86844 Federal Register / Vol. 88, No. 240 / Friday, December 15, 2023 / Proposed Rules 

Issued on December 8, 2023. 

Victor Wicklund, 

Deputy Director, Compliance & Airworthiness 

Division, Aircraft Certification Service. 

[FR Doc. 2023–27386 Filed 12–14–23; 8:45 am] 

BILLING CODE 4910–13–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

[REG–107423–23] 

RIN 1545–BQ85 

Section 45X Advanced Manufacturing 

Production Credit 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Notice of proposed rulemaking 

and public hearing. 

SUMMARY: This document contains 

proposed regulations to implement the 

advanced manufacturing production 

credit established by the Inflation 

Reduction Act of 2022 to incentivize the 

production of eligible components 

within the United States. Eligible 

components include certain solar energy 

components, wind energy components, 

inverters, qualifying battery 

components, and applicable critical 

minerals. The proposed regulations 

would affect eligible taxpayers who 

produce and sell eligible components 

and intend to claim the benefit of an 

advanced manufacturing production 

credit, including by making elective 

payment or credit transfer elections. 

This document also provides notice of 

a public hearing on the proposed 

regulations. 

DATES: Written or electronic comments 

must be received by February 13, 2024. 

A public hearing on this proposed 

regulation has been scheduled for 

February 22, 2024, at 10 a.m. ET. 

Requests to speak and outlines of topics 

to be discussed at the public hearing 

must be received by February 13, 2024. 

If no outlines are received by February 

13, 2024, the public hearing will be 

cancelled. 

Requests to attend the public hearing 

must be received by 5 p.m. ET on 

February 20, 2024. The public hearing 

will be made accessible to people with 

disabilities. Requests for special 

assistance during the public hearing 

must be received by 5 p.m. ET on 

February 16, 2024. 

ADDRESSES: Commenters are strongly 

encouraged to submit public comments 

electronically via the Federal 

eRulemaking Portal at https://

www.regulations.gov (indicate IRS and 

REG–107423–23) by following the 

online instructions for submitting 

comments. Requests for a public hearing 

must be submitted as prescribed in the 

‘‘Comments and Public Hearing’’ 

section. Once submitted to the Federal 

eRulemaking Portal, comments cannot 

be edited or withdrawn. The 

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–107423–23), Room 

5203, Internal Revenue Service, P.O. 

Box 7604, Ben Franklin Station, 

Washington, DC 20044. 

FOR FURTHER INFORMATION CONTACT: 

Concerning the proposed regulations, 

Mindy Chou, John Deininger, or 

Alexander Scott at (202) 317–6853 (not 

a toll-free number); concerning 

submissions of comments or the public 

hearing, Vivian Hayes at (202) 317–6901 

(not a toll-free number) or by email to 

publichearings@irs.gov (preferred). 

SUPPLEMENTARY INFORMATION: 

Background 

This document contains proposed 

amendments to the Income Tax 

Regulations (26 CFR part 1) to 

implement section 45X of the Internal 

Revenue Code (Code). Section 45X was 

added to the Code on August 16, 2022, 

by section 13502(a) of Public Law 117– 

169, 136 Stat. 1818, 1971, commonly 

referred to as the Inflation Reduction 

Act of 2022 (IRA). Section 13502(c) of 

the IRA provides that section 45X 

applies to components produced and 

sold after December 31, 2022. 

I. Overview of Section 45X 

Section 45X(a)(1) provides that, for 

purposes of the general business credit 

under section 38 of the Code, the 

advanced manufacturing production 

credit (section 45X credit) for any 

taxable year is an amount equal to the 

sum of the credit amounts determined 

under section 45X(b) with respect to 

each eligible component, as defined in 

section 45X(c)(1), which is produced by 

the taxpayer, and during the taxable 

year, sold by such taxpayer to an 

unrelated person. Section 45X(a)(2) 

provides that any eligible component 

produced and sold by the taxpayer is 

taken into account only if the 

production and sale is in a trade or 

business of the taxpayer. 

Section 45X(a)(3) provides rules 

regarding the sale of components to an 

unrelated person, and generally 

provides a special rule that, for 

purposes of section 45X(a), treats a 

taxpayer as selling a component to an 

unrelated person if that component is 

sold to the unrelated person by a person 

related to the taxpayer. Under section 

45X(a)(3)(B), if a taxpayer makes an 

election in the form and manner 

prescribed by the Secretary of the 

Treasury or her delegate (Secretary), a 

sale of components by the taxpayer to a 

related person will be treated as if made 

to an unrelated person for purposes of 

section 45X(a) (Related Person Election). 

As a condition of, and prior to, a 

taxpayer making the Related Person 

Election, the Secretary may require such 

information or registration as the 

Secretary deems necessary for purposes 

of preventing duplication, fraud, or any 

improper or excessive credit amount. 

Section 45X(b)(1)(A) through (M) and 

section 45X(b)(2) set forth the credit 

amounts for each type of eligible 

component, which amounts, except for 

purposes of determining the credit 

amount for any applicable critical 

mineral, are subject to phase out rules 

set forth in section 45X(b)(3). For any 

eligible component (except applicable 

critical minerals) sold after December 

31, 2029, the credit amount for such 

component equals the product of the 

amount determined under section 

45X(b)(1) for such component 

multiplied by the applicable phase out 

percentage under section 45X(b)(3)(B)(i) 

through (iv). In the case of an eligible 

component sold during calendar year 

2030, 2031, and 2032, the phase out 

percentages are 75 percent, 50 percent, 

and 25 percent, respectively. In the case 

of an eligible component sold after 

December 31, 2032, the phase out 

percentage is zero percent. Thus, 

current law provides no section 45X 

credit after 2032 for eligible components 

other than for applicable critical 

minerals. 

Section 45X(b)(4) provides capacity 

limitations used to compute the credit 

amount for eligible battery cells and 

battery modules under sections 

45X(b)(1)(K)(ii) and (L)(ii). To compute 

the credit for these eligible components, 

section 45X(b)(4)(A) provides that the 

capacity determined with respect to a 

battery cell or battery module must not 

exceed a capacity-to-power-ratio of 

100:1. Section 45X(b)(4)(B) defines the 

term ‘‘capacity-to-power-ratio’’ as the 

ratio of the capacity of a battery cell or 

battery module to the maximum 

discharge amount of such cell or 

module. 

Section 45X(c)(1)(A) defines the term 

‘‘eligible component’’ to mean any solar 

energy component, any wind energy 

component, any inverter described in 

section 45X(c)(2)(B) through (G), any 


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qualifying battery component, and any 

applicable critical mineral. Section 

45X(c)(1)(B) clarifies that the term 

‘‘eligible component’’ does not include 

any property that is produced at a 

facility if the basis of any property that 

is part of such facility is taken into 

account for purposes of the qualifying 

advanced energy project credit allowed 

under section 48C after August 16, 2022 

(the date of enactment of the IRA). 

Section 45X(c)(2)(A) generally defines 

an ‘‘inverter’’ as an end product that is 

suitable to convert direct current (DC) 

electricity from one or more solar 

modules or certified distributed wind 

energy systems into alternating current 

(AC) electricity. Section 45X(c)(2)(B) 

through (G) define the following 

different types of eligible inverters: 

central inverter, commercial inverter, 

distributed wind inverter, 

microinverter, residential inverter, and 

utility inverter. 

Section 45X(c)(3)(A) defines a ‘‘solar 

energy component’’ as a solar module, 

photovoltaic cell, photovoltaic wafer, 

solar grade polysilicon, torque tube, 

structural fastener, or polymeric 

backsheet. Section 45X(c)(3)(B) defines 

these different types of eligible solar 

energy components as well as the term 

‘‘solar tracker.’’ 

Section 45X(c)(4)(A) defines a ‘‘wind 

energy component’’ as blades, nacelles, 

towers, offshore wind foundations, and 

related offshore wind vessels. Section 

45X(c)(4)(B) defines these different 

types of eligible wind energy 

components. 

Section 45X(c)(5)(A) defines a 

‘‘qualifying battery component’’ as 

electrode active materials, battery cells, 

and battery modules. Section 

45X(c)(5)(B) defines these different 

types of qualifying battery components. 

Section 45X(c)(6) provides the 

following list of 50 minerals that if 

converted or purified to specified 

purities are considered an ‘‘applicable 

critical mineral’’ for purposes of the 

section 45X credit: aluminum, 

antimony, arsenic, barite, beryllium, 

bismuth, cerium, cesium, chromium, 

cobalt, dysprosium, erbium, europium, 

fluorspar, gadolinium, gallium, 

germanium, graphite, hafnium, 

holmium, indium, iridium, lanthanum, 

lithium, lutetium, magnesium, 

manganese, neodymium, nickel, 

niobium, palladium, platinum, 

praseodymium, rhodium, rubidium, 

ruthenium, samarium, scandium, 

tantalum, tellurium, terbium, thulium, 

tin, titanium, tungsten, vanadium, 

ytterbium, yttrium, zinc, and zirconium. 

Section 45X(d) provides special rules 

that are applicable to the section 45X 

credit. Section 45X(d)(1) provides that 

persons are treated as related to each 

other if they would be treated as a single 

employer under the regulations 

prescribed under section 52(b) of the 

Code. Section 52(b) generally provides 

that trades or businesses that are 

partnerships, trusts, estates, 

corporations, or sole proprietorships 

under common control are members of 

a controlled group and are treated as a 

single employer. See § 1.52–1(b). 

Section 52(b) requires the regulations 

under section 52(b) to be based on 

principles similar to the principles that 

apply for purposes of section 52(a), 

which generally provides that 

corporations that are members of a 

controlled group of corporations are 

treated as a single employer. Section 

52(a) provides that a controlled group of 

corporations is defined with reference to 

section 1563(a) of the Code. Section 

52(b) and § 1.52–1 provide rules similar 

to those under section 52(a), but with 

certain modifications to account for 

different types of ownership interests. 

Section 45X(d)(2) provides that sales 

of eligible components are taken into 

account under section 45X only for 

eligible components that are produced 

within the United States (including 

continental shelf areas described in 

section 638(1) of the Code), or a U.S. 

territory (including continental shelf 

areas described in section 638(2)). (For 

purposes of this document, the term 

‘‘U.S. territory’’ has the meaning of the 

term ‘‘possession’’ as defined in section 

638(2).) Section 45X(d)(3) directs the 

Secretary to promulgate regulations 

adopting rules similar to the rules of 

section 52(d) to apportion credit 

amounts between estates or trusts and 

their beneficiaries on the basis of the 

income of the estates or trusts allocable 

to each, and to pass-thru any 

apportioned credit amounts to the 

beneficiaries. Section 45X(d)(4) 

provides that for purposes of the section 

45X credit, a person is treated as having 

sold an eligible component to an 

unrelated person if such component is 

integrated, incorporated, or assembled 

into another eligible component that is 

sold to an unrelated person. 

II. Notice 2022–47 

On October 24, 2022, the Treasury 

Department and the IRS published 

Notice 2022–47, 2022–43 I.R.B. 312. The 

notice requested general comments on 

issues arising under section 45X, as well 

as specific comments concerning: (1) 

definitions (including the definitions of 

eligible components); (2) the Related 

Person Election; (3) capacity-to-power 

ratios for battery cells or battery 

modules; (4) credit amount for 

components used in systems of varying 

capacity; (5) offshore wind vessels; (6) 

applicable critical minerals; and (7) 

apportionment and pass-thru of credit 

amounts to beneficiaries of estates or 

trusts. The Treasury Department and the 

IRS received over 300 comments from 

industry participants 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 these 

proposed regulations. 

III. Notices 2023–18 and 2023–44 

On March 6, 2023, the Treasury 

Department and the IRS published 

Notice 2023–18, 2023–10 I.R.B. 508, to 

establish the qualifying advanced 

energy projects program (section 48C(e) 

program). On June 20, 2023, the 

Treasury Department and the IRS 

published Notice 2023–44, 2023–25 

I.R.B. 924, to provide additional 

guidance on the section 48C(e) program, 

including rules for the interaction 

between sections 45X and 48C. The 

rules regarding the interaction between 

sections 45X and 48C provided in 

Notices 2023–18 and 2023–44 have been 

incorporated into these proposed 

regulations and upon finalization of this 

rulemaking, section 5.05 of Notice 

2023–18 and section 3 of Notice 2023– 

44 will be superseded. 

Explanation of Provisions 

I. Overview of Proposed Regulations 

Consistent with section 45X(a)(1), 

these proposed regulations would 

provide that for purposes of section 38, 

the section 45X credit for any taxable 

year is an amount equal to the sum of 

the credit amounts determined under 

section 45X(b) with respect to each 

eligible component, as defined in 

section 45X(c), produced by the 

taxpayer, and, during the taxable year, 

sold by that taxpayer to an unrelated 

person. Consistent with section 

45X(a)(2), only eligible components that 

are produced and sold in a trade or 

business of the taxpayer are taken into 

account for purposes of the section 45X 

credit. 

These proposed regulations are 

organized into four sections, proposed 

§§ 1.45X–1 through 1.45X–4. Proposed 

§ 1.45X–1 would provide general rules 

applicable to the section 45X credit, 

including the definition of the term 

‘‘produced by the taxpayer’’ for both 

primary and secondary production. 

Primary production involves producing 

an eligible component using nonrecycled materials while secondary 

production involves producing an 

eligible component using recycled 


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materials. Proposed § 1.45X–2 would 

provide rules for sales to unrelated 

persons through a person related to the 

taxpayer, including the rules for a 

taxpayer to make an election to treat 

sales of eligible components to related 

persons (Related Person Election) as if 

made to unrelated persons. Proposed 

§ 1.45X–3 would provide definitions 

and credit amounts for certain eligible 

components, including solar energy 

components, wind energy components, 

inverters, and qualifying battery 

components, and phase-out rules. 

Proposed § 1.45X–4 would provide 

definitions and credit amounts for 

applicable critical minerals that are 

eligible components. 

II. General Rules Applicable to the 

Advanced Manufacturing Production 

Credit 

A. Overview 

Proposed § 1.45X–1(a) would provide 

an overview of the general rules 

regarding the advanced manufacturing 

production credit under section 45X. 

B. Credit Amount 

Proposed § 1.45X–1(b) would explain 

how to calculate the amount of the 

credit provided under section 45X for 

any taxable year. 

C. Definition of Produced by the 

Taxpayer 

Proposed § 1.45X–1(c) would define 

the term ‘‘produced by the taxpayer’’ for 

both primary and secondary production. 

Proposed § 1.45X–1(c)(1) would provide 

the general definition of the term. 

Proposed § 1.45X–1(c)(1)(i) would state 

that partial transformation that does not 

result in a substantial transformation of 

inputs into a complete and distinct 

eligible component is not included in 

the definition of ‘‘produced by the 

taxpayer.’’ Proposed § 1.45X–1(c)(1)(ii) 

would state that neither minor assembly 

of constituent inputs nor superficial 

modification of a final eligible 

component are included in the 

definition of ‘‘produced by the 

taxpayer.’’ Proposed § 1.45X–1(c)(1)(iii) 

would provide examples illustrating the 

definition of ‘‘produced by the 

taxpayer.’’ Proposed § 1.45X–1(c)(2) 

would provide a special rule for 

applying the definition of ‘‘produced by 

the taxpayer’’ for solar grade 

polysilicon, electrode active materials, 

and applicable critical minerals. 

Proposed § 1.45X–1(c)(3)(i) would 

state that the taxpayer claiming a 

section 45X credit with respect to an 

eligible component must be the person 

that performs the actual production 

activities that bring about a substantial 

transformation resulting in the eligible 

component and that sells such eligible 

component to an unrelated person. 

Proposed § 1.45X–1(c)(3)(ii)(A) would 

provide that if the production of an 

eligible component is performed in 

whole or in part subject to a contract 

that is a contract manufacturing 

arrangement, then the party to such 

contract that may claim the section 45X 

credit with respect to such eligible 

component, provided all other 

requirements in section 45X are met, is 

the taxpayer that performs the actual 

production activities that bring about a 

substantial transformation resulting in 

the eligible component. This proposed 

rule is intended to provide an 

administrable rule that provides 

taxpayers clarity and certainty in 

determining which taxpayer may claim 

the section 45X credit in a contract 

manufacturing arrangement. 

Proposed § 1.45X–1(c)(3)(ii)(B) would 

define the term ‘‘contract manufacturing 

arrangement’’ to mean any agreement 

providing for the production of an 

eligible component if the agreement is 

entered into before the production of the 

eligible component to be delivered 

under the contract is completed. 

Proposed § 1.45X–1(c)(3)(ii)(B) would 

further provide that a routine purchase 

order for off-the-shelf property is not 

treated as a contract manufacturing 

arrangement for purposes of proposed 

§ 1.45X–1(c)(3). Proposed § 1.45X– 

1(c)(3)(ii)(B) would also provide that an 

agreement will be treated as a routine 

purchase order for off-the-shelf property 

if the contractor is required to make no 

more than de minimis modifications to 

the property to tailor it to the customer’s 

specific needs, or if at the time the 

agreement is entered into, the contractor 

knows or has reason to know that the 

contractor can satisfy the agreement out 

of existing stocks or normal production 

of finished goods. This definition of the 

term ‘‘routine purchase order’’ is based 

on the definition found in § 1.263A– 

2(a)(1)(ii)(B)(2)(ii). The Treasury 

Department and the IRS request 

comments on whether this definition 

should be further clarified or modified. 

Proposed § 1.45X–1(c)(3)(iii) would 

explain the special rule allowing parties 

to a contract manufacturing arrangement 

to agree on which party to the contract 

will claim the section 45X credit for 

eligible components produced subject to 

such contract. Proposed § 1.45X– 

1(c)(3)(iv) would explain the 

certification requirements for the special 

rule. Proposed § 1.45X–1(c)(3)(v) would 

provide examples illustrating the 

application of the special rule. 

Proposed § 1.45X–1(c)(4)(i) would 

explain the requirements for the timing 

of production and sale of eligible 

components. Proposed § 1.45X– 

1(c)(4)(ii) would provide an example 

illustrating the application of these 

requirements. 

D. Produced in the United States 

Proposed § 1.45X–1(d)(1) would state 

that sales are taken into account for 

purposes of the section 45X credit only 

for eligible components produced 

within the United States, as defined in 

section 638(1) of the Code, or a United 

States territory, which for purposes of 

section 45X has the meaning of the term 

‘‘possession’’ provided in section 638(2) 

of the Code. Proposed § 1.45X–1(d)(2) 

would clarify that constituent elements, 

materials and subcomponents used in 

the production of eligible components 

are not subject to the domestic 

production rule. It would also be 

permissible for elements, materials, and 

subcomponents used in the production 

of eligible components to be recycled 

rather than newly created elements, 

materials, and subcomponents. 

E. Production and Sale in a Trade or 

Business 

Proposed § 1.45X–1(e) would state 

that an eligible component must be 

produced and sold in a trade or business 

of the taxpayer, with the term ‘‘trade or 

business’’ defined as a trade or business 

within the meaning of section 162 of the 

Code. 

F. Integrated, Incorporated, or 

Assembled 

Proposed § 1.45X–1(f)(1) would state 

that a taxpayer is treated as having 

produced and sold an eligible 

component to an unrelated person if 

such component is integrated, 

incorporated, or assembled into another 

eligible component that is then sold to 

an unrelated person. This proposed rule 

would further define the term 

‘‘integrated, incorporated, or 

assembled’’ to mean the production 

activities by which eligible components 

that are constituent elements, materials, 

or subcomponents are substantially 

transformed into another complete and 

distinct eligible component functionally 

different from that which would result 

from mere assembly or superficial 

modification of the eligible components 

used as elements, materials or 

subcomponents and other elements, 

materials or subcomponents. Proposed 

§ 1.45X–1(f)(2)(i) would clarify that a 

taxpayer may claim a section 45X credit 

for each eligible component the 

taxpayer produces and sells to an 

unrelated person, including any eligible 

component the taxpayer produces that 

was used as a constituent element, 


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material, or subcomponent and 

integrated, incorporated, or assembled 

into another complete and distinct 

eligible component or another complete 

and distinct product that the taxpayer 

also produces and sells to an unrelated 

person. Proposed § 1.45X–1(f)(2)(ii) 

would provide an example of the credit 

eligibility of a sale of a product with 

incorporated eligible components to an 

unrelated person. 

G. Interaction Between Sections 48C 

and 45X 

Proposed § 1.45X–1(g)(1) would, 

consistent with section 45X(c)(1)(B), 

provide that for purposes of section 

45X, an eligible component must be 

produced at a section 45X facility and 

does not include any property 

(produced property) that is produced at 

a facility if the basis of any property that 

is part of the production unit that 

produces the produced property is 

eligible property that is included in a 

section 48C facility and is taken into 

account for purposes of a credit allowed 

under section 48C (section 48C credit) 

after August 16, 2022. Proposed 

§ 1.45X–1(g)(2)(i) would define a section 

45X facility to include all tangible 

property that comprises an 

independently functioning production 

unit that produces one or more eligible 

components. Proposed § 1.45X– 

1(g)(2)(ii) would provide that a 

production unit is comprised of the 

tangible property that substantially 

transforms material inputs to complete 

the production process of an eligible 

component. Proposed § 1.45X–1(g)(3)(i) 

would define a section 48C facility to 

include all eligible property included in 

a qualifying advanced energy project for 

which a taxpayer receives an allocation 

of section 48C credits and claims such 

credits after August 16, 2022. Proposed 

§ 1.45X–1(g)(3)(ii) would define eligible 

property included in a section 48C 

facility. Proposed § 1.45X–1(g)(4) would 

provide examples to illustrate the 

application of these rules. 

H. Pass-Thru From Estates and Trusts 

The Treasury Department and the IRS 

intend to provide rules addressing how 

the section 45X credit applies in the 

case of pass-thru from estates and trusts. 

The Treasury Department and the IRS 

request comments on how such rules 

should be implemented and whether 

there are any special considerations for 

estates and trusts claiming the section 

45X credit. Proposed § 1.45X–1(h) is 

reserved for this purpose. 

I. Anti-Abuse Rule 

Proposed § 1.45X–1(i)(1) provides a 

general anti-abuse rule that would make 

the section 45X credit unavailable in 

extraordinary circumstances in which, 

based on a consideration of all the facts 

and circumstances, the primary purpose 

of the production and sale of an eligible 

component is to obtain the benefit of the 

section 45X credit in a manner that is 

wasteful, such as discarding, disposing 

of, or destroying the eligible component 

without putting it to a productive use. 

In cases where the cost of producing 

certain eligible components is less than 

the amount of the section 45X credit 

that would be available, the Treasury 

Department and the IRS are concerned 

that taxpayers may have an incentive to 

produce such components solely for the 

purpose of exploiting the section 45X 

credit in a manner that is inconsistent 

with a purpose of section 45X, which is 

to provide an incentive to produce 

eligible components that contribute to 

the development of secure and resilient 

supply chains. Producing and selling 

eligible components with the primary 

purpose of obtaining the benefit of the 

section 45X credit in a wasteful manner 

would not satisfy the requirement for 

the eligible component to be produced 

and sold in a trade or business of the 

taxpayer under section 45X(a)(2) in 

certain circumstances. Proposed 

§ 1.45X–1(i)(2) would provide an 

example illustrating this anti-abuse rule. 

III. Sale to An Unrelated Person 

Proposed § 1.45X–2(a) would state the 

general rule that the amount of the 

section 45X credit for any taxable year 

is equal to the sum of the credit 

amounts determined under section 

45X(b) (and described in §§ 1.45X–3 and 

1.45X–4) with respect to each eligible 

component that is produced by the 

taxpayer and, during the taxable year, 

sold by the taxpayer to an unrelated 

person (as defined in section 45X(a)(3) 

and described in § 1.45X–2(b)(3)). 

A. Definitions 

Section 45X(d)(1) provides that 

persons are treated as related to each 

other if such persons would be treated 

as a single employer under the 

regulations prescribed under section 

52(b). Proposed § 1.45X–2(b) would 

provide definitions of the terms 

‘‘person,’’ ‘‘related person,’’ and 

‘‘unrelated person’’ for purposes of the 

section 45X credit. 

B. Special Rule for Sale to Related 

Person 

Section 45X(a)(3)(A) provides a 

special rule for purposes of section 45X 

that a taxpayer is treated as selling 

components to an unrelated person if 

such component is sold to such person 

by a person related to the taxpayer. 

Proposed § 1.45X–2(c) would provide 

this rule and an example to illustrate its 

application. 

C. Related Person Election 

Section 45X(a)(3)(B)(i) provides that 

at the election of the taxpayer (in such 

form and manner as the Secretary may 

prescribe), a sale of components by such 

taxpayer to a related person is treated as 

if made by the taxpayer to an unrelated 

person for purposes of section 45X(a) 

(Related Person Election). Thus, the 

Related Person Election is only available 

if an eligible component is sold by a 

taxpayer to a related person. The 

Related Person Election is not available 

if a taxpayer does not actually sell the 

eligible component to another person, 

for example, if an eligible component is 

transferred between a person and an 

entity that is not regarded as separate 

from the person under § 301.7701–3 of 

the Procedure and Administration 

Regulations (26 CFR part 301) or 

between divisions of a single 

corporation. Section 45X(a)(3)(B)(ii) 

provides that as a condition of, and 

prior to, any election described in 

clause (i), the Secretary may require 

such information or registration as the 

Secretary deems necessary for purposes 

of preventing duplication, fraud, or any 

improper or excessive amount 

determined under section 45X(a)(1). 

Proposed § 1.45X–2(d)(1) would 

provide that the Related Person Election 

must be made in the form and manner 

prescribed in guidance. The term 

‘‘guidance’’ is defined as guidance 

published in the Federal Register or 

Internal Revenue Bulletin, as well as 

administrative guidance such as forms, 

instructions, publications, or other 

guidance on the IRS.gov website. See 

§§ 601.601 and 601.602 of the Statement 

of Procedural Rules (26 CFR part 601). 

For members of a consolidated group (as 

defined in § 1.1502–1(h)), the election is 

made by each member, in the manner 

set forth in proposed § 1.45X–2(d)(4)(i). 

In addition, if a member of a 

consolidated group sells eligible 

components to another member of the 

group, the selling member may make the 

Related Person Election to claim the 

section 45X credit in the taxable year of 

sale. Proposed § 1.45X–2(d)(1) would 

also provide that as a condition of, and 

prior to, a taxpayer making a Related 

Person Election, the Secretary may 

require such information or registration 

as the Secretary deems necessary for 

purposes of preventing duplication, 

fraud, or any improper or excessive 

credit amount determined under section 

45X(a)(1). 

Proposed § 1.45X–2(d)(2) would 

provide the time and manner for a 


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taxpayer to make the Related Person 

Election. Proposed § 1.45X–2(d)(2)(i) 

would state that a taxpayer must make 

an affirmative Related Person Election 

annually in the form and manner 

prescribed in guidance (currently Form 

7207, Advanced Manufacturing 

Production Credit, and its instructions), 

and filed with the taxpayer’s timely 

filed original Federal income tax return, 

including extensions. Proposed § 1.45X– 

2(d)(2)(i) would also provide that the 

Related Person Election will be 

applicable to all sales of eligible 

components to related persons by the 

taxpayer for each trade or business that 

the taxpayer engages in during the 

taxable year that resulted in a credit 

claim and for which the taxpayer has 

made the Related Person Election. 

Proposed § 1.45X–2(d)(2)(ii) would 

provide the required information to 

make a Related Person Election. 

Proposed § 1.45X–2(d)(3) would 

describe the scope and effect of the 

Related Person Election and provide 

that a separate Related Person Election 

must be made with respect to related 

person sales made by a taxpayer in each 

eligible trade or business of the 

taxpayer. Proposed § 1.45X–2(d)(3) 

would also provide that a Related 

Person Election applies to all sales to 

related persons (including between 

members of the same consolidated 

group, notwithstanding the rules 

provided in § 1.1502–13) of eligible 

components produced by the taxpayer 

during the taxable year for which that 

election is made and is irrevocable for 

that taxable year. Additionally, 

proposed § 1.45X–2(d)(3) would provide 

that a Related Person Election applies 

solely for purposes of the section 45X 

credit, the provisions of proposed 

§§ 1.45X–1 through 1.45X–4, and so 

much of sections 6417 and 6418 and the 

regulations under sections 6417 and 

6418 related to the section 45X credit. 

Proposed § 1.45X–2(d)(3)(ii) and (iii) 

would apply the provisions of proposed 

§ 1.45X–2(d)(2) and (d)(3)(i) to 

consolidated groups and partnerships. 

Proposed § 1.45X–2(d)(3)(ii) would 

apply the provisions of proposed 

§ 1.45X–2(d)(2) and (d)(3)(i) to 

consolidated groups by providing that 

for a trade or business of a consolidated 

group (as defined in § 1.1502–1(h)), a 

Related Person Election is made by the 

agent for the group on behalf of the 

member claiming the section 45X credit 

and filed with the group’s timely filed 

original Federal income tax return, 

including extensions, with respect to 

each trade or business that the 

consolidated group conducts. See 

§ 1.1502–77 (providing rules regarding 

the status of the common parent as 

agent for its members). A separate 

election must be filed on behalf of each 

member claiming the section 45X credit, 

and each election must include the 

name and employer identification 

number (EIN) of the agent for the group 

and the member on whose behalf the 

form is being filed. 

Proposed § 1.45X–2(d)(3)(iii) would 

apply the provisions of proposed 

§ 1.45X–2(d)(2) and (d)(3)(i) to 

partnerships by stating that an election 

for a partnership must be filed with the 

partnership’s timely filed original 

Federal income tax return, including 

extensions, with respect to each trade or 

business that the partnership conducts. 

Additionally, proposed § 1.45X– 

2(d)(3)(iii) provides that an election by 

a partnership does not apply to any 

trade or business conducted by a partner 

outside the partnership. 

Proposed § 1.45X–2(d)(4) would 

provide an anti-abuse rule for the 

Related Person Election that is 

necessary for preventing duplication, 

fraud, or any improper or excessive 

amount of the section 45X credit. This 

anti-abuse rule would make the Related 

Person Election unavailable in 

extraordinary cases where a taxpayer 

seeks to use the Related Person Election 

to exploit the section 45X credit in an 

improper and wasteful manner or sell 

defective components to a related 

person. Proposed § 1.45X–2(d)(4)(i) 

would provide that a Related Person 

Election may not be made if the 

taxpayer fails to provide the information 

required by proposed § 1.45X–2(d)(2) 

with respect to the relevant eligible 

components, the taxpayer provides 

information that shows such 

components were put to an improper 

use or were defective, or such 

components were actually put to an 

improper use or were defective. 

Proposed § 1.45X–2(d)(4)(ii) would 

provide that an eligible component is 

put to an improper use if it is so used 

by the related person to which the 

eligible component is sold. The term 

‘‘improper use’’ would mean a use that 

is wasteful, such as discarding, 

disposing of, or destroying the eligible 

component without putting it to a 

productive use. 

As discussed previously, in cases in 

which the cost of producing certain 

eligible components may be less than 

the amount of the section 45X credit 

that is available, the Treasury 

Department and the IRS are concerned 

that taxpayers may have an incentive to 

produce such components solely for the 

purpose of exploiting the section 45X 

credit without putting such components 

to a productive use. In such cases, the 

Related Person Election would remove 

an important safeguard against the 

improper and wasteful production of 

eligible components that an unrelatedperson-sale requirement would provide. 

The Treasury Department and the IRS 

request comments on this definition of 

the term ‘‘improper use’’ and whether 

any clarifications to its scope are 

necessary. 

Proposed § 1.45X–2(d)(4)(iii) would 

provide that an eligible component is 

‘‘defective’’ if it does not meet the 

requirements of section 45X. The 

Treasury Department and the IRS are 

concerned that the Related Person 

Election may be used by taxpayers to 

claim a credit for eligible components 

that are defective, not capable of being 

used for its intended purpose, do not 

meet the requirements for the section 

45X credit, and therefore are not eligible 

for the section 45X credit. For example, 

a taxpayer that mass produces a large 

quantity of an eligible component may 

find that some of those components are 

defective, cannot be used for its 

intended purposes, and are not eligible 

for the section 45X. Such components 

could also be difficult to sell to an 

unrelated person because they are 

defective. In such cases, the Related 

Person Election would remove an 

important safeguard against improper 

credit claims for defective components 

that an unrelated-person-sale 

requirement would provide. The 

Treasury Department and the IRS 

request comments on the definition of 

the term ‘‘defective components’’ and 

whether clarifications to its scope are 

necessary. 

D. Related Person Sale of Integrated 

Components 

Section 45X(d)(4) provides that for 

purposes of section 45X, a person is 

treated as having sold an eligible 

component to an unrelated person if 

such component is integrated, 

incorporated, or assembled into another 

eligible component that is sold to an 

unrelated person. See part II.F of this 

Explanation of Provisions for rules 

applicable to eligible components that 

are integrated, incorporated or 

assembled into other eligible 

components and sold to an unrelated 

person. 

Proposed § 1.45X–2(e)(1) would 

provide that a taxpayer that produces 

and then sells an eligible component to 

a related person who then integrates, 

incorporates, or assembles the 

taxpayer’s eligible component into 

another complete and distinct eligible 

component that is subsequently sold to 

an unrelated person may claim a section 

45X credit in the taxable year of the sale 

to the unrelated person. Proposed 


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§ 1.45X–2(e)(2) would provide examples 

to illustrate the treatment of sales of 

multiple incorporated eligible 

components to related and unrelated 

persons if the taxpayer makes the 

Related Person Election. 

Proposed § 1.45X–2(e)(3)(i) would 

provide that if a taxpayer makes the 

Related Person Election and produces 

and sells an eligible component to a 

related person who then integrates, 

incorporates, or assembles the 

taxpayer’s eligible component into 

another complete and distinct eligible 

component that is subsequently sold to 

an unrelated person, the taxpayer’s sale 

of the eligible component to the related 

person would be treated as if made to 

an unrelated person in the taxable year 

in which the sale to the related person 

occurs. Proposed § 1.45X–2(e)(3)(ii) 

would provide an example to illustrate 

the treatment of sales of multiple 

integrated eligible components to 

related and unrelated persons with a 

Related Person Election. 

IV. Eligible Components 

For solar energy components, wind 

energy components, inverters, and 

qualifying battery components, 

proposed § 1.45X–3 would provide 

definitions, rules for determining the 

credit amount, and documentation 

requirements. Proposed § 1.45X–3 

would also provide rules for applying 

the phase out of the section 45X credit. 

Proposed § 1.45X–4 would provide such 

information for applicable critical 

minerals (other than rules for applying 

the phase out which do not apply to 

applicable critical minerals). 

A. Eligible Components Generally 

Proposed § 1.45X–3(a) defines the 

term ‘‘eligible component’’ as any solar 

energy component, any wind energy 

component, any inverter, any qualifying 

battery component, and any applicable 

critical mineral. 

B. Solar 

Proposed § 1.45X–3(b) would define 

the term ‘‘solar energy component’’ as a 

solar module, photovoltaic cell, 

photovoltaic wafer, solar grade 

polysilicon, torque tube, structural 

fastener, or polymeric backsheet. 

Proposed § 1.45X–3(b) would clarify the 

definition of each type of solar energy 

component. 

Proposed § 1.45X–3(b) would also 

clarify the calculation of the credit 

amount for each type of solar energy 

component. Proposed § 1.45X–3(b)(1)(ii) 

and (b)(5)(ii) would require the capacity 

of a solar module or photovoltaic cell to 

be determined by the nameplate 

capacity in direct current watts using 

Standard Test Conditions, as defined by 

the International Electrotechnical 

Commission. 

Proposed § 1.45X–3(b) would also 

require taxpayers to maintain specific 

documentation with respect to certain 

solar energy components. For example, 

for structural fasteners to be eligible for 

the section 45X credit, section 

45X(c)(3)(B)(vii)(II) provides that 

structural fasteners must be used (1) to 

connect the mechanical and drive 

system components of a solar tracker to 

the foundation of such solar tracker, (2) 

to connect torque tubes to drive 

assemblies, or (3) to connect segments of 

torque tubes to one another. Proposed 

§ 1.45X–3(b)(8)(iii) would require 

taxpayers to document that a structural 

fastener meets this use requirement with 

a bill of sale, or other similar 

documentation that explicitly describes 

such use. Proposed § 1.45X–3(b)(7)(iii) 

would apply similar documentation 

rules to torque tubes because section 

45X(c)(3)(B)(vii)(I)(aa) requires a torque 

tube to be ‘‘part of a solar tracker’’ to be 

eligible for the section 45X credit. 

C. Wind 

Proposed § 1.45X–3(c) would define 

the term ‘‘wind energy component’’ as 

a blade, nacelle, tower, offshore wind 

foundation, or related offshore wind 

vessel. Proposed § 1.45X–3(c) would 

clarify the definition of each type of 

wind energy component. 

Proposed § 1.45X–3(c)(4)(i) would 

clarify the definition of the term 

‘‘related offshore wind vessel.’’ Section 

45X(c)(4)(B)(iv) defines the term 

‘‘related offshore wind vessel’’ as any 

vessel that is purpose-built or retrofitted 

for purposes of the development, 

transport, installation, operation, or 

maintenance of offshore wind energy 

components. Proposed § 1.45X–3(c)(4)(i) 

would clarify that a vessel is purposebuilt for development, transport, 

installation, operation, or maintenance 

of offshore wind energy components if 

it is built to be capable of performing 

such functions and it is of a type that 

is commonly used in the offshore wind 

industry. Proposed § 1.45X–3(c)(4)(i) 

would further clarify that a vessel is 

retrofitted for development, transport, 

installation, operation, or maintenance 

of offshore wind energy components if 

such vessel was incapable of performing 

such functions prior to being retrofitted, 

the retrofit causes the vessel to be 

capable of performing such functions, 

and the retrofitted vessel is of a type 

that is commonly used in the offshore 

wind industry. 

Proposed § 1.45X–3(c) would also 

clarify the calculation of the credit 

amount for each type of wind energy 

component. The credit amount for a 

blade, nacelle, tower, or offshore wind 

foundation is based on the total rated 

capacity of the completed wind turbine 

for which such component is designed. 

Proposed § 1.45X–3(c)(6) would define 

‘‘total rated capacity of the completed 

wind turbine’’ as, for the completed 

wind turbine for which a blade, nacelle, 

offshore wind foundation, or tower was 

manufactured and sold, the nameplate 

capacity at the time of sale as certified 

to the relevant national or international 

standards, such as International 

Electrotechnical Commission (IEC) 

61400, or ANSI/ACP 101–1–2021, the 

Small Wind Turbine Standard. 

Certification of the turbine to such 

standards must be documented by a 

certificate issued by an accredited 

certification body. The total rated 

capacity of a wind turbine must be 

expressed in watts. 

For a related offshore wind vessel, the 

credit amount is equal to 10 percent of 

the sales price of the vessel. The sales 

price of the vessel does not include the 

price of maintenance or other services 

that may be sold with the vessel. 

Proposed § 1.45X–3(c)(4)(ii) would 

confirm that, for a related offshore wind 

vessel with respect to which a Related 

Person Election (as discussed in part 

III.C of this Explanation of Provisions) 

has been made, the effect of the election 

is limited to allowing the related person 

sale to qualify for a credit under section 

45X (despite the fact that it is not 

actually between unrelated persons) 

and, therefore, the election does not also 

treat the sale price as an arm’s length 

price that was determined between 

uncontrolled taxpayers for purposes of 

section 482 of the Code and the 

regulations thereunder. 

For blades, nacelles, offshore wind 

foundations, or towers, proposed 

§ 1.45X–3(c)(7) would require a taxpayer 

to document the turbine model for 

which such component is designed and 

the total rated capacity of the completed 

wind turbine in technical 

documentation associated with the sale 

of such component. 

D. Inverters 

Proposed § 1.45X–3(d) would define 

the term ‘‘inverter’’ as an end product 

that is suitable to convert DC electricity 

from one or more solar modules or 

certified distributed wind energy 

systems into AC electricity. An end 

product is suitable to convert DC 

electricity from one or more solar 

modules or certified distributed wind 

energy systems into AC electricity if, in 

the form sold by the manufacturer, it is 

able to connect with such modules or 

systems and convert DC electricity to 


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86850 Federal Register / Vol. 88, No. 240 / Friday, December 15, 2023 / Proposed Rules 

AC electricity from such connected 

source. For purposes of section 45X, the 

term inverter includes a central inverter, 

commercial inverter, distributed wind 

inverter, microinverter, or residential 

inverter. Proposed § 1.45X–3(d) would 

clarify the definition of each of these 

types of inverters. 

Section 45X(c)(2) requires certain 

types of inverters be ‘‘suitable to’’ or 

‘‘suitable for’’ a statutorily required use 

or application to be considered an 

eligible component. For example, 

section 45X(c)(2)(B) requires a central 

inverter to be ‘‘suitable for large utilityscale systems.’’ Proposed § 1.45X– 

3(d)(2)(i) would clarify that an inverter 

is suitable for large utility-scale systems 

if, in the form sold by the manufacturer, 

it is capable of serving as a component 

in a large utility-scale system and meets 

the core engineering specifications for 

such application. 

Proposed § 1.45X–3(d)(5) would 

clarify that a direct current optimized 

inverter system (DC optimized inverter 

system) may qualify as a microinverter. 

Proposed § 1.45X–3(d)(5)(i) would 

define a microinverter as an inverter 

that is suitable to connect with one solar 

module, has a rated output of 120 or 240 

volt single-phase power, or 208 or 480 

volt three-phase power, and has a 

capacity, expressed on an AC watt basis, 

that is not greater than 650 watts. 

Proposed § 1.45X–3(d)(5)(iii)(A) would 

clarify that an inverter is suitable to 

connect to one solar module if, in the 

form sold by the manufacturer, it is 

capable of connecting to one or more 

solar modules and regulating the DC 

electricity from each module 

independently before that electricity is 

converted into alternating current 

electricity. Proposed § 1.45X– 

3(d)(5)(iii)(B) would provide that a DC 

optimized inverter system is an inverter 

that is comprised of an inverter 

connected to multiple DC optimizers 

that are each designed to connect to one 

solar module. 

Proposed § 1.45X–3(d)(5)(iv)(B) would 

clarify how to determine the credit 

amount for a DC optimized inverter 

system that qualifies as a microinverter. 

For a DC optimized inverter system to 

qualify as a microinverter, the inverter 

must meet the requirements of section 

45X(c)(2)(E) and a taxpayer must 

produce and sell the inverter and the DC 

optimizers in the DC optimized inverter 

system together as a single end product. 

Proposed § 1.45X–3(d)(5) would 

clarify that, similar to a DC optimized 

inverter system, a multi-module inverter 

may also qualify as a microinverter. The 

term ‘‘multi-module inverter’’ means an 

inverter that is comprised of an inverter 

with independent connections and DC 

optimizing components for two or more 

modules. Proposed § 1.45X– 

3(d)(5)(iv)(C) would provide that the 

credit amount for a multi-module 

inverter that qualifies as a microinverter 

is equal to the product of 11 cents 

multiplied by the total alternating 

current capacity of the DC optimizers in 

the multi-module inverter when paired 

with the inverter in the multi-module 

inverter. 

Proposed § 1.45X–3(d) would also 

clarify the calculation of the credit 

amount for each type of inverter. In 

general, the credit amount for each type 

of inverter would be equal to the 

product of the inverter’s total rated 

capacity and the amount prescribed in 

section 45X(b)(2)(B) for such inverter. 

Proposed § 1.45X–3(d) would 

generally require taxpayers to document 

whether an inverter is suitable to or 

suitable for a statutorily required use or 

application, the inverter’s rated output, 

and the inverter’s capacity, as 

applicable, in a specification sheet, bill 

of sale, or other similar documentation. 

E. Battery Components 

Proposed § 1.45X–3(e)(1) would 

define the term ‘‘qualifying battery 

component’’ as electrode active 

materials, battery cells, or battery 

modules. Proposed § 1.45X–3(e)(2)(i)(A) 

would define the term ‘‘electrode active 

materials’’ to include cathode electrode 

materials, anode electrode materials, 

and electrochemically active materials 

that contribute to the electrochemical 

processes necessary for energy storage. 

In general, electrode active materials are 

materials that are capable of being used 

within a battery for energy storage. 

Proposed § 1.45X–3(e)(2)(i)(A) would 

also provide that the following materials 

in a battery or vehicle would not qualify 

for the section 45X credit as an 

electrode active material: battery 

management systems, terminal 

assemblies, cell containments, gas 

release valves, module containments, 

module connectors, compression plates, 

straps, pack terminals, bus bars, thermal 

management systems, and pack jackets. 

Proposed § 1.45X–3(e)(2)(i)(B) would 

define ‘‘cathode electrode materials’’ to 

mean the materials that comprise the 

cathode of a commercial battery 

technology, such as binders, and current 

collectors (that is, cathode foils). 

Proposed § 1.45X–3(e)(2)(i)(C) would 

define ‘‘anode electrode materials’’ to 

mean the materials that comprise the 

anode of a commercial battery 

technology, including anode foils. 

Proposed § 1.45X–3(e)(2)(i)(D) would 

define ‘‘electrochemically active 

materials that contribute to the 

electrochemical processes necessary for 

energy storage’’ to mean the batterygrade materials that enable the 

electrochemical storage within a 

commercial battery technology. In 

addition to the list of electrochemically 

active materials provided in section 

45X(c)(5)(B)(i) (solvents, additives, and 

electrolytic salts), these may include 

electrolytes, catholytes, anolytes, 

separators, and metal salts and oxides. 

Proposed § 1.45X–3(e)(2)(i)(E) would 

also include an example illustrating this 

concept. Proposed § 1.45X–3(e)(2)(i)(F) 

would define ‘‘battery-grade materials’’ 

to mean the processed materials found 

in a final battery cell or an analogous 

unit, or the direct battery-grade 

precursors to those processed materials. 

Proposed § 1.45X–3(e)(2)(v) would 

clarify that a taxpayer may claim only 

one section 45X credit with respect to 

a material that qualifies as both an 

electrode active material and an 

applicable critical mineral. 

F. Production Costs Incurred 

Proposed § 1.45X–3(e)(2)(ii) would 

provide that for an electrode active 

material the credit amount is equal to 10 

percent of the costs incurred by the 

taxpayer with respect to production of 

such materials. Proposed § 1.45X– 

3(e)(2)(iii) would also provide the 

definition of purified and converted 

with respect to electrode active 

materials. Proposed § 1.45X–3(e)(2)(iv) 

would clarify that the costs incurred for 

purposes of determining the credit 

amount includes costs as defined in 

§ 1.263A–1(e) that are paid or incurred 

within the meaning of section 461 of the 

Code by the taxpayer for the production 

of an electrode active material only. 

Thus, production costs with respect to 

an electrode active material would not 

include any costs incurred after the 

production of the electrode active 

material. For example, the costs to 

incorporate the electrode active material 

into a battery component would not be 

taken into account as costs incurred in 

producing the electrode active material. 

These proposed regulations apply 

section 263A and the regulations under 

section 263A (section 263A regulations) 

solely to identify the types of costs that 

are includible in production costs 

incurred for purposes of computing the 

amount of the section 45X credit, but do 

not apply section 263A or the section 

263A regulations for any other 

purposes, such as to determine whether 

a taxpayer is engaged in production 

activities. 

Direct material costs as defined in 

§ 1.263A–1(e)(2)(i)(A), or indirect 

material costs as defined in § 1.263A– 

1(e)(3)(ii)(E), and any costs related to the 

extraction or acquisition of raw 


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materials would not be taken into 

account as production costs. A wide 

range of costs that are attributable to the 

production of an electrode active 

material would be taken into account as 

a cost incurred in producing the 

electrode active material, including, but 

not limited to, labor, electricity used in 

the production of the electrode active 

material, storage costs, depreciation or 

amortization, recycling, and overhead. 

However, the cost of acquiring the raw 

material used to produce the electrode 

active material, the cost of materials 

used for conversion, purification, or 

recycling of the raw material, and other 

material costs related to the production 

of the electrode active material would 

not be taken into account. 

The Treasury Department and the IRS 

seek to appropriately provide a credit 

for the costs associated with production 

activities that add value to the electrode 

active material and are conducted by the 

taxpayer that produces the electrode 

active material. Merely purchasing raw 

materials may enable a taxpayer to 

produce an electrode active material but 

it is not by itself an activity that adds 

value. Excluding material costs would 

also mitigate the risk of crediting the 

same costs multiple times. For example, 

if material costs are included in 

production costs for electrode active 

materials, the costs of producing an 

applicable critical mineral that is later 

incorporated into an electrode active 

material could be credited more than 

once, and such material costs could 

make up a significant share of the cost 

of producing the electrode active 

material. 

The Treasury Department and the IRS 

recognize that a wide range of costs are 

incurred in the production of electrode 

active materials. The Treasury 

Department and the IRS request 

comments on this proposed rule for 

determining the costs incurred with 

respect to the production of electrode 

active materials, specifically whether 

and how extraction and other similar 

value-added activities in the production 

of raw materials used in electrode active 

materials should be taken into account. 

The Treasury Department and the IRS 

welcome an assessment of the 

magnitude of extraction costs and other 

direct and indirect material costs 

relative to the overall costs incurred in 

the production of an electrode active 

material, and the extent to which these 

costs are incurred by the taxpayer that 

also produces the electrode active 

material and add value to the electrode 

active material. The Treasury 

Department and the IRS also welcome 

comments on how extraction should be 

defined for this purpose, and whether it 

should be defined consistent with 

proposed § 1.30D–3(c)(8). 

The Treasury Department and the IRS 

are considering including in production 

costs the costs of extraction and other 

similar value-added activities in the 

production of raw materials used in 

electrode active materials. However, 

such costs would only be included if the 

IRS could effectively administer such an 

approach and there are sufficient 

assurances that adopting such an 

approach would pose a limited risk of 

(i) crediting the same production costs 

multiple times and (ii) increasing other 

forms of fraud, waste, and abuse. The 

Treasury Department and the IRS 

request comments on whether and to 

what extent including these costs might 

raise such risks. 

The Treasury Department and the IRS 

intend for the production cost incurred 

rules in proposed § 1.45X–3(e)(2) to 

apply to a credit claimant in a contract 

manufacturing arrangement. The 

Treasury Department and the IRS 

request comments on whether the 

proposed rules need further clarification 

or modification as applied to contract 

manufacturing arrangements. 

G. Battery Cells and Modules 

Proposed § 1.45X–3(e)(3) and (4) 

would provide definitions, rules for 

measuring capacity, and documentation 

requirements for battery cells and 

battery modules. Proposed § 1.45X– 

3(e)(4)(i) would define a ‘‘battery 

module’’ as a module, in the case of a 

module using battery cells, with two or 

more battery cells that are configured 

electrically, in series or parallel, to 

create voltage or current, as appropriate, 

to a specified end use, or a module with 

no battery cells, and, in each case, with 

an aggregate capacity of not less than 7 

kilowatt-hours (or, in the case of a 

module for a hydrogen fuel cell vehicle, 

not less than 1 kilowatt-hour). Proposed 

§ 1.45X–3(e)(4)(i)(A) would define a 

‘‘module using battery cells’’ as a 

module with two or more battery cells 

that are configured electrically, in series 

or parallel, to create voltage or current 

(as appropriate), to a specified end use, 

meaning an end-use configuration of 

battery technologies. An end-use 

configuration is the product that 

ultimately serves a specified end use. It 

is the collection of interconnected cells, 

configured to that specific end-use and 

interconnected with the necessary 

hardware and software required to 

deliver the required energy and power 

(voltage and current) for that use. As 

applied to batteries commonly used in 

electric vehicles, proposed § 1.45X– 

3(e)(4)(i)(A) would permit a credit for 

the production and sale of the battery 

pack in the electric vehicle, but it would 

not permit a credit for the production of 

a module that is not the end-use 

configuration. The Treasury Department 

and the IRS request comments on this 

proposed interpretation of the phrase 

‘‘to a specified end use’’ in section 

45X(c)(5)(B)(iii)(I)(aa). 

Proposed § 1.45X–3(e)(4)(i)(B) would 

define the term ‘‘module with no battery 

cells’’ as a product with a standardized 

manufacturing process and form that is 

capable of storing and dispatching 

useful energy, that contains an energy 

storage medium that remains in the 

module (for example, it is not consumed 

through combustion), and that is not a 

custom-built electricity generation or 

storage facility. This proposed 

definition would allow battery 

technologies such as flow batteries and 

thermal batteries to be eligible for the 

section 45X credit, but it would not 

permit technologies that do not meet 

this definition such as standalone fuel 

storage tanks or fuel tanks connected to 

engines or generation systems to qualify 

as a module with no battery cells. 

Proposed § 1.45X–3(e) would clarify 

how capacity must be determined for 

battery cells and battery modules. 

Proposed § 1.45X–3(e)(3)(ii) would 

provide that taxpayers must measure the 

capacity of a battery cell in accordance 

with a national or international 

standard, such as IEC 60086–1 (Primary 

Batteries), or an equivalent standard. 

Taxpayers can reference the United 

States Advanced Battery Consortium 

(USABC) Battery Test Manual for 

additional guidance. Proposed § 1.45X– 

3(e)(4)(ii)(A) would provide that, for 

modules using battery cells, taxpayers 

must measure the capacity of a module 

using battery cells with a testing 

procedure that complies with a national 

or international standard published by a 

recognized standard setting 

organization. The capacity of a battery 

module using battery cells may not 

exceed the total capacity of the battery 

cells in the module. Proposed § 1.45X– 

3(e)(4)(ii)(B) would provide that, for 

modules with no battery cells, taxpayers 

must measure the capacity using a 

testing procedure that complies with a 

national or international standard 

published by a recognized standard 

setting organization. If no such standard 

applies to a type of module with no 

battery cells, taxpayers must measure 

the capacity of such module as the 

Secretary may prescribe in regulations 

or other guidance. The Treasury 

Department and the IRS request 

comments on what recognized national 

or international standards are currently 

available for measuring capacity of 

modules with no battery cells and 


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whether further guidance may be 

required. 

H. Phase Out 

Proposed § 1.45X–3(f) would provide 

the rules for the phase out of the section 

45X credit. In the case of any eligible 

component that is not an applicable 

critical mineral and is sold after 

December 31, 2029, the amount of the 

section 45X credit determined with 

respect to such eligible component 

would be equal to the product of the 

amount determined under proposed 

§ 1.45X–3 with respect to such eligible 

component, multiplied by the phase out 

percentage. Proposed § 1.45X–3(f)(2) 

would provide the phase out 

percentages. The phase out percentage 

would be equal to 75 percent for eligible 

components sold during calendar year 

2030; 50 percent for eligible 

components sold during calendar year 

2031; 25 percent for eligible 

components sold during calendar year 

2032, and zero percent for eligible 

components sold after calendar year 

2032. The phase out percentages would 

be determined based on the year the 

eligible component is sold rather than 

the year in which the eligible 

component is produced by the taxpayer. 

Proposed § 1.45X–3(f)(3) would clarify 

that the phase out rules described in 

proposed § 1.45X–3(f) do not apply to 

applicable critical minerals as defined 

in proposed § 1.45X–4(b). 

V. Applicable Critical Minerals 

A. In General 

Section 45X(c)(6) defines applicable 

critical minerals that are eligible 

components for purposes of the section 

45X credit. Congress enacted section 

45X to incentivize the domestic 

production of eligible components, 

including certain applicable critical 

minerals, that are vital to strengthening 

the country’s renewable energy and 

energy storage supply chains. In 

addition, Congress amended section 

30D in the IRA to provide that section 

30D credit eligibility and credit amount 

is based in part on the sourcing of 

applicable critical minerals contained in 

the battery of new clean vehicles from 

secure and resilient supply chains, with 

applicable critical minerals defined by 

cross-reference to section 45X(c)(6). See 

section 30D(d)(7)(A) and (e)(1). The 

Treasury Department and the IRS 

interpret the applicable critical minerals 

described in section 45X(c)(6) through 

this lens. 

Proposed § 1.45X–4(b) adopts, with 

some clarifications, the definitions of 

applicable critical minerals provided in 

section 45X(c)(6). In particular, section 

45X(c)(6)(N) provides that the term 

‘‘graphite’’ means graphite (both natural 

and synthetic) that is purified to a 

minimum purity of 99.9 percent 

graphitic carbon by mass. Some 

stakeholders have questioned whether 

this definition could be interpreted to 

refer to a particular crystalline structure 

of carbon, that is, 99.9 percent carbon in 

a graphitic form. After consulting with 

experts at the Department of Energy, 

U.S. Geological Survey, and Department 

of the Interior, the Treasury Department 

and the IRS are unaware of a current 

application in the energy sector for 

graphite that is at least 99.9 percent 

carbon in the graphitic form. However, 

graphite that is at least 99.9 percent 

carbon by mass is used in electric 

vehicle batteries to facilitate the 

electrochemical processes necessary for 

energy storage, as well as in other 

energy sector applications. Consistent 

with the general intent of section 45X, 

proposed § 1.45X–4(b)(14) would clarify 

that the term ‘‘99.9 percent graphitic 

carbon by mass’’ means graphite that is 

99.9 percent carbon by mass. This 

interpretation reflects that various forms 

of matter are 99.9 percent carbon, such 

as carbon black, so the word ‘‘graphitic’’ 

is providing additional clarification 

regarding the particular application of 

the carbon. This interpretation provides 

an incentive for the domestic 

production of the type of graphite that 

is used in the renewable energy and 

energy storage industry, including both 

synthetic and natural graphite for use in 

electric vehicle batteries. This 

interpretation also supports the secure 

supply chain objectives expressed by 

Congress in amendments to section 30D 

that cross-reference the section 45X 

definition of applicable critical 

minerals. 

Section 45X(c)(6)(A) provides that 

aluminum that is converted from 

bauxite to a minimum purity of 99 

percent alumina by mass or purified to 

a minimum purity of 99.9 percent 

aluminum by mass, qualifies as an 

applicable critical mineral. Some 

stakeholders have requested 

clarification whether commercial grade 

aluminum that is 99.7 percent 

aluminum by mass may qualify as an 

applicable critical mineral under section 

45X(c)(6)(A). 

Section 45X(c)(6)(A) should be 

interpreted in light of the dynamics of 

the aluminum industry and the role that 

critical materials like aluminum play in 

the renewable energy and energy storage 

industry. Aluminum oxide, commonly 

known as alumina, is a form of 

aluminum that is referred to in section 

45X(c)(6)(A)(i). Proposed § 1.45X– 

4(b)(1) would interpret section 

45X(c)(6)(A) to mean aluminum, 

including commodity-grade aluminum, 

described in section 45X(c)(6)(A)(i) and 

(ii). Proposed § 1.45X–4(b)(1) would 

define ‘‘commodity-grade aluminum’’ as 

aluminum that has been produced 

directly from aluminum that is 

described in proposed § 1.45X–4(b)(1)(i) 

or (ii) and is in a form that is sold on 

international commodity exchanges, 

which would include commercial grade 

aluminum that is 99.7 percent 

aluminum by mass. 

Proposed § 1.45X–4(b)(1) clarifies that 

the term ‘‘commodity-grade aluminum’’ 

is limited to primary production of 

unwrought forms by specifying that 

commodity-grade aluminum must be 

‘‘produced directly’’ from certain forms 

of aluminum. The Treasury Department 

and the IRS currently understand that 

the ability to ascertain and substantiate 

the process or processes used in an 

earlier point in the lifecycle of feedstock 

aluminum for secondary production is 

limited. Such limitations would pose 

significant substantiation and 

administrability issues if secondary 

production were permitted for 

commodity-grade aluminum under 

proposed § 1.45X–4(b)(1). Excluding 

secondary production would also avoid 

significant administrability challenges 

that would arise if the process or 

processes used at previous points in the 

lifecycle of feedstock aluminum used in 

secondary production had to be verified 

to determine eligibility for the section 

45X credit. 

The Treasury Department and the IRS 

request comments on this interpretation 

of section 45X(c)(6)(A). 

B. Credit Amount 

Section 45X(b)(1) generally provides 

the credit amount determined with 

respect to any eligible component, 

including any eligible component it 

incorporates, subject to the credit phase 

out provided at section 45X(b)(3). 

Section 45X(b)(3)(C) provides that the 

credit phase out does not apply with 

respect to any applicable critical 

mineral. 

Section 45X(b)(1)(M) provides that in 

the case of any applicable critical 

mineral, the credit amount is an amount 

equal to 10 percent of the costs incurred 

by the taxpayer with respect to 

production of such mineral. 

Proposed § 1.45X–4(c)(1) would 

provide that for an applicable critical 

mineral the credit amount is equal to 10 

percent of the costs incurred by the 

taxpayer with respect to production of 

such materials. Proposed § 1.45X–4(c)(2) 

would provide definitions of production 

processes for applicable critical 

minerals. Proposed § 1.45X–1(c)(2)(i) 


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would provide that for purposes of 

section 45X, the term ‘‘conversion’’ 

means a chemical transformation from 

one species to another. Proposed 

§ 1.45X–1(c)(2)(ii) would provide that 

for purposes of section 45X, the term 

‘‘purification’’ means increasing the 

mass fraction of a certain element. 

C. Production Costs Incurred 

Proposed § 1.45X–4(c)(3) would 

clarify that the costs incurred for 

purposes of determining the credit 

amount includes costs as defined in 

§ 1.263A–1(e) that are paid or incurred 

within the meaning of section 461 of the 

Code by the taxpayer for the production 

of an applicable critical mineral only. 

Thus, production costs with respect to 

an applicable critical mineral would not 

include any costs incurred after the 

production of the applicable critical 

mineral. For example, the costs to 

incorporate the applicable critical 

mineral into another product would not 

be taken into account as costs incurred 

in producing the applicable critical 

mineral. These proposed regulations 

apply section 263A and the section 

263A regulations solely to identify the 

types of costs that are includible in 

production costs incurred for purposes 

of computing the credit amount, but do 

not apply section 263A or the section 

263A regulations for any other 

purposes, such as to determine whether 

a taxpayer is engaged in production 

activities. 

Direct or indirect materials costs as 

defined in § 1.263A–1(e)(2)(i)(A) and 

(e)(3)(ii)(E), respectively, and any costs 

related to the extraction or acquisition 

of raw materials would not be taken into 

account as production costs. A wide 

range of costs that are attributable to the 

production of an applicable critical 

mineral would be taken into account as 

a cost incurred in producing the 

applicable critical mineral, including, 

but not limited to, labor, electricity used 

in the production of the applicable 

critical mineral, storage costs, 

depreciation or amortization, recycling, 

and overhead. However, the cost of 

acquiring the raw material used to 

produce the applicable critical mineral, 

the cost of materials used for 

conversion, purification, or recycling of 

the raw material, and other material 

costs related to the production of the 

applicable critical mineral would not be 

taken into account. 

The Treasury Department and the IRS 

seek to appropriately provide a credit 

for the costs associated with production 

activities that add value to the 

applicable critical mineral and are 

conducted by the taxpayer that 

produces the applicable critical mineral. 

Merely purchasing raw materials may 

enable a taxpayer to produce an 

applicable critical mineral but it is not 

by itself an activity that adds value. 

Excluding material costs would also 

mitigate the risk of crediting the same 

costs multiple times. For example, if 

material costs are included in 

production costs for an applicable 

critical mineral, the costs of producing 

an applicable critical mineral that is 

later incorporated into another 

applicable critical mineral could be 

credited more than once, and such 

material costs could make up a 

significant share of the cost of 

producing the applicable critical 

mineral. This might be the case if, for 

instance, Taxpayer 1 produces 

Applicable Critical Mineral 1 and then 

sells it to Taxpayer 2 who uses it to 

create Applicable Critical Mineral 2. 

The cost of producing Applicable 

Critical Mineral 1 would be credited 

twice if material costs are included in 

production costs, once by Taxpayer 1 

for the initial production of Applicable 

Critical Mineral 1 and then again by 

Taxpayer 2 because Taxpayer 2 would 

include its cost of purchasing 

Applicable Critical Mineral 1 in its 

production costs for Applicable Critical 

Mineral 2. 

The Treasury Department and the IRS 

recognize that a wide range of costs are 

incurred in the production of applicable 

critical minerals. The Treasury 

Department and the IRS request 

comments on this proposed rule for 

determining the costs incurred with 

respect to the production of applicable 

critical minerals, specifically whether 

and how extraction and other similar 

value-added activities in the production 

of raw materials used in applicable 

critical minerals should be taken into 

account. The Treasury Department and 

the IRS welcome an assessment of the 

magnitude of extraction costs and other 

direct and indirect material costs 

relative to the overall costs incurred in 

the production of an applicable critical 

mineral, and the extent to which these 

costs are incurred by the taxpayer that 

also produces the applicable critical 

mineral and add value to the applicable 

critical mineral. The Treasury 

Department and the IRS also welcome 

comments on how extraction should be 

defined, and whether it should be 

defined consistent with proposed 

§ 1.30D–3(c)(8). 

The Treasury Department and the IRS 

are considering including in production 

costs the costs of extraction and other 

similar value-added activities in the 

production of raw materials used in 

applicable critical minerals. However, 

such costs would only be included if the 

IRS could effectively administer such an 

approach and there are sufficient 

assurances that adopting such an 

approach would pose a limited risk of 

(i) crediting the same production costs 

multiple times and (ii) increasing other 

forms of fraud, waste, and abuse. The 

Treasury Department and the IRS 

request comments on whether and to 

what extent including these costs might 

raise such risks. 

Proposed § 1.45X–4(c)(3) would also 

provide that the rules regarding 

ownership and property produced 

under a contract with a taxpayer under 

§ 1.263A–2(a)(1)(ii) that are used to 

determine whether a taxpayer is 

engaged in production or resale 

activities for purposes of section 263A 

do not apply for purposes of 

determining the taxpayer that is engaged 

in production activities for purposes of 

section 45X and the section 45X 

regulations. 

D. Substantiation 

Proposed § 1.45X–4(c)(4) would 

require the taxpayer to document that 

their product meets the criteria for an 

applicable critical mineral as described 

in section 45X(c)(6) with a certificate of 

analysis (COA) provided by the taxpayer 

to the person to which the taxpayer sold 

the applicable critical mineral. The 

Treasury Department and the IRS 

request comments on this substantiation 

requirement, including whether a 

similar requirement should be applied 

to electrode active materials. 

VI. Substantiation Required Under 

Section 6001 

Section 6001 of the Code provides 

that every person liable for any tax 

imposed by the Code, or for the 

collection thereof, must keep such 

records as the Secretary may from time 

to time prescribe. Section 1.6001–1(a) 

provides that any person subject to 

income tax must keep such permanent 

books of account or records as are 

sufficient to establish the amount of 

gross income, deductions, credits, or 

other matters required to be shown by 

such person in any return of such tax. 

Section 1.6001–1(e) provides that the 

books and records required by § 1.6001– 

1 must be retained so long as the 

contents thereof may become material in 

the administration of any internal 

revenue law. Various provisions under 

proposed §§ 1.45X–1 through 1.45X–4 

would require taxpayers to maintain 

specific documentation regarding 

certain eligible components that are 

produced by a taxpayer. These 

requirements would be part of the 

general recordkeeping requirements 


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86854 Federal Register / Vol. 88, No. 240 / Friday, December 15, 2023 / Proposed Rules 

under section 6001 and the regulations 

under section 6001. 

Severability 

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. 

Effect on Other Documents 

Section 5.05 of Notice 2023–18 and 

section 3 of Notice 2023–44, which 

relate to the interaction between 

sections 45X and 48C, will be 

superseded upon the publication in the 

Federal Register of a Treasury Decision 

addressing the interaction between 

sections 45X and 48C. 

Proposed Applicability Dates 

Each of proposed §§ 1.45X–1 through 

1.45X–4 is proposed to apply to eligible 

components for which production is 

completed and sales occur after 

December 31, 2022, and during taxable 

years ending on or after the date of 

publication of the final regulations in 

the Federal Register. 

Special Analyses 

I. Regulatory Planning and Review— 

Economic Analysis 

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. 

II. 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 

mandatory, voluntary, or required to 

obtain or retain a benefit. The 

collections of information in these 

proposed regulations contain reporting 

and recordkeeping requirements that are 

required to validate eligibility to claim 

a section 45X credit. These collections 

of information would generally be used 

by the IRS for tax compliance purposes 

and by taxpayers to facilitate proper 

reporting and compliance. The general 

recordkeeping requirements mentioned 

within these proposed regulations are 

considered general tax records under 

§ 1.6001–1(e). Specific certification 

statements under § 1.45X–1(c)(3) are 

considered general tax records and are 

required for the IRS to validate the 

taxpayer that may claim a section 45X 

credit. For PRA purposes, general tax 

records are already approved by OMB 

under 1545–0074 for individuals, 1545– 

0123 for business entities, and under 

1545–0092 for trust and estate filers. 

These proposed regulations also 

provide reporting requirements related 

to making the Related Person Election as 

described in § 1.45X–2(d) and 

calculating the section 45X credit 

amount as described in § 1.45X–1. The 

Related Person Election will be made by 

taxpayers with Forms 1040, 1041, 1120– 

S, 1065, and 1120, on Form 7207 (or any 

successor forms); and credit calculations 

will be made on Form 3800 and 

supporting forms including Form 7207 

(and any successor forms). These forms 

are approved under 1545–0074 for 

individuals, 1545–0123 for business 

entities, 1545–2306 for trust and estate 

filers of Form 7207, and 1545–0895 for 

trust and estate filers of Form 3800. 

These proposed regulations are not 

changing or creating new collection 

requirements not already approved by 

OMB or will be approved under 5 CFR 

1320.10 by OMB. 

III. Regulatory Flexibility Act 

The Regulatory Flexibility Act (5 

U.S.C. 601 et seq.) (RFA) imposes 

certain requirements with respect to 

Federal rules that are subject to the 

notice and comment requirements of 

section 553(b) of the Administrative 

Procedure Act (5 U.S.C. 551 et seq.) and 

that are likely to have a significant 

economic impact on a substantial 

number of small entities. Unless an 

agency determines that a proposal is not 

likely to have a significant economic 

impact on a substantial number of small 

entities, section 603 of the RFA requires 

the agency to present an initial 

regulatory flexibility analysis (IRFA) of 

the proposed rule. The Treasury 

Department and the IRS have not 

determined whether the proposed rule, 

when finalized, will likely have a 

significant economic impact on a 

substantial number of small entities. 

This determination requires further 

study. However, because there is a 

possibility of significant economic 

impact on a substantial number of small 

entities, an IRFA is provided in these 

proposed regulations. The Treasury 

Department and the IRS invite 

comments on both the number of 

entities affected and the economic 

impact on small entities. 

Pursuant to section 7805(f) of the 

Code, this notice of proposed 

rulemaking has been submitted to the 

Chief Counsel of the Office of Advocacy 

of the Small Business Administration 

for comment on its impact on small 

business. 

A. Need for and Objectives of the Rule 

The proposed regulations would 

provide greater clarity to taxpayers that 

intend to claim a section 45X credit. 

The proposed regulations would 

provide necessary definitions, the time 

and manner to make the Related Person 

Election and rules regarding the 

determination of credit amounts. The 

Treasury Department and the IRS intend 

and expect that giving taxpayers 

guidance that allows them to claim the 

section 45X credit will beneficially 

impact various industries. In particular, 

the section 45X credit encourages the 

domestic production of eligible 

components and incentivizes taxpayers 

to invest in clean energy projects that 

generate eligible credits. 

B. Affected Small Entities 

The RFA directs agencies to provide 

a description of, and if feasible, an 

estimate of, the number of small entities 

that may be affected by the proposed 

rules, if adopted. The Small Business 

Administration’s Office of Advocacy 

estimates in its 2023 Frequently Asked 

Questions that 99.9 percent of American 

businesses meet its definition of a small 

business. The applicability of these 

proposed regulations does not depend 

on the size of the business, as defined 

by the Small Business Administration. 

As described more fully in the 

preamble to this proposed regulation 

and in this IRFA, section 45X and these 

proposed regulations may affect a 

variety of different entities across 

several different clean energy industries 

as multiple types of eligible components 

are provided for under the statute and 

manufacturers may produce more than 

one type. Although there is uncertainty 

as to the exact number of small 

businesses within this group, the 

current estimated number of 

respondents to these proposed rules is 

13,450 taxpayers. The estimated total 

annual reporting burden and estimated 

average annual burden per respondent 

will be computed when Form 7207 and 

the instructions to Form 7207 are 

updated to reflect these proposed 

regulations. 

The Treasury Department and the IRS 

expect to receive more information on 

the impact on small businesses through 

comments on this proposed rule and 

after taxpayers start to claim the section 

45X credit using the guidance and 


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procedures provided in these proposed 

regulations. 

C. Impact of the Rules 

The proposed regulations provide 

rules for how taxpayers can claim the 

section 45X credit. Taxpayers that claim 

the section 45X credit will have 

administrative costs related to reading 

and understanding the rules as well as 

recordkeeping and reporting 

requirements because of the Related 

Person Election, computation of the 

section 45X credit and tax return 

requirements. The costs will vary across 

different-sized entities and across the 

type of production activities in which 

such entities are engaged. 

The Related Person Election allows a 

taxpayer to make an irrevocable election 

annually with their Federal income tax 

return by providing the information 

required on Form 7207 (or any 

successor form), including, for example, 

the name, EIN of the taxpayer; a 

description of the taxpayer’s trade or 

business; the name, address and EINs of 

all related persons; a list of the eligible 

components that are sold, and the 

intended purpose of the eligible 

components sold by the related person. 

To make the Related Person Election 

and claim the section 45X credit, the 

taxpayer must file an annual Federal 

income tax return. The reporting and 

recordkeeping requirements for that 

Federal income tax return would be 

required for any taxpayer that is 

claiming a general business credit, 

regardless of whether the taxpayer was 

making a Related Person Election under 

section 45X. 

D. Alternatives Considered 

The Treasury Department and the IRS 

considered alternatives to the proposed 

regulations. For example, the Treasury 

Department and the IRS considered 

whether to impose certain pre-return 

filing requirements as a condition of 

making the Related Person Election as 

authorized in section 45X(a)(3)(B)(ii) to 

prevent duplication, fraud, or improper 

or excessive credits. The proposed 

regulations were designed to minimize 

burdens for taxpayers while ensuring 

that the IRS has sufficient information 

to determine eligibility for the section 

45X credit. The Treasury Department 

and the IRS determined that requiring 

registration before a taxpayer makes the 

Related Person Election is unnecessary 

at this time. The proposed regulations 

would allow taxpayers to make an 

irrevocable Related Person Election 

annually with their Federal income tax 

return by providing the information 

required on Form 7207 (or any 

successor form), which would provide 

the IRS with sufficient information to 

assist in preventing duplication, fraud, 

or the claiming of improper or excessive 

credits if eligible components are 

produced and then sold to related 

persons. 

Comments are requested on the 

requirements in the proposed 

regulations, including specifically, 

whether there are less burdensome 

alternatives that ensure the IRS has 

sufficient information to administer the 

advanced manufacturing production 

credit. 

E. Duplicative, Overlapping, or 

Conflicting Federal Rules 

The proposed rule would not 

duplicate, overlap, or conflict with any 

relevant Federal rules. As discussed 

above, the proposed rule would merely 

provide procedures and definitions to 

allow taxpayers to claim the section 45X 

credit. The Treasury Department and 

the IRS invite input from interested 

members of the public about identifying 

and avoiding overlapping, duplicative, 

or conflicting requirements. 

IV. 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 Indian 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 Indian Tribal 

governments, or by the private sector in 

excess of that threshold. 

V. 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. 

VI. Executive Order 13175: Consultation 

and Coordination With Indian Tribal 

Governments 

Executive Order 13175 (Consultation 

and Coordination With Indian Tribal 

Governments) prohibits an agency from 

publishing any rule that has Tribal 

implications if the rule either imposes 

substantial, direct compliance costs on 

Indian Tribal governments, and is not 

required by statute, or preempts Tribal 

law, unless the agency meets the 

consultation and funding requirements 

of section 5 of the Executive order. This 

proposed rule does not have substantial 

direct effects on one or more federally 

recognized Indian tribes and does not 

impose substantial direct compliance 

costs on Indian Tribal governments 

within the meaning of the Executive 

order. 

Comments and Public Hearing 

Before these proposed amendments to 

the regulations are adopted as final 

regulations, consideration will be given 

to comments regarding the notice of 

proposed rulemaking 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. All comments 

will be made available at https://

www.regulations.gov. Once submitted to 

the Federal eRulemaking Portal, 

comments cannot be edited or 

withdrawn. 

A public hearing with respect to this 

notice of proposed rulemaking has been 

scheduled for February 22, 2024, 

beginning at 10 a.m. ET, in the 

Auditorium at the Internal Revenue 

Building, 1111 Constitution Avenue 

NW, Washington, DC. Due to building 

security procedures, visitors must enter 

at the Constitution Avenue entrance. In 

addition, all visitors must present photo 

identification to enter the building. 

Because of access restrictions, visitors 

will not be admitted beyond the 

immediate entrance area more than 30 

minutes before the hearing starts. 

Participants may alternatively attend the 

public hearing by telephone. 

The rules of 26 CFR 601.601(a)(3) 

apply to the public hearing. Persons 

who wish to present oral comments at 

the public hearing must submit an 

outline of the topics to be discussed and 

the time to be devoted to each topic by 

February 13, 2024. A period of 10 

minutes will be allotted to each person 

for making comments. An agenda 

showing the scheduling of the speakers 

will be prepared after the deadline for 

receiving outlines has passed. Copies of 

the agenda will be available free of 


ddrumheller on DSK120RN23PROD with PROPOSALS1
86856 Federal Register / Vol. 88, No. 240 / Friday, December 15, 2023 / Proposed Rules 

charge at the public hearing. If no 

outline of the topics to be discussed at 

the public hearing is received by 

February 13, 2024, the public hearing 

will be cancelled. If the public hearing 

is cancelled, a notice of cancellation of 

the public hearing will be published in 

the Federal Register. 

Individuals who want to testify in 

person at the public hearing must send 

an email to publichearings@irs.gov to 

have your name added to the building 

access list. The subject line of the email 

must contain the regulation number 

REG–107423–23 and the language 

TESTIFY In Person. For example, the 

subject line may say: Request to 

TESTIFY In Person at Hearing for REG– 

107423–23. 

Individuals who want to testify by 

telephone at the public hearing must 

send an email to publichearings@irs.gov 

to receive the telephone number and 

access code for the public hearing. The 

subject line of the email must contain 

the regulation number REG–107423–23 

and the language TESTIFY 

Telephonically. For example, the 

subject line may say: Request to 

TESTIFY Telephonically at Hearing for 

REG–107423–23. 

Individuals who want to attend the 

public hearing in person without 

testifying must also send an email to 

publichearings@irs.gov to have your 

name added to the building access list. 

The subject line of the email must 

contain the regulation number REG– 

107423–23 and the language ATTEND 

In Person. For example, the subject line 

may say: Request to ATTEND Hearing In 

Person for REG–107423–23. Requests to 

attend the public hearing must be 

received by 5 p.m. ET on February 20, 

2024. 

Individuals who want to attend the 

public hearing by telephone without 

testifying must also send an email to 

publichearings@irs.gov to receive the 

telephone number and access code for 

the public hearing. The subject line of 

the email must contain the regulation 

number REG–107423–23 and the 

language ATTEND Hearing 

Telephonically. For example, the 

subject line may say: Request to 

ATTEND Hearing Telephonically for 

REG–107423–23. Requests to attend the 

public hearing must be received by 5 

p.m. ET on February 20, 2024. 

Public hearings will be made 

accessible to people with disabilities. To 

request special assistance during a 

public hearing please contact the 

Publications and Regulations Branch of 

the Office of Associate Chief Counsel 

(Procedure and Administration) by 

sending an email to publichearings@

irs.gov (preferred) or by telephone at 

(202) 317–6901 (not a toll-free number) 

and must be received by 5 p.m. ET on 

February 16, 2024. 

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 authors of these 

proposed regulations are Mindy Chou, 

John Deininger and Alexander Scott, 

Office of the Associate Chief Counsel 

(Passthroughs and Special Industries). 

However, other personnel from the 

Treasury Department and the IRS 

participated in their development. 

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 

part 1 as follows: 

PART 1—INCOME TAXES 

■ Paragraph 1. The authority citation 

for part 1 is amended by adding entries 

in numerical order for §§ 1.45X–1 

through 1.45X–4 to read in part as 

follows: 

Authority: 26 U.S.C. 7805 * * * 

Section 1.45X–1 also issued under 26 

U.S.C. 45X. 

Section 1.45X–2 also issued under 26 

U.S.C. 45X(b) and (d) and 1502. 

Section 1.45X–3 also issued under 26 

U.S.C. 45X(b) and (c). 

Section 1.45X–4 also issued under 26 

U.S.C. 45X(b) and (c). 

* * * * * 

■ Par. 2. Sections 1.45X–0 through 

1.45X–4 are added to read as follows: 

Sec. 

* * * * * 

1.45X–0 Table of contents. 

1.45X–1 General rules applicable to the 

advanced manufacturing production 

credit. 

1.45X–2 Sale to unrelated person. 

1.45X–3 Eligible components. 

1.45X–4 Applicable critical minerals. 

* * * * * 

§ 1.45X–0 Table of contents. 

This section lists the captions 

contained in §§ 1.45X–1 through 1.45X– 

4. 

§ 1.45X–1 General rules applicable to the 

advanced manufacturing production 

credit. 

(a) Overview. 

(b) Credit amount. 

(c) Definition of produced by the taxpayer. 

(d) Produced in the United States. 

(e) Production and sale in a trade or 

business. 

(f) Sale of integrated components. 

(g) Interaction between sections 45X and 

48C. 

(h) [Reserved] 

(i) Anti-abuse rule. 

(j) Severability. 

(k) Applicability date. 

§ 1.45X–2 Sale to unrelated person. 

(a) In general. 

(b) Definitions. 

(c) Special rule for sale to related person. 

(d) Related person election. 

(e) Sales of integrated components to 

related person. 

(f) Severability. 

(g) Applicability date. 

§ 1.45X–3 Eligible components. 

(a) In general. 

(b) Solar energy components. 

(c) Wind energy components. 

(d) Inverters. 

(e) Qualifying battery component. 

(f) Phase out rule. 

(g) Severability. 

(h) Applicability date. 

§ 1.45X–4 Applicable critical minerals. 

(a) In general. 

(b) Definitions. 

(c) Credit amount. 

(d) Severability. 

(e) Applicability date. 

§ 1.45X–1 General rules applicable to the 

advanced manufacturing production credit. 

(a) Overview—(1) In general. This 

section provides general rules regarding 

the advanced manufacturing production 

credit determined under section 45X of 

the Code (section 45X credit). Paragraph 

(a)(2) of this section provides definitions 

of certain terms that apply for purposes 

of section 45X and the section 45X 

regulations (defined in paragraph 

(a)(2)(xiv) of this section). Paragraphs (b) 

through (j) of this section provide the 

basic rules regarding the section 45X 

credit, including the definition of the 

term produced by the taxpayer, and 

rules to determine the taxpayer that 

produces an eligible component and 

whether such taxpayer is entitled to 

claim a section 45X credit in contract 

manufacturing arrangements; where the 

production of eligible components must 

occur; the treatment of integrated, 

incorporated or assembled eligible 

components; and the interaction 

between sections 45X and 48C of the 

Code. See § 1.45X–2 for rules regarding 

sales to unrelated persons, sales to 

related persons, and the Related Person 

Election, including rules regarding the 

time, place, and manner of making the 


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Related Person Election. See § 1.45X–3 

for the definitions of all eligible 

components (except applicable critical 

minerals) and the credit amounts 

available for each of these eligible 

components, including certain phaseout percentages. See § 1.45X–4 for the 

definitions of applicable critical 

minerals and the rules regarding the 

determination of the credit amount for 

applicable critical minerals. 

(2) Generally applicable definitions. 

This paragraph (a)(2) provides 

definitions of terms that apply for 

purposes of section 45X and the section 

45X regulations. 

(i) Applicable critical mineral. The 

term applicable critical mineral means 

any of the minerals that are listed in 

section 45X(c)(6) and defined in 

§ 1.45X–4(b). 

(ii) Code. The term Code means the 

Internal Revenue Code. 

(iii) Contract manufacturing 

arrangement. The term contract 

manufacturing arrangement is defined 

in paragraph (c)(3)(ii)(B) of this section. 

(iv) Electrode active materials. The 

term electrode active materials is 

defined in § 1.45X–3(e)(2). 

(v) Eligible component. The term 

eligible component is defined in section 

45X(c)(1)(A) and described in §§ 1.45X– 

3 and 1.45X–4. 

(vi) Eligible taxpayer. The term 

eligible taxpayer is defined in paragraph 

(c)(3) of this section. 

(vii) Guidance. The term guidance 

means guidance published in the 

Federal Register or Internal Revenue 

Bulletin, as well as administrative 

guidance such as forms, instructions, 

publications, or other guidance on the 

IRS.gov website. See §§ 601.601 and 

601.602 of this chapter. 

(viii) IRA. The term IRA means Public 

Law 117–169, commonly known as the 

Inflation Reduction Act of 2022. 

(ix) IRS. The term IRS means the 

Internal Revenue Service. 

(x) Produced by the taxpayer. The 

term produced by the taxpayer is 

defined in paragraph (c) of this section, 

and the related terms production 

activities and production process have 

the meaning given those terms in 

paragraph (c) of this section. 

(xi) Related person. The term related 

person is defined in § 1.45X–2(b)(2). 

(xii) Related Person Election. The 

term Related Person Election is defined 

in § 1.45X–2(d)(1). 

(xiii) Secretary. The term Secretary 

means the Secretary of the Treasury or 

her delegate. 

(xiv) Section 45X regulations. The 

term section 45X regulations means the 

provisions of this section, §§ 1.45X–2 

through 1.45X–4, and the regulations in 

this chapter under sections 6417 and 

6418 of the Code that relate to the 

section 45X credit. 

(xv) Unrelated person. The term 

unrelated person is defined in section 

45X(a)(3) and described in § 1.45X– 

2(b)(3). 

(b) Credit amount. Except as 

otherwise provided in section 45X(b)(3) 

and § 1.45X–3(f), for purposes of section 

38 of the Code, the amount of the 

section 45X credit for any taxable year 

is equal to the sum of the credit 

amounts provided under section 45X(b) 

and described in §§ 1.45X–3 and 1.45X– 

4 with respect to each eligible 

component that is produced by the 

taxpayer and, within the taxable year, 

sold by the taxpayer to an unrelated 

person. See § 1.45X–2 for rules 

regarding sales of eligible components 

to related persons that may be treated as 

if sold to unrelated persons for purposes 

of section 45X(a). 

(c) Definition of produced by the 

taxpayer—(1) In general. The term 

produced by the taxpayer means a 

process conducted by the taxpayer that 

substantially transforms constituent 

elements, materials, or subcomponents 

into a complete and distinct eligible 

component that is functionally different 

from that which would result from mere 

assembly or superficial modification of 

the elements, materials, or 

subcomponents. 

(i) Partial transformation. The term 

produced by the taxpayer does not 

include partial transformation that does 

not result in substantial transformation 

of constituent elements, materials, or 

subcomponents into a complete and 

distinct eligible component as described 

in this paragraph (c)(1). 

(ii) Mere assembly or superficial 

modification. The term produced by the 

taxpayer does not include minor 

assembly of two or more constituent 

elements, materials, or subcomponents, 

or superficial modification of the final 

eligible component, if the taxpayer does 

not also engage in the process resulting 

in a substantial transformation 

described in this paragraph (c)(1). 

(iii) Examples. The following 

examples illustrate the application of 

this paragraph (c)(1). 

(A) Example 1. Taxpayers X, Y, and 

Z each produce one of three sections of 

a wind tower that together make up the 

wind tower. No taxpayer has produced 

an eligible component within the 

meaning of section 45X(a)(1)(A) because 

no taxpayer has produced all sections of 

the wind tower. 

(B) Example 2. Same facts as 

paragraph (c)(1)(iii)(A) of this section 

(Example 1), but taxpayers X, Y, and Z 

instead form Partnership XYZ. 

Partnership XYZ produces all three 

sections of the wind tower. Partnership 

XYZ has produced an eligible 

component within the meaning of 

section 45X(a)(1)(A). 

(C) Example 3. Taxpayer V puts the 

external casing on a battery module 

(within the meaning of § 1.45X– 

3(e)(4)(i)(A)) that already had cells, 

battery management systems, and other 

components integrated into it. Taxpayer 

V has engaged in minor assembly and 

has not produced an eligible component 

within the meaning of section 

45X(a)(1)(A). 

(D) Example 4. Taxpayer U purchases 

two finished halves of a wind turbine 

nacelle and combines them into a single 

nacelle. Taxpayer U has engaged in 

minor assembly and has not produced 

an eligible component within the 

meaning of section 45X(a)(1)(A). 

(E) Example 5. Taxpayer T purchases 

a dry cell battery and fills the electrolyte 

of the battery. Taxpayer T has engaged 

in minor assembly and has not 

produced an eligible component within 

the meaning of section 45X(a)(1)(A). 

(F) Example 6. Taxpayer W purchases 

a prefabricated wind turbine blade and 

applies paint and finishes. Taxpayer W 

has engaged in superficial modification 

of the blade and has not produced an 

eligible component within the meaning 

of section 45X(a)(1)(A).b 

(2) Special rule for certain eligible 

components. For solar grade 

polysilicon, electrode active materials, 

and applicable critical minerals, the 

term produced by the taxpayer means 

processing, conversion, refinement, or 

purification of source materials, such as 

brines, ores, or waste streams, to derive 

a distinct eligible component. 

(3) Eligible taxpayer—(i) In general. 

Except as otherwise provided in 

paragraph (c)(3)(iii) of this section, a 

taxpayer claiming a section 45X credit 

with respect to an eligible component 

must be the taxpayer that directly 

performs the production activities that 

bring about a substantial transformation 

resulting in the eligible component, and 

must sell such eligible component to an 

unrelated person. 

(ii) Contract manufacturing 

arrangement—(A) In general. If the 

production of an eligible component is 

performed in whole or in part pursuant 

to a contract that is a contract 

manufacturing arrangement, then, 

provided the other requirements of 

section 45X are met, the party to such 

contract that may claim the section 45X 

credit with respect to such eligible 

component is the party that performs 

the actual production activities that 

bring about a substantial transformation 

resulting in the eligible component. 


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(B) Contract manufacturing 

arrangement defined. The term contract 

manufacturing arrangement means any 

agreement (or agreements) providing for 

the production of an eligible component 

if the agreement is entered into before 

the production of the eligible 

component to be delivered under the 

contract is completed. A routine 

purchase order for off-the-shelf property 

is not treated as a contract 

manufacturing arrangement for 

purposes of this paragraph (c)(3). An 

agreement will be treated as a routine 

purchase order for off-the-shelf property 

if the contractor is required to make no 

more than de minimis modifications to 

the property to tailor it to the customer’s 

specific needs, or if at the time the 

agreement is entered into, the contractor 

knows or has reason to know that the 

contractor can satisfy the agreement out 

of existing stocks or normal production 

of finished goods. 

(iii) Special rule for contract 

manufacturing arrangements. If an 

eligible component is produced by a 

taxpayer pursuant to a contract 

manufacturing arrangement, the parties 

to such agreement may determine by 

agreement the party that may claim the 

section 45X credit. If a taxpayer enters 

into contract manufacturing 

arrangements with multiple fabricators 

to produce an eligible component, the 

parties to such agreements may 

determine by agreement the party that 

may claim the section 45X credit. The 

IRS will not challenge the agreement of 

the parties provided all the parties 

submit signed certification statements 

(as described in paragraph (c)(3)(iv) of 

this section) indicating that all parties 

agree as to the party that may claim the 

section 45X credit. 

(iv) Certification statement 

requirements. A certification statement 

indicating that all parties to a contract 

manufacturing arrangement agree as to 

the party that will claim the section 45X 

credit must include— 

(A) All required information set forth 

in guidance; and 

(B) A properly signed penalty of 

perjury statement. 

(v) Examples. The following examples 

illustrate the application of this 

paragraph (c)(3). 

(A) Example 1: Contract 

manufacturing with sale. Taxpayers X, 

Y and Z are unrelated C corporations 

that have calendar year taxable years. In 

2024, pursuant to a contract 

manufacturing arrangement as described 

in paragraph (c)(3)(ii)(B) of this section, 

X hires Y to produce a solar module. 

The contract is a tolling arrangement 

and provides that Y will produce the 

solar module according to X’s designs 

and specifications and using the 

materials and subcomponents that X 

provides. X and Y enter an agreement 

providing that X is the sole party that 

may claim a section 45X credit for the 

production and sale of the solar module, 

and X and Y each sign a certification 

statement as described in paragraph 

(c)(3)(iv) of this section reflecting this 

agreement. In 2025, Y produces and 

delivers the solar module to X, and in 

2026, X sells the solar module to Z. X 

may claim a section 45X credit in 

taxable year 2026 for the solar module 

it sold to Z provided all other 

requirements of section 45X are met and 

the certification statements signed by X 

and Y meet the requirements described 

in paragraph (c)(3)(iv) of this section 

and are properly submitted by X. 

Similarly, Y could claim a section 45X 

credit if the agreement between X and 

Y had designated Y as the sole party 

that could claim a section 45X credit for 

the production and sale of the solar 

module provided all other requirements 

of section 45X are met and the 

certification statements signed by X and 

Y meet the requirements described in 

paragraph (c)(3)(iv) of this section and 

are properly submitted by Y. 

(B) Example 2: Contract 

manufacturing with no sale. Assume the 

facts are the same as in paragraph 

(c)(3)(v)(A) of this section (Example 1), 

except that X does not sell the solar 

module and instead X uses it to generate 

electricity for use in X’s trade or 

business. Because there has been no 

sale, neither X nor Y may claim a 

section 45X credit for the solar module 

regardless of whether X and Y submit 

signed certification statements 

described in paragraph (c)(3)(iv) of this 

section. 

(C) Example 3: Multiple contract 

manufacturing arrangements. Taxpayers 

V, W, X, Y and Z are unrelated C 

corporations that have calendar year 

taxable years. In 2024, pursuant to three 

separate contract manufacturing 

arrangements as described in paragraph 

(c)(3)(ii)(B) of this section, V hires W, X, 

and Y to produce the bottom, middle 

and top segments, respectively, of a 

single wind tower that V designed. W, 

X, Y and V enter into an agreement 

providing that V is the sole party that 

may claim a section 45X credit for the 

production and sale of the wind tower, 

and W, X, Y and V each sign a 

certification statement as described in 

paragraph (c)(3)(iv) of this section 

reflecting this agreement. In 2024, W 

and X both produce and deliver their 

respective wind tower segments to the 

installation site, and in 2025, Y 

produces and delivers its wind tower 

segment to the installation site. In 2026, 

V sells the completed wind tower to Z. 

V may claim a section 45X credit in 

taxable year 2026 for the wind tower it 

sold to Z provided all other 

requirements of section 45X are met and 

the certification statements signed by V, 

W, X and Y meet the requirements 

described in paragraph (c)(3)(iv) of this 

section and are properly submitted by 

V. Similarly, W or X or Y could be the 

party that could claim a section 45X 

credit if the agreement between V, W, X 

and Y had designated W or X or Y as 

the sole party that could claim a section 

45X credit for the production and sale 

of the wind tower provided all other 

requirements of section 45X are met and 

the certification statements signed by V, 

W, X and Y meet the requirements 

described in paragraph (c)(3)(iv) of this 

section and are properly submitted by 

the party designated as the sole party 

that could claim a section 45X credit. 

(4) Timing of production and sale—(i) 

In general. Production of eligible 

components for which a taxpayer is 

claiming a section 45X credit may begin 

before December 31, 2022. Production of 

eligible components must be completed, 

and sales of eligible components must 

occur, after December 31, 2022. 

(ii) Example. Taxpayer X has a 

calendar year taxable year. Taxpayer X 

begins production of a related offshore 

wind vessel (as defined in section 

45X(4)(B)(iv) and described in § 1.45X– 

3(c)(4)) in January 2022. Production is 

completed in December 2024 and the 

sale to an unrelated person occurs in 

2025. Taxpayer X is eligible to claim the 

section 45X credit in 2025, assuming 

that all other requirements of section 

45X are met. 

(d) Produced in the United States—(1) 

In general. Sales are taken into account 

for purposes of the section 45X credit 

only for eligible components that are 

produced within the United States, as 

defined in section 638(1) of the Code, or 

a United States territory, which for 

purposes of section 45X and the section 

45X regulations has the meaning of the 

term possession provided in section 

638(2). 

(2) Subcomponents. Constituent 

elements, materials, and subcomponents 

used in the production of eligible 

components are not subject to the 

domestic production requirement 

provided in paragraph (d)(1) of this 

section. 

(e) Production and sale in a trade or 

business. An eligible component 

produced and sold by the taxpayer is 

taken into account for purposes of the 

section 45X credit only if the 

production and sale are in a trade or 

business (within the meaning of section 

162 of the Code) of the taxpayer. 


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(f) Sale of integrated components—(1) 

In general. For purposes of the section 

45X credit, section 45X(d)(4) provides 

that a taxpayer is treated as having 

produced and sold an eligible 

component to an unrelated person if 

such component is integrated, 

incorporated, or assembled into another 

eligible component that is then sold to 

an unrelated person. 

(i) Integrated, incorporated, or 

assembled. The term integrated, 

incorporated, or assembled means the 

production activities by which an 

eligible component that is a constituent 

element, material, or subcomponent is 

substantially transformed into another 

complete and distinct eligible 

component that is not solar grade 

polysilicon, an electrode active material, 

or an applicable critical mineral. The 

term integrated, incorporated, or 

assembled does not mean the mere 

assembly or superficial modification of 

an eligible component used as an 

element, material, or subcomponent and 

other elements, materials, or 

subcomponents that results in a distinct 

product. 

(ii) Special rule for eligible 

components resulting in solar grade 

polysilicon, electrode active materials, 

or applicable critical minerals. For solar 

grade polysilicon, electrode active 

material, and applicable critical 

minerals, the term integrated, 

incorporated, or assembled means the 

production activities in which an 

eligible component is processed, 

converted, refined, or purified to derive 

a distinct eligible component that is 

solar grade polysilicon, an electrode 

active material, or an applicable critical 

mineral. The term integrated, 

incorporated, or assembled does not 

mean mere assembly or superficial 

modification of an eligible component 

used as an element, material, or 

subcomponent and other elements, 

materials, or subcomponents that results 

in a distinct product. 

(2) Application—(i) In general. A 

taxpayer may claim a section 45X credit 

for each eligible component the 

taxpayer produces and sells to an 

unrelated person, including any eligible 

component the taxpayer produces that 

was used as a constituent element, 

material, or subcomponent and 

integrated, incorporated, or assembled 

into another complete and distinct 

eligible component or another complete 

and distinct product (that is not itself an 

eligible component) that the taxpayer 

also produces and sells to an unrelated 

person. 

(ii) Example: Sale of product with 

incorporated eligible components to 

unrelated person. In 2022, X, a domestic 

corporation that has a calendar year 

taxable year, begins production of 

electrode active materials (EAMs) that 

are completed in 2023 and incorporated 

into battery cells that X also produces. 

In 2024, X incorporates those battery 

cells into battery modules (within the 

meaning of § 1.45X–3(e)(4)(i)(A)) and 

integrates the battery modules into 

electric vehicles. X sells the electric 

vehicles to Z, an unrelated person, in 

2024. X may claim a section 45X credit 

for the EAMs, the battery cells, and the 

battery modules in 2024. 

(g) Interaction between sections 45X 

and 48C—(1) In general. For purposes of 

the section 45X credit, consistent with 

section 45X(c)(1)(B), an eligible 

component— 

(i) Must be produced by a section 45X 

facility; and 

(ii) Does not include any property 

(produced property) that is produced at 

a facility if the basis of any property that 

is part of the production unit (within 

the meaning of paragraph (g)(2)(ii) of 

this section) that produces the produced 

property— 

(A) Is eligible property that is 

included in a section 48C facility; and 

(B) Is taken into account for purposes 

of the credit allowed under section 48C 

(section 48C credit) after August 16, 

2022. 

(2) Section 45X facility—(i) In general. 

A section 45X facility includes all 

tangible property that comprises an 

independently functioning production 

unit that produces one or more eligible 

components. 

(ii) Production unit. The production 

unit is the tangible property that 

substantially transforms the material 

inputs to complete the production 

process of an eligible component. 

(3) Section 48C facility—(i) In general. 

A section 48C facility includes all 

eligible property included in a 

qualifying advanced energy project for 

which a taxpayer receives an allocation 

of section 48C credits under the 

allocation program established under 

section 48C(e) and claims such credits 

after August 16, 2022. 

(ii) Eligible property. Eligible property 

is property that— 

(A) Is necessary for the production or 

recycling of property described in 

section 48C(c)(1)(A)(i), re-equipping an 

industrial or manufacturing facility 

described in section 48C(c)(1)(A)(ii), or 

re-equipping, expanding, or establishing 

an industrial facility described in 

section 48C(c)(1)(A)(iii); 

(B) Is tangible personal property, or 

other tangible property (not including a 

building or its structural components), 

but only if such property is used as an 

integral part of the qualified investment 

credit facility; and 

(C) With respect to which 

depreciation (or amortization in lieu of 

depreciation) is allowable. 

(4) Examples. The following examples 

illustrate the application of this 

paragraph (g): 

(i) Example 1: Two independent 

production units—(A) Facts. Taxpayer 

owns and operates a manufacturing site 

that contains Production Unit A and 

Production Unit B, each of which 

function independently and are 

arranged in serial fashion. Photovoltaic 

wafers produced by Production Unit A 

are utilized in Production Unit B to 

manufacture photovoltaic cells. 

Taxpayer was allocated a section 48C 

credit under the section 48C(e) program 

for a section 48C facility that includes 

Production Unit A and subsequently 

placed the section 48C facility and 

Production Unit A in service in taxable 

year 2026. Taxpayer claimed a section 

48C credit for Production Unit A for 

taxable year 2026. 

(B) Analysis. Production Unit A is 

eligible property that is include in 

Taxpayer’s section 48C facility. 

Therefore, Production Unit A cannot 

qualify as a section 45X facility under 

section 45X(c)(1)(B) and paragraph (g)(2) 

of this section. Production Unit B, 

however, is tangible property that 

comprises an independently functioning 

production unit that produces eligible 

components. Production Unit B can be 

treated as a section 45X facility because 

the tangible property comprising 

Production Unit B is not eligible 

property that is included in a section 

48C facility. 

(ii) Example 2: Single production 

unit—(A) Facts. Taxpayer owns and 

operates two manufacturing sites. 

Manufacturing Site 1 includes tangible 

property that forms ingots from 

polysilicon to partially produce 

photovoltaic wafers. Manufacturing Site 

2 completes the production process of 

the photovoltaic wafers. Taxpayer was 

allocated a section 48C credit under the 

section 48C(e) program for tangible 

property that is used to produce the 

ingots at Manufacturing Site 1. 

(B) Analysis. Manufacturing Site 1 

and Manufacturing Site 2 comprise a 

single production unit. As a result, 

Taxpayer may not claim the section 45X 

credit for the photovoltaic wafers it 

produced at Manufacturing Site 1 and 

Manufacturing Site 2 because Taxpayer 

claimed the section 48C credit for the 

tangible property that was used to 

produce the ingots at Manufacturing 

Site 1, which is part of a single 

production unit. 


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(iii) Example 3: Independent 

production units and production of 

subcomponent—(A) Facts. Taxpayer 

owns and operates two manufacturing 

sites. Manufacturing Site 1 contains 

Production Unit A and Production Unit 

B, which are arranged in parallel 

fashion and each produce photovoltaic 

cells. Manufacturing Site 2 contains 

Production Unit C and Production Unit 

D, which are arranged in serial fashion. 

Production Unit C produces 

photovoltaic cells. Production Unit D 

produces solar modules, in part, by 

combining the photovoltaic cells 

produced by Production Units A, B and 

C. Taxpayer was allocated a section 48C 

credit under the section 48C(e) program 

for a section 48C facility that includes 

Production Unit C. Subsequently, 

Taxpayer places the section 48C facility 

and Production Unit C in service in 

taxable year 2026. Taxpayer claimed a 

section 48C credit for Production Unit C 

in taxable year 2026. 

(B) Analysis. Production Units A and 

B each comprise a single production 

unit that produces eligible components. 

Production Units A and B can be treated 

as a section 45X facility because the 

tangible property comprising 

Production Units A and B are not 

eligible property that is included in a 

section 48C facility. Production Unit C 

cannot qualify as a section 45X facility 

under section 45X(c) because 

Production Unit C is eligible property 

that is included in a section 48C facility. 

Production Unit D is tangible property 

that comprises an independently 

functioning production unit that 

produces eligible components utilizing 

subcomponents produced by Taxpayer 

in a separate, independently functioning 

production unit. Therefore, Production 

Unit D can be treated as a section 45X 

facility because the tangible property 

comprising Production Unit D is not 

eligible property that is included in a 

section 48C facility. 

(iv) Example 4: Two independent 

production units manufacturing under a 

contract manufacturing arrangement— 

(A) Facts. X is hired by Y to 

manufacture photovoltaic cells. X owns 

and operates a manufacturing site that 

contains Production Unit A and 

Production Unit B. Production Unit A 

and Production Unit B function 

independently and are arranged in serial 

fashion. Photovoltaic wafers produced 

by Production Unit A are utilized in 

Production Unit B to manufacture 

photovoltaic cells. X was allocated a 

section 48C credit under the section 

48C(e) program for a section 48C facility 

that includes Production Unit A and 

subsequently placed the section 48C 

Facility and Production Unit A in 

service in taxable year 2026. X claimed 

a section 48C credit for Production Unit 

A in taxable year 2026. 

(B) Analysis. Production Unit A is 

eligible property that is included in X’s 

section 48C facility. Therefore, 

Production Unit A cannot qualify as a 

section 45X facility under section 

45X(c)(1)(B) and paragraph (g)(2) of this 

section and X does not qualify for a 

section 45X credit with respect to 

Production Unit A. Production Unit B 

is, however, tangible property that 

comprises an independently functioning 

production unit that produces eligible 

components. Production Unit B can be 

treated as a section 45X facility by X, 

the party who produces the eligible 

components, because the tangible 

property comprising Production Unit B 

is not eligible property that is included 

in a section 48C facility. 

(v) Example 5: Two independent 

production units manufacturing under a 

contract manufacturing arrangement— 

(A) Facts. Assume the facts are the same 

as in paragraph (g)(4)(iv) of this section 

(Example 4), except that Y owns 

Production Units A and B and hires X 

to operate Production Units A and B to 

produce the eligible components. 

(B) Analysis. Production Unit A is 

eligible property that is included in Y’s 

section 48C facility. Y claimed a section 

48C credit for Production Unit A in 

taxable year 2026. Therefore, Production 

Unit A cannot qualify as a section 45X 

facility under section 45X(c)(1)(B) and 

paragraph (g)(2) of this section and X 

does not qualify for a section 45X credit 

with respect to Production Unit A. 

Production Unit B, however, is tangible 

property that comprises an 

independently functioning production 

unit that produces eligible components. 

Production Unit B can be treated as a 

section 45X facility by X (and not Y) 

because the tangible property 

comprising Production Unit B is not 

eligible property that is included in a 

section 48C facility. 

(h) [Reserved] 

(i) Anti-abuse rule—(1) In general. 

The rules of section 45X and the section 

45X regulations must be applied in a 

manner consistent with the purposes of 

section 45X and the section 45X 

regulations (and the regulations in this 

chapter under sections 6417 and 6418 

related to the section 45X credit). A 

purpose of section 45X and the section 

45X regulations (and the regulations in 

this chapter under sections 6417 and 

6418 related to the section 45X credit) 

is to provide taxpayers an incentive to 

produce eligible components in a 

manner that contributes to the 

development of secure and resilient 

supply chains. Accordingly, the section 

45X credit is not allowable if the 

primary purpose of the production and 

sale of an eligible component is to 

obtain the benefit of the section 45X 

credit in a manner that is wasteful, such 

as discarding, disposing of, or 

destroying the eligible component 

without putting it to a productive use. 

A determination of whether the 

production and sale of an eligible 

component is inconsistent with the 

purposes of section 45X and the section 

45X regulations (and the regulations in 

this chapter under sections 6417 and 

6418 related to the section 45X credit) 

is based on all facts and circumstances. 

(2) Example—(i) Facts. Taxpayer is 

engaged in the activity of producing and 

selling multiple units of Eligible 

Component 1 (EC1). Taxpayer engages 

in no other activities. The cost of 

producing each unit of EC1 is less than 

the amount of the section 45X credit 

that would be available if each EC1 

qualified for the section 45X credit. 

Taxpayer sells some of its units of EC1 

to related persons and makes a Related 

Person Election pursuant to section 

45X(a)(3)(B)(i). Taxpayer also sells some 

of its units of EC1 to unrelated persons. 

Taxpayer sells all units of EC1 at an 

amount equal to cost plus a markup to 

reflect an anticipated accommodation 

fee and establishes corresponding 

accounts receivable at the time of the 

respective sales. In addition, Taxpayer 

knows or reasonably expects that after 

acquiring the units of EC1, the related 

and unrelated transferees will not resell 

the units of EC1 or use them in their 

trades or businesses. Taxpayer intends 

to obtain the benefit from the section 

45X credit by claiming such credits 

itself or monetizing such credits through 

an election under sections 6417 or 6418. 

Taxpayer eliminates the aforementioned 

accounts receivable at the time it claims 

the section 45X credit or receives 

related payments attributable to the 

section 45X credit, and further makes 

payments to the related and unrelated 

transferees as accommodation fees 

computed as a percentage of such 

benefits. 

(ii) Analysis. Based on all of the facts 

and circumstances in paragraph (i)(2)(i) 

of this section, the primary purpose of 

Taxpayer’s production and sale of EC1 

is to obtain the benefit of the section 

45X credit in a manner that is wasteful 

and will not be treated as the 

production and sale of eligible 

components in a trade or business of 

Taxpayer for purposes of section 

45X(a)(1) and (2). Taxpayer is not 

eligible for the section 45X credit with 

respect to units of EC1 that it produced 

and sold. See sections 6417(d)(6) 


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(excessive payments) and 6418(g)(2) 

(excessive credit transfer). 

(j) Severability. The provisions of this 

section are separate and severable from 

one another. If any provision of this 

section is stayed or determined to be 

invalid, it is the agencies’ intention that 

the remaining provisions shall continue 

in effect. 

(k) Applicability date. This section 

applies to eligible components for 

which production is completed and 

sales occur after December 31, 2022, and 

during a taxable year ending on or after 

[date of publication of final regulations 

in the Federal Register]. 

§ 1.45X–2 Sale to unrelated person. 

(a) In general. The amount of the 

section 45X credit for any taxable year 

is equal to the sum of the credit 

amounts determined under section 

45X(b) (and described in §§ 1.45X–3 and 

1.45X–4) with respect to each eligible 

component that is produced by the 

taxpayer and, during the taxable year, 

sold by the taxpayer to an unrelated 

person. Applicable Federal income tax 

principles apply to determine whether a 

transaction is in substance a sale (or the 

provision of a service, or some other 

disposition). See § 1.45X–1(d) and (e) 

for additional requirements relating to 

sales. 

(b) Definitions. This paragraph (b) 

provides definitions of terms that apply 

for purposes of this section. 

(1) Person. The term person means an 

individual, a trust, estate, partnership, 

association, company or corporation, as 

provided in section 7701(a)(1) of the 

Code. For purposes of this section, an 

entity disregarded as separate from a 

person (for example, under § 301.7701– 

3 of this chapter) is not a person. 

(2) Related person. The term related 

person means a person who is related to 

another person if such persons would be 

treated as a single employer under the 

regulations in this chapter under section 

52(b) of the Code. 

(3) Unrelated person. The term 

unrelated person means a person who is 

not a related person as defined in 

paragraph (b)(2) of this section. 

(c) Special rule for sale to related 

person—(1) In general. For purposes of 

section 45X(a), a taxpayer is treated as 

selling an eligible component to an 

unrelated person if such component is 

sold to such person by a person who is 

a related person with respect to the 

taxpayer. 

(2) Example. X and Y are members of 

a group of trades or businesses under 

common control under section 52(b), 

and thus are related persons under 

section 45X(d)(1). Each of X and Y has 

a calendar year taxable year. Z is an 

unrelated person. X is in the trade or 

business of producing and selling solar 

modules. X produces and sells solar 

modules to Y in 2023. Y sells the solar 

modules to Z in 2024. X may claim a 

section 45X credit for the sale of the 

solar modules in 2024, the taxable year 

of X in which Y sells the solar modules 

to Z. 

(d) Related person election—(1) 

Availability of election—(i) In general. 

In such form and manner as the 

Secretary may prescribe, a taxpayer may 

make an election under section 

45X(a)(3)(B) (Related Person Election), 

to treat a sale of eligible components by 

such taxpayer to a related person as if 

made to an unrelated person. As a 

condition of, and prior to, a taxpayer 

making a Related Person Election (as 

described in paragraph (d)(2) of this 

section), the Secretary may require such 

information or registration as the 

Secretary deems necessary for purposes 

of preventing duplication, fraud, or any 

improper or excessive credit amount 

determined under section 45X(a)(1). 

(ii) Members of a consolidated group. 

A Related Person Election is made by a 

member of a consolidated group (as 

defined in § 1.1502–1(h)) in the manner 

described in paragraph (d)(3)(ii) of this 

section. A member of a consolidated 

group that sells eligible components in 

an intercompany transaction (as defined 

in § 1.1502–13(b)(1)) may make the 

Related Person Election to claim the 

section 45X credit in the year of the 

intercompany sale. For the treatment of 

the selling member’s gain or loss from 

that sale, see § 1.1502–13. 

(2) Time and manner of making 

election—(i) In general. A taxpayer must 

make an affirmative Related Person 

Election annually on the taxpayer’s 

timely filed original Federal income tax 

return, including extensions in such 

form and in such manner as may be 

prescribed in Internal Revenue Service 

forms or instructions or in publications 

or guidance published in the Internal 

Revenue Bulletin. See § 601.601 of this 

chapter. The Related Person Election 

will be applicable to all sales of eligible 

components to related persons by the 

taxpayer for each trade or business that 

the taxpayer engages in during the 

taxable year that resulted in a credit 

claim and for which the taxpayer has 

made the Related Person Election. 

(ii) Required information. For all sales 

of eligible components to related 

persons, the taxpayer must provide all 

required information set forth in 

guidance. Such information may 

include, for example, the taxpayer’s 

name, employer identification number 

(EIN), a description of the taxpayer’s 

trade or business (including principal 

business activity code); the name(s) and 

EINs of all related persons; a listing of 

the eligible components that are sold; 

and the intended purpose of any sales 

of eligible components to or from 

related persons. 

(3) Scope and effect of election—(i) In 

general. A separate Related Person 

Election must be made with respect to 

related person sales made by a taxpayer 

for each eligible trade or business of the 

taxpayer. The election applies only to 

such trade or business for which the 

Related Person Election is made. An 

election under this section applies to all 

sales to related persons (including 

between members of the same 

consolidated group) of eligible 

components produced by the taxpayer 

during the taxable year with respect to 

each trade or business for which the 

Related Person Election is made and is 

irrevocable for the taxable year for 

which the election is made. An election 

under paragraph (d)(2)(i) of this section 

applies solely for purposes of the 

section 45X credit and the section 45X 

regulations (and the regulations in this 

chapter under sections 6417 and 6418 

related to the section 45X credit). 

(ii) Application to consolidated 

groups. For a trade or business of a 

consolidated group, a Related Person 

Election must be made by the agent for 

the group on behalf of the members 

claiming the section 45X credit and 

filed with the group’s timely filed 

original Federal income tax return, 

including extensions, with respect to 

each trade or business that the 

consolidated group conducts. See 

§ 1.1502–77 (providing rules regarding 

the status of the common parent as 

agent for its members). A separate 

election must be filed on behalf of each 

member claiming the section 45X credit, 

and each election must include the 

name and EIN of the agent for the group 

and the member on whose behalf the 

election is being made. 

(iii) Application to partnerships. The 

Related Person Election for a 

partnership must be made on the 

partnership’s timely filed original 

Federal income tax return, including 

extensions, with respect to each trade or 

business that the partnership conducts. 

The election applies only to such trade 

or business for which the Related 

Person Election is made. An election by 

a partnership does not apply to any 

trade or business conducted by a partner 

outside the partnership. 

(4) Anti-abuse rule—(i) In general. A 

Related Person Election may not be 

made if, with respect to the eligible 

components relevant to such election, 

the taxpayer fails to provide the 

information described in paragraph 


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(d)(2) of this section, provides 

information described in paragraph 

(d)(2) of this section that shows that 

such components are described in 

paragraph (d)(4)(ii) or (iii) of this 

section, or such components are 

described in paragraph (d)(4)(ii) or (iii) 

of this section. 

(ii) Improper use. For purposes of this 

paragraph (d)(4) the term improper use 

means a use that is wasteful, such as 

discarding, disposing of, or destroying 

the eligible component without putting 

it to a productive use by the related 

person to which the eligible component 

is sold. 

(iii) Defective components. The term 

defective component means a 

component that does not meet the 

requirements of section 45X and the 

section 45X regulations. 

(e) Sales of integrated components to 

related person—(1) In general. For 

purposes of section 45X and the section 

45X regulations (and the regulations in 

this chapter under sections 6417 and 

6418 related to the section 45X credit), 

a taxpayer that produces and then sells 

an eligible component to a related 

person, who then integrates, 

incorporates, or assembles the 

taxpayer’s eligible component into 

another complete and distinct eligible 

component that is subsequently sold to 

an unrelated person, may claim a 

section 45X credit (or make an election 

under section 6417 or 6418) with 

respect to the taxable year in which the 

related person’s sale to the unrelated 

person occurs. 

(2) Examples. The following examples 

illustrate the rules provided in 

paragraph (e)(1) of this section. 

(i) Example 1: Sales of multiple 

incorporated eligible components to 

related persons. X and Y are C 

corporations that are members of a 

group of trades or businesses under 

common control under section 52(b), 

and thus are related persons under 

section 45X(d)(1) and paragraph (b)(2) of 

this section. Each of X and Y has a 

calendar year taxable year. Z is an 

unrelated person. X and Y are in the 

trade or business of producing and 

selling photovoltaic wafers and cells. X 

produces and sells photovoltaic wafers 

to Y in 2023. Y incorporates the 

photovoltaic wafers into photovoltaic 

cells and sells the photovoltaic cells to 

Z in 2024. X may claim a section 45X 

credit for the sale of the photovoltaic 

wafers in 2024, the taxable year of X in 

which Y sells the photovoltaic cells to 

Z. 

(ii) Example 2: Sales of multiple 

incorporated eligible components to 

related and unrelated persons. W, X, 

and Y are domestic C corporations that 

are members of a group of trades or 

businesses under common control 

under section 52(b), and thus are related 

persons under section 45X(d)(1) and 

paragraph (b)(2) of this section. Each of 

W, X, and Y has a calendar year taxable 

year. W produces electrode active 

materials (EAMs) and sells the EAMs to 

X in 2023. In 2024, X incorporates the 

EAMs into battery cells that it produces 

and sells the battery cells to Y. In 2025, 

Y incorporates the battery cells into 

battery modules (within the meaning of 

§ 1.45X–3(e)(4)(i)(A)) that it produces 

and sells the battery modules to Z, an 

unrelated person. W may claim a 

section 45X credit for EAMs sold to X, 

X may claim a section 45X credit for the 

battery cells sold to Y, and Y may claim 

a section 45X credit for the battery 

modules sold to Z in 2025, the taxable 

year of each of W, X, and Y in which 

the battery modules are sold to Z. 

(3) Special rules applicable to related 

person election—(i) In general. If a 

taxpayer makes a valid Related Person 

Election under section 45X(a)(3)(B)(i) 

and paragraph (d)(1) of this section, and 

the taxpayer produces and then sells an 

eligible component to a related person, 

who then integrates, incorporates, or 

assembles the taxpayer’s eligible 

component into another complete and 

distinct eligible component that is 

subsequently sold to an unrelated 

person, the taxpayer’s sale of the eligible 

component to the related person is 

treated (solely for purposes of the 

section 45X credit and the section 45X 

regulations, and the regulations in this 

chapter under sections 6417 and 6418 

related to the section 45X credit) as if 

made to an unrelated person in the 

taxable year in which the sale to the 

related person occurs. 

(ii) Example: Sales of multiple 

integrated eligible components to 

related and unrelated persons with a 

related person election. W, X, and Y are 

domestic C corporations that are 

members of a group of trades or 

businesses under common control and 

thus are related persons under section 

45X(d)(1) and paragraph (b)(2) of this 

section. Each of W, X, and Y has a 

calendar year taxable year. W produces 

electrode active materials (EAMs) and 

sells the EAMs to X in 2023. W makes 

a valid Related Person Election under 

paragraph (d)(1) of this section in 2023 

with regard to the sale. In 2024, X 

incorporates the EAMs into battery cells 

that it produces and sells the battery 

cells to Y. X makes a valid Related 

Person Election under paragraph (d)(1) 

of this section in 2024 with regard to the 

sale. In 2025, Y incorporates the battery 

cells into battery modules that it 

produces and sells the battery modules 

to Z, an unrelated person. W may claim 

a section 45X credit for the sale of the 

EAMs in 2023 because the sale to X is 

treated as if made to an unrelated 

person solely for purposes of section 

45X(a). X may claim a section 45X 

credit for the sale of the battery cells in 

2024 because the sale to Y is treated as 

if made to an unrelated person solely for 

purposes of section 45X(a). Y may claim 

a section 45X credit for the sale of 

battery modules in 2025 because Z is an 

unrelated person. 

(f) Severability. The provisions of this 

section are separate and severable from 

one another. If any provision of this 

section is stayed or determined to be 

invalid, it is the agencies’ intention that 

the remaining provisions shall continue 

in effect. 

(g) Applicability date. This section 

applies to eligible components for 

which production is completed and 

sales occur after December 31, 2022, and 

during a taxable year ending on or after 

[date of publication of the final 

regulations in the Federal Register]. 

§ 1.45X–3 Eligible components. 

(a) In general. For purposes of the 

section 45X credit, eligible component 

means any solar energy component (as 

defined in paragraph (b) of this section), 

any wind energy component (as defined 

in paragraph (c) of this section), any 

inverter (as defined in paragraph (d) of 

this section), any qualifying battery 

component (as defined in paragraph (e) 

of this section), and any applicable 

critical mineral (as defined in § 1.45X– 

4(b)). See paragraph (f) of this section 

for certain phase-out rules applicable to 

eligible components other than 

applicable critical minerals. 

(b) Solar energy components. Solar 

energy component means a solar 

module, photovoltaic cell, photovoltaic 

wafer, solar grade polysilicon, torque 

tube, structural fastener, or polymeric 

backsheet, each as defined in this 

paragraph (b). 

(1) Photovoltaic cell—(i) Definition. 

Photovoltaic cell means the smallest 

semiconductor element of a solar 

module that performs the immediate 

conversion of light into electricity that 

is either a thin film photovoltaic cell or 

a crystalline photovoltaic cell. 

(ii) Credit amount. For a photovoltaic 

cell, the credit amount is equal to the 

product of 4 cents multiplied by the 

capacity of such photovoltaic cell. The 

capacity of each photovoltaic cell is 

expressed on a direct current watt basis. 

Capacity is the nameplate capacity in 

direct current watts using Standard Test 

Conditions, as defined by the 

International Electrotechnical 

Commission. In the case of a tandem 


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technology produced in serial fashion, 

such as a monolithic multijunction cell 

composed of two or more sub-cells, 

capacity must be measured at the point 

of sale at the end of the single cell 

production unit. In the case of a fourterminal tandem technology produced 

by mechanically stacking two distinct 

cells or interconnected layers, capacity 

must be measured for each cell at each 

point of sale. 

(iii) Substantiation. The taxpayer 

must document the capacity of a 

photovoltaic cell in a bill of sale or 

design documentation, such as an 

International Electrotechnical 

Commission certification (for example, 

IEC 61215 or IEC 60904). 

(2) Photovoltaic wafer—(i) Definition. 

Photovoltaic wafer means a thin slice, 

sheet, or layer of semiconductor 

material of at least 240 square 

centimeters that comprises the substrate 

or absorber layer of one or more 

photovoltaic cells. A photovoltaic wafer 

must be produced by a single 

manufacturer by forming an ingot from 

molten polysilicon (for example, 

Czochralski method) and then 

subsequently slicing it into wafers, 

forming molten or evaporated 

polysilicon into a sheet or layer, or 

depositing a thin-film semiconductor 

photon absorber into a sheet or layer 

(that is, thin-film deposition). 

(ii) Credit amount. For a photovoltaic 

wafer, the credit amount is $12 per 

square meter. 

(3) Polymeric backsheet—(i) 

Definition. Polymeric backsheet means a 

sheet on the back of a solar module that 

acts as an electric insulator and protects 

the inner components of such module 

from the surrounding environment. 

(ii) Credit amount. For a polymeric 

backsheet, the credit amount is 40 cents 

per square meter. 

(4) Solar grade polysilicon—(i) 

Definition. Solar grade polysilicon 

means silicon that is suitable for use in 

photovoltaic manufacturing and 

purified to a minimum purity of 

99.999999 percent silicon by mass. 

(ii) Credit amount. For solar grade 

polysilicon, the credit amount is $3 per 

kilogram. 

(5) Solar module—(i) Definition. Solar 

module means the connection and 

lamination of photovoltaic cells into an 

environmentally protected final 

assembly that is— 

(A) Suitable to generate electricity 

when exposed to sunlight; and 

(B) Ready for installation without an 

additional manufacturing process. 

(ii) Credit amount. For a solar 

module, the credit amount is equal to 

the product of 7 cents multiplied by the 

capacity of such module. The capacity 

of each solar module is expressed on a 

direct current watt basis. Capacity is the 

nameplate capacity in direct current 

watts using Standard Test Conditions, 

as defined by the International 

Electrotechnical Commission. 

(iii) Substantiation. The taxpayer 

must document the capacity of a solar 

module in a bill of sale or design 

documentation, such as an International 

Electrotechnical Commission 

certification (for example, IEC 61215 or 

IEC 61646). 

(6) Solar tracker. Solar tracker means 

a mechanical system that moves solar 

modules according to the position of the 

sun and to increase energy output. A 

torque tube (as defined in paragraph 

(b)(7) of this section) or structural 

fastener (as defined in paragraph (b)(8) 

of this section) are solar tracker 

components that are eligible 

components for purposes of the section 

45X credit. 

(7) Torque tube—(i) Definition. 

Torque tube means a structural steel 

support element (including longitudinal 

purlins) that— 

(A) Is part of a solar tracker; 

(B) Is of any cross-sectional shape; 

(C) May be assembled from 

individually manufactured segments; 

(D) Spans longitudinally between 

foundation posts; 

(E) Supports solar panels and is 

connected to a mounting attachment for 

solar panels (with or without separate 

module interface rails); and 

(F) Is rotated by means of a drive 

system. 

(ii) Credit amount. For a torque tube, 

the credit amount is 87 cents per 

kilogram. 

(iii) Substantiation. The taxpayer 

must document that a torque tube is part 

of a solar tracker with a specification 

sheet, bill of sale, or other similar 

documentation that explicitly describes 

its application as part of a solar tracker. 

(8) Structural fastener—(i) Definition. 

Structural fastener means a component 

that is used— 

(A) To connect the mechanical and 

drive system components of a solar 

tracker to the foundation of such solar 

tracker; 

(B) To connect torque tubes to drive 

assemblies; or 

(C) To connect segments of torque 

tubes to one another. 

(ii) Credit amount. For a structural 

fastener, the credit amount is $2.28 per 

kilogram. 

(iii) Substantiation. The taxpayer 

must document that a structural fastener 

is used in a manner described in 

paragraph (b)(8)(i)(A), (B), or (C) of this 

section with a bill of sale or other 

similar documentation that explicitly 

describes such use. 

(c) Wind energy components. Wind 

energy component means a blade, 

nacelle, tower, offshore wind 

foundation, or related offshore wind 

vessel, each as defined in this paragraph 

(c). 

(1) Blade—(i) Definition. Blade means 

an airfoil-shaped blade that is 

responsible for converting wind energy 

to low-speed rotational energy. 

(ii) Credit amount. For a blade, the 

credit amount is equal to the product of 

2 cents multiplied by the total rated 

capacity of the completed wind turbine 

for which the blade is designed. 

(2) Offshore wind foundation—(i) 

Definition. Offshore wind foundation 

means the component (including 

transition piece) that secures an offshore 

wind tower and any above-water turbine 

components to the seafloor using— 

(A) Fixed platforms, such as offshore 

wind monopiles, jackets, or gravitybased foundations; or 

(B) Floating platforms and associated 

mooring systems. 

(ii) Credit amount. For a fixed 

offshore wind foundation platform, the 

credit amount is equal to the product of 

2 cents multiplied by the total rated 

capacity of the completed wind turbine 

for which the fixed offshore wind 

foundation platform is designed. For a 

floating offshore wind foundation 

platform, the credit amount is equal to 

the product of 4 cents multiplied by the 

total rated capacity of the completed 

wind turbine for which the floating 

offshore wind foundation platform is 

designed. 

(3) Nacelle—(i) Definition. Nacelle 

means the assembly of the drivetrain 

and other tower-top components of a 

wind turbine (with the exception of the 

blades and the hub) within their cover 

housing. 

(ii) Credit amount. For a nacelle, the 

credit amount is equal to the product of 

5 cents multiplied by the total rated 

capacity of the completed wind turbine 

for which the nacelle is designed. 

(4) Related offshore wind vessel—(i) 

Definition. Related offshore wind vessel 

means any vessel that is purpose-built 

or retrofitted for purposes of the 

development, transport, installation, 

operation, or maintenance of offshore 

wind energy components. A vessel is 

purpose-built for development, 

transport, installation, operation, or 

maintenance of offshore wind energy 

components if it is built to be capable 

of performing such functions and it is of 

a type that is commonly used in the 

offshore wind industry. A vessel is 

retrofitted for development, transport, 

installation, operation, or maintenance 

of offshore wind energy components if 

such vessel was incapable of performing 


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such functions prior to being retrofitted, 

the retrofit causes the vessel to be 

capable of performing such functions, 

and the retrofitted vessel is of a type 

that is commonly used in the offshore 

wind industry. 

(ii) Credit amount. For a related 

offshore wind vessel, the credit amount 

is equal to 10 percent of the sales price 

of the vessel. The sales price of the 

vessel does not include the price of 

maintenance, services, or other similar 

items that may be sold with the vessel. 

For a related offshore wind vessel with 

respect to which an election under 

section 45X(a)(3)(B)(i) has been made, 

such election shall not cause the sale 

price of such vessel to be treated as 

having been determined with respect to 

a transaction between uncontrolled 

taxpayers for purposes of section 482 of 

the Code and the regulations in this 

chapter. 

(5) Tower—(i) Definition. Tower 

means a tubular or lattice structure that 

supports the nacelle and rotor of a wind 

turbine. 

(ii) Credit amount. For a tower, the 

credit amount is equal to the product of 

3 cents multiplied by the total rated 

capacity of the completed wind turbine 

for which the tower is designed. 

(6) Total rated capacity of the 

completed wind turbine. For purposes 

of this section, total rated capacity of 

the completed wind turbine means, for 

the completed wind turbine for which a 

blade, nacelle, offshore wind 

foundation, or tower was manufactured 

and sold, the nameplate capacity at the 

time of sale as certified to the relevant 

national or international standards, such 

as International Electrotechnical 

Commission (IEC) 61400, or ANSI/ACP 

101–1–2021, the Small Wind Turbine 

Standard. Certification of the turbine to 

such standards must be documented by 

a certificate issued by an accredited 

certification body. The total rated 

capacity of a wind turbine must be 

expressed in watts. 

(7) Substantiation. Taxpayers must 

maintain specific documentation 

regarding wind energy components for 

which a section 45X credit is claimed. 

For blades, nacelles, offshore wind 

foundations, or towers, a taxpayer must 

document the turbine model for which 

such component is designed and the 

total rated capacity of the completed 

wind turbine in technical 

documentation associated with the sale 

of such component. 

(d) Inverters—(1) In general. Inverter 

means an end product that is suitable to 

convert direct current (DC) electricity 

from 1 or more solar modules or 

certified distributed wind energy 

systems into alternating current 

electricity. An end product is suitable to 

convert DC electricity from 1 or more 

solar modules or certified distributed 

wind energy systems into alternating 

current electricity if, in the form sold by 

the manufacturer, it is able to connect 

with such modules or systems and 

convert DC electricity to alternating 

current electricity from such connected 

source. The term inverter includes a 

central inverter, commercial inverter, 

distributed wind inverter, 

microinverter, or residential inverter. 

Only an inverter that meets at least one 

of the requirements in paragraphs (d)(2) 

through (7) of this section is an eligible 

component for purposes of the section 

45X credit. 

(2) Central inverter—(i) Definition. 

Central inverter means an inverter that 

is suitable for large utility-scale systems 

and has a capacity that is greater than 

1,000 kilowatts. The capacity of a 

central inverter is expressed on an 

alternating current watt basis. An 

inverter is suitable for large utility-scale 

systems if, in the form sold by the 

manufacturer, it is capable of serving as 

a component in a large utility-scale 

system and meets the core engineering 

specifications for such application. 

(ii) Credit amount. For a central 

inverter the total rated capacity of 

which is expressed on an alternating 

current watt basis, the credit amount is 

equal to the product of 0.25 cents 

multiplied by the total rated capacity of 

the central inverter. 

(iii) Substantiation. The taxpayer 

must document that a central inverter 

meets the core engineering 

specifications for use in a large utilityscale system and has a capacity that is 

greater than 1,000 kilowatts with a 

specification sheet, bill of sale, or other 

similar documentation that explicitly 

describes such specifications and 

capacity. 

(3) Commercial inverter—(i) 

Definition. Commercial inverter means 

an inverter that— 

(A) Is suitable for commercial or 

utility-scale applications; 

(B) Has a rated output of 208, 480, 

600, or 800 volt three-phase power; and 

(C) Has a capacity expressed on an 

alternating current watt basis that is not 

less than 20 kilowatts and not greater 

than 125 kilowatts. 

(ii) Suitable for commercial or utilityscale applications. An inverter is 

suitable for commercial or utility-scale 

applications if, in the form sold by the 

manufacturer, it is capable of serving as 

a component in commercial or utilityscale systems and meets the core 

engineering specifications for such 

application. 

(iii) Credit amount. For a commercial 

inverter the total rated capacity of 

which is expressed on an alternating 

current watt basis, the credit amount is 

equal to the product of 2 cents 

multiplied by the total rated capacity of 

the commercial inverter. 

(iv) Substantiation. The taxpayer must 

document that a commercial inverter 

meets the core engineering 

specifications for use in commercial or 

utility-scale applications, the inverter’s 

rated output, and the inverter’s capacity 

in a specification sheet, bill of sale, or 

other similar documentation. 

(4) Distributed wind inverter—(i) In 

general. Distributed wind inverter means 

an inverter that is used in a residential 

or non-residential system that utilizes 1 

or more certified distributed wind 

energy systems and has a total rated 

output, expressed on an alternating 

current watt basis, of not greater than 

150 kilowatts. 

(ii) Certified distributed wind energy 

system. Certified distributed wind 

energy system means a wind energy 

system that is certified by an accredited 

certification agency to meet Standard 

9.1–2009 of the American Wind Energy 

Association; International 

Electrotechnical Commission 61400–1, 

61400–2, 61400–11, 61400–12; or ANSI/ 

ACP 101–1–2021, the Small Wind 

Turbine Standard, including any 

subsequent revisions to or modifications 

of such Standard that have been 

approved by the American National 

Standards Institute. 

(iii) Credit amount. For a distributed 

wind inverter the total rated capacity of 

which is expressed on an alternating 

current watt basis, the credit amount is 

equal to the product of 11 cents 

multiplied by the total rated capacity of 

the distributed wind inverter. 

(iv) Substantiation. The taxpayer must 

document that a distributed wind 

inverter is used in a residential or nonresidential system that utilizes one or 

more certified distributed wind energy 

systems with a specification sheet, bill 

of sale, or other similar documentation 

that explicitly describes such use and 

the total rated output of the inverter on 

an alternating current watt basis. 

(5) Microinverter—(i) Definition. 

Microinverter means an inverter that— 

(A) Is suitable to connect with one 

solar module; 

(B) Has a rated output described in 

paragraph (d)(5)(ii) of this section; and 

(C) Has a capacity, expressed on an 

alternating current watt basis, that is not 

greater than 650 watts. 

(ii) Rated output. For purposes of 

paragraph (d)(5)(i)(B) of this section, for 

an inverter to be a microinverter, the 

inverter must have a rated output of— 


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(A) 120 or 240 volt single-phase 

power; or 

(B) 208 or 480 volt three-phase power. 

(iii) Suitable to connect to one solar 

module—(A) In general. An inverter is 

suitable to connect to one solar module 

if, in the form sold by the manufacturer, 

it is capable of connecting to one or 

more solar modules and regulating the 

DC electricity from each module 

independently before that electricity is 

converted into alternating current 

electricity. 

(B) Application to direct current (DC) 

optimized inverter systems. A DC 

optimized inverter system means an 

inverter that is comprised of an inverter 

connected to multiple DC optimizers 

that are each designed to connect to one 

solar module. A DC optimized inverter 

system is suitable to connect with one 

solar module if, in the form sold by the 

manufacturer, it is capable of 

connecting to one or more solar 

modules and regulating the DC 

electricity from each module 

independently before that electricity is 

converted into alternating current 

electricity. 

(C) Application to multi-module 

inverters. A multi-module inverter 

means an inverter that is comprised of 

an inverter with independent 

connections and DC optimizing 

components for two or more modules. A 

multi-module microinverter is suitable 

to connect with one solar module if it 

is capable of connecting to one or more 

solar modules and regulating the DC 

electricity from each module 

independently before that electricity is 

converted into alternating current 

electricity. 

(iv) Credit amount—(A) In general. 

For a microinverter the total rated 

capacity of which is expressed on an 

alternating current watt basis, the credit 

amount is equal to the product of 11 

cents multiplied by the total rated 

capacity of the microinverter. 

(B) DC optimized inverter systems. A 

DC optimized inverter system qualifies 

as a microinverter if it meets the 

requirements of paragraph (d)(5)(i) of 

this section. For purposes of paragraph 

(d)(5)(i)(C) of this section, a DC 

optimized inverter system’s capacity is 

determined separately for each DC 

optimizer paired with the inverter in a 

DC optimized inverter system. If each 

DC optimizer paired with the inverter in 

a DC optimized inverter system meets 

the requirements of paragraph (d)(5)(i) 

of this section, then the DC optimized 

inverter system qualifies as a 

microinverter. The credit amount for a 

DC optimized inverter system that 

qualifies as a microinverter is equal to 

the product of 11 cents multiplied by 

the lesser of the sum of the alternating 

current capacity of each DC optimizer 

when paired with the inverter in the DC 

optimized inverter system or the 

alternating current capacity of the 

inverter in the DC optimized inverter 

system. For purposes of this paragraph 

(d)(5)(iv)(B), capacity must be measured 

in watts of alternating current converted 

from DC electricity by the inverter in a 

DC optimized inverter system. For a DC 

optimized inverter system to qualify as 

a microinverter, a taxpayer must 

produce and sell the inverter and the DC 

optimizers in the DC optimized inverter 

system together as a combined end 

product. 

(C) Multi-module inverters. A multimodule inverter qualifies as a 

microinverter if it meets the 

requirements of paragraph (d)(5)(i) of 

this section. For purposes of paragraph 

(d)(5)(i)(C) of this section, a multimodule inverter’s capacity is 

determined separately for each internal 

DC optimizer paired with the inverter. 

The credit amount for a multi-module 

inverter is equal to the product of 11 

cents multiplied by the total alternating 

current capacity of the DC optimizers in 

the multi-module inverter when paired 

with the inverter in the system. For 

purposes of this paragraph (d)(5)(iv)(C), 

capacity must be measured in watts of 

alternating current converted from DC 

electricity by the inverter in a multimodule microinverter. 

(v) Substantiation. The taxpayer must 

document that a microinverter meets the 

core engineering specifications to be 

suitable to connect with one solar 

module, the inverter’s rated output, and 

the inverter’s capacity in a specification 

sheet, bill of sale, or other similar 

documentation. In the case of a DC 

optimized inverter system, the taxpayer 

must also document that the DC 

optimizers and the inverter in such 

system were sold as a combined end 

product. 

(6) Residential inverter—(i) Definition. 

Residential inverter means an inverter 

that— 

(A) Is suitable for a residence; 

(B) Has a rated output of 120 or 240 

volt single-phase power; and 

(C) Has a capacity expressed on an 

alternating current watt basis that is not 

greater than 20 kilowatts. 

(ii) Suitable for a residence. An 

inverter is suitable for a residence if, in 

the form sold by the manufacturer, it is 

capable of serving as a component in a 

residential system and meets the core 

engineering specifications for such 

application. 

(iii) Credit amount. For a residential 

inverter the total rated capacity of 

which is expressed on an alternating 

current watt basis, the credit amount is 

equal to the product of 6.5 cents 

multiplied by the total rated capacity of 

the residential inverter. 

(iv) Substantiation. The taxpayer must 

document that a residential inverter 

meets the core engineering 

specifications for use in a residence, the 

inverter’s rated output, and the 

inverter’s capacity in a specification 

sheet, bill of sale, or other similar 

documentation. 

(7) Utility inverter—(i) Definition. 

Utility inverter means an inverter that— 

(A) Is suitable for commercial or 

utility-scale systems; 

(B) Has a rated output of not less than 

600 volt three-phase power; and 

(C) Has a capacity expressed on an 

alternating current watt basis that is 

greater than 125 kilowatts and not 

greater than 1000 kilowatts. 

(ii) Suitable for commercial or utilityscale systems. An inverter is suitable for 

commercial or utility-scale systems if, in 

the form sold by the manufacturer, it is 

capable of serving as a component in 

such systems and meets the core 

engineering specifications for such 

application. 

(iii) Credit amount. For a utility 

inverter the total rated capacity of 

which is expressed on an alternating 

current watt basis, the credit amount is 

equal to the product of 1.5 cents 

multiplied by the total rated capacity of 

the utility inverter. 

(iv) Substantiation. The taxpayer must 

document that a utility inverter meets 

the core engineering specifications for 

use in commercial or utility-scale 

systems, the inverter’s rated output, and 

the inverter’s capacity in a specification 

sheet, bill of sale, or other similar 

documentation. 

(e) Qualifying battery component—(1) 

In general. Qualifying battery 

component means electrode active 

materials, battery cells, or battery 

modules, each as defined in this 

paragraph (e). 

(2) Electrode active materials—(i) 

Definitions—(A) Electrode active 

materials. Electrode active materials 

means cathode electrode materials, 

anode electrode materials, and 

electrochemically active materials that 

contribute to the electrochemical 

processes necessary for energy storage. 

Electrode active materials do not 

include battery management systems, 

terminal assemblies, cell containments, 

gas release valves, module 

containments, module connectors, 

compression plates, straps, pack 

terminals, bus bars, thermal 

management systems, and pack jackets. 

(B) Cathode electrode materials. 

Cathode electrode materials means the 


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materials that comprise the cathode of a 

commercial battery technology, such as 

binders, and current collectors (for 

example, cathode foils). 

(C) Anode electrode materials. Anode 

electrode materials means the materials 

that comprise the anode of a commercial 

battery technology, including anode 

foils. 

(D) Electrochemically active 

materials. Electrochemically active 

materials that contribute to the 

electrochemical processes necessary for 

energy storage means battery-grade 

materials that enable the 

electrochemical storage within a 

commercial battery technology. In 

addition to solvents, additives, and 

electrolyte salts, electrochemically 

active materials that contribute to the 

electrochemical processes necessary for 

energy storage may include electrolytes, 

catholytes, anolytes, separators, and 

metal salts and oxides. 

(E) Example. A commercial battery 

technology contains Cathode Active 

Material (CAM), which is a powder used 

in the battery that is made by processing 

and combining Battery-Grade Materials 

A and B. Battery-Grade Material A is a 

derivative of Material C, which has been 

refined to the necessary level to enable 

electrochemical storage. The production 

costs for CAM and its direct inputs 

(Battery-Grade Material A and BatteryGrade Material B) are eligible for the 

section 45X credit for electrode active 

materials, but the unrefined Material C 

is not. 

(F) Battery-grade materials. Batterygrade materials means the processed 

materials found in a final battery cell or 

an analogous unit, or the direct batterygrade precursors to those processed 

materials. 

(ii) Credit amount. For an electrode 

active material, the credit amount is 

equal to 10 percent of the costs incurred 

by the taxpayer with respect to 

production of such materials. 

(iii) Production processes for 

electrode active materials—(A) 

Conversion. For purposes of section 

45X, the term conversion means a 

chemical transformation from one 

species to another. 

(B) Purification. For purposes of 

section 45X, the term purification 

means increasing the mass fraction of a 

certain element. 

(iv) Production costs incurred. Costs 

incurred by the taxpayer with respect to 

production of electrode active materials 

includes all costs as defined in 

§ 1.263A–1(e) that are paid or incurred 

within the meaning of section 461 of the 

Code by the taxpayer for the production 

of an electrode active material only, 

except direct materials costs as defined 

in § 1.263A–1(e)(2)(i)(A), or indirect 

materials costs as defined in § 1.263A– 

1(e)(3)(ii)(E), and any costs related to the 

extraction of raw materials. Section 

263A of the Code and the regulations in 

this chapter under section 263A apply 

solely to identify the types of costs that 

are includible in production costs 

incurred for purposes of computing the 

amount of the section 45X credit, but do 

not apply for any other purpose, such as 

to determine whether a taxpayer is 

engaged in production activities. 

(v) Materials that are both electrode 

active materials and applicable critical 

minerals—(A) In general. A material 

that qualifies as an electrode active 

material and an applicable critical 

material is eligible for the section 45X 

credit. A taxpayer may claim the section 

45X credit with respect to such material 

either as an electrode active material or 

an applicable critical material, but not 

both. 

(B) Example. Lithium carbonate is an 

electrode active material because it is a 

direct battery-grade precursor to 

electrolyte salts, which are processed 

materials found in a final battery cell. 

Lithium carbonate is also eligible for the 

45X critical minerals credit. A taxpayer 

who produces and sells lithium 

carbonate may claim either the electrode 

active material credit or the critical 

mineral credit for its production and 

sale of lithium carbonate but may not 

take both credits. 

(3) Battery cells—(i) Definition. 

Battery cell means an electrochemical 

cell— 

(A) Comprised of one or more positive 

electrodes and one or more negative 

electrodes; 

(B) With an energy density of not less 

than 100 watt-hours per liter; and 

(C) Capable of storing at least 12 watthours of energy. 

(ii) Capacity measurement. Taxpayers 

must measure the capacity of a battery 

cell in accordance with a national or 

international standard, such as IEC 

60086–1 (Primary Batteries), or an 

equivalent standard. Taxpayers can 

reference the United States Advanced 

Battery Consortium (USABC) Battery 

Test Manual for additional guidance. 

(iii) Credit amount. For a battery cell, 

the credit amount is equal to the 

product of $35 multiplied by the 

capacity of such battery cell, subject to 

the limitation provided in paragraph 

(e)(5) of this section. The capacity of a 

battery cell is expressed on a kilowatthour basis. 

(4) Battery module definitions and 

applicable rules—(i) Battery module 

defined. The term battery module means 

a module described in paragraph 

(e)(4)(i)(A) or (B) of this section with an 

aggregate capacity of not less than 7 

kilowatt-hours (or, in the case of a 

module for a hydrogen fuel cell vehicle, 

not less than 1 kilowatt-hour). 

(A) Modules using battery cells. A 

module using battery cells, is a module 

with two or more battery cells that are 

configured electrically, in series or 

parallel, to create voltage or current, as 

appropriate, to a specified end use, 

meaning an end-use configuration of 

battery technologies. An end-use 

configuration is the product that 

ultimately serves a specified end use. It 

is the collection of interconnected cells, 

configured to that specific end-use and 

interconnected with the necessary 

hardware and software required to 

deliver the required energy and power 

(voltage and current) for that use. 

(B) Modules with no battery cells. A 

module with no battery cells means a 

product with a standardized 

manufacturing process and form that is 

capable of storing and dispatching 

useful energy, that contains an energy 

storage medium that remains in the 

module (for example, it is not consumed 

through combustion), and that is not a 

custom-built electricity generation or 

storage facility. For example, neither 

standalone fuel storage tanks nor fuel 

tanks connected to engines or 

generation systems qualify as modules 

with no battery cells. 

(ii) Capacity measurement—(A) 

Modules using battery cells. Taxpayers 

must measure the capacity of a module 

using battery cells with a testing 

procedure that complies with a national 

or international standard published by a 

recognized standard setting 

organization. The capacity of a battery 

module may not exceed the total 

capacity of the battery cells in the 

module. Taxpayers must measure the 

capacity of a battery cell in accordance 

with a national or international 

standard, such as IEC 60086–1 (Primary 

Batteries), or an equivalent standard. 

Taxpayers can reference the USABC 

Battery Test Manual for additional 

guidance. 

(B) Modules with no battery cells. 

Taxpayers must measure the capacity of 

a module with no battery cells with a 

testing procedure that complies with a 

national or international standard 

published by a recognized standard 

setting organization. If no such standard 

applies to a type of module with no 

battery cells, taxpayers must measure 

the capacity of such module as the 

Secretary may prescribe in regulations 

or other guidance. 

(iii) Credit amount—(A) Modules 

using battery cells. For a battery module 

with cells, the credit amount is equal to 

the product of $10 multiplied by the 


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capacity of such battery module, subject 

to the limitation provided in paragraph 

(e)(5) of this section. The capacity of 

each battery module is expressed on a 

kilowatt-hour basis. 

(B) Modules with no battery cells. For 

a battery module without cells, the 

credit amount is equal to the product of 

$45 multiplied by the capacity of such 

battery module, subject to the limitation 

provided in paragraph (e)(5) of this 

section. The capacity of each battery 

module is expressed on a kilowatt-hour 

basis. 

(5) Limitation on capacity of battery 

cells and battery modules—(i) In 

general. For purposes of paragraphs 

(e)(3)(iii) and (e)(4)(iii) of this section, 

the capacity determined with respect to 

a battery cell or battery module must not 

exceed a capacity-to-power ratio of 

100:1. 

(ii) Capacity to power ratio. For 

purposes of paragraph (e)(5)(i) of this 

section, capacity-to-power ratio means, 

with respect to a battery cell or battery 

module, the ratio of the capacity of such 

cell or module to the maximum 

discharge amount of such cell or 

module. 

(f) Phase out rule—(1) In general. 

Except as provided in paragraph (f)(3) of 

this section, in the case of any eligible 

component sold after December 31, 

2029, the amount of the section 45X 

credit determined with respect to such 

eligible component must be equal to the 

product of— 

(i) The amount determined under this 

section with respect to such eligible 

component, multiplied by; 

(ii) The phase out percentage under 

paragraph (f)(2) of this section. 

(2) Phase out percentages. The phase 

out percentage is equal to 75 percent for 

eligible components sold during 

calendar year 2030; 50 percent for 

eligible components sold during 

calendar year 2031; 25 percent for 

eligible components sold during 

calendar year 2032, and zero percent for 

eligible components sold after calendar 

year 2032. 

(3) Exception for applicable critical 

minerals. The phase out rules described 

in paragraphs (f)(1) and (2) of this 

section apply to all eligible components 

except applicable critical minerals. 

(g) Severability. The provisions of this 

section are separate and severable from 

one another. If any provision of this 

section is stayed or determined to be 

invalid, it is the agencies’ intention that 

the remaining provisions shall continue 

in effect. 

(h) Applicability date. This section 

applies to eligible components for 

which production is completed and 

sales occur after December 31, 2022, and 

during a taxable year ending on or after 

[date of publication of the final 

regulations in the Federal Register]. 

§ 1.45X–4 Applicable critical minerals. 

(a) In general. The term applicable 

critical mineral means any of the 

minerals that are listed in section 

45X(c)(6) and defined in paragraph (b) 

of this section. 

(b) Definitions—(1) Aluminum. The 

term commodity-grade aluminum 

means aluminum that has been 

produced directly from aluminum 

described in paragraph (b)(1)(i) or (ii) of 

this section and is in a form that is sold 

on international commodity exchanges. 

The term aluminum means aluminum, 

including commodity-grade aluminum, 

that is— 

(i) Converted from bauxite to a 

minimum purity of 99 percent alumina 

by mass; or 

(ii) Purified to a minimum purity of 

99.9 percent aluminum by mass. 

(2) Antimony. The term antimony 

means antimony that is— 

(i) Converted to antimony trisulfide 

concentrate with a minimum purity of 

90 percent antimony trisulfide by mass; 

or 

(ii) Purified to a minimum purity of 

99.65 percent antimony by mass. 

(3) Barite. The term barite means 

barite that is barium sulfate purified to 

a minimum purity of 80 percent barite 

by mass. 

(4) Beryllium. The term beryllium 

means beryllium that is— 

(i) Converted to copper-beryllium 

master alloy; or 

(ii) Purified to a minimum purity of 

99 percent beryllium by mass. 

(5) Cerium. The term cerium means 

cerium that is— 

(i) Converted to cerium oxide that is 

purified to a minimum purity of 99.9 

percent cerium oxide by mass; or 

(ii) Purified to a minimum purity of 

99 percent cerium by mass. 

(6) Cesium. The term cesium means 

cesium that is— 

(i) Converted to cesium formate or 

cesium carbonate; or 

(ii) Purified to a minimum purity of 

99 percent cesium by mass. 

(7) Chromium. The term chromium 

means chromium that is— 

(i) Converted to ferrochromium 

consisting of not less than 60 percent 

chromium by mass; or 

(ii) Purified to a minimum purity of 

99 percent chromium by mass. 

(8) Cobalt. The term cobalt means 

cobalt that is— 

(i) Converted to cobalt sulfate; or 

(ii) Purified to a minimum purity of 

99.6 percent cobalt by mass. 

(9) Dysprosium. The term dysprosium 

means dysprosium that is— 

(i) Converted to not less than 99 

percent pure dysprosium iron alloy by 

mass; or 

(ii) Purified to a minimum purity of 

99 percent dysprosium by mass. 

(10) Europium. The term europium 

means europium that is— 

(i) Converted to europium oxide that 

is purified to a minimum purity of 99.9 

percent europium oxide by mass; or 

(ii) Purified to a minimum purity of 

99 percent of europium by mass. 

(11) Fluorspar. The term fluorspar 

means fluorspar that is— 

(i) Converted to fluorspar that is 

purified to a minimum purity of 97 

percent calcium fluoride by mass; or 

(ii) Purified to a minimum purity of 

99 percent fluorspar by mass. 

(12) Gadolinium. The term 

gadolinium means gadolinium that is— 

(i) Converted to gadolinium oxide that 

is purified to a minimum purity of 99.9 

percent gadolinium oxide by mass; or 

(ii) Purified to a minimum purity of 

99 percent gadolinium by mass. 

(13) Germanium. The term 

germanium means germanium that is— 

(i) Converted to germanium 

tetrachloride; or 

(ii) Purified to a minimum purity of 

99.99 percent germanium by mass. 

(14) Graphite. The term graphite 

means natural or synthetic graphite that 

is purified to a minimum purity of 99.9 

percent graphitic carbon by mass. The 

term 99.9 percent graphitic carbon by 

mass means graphite that is 99.9 percent 

carbon by mass. 

(15) Indium. The term indium means 

indium that is— 

(i) Converted to— 

(A) Indium tin oxide; or 

(B) Indium oxide that is purified to a 

minimum purity of 99.9 percent indium 

oxide by mass; or 

(ii) Purified to a minimum purity of 

99 percent indium by mass. 

(16) Lithium. The term lithium means 

lithium that is— 

(i) Converted to lithium carbonate or 

lithium hydroxide; or 

(ii) Purified to a minimum purity of 

99.9 percent lithium by mass. 

(17) Manganese. The term manganese 

means manganese that is— 

(i) Converted to manganese sulphate; 

or 

(ii) Purified to a minimum purity of 

99.7 percent manganese by mass. 

(18) Neodymium. The term 

neodymium means neodymium that is— 

(i) Converted to neodymiumpraseodymium oxide that is purified to 

a minimum purity of 99 percent 

neodymium-praseodymium oxide by 

mass; 

(ii) Converted to neodymium oxide 

that is purified to a minimum purity of 


ddrumheller on DSK120RN23PROD with PROPOSALS1
86868 Federal Register / Vol. 88, No. 240 / Friday, December 15, 2023 / Proposed Rules 

99.5 percent neodymium oxide by mass; 

or 

(iii) Purified to a minimum purity of 

99.9 percent neodymium by mass. 

(19) Nickel. The term nickel means 

nickel that is— 

(i) Converted to nickel sulphate; or 

(ii) Purified to a minimum purity of 

99 percent nickel by mass. 

(20) Niobium. The term niobium 

means niobium that is— 

(i) Converted to ferronibium; or 

(ii) Purified to a minimum purity of 

99 percent niobium by mass. 

(21) Tellurium. The term tellurium 

means tellurium that is— 

(i) Converted to cadmium telluride; or 

(ii) Purified to a minimum purity of 

99 percent tellurium by mass. 

(22) Tin. The term tin means tin that 

purified to low alpha emitting tin that— 

(i) Has a purity of greater than 99.99 

percent by mass; and 

(ii) Possesses an alpha emission rate 

of not greater than 0.01 counts per hour 

per centimeter square. 

(23) Tungsten. The term tungsten 

means tungsten that is converted to 

ammonium paratungstate or 

ferrotungsten. 

(24) Vanadium. The term vanadium 

means vanadium that is converted to 

ferrovanadium or vanadium pentoxide. 

(25) Yttrium. The term yttrium means 

yttrium that is— 

(i) Converted to yttrium oxide that is 

purified to a minimum purity of 99.999 

percent yttrium oxide by mass; or 

(ii) Purified to a minimum purity of 

99.9 percent yttrium by mass. 

(26) Other minerals. The following 

minerals are also applicable critical 

minerals provided that such mineral is 

purified to a minimum purity of 99 

percent by mass: 

(i) Arsenic. 

(ii) Bismuth. 

(iii) Erbium. 

(iv) Gallium. 

(v) Hafnium. 

(vi) Holmium. 

(vii) Iridium. 

(viii) Lanthanum. 

(ix) Lutetium. 

(x) Magnesium. 

(xi) Palladium. 

(xii) Platium. 

(xiii) Praseodymium. 

(xiv) Rhodium. 

(xv) Rubidium. 

(xvi) Ruthemium. 

(xvii) Samarium. 

(xviii) Scandium. 

(xix) Tantalum. 

(xx) Terbium. 

(xxi) Thulium. 

(xxii) Titanium. 

(xxiii) Ytterbium. 

(xxiv) Zinc. 

(xxv) Zirconium. 

(c) Credit amount—(1) In general. For 

any applicable critical mineral, the 

credit amount is equal to 10 percent of 

the costs incurred by the taxpayer with 

respect to production of such mineral. 

(2) Production processes for 

applicable critical minerals—(i) 

Conversion. For purposes of section 

45X, the term conversion means a 

chemical transformation from one 

species to another. 

(ii) Purification. For purposes of 

section 45X, the term purification 

means increasing the mass fraction of a 

certain element. 

(3) Production costs incurred. Costs 

incurred by the taxpayer with respect to 

the production of applicable critical 

minerals includes all costs as defined in 

§ 1.263A–1(e) that are paid or incurred 

within the meaning of section 461 of the 

Code by the taxpayer for the production 

of an applicable critical mineral only, 

except direct or indirect materials costs 

as defined in § 1.263A–1(e)(2)(i)(A) and 

(e)(3)(ii)(E), respectively, and any costs 

related to the extraction of raw 

materials. Section 263A of the Code and 

the regulations in this chapter under 

section 263A apply solely to identify the 

types of costs that are includible in 

production costs incurred for purposes 

of computing the amount of the section 

45X credit, but do not apply for any 

other purpose, such as to determine 

whether a taxpayer is engaged in 

production activities. 

(4) Substantiation. The taxpayer must 

document that an applicable critical 

mineral meets the requirements of 

section 45X(c)(6) with a certificate of 

analysis provided by the taxpayer to the 

person to which the taxpayer sold the 

applicable critical mineral. 

(d) Severability. The provisions of this 

section are separate and severable from 

one another. If any provision of this 

section is stayed or determined to be 

invalid, it is the agencies’ intention that 

the remaining provisions shall continue 

in effect. 

(e) Applicability date. This section 

applies to eligible components for 

which production is completed and 

sales occur after December 31, 2022, and 

during a taxable year ending on or after 

[date of publication of the final 

regulations in the Federal Register]. 

Douglas W. O’Donnell, 

Deputy Commissioner for Services and 

Enforcement. 

[FR Doc. 2023–27498 Filed 12–14–23; 8:45 am] 

BILLING CODE 4830–01–P 

POSTAL SERVICE 

39 CFR Part 111 

New Mailing Standards for Hazardous 

Materials Outer Packaging and 

Nonregulated Toxic Materials 

AGENCY: Postal ServiceTM. 

ACTION: Proposed rule. 

SUMMARY: The Postal Service is 

proposing to amend Publication 52, 

Hazardous, Restricted, and Perishable 

Mail (Pub 52) by requiring specific outer 

packaging strength standards when 

mailing hazardous materials or 

dangerous goods and remove quantity 

restrictions for nonregulated toxic 

materials. Additionally, the Postal 

Service proposes to allow mailers to use 

poly or padded bags as outer packaging 

for shipments containing lithium 

batteries installed in the equipment they 

operate if the shipment does not display 

hazardous text, markings or labels as 

permitted in sections 349 and 622. 

DATES: Submit comments on or before 

January 16, 2024. 

ADDRESSES: Mail or deliver written 

comments to the Director, Product 

Classification, U.S. Postal Service, 475 

L’Enfant Plaza SW, Room 4446, 

Washington, DC 20260–5015. If sending 

comments by email, include the name 

and address of the commenter and send 

to PCFederalRegister@usps.gov, with a 

subject line of ‘‘New Mailing Standards 

for Hazardous Materials Outer 

Packaging and Nonregulated Toxic 

Materials.’’ Faxed comments will not be 

accepted. 

You may inspect and photocopy all 

written comments, by appointment 

only, at USPS® Headquarters Library, 

475 L’Enfant Plaza SW, 11th Floor 

North, Washington, DC 20260. These 

records are generally available for 

review Monday through Friday, 8 a.m. 

to 4 p.m., by calling 202–268–2906. 

FOR FURTHER INFORMATION CONTACT: Dale 

Kennedy, (202) 268–6592, or Jennifer 

Cox, (202) 268–2108. 

SUPPLEMENTARY INFORMATION: All 

submitted comments and attachments 

are part of the public record and subject 

to disclosure. Do not enclose any 

material in your comments that you 

consider to be confidential or 

inappropriate for public disclosure. 

The Postal Service proposes to amend 

Publication 52, Hazardous, Restricted, 

and Perishable Mail (Pub 52), with the 

provisions set forth herein. While not 

codified in Title 39, Code of Federal 

Regulations (CFR), Publication 52 is a 

regulation of the Postal Service, and 

changes to it may be published in the 

Federal Register. 39 CFR 211.2(a)(2). 


ddrumheller on DSK120RN23PROD with PROPOSALS1