[Federal Register Volume 89, Number 208 (Monday, October 28, 2024)]
[Rules and Regulations]
[Pages 85798-85846]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-24840]



[[Page 85797]]

Vol. 89

Monday,

No. 208

October 28, 2024

Part V





 Department of the Treasury





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Internal Revenue Service





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26 CFR Part 1





Advanced Manufacturing Production Credit; Final Rule

Federal Register / Vol. 89, No. 208 / Monday, October 28, 2024 / 
Rules and Regulations

[[Page 85798]]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 10010]
RIN 1545-BQ85


Advanced Manufacturing Production Credit

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final rule.

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SUMMARY: This document sets forth final regulations regarding 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. These 
final regulations also address specific recordkeeping and reporting 
requirements. These final regulations 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.

DATES: 
    Effective date: These regulations are effective December 27, 2024.
    Applicability date: For date of applicability, see Sec. Sec.  
1.45X-1(j), 1.45X-2(f), 1.45X-3(g), and 1.45X-4(d).

FOR FURTHER INFORMATION CONTACT: Mindy Chou, John Deininger, Derek 
Gimbel, or Alexander Scott at (202) 317-6853 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Authority

    This document contains final regulations (final regulations) that 
amend the Income Tax Regulations (26 CFR part 1) to implement the 
statutory provisions of section 45X of the Internal Revenue Code 
(Code). The final regulations are issued by the Secretary of the 
Treasury or her delegate (Secretary) under the authority granted under 
sections 45X(a)(3)(B)(i) and (ii), 1502, 6001, 6417(h), 6418(h), and 
7805(a) of the Code.
    Section 45X(a)(3)(B)(i) of the Code provides a specific delegation 
of authority to the Secretary to prescribe the form and manner for a 
taxpayer to make an election such that ``a sale of components by such 
taxpayer to a related person shall be deemed to have been made to an 
unrelated person.'' Section 45X(a)(3)(B)(ii) provides a specific 
delegation of authority to the Secretary, ``[a]s a condition of, and 
prior to, any election described in [section 45X(a)(3)(B)(i)],'' to 
``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)].''
    Section 1502 of the Code requires the Secretary to ``prescribe such 
regulations as he may deem necessary in order that the tax liability of 
any affiliated group of corporations making a consolidated return and 
of each corporation in the group, both during and after the period of 
affiliation, may be returned, determined, computed, assessed, 
collected, and adjusted, in such manner as clearly to reflect the 
income-tax liability and the various factors necessary for the 
determination of such liability, and in order to prevent avoidance of 
such tax liability.'' Section 1502 of the Code also provides that the 
Secretary ``may prescribe rules that are different from the provisions 
of chapter 1 that would apply if such corporations filed separate 
returns.''
    Section 6001 of the Code provides an express delegation of 
authority to the Secretary, stating that, ``[e]very person liable for 
any tax imposed by this title, or for the collection thereof, shall 
keep such records, render such statements, make such returns, and 
comply with such rules and regulations as the Secretary may from time 
to time prescribe. Whenever in the judgment of the Secretary it is 
necessary, [s]he may require any person, by notice served upon such 
person or by regulations, to make such returns, render such statements, 
or keep such records, as the Secretary deems sufficient to show whether 
or not such person is liable for tax under this title.''
    Sections 6417(h) and 6418(h) of the Code direct the Secretary to 
issue such regulations or other guidance as may be necessary to carry 
out the purposes of each section, respectively.
    Finally, section 7805(a) of the Code authorizes the Secretary ``to 
prescribe all needful rules and regulations for the enforcement of [the 
Code], including all rules and regulations as may be necessary by 
reason of any alteration of law in relation to internal revenue.''

Background

I. Overview of Section 45X

    Section 45X was added to the Code by section 13502(a) of Public Law 
117-169, 136 Stat. 1818 (August 16, 2022), commonly known as the 
Inflation Reduction Act of 2022 (IRA). In general, for purposes of the 
general business credit under section 38 of the Code, section 45X 
provides for the advanced manufacturing production credit (section 45X 
credit) with respect to eligible components produced by the taxpayer 
and sold during the taxable year to an unrelated person. Section 45X 
applies to eligible components produced and sold after December 31, 
2022.
    Under section 45X(a)(1), the total section 45X credit amount for 
the taxable year equals the sum of the credit amounts determined under 
section 45X(b) with respect to each eligible component (as defined in 
section 45X(c)(1)). Under section 45X(a)(2), 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) generally provides rules regarding the sale of 
eligible components to an unrelated person. However, section 
45X(a)(3)(B) provides a special rule whereby if a taxpayer makes an 
election in the form and manner prescribed by the Secretary, a sale of 
eligible components by the taxpayer to a related person will be treated 
as if made to an unrelated person, referred to in these final 
regulations as the related person election (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.

II. Credit Amounts for Eligible Components

    Section 45X(b)(1) generally provides the credit amount determined 
with respect to any eligible component, including any other eligible 
component it incorporates, subject to the credit phase out rules 
provided at section 45X(b)(3). Section 45X(b)(1)(A) through (M) and 
section 45X(b)(2) set forth the credit amounts for each type of 
eligible component. The credit amounts are generally subject to phase 
out rules under section 45X(b)(3), but the phase out rules do not apply 
to any applicable critical mineral. 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

[[Page 85799]]

2032, the phase out percentages are 75 percent, 50 percent, and 25 
percent, respectively. For any eligible component sold after December 
31, 2032, the phase out percentage is zero percent, and no section 45X 
credit is allowed other than for applicable critical minerals.
    Section 45X(b)(4) provides capacity limitations used to compute the 
credit amount for battery cells under section 45X(b)(1)(K)(ii) and 
battery modules under section 45(b)(1)(L)(ii). 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 ``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.

III. Eligible Components

    Section 45X(c)(1)(A) defines an eligible component to mean any 
solar energy component, any wind energy component, any inverter 
described in section 45X(c)(2)(B) through (G), any qualifying battery 
component, and any applicable critical mineral. Section 45X(c)(1)(B) 
clarifies that eligible components do 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) defines 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 a 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) defines applicable critical minerals. The 
following minerals are eligible for the section 45X credit if converted 
or purified to specified purities or forms: 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.

IV. Special Rules

    Section 45X(d)(1) provides that persons are related to each other 
for purposes of the section 45X credit if they would be treated as a 
single employer under section 52(b) of the Code and Sec.  1.52-1(b). 
Section 52(b) and Sec.  1.52-1(b) generally provide 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. Section 52(b) requires the 
regulations under section 52(b) to be based on principles similar to 
the principles that apply under section 52(a), which generally provide 
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 Sec.  1.52-1 provide 
rules based on principles 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)).\1\
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    \1\ The preamble to these section 45X final regulations refers 
to U.S. territory to mean a possession as defined in section 638(2).
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    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 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.

V. Prior Guidance

    On October 24, 2022, the Department of the Treasury (Treasury 
Department) and the IRS published Notice 2022-47, 2022-43 IRB 312, 
requesting comments on issues arising under section 45X that may 
require guidance. On December 15, 2023, after full consideration of all 
the stakeholder input received in response to Notice 2022-47, the 
Treasury Department and the IRS published a notice of proposed 
rulemaking and a notice of public hearing (REG-107423-23) in the 
Federal Register (88 FR 86844) to provide guidance on the advanced 
manufacturing production credit under section 45X (Proposed 
Regulations). While the Proposed Regulations are summarized in the 
Summary of Contents and Explanation of Revisions portion of this 
preamble, the provisions of the Proposed Regulations are explained in 
greater detail in the preamble to the Proposed Regulations.
    On March 6, 2023, the Treasury Department and the IRS published 
Notice 2023-18, 2023-10 IRB 508, establishing the qualifying advanced 
energy project allocation program (section 48C(e) program). On June 20, 
2023, the Treasury Department and the IRS published Notice 2023-44, 
2023-25 IRB 924, providing 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 were addressed in the Proposed 
Regulations and have been incorporated into these final regulations. 
Section 5.05(2) of Notice 2023-18 and section 3 of Notice 2023-44 are 
superseded by these final regulations.

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Summary of Comments and Explanation of Revisions

I. Overview

    This Summary of Comments and Explanation of Revisions summarizes 
the Proposed Regulations, all substantive comments submitted in 
response to the Proposed Regulations, and revisions adopted by these 
final regulations. The Treasury Department and the IRS received 193 
written comments in response to the Proposed Regulations. The comments 
are available for public inspection at https://www.regulations.gov or 
upon request. A public hearing was held in person and telephonically on 
February 22, 2024. After full consideration of the comments and 
testimony, these final regulations adopt the Proposed Regulations with 
modifications in response to the comments and testimony as described in 
this Summary of Comments and Explanation of Revisions.
    Comments merely summarizing the statute or the Proposed 
Regulations, recommending statutory revisions to section 45X or other 
statutes, and addressing issues that are outside the scope of this 
rulemaking (such as revising other Federal regulations and recommending 
changes to IRS forms) are generally not addressed in this Summary of 
Comments and Explanation of Revisions or adopted in these final 
regulations. Some commenters requested additional time to submit 
comments. The Proposed Regulations required all comments to be received 
by February 13, 2024; however, comments received later but before these 
final regulations were substantially developed were carefully 
considered in drafting these final regulations. The final regulations 
retain the same basic structure as the Proposed Regulations with 
certain revisions.

II. General Rules Applicable to the Advanced Manufacturing Production 
Credit

A. In general
    Proposed Sec.  1.45X-1 would have provided general rules regarding 
the section 45X credit including generally applicable definitions, 
rules regarding the computation of the credit amount, the definition of 
``produced by the taxpayer,'' the requirement to produce eligible 
components in the United States, the production and sale in a trade or 
business requirement, the sale of integrated components, the 
interaction between sections 45X and 48C, and an anti-abuse rule. 
Commenters addressed certain aspects of these proposed rules, as 
described in Part II. of this Summary of Comments and Explanation of 
Revisions. These final regulations generally adopt proposed Sec.  
1.45X-1, with the modifications described in this Part II. of the 
Summary of Comments and Explanations of Revisions.
B. Definition of Produced by the Taxpayer
1. In General
    Section 45X(a)(1) allows a section 45X credit with respect to each 
eligible component which is produced by the taxpayer and sold to an 
unrelated person during the taxable year. Proposed Sec.  1.45X-1(c)(1) 
would have defined ``produced by the taxpayer'' to mean 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. Proposed Sec.  1.45X-1(c)(1)(i) would have 
provided that ``produced by the taxpayer'' does not include partial 
transformation that does not result in substantial transformation of 
constituent elements, materials, and subcomponents into a complete and 
distinct eligible component as described in proposed Sec.  1.45X-
1(c)(1). Proposed Sec.  1.45X-1(c)(1)(ii) would have provided that 
``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 proposed Sec.  1.45X-1(c)(1). Proposed Sec.  1.45X-
1(c)(1)(iii) would have provided examples illustrating the definition 
of ``produced by the taxpayer.''
    Several commenters requested that the final regulations 
specifically state that taxpayers may produce eligible components using 
recycled materials. While the preamble to the Proposed Regulations 
stated that primary and secondary production are included in the 
definition of ``produced by the taxpayer,'' that issue was not 
addressed in the text of the Proposed Regulations. The preamble to the 
Proposed Regulations further stated that primary production involves 
producing an eligible component using non-recycled materials while 
secondary production involves producing an eligible component using 
recycled materials.
    The Treasury Department and the IRS agree with the request to 
clarify the general rule that production includes primary and secondary 
production, and these final regulations revise proposed Sec.  1.45X-
1(c)(1) and (2) to add secondary production to the definition of 
produced by the taxpayer.
    A few commenters stated the definition of ``produced by the 
taxpayer'' should be defined consistently with section 263A of the Code 
to the extent possible and expressed concern that using different 
definitions will cause ``increased technical uncertainty, additional 
compliance burden, especially for small business taxpayers, and 
unnecessary litigation and controversy.'' Another commenter stated that 
the Proposed Regulations introduced new definitions, such as 
``substantial transformation'' as production qualifiers, ``raising 
concerns about its apparent conflict with the enacted statutes.''
    The term ``produced by the taxpayer'' is not defined in section 
45X, nor is there any indication in section 45X suggesting that 
Congress intended the use of any existing statutory definition, such as 
the standard in section 263A. Section 45X provides a credit based on 
the production of numerous eligible components and a variety of 
production processes are utilized by manufacturers in the production of 
these eligible components.
    Given the variety of production processes and the highly technical 
nature of production, the Treasury Department and the IRS, in close 
coordination with the Department of Energy, proposed a definition that 
would apply broadly to eligible components. In addition, the proposed 
definition of ``produced by the taxpayer'' focused on requiring 
production of a complete and distinct eligible component and, 
accordingly, introduces a substantial transformation requirement to 
distinguish production from partial transformation, mere assembly, and 
superficial modification. The proposed definition of ``produced by the 
taxpayer'' along with the amendment clarifying that production includes 
secondary production is the appropriate standard to implement the 
section 45X credit. The definition provides the necessary flexibility 
to account for the highly technical nature of the production processes 
associated with eligible components. This standard also ensures that 
the section 45X credit is claimed by the taxpayer responsible for the 
key production activity and that such activity occurs in the United 
States or a United States territory. In contrast to section 45X, 
section 263A is designed

[[Page 85801]]

to ensure that taxpayers capture the direct and indirect costs 
associated with producing inventoriable goods for capitalization 
purposes. Moreover, in section 263A, the definition of production 
applies to a broad range of produced items, whereas the definition in 
section 45X applies to a limited number of statutorily enumerated 
eligible components. For these reasons, the Treasury Department and the 
IRS have concluded that the definition of ``produced by the taxpayer'' 
in the Proposed Regulations with the clarifying amendment addressing 
secondary production appropriately implements section 45X(a)(1)(A), and 
thus decline to accept the commenter's recommendation to define 
``produced by the taxpayer'' for purposes of section 45X consistent 
with the similar term under section 263A.
    Several commenters requested that the final regulations provide 
more specific guidance for certain eligible components to illustrate 
whether certain activities or processes result in substantial 
transformation versus partial transformation, mere assembly, or 
superficial modification. One commenter, for example, requested that 
the final rules confirm that the term ``produced'' in the phrase 
``produced by the taxpayer'' is applied within the context of the 
standard production process of each eligible component, such that the 
standard production process for each eligible component is deemed to be 
``substantial transformation'' that meets the requirements of proposed 
Sec.  1.45X-1(c)(1). The commenter provided an example of the 
production of a solar module, which ``involves the final assembly of 
the other solar components, many of which separately qualify for their 
own section 45X credit, into the overall module.'' The Treasury 
Department and the IRS recognize that certain eligible components, such 
as solar modules and battery modules using battery cells, are produced 
primarily by assembling other components. In these limited cases, the 
substantial transformation requirement is met by the taxpayer that 
assembles the constituent components to produce the solar module or 
battery module using battery cells. Because assembly is the activity 
that primarily produces these eligible components, the assembly 
necessary to achieve production of a solar module or battery module 
using battery cells should not generally be viewed as disqualifying 
``minor assembly.'' The Treasury Department and the IRS also recognize 
that certain eligible components, such as nacelles, that have undergone 
substantial transformation to be considered ``produced by the 
taxpayer'' may be produced and sold to a third party in a manner in 
which only minor assembly remains left to complete. In these cases, 
provided all other requirements of section 45X are met, the party that 
produces and sells the eligible components in such manner is not 
precluded from claiming the section 45X credit. The third party that 
completes the eligible component by performing minor assembly is not 
entitled to the section 45X credit because that third party is not 
considered to produce the eligible component. For these reasons, and 
for clarity and consistency, the final regulations replace each 
instance of ``mere assembly'' in the Proposed Regulations, with ``minor 
assembly.''
    A commenter suggested adding an additional example to proposed 
Sec.  1.45X-1(c)(1)(iii) to clarify whether the integration of 
electrical subcomponents and software necessary to enable the 
functionality of an inverter is disqualifying minor assembly, and 
another commenter requested clarification on whether the coating of a 
battery separator is ``superficial modification'' or ``substantial 
transformation.'' A few commenters also requested that the final rules 
further clarify ``substantial transformation'' to ensure manufacturers 
claiming section 45X credits are actually producing an eligible 
component in the United States and suggested using examples to 
differentiate between substantial and partial transformation for 
specific components, such as inverters for solar energy.
    As previously discussed, section 45X provides a credit based on the 
production of numerous eligible components and a variety of production 
processes are utilized by manufacturers in the production of these 
eligible components. Thus, listing specific production processes for 
each eligible component is not practicable and could also imply that 
other variations of production processes do not qualify as production. 
The Treasury Department and the IRS have determined that the inquiry 
into whether production activities or processes result in substantial 
transformation for a specific eligible component is highly fact 
dependent and conclude that the examples in proposed Sec.  1.45X-
1(c)(1)(iii), which are included in the final regulations, provide 
sufficient guidance to determine what types of activities or production 
steps do not qualify as substantial transformation.
2. Special Rule for Production of Certain Eligible Components
    Proposed Sec.  1.45X-1(c)(2) would have provided that for solar 
grade polysilicon, electrode active materials, and applicable critical 
minerals, 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. Several 
commenters requested that in addition to processing, conversion, 
refinement, and purification, the final regulations clarify that the 
production process includes extraction, while others requested 
maintaining the position in the Proposed Regulations to exclude costs 
of extraction. The Treasury Department and the IRS decline to amend the 
final regulations to expressly include the term ``extraction,'' as the 
action of extraction alone does not produce an eligible component. For 
the discussion and analysis of whether extraction costs are includible 
as production costs in the production of electrode active materials or 
applicable critical minerals, see Part IV.E.1.e. of this Summary of 
Comments and Explanation of Revisions.
    Another commenter asked whether recycling aluminum transformer wire 
(cleaning, melting, and bailing it) to send to an aluminum smelter 
constitutes ``secondary aluminum production.'' The Treasury Department 
and the IRS note that under both proposed Sec.  1.45X-1(c)(2) and Sec.  
1.45X-1(c)(2) of these final regulations, substantial transformation 
for an applicable critical mineral requires that the applicable 
critical mineral be ``processed, converted, refined, or purified to 
derive a distinct eligible component.'' Because a taxpayer in these 
circumstances would not derive a distinct eligible component, this 
would not be an eligible component produced by the taxpayer within the 
meaning of section 45X(a)(1)(A).
    These final regulations make a clarifying revision to the 
definition of produced by the taxpayer under proposed Sec.  1.45X-
1(c)(2) so that it references substantial transformation. While no 
comments were received on this issue, this revision is needed to 
appropriately align the definition of ``produced by the taxpayer'' in 
Sec.  1.45X-1(c)(2) with the requirements to qualify as an eligible 
taxpayer in Sec.  1.45X-1(c)(3).
3. Eligible Taxpayer
a. In General
    Proposed Sec.  1.45X-1(c)(3)(i) would have provided that the 
taxpayer

[[Page 85802]]

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.
b. Contract Manufacturing Arrangement
    Proposed Sec.  1.45X-1(c)(3)(ii)(A) would have provided 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. The preamble to the 
Proposed Regulations stated that this proposed rule was intended to 
provide an administrable rule that provides clarity and certainty in 
determining which taxpayer may claim the section 45X credit in a 
contract manufacturing arrangement.
c. Contract Manufacturing Defined
    Proposed Sec.  1.45X-1(c)(3)(ii)(B) would have defined 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 Sec.  1.45X-1(c)(3)(ii)(B) 
would have further provided that a routine purchase order for off-the-
shelf property is not treated as a contract manufacturing arrangement. 
Proposed Sec.  1.45X-1(c)(3)(ii)(B) also would have provided 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 Sec.  1.263A-2(a)(1)(ii)(B)(2)(ii). The 
Treasury Department and the IRS requested comments in the preamble to 
the Proposed Regulations on whether this definition should be further 
clarified or modified. Comments on the definition of manufacturing 
arrangements are discussed in Part II.B.3.d. of this Summary of 
Comments and Explanation of Revisions.
d. Special Rule for Contract Manufacturing Arrangements
    Proposed Sec.  1.45X-1(c)(3)(iii) would have explained 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 Sec.  
1.45X-1(c)(3)(iv) would have explained the certification requirements 
for the special rule. Several commenters expressed support for the 
contract manufacturing rules, but one commenter expressed concern about 
the treatment of contract manufacturing arrangements in effect prior to 
the applicability date of the Proposed Regulations. This commenter 
recommended that the final regulations adopt a safe harbor rule that 
would function as an exception to the general rule and provide that 
when one party is contractually entitled to purchase all or 
substantially all (for example, at least 90 percent) of the output of 
the fabricator's production of a given component for the taxable year, 
the purchaser would be treated as the producer for purposes of section 
45X. The Treasury Department and the IRS decline to adopt the 
commenter's request to add a safe harbor for contract manufacturing 
arrangements in place before the applicability date of the Proposed 
Regulations, but note that a taxpayer may still have the option of 
applying the special rule in Sec.  1.45X-1(c)(3)(iii) of these final 
regulations for contract manufacturing arrangements entered into before 
the applicability date, provided all requirements of the special rule 
are met.
    The preamble to the Proposed Regulations stated that the Treasury 
Department and the IRS intend for the production cost incurred rules in 
proposed Sec.  1.45X-3(e)(2) to apply to a credit claimant in a 
contract manufacturing arrangement. The Treasury Department and the IRS 
requested comments on whether the proposed rules need further 
clarification or modification as applied to contract manufacturing 
arrangements. One commenter requested allowing taxpayers that extract 
and recycle raw materials and taxpayers that process such materials and 
incorporate them into applicable critical minerals to apply the 
contract manufacturing arrangement provisions, in the event that costs 
of extraction and direct and indirect material costs are not includible 
in the eligible production costs of producing an applicable critical 
mineral. The Treasury Department and the IRS think that the 
clarification requested by this commenter is no longer necessary 
because these final regulations permit the inclusion of extraction and 
certain material costs in the cost of producing an applicable critical 
mineral if certain requirements are met. See Parts IV.E.1.e. and V.C. 
of this Summary of Comments and Explanation of Revisions for further 
discussion.
    Proposed Sec.  1.45X-1(c)(3)(v) would have provided examples 
illustrating the application of the special rule. One commenter 
requested that proposed Sec.  1.45X-1(c)(3)(v)(C) (Example 3) 
specifically state that the domestic production requirement requires 
that each wind tower section must be produced in the United States. 
Proposed Sec.  1.45X-(1)(c)(3)(v)(C) (Example 3) states that a taxpayer 
could claim a credit for a tower for which it had three different 
producers each produce one section, provided that the parties all agree 
that the taxpayer is the sole party that can claim the credit and ``all 
other requirements of section 45X are met.'' The Treasury Department 
and the IRS have determined that the domestic production requirement is 
already included by this language and thus, additional clarification is 
not necessary.
    Another commenter questioned whether, in proposed Sec.  1.45X-
1(c)(3)(v)(C) (Example 3), V must sell the completed wind tower to Z 
for the special rule in proposed Sec.  1.45X-1(c)(3)(iii) to apply. In 
the example, V enters into a contract manufacturing arrangement with W, 
X, and Y to make the wind tower, which V sells to Z. All parties to the 
contract manufacturing arrangement and Z are unrelated. The commenter 
stated that if V, W, X, and Y sign a certification statement and Y 
claims the section 45X credit, Y could claim the section 45X credit in 
2025 because that is when it sold the eligible component to V. Contrary 
to the commenter's conclusion with respect to Y's ability to claim a 
section 45X credit in 2025, Y is not eligible for the section 45X 
credit until the eligible component, which is the wind tower comprised 
of all three wind tower sections, is produced and then sold to an 
unrelated person (in this case Z). Under the contract manufacturing 
arrangement, W, X, and Y are collectively viewed as producing the 
entire eligible component (wind tower) because all three sections 
together result in a single eligible component. Along with the 
production of the entire wind tower, V has to sell the completed wind 
tower to an

[[Page 85803]]

unrelated person before the designated party is eligible for a section 
45X credit.
    A commenter suggested revisions to the proposed rules to allow an 
allocation of any portion of the credit to parties who extract the 
mineral and perform initial refining processes, rather than allowing a 
credit to the taxpayer that purifies the critical mineral to the 
statutory minimum. Section 45X(c)(6) defines a list of applicable 
critical minerals with specific minimum purity levels which must be met 
for the taxpayer to have produced an eligible component. The Treasury 
Department and the IRS do not have the authority to modify these 
statutory requirements. However, the Treasury Department and the IRS 
seek to clarify that a taxpayer who performs extracting and refining 
activities may benefit from the contract manufacturing provisions 
described in this section. The final regulations accordingly add Sec.  
1.45X-1(c)(3)(v)(D) (Example 4) to demonstrate how the contract 
manufacturing provisions may apply in the situation described by the 
commenter.
4. Timing of Production and Sale
    Proposed Sec.  1.45X-1(c)(4)(i) would have provided that production 
of eligible components for which a taxpayer is claiming a section 45X 
credit may begin before December 31, 2022, but production of eligible 
components must be completed, and the eligible components must be sold, 
after December 31, 2022. Proposed Sec.  1.45X-1(c)(4)(ii) would have 
provided an example illustrating the timing of the production and sale 
rule in proposed Sec.  1.45X-1(c)(4)(i).
    Some commenters requested further clarity on when production and 
sale of an eligible component may take place. One commenter requested 
that the final rules provide that a specific minimum percentage of 
production of an eligible component must occur after 2022 and that no 
sale of the eligible component be reported by the taxpayer before 2023. 
The Treasury Department and the IRS decline to adopt these percentage 
test suggestions because Congress clearly recognized that some 
production could occur prior to 2023 but did not specify an exact 
amount of production that must occur in taxable years either before or 
after 2023. Moreover, if a sale occurred before 2023, which requires a 
facts and circumstances analysis based in part on contractual terms, 
the component sold is not eligible for the section 45X credit. 
Accordingly, the final regulations adopt proposed Sec.  1.45X-
1(c)(4)(i) and the example in proposed Sec.  1.45X-1(c)(4)(ii) without 
modification.
    Another commenter stated that the Proposed Regulations do not 
specify whether production activities that qualify for the section 45X 
credit have to occur after the effective date of the rule or whether 
the activities can be retroactive. The commenter suggests the final 
rule specify the applicable period for the production activities and 
provide a reasonable transition rule for taxpayers who produce eligible 
components before the effective date of the final regulations. The 
Treasury Department and the IRS have determined that the Proposed 
Regulations and these final regulations are clear as to the timing of 
production and sale requirements under section 45X. For clarification, 
and as described earlier, section 13502(c) of the IRA provides that 
section 45X applies to components produced and sold after December 31, 
2022. The preamble to the Proposed Regulations clarified application of 
the section 45X effective date, stating that each of proposed 
Sec. Sec.  1.45X-1 through 1.45X-4 would have applied 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 these final regulations. Proposed Sec.  1.45X-
1(c)(4)(i) would have provided that production of eligible components 
may begin before December 31, 2022, and only required production of 
eligible components be completed, and sales must occur, after December 
31, 2022. Proposed Sec.  1.45X-1(c)(4)(ii) would have provided an 
example illustrating proposed Sec.  1.45X-1(c)(4)(i). These final 
regulations adopt these proposed rules. The Treasury Department and the 
IRS do not have statutory authority to provide for a section 45X credit 
in a situation in which production was completed on or before December 
31, 2022.
C. Produced in the United States
    Consistent with section 45X(d)(2), proposed Sec.  1.45X-1(d)(1) 
would have provided that 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. Proposed Sec.  1.45X-1(d)(2) would have 
clarified that constituent elements, materials, and subcomponents used 
in the production of eligible components are not subject to the 
domestic production requirement provided in proposed Sec.  1.45X-
1(d)(1). Thus, while the eligible component must be produced 
domestically, its constituent elements, materials, and subcomponents 
need not be.\2\
---------------------------------------------------------------------------

    \2\ See Joint Committee on Taxation, General Explanation of Tax 
Legislation Enacted in the 117th Congress, JCS-1-23 (December 21, 
2023) at 267 (``The credit only applies to sales where the eligible 
components are produced within the United States or U.S. 
territories. This requirement is not intended to apply to 
subcomponents or materials used to produce eligible components.'').
---------------------------------------------------------------------------

    Some commenters agreed with this approach in the Proposed 
Regulations. According to these commenters, the Proposed Regulations 
appropriately allowed the credit for eligible components produced in 
the United States provided that the activities necessary to transform 
them into eligible components are conducted in the United States. 
Furthermore, these commenters expressed concern that a contrary rule 
ignores the reality that some constituent elements, materials, and 
subcomponents cannot be sourced in the United States and would 
discourage investment in production activities that rely on foreign-
sourced constituent elements, materials, and subcomponents. However, 
other commenters disagreed with the proposed approach, suggesting that 
allowing eligible components to be produced using foreign subcomponents 
is inconsistent with the section 45X credit's objective of 
incentivizing domestic production of eligible components.
    The Treasury Department and the IRS note that, while section 45X 
specifically requires domestic production of an eligible component for 
credit eligibility, it is silent regarding the location of production 
or sourcing of constituent elements, materials, and subcomponents. 
Accordingly, imposing a domestic production requirement for constituent 
elements, materials, and subcomponents is not supported by the 
statutory language of section 45X. For these reasons, the Treasury 
Department and the IRS decline to adopt these suggestions and adopt the 
proposed rule without change.
    Beyond agreement or disagreement with this proposed rule, some 
commenters inquired about its scope. One commenter asked whether the 
domestic production rule applicable to eligible components also applies 
to eligible components that are both an eligible component and a 
``constituent element, material or subcomponent'' of another eligible 
component. Another commenter asked whether raw materials and 
intermediate products used to produce eligible components are included 
in the definition of ``constituent elements, materials or 
subcomponents.''

[[Page 85804]]

    The Treasury Department and the IRS confirm that all three of these 
categories of items are included in the definition of ``constituent 
elements, materials, and subcomponents.'' An eligible component that is 
a ``constituent element, material or subcomponent'' of another eligible 
component is not subject to the domestic production rule, and thus, an 
eligible component may incorporate another eligible component that is 
also a foreign-sourced ``constituent element, material or 
subcomponent'' and still be eligible for a section 45X credit. In 
addition, raw materials and intermediate products generally qualify as 
constituent elements, materials, or subcomponents.
    A commenter also requested confirmation in the final regulations 
that there is no requirement that eligible components be used in the 
United States for section 45X credit eligibility. Consistent with 
section 45X(d)(2), proposed Sec.  1.45X-1(d)(1) would have provided 
that sales are taken into account for purposes of the section 45X 
credit only for eligible components that are produced within the United 
States (or a United States territory). Thus, the Proposed Regulations 
specify only the location of production of the eligible component, and 
not the location of the sale or the use of such eligible component. 
Accordingly, the Treasury Department and the IRS conclude that the 
additional confirmation requested by the commenter is unnecessary, as 
there would be no statutory basis for requiring domestic sale or use.
D. Production and Sale in a Trade or Business
    Proposed Sec.  1.45X-1(e) would have stated 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.
    A commenter requested that proposed Sec.  1.45X-1(e) expressly 
include eligible components that are produced and then used to replace 
defective units pursuant to a contractual obligation entered into at 
the time of the original sale. The commenter stated that these warranty 
transactions do not appear to violate any of the anti-abuse provisions 
at proposed Sec.  1.45X-1(i). If an eligible component is produced and 
sold to an unrelated person in the normal course of a trade or 
business, and the eligible component is then replaced with a new 
eligible component produced by the same taxpayer, there is no new sale 
to an unrelated person for the replacement eligible component, but the 
replacement eligible component relates back to the original sales 
transaction. The precise issue is whether section 45X should be read to 
effectively incentivize the production of two eligible components where 
each is related to a single sales transaction. The Treasury Department 
and the IRS decline to adopt this suggestion because only one credit 
may be claimed with respect to the sale of an eligible component.
E. Sale of Integrated Components
1. In General
    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 which is sold to an unrelated person. 
Proposed Sec.  1.45X-1(f)(1) was intended to be consistent with section 
45X(d)(4), and thus would have provided 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.
    Although no comments were received regarding this general rule in 
the Proposed Regulations, the Treasury Department and the IRS want to 
clarify that section 45X(d)(4) provides only for deemed sale treatment 
and not deemed production. A taxpayer must produce (rather than merely 
purchase or acquire) an eligible component that is integrated, 
incorporated, or assembled into another eligible component that is then 
sold to an unrelated person in order for the deemed sale rule to apply. 
Thus, these final regulations clarify that a taxpayer is ``treated as 
having sold'' an eligible component to an unrelated person if the 
taxpayer produced such component and the component is integrated, 
incorporated, or assembled into another eligible component that is then 
sold to an unrelated person, rather than ``treated as having produced 
and sold'' an eligible component that the taxpayer did not itself 
produce that is then integrated, incorporated, or assembled into 
another eligible component and then sold to an unrelated person. 
Proposed Sec.  1.45X-1(f)(1) is clarified accordingly in these final 
regulations.
2. Application of Section 45X(d)(4) to Produced Products
    Proposed Sec.  1.45X-1(f)(2)(i) would have clarified that a 
taxpayer may claim a section 45X credit for each eligible component 
that the taxpayer produces and sells to an unrelated person, including 
any eligible component the taxpayer produces that was used as an 
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. Proposed Sec.  1.45X-1(f)(2)(ii) would have provided an example 
of the credit eligibility of a sale of a product with incorporated 
eligible components to a related person.
    Commenters expressed agreement with proposed Sec.  1.45X-
1(f)(2)(i). One commenter stated that the clarification in Sec.  1.45X-
1(f)(2)(i) avoids the need for some vertically integrated producers of 
eligible components that incorporate the eligible components into 
another product that is not an eligible component to artificially 
restructure in order to create an intercompany sale. Another commenter 
requested a flexible interpretation of section 45X(d)(4) that would 
apply the section 45X credit as an additive credit across the supply 
chain to the final assembler. The commenter stated such an 
interpretation is consistent with the language in section 45X(b)(1), 
which provides that the section 45X credit amount is determined with 
respect to any eligible component, including any eligible component it 
incorporates. For example, in the commenter's view, a taxpayer that 
produces a structural fastener would be eligible to receive a credit 
for its production of an eligible component as would the integrator, 
incorporator, assembler of the structural fastener into another 
eligible component. Although the Treasury Department and the IRS agree 
that section 45X(b)(1) provides that the credit amount is determined 
with respect to any eligible component produced by the taxpayer, 
including any eligible component the taxpayer incorporates that was 
also produced by the taxpayer, the Treasury Department and the IRS 
disagree with the implication that the calculation of the section 45X 
credit should be additive based on the number of eligible components 
used to produce an item in a case in which each eligible component is 
not produced by the taxpayer. Only the producer of an eligible 
component would be eligible for a section 45X credit. Proposed Sec.  
1.45X-1(f)(1) and (2) are finalized with no modifications because the 
Treasury Department and the IRS conclude the rules provide clarity as 
currently written.

[[Page 85805]]

F. Interaction Between Sections 45X and 48C
1. In General
    Consistent with section 45X(c)(1)(B), proposed Sec.  1.45X-1(g)(1) 
would have provided 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 Sec.  1.45X-1(g)(2)(i) would have provided that a section 
45X facility includes all tangible property that comprises an 
independently functioning production unit that produces one or more 
eligible components. Proposed Sec.  1.45X-1(g)(2)(ii) would have 
provided 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 Sec.  1.45X-1(g)(3)(i) would have provided that 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 and claims such credits after August 16, 2022. 
Proposed Sec.  1.45X-1(g)(3)(ii) would have defined eligible property 
that is included in a section 48C facility.
    With respect to the proposed rules on the interaction between 
sections 45X and 48C various comments were received. A commenter 
requested that the final rules not apply section 45X(c)(1)(B) to 
disallow the section 45X credit in the event that the taxpayer claiming 
the section 45X credit incorporates into its eligible component a 
subcomponent that was produced by a section 48C facility, as long as 
that same taxpayer was not eligible for the section 48C credit with 
respect to the section 48C facility that produced the subcomponent. 
Revisions were made to these final regulations to clarify that the only 
equipment, or other tangible property, that must be included in the 
section 45X facility is the equipment used by the taxpayer that is 
necessary to be considered the producer of the potential eligible 
component. As further explained later, if production of a subcomponent 
(or like property) is not a requirement to be considered the producer 
under section 45X, then the equipment that is part of that section 48C 
facility used to produce the subcomponent is not part of the section 
45X facility. As a result, it is possible that the same taxpayer could 
receive a section 48C credit on equipment used to produce a 
subcomponent (or like property), and a section 45X credit on the 
production of an eligible component.
    One commenter requested an example to help determine whether an 
eligible component produced at a facility located ``adjacent'' to a 
section 48C facility that received a section 48C credit impacts 
eligibility for the section 45X credit. The physical proximity of a 
section 45X facility to a section 48C facility does not determine 
whether a product may be an eligible component and revisions to these 
final regulations were made to clarify that point.
    Another commenter requested more clarity to determine whether a 
facility that shares upstream raw materials and processes as a section 
48C facility is still eligible for a section 45X credit and requested 
examples of upstream supply chains and processes that are eligible and 
ineligible for both sections 48C and 45X. Several commenters requested 
additional clarity regarding the meaning and extent of the term 
``production unit.''
    Based on the comments and further consideration of the Proposed 
Regulations, revisions were made in these final regulations to simplify 
the rules and examples in proposed Sec.  1.45X-1(g)(1) through (4). 
Specifically, these final regulations make clear that the general rule 
is that property that would otherwise qualify as an eligible component 
(otherwise qualified property) is only an eligible component if the 
property is produced at a section 45X facility and no part of that 
section 45X facility is also a section 48C facility. These final 
regulations also revise the definition of section 45X facility, 
clarifying that a section 45X facility is the independently functioning 
tangible property used by the taxpayer that is necessary to be 
considered the producer of the otherwise qualified property within the 
meaning of Sec.  1.45X-1(c)(1) or (2), as applicable. The Proposed 
Regulations would have relied on the concept of a ``production unit'' 
to define the scope of a section 45X facility, but there was overlap 
between the term production unit as proposed and the definition of a 
section 45X facility. After careful consideration, the Treasury 
Department and the IRS determined that the proposed term ``production 
unit'' introduced unnecessary complexity, particularly in light of the 
revisions to the definition of section 45X facility in these final 
regulations. Accordingly, these final regulations do not use the term 
production unit.
    The definition of section 45X facility in these final regulations 
includes independently functioning tangible property that is used and 
that is necessary for the otherwise qualified property to be considered 
produced by the taxpayer within the meaning of Sec.  1.45X-1(c)(1) or 
(2), as applicable. Accordingly, tangible property used to produce a 
subcomponent or other property which is later integrated, incorporated, 
or assembled into a distinct and final eligible component is not part 
of the section 45X facility. This rule, however, does not apply if the 
other property is of a type that the taxpayer must produce for the 
resulting eligible component to be considered produced by the taxpayer. 
This analysis can depend on the definition of the eligible component 
being ultimately produced. For example, section 45X(c)(3)(B)(ii)(I)(bb) 
requires a single manufacturer to produce a photovoltaic wafer through 
formation of an ingot from polysilicon and subsequent slicing. Thus, 
the section 45X facility with respect to the photovoltaic wafers would 
include any equipment that is tangible property that is used to produce 
the ingot and any equipment that is tangible property that is used to 
perform the subsequent slicing. In contrast, equipment used to produce 
front glass of a solar module under section 45X(c)(3)(B)(v) could be 
excluded from a section 45X facility because it is not necessary to use 
the front glass equipment to be considered the producer of the solar 
module for section 45X. This rule may benefit a taxpayer that produces 
a subcomponent or other property of an eligible component using 
equipment that is also eligible property for purposes of the section 
48C credit, but uses other equipment not related to the section 48C 
credit to produce the eligible component.
    Lastly, these final regulations add a specific rule for contract 
manufacturing arrangements in Sec.  1.45X-1(g)(2)(ii) to address any 
uncertainty with respect to how to determine a section 45X facility in 
that situation. This rule clarifies that the tangible property used to 
produce the otherwise qualified property (regardless of who claims the 
credit) must be considered.
4. Examples of Sections 45X and 48C Interaction
    Proposed Sec.  1.45X-1(g)(4)(i) through (v) would have provided 
examples to illustrate the application of these rules. A few commenters 
requested that, contrary to proposed Sec.  1.45X-1(g)(4)(ii) (Example 
2), ingot and wafer production

[[Page 85806]]

should be treated as two separate manufacturing activities so that an 
ingot facility is eligible for the section 48C credit while a wafer 
facility is eligible for the section 45X credit. As required by section 
45X(c)(3)(B)(ii)(I)(bb), however, a photovoltaic wafer must be produced 
by a single manufacturer either by forming an ingot from molten 
polysilicon (for example, Czochralski method) and then subsequently 
slicing it into wafers, or by forming molten or evaporated solar grade 
polysilicon or deposition into a sheet or layer (that is, thin-film 
deposition). As the statute requires production of a photovoltaic wafer 
by a single manufacturer that both forms an ingot and slices it into 
wafers, it is not appropriate to treat ingot and wafer production as 
two separate manufacturing activities. Rather, as both activities are 
necessary, it follows that the tangible property used to complete each 
activity must be within a single section 45X facility with respect to 
the eligible component produced. No comments were received on the other 
examples in proposed Sec.  1.45X-1(g)(4)(i) through (v). However, all 
of the examples in proposed Sec.  1.45X-1(g)(4)(i) through (v) were 
modified consistent with the revisions in Sec.  1.45X-1(g)(1) through 
(3).
    A few commenters suggested that parties in a contract manufacturing 
arrangement under proposed Sec.  1.45X-1(c)(3)(iii) could circumvent 
the prohibition under section 45X(c)(1)(B) that disallows a section 45X 
credit for items produced at a section 48C facility. More specifically, 
commenters suggested that a taxpayer could enter into a contract 
manufacturing arrangement under proposed Sec.  1.45X-1(c)(3)(iii) to 
produce photovoltaic wafers that are then used to manufacture 
photovoltaic cells. If the taxpayer itself integrated, incorporated, or 
assembled the photovoltaic cells into solar modules, the taxpayer might 
claim a section 45X credit for all three products upon their sale, even 
though the photovoltaic wafers were manufactured by the contract 
manufacturer at a section 48C facility while the photovoltaic cells 
were manufactured at a section 45X facility, if the taxpayer was 
unaware that the contract manufacturer manufactured the photovoltaic 
wafers at a section 48C facility. The Proposed Regulations did not 
allow this, and the final regulations would continue to disallow a 
section 45X credit for the photovoltaic wafers in this scenario. To the 
extent that the photovoltaic wafers were produced at a section 48C 
facility, the photovoltaic wafers would not qualify as an eligible 
component to any party to the contract manufacturing arrangement. As 
described earlier, these final regulations add a rule in Sec.  1.45X-
1(g)(2)(ii) to clarify the rules in a contract manufacturing 
arrangement situation, and the examples in Sec.  1.45X-1(g)(4) have 
also been modified.
G. Anti-Abuse Rule
    As explained in the preamble to the Proposed Regulations, proposed 
Sec.  1.45X-1(i)(1) would have provided 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. Proposed Sec.  1.45X-1(i)(1) would have provided that 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. Proposed Sec.  1.45X-1(i)(2) would have provided an 
example illustrating this anti-abuse rule.
    One commenter suggested that, in applying the anti-abuse rule, the 
taxpayer claiming a section 45X credit should not be held responsible 
for the activities of the customer after a sale has occurred (unless 
the customer is a related entity); the determination of whether a 
component is defective should be made at the factory gate; and 
``productive use'' should include the sale of an eligible component to 
an entity engaged in the business of directly (such as a utility) or 
indirectly (such as a project developer) deploying the batteries. 
Proposed Sec.  1.45X-1(i)(1) provides that 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 under sections 6417 and 6418 related to the section 45X 
credit) is based on all the facts and circumstances. Under a facts and 
circumstances analysis, no single factor is determinative, and the 
considerations listed by the commenter would have to be evaluated in 
the context of all other facts and circumstances. The Treasury 
Department and the IRS thus decline to list specific parameters that 
automatically result in a finding of a favorable or unfavorable primary 
purpose.
    Another commenter suggested adding additional examples to proposed 
Sec.  1.45X-1(i) to make clear that the section 45X credit is never 
allowable with respect to any cost the primary purpose of which is to 
increase the amount of the section 45X credit. While both examples 
offered by the commenter involve possible abuses, the anti-abuse rule 
is intended to cover a broad range of abuses. Proposed Sec.  1.45X-1(i) 
would have provided that 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 is based on all facts and 
circumstances, and no single factor is determinative. Accordingly, the 
Treasury Department and the IRS decline to adopt the commenter's 
suggestion.

III. Sale to Unrelated Person

A. In General
    Proposed Sec.  1.45X-2(a) would have stated 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 
proposed Sec. Sec.  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). Proposed Sec.  1.45X-2(a) also would have cross-
referenced proposed Sec.  1.45X-1(d) and (e) for additional 
requirements relating to sales. Section

[[Page 85807]]

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 Sec.  1.45X-2(b) 
would have provided definitions of the terms ``person,'' ``related 
person,'' and ``unrelated person'' for purposes of the section 45X 
credit.
    A few commenters requested additional clarity in the final rules on 
how a sale is defined and when a sale is determined for the purpose of 
section 45X. One commenter recommended that a sale be defined for 45X 
as the point when a taxpayer signs a binding contractual agreement with 
a buyer in the taxpayer's trade or business for the purchase of an 
eligible component. Section 45X provides special rules addressing sales 
of eligible components to related persons that may be treated as sales 
to unrelated persons, and a general rule that an eligible component 
produced and sold by the taxpayer is only taken into account if such 
production and sale is in a trade or business of the taxpayer, but 
otherwise does not provide any specific rules regarding whether and 
when a sale have occurred. Proposed Sec.  1.45X-2(a) would have 
provided that 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), and those same 
principles apply in determining when a transaction is a sale. More 
specific rules on the determination of whether and when a sale occurs 
is beyond the scope of these final regulations. Accordingly, the 
Treasury Department and the IRS maintain the standard in proposed Sec.  
1.45X-2(a) and finalize the proposed rule without modification.
    Another commenter requested further clarification on the sale of 
eligible components in two scenarios. In the first scenario, Company A 
is a U.S. based company producing eligible components that it sells to 
Company B, which is not directly using the eligible components but 
resells to Company C to use in a manufacturing process or otherwise in 
its trade or business. For this first scenario, the commenter requested 
clarification on whether Company A is eligible to claim the section 45X 
credit for the domestic production and sale of the eligible components. 
In the second scenario, the commenter assumed the same facts as in the 
first scenario, but Company B or Company C is using Company A's 
eligible component outside the United Sates. In this second scenario, 
the commenter requested clarification on whether Company A remains 
eligible to claim the section 45X credit for the domestic production 
and sale of the eligible components.
    In both scenarios under the Proposed Regulations, Company A is 
eligible to claim the section 45X credit for the domestic production 
and sale of the eligible components if the production and sale is in a 
trade or business of Company A, regardless of whether the first 
purchaser is using the eligible component in its trade or business or 
sells to a subsequent purchaser for use in the subsequent purchaser's 
trade or business, and regardless of whether the purchaser or 
subsequent purchaser uses the eligible component in the United States. 
Because the Proposed Regulations clearly provide this result, no 
further revision is necessary in these final regulations.
B. Special Rules for Sales to a Related Person
    Consistent with section 45X(a)(3)(A), proposed Sec.  1.45X-2(c)(1) 
would have provided a special rule that, 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 related to the taxpayer. Proposed Sec.  1.45X-2(c)(2) would have 
provided an example to illustrate this special rule.
    Given the importance of whether parties are related persons or 
unrelated persons, a commenter proposed a particular fact pattern and 
requested clarification on who the purchaser is and whether they were 
related or unrelated to the producer and seller. In general, section 
45X(d)(1) and proposed Sec.  1.45X-2(b)(2) 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). A 
request for application of the section 52(b) regulations by the 
Treasury Department and the IRS to a particular fact pattern requiring 
a facts and circumstances analysis is outside the scope of these final 
regulations.
    Another commenter requested that the final rules clarify whether a 
Related Person Election is necessary when eligible components are sold 
by the producer to an unrelated person, who subsequently sells them to 
a person related to the producer of such eligible components. The 
commenter proposes amending proposed Sec.  1.45X-2(c) to clarify that 
direct or indirect sales to a related person qualify if the producer 
knows or has reason to know the unrelated person is intending to sell 
the same eligible components to a person related to the producer. To 
provide assurance to commenter, a Related Person Election is not 
necessary in this situation because the first sale was to an unrelated 
party, but the Treasury Department and the IRS have determined that the 
rules as set out by proposed Sec.  1.45X-2(c) do not require further 
clarification on this point. In addition, if there are circumstances in 
which purported sales are made to unrelated persons to circumvent the 
requirements of section 45X, proposed Sec.  1.45X-2(a) provides that 
applicable Federal income tax principles apply to determine whether a 
transaction will be respected as a sale.
C. Related Person Election
1. Availability of Election--In General
    Proposed Sec.  1.45X-2(d)(1)(i) would have provided that a taxpayer 
may make a Related Person Election under section 45X(a)(3)(B) 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, 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 Sec.  1.45X-
2(d)(1)(ii) would have provided the rules regarding the Related Person 
Election for members of a consolidated group (as defined in Sec.  
1.1502-1(h)).
    One commenter requested that taxpayers be allowed to exercise the 
Related Person Election in situations where it is difficult for the 
taxpayer to determine whether two entities are related under the 
section 52(b) regulations. Allowing the exercise of the Related Person 
Election as commenter requested would conflict with the language in 
section 45X(d)(1), which requires the parties be treated as a single 
employer under the section 52(b) regulations, not just that it be 
difficult to determine the status. Therefore, these final regulations 
do not adopt the commenter's request.
2. Anti-Abuse Rule
    Proposed Sec.  1.45X-2(d)(4) would have provided an anti-abuse rule 
for the Related Person Election consistent with section 
45X(a)(3)(B)(ii) for preventing duplication, fraud, or any improper or 
excessive amount of the section 45X credit. Proposed Sec.  1.45X-
2(d)(4)(i) would have provided that a Related Person Election may not 
be made if the taxpayer fails to provide the information required by 
proposed Sec.  1.45X-2(d)(2)

[[Page 85808]]

with respect to the relevant eligible components, the taxpayer provides 
information that shows such components were put to an improper use as 
defined in proposed Sec.  1.45X-2(d)(4)(ii) or were defective as 
defined in proposed Sec.  1.45X-2(d)(4)(iii), or such components were 
actually put to an improper use or were defective.
    Proposed Sec.  1.45X-2(d)(4)(ii) would have provided 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. The Treasury Department and the IRS requested 
comments in the preamble to the Proposed Regulations on the definition 
of the term improper use and whether any clarifications to its scope 
are necessary.
    Proposed Sec.  1.45X-2(d)(4)(iii) would have provided that a 
defective component means a component that does not meet the 
requirements of section 45X and the section 45X regulations. The 
Treasury Department and the IRS requested comments in the preamble to 
the Proposed Regulations on the definition of defective components and 
whether clarifications to its scope are necessary.
    In response to the Treasury Department and the IRS's request for 
comments, one commenter requested additional guidance regarding when an 
eligible component can be deemed defective under section 45X. The 
commenter recommended clarification that an eligible component can be 
deemed defective and therefore ineligible for a tax credit under 
section 45X ``up until the point of sale of the eligible component to 
an unrelated party.'' However, in circumstances where a taxpayer has 
made a valid Related Person Election, a sale of eligible components to 
a related person is treated as if made to an unrelated person, thus 
making a sale to an unrelated person not relevant for section 45X 
credit determination purposes. The preamble to the Proposed Regulations 
stated that 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. The 
Treasury Department and the IRS agree that if an eligible component is 
not defective at the time of sale, defects arising after the point of 
sale may occur in the ordinary course of a business and do not 
generally raise the improper claim concerns regarding defective 
components described in the Preamble to the Proposed Regulations. 
Accordingly, the final rules modify proposed Sec.  1.45X-2(d)(4)(iii) 
to clarify that components with respect to which defects arise after 
the deemed sale are not considered defective components for purposes of 
the anti-abuse rule.
    Another commenter suggested that the definitions of improper use 
and defective components should provide an exception for a defective 
component that can be sold or given to a related or unrelated person 
conducting legitimate recycling operations and allowing defective 
components to earn a section 45X credit provided they are properly 
recycled in the United States. The Treasury Department and the IRS 
decline to adopt this request because section 45X does not authorize 
allowing a section 45X credit for a defective component that does not 
meet the definition of an eligible component and is not capable of 
being used for its intended purpose without further substantial 
modification.
D. Sales of Integrated Components to a Related Person
1. In General
    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.E. of this Summary of Comments and Explanation of Revisions for 
rules applicable to eligible components that are integrated, 
incorporated, or assembled into other eligible components and sold to 
an unrelated person.
    Proposed Sec.  1.45X-2(e)(1) would have provided that, 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 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 Sec.  1.45X-2(e)(2) would have provided examples to 
illustrate the treatment of sales of multiple incorporated eligible 
components to related and unrelated persons. One commenter questioned 
the practical application of the requirements in proposed Sec.  1.45X-
2(e)(2)(i) (Example 1) and expressed concern that although Company X 
and Y are related, the proposed rule would require a significant amount 
of coordination of information. This coordination would be necessary 
for the credit to be claimed in the proper tax year in which the 
ultimate product (photovoltaic cells produced by Y using photovoltaic 
wafers produced by X and purchased by Y) was sold to Company Z. 
Proposed Sec.  1.45X-2(e)(2)(i) (Example 1) illustrates the rule in 
section 45X(d)(4) requiring an ultimate actual sale to an unrelated 
person of an eligible component. Because section 45X(d)(4) expressly 
conditions the deemed sale on an actual subsequent sale to an unrelated 
person by the related person, the Treasury Department and the IRS do 
not have the authority to change this statutorily imposed conditional 
timing requirement despite any practical difficulties taxpayers may 
experience in obtaining such information. Taxpayers may, however, make 
a Related Person Election as illustrated in the example in Sec.  1.45X-
2(e)(3)(ii) and claim the section 45X credit upon the sale to the 
related person. This would obviate the need for such taxpayer to know 
when the related person actually makes the subsequent sale to an 
unrelated person. For these reasons, the final regulations adopt 
proposed Sec.  1.45X-2(e)(2)(i) (Example 1) without modification.
2. Special Rules Applicable to Related Person Election
    Proposed Sec.  1.45X-2(e)(3) would have provided that if a taxpayer 
makes a valid Related Person Election under section 45X(a)(3)(B)(i) and 
proposed Sec.  1.45X-2(d)(1), 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. One commenter expressed support 
for this proposed rule, as it applies thoughtfully to vertically 
integrated electric vehicle manufacturers engaging in sales of

[[Page 85809]]

multiple integrated eligible components to related and unrelated 
persons (with a Related Person Election). No other comments were 
received on this special rule, so it is adopted in these final 
regulations without revision.

IV. Eligible Components

A. In General
    Proposed Sec.  1.45X-3(a) would have defined the term ``eligible 
component'' as any solar energy component, any wind energy component, 
any inverter, any qualifying battery component, and any applicable 
critical mineral, as each is respectively defined in the Proposed 
Regulations. For solar energy components, wind energy components, 
inverters, and qualifying battery components, proposed Sec.  1.45X-3(b) 
through (e) would have provided definitions, rules for determining the 
credit amount, and documentation requirements. Proposed Sec.  1.45X-
3(f) would also have provided rules for applying the phase out of the 
section 45X credit. Proposed Sec.  1.45X-4 would have provided such 
information for applicable critical minerals (other than rules for 
applying the phase out, which does not apply to applicable critical 
minerals).
    Commenters addressed certain aspects of these proposed rules, as 
described in this Part IV. of the Summary of Comments and Explanation 
of Revisions. These final regulations generally adopt the rules as 
proposed in Sec.  1.45X-3, with the modifications described in this 
Part IV. of the Summary of Comments and Explanation of Revisions.
B. Solar Energy Components--in General
    Consistent with section 45X(c)(3), proposed Sec.  1.45X-3(b) would 
have provided that solar energy component means a solar module, 
photovoltaic cell, photovoltaic wafer, solar grade polysilicon, torque 
tube, structural fastener, or polymeric backsheet. Several commenters 
requested that the final regulations add other non-listed solar energy 
components (or alternatively, to provide a safe harbor) to allow for 
section 45X credit eligibility. Examples of other non-listed solar 
energy components commenters raised include the encapsulant used to 
protect the photovoltaic cells and hold the entire system together; 
charge transport materials used in photovoltaic cells; photovoltaic 
wire; solar mirror facets; and solar thermal receivers. A commenter 
also suggested adopting a functionally interdependent and integral part 
test analogous to section 48 of the Code to include additional solar 
energy components.
    Section 45X(c)(3) expressly identifies the qualifying solar energy 
components that are eligible for the section 45X credit. The Treasury 
Department and the IRS do not have the authority to add to the set of 
solar energy components that are identified by statute, for example, by 
applying a functional interdependence or integral part test. For this 
reason, the Treasury Department and the IRS decline to adopt the 
commenters' requests in these final regulations.
1. Photovoltaic Cell
    Proposed Sec.  1.45X-3(b)(1)(ii) would have provided that the 
credit amount for a photovoltaic cell is equal to the product of 4 
cents multiplied by the capacity of such photovoltaic cell. The 
proposed rule provided that the capacity of each photovoltaic cell is 
expressed on a direct current watt basis and capacity is the nameplate 
capacity in direct current watts using Standard Test Conditions (STC), 
as defined by the International Electrotechnical Commission (IEC). The 
proposed rule further provided that in the case of a tandem 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; and, in 
the case of a four-terminal tandem technology produced by mechanically 
stacking two distinct cells or interconnected layers, capacity must be 
measured for each cell at each point of sale.
    A few commenters expressed concern that the proposed rule treats 
two-terminal and four-terminal tandem technologies differently, and 
that by labeling a monolithic two-terminal configuration as composed of 
sub-cells, the proposed rule would require this technology to be 
measured as a single cell rather than two distinct tandem cells. In 
contrast, proposed Sec.  1.45X-3(b)(1)(ii) provides that mechanically 
stacked four-terminal tandem technology consists of ``two distinct 
cells.'' In the commenters' view, the proposed rule would allow four-
terminal cells to be measured before they are combined, while two-
terminal cells would be measured after they are combined, resulting in 
higher capacity for four-terminal cells and increased credit amounts 
for four-terminal cells. A commenter also suggested that proposed Sec.  
1.45X-3(b)(1)(ii) is currently problematic for future tandem technology 
cell production and, perhaps unintentionally, directs the development 
of certain tandem technologies.
    The Treasury Department and the IRS agree with the commenters' 
concerns regarding disparate treatment between four-terminal and two-
terminal cells and capacity and credit amounts. Accordingly, these 
final regulations revise proposed Sec.  1.45X-3(b)(1)(ii) to add 
additional text at the end as follows: ``Where that cell is sold to a 
customer who will use it as the bottom cell in a tandem module, its 
capacity should be measured with the customer's intended top cell 
placed between the bottom cell and the one-sun light source.''
2. Photovoltaic Wafer
    Consistent with section 45X(c)(3)(B)(ii), proposed Sec.  1.45X-
3(b)(2)(i) would have defined a photovoltaic wafer to mean 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).
    Some commenters suggested revisions to the definition of a 
photovoltaic wafer to include non-traditional methods of producing 
wafers. For example, a commenter requested expanding the definition to 
include wafers produced by any of the emerging `kerfless' or `direct' 
wafer technologies, as well as the polysilicon used by these 
technologies. The Treasury Department and the IRS have determined that 
direct wafer technologies fall within the statutory definition of 
photovoltaic wafers, if they are produced directly from evaporated 
solar grade polysilicon but disagree that any further clarification is 
needed in these final regulations.
    A commenter requested that the final regulations clarify that 
ingots must be produced within the United States for solar wafers to be 
eligible for the section 45X credit. As required by section 
45X(c)(3)(B)(ii)(I)(bb), to qualify for a section 45X credit, a 
photovoltaic wafer must be produced by a single manufacturer either by 
forming an ingot and then subsequently slicing it into wafers, or by 
forming molten or evaporated solar grade polysilicon or deposition into 
a sheet or layer. Thus,

[[Page 85810]]

to qualify for a section 45X credit, both the ingot and the wafer must 
be produced domestically in accordance with section 45X(d)(2). Proposed 
Sec.  1.45X-1(d)(2) would have clarified that constituent elements, 
materials, and subcomponents used in the production of eligible 
components are not subject to the domestic production requirement 
provided in proposed Sec.  1.45X-1(d)(1). Because the ingot production 
is part of the wafer production, ingots are not constituent elements, 
materials, or subcomponents. The Treasury Department and the IRS have 
determined it is unnecessary to specify that the ingot must be 
domestically produced as section 45X and proposed Sec.  1.45X-
3(b)(2)(i) require the wafer to be domestically produced, which 
includes production of the ingot. See also Part II.F.2. of this Summary 
of Comments and Explanation of Revisions for a discussion of proposed 
Sec.  1.45X-1(g)(4)(ii) (Example 2) concerning the production of ingots 
and wafers.
3. Polymeric Backsheet
    Consistent with section 45X(c)(3)(B)(iii), proposed Sec.  1.45X-
3(b)(3) would have defined polymeric backsheet to mean 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.
    Certain commenters recommended that the term be considered to 
include a product that qualifies solely based on the property's 
functionality and not the property's composition, in order for 
backsheets made of glass to be eligible components. One commenter 
stated that its product is used in solar panels and therefore its 
request is consistent with Congressional intent of expediting the 
transition to clean energy, the underlying intent of section 45X to 
create parity among technologies, and incentivizing the creation of a 
U.S.-based supply chain for current and future solar technologies. The 
commenter thought that other energy components were defined based on 
their function, not their ``composition'' (for example, inverter, 
photovoltaic cell, and solar module) and believes that glass performs 
the same function as a backsheet made of plastic. The commenter 
suggested that clarity on whether a backsheet made of glass is part of 
the definition of ``polymeric backsheet'' is important because it will 
help with decisions on pursuing a section 48C credit and for avoiding 
penalties under section 6694 of the Code (preparer penalty) or section 
6662 of the Code (substantial understatement). Another commenter 
recommended adding back glass as a solar energy component because it is 
better for the environment in that a domestic facility that uses 
recycled glass from retired solar modules is ``cleaner'' than an 
overseas facility.
    In considering these comments, the Treasury Department and the IRS 
determined that the best reading of the statute is that the term 
``polymeric backsheet'' is limited to backsheets made of polymeric 
materials that also meet the functional definition provided in section 
45X(c)(3)(B)(iii). This excludes most glass backsheets because they are 
typically not composed of a polymer, but of soda-lime glass. The final 
regulations add the word ``polymeric'' into the definition as a 
clarification. In reaching this determination, the Treasury Department 
and the IRS considered that when drafting the statute, Congress 
affirmatively included ``polymeric'' in the term and this inclusion 
should be given effect. Thus, the final regulations clarify that the 
definition is limited to a sheet on the back of solar modules composed, 
at least in part, of a polymer, that acts as an electric insulator and 
protects the inner components of such module from the surrounding 
environment.
4. Solar Grade Polysilicon
    Consistent with section 45X(c)(3)(B)(iv), proposed Sec.  1.45X-
3(b)(4) would have defined solar grade polysilicon to mean silicon that 
is suitable for use in photovoltaic manufacturing and purified to a 
minimum purity of 99.999999 percent silicon by mass. A commenter 
requested that the final rules state that the production of the silicon 
gas that is used for direct wafer production may receive the section 
45X credit for polysilicon for the mass of silicon in the gas. The 
Treasury Department and the IRS have determined, in close consultation 
with the Department of Energy, that gas used for direct wafer 
production includes molecules of silicon contained within another 
substance. Accordingly, such gas is not a complete and distinct 
eligible component within the meaning of proposed Sec.  1.45X-
1(c)(1)(i). For this reason, the Treasury Department and the IRS 
decline to adopt this request in these final regulations.
    A few commenters requested guidance on how the purity level for 
solar grade polysilicon should be determined. One commenter requested 
that the final rules clarify that only impurities that are ``material 
to the industry'' should be counted in determining whether the minimum 
purity level is met. Because these final regulations add the purity 
standard in SEMI Specification PV17-1012 Category 1 to proposed Sec.  
1.45X-3(b)(4), which distinguishes between material and immaterial 
impurities, the Treasury Department and the IRS decline to adopt the 
commenter's suggestion of clarifying that the statutory purity level 
refers only to impurity levels that are ``material to the industry.''
    A commenter recommended adopting the standards for polysilicon 
feedstock in SEMI Specification PV17-1012. The Treasury Department and 
the IRS, in close consultation with the Department of Energy, have 
determined that SEMI Specification PV17-1012 Category 1 meets the 
purity standard of 99.999999 percent, while Categories 2 through 5 do 
not. The Treasury Department and the IRS thus agree with this request 
but only for Category 1, and these final regulations accordingly revise 
proposed Sec.  1.45X-3(b)(4) to add the purity standard in SEMI 
Specification PV17-1012 Category 1.
5. Solar Module
    Proposed Sec.  1.45X-3(b)(5)(ii) would have stated that the credit 
amount for a solar module is equal to the product of 7 cents multiplied 
by the capacity of such module. The proposed rule also provided that 
the capacity of each solar module is expressed on a direct current watt 
basis, and that capacity is the nameplate capacity in direct current 
watts using STC, as defined by the IEC. A commenter requested producers 
be required to use ``flash'' values to determine the value of the tax 
credit for modules. The preamble to the Proposed Regulations explained 
that nameplate capacity is an appropriate, accurate, and consistent 
standard for the measurement of solar module capacity that can be used 
to measure the capacity of other eligible components. Using an industry 
standard such as nameplate capacity that is widely applicable to 
various eligible components provides greater taxpayer certainty, 
reduces taxpayer compliance burdens, and aids IRS administration. For 
these reasons, the Treasury Department and the IRS have determined that 
the best application of the statute is to require the use of nameplate 
capacity to measure the capacity of a solar module. The Treasury 
Department and the IRS therefore decline to adopt this suggestion to 
permit the use of ``flash'' value capacity measurements in these final 
regulations.
6. Solar Tracker
    Consistent with section 45X(c)(3)(B)(vi), proposed Sec.  1.45X-
3(b)(6) would have provided that a solar

[[Page 85811]]

tracker means a mechanical system that moves solar modules according to 
the position of the sun and to increase energy output. Section 
45X(c)(3)(B)(vii) provides that torque tubes (as defined in proposed 
Sec.  1.45X-3(b)(7)) or structural fasteners (as defined in proposed 
Sec.  1.45X-3(b)(8)) are solar tracker components that are eligible 
components for purposes of the section 45X credit.
    Commenters requested that the definition of a solar tracker (not an 
eligible component) in section 45X(c)(3)(B)(vi) be modified to allow 
solar thermal collectors, heliostats, and fixed tilt systems 
(additional items) to be solar tracker components as defined in section 
45X(c)(3)(B)(vii). A solar tracker is defined in 45X(c)(3)(B)(vi) as a 
``mechanical system that moves solar modules according to the position 
of the sun to increase energy output.'' To be a solar tracker, a device 
must be a mechanical system that moves a solar module. The Treasury 
Department and the IRS do not have authority to expand the definition 
of solar tracker to include additional items such as the ones suggested 
that increase energy output without moving solar modules. Moreover, 
modification of the definition of a solar tracker in the manner the 
commenter requested would not result in such additional items 
qualifying as eligible components because a solar tracker is not a 
solar energy component that is an eligible component under section 
45X(c)(1)(A)(i). Section 45X(c)(3)(B)(vii) provides that torque tubes 
and structural fasteners are the only two solar tracker components that 
may qualify as eligible components. The Treasury Department and the IRS 
do not have authority to expand the categories of eligible solar 
tracker components. For these reasons, the Treasury Department and the 
IRS decline to adopt this request in the final regulations.
7. Torque Tube
    Consistent with section 45X(c)(3)(B)(vii)(I), proposed Sec.  1.45X-
3(b)(7)(i) would have provided that torque tube means a structural 
steel support element (including longitudinal purlins) that: (i) is 
part of a solar tracker; (ii) is of any cross-sectional shape; (iii) 
may be assembled from individually manufactured segments; (iv) spans 
longitudinally between foundation posts; (v) supports solar panels and 
is connected to a mounting attachment for solar panels (with or without 
separate module interface rails); and (vi) is rotated by means of a 
drive system.
    Commenters suggested various statutory revisions to the definition 
of torque tube in section 45X(c)(3)(B)(vii)(I). A commenter recommended 
replacing the definition with a more generalized term such as ``Tracker 
Structural Frame'' to allow for other common solar collector 
morphologies. Another commenter requested removing or revising section 
45X(c)(3)(B)(vii)(I)(dd) to include single foundation mounted 
structures or ground-mounted carousel structures. One commenter 
proposed clarifying that aluminum bearings, steel damper arms, steel 
saddle brackets, and steel bottom brackets are included in the 
definition of torque tubes or structural fasteners. Alternatively, the 
commenter suggested providing either: (i) a non-exclusive list of items 
that are included in the definition of torque tube or structural 
fasteners, or (ii) a test similar to the functionally interdependent or 
integral part tests under proposed Sec.  1.48-9(f)(2)(ii) and (f)(3) to 
determine when a component is included in the definition of a torque 
tube or structural fastener.
    Because section 45X(c)(3)(B)(vii)(I) specifically defines torque 
tube for purposes of section 45X, the Treasury Department and the IRS 
do not have the authority to expand the definition of torque tubes and 
solar tracker components in the final regulations to include additional 
solar energy components. As previously discussed, the Treasury 
Department and the IRS also lack authority to incorporate a functional 
interdependence or integral part tests that would allow other 
components not specified in the statute to qualify for the section 45X 
credit. For these reasons, the Treasury Department and the IRS decline 
to adopt these comments in the final regulations.
8. Structural Fastener
    Consistent with section 45X(c)(3)(B)(vii)(II), proposed Sec.  
1.45X-3(b)(8)(i) would have defined a structural fastener to mean a 
component that is used: (i) to connect the mechanical and drive system 
components of a solar tracker to the foundation of such solar tracker; 
(ii) to connect torque tubes to drive assemblies; or (iii) to connect 
segments of torque tubes to one another.
    Several commenters requested revisions to the definition of 
structural fastener in proposed Sec.  1.45X-3(b)(8)(i). For example, 
commenters requested that the definition of structural fastener be 
extended ``beyond steel and iron torque tubes to specifically allow for 
innovations made from other materials,'' such as durable plastic; that 
solar frames made from greenhouse gas reducing steel and roll-form 
fabricated frames (as opposed to the current industry standard, 
imported extruded aluminum frames) qualify as structural fasteners, 
solar modules, or torque tubes; and that the definition of structural 
fasteners be expanded to include those that secure the photovoltaic 
module to the torque tube or module interface rails. The Treasury 
Department and the IRS do not have the authority to expand the 
definition of structural fasteners and solar tracker components in the 
final regulations to include additional solar energy components. 
However, the Treasury Department and the IRS note that a component that 
is used for any of the functions described in section 
45X(c)(3)(B)(vii)(II) would be considered a structural fastener for 
purposes of section 45X. The Treasury Department and the IRS think that 
proposed Sec.  1.45X-3(b)(8)(i) and the statutory definition of a 
structural fastener is sufficiently clear to address the requested 
clarifications. Proposed Sec.  1.45X-3(b)(8)(i) is therefore adopted in 
these final regulations without revision.
    Proposed Sec.  1.45X-3(b)(8)(iii) would have required that, for 
substantiation purposes, a taxpayer must document that a structural 
fastener is used in a manner described in proposed Sec.  1.45X-
3(b)(8)(i)(A), (B), or (C), with a bill of sale or other similar 
documentation that explicitly describes such use. One commenter 
specifically supported the substantiation requirement for structural 
fasteners in proposed Sec.  1.45X-3(b)(8)(iii). Another commenter 
requested the final rules require taxpayers to substantiate that the 
structural fasteners for which they are claiming the section 45X credit 
include only the manufactured component (bolt or rivet) itself. The 
Treasury Department and the IRS have determined there is no need for 
further clarification of the substantiation requirement for structural 
fasteners in addition to the specific requirements relating to use in 
proposed Sec.  1.45X-3(b)(8)(iii) and the general substantiation 
requirements in section 6001 of the Code. For this reason, the Treasury 
Department and the IRS decline to adopt this comment in the final 
regulations.
C. Wind Energy Components
1. In General
    Consistent with section 45X(c)(4), proposed Sec.  1.45X-3(c) would 
have provided that a wind energy component means a blade, nacelle, 
tower, offshore wind foundation, or related offshore wind vessel. 
Commenters generally requested expanding proposed Sec.  1.45X-3(c) to 
include other non-listed wind energy components such as structural 
fasteners. Section 45X(c)(4) specifically provides a list of qualifying 
wind energy

[[Page 85812]]

eligible components. The Treasury Department and the IRS do not have 
the authority to expand the statutorily enumerated list of wind energy 
components eligible for a section 45X credit. For this reason, the 
Treasury Department and the IRS decline to adopt the commenters request 
in these final regulations.
2. Nacelle
    Consistent with section 45X(c)(4)(B)(iii), proposed Sec.  1.45-
3(c)(3)(i) would have defined a nacelle to mean 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.
    A commenter stated that guidance should distinguish between 
manufacturing of eligible wind energy components (for example, in a 
manufacturing facility) from the installation of wind energy components 
at the relevant project site, as the latter does not constitute 
manufacturing or production of eligible components. The Treasury 
Department and the IRS have determined that the definition of 
``produced by the taxpayer'' provided in proposed Sec.  1.45X-1(c)(1) 
is sufficient to clarify that production of an eligible component 
requires substantially transforming constituent elements, materials, or 
subcomponents into a complete and distinct eligible component that is 
functionally different from that which would result from disqualifying 
minor assembly or superficial modification of the elements, materials 
or subcomponents.
    Another commenter requested that the final regulations recognize 
that, where a new drivetrain and associated equipment (the pitch 
bearing, pitch system, main shaft, main bearing, gearbox, flex 
coupling, and slip ring) are produced for use in repowering of existing 
wind turbines and installed into an existing nacelle cover housing with 
certain other used equipment (including yaw bearing and baseplate), the 
nacelle is eligible for the section 45X credit. Under this commenter's 
approach, the drivetrain of the nacelle must be new to be eligible for 
the section 45X credit. Another commenter also suggests inclusion of a 
``reasonable computation'' of the section 45X credit for repowered 
eligible components.
    The Treasury Department and the IRS note that repowering is a form 
of onsite re-manufacturing that is typically accomplished through a 
hybrid of primary and secondary production that utilizes a mix of 
existing and new components. To produce a nacelle within the definition 
of proposed Sec.  1.45X-3(c)(3)(i), the taxpayer would need to meet the 
requirements of the definition of ``produced by the taxpayer'' provided 
in proposed Sec.  1.45X-1(c)(1), including by substantially 
transforming the combination of existing and new subcomponents into a 
new nacelle that is distinct from the original nacelle. In some 
circumstances, nacelle repowering may constitute production of an 
eligible component. For example, a taxpayer that manufactures and 
installs a new drivetrain and associated subcomponents within housing 
atop a wind tower will be considered to have substantially transformed 
the combination of new and existing subcomponents, so that taxpayer 
will have produced an eligible nacelle. In contrast, a taxpayer that 
merely replaces the controller in a nacelle with a new one will not 
have substantially transformed the combination of new and existing 
subcomponents, so that taxpayer will not have produced an eligible 
nacelle. Routine maintenance or part replacement would fall under the 
definition of disqualifying minor assembly or ``superficial 
modification.''
3. Related Offshore Wind Vessel
    Consistent with section 45X(c)(4)(B)(iv), proposed Sec.  1.45X-
3(c)(4)(i) would have defined related offshore wind vessel to mean any 
vessel that is purpose-built or retrofitted for purposes of the 
development, transport, installation, operation, or maintenance of 
offshore wind energy components. Proposed Sec.  1.45X-3(c)(4)(i) would 
have clarified that 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. Proposed Sec.  1.45X-3(c)(4)(i) would have further 
clarified 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.
    Under proposed Sec.  1.45X-3(c)(4)(ii), consistent with section 
45X(b)(1)(F)(i), the credit amount for a related offshore wind vessel 
would have been equal to 10 percent of the sales price of the vessel. 
Under the Proposed Regulations 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 a Related Person Election under section 
45X(a)(3)(B)(i) has been made, the election would 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 thereunder.
    One commenter requested clarification on the valuation of 
retrofitted offshore wind vessels and requested guidance on whether the 
section 45X credit applies to the cost of the retrofit itself, the 
value-add of the retrofit, the cost of the final sale of a retrofitted 
vessel, or some other amount. The Treasury Department and the IRS 
confirm that the credit amount specified in section 45X(b)(1)(F)(i)--
ten percent of the sales price of such vessel--specifically applies to 
any related offshore wind vessel which is purpose-built or retrofitted 
as provided in section 45X(c)(4)(B)(iv).
    A commenter stated that the definition of an offshore wind vessel 
is too narrow and that more standard vessel types (for example, 
tugboats and barges) that are capable of doing offshore wind work 
should also be eligible for the section 45X credit if they are being 
constructed or retrofitted for the purpose of offshore wind work. The 
Treasury Department and the IRS note that section 45X(c)(4)(B)(iv) and 
proposed Sec.  1.45X-3(c)(4)(i) would have defined a related offshore 
wind vessel to mean ``any vessel'' that is purpose-built or retrofitted 
for purposes of the development, transport, installation, operation, or 
maintenance of offshore wind energy components. Proposed Sec.  1.45X-
3(c)(4)(i) would have clarified that 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. Proposed Sec.  1.45X-3(c)(4)(i) would have 
further clarified 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. Thus, if 
a vessel meets the definition of a related offshore wind vessel in 
proposed Sec.  1.45X-3(c)(4)(i), there are no limitations as to the 
type of

[[Page 85813]]

vessel that may be an eligible component.
    The commenter's requested clarification would require an 
application of the standard in proposed Sec.  1.45X-3(c)(4)(i) to 
specific cases for which a categorical determination of eligibility for 
additional vessel types would not be appropriate in these final 
regulations because such a determination would depend on the specific 
facts of each case.
    Although no comments were received on proposed Sec.  1.45X-
3(c)(4)(i), the Treasury Department and the IRS revise proposed Sec.  
1.45X-3(c)(4)(i) in these final regulations to clarify that Federal 
income tax principles apply in determining the accuracy of the sales 
price used to calculate the section 45X credit. This revision provides 
greater certainty as to what principles apply for purposes of the 
section 45X credit and is in addition to the specific exclusions from a 
vessel's sales price in proposed Sec.  1.45X-3(c)(4)(i), which included 
maintenance, services, or other similar items that may be sold with the 
vessel.
4. Total Rated Capacity of the Completed Wind Turbine
    Proposed Sec.  1.45X-3(c)(6) would have provided that, for purposes 
of proposed Sec.  1.45X-3(c), the 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 IEC 61400, or American 
National Standards Institute (ANSI)/American Clean Power Association 
(ACP) 101-1-2021, the Small Wind Turbine Standard (Standard). Under 
proposed Sec.  1.45X-3(c)(6), certification of the turbine to such 
Standards must be documented by a certificate issued by an accredited 
certification body and the total rated capacity of a wind turbine must 
be expressed in watts.
    One commenter expressed support for the proposal requiring that 
qualifying wind turbine components must be made and sold for use on 
certified wind turbines. Another commenter recommended including both 
American Wind Energy Association (AWEA) 9.1-2009 and ANSI/ACP 101-1-
2021 as acceptable wind turbine certification standards. The commenter 
explained that ANSI/ACP 101-1-2021 is a revision of the AWEA standard 
(the original small wind certification standard, and all currently 
certified small wind systems are certified to this standard) that 
streamlines the certification process, but there is no requirement that 
turbines with the original certification must recertify to the new 
ANSI/ACP standard. Thus, the commenter states that including both 
standards in the final rules will allow currently certified turbines 
made in the United States to earn section 45X credits as well as new 
turbines currently in the certification process following the newer 
standard. The Treasury Department and the IRS agree with this request 
and these final regulations revise proposed Sec.  1.45X-3(c)(6) to add 
both AWEA 9.1-2009 and ANSI/ACP 101-1-2021 as acceptable wind turbine 
certification standards.
    A commenter sought clarification as to whether a wind tower 
producer may rely on a certification of the total rated capacity of the 
turbine obtained from the original equipment manufacturer (OEM) that 
produces the completed wind turbine in which the wind tower is 
incorporated, provided the certificate was issued by an accredited 
certification body. The commenter noted that requiring wind tower 
producers to independently verify the capacity of the completed turbine 
would cause ``undue expense and delay.'' To provide assurance to the 
commenter, a wind tower producer may rely on an OEM's certification of 
the total rated capacity of the completed wind turbine in which the 
tower was incorporated, but the Treasury Department and the IRS have 
determined that the rules as set out by proposed Sec.  1.45X-3(c)(6) 
and (7) do not require further clarification on this point.
D. Inverters
1. In General
    Consistent with section 45X(c)(2), proposed Sec.  1.45X-3(d) would 
define 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. Proposed Sec.  1.45X-3(d) would have further provided that 
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 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 Sec.  1.45X-3(d) would have clarified the definition of each 
of these types of inverters, including the required rated outputs.
    The preamble to the Proposed Regulations stated that 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. Proposed Sec.  1.45X-3(d) would also 
have provided 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.
    One commenter requested the final rules provide a credit for 
utility-scale power converters and that a ``utility-scale power 
converter'' be defined in a manner consistent with section 2.1.9 of 
Underwriters Laboratories Standard 1741 (2002). Specifically, the 
commenter requested modifying the final rules to provide a credit for 
products that only convert direct current to direct current or 
alternating current to direct current. Because section 45X(c)(2)(A) 
specifically defines the term inverter to mean ``an end product which 
is suitable to convert direct current electricity . . . into 
alternating current electricity,'' the Treasury Department and the IRS 
do not have the authority to expand the definition of inverter in the 
final regulations to include these additional products. For this 
reason, the Treasury Department and the IRS decline to adopt this 
comment in the final regulations.
    Another commenter requested that, for each type of inverter 
provided for under section 45X(c)(2), the rated output of alternating 
current power be defined as ``the maximum continuous grid-tied power 
rating the inverter is capable of handling.'' The commenter asserts 
that the suggested change will ``ensure consistent interpretation 
across technologies despite consumer-driven decisions impacting 
output.'' Section 45X(c)(2) uses the term ``rated output'' to define, 
in part, a commercial inverter, distributed wind inverter, 
microinverter, residential inverter, or utility inverter. The Treasury 
Department and the IRS decline to adopt this comment in the final 
regulations because the term rated output is in the statutory 
definition for these inverters.
    Several commenters requested that the final rules provide a section 
45X credit for inverters that convert direct current from sources other 
than solar modules or certified distributed wind energy systems as long 
as these inverters meet the technical requirements of an inverter 
defined under section 45X(c)(2). Section 45X(c)(2)(A)

[[Page 85814]]

specifically defines the term inverter to mean ``an end product which 
is suitable to convert direct current electricity from one or more 
solar modules or certified distributed wind energy systems into 
alternating current electricity.'' Other types of inverters such as 
bidirectional electric vehicle inverters or utility and commercial 
inverters that are in practice used with battery modules can meet the 
existing suitability standard within the definition without additional 
clarification required. For this reason, the Treasury Department and 
the IRS decline to adopt this comment in the final regulations.
2. Central Inverter
    Consistent with section 45X(c)(2)(B), proposed Sec.  1.45X-
3(d)(2)(i) would have defined a central inverter as an inverter that is 
suitable for large utility-scale systems and has a capacity that is 
greater than 1,000 kilowatts, expressed on an alternating current watt 
basis. Proposed Sec.  1.45X-3(d)(2)(i) would have further clarified 
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 Sec.  1.45X-3(d)(2)(ii) 
would have provided a credit equal to the product of 0.25 cents 
multiplied by the total rated capacity of the central inverter where 
the total rated capacity is expressed on an alternating current watt 
basis.
    One commenter requested the credit amount available for a central 
inverter be changed to match the credit available for utility inverters 
because utility inverters are eligible for a credit that is six times 
higher than central inverters. Because section 45X(b)(2)(B) provides 
the credit amounts available for central inverters and utility 
inverters, the Treasury Department and the IRS do not have the 
authority to make the requested change. For this reason, the Treasury 
Department and the IRS decline to adopt this comment in the final 
regulations.
3. Commercial Inverter
a. Definition
    Consistent with section 45X(c)(2)(C), proposed Sec.  1.45X-
3(d)(3)(i) would have provided that a commercial inverter means an 
inverter that is suitable for commercial or utility-scale applications, 
has a rated output of 208, 480, 600 or 800 volt three-phase power, and 
has a capacity expressed on an alternating current watt basis that is 
not less than 20 kilowatts and not greater than 125 kilowatts.
    One commenter requested the definition of a commercial inverter be 
changed to provide a credit for inverters with a rated output greater 
than 800 volt three-phase power. Section 45X(c)(2)(C)(ii) defines a 
commercial inverter, in part, as having ``a rated output of 208, 480, 
600, or 800 volt three-phase power.'' The Treasury Department and the 
IRS do not have the authority to expand the definition of a commercial 
inverter in the final regulations to those with a rated output greater 
than 800 volt three-phase power. For this reason, the Treasury 
Department and the IRS decline to adopt this comment in the final 
regulations.
    A few commenters requested that the final rules modify the 
definition of a commercial inverter to include a DC optimized 
commercial inverter system, and that, when DC optimizers are paired 
with a commercial inverter, the credit amount available for commercial 
inverters should be determined in a manner similar to the credit 
computation for direct current optimized inverter systems (DC optimized 
inverter systems, as the term would have been defined in Proposed Sec.  
1.45X-3(d)(5)(iii)(B) and discussed in Part IV.D.3.a. of this Summary 
of Comments and Explanation of Revisions). Generally, these commenters 
requested that, with the modified definition of commercial inverter, 
the available credit be computed as a product of $0.02 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. No language in the statutory text or 
proposed rules prohibits the use of direct current optimizers with 
commercial inverters. Thus, it is unnecessary to modify the final rules 
to state that DC optimizers may be used with a commercial inverter.
    Section 45X(b)(1)(I) provides that the amount of the section 45X 
credit for an inverter is equal to the applicable amount with respect 
to each type of inverter multiplied by the capacity of such inverter 
(expressed on a per alternating current watt basis). The Treasury 
Department and the IRS do not have the authority to change the method 
for computing the credit for commercial inverters. In contrast, 
language that appears only in the definition of ``microinverter'' in 
section 45X(c)(2)(E) (`suitable to connect to one solar module') does 
require clarification about how to apply the definition to DC optimized 
systems and multi-module microinverters. Because this language does not 
appear in the definition of ``commercial inverter'' in section 
45X(c)(2)(C), there is no analogous need to clarify the application of 
the definition or credit calculation. For this reason, the Treasury 
Department and the IRS decline to adopt these requests pertaining to 
commercial inverters in the final regulations.
b. Credit Amount
    Proposed Sec.  1.45X-3(d)(3)(iii) would have provided a credit 
equal to the product of 2 cents multiplied by the total rated capacity 
of the commercial inverter where the total rated capacity is expressed 
on an alternating current watt basis.
    Commenters requested that DC optimizers be allowed to be paired 
with commercial or utility scale system configurations, like 
microinverters. This comment is not adopted for the reasons provided in 
Part IV.D.3.a. of this Summary of Comments and Explanation of 
Revisions.
4. Microinverters
a. Definition
    Consistent with section 45X(c)(2)(E), proposed Sec.  1.45X-
3(d)(5)(i) would have defined 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. One commenter requested the final rules change the maximum 
capacity limit for the microinverter from 650 watts to 700 watts to 
accommodate future technological advancements. Because section 
45X(c)(2)(E)(iii) provides the maximum capacity of a microinverter, the 
Treasury Department and the IRS do not have the authority to make the 
requested change. For this reason, the Treasury Department and the IRS 
decline to adopt this comment in the final regulations.
b. Suitable To Connect to One Solar Module--in General
    Proposed Sec.  1.45X-3(d)(5)(iii)(A) would have clarified 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 Sec.  1.45X-3(d)(5)(iii)(B) would have clarified that a DC 
optimized inverter system may qualify as a microinverter. Proposed 
Sec.  1.45X-

[[Page 85815]]

3(d)(5)(iii)(B) would have defined a DC optimized inverter system to 
mean an inverter that is comprised of an inverter connected to multiple 
DC optimizers that are each designed to connect to one solar module. 
Proposed Sec.  1.45X-3(d)(5)(iii)(B) would have provided that 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. Proposed Sec.  1.45X-3(d)(5)(iv)(B) 
would have provided that a DC optimized inverter system qualifies as a 
microinverter if each DC optimizer paired with the inverter in a DC 
optimized inverter system meets 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 
combined end product.
    Several commenters agreed with the proposed rule permitting DC 
optimizers paired with an inverter to qualify as microinverters and 
receive the corresponding credit amount. One commenter suggested 
revising the definition of a DC optimized inverter systems to more 
clearly define the qualifying system components of a DC optimized 
inverter system. This commenter proposed that qualifying system 
components include items that control the DC output of one or more 
solar modules and are integral to the function of the inverter and 
modules. The Treasury Department and the IRS, in consultation with the 
Department of Energy, conclude that the additional confirmation the 
commenter is requesting is not necessary as it would not provide 
additional clarity. For this reason, the Treasury Department and the 
IRS decline to adopt this suggestion in the final regulations.
    Several commenters requested that the final rules remove the 
requirement that a taxpayer produce and sell both the inverter and the 
DC optimizers in the DC optimized inverter system as a combined end 
product. One commenter expressed the view that the requirement distorts 
the market, provides an unfair advantage to companies that already 
manufacture both items, and requires companies to seek out partnerships 
solely for the purpose of obtaining the section 45X credit. Other 
commenters that manufacture both products state that the proposed 
requirement is inconsistent with standard industry practices where a 
manufacturer sells the items separately. In contrast, one commenter 
supported the ``combined end product'' requirement and suggested it 
also be applied to multi-module inverters to prevent multiple entities 
from claiming section 45X credits for the same system. Section 
45X(c)(2)(A) defines an 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. For each type of 
inverter listed under section 45X(c)(2), section 45X(b)(1)(I) provides 
the applicable credit is determined as an amount equal to the product 
of each inverter's applicable amount multiplied by the capacity of such 
inverter. The section 45X credit is separately computed for each 
inverter. The Treasury Department and the IRS do not have the authority 
to allow a credit solely for a DC optimizer, because it does not 
convert DC electricity into AC electricity as the definition of 
inverter in section 45X(c)(2) requires. The Treasury Department and the 
IRS also do not have the authority to change the number of inverter 
units used to compute the available credit amount. For these reasons, 
the Treasury Department and the IRS decline to adopt these comments in 
these final regulations. However, while proposed Sec.  1.45X-
3(d)(5)(iv)(B) requires that the inverter and DC optimizer in the DC 
optimized inverter system must be produced and sold as a combined end 
product, the Treasury Department and the IRS clarify that the inverter 
and the DC optimizer do not need to be physically packaged together at 
sale, and the inverter and DC optimizer do not need to be fully 
interconnected and assembled at the time of sale.
    Proposed Sec.  1.45X-3(d)(5) would have clarified that a multi-
module inverter may also qualify as a microinverter. Proposed Sec.  
1.45X-3(d)(5)(iii)(C) would have defined a multi-module inverter to 
mean an inverter that is comprised of an inverter with independent 
connections and DC optimizing components for two or more modules. 
Proposed Sec.  1.45X-3(d)(5)(iii)(C) would have further provided that 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. 
Proposed Sec.  1.45X-3(d)(5)(iv)(C) would have provided that 
multimodule inverter qualifies as a microinverter if it meets the 
requirements of section 45X(c)(2)(E).
    One commenter suggested revising the definition of a multi-module 
inverter to more clearly define the qualifying system components of a 
multi-module inverter. The commenter suggested that qualifying system 
components should be those items that control the DC output of one or 
more solar modules and are integral to the function of the inverter and 
modules. The same commenter also suggested revising the definition of a 
multi-module inverter to clarify that for a multi-module inverter to 
qualify as a microinverter, a taxpayer must produce and sell the 
inverter and the DC optimizers together as a combined end product. A 
different commenter agreed with this suggestion.
    A few commenters suggested revising the definition of a multi-
module inverter to provide that a multi-module inverter includes a DC 
optimized inverter system such that each DC optimizer may connect with 
more than one solar module and the credit amount in such a system is 
computed similarly to a DC optimized inverter system, except that the 
DC optimizers are not required to be sold with the inverter as a 
``combined end product.'' Other commenters disagreed with this 
suggestion and support the proposed rule that would not have allowed 
solar modules to share a connection to a multi-module inverter.
    The reasons provided for retaining the rule for DC optimized 
inverter systems also apply to adopting the requirement for multi-
module inverters. The Treasury Department and the IRS think that 
requiring taxpayers to produce and sell the inverter and the DC 
optimizers together as a combined end product will create parity with 
DC optimized inverter systems and avoid potential abuse. For these 
reasons, the Treasury Department and the IRS adopt these comments in 
the final regulations.
c. Credit Amount
    Proposed Sec.  1.45X-3(d)(5)(iv)(A) would have provided that 
generally, the credit amount for a microinverter is equal to the 
product of 11 cents multiplied by the total rated capacity of the 
microinverter where the total rated capacity is expressed on an 
alternating current watt basis.
    Proposed Sec.  1.45X-3(d)(5)(iv)(B) would have clarified how to 
determine the credit amount for a DC optimized inverter system that 
qualifies as a microinverter. Proposed Sec.  1.45X-3(d)(5)(iv)(B) would 
have provided that 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

[[Page 85816]]

the inverter in the DC optimized inverter system or the alternating 
current capacity of the inverter in the DC optimized inverter system 
where capacity is measured in watts of alternating current converted 
from DC electricity by the inverter in a DC optimized inverter system.
    One commenter requested that the alternating current capacity of 
each DC optimizer when paired with the inverter in the DC optimized 
inverter system be calculated as the product of the optimizer's rated 
input power capacity, the optimizer's DC-to-DC conversion efficiency 
percentage, and the inverter's DC-to-AC conversion efficiency 
percentage. Section 45X(b)(1)(I) provides the applicable credit is 
determined as an amount equal to the product of each inverter's 
applicable amount multiplied by the capacity of such inverter 
(expressed on a per alternating current watt basis). The requirement 
that capacity is ``expressed on an alternating current watt basis'' 
already factors in any DC-to-DC conversion efficiency upstream of the 
DC-to-AC conversion, and the inverter's DC-to-AC conversion efficiency 
percentage is accounted for by the use of ``capacity of such inverter'' 
(expressed on a per alternating current watt basis). Therefore, these 
requirements are duplicative of rules contained in the statutory text. 
For this reason, the Treasury Department and the IRS decline to adopt 
this suggestion in the final regulations.
5. Utility Inverter
    Consistent with section 45X(c)(2)(G), proposed Sec.  1.45X-
3(d)(7)(i) would have defined a utility inverter as an inverter that is 
suitable for commercial or utility-scale systems, has a rated output of 
not less than 600 volt three-phase power, and has a capacity expressed 
on an alternating current watt basis that is greater than 125 kilowatts 
and not greater than 1000 kilowatts.
    One commenter requested reducing the required rated output from 
``not less than 600 volt three-phase power'' to ``not less than 480 
volt three-phase power.'' Section 45X(c)(2)(G)(ii) defines a utility 
inverter, in part, as having ``a rated output of not less than 600 volt 
three-phase power.'' The Treasury Department and the IRS decline to 
adopt the commenter's request because defining a utility inverter to 
include those with a rated output of not less than 480 volt three-phase 
power would be inconsistent with the statute.
E. Qualifying Battery Components
    Proposed Sec.  1.45X-3(e)(1) would define a qualifying battery 
component as electrode active materials, battery cells, or battery 
modules.
1. Electrode Active Materials
a. In General
    Proposed Sec.  1.45X-3(e)(2)(i)(A) would have defined 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 
Sec.  1.45X-3(e)(2)(i)(A) would also have provided 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 Sec.  1.45X-3(e)(2)(v) would have clarified 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.
    Some commenters recommended altering the definition of electrode 
active materials as defined in section 45X(c)(5)(B)(i) and in proposed 
Sec.  1.45X-3(e)(2)(i)(A). The Treasury Department and the IRS do not 
have the authority to alter the definition of electrode active 
materials as provided by the statute. For this reason, the Treasury 
Department and the IRS decline to adopt these recommendations in the 
final regulations.
    One commenter raised a concern that certain definitions in the 
Proposed Regulations applicable to electrode active materials would 
inadvertently exclude separators from being treated as an eligible 
component because those definitions do not include language specific to 
the separator production process. As proposed Sec.  1.45X-3(e)(2)(i)(D) 
specifically included separators in the definition of electrochemically 
active materials, such changes to definitions are unnecessary, and the 
Treasury Department and the IRS decline to adopt the commenter's 
recommendation.
b. Cathode Electrode Materials and Anode Electrode Materials
    Proposed Sec.  1.45X-3(e)(2)(i)(B) would have defined ``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 Sec.  1.45X-3(e)(2)(i)(C) 
would have defined ``anode electrode materials'' to mean the materials 
that comprise the anode of a commercial battery technology, including 
anode foils.
    A commenter recommended that the definition of cathode electrode 
materials in proposed Sec.  1.45-3(e)(2)(i)(B) and of anode electrode 
materials in proposed Sec.  1.45-3(e)(2)(i)(C) be clarified to specify 
that the materials be ``battery-grade'' so the precursor materials are 
eligible for the section 45X credit. Because these proposed definitions 
would require that the materials comprise the cathode or anode of a 
commercial battery technology, the Treasury Department and the IRS 
conclude that specifying that such materials be ``battery-grade'' would 
be redundant. For this reason, the Treasury Department and the IRS 
decline to adopt these recommendations in the final regulations.
    Another commenter recommended that the definition of cathode 
electrode materials be clarified to address its concern that the 
qualifier ``commercial battery technology'' excludes hydrogen fuel 
cells contrary to the definition of the term in the statute, which 
contains no such qualifier. The Treasury Department and the IRS do not 
have the authority to alter the definition of electrode active 
materials as battery components as provided by the statute. For this 
reason, the Treasury Department and the IRS decline to adopt this 
recommendation in the final regulations. The Treasury Department and 
the IRS note, however, that although electrode active materials in 
general must be capable of being used within a battery for energy 
storage, such materials would still be eligible for the section 45X 
credit if they are also capable of being used in other applications, 
such as hydrogen fuel cells.
c. Electrochemically Active Materials
    Proposed Sec.  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 battery-grade 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) (that is, solvents, 
additives, and electrolytic salts), these may include electrolytes, 
catholytes, anolytes, separators, and metal salts and oxides.
    One commenter requested the definition of electrochemically active

[[Page 85817]]

materials explicitly include solid-state electrolytes. Solid-state 
electrolytes are included in the definition of electrochemically active 
materials because Proposed Sec.  1.45X 3(e)(2)(i)(D) includes 
``electrolytes,'' with no particular form required. The Treasury 
Department and the IRS conclude that specifying that such materials are 
included in this definition would be redundant. For this reason, the 
Treasury Department and the IRS decline to adopt these recommendations 
in the final regulations.
d. Battery Grade Materials
    Proposed Sec.  1.45X-3(e)(2)(i)(F) would have defined ``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. A few commenters requested the 
final rules clarify the meaning of direct battery-grade precursors. 
Commenters also requested the final rules provide that silane gas, 
ultra-high molecular weight polyethylene, and needle coke meet the 
definition of electrochemically active materials as direct battery-
grade precursors. While the Treasury Department and the IRS understand 
the desire for assurance, listing specific precursors that qualify as 
electrochemically active materials would not be possible or advisable 
because it could imply that unlisted materials do not qualify as 
electrochemically active materials, particularly as battery 
technologies may evolve over time. For this reason, the Treasury 
Department and the IRS decline to adopt these recommendations in these 
final regulations.
e. Production Costs Incurred
    Proposed Sec.  1.45X-3(e)(2)(iv) would have provided that costs 
incurred for purposes of determining the credit amount includes costs 
as defined in Sec.  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, under the Proposed 
Regulations, production costs with respect to an electrode active 
material would not include any costs incurred after the production of 
the electrode active material.
    The Proposed Regulations would not have allowed direct material 
costs as defined in Sec.  1.263A-1(e)(2)(i)(A), indirect material costs 
as defined in Sec.  1.263A-1(e)(3)(ii)(E), or any costs related to the 
extraction or acquisition of raw materials to be taken into account as 
production costs. This limitation disallowed, for purposes of 
calculating the credit: the inclusion of the cost of acquiring the raw 
material used to produce the electrode active materials; the cost of 
materials used for conversion, purification, or recycling of the raw 
material; and other material costs related to the production of 
electrode active materials. The Proposed Regulations applied 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 the purpose of computing the amount of the section 
45X credit. The Proposed Regulations did 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.
    The preamble to the Proposed Regulations explained that the 
rationale for the proposed rule was that the credit for the production 
of electrode active materials provides incentives for taxpayers to 
conduct activities that add value to the production of electrode active 
materials. 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. In addition, excluding the costs of acquiring 
electrode active materials mitigates the risk of crediting the 
production costs for the same underlying material more than once as 
that material is used in various stages of the production process. For 
these reasons, material costs were not creditable costs under the 
Proposed Regulations.
    The Treasury Department and the IRS requested comments on the 
proposed rule for determining the costs incurred with respect to the 
production of electrode active materials. Specifically, comments were 
sought as to 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 and how extraction should be 
defined, including whether the term should be defined consistent with 
proposed Sec.  1.30D-3(c)(8). Comments were also requested with respect 
to applicable critical minerals, which are summarized in Part V.C. of 
this Summary of Comments and Explanation of Revisions. Many of these 
comments had similarities, and the reasoning and revisions in these 
final regulations are described in this Part IV.E.1.e. of this Summary 
of Comments and Explanation of Revisions and are adopted for both 
electrode active materials and applicable critical minerals.
    Approximately 72 of the comments received addressed the definition 
and scope of production costs generally. Many commenters recommended 
that, contrary to the Proposed Regulations, all costs with respect to 
the production of electrode active materials be included in production 
costs for purpose of determining the credit, including direct material 
costs as defined in Sec.  1.263A-1(e)(2)(i)(A), indirect material costs 
as defined in Sec.  1.263A-1(e)(3)(ii)(E), and costs related to the 
extraction of raw materials.
    A significant number of commenters focused their recommendations on 
material costs or the costs of extraction, but there was agreement 
among many of them that ``costs of production'' should be interpreted 
broadly to include all costs. In support of this position, commenters 
asserted that section 45X(b)(1)(J) and (M) do not place limits or 
otherwise qualify production costs eligible for the credit and that the 
regulations should not impose limitations not explicitly present in the 
Code itself. Some of these commenters also argued that, because the 
costs excluded from production costs in the Proposed Regulations are 
often a substantial or predominant portion of the total costs of 
producing some electrode active materials, substantial limitations on 
the inclusion of these costs would contradict Congress's goal of 
incentivizing the production of electrode active materials. Commenters 
also disputed that direct and indirect costs are not incurred in value-
adding activities.
    Some commenters also disagreed that the potential for over 
crediting (that is, crediting the same production costs multiple times) 
justifies denying a credit for these costs. A subset of these 
commenters disagreed that over crediting was a legitimate concern, 
arguing instead that section 45X provides a credit for costs incurred 
at different stages of production attributable to the same underlying 
material. Others agreed that over crediting might not be permissible 
but that the concern was insufficient to deny entirely credits for all 
costs that might be impermissibly claimed more than once for the same 
underlying material. In the view of these commenters, prohibiting 
crediting these same production costs multiple times would be the 
proper approach rather than entirely denying all credits for these 
costs. Some commenters noted that, in the case of certain specifically 
identified electrode active materials, there was no risk of crediting 
the same production costs multiple times and thus direct and indirect 
costs should be included in the costs of production for these electrode 
active materials. A third

[[Page 85818]]

set of commenters argued that credits should be permissible once under 
section 45X(b)(1)(M) for applicable critical minerals and again under 
section 45X(b)(1)(J) for electrode active materials.
    In the case of electrode active materials that are precursors for 
the production of other electrode active materials, one commenter 
recommended that the cost of the precursor electrode active materials 
only be included in the cost of production for which a credit may be 
claimed if the precursor electrode active materials are completely 
consumed in the production process and are not used for any other 
commercial purpose.
    A number of commenters proposed solutions to the problem of 
potentially crediting the same production costs multiple times. One 
solution commenters proposed was to reduce the basis of property for 
which a credit has been claimed by an upstream producer. Commenters 
also proposed a system under which a taxpayer would only be eligible 
for a credit on costs of material for which no other taxpayer had 
previously claimed a credit. This arrangement could be administered 
through a system of certifications in which taxpayers would be required 
to verify that its suppliers had not previously claimed credits for 
costs associated with the same materials for which the taxpayer is 
claiming credits. A commenter also urged that producers of electrode 
active materials be able to claim a credit if they can establish that 
the acquired electrode active materials and applicable critical 
minerals used in the production of electrode active materials were 
acquired from extraction or production outside the United States and 
thus were previously ineligible for a section 45X credit.
    In addition to general comments regarding the inclusion of direct, 
indirect, and extraction costs, commenters recommended clarification 
about more specific costs, including costs associated with 
transportation. Another commenter requested the final rules be modified 
to include costs of the production of anodes used in the aluminum 
production to convert alumina into aluminum. Other commenters asserted 
that the costs of processing and purification of materials in the 
production of electrode active materials add value and should, on that 
basis, be included in the scope of the credit.
    Several commenters recommended that the direct and indirect costs 
of the production of electrode active materials from recycled feedstock 
should be classified as production costs for purposes of the credit. 
According to one commenter, recycling processes begin with waste 
products at what is essentially a new supply chain.
    A commenter supported the Proposed Regulations' exclusion of direct 
material, indirect material, and extraction costs from production costs 
eligible for the credit. This commenter was concerned that a contrary 
rule would invite fraud, waste, and abuse and that, in the case of 
extraction costs, would be difficult to administer without the creation 
of a tracing system.
    With respect to costs related to extraction, the Proposed 
Regulations would have excluded extraction costs because extraction 
could be far removed, particularly in the case of electrode active 
materials, in the supply chain from the ultimate production of the 
eligible component. However, commenters highlighted the critical 
importance of extraction to the production of both applicable critical 
minerals and electrode active materials as well as the close connection 
these costs often have to the final production of these materials.
    The Treasury Department and the IRS have reconsidered the treatment 
of extraction costs in these final regulations for taxpayers that 
extract raw materials domestically and for taxpayers that acquire 
either domestically or foreign-sourced extracted raw materials. For 
both electrode active materials and applicable critical minerals, the 
final regulations in Sec. Sec.  1.45X-3(e)(2)(iv) and 1.45X-4(c)(3), 
respectively, allow taxpayers to include extraction costs related to 
the extraction of raw materials in the United States or a United States 
territory, but only if those costs are paid or incurred by the taxpayer 
that claims the section 45X credit with respect to the relevant 
electrode active material or applicable critical mineral. The Treasury 
Department and the IRS note that the section 45X credit is available 
only to taxpayers that produce and sell an eligible component. Thus, 
the final regulations provide that extraction costs may be included in 
production costs consistent with the rules provided under section 263A 
only if such costs are incurred by the taxpayer that claims the section 
45X credit with respect to the relevant applicable critical mineral or 
electrode active material. The Treasury Department and the IRS have 
determined that this inclusion of extraction costs incurred by the 
taxpayer most accurately captures the meaning ``the costs incurred by 
the taxpayer with respect to the production of'' applicable critical 
minerals and electrode active materials under section 45X(b)(1)(J) and 
(M). If, however, a taxpayer acquires extracted raw material as a 
direct (or indirect) material cost, the material costs may be included 
as production costs consistent with the rules provided under section 
263A regardless of whether the extracted material is domestically- or 
foreign-sourced.
    With respect to direct and indirect material costs, the Proposed 
Regulations would have excluded direct and indirect material costs from 
production costs for both applicable critical minerals and electrode 
active materials. The Proposed Regulations excluded material costs from 
production costs based on an interpretation of the term ``costs 
incurred by the taxpayer with respect to production'' in section 
45X(b)(1)(J) and (M) as being limited to value-added activities in the 
production process. Electrode active materials and applicable critical 
minerals differ from all other eligible components described in section 
45X because their credit amounts are calculated as a percentage of 
production costs rather than specifying a fixed dollar amount or rate. 
The preamble to the Proposed Regulations stated that the mere purchase 
of materials does not itself add value in a production process despite 
being a necessary part of such process. Furthermore, it is unlikely 
that Congress intended to allow production costs associated with 
applicable critical minerals or electrode active materials to be 
credited multiple times, due to the high risk of fraud, waste, and 
abuse; the administrative burden of preventing these outcomes; and the 
limited effectiveness in supporting domestic production of new eligible 
components. The exclusion of direct and indirect material costs 
addressed these concerns.
    Numerous commenters highlighted the importance and appropriateness 
of including material costs in production costs. There was, however, 
disagreement as to whether and to what extent the costs of non-U.S. 
produced constituent elements, materials, and subcomponents used in the 
production of electrode active materials should be included in 
production costs. Some commenters recommended that the costs of all 
materials be included while others urged limitations to only credit 
materials produced domestically. One commenter proposed that the final 
regulations modify the proposed rule regarding constituent elements, 
materials, and subcomponents used in the production of applicable 
critical minerals to distinguish between imports of materials otherwise 
available from domestic sources and imported

[[Page 85819]]

materials that are not available from domestic sources.
    The Treasury Department and the IRS, after consultation with the 
Department of Energy, have reconsidered the proposed exclusion of all 
material costs based on these comments. The final regulations adopt a 
rule allowing taxpayers that produce applicable critical minerals and 
electrode active materials as specified in the statute to include 
direct and indirect materials costs (as described in the referenced 
section 263A regulations) in production costs if certain conditions are 
met, but only if those direct or indirect material costs do not relate 
to the purchase of materials that are an eligible component at the time 
of acquisition (such as an electrode active material or applicable 
critical mineral). In addition, two examples illustrating the revised 
production costs rule are included in Sec.  1.45X-3(e)(2)(iv)(A)(2).
    In finalizing this rule, the Treasury Department and the IRS 
considered the provisions of section 45X and determined this final rule 
appropriately implements the statute as a whole. Section 45X(a)(1) and 
(2) limit the section 45X credit to the sum of the credit amounts 
determined under section 45X(b) with respect to each eligible component 
that is produced by the taxpayer and, during such taxable year, sold to 
an unrelated person in the taxpayer's trade or business. The statute 
allows a section 45X credit for the sale of an applicable critical 
mineral or electrode active material produced and sold by the taxpayer 
in its business. The section 45X credit for an applicable critical 
mineral or electrode active material is equal to 10 percent of the 
costs incurred by the taxpayer with respect to production, under 
section 45X(b)(1)(M) and (J), respectively.
    In calculating a taxpayer's costs incurred in the production of 
applicable critical minerals and electrode active materials, it is 
necessary to consider situations involving the integration of eligible 
components (whether directly made by the taxpayer or purchased from 
another taxpayer) in the course of producing an applicable critical 
mineral or electrode active material. Generally, integrating one 
eligible component into another produced eligible component results in 
two credits pursuant to section 45X(d)(4) if the taxpayer produced 
both, while integrating a purchased eligible component into another 
produced eligible component will only result in a credit for the 
eligible component produced by the taxpayer. In the case of an 
applicable critical mineral or electrode active material, however, the 
section 45X credit calculation differs from the other eligible 
components. Thus, further examination was needed to determine how a 
credit should be calculated in such a case.
    The Treasury Department and the IRS considered the treatment of a 
vertically integrated taxpayer. For example, assume a taxpayer produced 
an applicable critical mineral or electrode active material and 
incurred $50X of costs with respect thereto (EC 1) and integrated EC 1 
into a separate applicable critical mineral or electrode active 
material (EC 2), incurring an additional $100X of costs with respect to 
the production of EC 2 (total production costs of $150X), with EC 2 
ultimately being sold by the taxpayer to an unrelated person. In 
calculating the section 45X credit, pursuant to section 45X(d)(4), 
taxpayer is treated as having sold an eligible component to an 
unrelated person if such component is integrated, incorporated, or 
assembled into another eligible component which is sold to an unrelated 
person. It is important to note that section 45X makes no distinction 
between integrated eligible components that were purchased or produced 
by the taxpayer. As section 45X(d)(4) directs the taxpayer to treat 
itself as selling both EC 1 and EC 2 to the unrelated person, it is 
necessary to determine a credit for each EC 1 and EC 2 when both were 
produced by the taxpayer.
    In this example, the $50X of production costs attributable to EC 1 
were not incurred with respect to the production of EC 2, since the 
production of EC 2--in other words, the substantial transformation of 
EC 1 into EC 2--does not include the production of EC 1. Thus, the 
taxpayer would be eligible for a total section 45X credit of $15X: $5X 
(10% of $50X) for EC 1 and $10X (10% of $100X) for EC 2. If the $50X of 
production costs attributable to EC 1 were included for both EC 1 and 
EC 2, then the same costs would be double credited. Double crediting 
would result in the taxpayer generating a $20X credit from the sale of 
EC 1 and EC2, which would provide an increased credit amount as 
compared to the credit amount that should result from the $150X of 
actual production costs incurred (or, stated differently, a section 45X 
credit that was 13.33 percent of the taxpayer's actual $150X of 
production costs in the example). The correct result is taxpayer should 
be viewed as having incurred $50X of production costs for EC 1 and 
$100X of production costs for EC 2, resulting in a $15X credit, which 
also matches 10 percent of the taxpayer's actual production costs 
($150X) and does not create a double crediting of costs.
    Alternatively, consider a taxpayer that, instead of producing EC 1, 
purchases EC 1 for $60X. The taxpayer then spends another $100X 
producing EC 2, using EC 1. Similar to the vertically integrated 
taxpayer, when the taxpayer sells EC 2, pursuant to section 45X(d)(4), 
the taxpayer is treated as having sold EC 1 and EC 2 to an unrelated 
person. The difference is that in this case the taxpayer did not 
produce EC 1, and therefore the taxpayer does not satisfy section 
45X(a)(1)(A) for a section 45X credit for the sale of EC 1. If the 
taxpayer were permitted to include the costs for EC 1 ($60X) in 
calculating the credit for EC 2, then the taxpayer would receive a 
larger credit for producing EC 2 than if the taxpayer had produced both 
EC 1 and EC 2. Without a clearer indication in the statute that 
Congress intended to treat these two fact patterns differently, in a 
way that disadvantages vertically integrated production, the statute as 
a whole is appropriately implemented when the result is the same credit 
amount for EC 2 ($10X in these examples) whether the taxpayer purchases 
or produces EC 1.
    In comparing the two results of these examples under the final 
rule, the vertically integrated taxpayer gets a larger total section 
45X credit by directly engaging in more credit generating activities, 
while the non-vertically integrated taxpayer receives a section 45X 
credit commensurate with its activities of producing EC 2, but no 
credit for integrated eligible components that it did not produce. 
These results are consistent with the general rule of section 45X(a)(1) 
and (2) and avoid allowing taxpayers to use the same cost in multiple 
credit calculations.
    Section 45X(d)(2) provides that only sales of eligible components 
produced within the United States, or a United States territory, are 
taken into account for purposes of section 45X and is additional 
support for the rule that does not include foreign applicable critical 
minerals or electrode active materials in production costs, regardless 
of whether purchased or produced by the taxpayer. Allowing a foreign 
produced applicable critical mineral or electrode active material to 
increase the section 45X credit conflicts with section 45X(d)(2), 
particularly when considered with the rule under section 45X(d)(4). The 
Treasury Department and the IRS also note that section 45X(d)(2) 
confirms that treatment as an ``eligible component'' is not dependent 
on where production occurred, and so a foreign applicable critical 
mineral or electrode active

[[Page 85820]]

material is an eligible component subject to the rule in section 
45X(d)(4).
    The final rule is also consistent with the overall purpose of 
section 45X and addresses the concerns described in the preamble of the 
Proposed Regulations. While the final rule adopts certain commenters' 
position that incurring material costs is necessary and may add value 
to a production process, the Treasury Department and IRS maintain that 
the inclusion of material costs must be balanced against the risk of 
multiple crediting of the same costs and the creation of incentives 
that are contrary to the purpose of section 45X. The final rule 
accomplishes this balance. Further, although applicable critical 
minerals and electrode active materials, or any other eligible 
component, produced outside the United States do not pose a risk of 
multiple crediting, permitting the production costs of a non-U.S. 
produced applicable critical mineral or electrode active material to be 
included in production costs would provide an incentive for the 
purchase of electrode active materials or applicable critical minerals 
produced abroad, which is inconsistent with the overall statutory 
scheme and purpose of section 45X (that is, to encourage domestic 
production of eligible components). Thus, excluding all costs of 
acquiring materials that are eligible components (for example, an 
applicable critical mineral or electrode active material at the time of 
acquisition) as a direct or indirect material cost with respect to the 
production of another applicable critical mineral or electrode active 
material appropriately implements the statute. It is also appropriate 
to have the same rules for applicable critical minerals and electrode 
active materials with respect to production costs, as the statutory 
language regarding calculation of the credit for applicable critical 
minerals and electrode active materials is the same.
    These final regulations also include certain substantiation 
requirements for a taxpayer that is claiming a section 45X credit with 
respect to an applicable critical mineral or electrode active material. 
The preamble to the Proposed Regulations supported not including all 
direct and indirect material costs by referencing the possibility that 
the same production costs may be credited multiple times and the 
potential for increased fraud and abuse related to claiming the section 
45X credit. Proposed Sec.  1.45X-4(c)(4) would have required 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 requested comments on this substantiation 
requirement, including whether a similar requirement should be applied 
to electrode active materials.
    Based on a review of the comments, including comments specifically 
suggesting certification statements, and the need to balance the 
expansion of costs included as production costs with respect to the 
Proposed Regulations while mitigating the risk of fraud, waste and 
abuse, these final regulations revise the substantiation rules in 
proposed Sec.  1.45X-4(c)(4) for applicable critical minerals and added 
substantiation rules for electrode active materials in Sec.  1.45X-
3(e)(2)(iv)(C). In order to include direct or indirect materials costs 
as defined in Sec.  1.263A-1(e)(2)(i)(A) and (e)(3)(ii)(E) as 
production costs when calculating a section 45X credit for the 
production and sale of an applicable critical mineral or electrode 
active material, a taxpayer must include, as at attachment to the 
return on which the section 45X credit is claimed, certifications from 
any supplier, including the supplier's employer identification number 
and that is signed under penalties of perjury, from which the taxpayer 
purchased any constituent elements, materials, or subcomponents of the 
taxpayer's eligible component, stating that the supplier is not 
claiming the section 45X credit with respect to any of the material 
acquired by the taxpayer, nor is the supplier aware that any prior 
supplier in the chain of production of that material claimed a section 
45X credit for the material. A taxpayer must also prepare the following 
information, and maintain that information in the taxpayer's books and 
records: (1) a document that provides an analysis of any constituent 
elements, materials, or subcomponents that concludes the material did 
not meet the definition of an eligible component (for example, did not 
meet the definition of applicable critical mineral or electrode active 
material) at the time of acquisition by the taxpayer (the document may 
be prepared by the taxpayer or ideally by an independent third-party); 
(2) a list of all direct and indirect material costs and the amount of 
such costs that were included within the taxpayer's total production 
cost for each electrode active material or applicable critical mineral, 
as applicable; and (3) a document related to the taxpayer's production 
activities with respect to the direct and indirect material costs that 
establishes the materials were used in the production of the electrode 
active material or applicable critical mineral, as applicable (the 
document may be prepared by the taxpayer or ideally by an independent 
third-party). Finally, the taxpayer must provide any other information 
related to the direct or indirect materials specified in guidance and 
comply with the directions for providing such information as specified 
in guidance. Failure to provide this documentation with the return 
filing, or providing a ``available upon request'' statement, will 
constitute a failure to substantiate the claim. The Treasury Department 
and the IRS have determined, in consultation with the Department of 
Energy, that these revisions to the Proposed Regulations are necessary 
in order to properly substantiate credit amounts claimed under section 
45X for applicable critical minerals and electrode active materials.
2. Battery Cells--Definition
a. In General
    Consistent with section 45X(c)(5)(B)(ii), proposed Sec.  1.45X-
3(e)(3)(i) would have defined the term battery cell as an 
electrochemical cell comprised of one or more positive electrodes and 
one or more negative electrodes, with an energy density of not less 
than 100 watt-hours per liter, and capable of storing at least 12 watt-
hours of energy.
    Commenters asked for additional guidance clarifying the volumetric 
energy density calculation methodology given the variety of battery 
shapes, sizes, and construction methodologies that exist in the market. 
The Treasury Department and the IRS understand these comments to be 
made with respect to calculating energy density under proposed Sec.  
1.45X-3(e)(3)(i)(B) and agree that clarification would be helpful. 
Energy density can refer to volumetric energy density but is commonly 
used to refer to gravimetric (mass-based) energy density. These final 
regulations clarify that energy density is referring to volumetric 
energy density in Sec.  1.45X-3(e)(3)(i)(B).
    One commenter asked that the final rules provide that hydrogen fuel 
cells be included under the definition of battery cells by amending the 
definition of a battery cell to waive the requirement that a battery 
cell be capable of storing at least 12 watt-hours of energy and 
permitting this requirement to be met by ``a large hydrogen storage 
tank.'' The Treasury Department and the IRS do not have the authority 
to amend the definition of a battery cell in the final regulations or 
to waive the requirement that it be capable of storing at least 12

[[Page 85821]]

watt-hours of energy. For this reason, the Treasury Department and the 
IRS decline to adopt this comment in the final regulations.
    At least one commenter raised a matter involving a vertically 
integrated manufacturer of electric vehicles that, together with a 
related person, operates a battery cell production facility. According 
to the commenter, the commenter purchases battery cells from this 
production facility and assembles, integrates, and incorporates them 
into battery modules at battery assembly facilities located in other 
States. Modules produced at these assembly facilities are then shipped 
to various electric vehicle production facilities. As described by the 
commenter, the process of taking completed battery cells and 
integrating, incorporating, and assembling them into completed battery 
packs happens across several different facilities, all of which are 
operated by the commenter and its affiliates that are separate legal 
entities. Each facility is neither solely a battery module facility nor 
solely a battery pack facility. The commenter requested that the final 
regulations allow a vertically integrated manufacturer and related 
parties to elect which facility will receive the credit in situations 
where the manufacturer and related parties complete all stages of the 
production process and can substantiate that the corresponding credit 
will not be duplicated. The Treasury Department and the IRS appreciate 
the complex operations that may be inherent in battery production. 
However, the statute requires a determination of the taxpayer that 
produces an eligible component and does not authorize the relief 
requested by the commenter.
b. Capacity Measurement
    Proposed Sec.  1.45X-3(e)(3)(ii) would have provided 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.
    Several commenters agreed with the proposed definition because it 
provided taxpayers the ability and needed flexibility to determine the 
appropriate standard, but others recommended additional guidance or 
information be included in these final regulations. A commenter 
requested that the final regulations ``retain the criteria that the 
standard used by the taxpayer must be one issued by a recognized 
standards setting body.'' While not specifically using that language, 
these final regulations do maintain that concept by continuing to 
require measurement in accordance with a national or international 
standard.
    Another commenter requested that the final regulations eliminate 
the reference to ``an equivalent standard'' to IEC 60068-1 because 
``IEC 60086-1 is not applicable to rechargeable battery chemistries, 
and it is unknown therefore what an equivalent standard would be.'' The 
Treasury Department and the IRS have determined that this clarification 
is unnecessary because the reference to IEC 60068-1 or ``an equivalent 
standard'' merely provides a non-exclusive example of an acceptable 
national or international standard for capacity measurement. These 
final regulations therefore do not adopt the commenter's suggestion.
    Other commenters suggested the addition of various specific 
national or international standards to the language provided in 
proposed Sec.  1.45X-3(e)(3)(ii) regarding the standards to be used for 
battery cell capacity measurement. The Treasury Department and the IRS 
understand the desire for assurance but have determined that these 
proposed additions, if included as examples, will not add further 
clarity to the final regulations. The Treasury Department and the IRS 
further do not think that there is a basis to include any of these 
proposed additions as the exclusive standard or standards for capacity 
measurement. The final regulations therefore do not adopt these 
commenters' suggestions regarding particular national or international 
standards to be used for capacity measurement in Sec.  1.45X-
3(e)(3)(ii).
    Another commenter recommended that the final regulations require 
that battery cell ``capacity'' must be mathematically normalized to a 
100-hour discharge time, regardless of the time otherwise dictated by 
the appropriate national or international standard. The Treasury 
Department and the IRS do not think there is a basis to adopt this 
requirement, as this would displace other national or international 
standards with a new requirement that is not in the statute. Therefore, 
the Treasury Department and the IRS decline to adopt additional 
specific standards in these final regulations beyond those provided in 
the Proposed Regulations.
    Some commenters noted that the USABC Battery Test Manual, which 
proposed Sec.  1.45X-3(e)(3)(ii) states may be used for additional 
guidance regarding measurement of the capacity of a battery cell, is 
not applicable to all battery cell applications and technologies that 
may be eligible for the section 45X credit. One commenter suggested 
removing the reference to the USABC Battery Test Manual for this 
reason. Because the inclusion of this reference is intended to inform 
taxpayers of a resource that may be helpful in some cases, even if it 
may not be applicable in all cases, the Treasury Department and the IRS 
decline to adopt this suggestion.
    Another commenter suggested an additional requirement to conduct a 
performance test in a certified laboratory once every three years to 
verify the capacity of the battery cell. It was unclear from the 
comment when this performance testing would be required. Section 45X 
requires the production and sale of eligible components. Because an 
eligible component must meet the requirements under section 45X at the 
time of sale, it would be inappropriate to verify capacity once every 
three years. Thus, the Treasury Department and the IRS decline to adopt 
this additional capacity measurement requirement in the final 
regulations.
3. Battery Modules--Definition
    Under section 45X(c)(5)(B)(iii), the term battery module, in the 
case of a module using battery cells, is a module with two or more 
battery cells which are configured electrically, in series or parallel, 
to create voltage or current, as appropriate, to a specified end use, 
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). Similarly, under section 45X(c)(5)(B)(iii), a battery 
module with no cells means a module 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). Consistent with 
section 45X(c)(5)(B)(iii), proposed Sec.  1.45X-3(e)(4)(i) would have 
defined battery module to mean a module described in proposed Sec.  
1.45X-3(e)(4)(i)(A) (with cells) or (B) (without cells) 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).
    Some commenters suggested lowering the aggregate capacity 
limitation to incentivize domestic production of all battery types used 
in various industrial applications. One commenter recommended 
eliminating the capacity thresholds entirely for battery modules when 
used in medical or military applications. While the Treasury Department 
and the IRS appreciate commenters' desire to incentivize domestic 
battery manufacturing, section 45X(c)(5)(B)(iii)(II) provides the

[[Page 85822]]

aggregate capacity thresholds that battery modules must meet in order 
to be eligible components. The Treasury Department and the IRS decline 
to adopt the commenters' request to alter or eliminate the aggregate 
capacity requirements for battery modules as such revisions would be 
inconsistent with the statute. Thus, these final regulations adopt 
proposed Sec.  1.45X-3(e)(4)(i) without change.
a. Modules Using Battery Cells
    Proposed Sec.  1.45X-3(e)(4)(i)(A) would have defined 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. Under the proposed rule, 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. The preamble to the Proposed Regulations 
explained that, as applied to batteries commonly used in electric 
vehicles, proposed Sec.  1.45X-3(e)(4)(i)(A) would have permitted a 
credit for the production and sale of the battery pack in an electric 
vehicle, but it would not have permitted a credit for the production of 
a module that is not the end-use configuration. The Treasury Department 
and the IRS requested comments on this proposed interpretation of the 
phrase ``to a specified end use'' in section 45X(c)(5)(B)(iii)(I)(aa).
    Many commenters raised concerns with the interpretation of the 
phrase ``to a specified end use'' in proposed Sec.  1.45X-
3(e)(4)(i)(A). Some commenters asserted that requiring that modules be 
in an end-use configuration would be overly restrictive for certain 
product categories. For example, certain types of modules may be 
transported to the end-use site only partially assembled due to safety 
considerations, with final assembly performed by the battery 
manufacturer, the customer, or a third-party contractor.
    Similarly, a few commenters expressed concern that no taxpayer may 
be eligible for the battery module credit in certain cases. One 
commenter suggested that this result might occur if module 
manufacturers do not manufacture a pack in its end-use configuration. 
Further, those who purchase such items and convert them to their end-
use configuration may struggle to demonstrate their activities amount 
to substantial transformation. One commenter suggested changing 
proposed Sec.  1.45X-3(e)(4)(i)(A) to provide that ``an end-use 
configuration is the product that ultimately serves a specified end 
use--whether delivered pre-assembled or assembled on-site.'' Further, 
the commenter recommended an additional sentence at the end of proposed 
Sec.  1.45X-3(e)(4)(i)(A) to identify the section 45X claimant in cases 
where assembly occurs by someone other than the taxpayer.
    Several commenters stated that proposed Sec.  1.45X-3(e)(4)(i)(A) 
created confusion because the definition of battery module could, in 
some circumstances, include the items that are referred to in industry 
as ``battery packs.'' One commenter noted that while battery cells and 
modules predominantly originate from battery manufacturers, battery 
packs are assembled by electric vehicle manufacturers before being 
installed in electric vehicles.
    Some commenters requested that, if the definition of battery 
modules includes battery packs in the case of electric vehicle battery 
modules, the process to transform what is colloquially referred to in 
industry as a battery module into what is known as a ``battery pack'' 
be clarified in the final regulations to constitute disqualifying minor 
assembly or ``partial transformation.'' Another commenter requested 
that the final regulations state that the rules are agnostic as to the 
form or manner in which a battery module with cells is incorporated 
into the electric vehicle.
    Other commenters supported the proposed definition of battery 
module with cells, stating that this definition appropriately captures 
the intention of the section 45X credit. One commenter asserted that 
the battery pack production covered by the proposed definition is a 
more valuable activity than the production of a single battery module 
and is the activity closer to the downstream consumer.
    The Treasury Department and the IRS appreciate the comments 
received regarding battery modules and have determined, in close 
consultation with the Department of Energy, that additional 
clarification is needed. Section 45X(c)(5)(B)(iii)(I)(aa) defines 
battery module using battery cells as ``a module using battery cells, 
with two or more battery cells which are configured electrically, in 
series or parallel, to create voltage or current, as appropriate, to a 
specified end use[. . .].'' Section 45X(c)(5)(B)(iii)(II) provides a 
capacity threshold limitation of ``[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)'' that such battery module 
using battery cells (as defined in section 45X(c)(5)(B)(iii)(I)(aa)) 
must meet.
    In reviewing comments, the Treasury Department and the IRS 
understand that the explanation in the preamble of the Proposed 
Regulations regarding application to electric vehicles may not have 
aligned with industry understanding and the statutory text. Upon review 
of the comments received, the Treasury Department and the IRS wish to 
restate that the requirement found in section 45X(c)(5)(B)(iii)(I)(aa), 
that battery modules using battery cells that contain battery cells 
configured to a specified end use, applies regardless whether the items 
are typically called ``battery modules'' or ``battery packs'' in 
industry practice. These final regulations are therefore clarified to 
provide that a battery module using battery cells becomes an eligible 
component upon first meeting the requirements of section 
45X(c)(5)(B)(iii)(I)(aa) and (c)(5)(B)(iii)(II), notwithstanding when 
this transformation may occur in a manufacturing production chain.
    At least one commenter requested a rule allowing the entity that 
assembles the pack to assign tax credits to the joint venture that 
manufactured the module. Alternatively, if the definition of specified 
end use is not adopted with respect to joint ventures, the regulations 
should instead allow for joint venture partners to assign battery-
related section 45X credits to the joint venture as the parties see 
fit, or in cases where the parties do not choose to assign the credits 
to one of the parents, the joint venture itself. This comment is not 
adopted as issues specific to joint ventures are outside the scope of 
these final regulations. For discussion of ``produced by the taxpayer'' 
and the associated rules for who may claim the section 45X credit, see 
Part II.B. of this Summary of Comments and Explanation of Revisions.
b. Modules With No Battery Cells
    Proposed Sec.  1.45X-3(e)(4)(i)(B) would have defined 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

[[Page 85823]]

technologies, such as flow batteries and thermal batteries, to be 
eligible for the section 45X credit, but 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.
    Several commenters supported the proposed definition of a battery 
module, and specifically the inclusion of thermal batteries. Commenters 
also asked for clarification regarding a technology-neutral application 
of the proposed definition of a battery module. Other commenters 
suggested specific clarifications to the final regulations regarding 
certain types of thermal battery systems, such as thermal ice storage 
or thermal bricks. Some commenters requested that the final regulations 
incorporate similar language used in the section 48 proposed 
regulations to facilitate this technology-neutral treatment. For 
example, these commenters suggested that the final regulations should 
adopt the language in proposed Sec.  1.48-9(e)(10)(ii) by specifically 
stating that ``batteries of all types (such as lithium ion, vanadium 
flow, sodium sulfur, and lead-acid)'' are eligible components. 
Commenters asserted that there is symmetry between the investment tax 
credits for energy storage property and advanced manufacturing credits 
for energy storage products. Additionally, commenters raised that 
technology-neutral treatment aligns with Congressional intent to 
establish eligibility criteria based on performance thresholds, not 
technology.
    The Treasury Department and the IRS, in close consultation with the 
Department of Energy, agree with commenters that a battery module with 
no battery cells does not require a specific storage medium nor are 
there chemistry-based requirements for qualifying battery modules. 
However, the Treasury Department and the IRS decline to include 
specific language as a non-exhaustive list of possible storage mediums. 
Including a non-exhaustive list of current storage mediums on an 
industry-by-industry basis is not practical and may inadvertently 
create confusion for other emerging technologies on whether those 
mediums would qualify for the section 45X credit.
    Some commenters disagreed with the requirement in proposed Sec.  
1.45X-3(e)(4)(i)(B) that the storage medium remain in the module, 
asserting that the requirement ``may inadvertently exclude 
technologies'' such as compressed air ``that can deliver on the intent 
of the regulations.'' The Treasury Department and the IRS decline to 
amend proposed Sec.  1.45X-3(e)(4)(i)(B) in response to this comment. 
The Treasury Department and the IRS, in consultation with the 
Department of Energy, have determined that the proposed rule 
appropriately implements the statute. The requirement that the storage 
medium remain in the module gives meaning to both ``battery'' and to 
``module.'' For batteries, this requirement describes a feature common 
to electrochemical and more nascent types of batteries and 
distinguishes batteries from technologies that rely on fuel. For 
modules, this requirement helps segregate qualifying technologies from 
those that are self-contained and not merely one component of a larger 
system.
    Manufacturing the constituent components of battery modules without 
manufacturing the entire energy storage system does not result in the 
production of a module with no battery cells under the final 
regulations. For example, in thermal energy storage applications, the 
taxpayer must produce and sell the entire system and not just the 
storage medium. A manufacturer that only produces a thermal storage 
medium (for example, molten salt) in a thermal energy storage system 
would not be eligible for the credit. Requiring the production of the 
entire energy storage system from ``energy in'' through ``energy out'' 
provides similar treatment for purposes of the section 45X credit to 
the production of a battery module using battery cells.
    Numerous comments requested additional clarification of ``custom-
built electricity . . . storage facility.'' Commenters noted that the 
definition in proposed Sec.  1.45X-3(e)(4)(i)(B) creates ambiguity as 
to which modifications made in order to meet site or use specifications 
would trigger the ``custom-built'' disqualifier. Several commenters 
asserted that the Proposed Regulations create additional limitations on 
battery modules without cells that do not apply to the other eligible 
components. Commenters contended that the terms in the Proposed 
Regulations, such as ``manufacturing,'' ``standardized,'' and ``not 
custom-built,'' do not appear in the statutory text and diverge from 
the general approach taken by the Proposed Regulations with respect to 
other eligible components. Some commenters asserted that nearly all 
thermal battery implementations are associated with custom-built 
generation and storage facilities.
    These commenters requested that the final regulations clarify that 
the eligible components may be assembled with other property to 
comprise a functioning energy generation or storage facility. 
Commenters also suggested additional clarity regarding the physical 
boundaries of a battery module and thought that using the proposed 
definition of ``produced by the taxpayer'' would allow for an eligible 
component to be assembled on-site, such as battery modules with no 
battery cells that are too heavy and large to transport fully 
assembled. Commenters asserted that most or all batteries will require 
some amount of on-site installation. Commenters generally requested 
that the final regulations provide a clear and principled definition of 
``custom-built'' that continues to support a technology-neutral and 
inclusive implementation of section 45X.
    Commenters provided various alternatives to further clarify the 
definition of ``custom-built'' in the Proposed Regulations. One 
commenter recommended clarifying the definition of ``a custom-built 
electricity storage facility'' as ``a facility (1) that contains an 
energy storage medium and (2) of which all, or substantially all, of 
the integral components are designed specifically for the facility and 
are not interchangeable with components of other facilities that 
utilize the same or similar electricity storage technology.'' Another 
commenter asked that the final regulations clarify that a module with 
no battery cells is not treated as custom-built if modules are produced 
by the taxpayer using the same or similar components or property 
generally used by the taxpayer to produce such modules but in different 
configurations or amounts to accommodate the storage needs or the site 
layout applicable to the storage asset. A commenter recommended 
clarifying the definition that a module with modular components 
manufactured offsite may undergo final assembly at its installation 
site without being considered a custom-built facility and include an 
example regarding final assembly on site. Another suggestion included 
clarifying that modules with no cells are items of property that must 
be combined with other tangible personal property to store energy.
    Separately, a commenter noted that for contract manufacturing 
arrangements, ``a routine order for off-the-shelf-property'' is not 
eligible for the section 45X credit. The commenter suggested the final 
regulations 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. However, if the manufacturer does 
make more than de minimis modifications,

[[Page 85824]]

the module may be custom-built. The commenter asserted that the 
proposed rule sets up a complicated dichotomy under which manufacturers 
of modules with no battery cells who enter into contract manufacturing 
arrangements will have to establish an undefined standard that are 
neither off the shelf nor custom-built.
    Commenters also provided specific examples regarding whether 
certain technologies or configurations would be considered custom-
built. For example, physical site conditions at a customer's site may 
require that the same components used for one pumped heat energy 
storage (PHES) are differently arranged for another PHES. The use of 
the PHES by a customer may require modified storage durations (for 
example, 20 hours versus 10 hours), which would require additional 
storage media and vessels. The commenter asserted that this should not 
be considered custom-built. Commenters also noted that, for closed-loop 
pumped storage hydropower systems, pipes and other related components 
are otherwise produced in a standardized process, and neither resemble 
nor are functionally equivalent to standalone fuel storage tanks or 
fuel tanks connected to engines or generation systems custom-built 
electricity generation or storage facility. Commenters also raised that 
these differences are based on the topography of the site where the 
system is located and not on the intended function of these components 
or the system as a whole.
    One commenter requested that the Treasury Department and the IRS 
include hydrogen fuel cell systems under the definition of a battery 
module using battery cells. Proposed Sec.  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.
    In general, the Treasury Department and the IRS appreciate the 
complexity of the issues raised by commenters. Given the myriad of 
technologies, industry-specific applications, and customary business 
practices, the final regulations provide additional clarifications. The 
Treasury Department and the IRS understand the need for clear, 
administrable rules for both taxpayers and the IRS. The comments also 
illustrate the impracticality of providing rules to specifically 
address all situations. The Treasury Department and the IRS, in close 
consultation with the Department of Energy, have determined that the 
definition provided in proposed Sec.  1.45X-3(e)(4)(i)(B) strikes the 
appropriate balance between bright-line rules and the necessary 
flexibility for evolving industries. The Treasury Department and the 
IRS therefore decline to adopt suggested revisions to the definition of 
``module with no battery cells'' in the final regulations.
    The Treasury Department and the IRS, in close consultation with the 
Department of Energy, also have determined that requiring battery 
modules be modular in the sense that they are both self-contained and 
not highly customized appropriately implements the statutory definition 
provided in section 45X(c)(5)(B)(iii). Because of this, the preamble to 
the Proposed Regulations further clarified that 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. For 
these reasons, the Treasury Department and the IRS decline to adopt 
this comment in the final regulations.
    One commenter recommended adopting the definition of modules using 
battery cells for the definition of modules with no battery cells, with 
the addition that the module should receive, store, and deliver energy 
for conversion to electricity. However, adopting the commenter's 
recommended definition would not be appropriate for modules with no 
battery cells because the definition of modules using battery cells 
requires the inclusion of battery cells in the module. Accordingly, The 
Treasury Department and the IRS decline to adopt the commenter's 
recommendation.
    The Treasury Department and the IRS agree with commenters who 
suggest that the examples illustrating the contrast between 
``substantial transformation'' and disqualifying minor assembly, 
explained in Part II.B. of this Summary of Comments and Explanation of 
Revisions provide useful guidelines for taxpayers and the IRS in 
determining what is a standardized manufacturing process and not a 
custom-built electricity generation or storage facility. Thus, 
incidental onsite assembly of prefabricated modular components for 
final assembly that are generally produced in the ordinary course of a 
taxpayer's trade or business would constitute a standardized 
manufacturing process for purposes of Sec.  1.45X-3(e)(4)(i)(B). 
Battery modules with no battery cells that undergo a substantial 
transformation onsite or are specially manufactured for a single 
customer would constitute a custom-built electricity generation or 
storage facility. The Treasury Department and the IRS decline to 
provide a de minimis threshold which would exclude certain 
manufacturing or configurations that would otherwise qualify for the 
section 45X credit using the principles described in Part II.B. of this 
Summary of Comments and Explanation of Revisions.
c. Capacity Measurement
    Proposed Sec.  1.45X-3(e)(4)(ii)(A) would have provided that, for 
modules using battery cells, taxpayers must measure the capacity of a 
module 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 Sec.  1.45X-3(e)(4)(ii)(B) would have provided 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 requested comments on what recognized 
national or international standards are currently available for 
measuring capacity of modules with no battery cells and whether further 
guidance may be required.
    One commenter suggested that the aggregate capacity measurement 
outlined in section 45X and the Proposed Regulations for battery 
modules is challenging to apply in the context of thermal battery 
modules with no cells. Another commenter explained that battery 
capacity measurements are subject to variations contingent upon 
environmental conditions during measurement and that capacity 
assessment for both battery cells and battery modules must occur within 
a standard testing environment. Some commenters agreed with the 
approach in the Proposed Regulations of allowing taxpayers to determine 
the appropriate national or international standards because taxpayers 
are in a better position to determine the appropriate

[[Page 85825]]

standard. Moreover, this approach provides the flexibility necessary 
for emerging technologies to qualify for the credit. Such commenters 
requested that the final regulations retain the criteria that the 
taxpayer must use a testing procedure issued by a recognized standards 
setting body.
    Other commenters explained that the Treasury Department and the IRS 
should prescribe a flexible approach to capacity measurement for 
battery modules with no battery cells such that different technologies 
are appropriately measured and provide alternative testing procedures 
that complies with a national or international standard published by a 
recognized standard setting organization that is relevant and 
applicable for the varying technologies. One commenter asserted that, 
in their view, such standards may include American Society of 
Mechanical Engineers (ASME) or International Standards Organization 
(ISO), but specifically recommended that capacity should be measured 
based on nameplate capacity as provided in 40 CFR 96.202 in the absence 
of a bright-line standard. Another commenter supported this approach 
because of alleged difficulties in determining the minimum capacity of 
battery modules with no cells before they are placed in service. Other 
commenters suggested various standards, including ASME PTC 53; ANSI/
American Society of Heating, Refrigerating and Air-Conditioning 
Engineers (ASHRAE) Standard 94.2-2010; and ASHRAE 94 testing methods 
(specifically, 94.1,94.2, and 94.3). Another commenter recommended that 
the final regulations require use of a conversion factor of 1.16RT/kW = 
14/12 and recommended that the regulations provide a capacity measure 
if there is no national or international standard for a given 
technology.
    A different commenter raised concerns regarding capacity 
measurement for battery modules with no battery cells and suggested 
adding to proposed Sec.  1.45X-3(e)(4)(iii)(B), ``. . . The capacity of 
each battery module is expressed on a kilowatt-hour basis in the actual 
useful energy unit that is specific to the battery module without 
cells. For example, both thermal and thermochemical battery modules 
have their capacity expressed on a kilowatt-hour-thermal basis.''
    The Treasury Department and the IRS, after consultation with the 
Department of Energy, have determined that taxpayers producing thermal 
and thermochemical battery modules with no battery cells must convert 
the energy storage to a kilowatt-hour basis and provide both 
methodology and testing regarding this conversion. Taxpayers must 
maintain this testing and methodology as part of books and records 
under section 6001. However, the kilowatt-hour conversion cannot exceed 
the direct conversion of the total nameplate capacity of the thermal 
battery module to kilowatt-hours (the capacity that is sold to the 
consumer). The taxpayer claiming the section 45X credit must use the 
same methodology consistently, subject to any updated standard of the 
same methodology and testing, for battery modules (with or without 
cells) sold in the taxpayer's trade or business. The final regulations 
incorporate these clarifications in Sec.  1.45X-3(e)(4)(ii) regarding 
testing and methodology with respect to battery modules.
    One commenter requested the final rules remove the requirement that 
the capacity of a battery module not exceed the total capacity of the 
battery cells in the module because the different structures of each 
eligible component may affect the capacity measurement of the module. 
The Treasury Department and the IRS, in consultation with the 
Department of Energy, have determined that this rule serves an 
important function in reducing the potential to manipulate testing 
conditions in the measurement of capacity and in encouraging the 
application of reliable measurement standards for battery cells. The 
Treasury Department and the IRS therefore decline to remove the 
requirement that the capacity of a battery module not exceed the total 
capacity of the battery cells in the module.
    Another commenter requested that the final regulations provide that 
the entity that manufactures a battery module that exceeds the 
statutory 7 kilowatt-hours threshold limitation in section 
45X(c)(5)(B)(iii)(II) receives the $10/kWh module credit. As discussed 
in Part IV.E.3.a. of this Summary of Comments and Explanation of 
Revisions, the taxpayer that produces and sells the eligible component 
(when a battery module first becomes the eligible component) may claim 
the section 45X credit. Whether an eligible component is produced by 
the taxpayer is generally discussed in Part II.B. of this Summary of 
Comments and Explanation of Revisions.
    A commenter noted that proposed Sec.  1.45X-3(e)(4)(i), which 
provides the definition for battery modules ``with an aggregate 
capacity of not less than 7 kilowatt-hours,'' aligns with section 30D. 
The language in section 30D is based on the capacity of the complete 
battery installed on the vehicle. The commenter asserted that the 
parallel language describing the capacity threshold in section 45X and 
in section 30D indicates that the eligible component for the section 
45X credit for battery modules are the items commonly referred to in 
industry as ``battery packs.'' This comment is not adopted. As 
explained in Part IV.E.3.a. of this Summary of Comments and Explanation 
of Revisions, a battery module (within the meaning of section 45X) is 
an eligible component, regardless of whether industry nomenclature 
would describe that module as a ``battery pack.''
    Proposed Sec.  1.45X-3(e)(5)(i) would have provided a special rule 
where the capacity determined with respect to a battery cell or battery 
module must not exceed a capacity-to-power ratio of 100:1. At least one 
commenter requested clarification on the definition of ``capacity to 
power ratio.'' The commenter noted that term could mean either the 
maximum energy that the battery cell and module can hold or the maximum 
output that the battery cell and module can release instantaneously. 
The final regulations retain the proposed rule defining ``capacity to 
power ratio'' in Sec.  1.45X-3(e)(5). The Treasury Department and the 
IRS confirm that the rule, with respect to a battery cell or battery 
module, the capacity-to-power ratio refers to both the power and the 
capacity as a cap on the section 45X credit amount, rather than an 
eligibility criterion. Power is the battery cell's maximum rate of 
discharge; capacity is the maximum amount of energy the component can 
store.
F. Phase-Out Rule
    Consistent with section 45X(b)(3), proposed Sec.  1.45X-3(f)(1) 
would have provided that, 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 is equal to the 
product of the amount determined under proposed Sec.  1.45X-3(b) 
through (e) with respect to such eligible component, multiplied by the 
phase out percentage under proposed Sec.  1.45X-3(f)(2). Consistent 
with section 45X(b)(3)(C), proposed Sec.  1.45X-3(f)(3) would have 
provided that the phase out rules described in proposed Sec.  1.45X-
3(f)(1) and (2) apply to all eligible components except applicable 
critical minerals. Proposed Sec.  1.45X-3(f)(2) would have provided 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

[[Page 85826]]

components sold during calendar year 2032, and zero percent for 
eligible components sold after calendar year 2032.
    A commenter expressed concern that the phase out rules create 
disparate treatment of an applicable critical mineral produced by a 
taxpayer that with further value-added processing would result in the 
production of an electrode active material and provided the example of 
the production of natural graphite active anode materials. The 
commenter stated that if the production of the applicable critical 
mineral and production of the electrode active material occurs in a 
vertically integrated company, the taxpayer may only claim a section 
45X credit for one component. Thus, the commenter requests the phase 
out rule be modified to not apply to electrode active materials.
    The Treasury Department and the IRS decline to adopt the 
commenter's request. The Treasury Department and the IRS do not have 
the authority to allow a section 45X credit for the production of an 
electrode active material in amounts in excess of what is permitted 
under section 45X(b)(3).
    For these reasons, these final regulations adopt proposed Sec.  
1.45X-3(f) without modification.

V. Applicable Critical Minerals

    Proposed Sec.  1.45X-4 would have provided definitions for the 
listed applicable critical minerals (generally in accordance with 
section 45X(c)(6)), the credit amounts, and rules regarding production 
costs for purposes of determining credit amounts. Commenters addressed 
certain aspects of these proposed rules, as described in this Part V. 
of the Summary of Comments and Explanation of Revisions. These final 
regulations generally adopt the rules as proposed in Sec.  1.45X-4, 
with the modifications described in this Part V. of the Summary of 
Comments and Explanation of Revisions.
A. In General
    Section 45X(c)(6) defines applicable critical minerals that are 
eligible components for purposes of the section 45X credit. Consistent 
with section 45X(c)(6), proposed Sec.  1.45X-4 provides that an 
applicable critical mineral means any of the minerals that are listed 
in section 45X(c)(6) and defined in proposed Sec.  1.45X-4(b).
    Several commenters requested that the final rules generally clarify 
and expand the eligibility of metals and metal alloys (including alloys 
made from primary and secondary metal production) under the purity 
requirements. Section 45X generally provides specific minimum purity 
requirements or forms for applicable critical minerals. Metals or metal 
alloys under the specified purity requirements that do not meet 
specified forms do not qualify for the section 45X credit. Thus, the 
Treasury Department and the IRS do not have the statutory authority to 
add additional metals and alloys to the list of applicable critical 
minerals in these final regulations.
B. Definitions
1. Aluminum
    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. Proposed Sec.  1.45X-4(b)(1) would have 
defined aluminum to mean 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. The preamble to the Proposed 
Regulations stated that 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. Proposed Sec.  1.45X-4(b)(1) would have 
interpreted section 45X(c)(6)(A) to mean aluminum, including commodity-
grade aluminum, described in section 45X(c)(6)(A)(i) and (ii). Proposed 
Sec.  1.45X-4(b)(1) would have defined ``commodity-grade aluminum'' as 
aluminum that has been produced directly from aluminum that is 
described in proposed Sec.  1.45X-4(b)(1)(i) or (ii), is limited to 
primary production of unwrought forms, 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.
    A commenter expressed support for the definition of aluminum in the 
proposed rule, and stated that the statutory definition could be read 
to apply only to the refining of alumina and, as a result, not benefit 
domestic primary aluminum producers, nor achieve the spirit of the 
legislation to increase domestic manufacturing. The commenter noted 
confusion with the statutory definition, which stated in part, that 
aluminum ``which is converted from bauxite to a minimum purity of 99 
percent alumina by mass'' meets the definition of aluminum--however, 
alumina is converted from bauxite, not aluminum. Thus, the commenter 
noted that the proposed rule correctly states the primary aluminum 
production process and will help United States primary aluminum 
producers bolster domestic operations and strengthen global 
competitiveness.
    A commenter requested that the final regulations provide that 
aluminum oxide (alumina) is a form of aluminum for the purposes of 
section 45X(c)(6)(A)(i). The Treasury Department and the IRS note that 
section 45X(c)(6)(A)(i) provides eligibility for the credit for 
aluminum that is converted from bauxite to a minimum purity of 99 
percent alumina by mass. One commenter requested that the definition of 
primary aluminum include molten metal. The Treasury Department and the 
IRS note that section 45X(c)(6)(A)(ii) does not restrict the form of 
aluminum purified to a minimum purity of 99.9 percent aluminum by mass. 
One commenter proposed lowering the eligible purity for aluminum to 96 
percent. The Treasury Department and the IRS view this request as 
inconsistent with the statute.
    A few commenters requested the definition of primary aluminum 
include all unwrought primary aluminum smelted from aluminum oxide 
(that is, alumina). One commenter requested that the final rules 
clarify that aluminum produced through secondary production is eligible 
for the section 45X credit. The preamble to the Proposed Regulations 
stated that proposed Sec.  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 understand that the ability to ascertain and 
substantiate the process or processes used at an earlier point in the 
lifecycle of feedstock aluminum for secondary production is limited. 
The Treasury Department and the IRS are concerned that such limitations 
would pose significant substantiation and administrability issues if 
secondary production were permitted for commodity-grade aluminum under 
proposed Sec.  1.45X-4(b)(1).
    A few commenters requested that the final rules replace the 
requirement that commodity-grade aluminum be ``in a form sold on 
international commodity exchanges'' with the requirement that such 
aluminum ``has the ability to meet the chemical specifications of 
aluminum sold on international commodity exchanges,'' because not all 
aluminum sold to third-party customers is traded through the London 
Metal Exchange, which imposes the shape requirements. The commenters 
state

[[Page 85827]]

that commercial grade aluminum is made into products that are alloyed 
to different specifications and shapes that are not traded through 
commodity markets, and the final rules should not distinguish among the 
end markets. Although the Treasury Department and the IRS view the 
requirement that commodity-grade aluminum be ``in a form sold on 
international commodity exchanges'' as providing important clarity and 
certainty for taxpayers and the IRS, as well as an objective and 
observable standard to determine eligibility, the Treasury Department 
and the IRS will continue to consider these comments as they work to 
finalize proposed Sec.  1.45X-4(b)(1).
    One commenter requested the final regulations clarify ``aluminum 
that is converted from alumina with a minimum purity of 99 percent on a 
fired basis should qualify as an applicable critical mineral.'' The 
Treasury Department and the IRS think that the additional language 
specifying whether the purity is measured on a fired basis or dried 
basis is not necessary due to the specific purity standards already 
listed in section 45X and the proposed rules. In addition, although 
these terms are often included on a Certificate of Analysis (COA), the 
Treasury Department and IRS anticipate that using these terms may cause 
confusion in circumstances in which these terms are not included on a 
COA.
    With respect to all of the comments related to the definition of 
aluminum, the Treasury Department and the IRS have determined that 
additional consideration is necessary prior to finalizing proposed 
Sec.  1.45X-4(b)(1), which the Treasury Department and the IRS intend 
to do at a later date. For that reason, Sec.  1.45X-4(b)(1) is reserved 
in these final regulations.
2. Neodymium
    Consistent with section 45X(c)(6)(R), proposed Sec.  1.45X-4(b)(18) 
would have provided that the term neodymium means neodymium that is 
converted to neodymium-praseodymium oxide that is purified to a minimum 
purity of 99 percent neodymium-praseodymium oxide by mass; converted to 
neodymium oxide that is purified to a minimum purity of 99.5 percent 
neodymium oxide by mass; or purified to a minimum purity of 99.9 
percent neodymium by mass.
    One commenter requested that the final rules provide that the 
following are eligible for the section 45X credit: (1) neodymium if 
purified to the industry standard minimum purity of 99.0 percent 
neodymium by mass; (2) neodymium converted to neodymium-praseodymium 
and purified to a minimum purity of 99.0 percent neodymium-praseodymium 
by mass; (3) neodymium-praseodymium that is purified to a minimum 
purity of 99.0 percent neodymium-praseodymium by mass; and (4) 
neodymium-iron-boron alloy or neodymium-praseodymium-iron-boron alloy 
purified to 99.0 percent by mass. The Treasury Department and the IRS 
do not have the statutory authority to modify the definition of 
neodymium or to modify purity percentages in proposed Sec.  1.45X-
4(b)(18) and these final regulations adopt this proposed rule without 
change.
3. Vanadium
    Consistent with section 45X(c)(6)(X), proposed Sec.  1.45X-4(b)(24) 
would have provided that the term vanadium means vanadium that is 
converted to ferrovanadium or vanadium pentoxide. One commenter 
requested that the definition of vanadium includes vanadium when it is 
purified to a minimum purity of 99 percent vanadium by mass. The 
Treasury Department and the IRS do not have the statutory authority to 
modify the definition of vanadium to include purity percentages, and 
these final regulations adopt this proposed rule without change.
4. Magnesium
    Consistent with section 45X(c)(6)(Z)(x), proposed Sec.  1.45X-
4(b)(26)(x) would have provided that the term magnesium means magnesium 
purified to a minimum purity of 99 percent by mass. One commenter 
requested that the definition of magnesium be expanded to include 
magnesium oxide and magnesium hydroxide at purity levels that range 
from 90-98 percent. The Treasury Department and the IRS do not have the 
statutory authority to modify the definition of magnesium or to modify 
purity percentages in proposed Sec.  1.45X-4(b)(26)(x), and these final 
regulations adopt this proposed rule without change.
C. Credit Amount--in General
    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 Sec.  1.45X-4(c)(3) would have provided that the 
costs incurred for purposes of determining the credit amount includes 
costs as defined in Sec.  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. As explained in the 
preamble to the Proposed Regulations, this rule has the effect of 
excluding any costs incurred after the production of the applicable 
critical mineral. The Proposed Regulations applied 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. The Proposed Regulations did 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.
    Under the Proposed Regulations, direct or indirect materials costs, 
as defined in Sec.  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. The 
Proposed Regulations would have attributed a wide range of costs to the 
production of an applicable critical mineral as costs 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 were not taken into account.
    The Proposed Regulations provided 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. Because purchasing raw materials may enable a 
taxpayer to produce an applicable critical mineral but it is not by 
itself an activity that adds value, the Proposed Regulations excluded 
material costs from creditable costs. This exclusion of material costs 
mitigates the risk of crediting the same costs multiple times.

[[Page 85828]]

    Many commenters made similar arguments with respect applicable 
critical minerals and the inclusion of direct material costs as defined 
in Sec.  1.263A-1(e)(2)(i)(A), indirect material costs as defined in 
Sec.  1.263A-1(e)(3)(ii)(E), and costs related to the extraction of raw 
materials in their production costs for purposes of determining the 
credit. Commenters argued that there was insufficient textual support 
for a limitation, and any such limitation would work against the 
purposes of the credit. As with electrode active materials, commenters 
asserted that direct costs were often a substantial or predominant cost 
of producing applicable critical minerals. Denying credits for these 
costs would, in the opinion of commenters, be contrary to the goal of 
incentivizing extraction and production of applicable critical 
minerals. Commenters also disputed that direct and indirect costs are 
not incurred in value-adding activities.
    A number of commenters also disputed that a credit should only be 
available once for the same material. Several commenters argued that 
the statutory language and structure did, at a minimum, give taxpayers 
credits for production of applicable critical minerals and, when those 
applicable critical minerals were used to produce electrode active 
materials, additional credits for the production of the electrode 
active materials. According to these commenters, the dual credits 
reflect the fact that these are separate productive activities for 
which section 45X provides separate credits. A commenter also urged 
that producers of applicable critical minerals be able to claim a 
credit if they can establish that the applicable critical minerals used 
in the production were acquired from production or extraction outside 
the United States and thus were previously ineligible for a section 45X 
credit. For applicable critical minerals that are produced using other 
precursor applicable critical minerals, a commenter recommended that 
the cost of the precursor applicable critical minerals be excluded from 
the cost of producing the applicable critical minerals.
    A number of commenters proposed solutions to the problem of 
crediting the same production costs multiple times. One solution 
commenters proposed was to reduce the basis of property for which a 
credit has been claimed by an upstream producer. Commenters also 
proposed a system under which a taxpayer would only be eligible for a 
credit on costs of material for which no other taxpayer had previously 
claimed a credit. This arrangement could be administered through a 
system of certification or tracing in which taxpayers would be required 
to verify that its suppliers had not claimed previously claimed credits 
for costs associated with the same materials for which the taxpayer is 
claiming credits. Commenters generally agreed that producers should not 
need to be vertically integrated to claim credits. Instead, these 
commenters argued that each producer in the supply chain should be 
eligible to claim credits for, at a minimum, their addition to the 
value of the applicable critical minerals produced.
    Some commenters addressed the requirement in section 45X(d)(2) that 
extraction or production of applicable critical minerals occur within 
the United States or a possession of the United States. A commenter 
urged that only the cost of extraction of applicable critical minerals 
occurring in the geology of the United States or its possessions should 
qualify for the section 45X credit in calculating the cost of 
production of such mineral. Other commenters urged that credits be 
permitted to taxpayers that process applicable critical minerals 
extracted outside the United States provided that the processing occurs 
within the United States or its possessions. One commenter proposed 
that the final regulations modify the proposed rule regarding 
constituent elements, materials, and subcomponents used in the 
production of applicable critical minerals to distinguish between 
imports of materials otherwise available from domestic sources and 
imported materials that are not available from domestic sources. 
Although this suggested proposal deviates from the Proposed 
Regulations, it would still allow for credits associated with costs of 
foreign-sourced constituent elements, materials, and subcomponents but 
only where domestic alternatives are not available.
    Three commenters supported the Proposed Regulations' exclusion of 
direct, indirect, and extraction costs from production costs eligible 
for the credit. One commenter was concerned that a contrary rule would 
invite fraud, waste, and abuse and that, in the case of extraction 
costs, would be difficult to administer without the creation of a 
tracing system. Two commenters specifically identified extraction costs 
as something that should be excluded from the costs of production for 
the credit. One recommended more explicit clarification that the cost 
of the extraction of raw materials is excluded from creditable 
production costs.
    With respect to these comments, refer to Part IV.E.1.e. of this 
Summary of Comments and Explanation of Revisions, which describes the 
revisions to the proposed rules for production costs of both electrode 
active materials and applicable critical minerals that are in these 
final regulations.
    Proposed Sec.  1.45X-4(c)(4) would have required 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 provided by the taxpayer to the person to which the 
taxpayer sold the applicable critical mineral. The Treasury Department 
and the IRS requested comments on this substantiation requirement, 
including whether a similar requirement should be applied to electrode 
active materials. With respect to this proposed rule, refer to Part 
IV.E.1.e. of this Summary of Comments and Explanation of Revisions, 
which describes the revisions to the proposed rules for substantiation 
of both electrode active materials and applicable critical minerals 
that are in these final regulations.

VI. Other Comments Received Regarding Ancillary Issues

    In response to the Proposed Regulations, certain commenters 
responded concerning the application of sections 6417 and 6418. A 
commenter noted that the Proposed Regulations do not explain the 
process for making a section 6417 elective pay election for a section 
45X credit and recommends the final regulations provide more details 
and guidance on the payment amount and potential considerations. 
Another commenter requested additional clarification on application 
procedures, methods, reporting items, refund/transfer periods, and 
other supplementary procedures relevant to the provisions of section 
6417. Similar comments were received with respect to the 
transferability provisions of section 6418 that may apply to the 
section 45X credit. A separate commenter requested clarification 
regarding a transfer of tax credits from vessel manufacturer (shipyard) 
to vessel owner, and the possible effects of different ownership 
arrangements of related offshore wind vessels.
    The comments related to sections 6417 and 6418 are outside the 
scope of these final regulations under section 45X, as the comments 
relate to rules under sections 6417 and 6418. Final regulations under 
sections 6417, 89 FR 17546 (March 11, 2024), corrected in 89 FR 26786 
(April 16, 2024), and corrected in 89 FR 66562 (August 16, 2024) and 
6418, 89 FR 34770 (April 30,

[[Page 85829]]

2024), corrected in 89 FR 67859 (August 22, 2024), are available and 
provide relevant information on the elective payment election under 
section 6417, making a transfer election under section 6418, and the 
impacts of various ownership structures on the ability and requirements 
when making an election under either section 6417 or section 6418.
    A commenter suggested that the Proposed Regulations should have 
addressed whether the section 45X credit can be carried back to offset 
prior year tax liabilities or whether it can be transferred to other 
taxpayers. The commenter suggested that the final regulations allow the 
credit to be carried back for a reasonable period of time or to be 
transferred to other eligible taxpayers under certain conditions and 
limitations. This request is outside the scope of these final 
regulations, but as a clarification, section 39 of the Code describes 
rules related to the carryback and carryforward of unused credits, 
including section 39(a)(4) which provides a 3-year carryback period for 
any applicable credit (as defined in section 6417(b)). Section 1.6418-
5(h) also provides a rule clarifying that a transferee of a specified 
credit portion under section 6418 can apply section 39(a)(4) to the 
extent the specified credit portion is described in section 6417(b) 
(list of applicable credits, taking into account any placed in service 
requirements in section 6417(b)(2), (3), and (5)).
    A commenter requested that the final regulations define what 
constitutes a disposition or a cessation of eligibility for the purpose 
of recapturing the credit within five years of being placed in service. 
According to the commenter, the final rules should define the terms 
``disposition'' and ``cessation of eligibility'' and provide examples 
and exceptions. As a clarification, the section 45X credit is not 
subject to the recapture provisions of section 50 of the Code because 
it is not an investment credit under section 46 of the Code. Further, 
there is no statutory authority under the provisions of section 45X to 
require recapture of the credit. Thus, these final regulations do not 
include any rules related to recapture.
    A commenter noted that the Proposed Regulations do not address 
whether the section 45X credit can be specially allocated to certain 
partners or whether the credit can be modified by a partnership 
agreement for partnerships that produce and sell eligible components, 
possibly ``creating inconsistencies or unfairness for some partners who 
may have different interests or expectations.'' The commenter requested 
that the final regulations include a rule allowing the section 45X 
credit to be specially allocated or modified by a partnership 
agreement. Because the commenter's request is addressed under section 
704 and Sec.  1.704-1(b)(4)(ii) and does not relate to credit 
eligibility under section 45X, the Treasury Department and IRS decline 
to adopt a rule addressing partnership allocations in these final 
regulations.

VII. Severability

    If any provision in this 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.

Applicability Dates

    These regulations apply to eligible components for which production 
is completed and sales occur after December 31, 2022, and during 
taxable years ending on or after October 28, 2024. Taxpayers may choose 
to apply these regulations to eligible components for which production 
is completed and sales occur after December 31, 2022, and during 
taxable years ending before October 28, 2024, provided that taxpayers 
follow these regulations in their entirety and in a consistent manner.

Effect on Other Documents

    Section 5.05(2) of Notice 2023-18 and section 3 of Notice 2023-44, 
which relate to the interaction between sections 45X and 48C, are 
superseded for eligible components for which production is completed 
and sales occur after October 28, 2024.

Special Analyses

I. Regulatory Planning and Review

    Pursuant to the Memorandum of Agreement, Review of Treasury 
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory 
actions issued by the IRS are not subject to the requirements of 
section 6(b) 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 final 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 final regulations are considered general tax records under Sec.  
1.6001-1(e). Specific certification statements under Sec.  1.45X-
1(c)(3) and statements required in Sec. Sec.  1.45X-3(e)(2)(iv)(C) and 
1.45X-4(c)(4) 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 final regulations also provide reporting requirements related 
to making the Related Person Election as described in Sec.  1.45X-2(d) 
and calculating the section 45X credit amount as described in Sec.  
1.45X-1. The Related Person Election will be made by taxpayers with 
Forms 1040, 1041, 1120-S, 1065, and 1120, on Form 7207, Advanced 
Manufacturing Production Credit (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 final 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.
    No public comments were received by the IRS directed specifically 
at the PRA or on the collection requirements, but commenters generally 
articulated the burdens associated with the documentation requirements 
contained in the Proposed Regulations. As described in the relevant 
portions of this preamble, the Treasury Department and the IRS have 
determined that the documentation requirements are necessary to 
administer the provisions of section 45X.

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

[[Page 85830]]

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 a final 
regulatory flexibility analysis (FRFA) of the final regulations. The 
Treasury Department and the IRS have not determined whether the final 
regulations will likely have a significant economic impact on a 
substantial number of small entities. This determination requires 
further study. Because there is a possibility of significant economic 
impact on a substantial number of small entities, a FRFA is provided in 
these final regulations.
    Pursuant to section 7805(f) of the Code, the Proposed Regulations 
were submitted to the Chief Counsel of the Office of Advocacy of the 
Small Business Administration for comment on its impact on small 
business, and no comments were received.
A. Need for and Objectives of the Rule
    The final regulations provide greater clarity to taxpayers that 
intend to claim a section 45X credit. The final regulations 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 Office of Advocacy (SBA) 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 
final regulations does not depend on the size of the business, as 
defined by the SBA.
    As described more fully in the preamble to this final regulation 
and in this initial regulatory flexibility analysis (IRFA), section 45X 
and these final 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 final 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 final regulations.
    The Treasury Department and the IRS utilize tax data as the basis 
for its RFA analysis. Tax entities supply information on tax forms, 
which information is processed and recorded by the IRS. This data is 
then available to the IRS office of Research, Applied Analytics and 
Statistics and to the Treasury Department's Office of Tax Policy for 
use in estimating the impact of tax regulation on businesses. Tax data 
is the more appropriate data as it provides nearly universal coverage 
of the entities that are affected by these tax regulations. All 
taxpayers and many potential taxpayers are represented in the universe 
of tax data. Second, the tax data more accurately reflect the level of 
organization to which tax regulations are applicable because tax data 
is collected on the entity rather than the enterprise level. 
Overwhelmingly, business tax regulations apply to the entity level 
making tax data a natural fit for the analysis of regulatory impact. 
Further, with limited exceptions, tax regulations apply to all entities 
organized in a particular manner regardless of industry or size. 
Finally, analysis of the implications of tax regulations for the 
purposes of the PRA and any Special Analyses, including the Regulatory 
Impact Analysis, are carried out using tax data. Generally, restricting 
analysis for the RFA to tax data prevents difficulties in reconciling 
the different analyses within a given regulation.
    Reliance on tax data has some drawbacks. In general, tax forms do 
not collect information unless it is directly relevant to the 
calculation of tax liability. The Northern American Industry 
Classification System (NAICS) codes referenced by the Office of 
Advocacy of the Small Business Administration are included on tax forms 
for informational purposes and may not be reliable. For example, past 
the first two-digits of the NAICS code, economic sector level, entries 
may be left blank in the raw data. In addition, for a tax entity that 
is comprised of multiple different enterprises that each operate in a 
different industry, the NAICS code reported on a tax form may not 
reflect the appropriate industry for the regulation under analysis. 
Furthermore, most tax returns have no independent verification of the 
accuracy of NAICS codes. Notwithstanding this concern, tax data remains 
the most appropriate data for analysis of the implications of tax 
regulations.
    The Treasury Department and the IRS have considered other data 
alternatives including Census data sources, such as the Statistics of 
U.S. Businesses (SUSB) suggested by SBA's Office of Advocacy. The 2020 
SUSB includes only six million firms and eight million establishments 
while the proposed tax data includes approximately 18 million business 
entities. Unlike the SUSB data, the tax data includes more small 
businesses, not only ones with at least one employee. Tax data provides 
a more inclusive estimate of businesses affected by tax regulations. In 
conclusion, while tax data is an appropriate resource for evaluating 
the impact of tax regulations, this data does not permit some of the 
usual analysis presented to the SBA. Furthermore, since the NAICS codes 
reported on the tax return may not accurately reflect the industry of 
the entity, applying separate standards by industry is inadvisable.
    Thus, the Treasury Department and the IRS have determined that 
reliance on NAICS codes would not accurately reflect the entities 
affected by these regulations. Further, the Treasury Department and the 
IRS currently do not have useable tax data that reflects the entities 
that will be affected by these regulations. While there is uncertainty 
as to the exact number of small businesses within this group, the 
Treasury Department and the IRS continue to estimate that approximately 
13,450 taxpayers will be impacted.
    The Treasury Department and the IRS expect to receive more 
information on the impact on small businesses after taxpayers start to 
claim the section 45X credit using the guidance and procedures provided 
in these final regulations.
C. Impact of the Rules
    The final 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

[[Page 85831]]

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 
these final 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. These final 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. These final 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.
E. Duplicative, Overlapping, or Conflicting Federal Rules
    The final rule would not duplicate, overlap, or conflict with any 
relevant Federal rules. As discussed previously, the final 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 requires 
that agencies assess anticipated costs and benefits and take certain 
other actions before issuing a final rule that includes any Federal 
mandate that may result in expenditures in any one year by a State, 
local, or Tribal government, in the aggregate, or by the private 
sector, of $100 million (updated annually for inflation). These final 
regulations do not include any Federal mandate that may result in 
expenditures by State, local, or Tribal governments, or by the private 
sector in excess of that threshold.

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. These final regulations do not have 
federalism implications and do 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 final 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.

VII. Congressional Review Act

    Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.), 
the Office of Information and Regulatory Affairs designated this rule 
as a major rule as defined by 5 U.S.C. 804(2).

Statement of Availability of IRS Documents

    IRS notices and other guidance cited in this preamble are published 
in the Internal Revenue Bulletin (or Cumulative Bulletin) and are 
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 final regulations are Mindy Chou, 
John Deininger, Derek Gimbel, John Lovelace, and Alexander Scott. 
However, other personnel from the Office of Chief Counsel, the Treasury 
Department, and the IRS participated in the development of these 
regulations.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, the Treasury Department and the IRS amend 26 CFR part 
1 as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 is amended by adding 
entries in numerical order for Sec. Sec.  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, 6001, 6417(h) 
and 6418(h).
    Section 1.45X-2 also issued under 26 U.S.C. 45X and 1502.
    Section 1.45X-3 also issued under 26 U.S.C. 6001.
    Section 1.45X-4 also issued under 26 U.S.C. 6001.
* * * * *


0
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.
* * * * *

Sec.  1.45X-0 Table of contents.
    This section lists the major captions contained in Sec. Sec.  
1.45X-1 through 1.45X-4.
Sec.  1.45X-1 General rules applicable to the advanced manufacturing 
production credit.

[[Page 85832]]

    (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) Applicability date.
Sec.  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) Applicability date.
Sec.  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) Applicability date.
Sec.  1.45X-4 Applicable critical minerals.
    (a) In general.
    (b) Definitions.
    (c) Credit amount.
    (d) Applicability date.
Sec.  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 (as defined in paragraph 
(a)(2)(xv) 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 Sec.  1.45X-2 for rules regarding sales to unrelated 
persons, sales to related persons, and the related person election 
(Related Person Election), including rules regarding the time, place, 
and manner of making the Related Person Election. See Sec.  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 phase-out percentages. See Sec.  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 Sec.  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 section 45X(c)(5)(B)(i) and described in Sec.  
1.45X-3(e)(2).
    (v) Eligible component. The term eligible component is defined in 
section 45X(c)(1)(A) and described in Sec. Sec.  1.45X-3 and 1.45X-4.
    (vi) Eligible taxpayer. The term eligible taxpayer is defined in 
paragraph (c)(3) of this section.
    (vii) Extraction. The term extraction is defined in Sec.  1.45X-
3(e)(2)(iv)(B).
    (viii) 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 Sec. Sec.  601.601 and 
601.602 of this chapter.
    (ix) IRA. The term IRA means Public Law 117-169, commonly known as 
the Inflation Reduction Act of 2022.
    (x) IRS. The term IRS means the Internal Revenue Service.
    (xi) 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.
    (xii) Related person. The term related person is defined in Sec.  
1.45X-2(b)(2).
    (xiii) Related Person Election. The term Related Person Election is 
defined in Sec.  1.45X-2(d)(1).
    (xiv) Secretary. The term Secretary means the Secretary of the 
Treasury or her delegate.
    (xv) Section 45X regulations. The term section 45X regulations 
means the provisions of this section, Sec. Sec.  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.
    (xvi) Unrelated person. The term unrelated person is defined in 
section 45X(a)(3) and described in Sec.  1.45X-2(b)(3).
    (b) Credit amount. Except as otherwise provided in section 
45X(b)(3) and Sec.  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 Sec. Sec.  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 Sec.  
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 minor assembly 
or superficial modification of the elements, materials, or 
subcomponents, and includes both primary and secondary production. 
Primary production involves producing an eligible component using non-
recycled materials while secondary production involves producing an 
eligible component using recycled materials.
    (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) Minor 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 paragraph (c)(1) or (2) of this section.
    (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

[[Page 85833]]

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 Sec.  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).
    (2) Special rule for certain eligible components--(i) In general. 
For solar grade polysilicon, electrode active materials, and applicable 
critical minerals, the term produced by the taxpayer means processing, 
converting, refining, or purifying source materials, such as brines, 
ores, or waste streams, to substantially transform the source materials 
to derive a distinct eligible component, and includes both primary and 
secondary production. For the production process for electrode active 
materials and applicable critical minerals, the term conversion is 
defined in Sec.  1.45X-3(e)(2)(ii)(A) or Sec.  1.45X-4(c)(2)(i), 
respectively, and the term purification is defined in Sec.  1.45X-
3(e)(2)(ii)(B) or Sec.  1.45X-4(c)(2)(ii), respectively.
    (ii) Example. Taxpayers X, Y and Z are unrelated C corporations 
that have calendar year taxable years. In 2024, X extracts raw lithium 
from natural mineral deposits and purifies the extracted material to 
90% lithium by mass. X subsequently hires Y to further purify the 
lithium material furnished by X to a purity of no less than 99.9% 
lithium by mass as required by section 45X(c)(6)(P) and Sec.  1.45X-
4(b)(16)(ii). In 2025, Y purifies the material to 99.9% lithium by mass 
(qualifying lithium). X subsequently sells the qualifying lithium to Z 
in 2026. X may not claim a section 45X credit for the qualifying 
lithium sold to Z because the qualifying lithium was not produced by X 
within the meaning of this paragraph (c)(2) of this section, given that 
X did not transform the lithium material to derive a distinct eligible 
component (i.e., lithium which satisfies the minimum purity of 99.9% 
lithium by mass prescribed by section 45X(c)(6)(P)).
    (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.
    (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 
in the manner required in Form 7207, Advanced Manufacturing Production 
Credit, or its instructions (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 that includes 
the following: under penalties of perjury, I declare that I have 
examined this statement, including accompanying documents, and to the 
best of my knowledge and belief, the facts presented in support of this 
statement are true, correct, and complete.
    (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

[[Page 85834]]

and Y meet the requirements described in paragraph (c)(3)(iv) of this 
section and are properly submitted by X. 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. 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.
    (D) Example 4: Applicable Critical Mineral Processing with 
Certification. Taxpayers X, Y, and Z are unrelated C corporations that 
have calendar year taxable years. In 2024, X extracts raw lithium from 
natural mineral deposits and purifies the extracted material to 90% 
lithium by mass. X subsequently hires Y to further process the lithium 
material pursuant to a contract manufacturing arrangement as described 
in paragraph (c)(3)(ii)(B) of this section. Specifically, the contract 
is a tolling arrangement and provides that X remains the owner for 
Federal income tax purposes throughout the purification process and 
that Y will further purify the lithium material furnished by X to a 
purity of no less than 99.9% lithium by mass as required by section 
45X(c)(6)(P) and Sec.  1.45X-4(b)(16)(ii). 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 applicable critical mineral, 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 
purifies the material to 99.9% lithium by mass (qualifying lithium) and 
delivers it to X. X subsequently sells the qualifying lithium to Z in 
2026. X may claim a section 45X credit in taxable year 2026 for the 
qualifying lithium sold to Z, provided that 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. 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 qualifying lithium, provided 
that 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. Neither X nor Y could claim a section 45X credit in the 
absence of a designating agreement and certification statement 
(described in paragraphs (c)(3)(iii) and (iv) of this section, 
respectively) for the reasons stated in paragraph (c)(2)(i) of this 
section.
    (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 Sec.  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.
    (f) Sale of integrated components--(1) In general. For purposes of 
the section 45X credit, section 45X(d)(4) provides that a taxpayer that 
produces an eligible component is treated as having sold such 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 minor assembly 
or superficial modification of an eligible component used as an 
element, material, or subcomponent and other elements, materials, or

[[Page 85835]]

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 materials, 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 minor 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 Sec.  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), property that would otherwise qualify as an eligible 
component (otherwise qualified property) is only an eligible component 
if the property is produced at a section 45X facility (as defined in 
paragraph (g)(2) of this section) and no part of that section 45X 
facility is also a section 48C facility (as defined in paragraph (g)(3) 
of this section).
    (2) Section 45X facility--(i) In general. A section 45X facility 
comprises the independently functioning tangible property used by the 
taxpayer that is necessary to be considered the producer of the 
otherwise qualified property within the meaning of paragraph (c)(1) or 
(2) of this section, as applicable. The tangible property that 
comprises a section 45X facility may be in more than one location.
    (ii) Special rule for contract manufacturing arrangement. In the 
case of a contract manufacturing arrangement where the parties have 
agreed to who can claim a section 45X credit under paragraph 
(c)(3)(iii) of this section, the section 45X facility under paragraph 
(g)(2)(i) of this section is determined by taking into account the 
tangible property used to produce the otherwise qualified property, 
regardless of which party to the arrangement claims the credit.
    (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), and assume any other requirements of section 45X 
that are not described have been met:
    (i) Example 1: Two independent section 45X facilities--(A) Facts. 
Taxpayer owns and operates a manufacturing site that contains tangible 
property made up of Equipment A and Equipment B, each set of which 
functions independently and which is arranged in serial fashion. 
Equipment A is used by the taxpayer to produce otherwise qualified 
property 1. Equipment B is used to produce otherwise qualified property 
2, a different type of product than otherwise qualified property 1. 
Taxpayer was allocated a section 48C credit under the section 48C(e) 
program for a section 48C facility that includes Equipment A and 
subsequently placed the section 48C facility and Equipment A in service 
in taxable year 2026. Taxpayer claimed a section 48C credit related to 
Equipment A for taxable year 2026.
    (B) Analysis. The section 45X facility with respect to otherwise 
qualified property 1 is the tangible property made up of Equipment A, 
which is the independently functioning tangible property used by the 
taxpayer that is necessary to be considered the producer of the 
otherwise qualified property within the meaning of paragraph (c)(1) or 
(2) of this section. However, Equipment A is also eligible property 
that is considered part of a section 48C facility as defined in 
paragraph (g)(3) of this section. Therefore, otherwise qualified 
property 1 is not an eligible component under paragraph (g)(1) of this 
section because part (all in this case) of the section 45X facility 
where otherwise qualified property 1 was produced is also considered a 
section 48C facility. There is a separate section 45X facility with 
respect to otherwise qualified property 2. That section 45X facility is 
the tangible property made up of Equipment B. Equipment A is not 
included in the section 45X facility as it is not used to produce 
otherwise qualified property 2. None of the tangible property 
comprising the section 45X facility with respect to otherwise qualified 
property 2 is considered part of a section 48C facility. Thus, 
otherwise qualified property 2 is an eligible component under paragraph 
(g)(1) of this section.
    (ii) Example 2: Single section 45X facility at different 
locations--(A) Facts. Taxpayer owns and operates two manufacturing 
sites at different locations. The tangible property at manufacturing 
site 1 is Equipment A, which is used to continue and finish the first 
part of the production process for otherwise qualified property. The 
tangible property at manufacturing site 2 is Equipment B, which is used 
to complete the production process of the same otherwise qualified 
property. Taxpayer was allocated a section 48C credit under the section 
48C(e) program for Equipment A.
    (B) Analysis. Equipment A and B comprise a single section 45X 
facility regardless of location under paragraph (g)(2)(i) of this 
section because both Equipment A and B were used to produce the 
otherwise qualified property and the use of Equipment A and B are 
necessary to consider the

[[Page 85836]]

taxpayer the producer, consistent with the meaning of produced by the 
taxpayer in paragraph (c)(1) or (2) of this section. However, part of 
the property comprising the section 45X facility is also a section 48C 
facility under paragraph (g)(3) of this section because Equipment A is 
eligible property that is part of a section 48C facility. As a result, 
the otherwise qualified property is not considered an eligible 
component, and the sale of the otherwise qualified property will not 
generate a section 45X credit.
    (iii) Example 3: Independent tangible property and production of 
component--(A) Facts. Taxpayer owns and operates two manufacturing 
sites. Manufacturing Site 1 contains tangible property that is 
Equipment A, which is used to produce photovoltaic cells. Manufacturing 
Site 2 contains tangible property that is Equipment B and tangible 
property that is Equipment C, which are arranged in serial fashion. 
Equipment B is used to produce photovoltaic cells. Equipment C is used 
to produce solar modules, in part, by combining the photovoltaic cells 
produced by Equipment A and Equipment B. Taxpayer was allocated a 
section 48C credit under the section 48C(e) program for a section 48C 
facility that includes Equipment B. Subsequently, Taxpayer places the 
section 48C facility and Equipment B in service in taxable year 2026. 
Taxpayer claimed a section 48C credit for Equipment B in taxable year 
2026.
    (B) Analysis. Equipment A and Equipment B each comprise a section 
45X facility since each independently functions to produce otherwise 
qualified property, photovoltaic cells. No part of the section 45X 
facility comprised of Equipment A is eligible property that is included 
in a section 48C facility. Thus, the photovoltaic cells produced in the 
section 45X facility comprised of Equipment A are eligible components. 
The photovoltaic cells that are produced in the section 45X facility 
comprised of Equipment B are otherwise qualified property that cannot 
qualify as eligible components because part (all in this case) of the 
section 45X facility comprised of Equipment B where the photovoltaic 
cells are produced is also considered a section 48C facility. Solar 
modules, a different otherwise qualified property, are produced in 
using Equipment C, which is itself a separate section 45X facility. 
Equipment C does not have to include any of the tangible property 
included in Production Unit A or B under paragraph (g)(2)(i) of this 
section because it is not necessary for the Taxpayer to use that 
equipment to be considered the producer of the solar modules for 
purposes of section 45X. As a result, no part of section 45X facility 
comprised of Equipment C where the solar modules are produced is 
considered a section 48C facility, and the solar modules are considered 
an eligible component for purposes of section 45X.
    (iv) Example 4: Manufacturing under a contract manufacturing 
arrangement--(A) Facts. X is hired by Y to manufacture photovoltaic 
cells, but X and Y agree under paragraph (c)(3)(iii) of this section 
that Y will be the party to claim any section 45X credit resulting from 
the sale of the photovoltaic cells. X owns and operates a manufacturing 
site that contains equipment that is tangible property used to produce 
the photovoltaic cells. X was allocated a section 48C credit under the 
section 48C(e) program for a section 48C facility that includes the 
equipment used to produce the photovoltaic cells. The equipment is 
eligible property that is part of the section 48C facility that was 
placed in service in taxable year 2026. X claimed a section 48C credit 
for the equipment in taxable year 2026.
    (B) Analysis. Under paragraph (g)(2)(ii) of this section, in 
determining the section 45X facility related to the photovoltaic cells 
(the otherwise qualified property), Y must consider the equipment that 
X used in producing the photovoltaic cells. In this case, that means 
that part of the section 45X facility is also considered a section 48C 
facility, as the equipment used to produce the photovoltaic cells is 
also eligible property that is part of a section 48C facility. 
Therefore, the photovoltaic cells are not eligible components for 
purposes of section 45X to X or Y, and there is no section 45X credit 
generated if the photovoltaic cells are sold.
    (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 and X also agreed for X to produce photovoltaic wafers using 
other equipment that is tangible property that is different than the 
equipment X uses to produce the photovoltaic cells.
    (B) Analysis. While Y must consider the equipment that X uses to 
produce the photovoltaic wafers (the otherwise qualified property) 
under paragraph (g)(2)(ii) of this section to determine the section 45X 
facility associated with the photovoltaic wafer production, Y is not 
required to include any of the equipment used by X to produce the 
photovoltaic cells because it was not necessary to use that equipment 
to be considered the producer of the photovoltaic wafers. As a result, 
no part of the section 45X facility related to photovoltaic wafers is 
part of a section 48C facility. Therefore, the photovoltaic wafers are 
eligible components for purposes of section 45X and Y will be entitled 
to claim a section 45X credit upon the sale.
    (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

[[Page 85837]]

itself or monetizing such credits through an election under section 
6417 or section 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) (excessive payments) and 
6418(g)(2) (excessive credit transfer).
    (j) 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 October 28, 2024.


Sec.  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 Sec. Sec.  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 Sec.  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 Sec.  
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 Sec.  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 Sec.  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 Sec.  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 
guidance. 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 Sec.  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

[[Page 85838]]

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 (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 section 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 Sec.  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) 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 October 28, 2024.


Sec.  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 
Sec.  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

[[Page 85839]]

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 (STC), as defined by the International 
Electrotechnical Commission (IEC). In the case of a tandem 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 four-terminal tandem technology produced by mechanically 
stacking two distinct cells or interconnected layers, capacity must be 
measured for each cell at each point of sale. If a cell is sold to a 
customer who will use it as the bottom cell in a tandem module, its 
capacity should be measured with the customer's intended top cell 
placed between the bottom cell and the one-sun light source.
    (iii) Substantiation. The taxpayer must document the capacity of a 
photovoltaic cell in a bill of sale or design documentation, such as an 
IEC 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, composed, at least in part, of a 
polymer, 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. Satisfaction of the minimum purity requirement will be 
determined in accordance with the standards provided in SEMI 
Specification PV17-1012, Category 1.
    (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 
STC, as defined by the IEC.
    (iii) Substantiation. The taxpayer must document the capacity of a 
solar module in a bill of sale or design documentation, such as an IEC 
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 
gravity-based 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

[[Page 85840]]

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 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, determined under Federal income tax 
principles, 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 will 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 IEC 61400, or ANSI/ACP 
101-1-2021, the Small Wind Turbine Standard (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. For 
related offshore wind vessel, such documentation could include the 
contract to construct or retrofit (along with retrofit plans), sales 
contract, U.S. Coast Guard bill of sale, U.S. Coast Guard Certificate 
of Documentation (COD), and U.S. Coast Guard Certificate of Inspection 
(COI).
    (d) Inverters--(1) In general. Inverter means 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 electricity. An end product is suitable to convert 
DC electricity from one 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 
utility-scale 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 utility-scale 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 utility-scale 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 one 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; IEC 61400-1, 61400-2, 
61400-11, 61400-12; or ANSI/ACP 101-1-2021, the Standard, including any 
subsequent revisions to or modifications of such Standard that have 
been approved by ANSI.
    (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 non-residential system that 
utilizes one or

[[Page 85841]]

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--
    (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 multi-module 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 
multi-module 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 multi-module 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 utility-scale 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

[[Page 85842]]

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 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 Battery-Grade Material B) are eligible for the section 45X credit 
for electrode active materials, but the unrefined Material C is not.
    (F) Battery-grade materials. Battery-grade materials means the 
processed materials found in a final battery cell or an analogous unit, 
or the direct battery-grade 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--(A) In general--(1) Definition of 
production costs incurred. Costs incurred by the taxpayer with respect 
to production of an electrode active material includes all costs as 
defined in Sec.  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 such electrode active material including direct materials costs as 
defined in Sec.  1.263A-1(e)(2)(i)(A), or indirect materials costs as 
defined in Sec.  1.263A-1(e)(3)(ii)(E), but does not include direct or 
indirect materials costs that relate to the purchase of materials that 
are an eligible component at the time of acquisition (for example, an 
electrode active material as defined in paragraph (e)(2)(i) of this 
section or applicable critical mineral as defined in Sec.  1.45X-4(b)). 
This definition of production costs incurred also includes any costs 
incurred by the taxpayer related to the extraction, as defined in 
paragraph (e)(2)(iv)(B) of this section, of raw materials in the United 
States or a United States territory, but only if those costs are paid 
or incurred by the taxpayer that claims the section 45X credit with 
respect to the relevant electrode active material. 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.
    (2) Production costs for production of incorporated eligible 
components. The production costs that a taxpayer pays or incurs in the 
production of an eligible component (whether produced domestically or 
not) that the taxpayer then incorporates into a further distinct 
electrode active material within the meaning of Sec.  1.45X-1(f)(1) are 
not included in the costs incurred by the taxpayer in producing the 
further distinct electrode active material. A taxpayer may not include 
the same production costs in the calculation of the credit amount for 
more than one eligible component. For example, if the taxpayer pays or 
incurs production costs of $50X for eligible component 1 and an 
additional $100X of production costs for eligible component 2 that 
included integrating eligible component 1 within the meaning of Sec.  
1.45X-1(f)(1), then the production costs for eligible component 1 equal 
$50X and the production costs for eligible component 2 equal $100X.
    (3) Examples. The following examples illustrate the rules of this 
section:
    (i) Example 1. Taxpayers X, Y and Z are unrelated C corporations 
that have calendar year taxable years. In 2024, X extracts raw nickel 
from natural mineral deposits located in the United States and purifies 
the extracted material to 99% nickel by mass (qualifying nickel) as 
required by section 45X(c)(6)(S) and Sec.  1.45X-4(b)(19)(ii). Y 
subsequently purchases the qualifying nickel and uses the material to 
produce battery-grade nickel salts which qualify as electrode active 
materials within the meaning of paragraph (e)(2) of this section. Y 
sells the battery-grade nickel salts to Z in tax year 2026. Y may claim 
a section 45X credit for the battery-grade nickel salts in tax year 
2026 because Y produced, within the meaning of Sec.  1.45X-1(c)(2), an 
eligible component. In calculating its production costs with respect to 
such credit, Y may not include the purchase price it paid to X for the 
qualifying nickel because the qualifying nickel met the minimum purity 
requirement prescribed by section 45X(c)(6)(S) such that the material 
constituted an applicable critical mineral (and, accordingly, an 
eligible component) at the time at which Y acquired the qualifying 
nickel.
    (ii) Example 2. Assume the facts are the same as in paragraph 
(e)(2)(iv)(A)(2)(i) of this section (Example 1), except that X purifies 
the extracted raw nickel material to a purity of 90% nickel by mass, 
rather than 99% nickel by mass as required by section 45X(c)(6)(S) and 
Sec.  1.45X-4(b)(19)(ii). Y may claim a section 45X credit for the 
battery-grade nickel salts in tax year 2026 because Y produced, within 
the meaning of Sec.  1.45X-1(c)(2), an eligible component. In 
calculating its production costs with respect to such credit, Y may 
include the purchase price of the 90% nickel material among its 
production costs, provided that Y satisfies the substantiation 
requirements described in paragraph (e)(2)(iv)(C) of this section, 
because, at the time at which Y acquired such material, the material 
did not meet the minimum purity as required by section 45X(c)(6)(S) to 
constitute an applicable critical mineral.
    (B) Definition of extraction. The term extraction means the 
activities

[[Page 85843]]

performed to harvest minerals or natural resources from the ground or 
from a body of water. Extraction includes, but is not limited to, 
operating equipment to harvest minerals or natural resources from mines 
and wells and the physical processes involved in refining. Extraction 
also includes operating equipment to extract minerals or natural 
resources from the waste or residue of prior extraction, including 
crude oil extraction to the extent that processes applied to that crude 
oil yield an applicable critical mineral or an electrode active 
material as a byproduct. Extraction concludes when activities are 
performed to convert raw mined or harvested products or raw well 
effluent to substances that can be readily transported or stored for 
direct use in critical mineral or electrode active material processing. 
Extraction does not include activities that begin with a recyclable 
commodity (as such activities are recycling). Extraction does not 
include the chemical and thermal processes involved in refining.
    (C) Substantiation. In order to include direct or indirect 
materials costs as defined in Sec.  1.263A-1(e)(2)(i)(A) and 
(e)(3)(ii)(E) as production costs when calculating a section 45X credit 
for the production and sale of an electrode active material, a 
taxpayer, as part of filing an annual tax return (or a return for a 
short year within the meaning of section 443 of the Code), must include 
the information in paragraph (e)(2)(iv)(C)(1) of this section as an 
attachment to that return, prepare the information required in 
paragraphs (e)(2)(iv)(C)(2) through (4) of this section and maintain 
that information in the taxpayer's books and records under section 
6001, and comply with directions for the information required in 
paragraph (e)(2)(iv)(C)(5) of this section as specified in guidance:
    (1) Certifications from any supplier, including the supplier's 
employer identification number and that is signed under penalties of 
perjury, from which the taxpayer purchased any constituent elements, 
materials, or subcomponents of the taxpayer's electrode active 
material, stating that the supplier is not claiming the section 45X 
credit with respect to any of the material acquired by the taxpayer, 
nor is the supplier aware that any prior supplier in the chain of 
production of that material claimed a section 45X credit for the 
material.
    (2) A document that provides an analysis of any constituent 
elements, materials, or subcomponents that concludes the material did 
not meet the definition of an eligible component (for example, did not 
meet the definition of applicable critical mineral or electrode active 
material) at the time of acquisition by the taxpayer. The document may 
be prepared by the taxpayer or ideally by an independent third-party.
    (3) A list of all direct and indirect material costs and the amount 
of such costs that were included within the taxpayer's total production 
cost for each electrode active material.
    (4) A document related to the taxpayer's production activities with 
respect to the direct and indirect material costs that establishes the 
materials were used in the production of the electrode active material. 
The document may be prepared by the taxpayer or ideally by an 
independent third-party.
    (5) Any other information related to the direct or indirect 
materials specified in guidance.
    (D) Failure to provide the documentation described in paragraph 
(e)(2)(iv)(C) of this section with the return filing, or providing an 
available upon request statement, will constitute a failure to 
substantiate the claim.
    (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 a volumetric energy density of not less than 100 watt-
hours per liter; and
    (C) Capable of storing at least 12 watt-hours 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 kilowatt-hour 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 combines 
cells into a module such that any subsequent manufacturing is done to 
the module rather than to the cells individually. Where multiple points 
in a supply chain may be eligible under this section, the first module 
produced and sold that meets the requirements of this section and the 
kilowatt-hour requirement in paragraph (e)(4)(i) of this section will 
be the only module eligible.
    (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 nameplate 
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

[[Page 85844]]

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. Taxpayers producing thermal 
and thermochemical battery modules described in paragraph (e)(4)(i)(B) 
of this section must convert the energy storage to a kilowatt-hour 
basis and provide both methodology and testing regarding this 
conversion. Such conversion of the kilowatt-hour basis cannot exceed 
the total direct conversion of the total nameplate capacity of the 
thermal battery module to kilowatt-hours.
    (C) Substantiation of capacity measurement. Taxpayers must maintain 
the testing standard and methodology with respect to the capacity 
measurement described in paragraphs (e)(4)(ii)(A) and (B) of this 
section as part of books and records under section 6001 and Sec.  
1.6001-1. The testing procedure and methodology must consistently be 
used, subject to any updated standard of the same methodology and 
testing, for battery modules (with or without cells) sold in the 
taxpayer's trade or business.
    (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 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--
    (i) 75 percent for eligible components sold during calendar year 
2030;
    (ii) 50 percent for eligible components sold during calendar year 
2031;
    (iii) 25 percent for eligible components sold during calendar year 
2032, and
    (iv) 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) 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 October 28, 2024.


Sec.  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. The following definitions apply for the purpose of 
this section--
    (1) [Reserved]
    (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

[[Page 85845]]

    (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 neodymium-praseodymium 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 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) Platinum.
    (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--(i) In general. Costs incurred by 
the taxpayer with respect to the production of applicable critical 
minerals includes all costs as defined in Sec.  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, 
including direct or indirect materials costs as defined in Sec.  
1.263A-1(e)(2)(i)(A) and (e)(3)(ii)(E), respectively, but only if those 
direct or indirect material costs do not relate to the purchase of 
materials that are an eligible component at the time of acquisition 
(for example, an electrode active material as defined in Sec.  1.45X-
3(e)(2)(i) or applicable critical mineral as defined in paragraph (b) 
of this section). This definition of production costs incurred would 
include any costs incurred by the taxpayer related to the extraction of 
raw materials in the United States or a United States territory, but 
only if those costs are paid or incurred by the taxpayer that claims 
the section 45X credit with respect to the relevant applicable critical 
mineral. 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.
    (ii) Production costs for production of incorporated eligible 
components. The production costs that a taxpayer pays or incurs in the 
production of an eligible component (whether produced domestically or 
not) that the taxpayer then incorporates into a further distinct 
applicable critical mineral within the meaning of Sec.  1.45X-1(f)(1) 
are not included in the costs incurred by the taxpayer in producing the 
further distinct applicable critical mineral. A taxpayer may not 
include the same production costs in the calculation of the credit 
amount for more than one eligible component. For example, if the 
taxpayer pays or incurs production costs of $50X for eligible component 
1 and an additional $100X of production costs for eligible component 2 
that included integrating eligible component 1 within the meaning of 
Sec.  1.45X-1(f)(1), then the production costs for eligible component 1 
equal $50X and the production costs for eligible component 2 equal 
$100X.
    (4) Substantiation. In order to include direct or indirect 
materials costs as defined in Sec.  1.263A-1(e)(2)(i)(A) and 
(e)(3)(ii)(E) as production costs when calculating a section 45X credit 
for the production and sale of an applicable critical mineral, a 
taxpayer, as part of filing an annual tax return (or a return for a 
short year within the meaning of section 443 of the Code), must include 
the information in paragraph (c)(4)(i) of this section as an attachment 
to that return, prepare the information required in paragraph 
(c)(4)(ii) through (iv) of this section and maintain that information 
in the taxpayer's books and records under section 6001, and comply with 
directions for the information required in paragraph (c)(4)(v) of this 
section as specified in guidance:
    (i) Certification from any supplier, including the supplier's 
employer identification number and that is signed under penalties of 
perjury, from which the taxpayer purchased any constituent elements, 
materials, or subcomponents of the taxpayer's applicable critical 
mineral, stating that the supplier is not claiming the section 45X 
credit with respect to any of the material acquired by the taxpayer, 
nor is the supplier aware that any prior supplier in the chain of 
production of that material claimed a section 45X credit for the 
material.

[[Page 85846]]

    (ii) A document that provides an analysis of any constituent 
elements, materials, or subcomponents that concludes the material did 
not meet the definition of an eligible component (for example, an 
applicable critical mineral or electrode active material) at the time 
of acquisition by the taxpayer. The document may be prepared by the 
taxpayer or ideally by an independent third-party.
    (iii) A list of all direct and indirect material costs and the 
amount of such costs that were included within the taxpayer's total 
production cost for each applicable critical mineral.
    (iv) A document related to the taxpayer's production activities 
with respect to the direct and indirect material costs that establishes 
the materials were used in the production of the applicable critical 
mineral. The document may be prepared by the taxpayer or ideally by an 
independent third-party.
    (v) Any other information related to the direct or indirect 
materials specified in guidance.
    (5) Failure to provide the documentation described in paragraph 
(c)(4) of this section with the return filing, or providing an 
available upon request statement, will constitute a failure to 
substantiate the claim.
    (d) 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 October 28, 2024.

Douglas W. O'Donnell,
Deputy Commissioner.
Approved: October 17, 2024.

Aviva R. Aron-Dine,
Deputy Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2024-24840 Filed 10-24-24; 8:45 am]
BILLING CODE 4830-01-P