived from recyclable material that was recycled by an entity that is 
not a FEOC would be FEOC-compliant even if such mineral may have been 
extracted by a FEOC prior to its inclusion in the recyclable material.
    Whether an entity is a FEOC is determined as of the time of the 
entity's performance of the relevant activity, which for applicable 
critical minerals is the time of extraction, processing, or recycling, 
and for battery components is the time of manufacturing or assembly. 
The determination of whether an applicable critical mineral is FEOC-
compliant is determined at the end of processing or recycling of the 
applicable critical mineral into a constituent material, taking into 
account all applicable steps prior to final processing or recycling. 
Thus, for example, an applicable critical mineral that is not extracted 
by a FEOC but is processed by a FEOC is not FEOC-compliant.
    Proposed Sec.  1.30D-6(c)(4)(iv) provides examples regarding 
determinations of FEOC-compliant battery components and applicable 
critical minerals.
5. Third-Party Manufacturers or Suppliers
    Proposed Sec.  1.30D-6(c)(5) would provide that the determinations 
under proposed Sec.  1.30D-6(c)(2) through (4) may be made by a third-
party manufacturer or supplier that operates a battery cell production 
facility provided that the manufacturer or supplier performs the due 
diligence described in proposed Sec.  1.30D-6 and provides the 
qualified manufacturer of the new clean vehicle information sufficient 
to establish a basis for the determinations under proposed Sec.  1.30D-
6(c)(2) through (4). In addition, the manufacturer or supplier must be 
contractually required to provide such information to the qualified 
manufacturer of the new clean vehicle and must be contractually 
required to inform the qualified manufacturer of any changes in the 
supply chain that affect determinations of FEOC compliance. In the case 
of multiple third-party manufacturers or suppliers (such as if a 
manufacturer

[[Page 84106]]

contracts with a battery manufacturer, who, in turn, contracts with a 
manufacturer or supplier who operates a battery cell production 
facility), the due diligence and information requirements must be 
satisfied by each such manufacturer or supplier either directly to the 
qualified manufacturer or indirectly through contractual relationships.

D. Compliant-Battery Ledger

1. In General
    Proposed Sec.  1.30D-6(d)(1) would provide that for new clean 
vehicles placed in service after December 31, 2024, the qualified 
manufacturer must determine and provide information to the IRS to 
establish a compliant-battery ledger for each calendar year, as 
described in proposed Sec.  1.30D-6(d)(2)(i) and (ii). One compliant-
battery ledger may be established for all vehicles for a calendar year, 
or there may be separate ledgers for specific models or classes of 
vehicles.
2. Determination of Number of Batteries
    Proposed Sec.  1.30D-6(d)(2)(i) would provide that, to establish a 
compliant-battery ledger for a calendar year, the qualified 
manufacturer must determine the number of batteries, with respect to 
new clean vehicles (as described in section 30D(d) and proposed Sec.  
1.30D-2(m)) for which the qualified manufacturer anticipates providing 
a periodic written report during the calendar year, that it knows or 
reasonably anticipates will be FEOC-compliant, pursuant to the 
requirements of proposed Sec.  1.30D-6(b) and (c). The determination 
would be based on the battery components and applicable critical 
minerals (and associated constituent materials) that are procured or 
contracted for the calendar year and that are known or reasonably 
anticipated to be FEOC-compliant battery components or FEOC-compliant 
applicable critical minerals, as applicable.
    Proposed Sec.  1.30D-6(d)(2)(ii) would provide a process for 
upfront review of the number of batteries described in the preceding 
paragraph. Specifically, the proposed rule would provide that the 
qualified manufacturer must attest to the number of FEOC-compliant 
batteries determined under proposed Sec.  1.30D-6(d)(2)(i) and provide 
the basis for the determination, including attestations, certifications 
and documentation demonstrating compliance with proposed Sec.  1.30D-
6(b) and (c), at the time and in the manner provided in the Internal 
Revenue Bulletin. The IRS, with analytical assistance from the DOE, 
would review the attestations, certifications, and documentation. Once 
the IRS has determined that the qualified manufacturer has provided the 
required attestations, certifications, and documentation, the IRS will 
approve or reject the determined number of FEOC-compliant batteries. 
The IRS may approve the determined number in whole or part. The 
approved number will be the initial balance in the compliant-battery 
ledger.
    Proposed Sec.  1.30D-6(d)(2)(iii) would provide rules for 
decreasing or increasing the balance of the compliant-battery ledger. 
Specifically, once the compliant-battery ledger is established with 
respect to a calendar year, the qualified manufacturer must determine 
and take into account any decrease in the number of FEOC-compliant 
batteries for such calendar year, and any of the prior three calendar 
years for which the qualified manufacturer had a compliant-battery 
ledger, within 30 days of discovery. In addition, the qualified 
manufacturer may determine and take into account any increase in the 
number of FEOC-compliant batteries. Such determinations, and any 
supporting attestations, certifications, and documentation, must be 
provided on a periodic basis in the manner provided in the Internal 
Revenue Bulletin.
    The decrease described in the previous paragraph may decrease the 
compliant-battery ledger below zero, creating a negative balance in the 
compliant-battery ledger. In addition, if any such decrease is 
determined subsequent to the calendar year to which it relates, the 
decrease will be taken into account in the year in which the change is 
discovered. The remaining balance in the compliant-battery ledger at 
the end of the calendar year, whether positive or negative, will be 
included in the compliant-battery ledger for the subsequent calendar 
year. If a qualified manufacturer has multiple compliant-battery 
ledgers with negative balances, any negative balance would first be 
included in the compliant-battery ledger for the same model or class of 
vehicles for the subsequent calendar year. However, if there is no 
ledger for the same model or class of vehicles in the subsequent 
calendar year, the IRS can account for such negative balance in the 
ledger of a different model or class of vehicles of the qualified 
manufacturer.
3. Tracking FEOC-Compliant Batteries
    Proposed Sec.  1.30D-6(d)(3) would provide that the compliant-
battery ledger for a calendar year must be updated to track the number 
of available FEOC-compliant batteries of the qualified manufacturer, by 
reducing the balance of the ledger as the qualified manufacturer 
submits periodic written reports reporting the VINs of new clean 
vehicles as eligible for the credit under section 30D, at the time and 
in the manner provided in the Internal Revenue Bulletin. If the balance 
of the compliant-battery ledger for a calendar year of the qualified 
manufacturer is zero or less than zero, the qualified manufacturer 
would not be able to submit additional periodic written reports with 
respect to section 30D.
4. Reconciliation of Battery Estimates
    Proposed Sec.  1.30D-6(d)(4) would provide that, after the end of 
any calendar year for which a compliant-battery ledger is established, 
the IRS may require a qualified manufacturer to provide attestations, 
certifications, and documentation to support the accuracy of the number 
of FEOC-compliant batteries of the qualified manufacturer for such 
calendar year, including with respect to any changes described in 
paragraph (d)(3)(iii), at the time and in the manner provided in the 
Internal Revenue Bulletin.

E. Rule for 2024

    Proposed Sec.  1.30D-6(e) would provide rules for new clean 
vehicles placed in service in 2024. This rule may apply to new clean 
vehicles for which the qualified manufacturer submits a periodic 
written report in 2024 as well as new clean vehicles for which a 
qualified manufacturer submitted a periodic written report in 2023. 
Thus, for example, a vehicle that was anticipated to be placed in 
service in 2023 that remains unsold at the end of 2023 is subject to 
these rules if placed in service in 2024.
    Specifically, proposed Sec.  1.30D-6(e)(1) would provide that, for 
new clean vehicles that are placed in service after December 31, 2023, 
and prior to January 1, 2025, the qualified manufacturer must determine 
whether the battery components contained in such vehicles satisfy the 
requirements of section 30D(d)(7)(B) and whether batteries contained in 
the vehicle are FEOC-compliant under the rules of proposed Sec.  1.30D-
6(b) and (c). The qualified manufacturer would be required to make an 
attestation with respect to such determinations at the time and in the 
manner provided in the Internal Revenue Bulletin.
    However, for any new clean vehicles for which the qualified 
manufacturer provides a periodic written report before the date that is 
30 days after the date these regulations are finalized, provided that 
the qualified manufacturer has determined that its supply chain of

[[Page 84107]]

battery components with respect to such vehicles contains only FEOC-
compliant battery components: (i) for purposes of the determination of 
FEOC-compliant batteries and FEOC-compliant battery cells described in 
parts III.C.2 and III.C.3. of this Explanation of Provisions, the 
determination of which battery cells or batteries, as applicable, 
contain FEOC-compliant battery components may be determined without 
physical tracking; (ii) for purposes of the determination of FEOC-
compliant batteries, the determination of which batteries contain FEOC-
compliant battery cells may be determined without physical tracking 
(and without the use of a serial number or other identification 
system); and (iii) for purposes of the determination that a vehicle 
contains a FEOC-compliant battery and therefore is a new clean vehicle, 
as described in part III.C.1. of this Explanation of Provisions, the 
determination of which vehicles contain FEOC-compliant batteries may be 
determined without physical tracking (and without the use of a serial 
number or other identification system).
    Under proposed Sec.  1.30D-6(e)(2), the determination that a 
qualified manufacturer's supply chain of battery components contains 
only FEOC-compliant batteries may be made with respect to specific 
models or classes of vehicles.

F. Inaccurate Attestations, Certifications or Documentation

1. In General
    Proposed Sec.  1.30D-6(f)(1) would provide that if the IRS 
determines, with analytical assistance from the DOE and after review of 
the attestations, certifications, and documentation described in part 
III.D. of this Explanation of Provisions, that a qualified manufacturer 
provided inaccurate attestations, certifications, or documentation, the 
IRS may take certain actions against the qualified manufacturer, 
depending on the severity of the inaccuracy. Such actions would affect 
new clean vehicles and qualified manufacturers on a prospective basis.
2. Inadvertence
    Proposed Sec.  1.30D-6(f)(2) would provide that if the IRS 
determines that the attestations, certifications, or documentation for 
a new clean vehicle contain errors due to inadvertence, the following 
may be required: The qualified manufacturer may cure the errors 
identified, including by a decrease in the compliant-battery ledger of 
the qualified manufacturer. However, if the errors are not cured, in 
the case of a new clean vehicle that has not been placed in service but 
for which the qualified manufacturer has submitted a periodic written 
report certifying compliance with the requirements of section 30D(d), 
such vehicle is no longer considered a new clean vehicle eligible for 
the section 30D credit. If the errors are not cured, in the case of a 
new clean vehicle that has not been placed in service and for which the 
qualified manufacturer has not submitted a periodic written report, the 
qualified manufacturer may not submit a periodic written report 
certifying compliance with the requirements of section 30D(d). Finally, 
if the errors are not cured, in the case of a new clean vehicle that 
has been placed in service, the IRS may require a decrease to the 
compliant-battery ledger.
3. Intentional Disregard or Fraud
    Proposed Sec.  1.30D-6(f)(3) would provide guidance for cases of 
intentional disregard or fraud. Specifically, the proposed regulations 
would provide that if the IRS determines that a qualified manufacturer 
intentionally disregarded attestation, certification, and documentation 
requirements or reported information fraudulently or with intentional 
disregard, the IRS may determine that all vehicles of the qualified 
manufacturer that have not been placed in service are no longer 
considered new clean vehicles eligible for the section 30D credit. In 
addition, the IRS may terminate the written agreement between the IRS 
and the manufacturer, thereby terminating the manufacturer's status as 
a qualified manufacturer. The manufacturer would be required to submit 
a new written agreement to reestablish qualified manufacturer status at 
the time and in the manner provided in the Internal Revenue Bulletin.

G. Examples

    Proposed Sec.  1.30D-6(g) would provide examples illustrating the 
application of the proposed rules regarding excluded entities. Example 
1 would provide a general set of facts and analysis. Example 2 would 
provide an example illustrating the rules for third-party suppliers. 
Example 3 would provide an example illustrating the general rules for 
applicable critical minerals. Example 4 would provide a comprehensive 
example with specified battery components and applicable critical 
minerals (and associated constituent materials).

VI. Severability

    Proposed Sec.  1.30D-6(h) would provide that if any provision in 
this proposed rulemaking is held to be invalid or unenforceable 
facially, or as applied to any person or circumstance, it shall be 
severable from the remainder of this rulemaking, and shall not affect 
the remainder thereof, or the application of the provision to other 
persons not similarly situated or to other dissimilar circumstances.

Proposed Applicability Dates

    Consistent with the April 2023 proposed regulations, previously 
proposed Sec.  1.30D-2(a) through (h) are proposed to apply to new 
clean vehicles placed in service on or after January 1, 2023, for 
taxable years ending after April 17, 2023. Newly proposed Sec.  1.30D-
2(j) through (m) are proposed to apply to new clean vehicles placed in 
service on or after January 1, 2024, for taxable years ending after 
December 31, 2023.
    Consistent with the April 2023 proposed regulations, previously 
proposed Sec.  1.30D-3(a) through (c) and (f) are proposed to apply to 
new clean vehicles placed in service after April 17, 2023, for taxable 
years ending after April 17, 2023. Newly proposed Sec.  1.30D-3(d) and 
(e) are proposed to apply to new clean vehicles placed in service on or 
after January 1, 2024, for taxable years ending after December 31, 
2023.
    Section 30D(d)(7) provides that the excluded entity provisions 
apply to vehicles placed in service after December 31, 2023, for 
battery components, and after December 31, 2024, for applicable 
critical minerals. Accordingly proposed Sec.  1.30D-6 is proposed to 
apply to new clean vehicles placed in service after December 31, 2023.
    Taxpayers may rely on these proposed regulations for vehicles 
placed in service prior to the date final regulations are published in 
the Federal Register, provided the taxpayer follows the proposed 
regulations in their entirety, and in a consistent manner.

Effect on Other Documents

    This notice of proposed rulemaking modifies proposed Sec. Sec.  
1.30D-2 and 1.30D-3 of the April 2023 proposed regulations.

Special Analyses

I. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) (PRA) 
generally requires that a Federal agency obtain the approval of the 
Office of Management and Budget (OMB) before collecting information 
from the public, whether such collection of information is

[[Page 84108]]

mandatory, voluntary, or required to obtain or retain a benefit.
    For purposes of the PRA, the reporting burden associated with the 
collection of information in proposed Sec.  1.30D-6 regarding excluded 
entities will be reflected in the PRA Submissions associated with OMB 
control number 1545-2311. OMB Control Number 1545-2137 covers Form 8936 
and Form 8936-A regarding clean vehicle credits, including the new 
requirement in section 30D(f)(9) to include on the taxpayer's return 
for the taxable year the VIN of the vehicle for which the section 30D 
credit is claimed. Revenue Procedure 2022-42 describes the procedural 
requirements for qualified manufacturers to make periodic written 
reports to the IRS to provide information related to each vehicle 
manufactured by such manufacturer that is eligible for the section 30D 
credit as required in section 30D(d)(3), including the critical mineral 
and battery component attestation or certification requirements in 
section 30D(e)(1)(A) and (2)(A). In addition, Revenue Procedure 2022-42 
also provides the procedures for sellers of new clean vehicles to 
report information required by section 30D(d)(1)(H) for vehicles to be 
eligible for the section 30D credit. The collections of information 
contained in Revenue Procedure 2022-42 are described in that document 
and were submitted to the Office of Management and Budget in accordance 
with the PRA under control number 1545-2137.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.

II. Regulatory Flexibility Act

    Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), 
the Secretary hereby certifies that these proposed regulations will not 
have a significant economic impact on a substantial number of small 
entities within the meaning of section 601(6) of the Regulatory 
Flexibility Act. Pursuant to section 7805(f), this notice of proposed 
rulemaking has been submitted to the Chief Counsel for the Office of 
Advocacy of the Small Business Administration for comment on their 
impact on small business.
    The proposed regulations affect qualified manufacturers that must 
determine their compliance with the excluded entity requirements in 
order to certify that their new clean vehicles placed in service after 
December 31, 2023, qualify for the section 30D credit.
    While the tracking and reporting of compliance with the excluded 
entity requirements is likely to involve significant administrative 
costs, according to public filings, every qualified manufacturer had 
total revenues above $1 billion in 2022. There are a total of 11 
qualified manufacturers that have indicated that they manufacture 
vehicles currently eligible for the section 30D credit. Pursuant to 
Revenue Procedure 2022-42, Revenue Procedure 2023-33, and following the 
publication of these proposed regulations, qualified manufacturers will 
also have to certify that their vehicles comply with the excluded 
entity requirement and contain batteries that are FEOC-compliant. The 
proposed regulations provide definitions and general rules for this 
purposes. Accordingly, the Treasury Department and the IRS intend that 
the proposed rules provide clarity for qualified manufacturers for 
consistent application of the excluded entity requirements. The 
Treasury Department and the IRS have determined that qualified 
manufacturers do not meet the applicable definition of small entity. 
Accordingly, the Secretary certifies that these proposed regulations 
will not have a significant economic impact on a substantial number of 
small entities. The Treasury Department and the IRS request comments 
that provide data, other evidence, or models that provide insight on 
this issue.

III. Unfunded Mandates Reform Act

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) 
requires that agencies assess anticipated costs and benefits and take 
certain other actions before issuing a final rule that includes any 
Federal mandate that may result in expenditures in any one year by a 
State, local, or Tribal government, in the aggregate, or by the private 
sector, of $100 million (updated annually for inflation). This proposed 
rule does not include any Federal mandate that may result in 
expenditures by State, local, or Tribal governments, or by the private 
sector in excess of that threshold.

IV. Executive Order 13132: Federalism

    Executive Order 13132 (Federalism) prohibits an agency from 
publishing any rule that has federalism implications if the rule either 
imposes substantial, direct compliance costs on State and local 
governments, and is not required by statute, or preempts State law, 
unless the agency meets the consultation and funding requirements of 
section 6 of the Executive order. This proposed rule does not have 
federalism implications and does not impose substantial direct 
compliance costs on State and local governments or preempt State law 
within the meaning of the Executive order.

V. Regulatory Planning and Review

    Pursuant to the Memorandum of Agreement, Review of Treasury 
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory 
actions issued by the IRS are not subject to the requirements of 
section 6 of Executive Order 12866, as amended. Therefore, a regulatory 
impact assessment is not required.

Comments and Requests for a Public Hearing

    Before these proposed amendments to the regulations are adopted as 
final regulations, consideration will be given to comments that are 
submitted timely to the IRS as prescribed in this preamble under the 
ADDRESSES section. The Treasury Department and the IRS request comments 
on all aspects of the proposed regulations. Any comments submitted will 
be made available at https://www.regulations.gov or upon request.
    A public hearing will be scheduled if requested in writing by any 
person who timely submits electronic or written comments. Requests for 
a public hearing are also encouraged to be made electronically. If a 
public hearing is scheduled, notice of the date and time for the public 
hearing will be published in the Federal Register.
    Announcement 2023-16, 2023-20 I.R.B. 854 (May 15, 2023), provides 
that public hearings will be conducted in person, although the IRS will 
continue to provide a telephonic option for individuals who wish to 
attend or testify at a hearing by telephone. Any telephonic hearing 
will be made accessible to people with disabilities.

Statement of Availability of IRS Documents

    Guidance cited in this preamble is published in the Internal 
Revenue Bulletin and is available from the Superintendent of Documents, 
U.S. Government Publishing Office, Washington, DC 20402, or by visiting 
the IRS website at https://www.irs.gov.

Drafting Information

    The principal author of these proposed regulations is the Office of 
the Associate Chief Counsel (Passthroughs and Special Industries). 
However, other personnel from the Treasury Department, the DOE, and the 
IRS participated in their development.

[[Page 84109]]

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, the Treasury Department and the IRS propose to amend 
26 CFR parts 1 as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 is amended by adding an 
entry in numerical order for Sec.  1.30D-6 to read in part as follows:

    Authority:  26 U.S.C. 7805 * * *
    Section 1.30D-6 also issued under 26 U.S.C. 30D.
* * * * *
0
Par. 2. Section 1.30D-0, as proposed to be added at 88 FR 23370 (April 
17, 2023) and proposed to be amended at 88 FR 70310 (October 10, 2023), 
is amended by:
0
a. Adding paragraphs (k), (l), and (m) under Sec.  1.30D-2;
0
b. Revising paragraphs (e) and (f) under Sec.  1.30D-3;
0
c. Adding paragraph (g) under Sec.  1.30D-3; and
0
d. Adding an entry in numerical order for Sec.  1.30D-6.
    The additions and revisions read as follows:


Sec.  1.30D-0  Table of contents.

* * * * *
Sec.  1.30D-2 Definitions for purposes of section 30D.
* * * * *
    (k) Manufacturer.
    (l) Qualified manufacturer.
    (m) New clean vehicle.
* * * * *
Sec.  1.30D-3 Critical mineral and battery component requirements.
* * * * *
    (e) Upfront review of battery component and applicable critical 
minerals requirements.
    (f) Severability.
    (g) Applicability date.
* * * * *
Sec.  1.30D-6 Excluded entities.

    (a) Definitions.
    (1) Applicable critical mineral.
    (2) Assembly.
    (3) Battery.
    (4) Battery cell.
    (5) Battery cell production facility.
    (6) Battery component.
    (7) Compliant-battery ledger.
    (8) Constituent materials.
    (9) Extraction.
    (10) Foreign entity of concern.
    (11) FEOC-compliant.
    (12) Manufacturing.
    (13) Non-traceable battery material.
    (i) In general.
    (ii) [Reserved]
    (14) Processing.
    (15) Recycling.
    (b) Due diligence.
    (1) In general.
    (2) Transition rule for non-traceable battery materials.
    (c) Excluded entity restriction.
    (1) In general.
    (2) Determination of FEOC-compliant batteries.
    (3) Determination of FEOC-compliant battery cell.
    (i) In general.
    (ii) Temporary allocation-based determination for applicable 
critical materials contained in constituent materials of a battery 
cell.
    (A) In general.
    (B) Allocation limited to applicable critical minerals in the 
battery cell.
    (C) Separate allocation for each class of constituent materials.
    (D) Allocation within each product line of battery cells.
    (E) Limitation on number of FEOC-compliant battery cells.
    (F) Termination of temporary allocation-based determination.
    (iii) Transition rule for non-traceable battery materials.
    (4) Determination of FEOC-compliant battery components and 
applicable critical minerals.
    (i) In general.
    (ii) Applicable critical minerals.
    (A) In general.
    (B) Associated constituent materials.
    (C) Exception for applicable critical minerals not contained in 
the battery.
    (D) Recycling.
    (iii) Timing of determination of FEOC-compliant status.
    (iv) Examples.
    (A) Example 1: Timing of FEOC compliance determination.
    (B) Example 2: Form of applicable critical mineral.
    (C) Example 3: Recycling of applicable critical mineral.
    (5) 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.
    (3) Intentional disregard of fraud.
    (g) Examples.
    (1) Example 1: In general.
    (2) Example 2: Rules for third-party suppliers.
    (3) Example 3: Applicable critical minerals.
    (4) Example 4: Comprehensive example.
    (h) Severability.
    (i) Applicability date.
0
Par. 3. Section 1.30D-2, as proposed to be added at 88 FR 23370 (April 
17, 2023) and proposed to be amended at 88 FR 70310 (October 10, 2023), 
is amended by revising paragraphs (a), (f), and (i) and adding 
paragraphs (k), (l), and (m) to read as follows:


Sec.  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.
* * * * *
    (f) Section 30D regulations. Section 30D regulations means Sec.  
1.30D-1, this section, and Sec. Sec.  1.30D-3 through 1.30D-6.
* * * * *
    (i) Applicability date. Paragraphs (a) through (h) of this section 
apply to new clean vehicles placed in service on or after January 1, 
2023, for taxable years ending after April 17, 2023. Paragraphs (j) 
through (m) of this section apply for new clean vehicles placed in 
service on or after January 1, 2024, for taxable years ending after 
December 31, 2023.
* * * * *
    (k) Manufacturer. 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). If multiple manufacturers 
are involved in the production of a vehicle, the requirements provided 
in section 30D(d)(3) must be met by the manufacturer who 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.
    (l) Qualified manufacturer. A qualified manufacturer means a 
manufacturer that meets the requirements described in section 
30D(d)(3). The term qualified manufacturer does not include any 
manufacturer whose qualified manufacturer status has been terminated by 
the Internal Revenue Service (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 Sec.  1.30D-2(m) and any attestations, documentation, or 
certifications described in Sec.  1.30D-3(e) and Sec.  1.30D-6(d), at 
the time and in the

[[Page 84110]]

manner provided in the Internal Revenue Bulletin (see Sec.  
601.601(d)(2)(ii)(a) of this chapter). See Sec.  1.30D-6(f) for 
additional rules regarding inaccurate determinations and documentation.
    (m) New clean vehicle. A new clean vehicle means a vehicle that 
meets the requirements described in section 30D(d). A vehicle does not 
meet the requirements of section 30D(d) if--
    (1) 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 (VIN) of such vehicle and 
certifying compliance with the requirement of section 30D(d);
    (2) The qualified manufacturer provides incorrect information with 
respect to the periodic written report for such vehicle;
    (3) The qualified manufacturer fails to update its periodic written 
report in the event of a material change with respect to such vehicle; 
or
    (4) For new clean vehicles placed in service after December 31, 
2024, the qualified manufacturer fails to meet the requirements of 
Sec.  1.30D-6(d).
0
Par. 4. Section 1.30D-3, as proposed to be added at 88 FR 23370 (April 
17, 2023), is amended by:
0
a. Revising paragraph (d);
0
b. Redesignating paragraphs (e) and (f) as paragraphs (f) and (g);
0
c. Adding new paragraph (e); and
0
d. Revising newly redesignated paragraph (g).
    The revisions and addition read as follows:


Sec.  1.30D-3  Critical mineral and battery component requirements.

* * * * *
    (d) Excluded entities. For rules regarding excluded entities, see 
Sec.  1.30D-6.
    (e) Upfront review of battery component and applicable critical 
minerals 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 Sec.  
601.601(d)(2)(ii)(a) of this chapter). The IRS, with analytical 
assistance from the Department of Energy, will review the attestations, 
certifications, and documentations.
* * * * *
    (g) Applicability date. Paragraphs (a) through (c) and (f) of this 
section apply to new clean vehicles placed in service after April 17, 
2023, for taxable years ending after April 17, 2023. Paragraphs (d) and 
(e) of this section apply to new clean vehicles placed in service on or 
after January 1, 2024, for taxable years beginning after December 31, 
2023.
0
Par. 5. Section 1.30D-6 is added to read as follows:


Sec.  1.30D-6  Excluded entities.

    (a) Definitions. This paragraph (a) provides definitions that apply 
for purposes of section 30D(d)(7) of the Internal Revenue Code (Code) 
and this section.
    (1) Applicable critical mineral. Applicable critical mineral means 
an applicable critical mineral as defined in section 45X(c)(6) of the 
Code.
    (2) Assembly. Assembly, with respect to battery components, means 
the process of combining battery components into battery cells and 
battery modules.
    (3) 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.
    (4) 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.
    (5) Battery cell production facility. Battery cell production 
facility means a facility in which battery cells are manufactured or 
assembled.
    (6) Battery component. Battery component means a component that 
forms part of a battery and that is manufactured or assembled from one 
or more components or constituent 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, separator, liquid electrolyte, solid 
state electrolyte, battery cell, and battery module. Constituent 
materials are not a type of battery component, although constituent 
materials may be manufactured or assembled into battery components. 
Some battery components may be made entirely of inputs that do not 
contain constituent materials.
    (7) Compliant-battery ledger. A compliant-battery ledger, for a 
qualified manufacturer for a calendar year, is a ledger established 
under the rules of paragraph (d) of this section that tracks the number 
of available FEOC-compliant batteries for such calendar year.
    (8) Constituent materials. Constituent materials means materials 
that contain applicable critical minerals and that are employed 
directly in the manufacturing of battery components. 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.
    (9) Extraction. Extraction means the activities performed to 
harvest minerals or natural resources from the ground or a body of 
water. Extraction includes, but is not limited to, operating equipment 
to harvest minerals or natural resources from mines and wells, or to 
extract minerals or natural resources from the waste or residue of 
prior extraction. 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 includes the physical processes 
involved in refining. Extraction does not include the chemical and 
thermal processes involved in refining.
    (10) 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).
    (11) 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

[[Page 84111]]

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 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 (a)(11)(iii) or (iv) 
of this section, as applicable).
    (12) Manufacturing. Manufacturing, with respect to a battery 
component, means the industrial and chemical steps taken to produce a 
battery component.
    (13) Non-traceable battery materials--(i) In general. Non-traceable 
battery materials mean 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, low-value battery materials are 
those that have low value compared to the total value of the battery.
    (ii) [Reserved].
    (14) 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.
    (15) Recycling. 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 battery from which the 
electric motor of a new clean vehicle draws electricity.
    (b) Due diligence--(1) In general. The qualified manufacturer must 
conduct due diligence with respect to all battery components and 
applicable critical minerals (and associated constituent materials) 
that are relevant to determining whether such components or minerals 
are FEOC-compliant. Such due diligence must comply with standards of 
tracing for battery materials available in the industry at the time of 
the attestation or certification that enable the manufacturer to know 
with reasonable certainty the provenance of applicable critical 
minerals, constituent materials, and battery components. Reasonable 
reliance on a supplier attestation or certification will be considered 
due diligence if the qualified manufacturer does not know or have 
reason to know after its due diligence that such supplier attestation 
or certification is incorrect. Due diligence must be conducted by the 
qualified manufacturer prior to its determining information necessary 
to establish any compliant-battery ledger under paragraph (d) of this 
section, and on an ongoing basis.
    (2) Transition rule for non-traceable battery materials. For any 
new clean vehicles for which the qualified manufacturer provides a 
periodic written report before January 1, 2027, the due diligence 
requirement of paragraph (b)(1) of this section may be satisfied by 
excluding identified non-traceable battery materials. To use this 
transition rule, qualified manufacturers must submit a report during 
the up-front review process described in paragraph (d)(2)(ii) of this 
section demonstrating how the qualified manufacturer will comply with 
the excluded entity restrictions once the transition rule is no longer 
in effect.
    (c) Excluded entity restriction--(1) In general. In the case of any 
new clean vehicle placed in service after December 31, 2023, the 
batteries from which the electric motor of such vehicle draws 
electricity must be FEOC-compliant. A serial number or other 
identification system must be used to physically track FEOC-compliant 
batteries to specific new clean vehicles. The determination that a 
battery is FEOC-compliant is made as follows:
    (i) Step 1. First, the qualified manufacturer determines whether 
battery components and applicable critical minerals (and associated 
constituent materials) are FEOC-compliant, in accordance with paragraph 
(c)(4) of this section.
    (ii) Step 2. Next, the FEOC-compliant battery components and FEOC-
compliant applicable critical minerals (and associated constituent 
materials) are physically tracked to specific battery cells, in 
accordance with paragraph (c)(3)(i) of this section. Alternatively, 
FEOC-compliant applicable critical minerals and associated constituent 
materials (but not battery components) may be allocated to battery 
cells, without physical tracking, in accordance with paragraph 
(c)(3)(ii) of this section. In addition, the determination under 
paragraph (c)(4) of this section may be made by applying the transition 
rule for non-traceable battery materials, in accordance with paragraph 
(c)(3)(iii) of this section.
    (iii) Step 3. Finally, the battery components, including battery 
cells, are physically tracked to specific batteries, in accordance with 
paragraph (c)(2) of this section.
    (2) Determination of FEOC-compliant batteries. The determination 
that a battery is FEOC-compliant must be made by physically tracking 
FEOC-compliant battery components (including battery cells) to such 
battery. With respect to battery cells, a serial number or other 
identification system must be used to physically track FEOC-compliant 
battery cells to such batteries.
    (3) Determination of FEOC-compliant battery cell--(i) In general. 
Except as provided in paragraph (c)(3)(ii) of this section, the 
determination that a battery cell contains FEOC-compliant battery 
components and FEOC-compliant applicable critical minerals and their 
associated constituent materials must be made by physically tracking 
FEOC-compliant battery components to specific batteries cells and by 
physically tracking the mass of FEOC-compliant applicable critical 
minerals and their associated constituent materials to specific 
batteries cells.
    (ii) Temporary allocation-based determination for applicable 
critical materials and associated constituent materials of a battery 
cell--(A) In general. The determination that a battery cell is a FEOC-
compliant battery cell may be based on an allocation of available mass, 
produced or contracted for, of applicable critical minerals and their 
associated constituent materials to specific battery cells manufactured 
or assembled in a battery cell production facility, without the 
physical tracking of mass of applicable critical minerals and 
associated constituent materials to specific battery cells.
    (B) Allocation limited to applicable critical minerals in the 
battery cell. The rules of this paragraph (c)(3)(ii) are limited to 
applicable critical minerals and their associated constituent materials 
that are incorporated into a battery cell or its battery components. 
Battery components must be physically tracked.
    (C) Separate allocation for each class of constituent materials. 
Any allocation under this paragraph (c)(3)(ii) with respect to the mass 
of an applicable critical mineral must be made within the type of 
associated constituent materials (such as powders of cathode active 
materials, powders of anode active materials, or foils) in which such 
mineral is contained. Masses of an applicable critical mineral may not 
be aggregated across constituent materials

[[Page 84112]]

with which such applicable critical mineral is not associated, and an 
allocation of a mass of an applicable critical mineral may not be made 
from one type of constituent material to another. For example, assume 
that M, a qualified manufacturer, operates a battery cell production 
facility. M manufactures a line of battery cells that contains 
applicable critical mineral Z contained in constituent material 1 and 
applicable critical mineral Z contained in constituent material 2. With 
respect to constituent material 1, M procures 20,000,000 kilograms (kg) 
of applicable critical mineral Z for the battery cell production 
facility, of which 4,000,000 kg are FEOC-compliant and 16,000,000 kg 
are not FEOC-compliant. With respect to constituent material 2, M 
procures another 15,000,000 kg of applicable critical mineral Z for the 
battery cell production facility, of which 7,500,000 kg are FEOC-
compliant and 7,500,000 kg are not FEOC-compliant. M determines which 
battery cells are FEOC-compliant through an allocation-based 
determination with respect to battery cells manufactured or assembled 
in the battery cell production facility. Under this paragraph 
(c)(3)(ii)(C), any allocation with respect to the mass of applicable 
critical mineral Z must be made within the type of constituent 
materials in which such mineral is contained. Thus, M may not aggregate 
the 4,000,000 kg mass of FEOC-compliant applicable critical mineral Z 
contained in constituent material 1 with the 7,500,000 kg mass of FEOC-
compliant applicable critical mineral Z contained in constituent 
material 2, and allocations may not be made from constituent material 1 
to constituent material 2. As a result, overall FEOC compliance is 
constrained by the 20 percent of constituent material 1 that is FEOC-
compliant due to having 4,000,000 kg of applicable critical mineral Z, 
even though 33 percent (7,500,000 + 4,000,000)/(20,000,000 + 
15,000,000) of the total mass of critical mineral Z is compliant.
    (D) Allocation within each product line of battery cells. Any 
allocation under this paragraph (c)(3)(ii) with respect to applicable 
critical minerals and their associated constituent materials must be 
allocated within one or more specific battery cell product lines of the 
battery cell production facility.
    (E) Limitation on number of FEOC-compliant battery cells. If a 
qualified manufacturer uses an allocation-based determination described 
in this paragraph (c)(3)(ii), the number of FEOC-compliant battery 
cells that can be produced from such allocation may not exceed the 
total number of battery cells for which there is enough of every FEOC-
compliant applicable critical mineral. That number will necessarily be 
limited by the applicable critical mineral that has the lowest 
percentage of FEOC-compliant supply. For example, if a qualified 
manufacturer allocates applicable critical mineral A, which is 20 
percent FEOC-compliant and applicable critical mineral B, which is 60 
percent FEOC-compliant, to a battery cell product line, no more than 20 
percent of the battery cells in that battery cell product line will be 
treated as FEOC-compliant.
    (F) Termination of temporary allocation-based determination. The 
rules of this paragraph (c)(3)(ii) do not apply with respect to any new 
clean vehicle for which the qualified manufacturer is required to 
provide a periodic written report after December 31, 2026.
    (iii) Transition rule for non-traceable battery materials. For any 
new clean vehicles for which the qualified manufacturer provides a 
periodic written report before January 1, 2027, the determination of 
whether a battery cell is FEOC-compliant under this paragraph (c)(3) 
may be satisfied by excluding identified non-traceable battery 
materials (and associated constituent materials). To use this 
transition rule, qualified manufacturers must submit a report during 
the up-front review process described in paragraph (d)(2)(ii) of this 
section demonstrating how the qualified manufacturer will comply with 
the excluded entity restrictions once the transition rule is no longer 
in effect.
    (4) Determination of FEOC-compliant battery components and 
applicable critical minerals--(i) In general. The determination of 
whether battery components and applicable critical minerals (and their 
associated constituent materials) are FEOC-compliant must be made prior 
to any determination under paragraphs (c)(2) and (3) of this section.
    (ii) Applicable critical minerals--(A) In general. Except as 
provided in paragraph (c)(4)(ii)(D) of this section, the determination 
of whether an applicable critical mineral is FEOC-compliant takes 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.
    (B) Associated constituent materials. A constituent material is 
associated with an applicable critical mineral if the applicable 
critical mineral has been processed or recycled into a constituent 
material, even if that processing or recycling transformed the mineral 
into a form not listed in section 45X(c)(6).
    (C) Exception for applicable critical minerals not contained in the 
battery. An applicable critical mineral is disregarded for purposes of 
the determination under this paragraph (c)(4) 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.
    (D) Recycling. An applicable critical mineral and associated 
constituent material that is recycled is subject to the determination 
under this paragraph (c)(4) 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 determination of whether an applicable critical 
mineral or associated constituent material that is incorporated into a 
battery via recycling is FEOC-compliant takes into account only 
activities that occurred during the recycling process.
    (iii) Timing of determination of FEOC-compliant status. Whether an 
entity is a FEOC is determined as of the time of the entity's 
performance of the relevant activity, which for applicable critical 
minerals is the time of extraction, processing, or recycling, and for 
battery components is the time of manufacturing or assembly. The 
determination of whether an applicable critical mineral is FEOC-
compliant is determined at the end of processing or recycling of the 
applicable critical mineral into a constituent material, taking into 
account all applicable steps through and including final processing or 
recycling.
    (iv) Examples. The following examples illustrate the rules under 
this paragraph (c)(4):
    (A) Example 1: Timing of FEOC compliance determination. Mineral X, 
an applicable critical mineral, was not extracted by a FEOC but was 
later processed by a FEOC. Mineral X is not FEOC-compliant because one 
step of the extraction and processing was performed by a FEOC. Any 
battery containing Mineral X is not FEOC-compliant.
    (B) Example 2: Form of applicable critical mineral. Mineral Y is 
extracted by a FEOC 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

[[Page 84113]]

applicable critical mineral form listed in section 45X(c)(6) by an 
entity that is not a FEOC. Mineral Y is not FEOC-compliant pursuant to 
this paragraph (c)(4) because it was extracted by a FEOC, regardless of 
its form at the time of extraction. Any battery containing Mineral Y is 
not FEOC-compliant.
    (C) Example 3: Recycling of applicable critical mineral. Mineral Z, 
an applicable critical mineral in a form listed in section 45X(c)(6), 
was processed by a FEOC 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 an entity that is not a 
FEOC. Mineral Z is subject to a determination of whether it is FEOC-
compliant at the end of the recycling process, because it was at one 
time an applicable critical mineral. Mineral Z is FEOC-compliant 
pursuant to this paragraph (c)(4) because it was not recycled by a 
FEOC.
    (5) Third-party manufacturers or suppliers. The determinations 
under paragraphs (c)(2) through (4) of this section may be made by a 
third-party manufacturer or supplier that operates a battery cell 
production facility provided that:
    (i) The third-party manufacturer or supplier performs the due 
diligence described in paragraph (b) of this section;
    (ii) The third-party manufacturer or supplier provides the 
qualified manufacturer of the new clean vehicle information sufficient 
to establish a basis for the determinations under paragraphs (c)(2) 
through (4) of this section, including information related to the due 
diligence described in paragraph (c)(5)(i) of this section;
    (iii) The third-party manufacturer or supplier is contractually 
required to provide the information in paragraph (c)(5)(ii) of this 
section to the qualified manufacturer and is contractually required to 
inform the qualified manufacturer of any change in the supply chain 
that affects the determinations of FEOC compliance under paragraph 
(c)(2) and (4) of this section; and
    (iv) If there are multiple third-party manufacturers or suppliers 
(such as a case in which a qualified manufacturer contracts with a 
battery manufacturer, who, in turn, contracts with a battery cell 
manufacturer or supplier who operates a battery cell production 
facility), the due diligence and information requirements of this 
paragraph (c) must be satisfied by each such manufacturer or supplier 
either directly to the qualified manufacturer or indirectly through 
contractual relationships.
    (d) Compliant-battery ledger--(1) In general. For new clean 
vehicles placed in service after December 31, 2024, the qualified 
manufacturer must determine and provide information to the IRS to 
establish a compliant-battery ledger for each calendar year, as 
described in paragraphs (d)(2)(i) and (ii) of this section. One 
compliant-battery ledger may be established for all vehicles for a 
calendar year, or there may be separate ledgers for specific models or 
classes of vehicles to account for different battery cell chemistries 
or differing quantities of cells in each battery.
    (2) Determination of number of batteries--(i) In general. To 
establish a compliant-battery ledger for a calendar year, the qualified 
manufacturer must determine the number of batteries, with respect to 
new clean vehicles (as described in section 30D(d) and Sec.  1.30D-
2(m)) for which the qualified manufacturer anticipates providing a 
periodic written report during the calendar year, that it knows or 
reasonably anticipates will be FEOC-compliant, pursuant to the 
requirements of paragraphs (b) and (c) of this section. The 
determination is based on the battery components and applicable 
critical minerals (and associated constituent materials) that are 
procured or contracted for the calendar year and that are known or 
reasonably anticipated to be FEOC-compliant battery components or FEOC-
compliant applicable critical minerals, as applicable.
    (ii) Upfront review. The qualified manufacturer must attest to the 
number of FEOC-compliant batteries determined under paragraph (d)(2)(i) 
of this section and provide the basis for the determination, including 
attestations, certifications and documentation demonstrating compliance 
with paragraphs (b) and (c) of this section, at the time and in the 
manner provided in the Internal Revenue Bulletin. The IRS, with 
analytical assistance from the DOE, will review the attestations, 
certifications, and documentation. Once the IRS determines that the 
qualified manufacturer provided the required attestations, 
certifications, and documentation, the IRS will approve or reject the 
determined number of FEOC-compliant batteries. The IRS may approve the 
determined number in whole or part. The approved number is the initial 
balance in the compliant-battery ledger.
    (iii) Decrease or increase to compliant-battery ledger--(A) Once 
the compliant-battery ledger is established with respect to a calendar 
year, the qualified manufacturer must determine and take into account 
any decrease in the number of FEOC-compliant batteries for such 
calendar year, and any of the prior three calendar years for which the 
qualified manufacturer had a compliant-battery ledger, within 30 days 
of discovery. In addition, the qualified manufacturer may determine and 
take into account any increase in the number of FEOC-compliant 
batteries. Such determinations, and any supporting attestations, 
certifications, and documentation, must be provided on a periodic 
basis, in accordance with paragraph (d)(2)(ii) of this section and the 
manner provided in the Internal Revenue Bulletin.
    (B) The decrease described in paragraph (d)(2)(iii)(A) of this 
section may decrease the compliant-battery ledger below zero, creating 
a negative balance in the compliant-battery ledger.
    (C) If any decrease described in paragraph (d)(2)(iii)(A) of this 
section is determined subsequent to the calendar year to which it 
relates, the decrease must be taken into account in the year in which 
the change is discovered.
    (D) Any remaining balance in the compliant-battery ledger at the 
end of the calendar year, whether positive or negative, will be 
included in the compliant-battery ledger for the subsequent calendar 
year. If a qualified manufacturer has multiple compliant-negative 
battery accounts, any negative balance will first be included in the 
compliant-battery ledger for the same model or class of vehicles for 
the subsequent calendar year. However, if there is no ledger for the 
same model or class of vehicles in the subsequent calendar year, the 
IRS can account for such negative balance in the ledger of a different 
model or class of vehicles of the qualified manufacturer.
    (3) Tracking FEOC-compliant batteries. The compliant-battery ledger 
for a calendar year must be updated to track the qualified 
manufacturer's available FEOC-compliant batteries, by reducing the 
balance in the ledger as the qualified manufacturer submits periodic 
written reports reporting the vehicle identification numbers (VINs) of 
new clean vehicles as eligible for the credit under section 30D, at the 
time and in the manner provided in the Internal Revenue Bulletin. If 
the balance in the compliant-battery ledger of the qualified 
manufacturer for a calendar year is zero or less than zero, the 
qualified manufacturer may not submit additional periodic written 
reports with respect to section 30D until the number of available FEOC-
compliant batteries is increased as described in paragraph 
(d)(2)(iii)(A) of this section.

[[Page 84114]]

    (4) Reconciliation of battery estimates. After the end of any 
calendar year for which a compliant-battery ledger is established, the 
IRS may require a qualified manufacturer to provide attestations, 
certifications, and documentation to support the accuracy of the number 
of the qualified manufacturer's FEOC-compliant batteries for such 
calendar year, including with respect to any changes described in 
paragraph (d)(2)(iii) of this section, at the time and in the manner 
provided in the Internal Revenue Bulletin.
    (e) Rule for 2024--(1) In general. For new clean vehicles that are 
placed in service after December 31, 2023, and prior to January 1, 
2025, the qualified manufacturer must determine whether the battery 
components contained in vehicles satisfy the requirements of section 
30D(d)(7)(B) and whether batteries contained in the vehicle are FEOC-
compliant under the rules of paragraphs (b) and (c) of this section. 
The qualified manufacturer must make an attestation with respect to 
such determinations at the time and in the manner provided in the 
Internal Revenue Bulletin. However, for any new clean vehicles for 
which the qualified manufacturer provides a periodic written report 
before the date that is 30 days after the date these regulations are 
finalized, provided that the qualified manufacturer has determined that 
its supply chains of each battery component with respect such vehicles 
contain only FEOC-compliant battery components:
    (i) For purposes of paragraphs (c)(2) and (3) of this section, the 
determination of which battery cells or batteries, as applicable, 
contain FEOC-compliant battery components may be determined without 
physical tracking;
    (ii) For purposes of paragraph (c)(2) of this section, the 
determination of which batteries contain FEOC-compliant battery cells 
may be determined without physical tracking (and without the use of a 
serial number or other identification system); and
    (iii) For purposes of paragraph (c)(1) of this section, the 
determination of which vehicles contain FEOC-compliant batteries may be 
determined, without physical tracking (and without the use of a serial 
number or other identification system).
    (2) Determination. The determination that a qualified 
manufacturer's supply chains of each battery component contain only 
FEOC-compliant battery components may be made with respect to specific 
models or classes of vehicles.
    (f) Inaccurate attestations, certifications or documentation--(1) 
In general. If the IRS determines, with analytical assistance from the 
DOE and after review of the attestations, certification and 
documentation described in paragraph (d) of this section, that a 
qualified manufacturer has provided attestations, certifications, or 
documentation that contain inaccurate information, it may take 
appropriate action as described in paragraphs (f)(2) and (3) of this 
section. Such action would affect vehicles and qualified manufacturers 
on a prospective basis.
    (2) Inadvertence. If the IRS determines that the attestations, 
certifications or documentation for a specific new clean vehicle 
contain errors due to inadvertence, the following may be required:
    (i) The qualified manufacturer may cure the errors identified, 
including by a decrease in the compliant-battery ledger as described in 
paragraph (d)(2)(iii) of this section. If the qualified manufacturer 
has multiple compliant-battery ledgers, the IRS may determine which 
ledger is to be decreased.
    (ii) If the errors are not cured, in the case of a new clean 
vehicle that has not been placed in service but for which the qualified 
manufacturer has submitted a periodic written report certifying 
compliance with the requirement of section 30D(d), such vehicle is no 
longer considered a new clean vehicle eligible for the section 30D 
credit.
    (iii) If the errors are not cured, in the case of a new clean 
vehicle that has not been placed in service and for which the qualified 
manufacturer has not submitted a periodic written report certifying 
compliance with the requirement of section 30D(d), the qualified 
manufacturer may not submit such periodic written report.
    (iv) If the errors are not cured, in the case of a new clean 
vehicle that has been placed in service, the IRS may require a decrease 
in the qualified manufacturer's compliant-battery ledger as described 
in paragraph (d)(2)(iii) of this section. If the qualified manufacturer 
has multiple compliant-battery ledgers, the IRS may determine which 
ledger is to be decreased.
    (3) Intentional disregard or fraud. If the IRS determines that a 
qualified manufacturer intentionally disregarded attestation, 
certification, or documentation requirements or reported information 
fraudulently or with intentional disregard, the following may be 
required:
    (i) All vehicles of the qualified manufacturer that have not been 
placed in service may no longer be considered new clean vehicles 
eligible for the section 30D credit.
    (ii) The IRS may terminate the written agreement between the IRS 
and the manufacturer, thereby terminating the manufacturer's status as 
a qualified manufacturer as described in Sec.  1.30D-2(l). The 
manufacturer would be required to submit a new written agreement to 
reestablish qualified manufacturer status at the time and in the manner 
provided in the Internal Revenue Bulletin.
    (g) Examples. The following examples illustrate the rules under 
paragraphs (b) through (d) of this section:
    (1) Example 1: In general--(i) Facts. M is a manufacturer of new 
clean vehicles and batteries. M also manufactures or assembles battery 
cells at its own battery cell production facility. M manufactures a 
line of new clean vehicles that it anticipates will be placed in 
service in calendar year 2025. Each vehicle contains one battery, and 
each battery contains 1,000 battery cells. All battery cells are 
produced at the same battery cell production facility. The battery 
cells are not manufactured or assembled by a FEOC. Each battery cell 
contains 10 mass of battery component A. M has procured or is under 
contract to procure 10,000,000 mass of battery component A for the 
battery cell production facility, of which 6,000,000 mass is from 
supplier 1 and 4,000,000 mass is from supplier 2.
    (ii) Analysis. (A) Under paragraph (b) of this section, M must 
conduct due diligence on all battery components and applicable critical 
minerals (and associated constituent materials) that are contained in 
the battery to determine whether such components or minerals are FEOC-
compliant.
    (B) Under paragraph (c)(4) of this section, M must first determine 
whether the battery components and applicable critical minerals (and 
associated constituent materials) are FEOC-compliant. From its due 
diligence, M determines that, of the 10,000,000 mass of battery 
component A, the 6,000,000 mass from supplier 1 is FEOC-compliant while 
the 4,000,000 mass from supplier 2 is not FEOC-compliant. M determines 
that all other battery components and applicable critical minerals (and 
associated constituent materials) of the battery cell are FEOC-
compliant, that the battery cell is not manufactured or assembled by a 
FEOC, and that all battery components (excluding components of the 
battery cell) of the battery are FEOC-compliant.
    (C) Under paragraph (c)(3) of this section, M must determine which 
battery cells are FEOC-compliant through the physical tracking of the 
6,000,000 mass of FEOC-compliant battery component A to determine

[[Page 84115]]

which 600,000 (6,000,000/10) battery cells are FEOC-compliant. Under 
paragraph (c)(2) of this section, M must use a serial number or other 
identification system to track the 600,000 FEOC-compliant battery cells 
to 600 (600,000/1,000) specific batteries.
    (D) Under paragraph (d)(1) of this section, a compliant-battery 
ledger must be established for calendar year 2025. For purposes of 
paragraph (d)(2)(i) of this section, M determines that it will 
manufacture 600 batteries for calendar year 2025 that are FEOC-
compliant. Under paragraph (d)(2)(ii) of this section, M attests to the 
600 FEOC-compliant batteries and provides the basis for the 
determination, including attestations, certifications, and 
documentation demonstrating compliance with paragraphs (b) and (c) of 
this section. Once the IRS, with analytical assistance from the DOE, 
approves the number, a compliant-battery ledger is established with a 
balance of 600 FEOC-compliant batteries.
    (E) M manufactures 100 vehicles that it anticipates will be placed 
in service in 2025, for which it provides periodic written reports 
providing the VINs of the vehicles and indicating that such vehicles 
qualify for the section 30D credit. Under paragraph (d)(3) of this 
section, the compliant-battery ledger is updated to track the number of 
FEOC-compliant batteries. The number of batteries contained in the 
compliant-battery ledger is reduced from 600 to 500. Assuming all of 
the other requirements of section 30D and the regulations thereunder 
are met, the 100 vehicles are new clean vehicles that qualify for 
purposes of section 30D.
    (2) Example 2: Rules for third-party suppliers--(i) Facts. The 
facts are the same as example 1, except that M contracts with BM, a 
battery manufacturer, for the provision of batteries, and BM contracts 
with BCS, a battery cell supplier that operates a battery cell 
production facility, for the provision of battery cells.
    (ii) Analysis. Under paragraph (c)(5) of this section, BCS may make 
the determination in paragraphs (c)(2) through (4) of this section, 
provided that M, BM and BCS perform due diligence as described in 
paragraph (b) of this section. In addition, BM and BCS must provide M 
with information sufficient to establish a basis for the determinations 
under paragraphs (c)(2) through (4) of this section, including 
information related to due diligence. Finally, BM and BCS must be 
contractually required to provide the required information to M, and 
must also be required to inform the qualified manufacturer of any 
change in supply chains that affects the determinations of FEOC 
compliance under paragraphs (c)(2) and (4) of this section. The 
contractual requirement may be satisfied if BM and BCS each have the 
contractual obligation to M. Alternatively, it may be satisfied if BCS 
has a contractual obligation to BM and BM, in turn, has a contractual 
obligation to M.
    (3) Example 3: Applicable critical minerals--(i) Facts. The facts 
are the same as example 1. In addition, each battery cell contains 20 
kilograms (kgs) of applicable critical mineral Z contained in a 
constituent material. M has procured or is under contract to 20,000,000 
kgs of Z for the battery cell production facility, of which 4,000,000 
kgs are from supplier 3 and 16,000,000 kgs are from supplier 4.
    (ii) Analysis. The analysis is the same as in example 1. In 
addition, from its due diligence, M determines that of the 20,000,000 
kg of applicable critical mineral Z, the 4,000,000 kg from supplier 3 
is FEOC-compliant while the 16,000,000 kg from supplier 4 is not FEOC-
compliant. Under paragraph (c)(3) of this section, M may determine 
which battery cells are FEOC-compliant through the physical tracking of 
the 4,000,000 kg of FEOC-compliant applicable critical mineral Z to 
200,000 (4,000,000/20) of the battery cells that also contain battery 
component A, in order to determine which 200,000 battery cells are 
FEOC-compliant. Alternatively, M may determine which 200,000 battery 
cells are FEOC-compliant through an allocation of applicable critical 
mineral Z (but not battery component A) to battery cells, without 
physical tracking, under paragraph (c)(3)(ii) of this section. Under 
paragraph (c)(2) of this section, M must use a serial number or other 
identification system to track the 200,000 FEOC-compliant battery cells 
to 200 (200,000/1,000) specific batteries.
    (4) Example 4: Comprehensive example--(i) Facts. M is a 
manufacturer of new clean vehicles and batteries. M also manufactures 
or assembles battery cells at its own battery cell production facility. 
M manufactures a line of new clean vehicles. Each vehicle contains one 
battery. All battery cells are produced at the same battery cell 
production facility. The battery cells are not manufactured or 
assembled by a FEOC. Each battery contains 1,000 NMC 811 battery cells. 
M anticipates manufacturing 1,000,000 such battery cells for a line of 
new clean vehicles that it anticipates will be placed in service in 
calendar year 2025.
    (A) Each battery cell contains 1 cathode electrode, 1 anode 
electrode, 1 separator, and 1 liquid electrolyte. Thus, M procures 
1,000,000 of each battery component for the battery cell production 
facility.
    (B) In addition, each NMC 811 cathode incorporates cathode active 
material (a constituent material) produced using 2.5 kg of applicable 
critical minerals, consisting of 0.5 kg of lithium hydroxide, 1.6 kg of 
nickel sulfate, 0.2 kg of cobalt sulfate, and 0.2 kg of manganese 
sulfate. Thus, M procures 2,500 metric tons (2.5 kg * 1,000,000/1,000) 
of applicable critical minerals for the battery cell production 
facility, resulting in purchase agreements for 500 metric tons of 
lithium, 1,600 metric tons of nickel, 200 metric tons of cobalt, and 
200 metric tons of manganese.
    (ii) Analysis. (A) Under Sec.  1.30D-6(b), M must conduct due 
diligence on all battery components and applicable critical minerals 
(and associated constituent materials) that are contained in the 
battery to determine whether such components or minerals are FEOC-
compliant.
    (B) Under paragraph (c)(4) of this section, M must first determine 
whether the battery components and applicable critical minerals (and 
associated constituent materials) are FEOC-compliant. From its due 
diligence M determines that, of the cathode electrodes, 600,000 are not 
manufactured by a FEOC and are therefore FEOC-compliant; 400,000 are 
manufactured by a FEOC and are therefore non-compliant. Of the critical 
minerals that M has procured, M determines that 250 metric tons of 
lithium hydroxide, 1,200 metric tons of nickel sulfate, and all of the 
cobalt sulfate and manganese sulfate are FEOC-compliant. All other 
battery components and applicable critical minerals of the battery 
cells are FEOC-compliant.
    (C) Under paragraph (c)(3) of this section, M must determine which 
battery cells are FEOC-compliant through the physical tracking of 
battery components. M may determine which battery cells are FEOC-
compliant through the physical tracking of applicable critical 
minerals. Alternatively, M may determine which battery cells are FEOC-
compliant through an allocation of applicable critical minerals (and 
associated constituent materials) but not battery components.
    (D) Under an allocation-based determination, M has procured 500 
metric tons of lithium hydroxide incorporated into a constituent 
material for the battery cell production facility, of which 50 percent 
(250/500 metric tons) is FEOC-compliant. M has

[[Page 84116]]

procured 1,600 metric tons of nickel sulfate incorporated into a 
constituent material for the battery cell production facility, of which 
75 percent (1,200/1,600 metric tons) is FEOC-compliant. Since the 
lithium hydroxide is the least compliant applicable critical mineral or 
component, M allocates the FEOC-compliant lithium hydroxide mass to 50 
percent or 500,000 (50 percent * 1,000,000) of the total battery cells, 
and to battery cells that contain FEOC-compliant cathode electrodes and 
have been allocated FEOC-compliant nickel sulfate. Under paragraph 
(c)(2)(ii)(E) of this section, the quantity of FEOC-compliant battery 
cells is limited by the applicable critical mineral (lithium hydroxide) 
that has the lowest percentage (50 percent) of FEOC-compliant supply.
    (E) Under paragraph (c)(2) of this section, M must use a serial 
number or other identification system to track the 500,000 FEOC-
compliant battery cells to 500 (500,000/1,000) specific batteries.
    (F) Under paragraph (d)(1) of this section, a compliant-battery 
ledger must be established for calendar year 2025. For purposes of 
paragraph (d)(2)(i) of this section, M determines that it will 
manufacture 500 batteries for calendar year 2025 that are FEOC-
compliant. Under paragraph (d)(2)(ii) of this section, M attests to the 
500 FEOC-compliant batteries and provides the basis for the 
determination, including attestations, certifications, and 
documentation demonstrating compliance with paragraphs (b) and (c) of 
this section. Once the IRS, with analytical assistance from the DOE, 
has approved the number, a compliant-battery ledger is established with 
a balance of 500 FEOC-compliant batteries.
    (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 agency's intention that the 
remaining provisions will continue in effect.
    (i) Applicability date. This section applies to new clean vehicles 
placed in service after December 31, 2023.

Douglas W. O'Donnell,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2023-26513 Filed 12-1-23; 8:45 am]
BILLING CODE 4830-01-P


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