`[Federal Register Volume 90, Number 8 (Tuesday, January 14, 2025)]
[Proposed Rules]
[Pages 3506-3532]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-00256]



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Vol. 90

Tuesday,

No. 8

January 14, 2025

Part VI





 Department of the Treasury





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 Internal Revenue Service





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26 CFR Part 1





Section 45W Credit for Qualified Commercial Clean Vehicles; Proposed 
Rule

  Federal Register / Vol. 90 , No. 8 / Tuesday, January 14, 2025 / 
Proposed Rules  

[[Page 3506]]



DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-123525-23]
RIN 1545-BR06


Section 45W Credit for Qualified Commercial Clean Vehicles

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

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SUMMARY: This document contains proposed regulations that would provide 
guidance on the qualified commercial clean vehicle credit enacted by 
the Inflation Reduction Act of 2022. These proposed regulations would 
affect eligible taxpayers that place a qualified commercial clean 
vehicle in service during a taxable year. These proposed regulations 
would also affect manufacturers of qualified commercial clean vehicles.

DATES: Written or electronic comments must be received by March 17, 
2025.
    The public hearing on these proposed regulations is scheduled for 
April 28, 2025, at 10 a.m. eastern standard time (EST). Requests to 
speak and outlines of topics to be discussed at the public hearing must 
be received by March 17, 2025. If no outlines are received by March 17, 
2025, the public hearing will be cancelled.

ADDRESSES: Commenters are strongly encouraged to submit public comments 
electronically via the Federal eRulemaking Portal at https://www.regulations.gov (indicate IRS and REG-123525-23) by following the 
online instructions for submitting comments. Once submitted to the 
Federal eRulemaking Portal, comments cannot be edited or withdrawn. The 
Department of the Treasury (Treasury Department) and the IRS will 
publish for public availability any comments submitted to the IRS's 
public docket. Send paper submissions to: CC:PA:01:PR (REG-123525-23), 
Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin 
Station, Washington, DC 20044.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
David Villagrana or Rika Valdman at (202) 317-6853 (not a toll-free 
number); concerning submissions of comments or the public hearing, 
Publications and Regulations Section at (202) 317-6901 (not a toll-free 
number) or by email at [email protected] (preferred).

SUPPLEMENTARY INFORMATION:

Authority

    This document contains proposed amendments to the Income Tax 
Regulations (26 CFR part 1) regarding sections 25E, 30D, 45W, and 6417 
of the Internal Revenue Code (Code) as they relate to the credit for 
qualified commercial clean vehicles (proposed regulations). The 
proposed regulations are issued by the Secretary of the Treasury or her 
delegate (Secretary) under the authority granted by sections 25E(e), 
30D(d)(3) and (f)(5), 45W(c)(1), (d)(1), and (f), 6417(h), and 7805(a) 
of the Code.
    Section 45W(f) provides an express delegation authorizing the 
Secretary to issue ``such regulations or other guidance as the 
Secretary determines necessary to carry out the purposes of this 
section, including regulations or other guidance relating to 
determination of the incremental cost of any qualified commercial clean 
vehicle.''
    Section 45W(c)(1), in part, incorporates in the definition of the 
term ``qualified commercial clean vehicle'' that the vehicle ``meets 
the requirements of section 30D(d)(1)(C).'' Section 30D(d)(1)(C) 
requires that such vehicle be made by a ``qualified manufacturer,'' as 
defined in section 30D(d)(3). Section 30D(d)(3) provides that a 
qualified manufacturer must enter ``into a written agreement with the 
Secretary under which such manufacturer agrees to make periodic written 
reports to the Secretary (at such times and in such manner as the 
Secretary may provide) providing vehicle identification numbers and 
such other information related to each vehicle manufactured by such 
manufacturer as the Secretary may require.''
    Section 45W(d)(1), which provides that rules similar to the rules 
under section 30D(f) (without regard to section 30D(f)(10) or (11)) 
apply for purposes of section 45W, incorporates section 30D(f)(5), 
which provides an express delegation of authority stating, ``[t]he 
Secretary shall, by regulations, provide for recapturing the benefit of 
any credit allowable under subsection (a) with respect to any property 
which ceases to be property eligible for such credit.''
    Section 6417(h) authorizes the Secretary to issue such regulations 
or other guidance as may be necessary to carry out the purposes of 
section 6417.
    Finally, section 7805(a) 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

    Section 13403(a) of Public Law 117-169, 136 Stat. 1818 (August 16, 
2022), commonly known as the Inflation Reduction Act of 2022 (IRA), 
added section 45W to the Code. Section 13403(b)(1) of the IRA added 
section 45W to the list of general business credits in section 38 of 
the Code. Section 45W provides a credit against the tax imposed by 
chapter 1 of the Code (chapter 1) with respect to each qualified 
commercial clean vehicle placed in service by the taxpayer during the 
taxable year (section 45W credit). The section 45W credit is effective 
for vehicles placed in service after December 31, 2022. The section 45W 
credit is one of three related clean vehicle credits enacted under or 
revised by the IRA. Section 25E provides a credit for previously-owned 
clean vehicles. Section 30D provides a credit for new clean vehicles.

II. Section 45W

    Section 45W(a) provides that, for purposes of section 38, the 
qualified commercial clean vehicle credit for any taxable year is an 
amount equal to the sum of the credit amounts determined under section 
45W(b) with respect to each qualified commercial clean vehicle placed 
in service by the taxpayer during the taxable year. The amount of the 
section 45W credit is treated as a general business credit. Section 
38(b)(37) lists as a current year business credit the qualified 
commercial clean vehicle credit determined under section 45W.
    Section 45W(b)(1) provides that, subject to the limitation in 
section 45W(b)(4), the amount of the section 45W credit is the lesser 
of: (A) 15 percent of the taxpayer's basis in the vehicle (30 percent 
in the case of a vehicle not powered by a gasoline or diesel internal 
combustion engine (ICE)), or (B) the incremental cost of the vehicle.
    Section 45W(b)(2) provides that the incremental cost of any 
qualified commercial clean vehicle is an amount equal to the excess of 
the purchase price for such vehicle over the purchase price of a 
comparable vehicle. Section 45W(b)(3) defines ``comparable vehicle'' to 
mean, with respect to any qualified commercial clean vehicle, any 
vehicle that is powered solely by a gasoline or diesel ICE and is 
comparable in size and use to such vehicle.
    Section 45W(b)(4) provides that the section 45W credit amount 
determined under section 45W(b) with respect to any qualified 
commercial clean vehicle

[[Page 3507]]

cannot exceed: (A) in the case of a vehicle that has a gross vehicle 
weight rating of less than 14,000 pounds, $7,500; and (B) in the case 
of a vehicle not described in section 45W(b)(4)(A), $40,000.
    Section 45W(c) defines ``qualified commercial clean vehicle'' for 
purposes of the section 45W credit as any vehicle which: (1) meets the 
requirements of section 30D(d)(1)(C) of the Code, and is acquired for 
use or lease by the taxpayer and not for resale; (2) either meets the 
requirements of section 30D(d)(1)(D), and is manufactured primarily for 
use on public streets, roads, and highways (not including a vehicle 
operated exclusively on a rail or rails), or is mobile machinery, as 
defined in section 4053(8) of the Code (including vehicles that are not 
designed to perform a function of transporting a load over the public 
highways); (3) either is propelled to a significant extent by an 
electric motor which draws electricity from a battery that has a 
capacity of not less than 15 kilowatt hours (or, in the case of a 
vehicle that has a gross vehicle weight rating of less than 14,000 
pounds, 7 kilowatt hours) and is capable of being recharged from an 
external source of electricity, or is a motor vehicle that satisfies 
the requirements under section 30B(b)(3)(A) and (B) of the Code; and 
(4) is of a character subject to the allowance for depreciation.
    Section 45W(d) establishes special rules for purposes of the 
section 45W credit. Section 45W(d)(1) provides that rules similar to 
the rules of section 30D(f)(1) through (9) apply to section 45W. 
Section 45W(d)(2) provides that section 45W(c)(4) does not apply to any 
vehicle that is not subject to a lease and which is placed in service 
by a tax-exempt entity described in section 168(h)(2)(A)(i), (ii), or 
(iv) of the Code. Section 45W(d)(3) provides that no section 45W credit 
is allowed with respect to any vehicle for which a credit was allowed 
under section 30D.
    Section 45W(e) provides that no section 45W credit is allowed with 
respect to any vehicle unless the taxpayer includes the vehicle 
identification number of such vehicle on the return of tax for the 
taxable year.
    Section 45W(f) grants the Secretary authority to issue regulations 
or other guidance to carry out the purposes of section 45W, including 
regulations or other guidance relating to the determination of the 
incremental cost of any qualified commercial clean vehicle.
    Section 45W(g) provides that no section 45W credit is allowed with 
respect to a vehicle acquired after December 31, 2032.

III. Section 25E

    Section 13402 of the IRA added section 25E to the Code. The credit 
under section 25E (section 25E credit) is a personal credit allowable 
under subpart A of the Code that relates to previously-owned clean 
vehicles.

IV. Section 30D

    Section 30D was originally enacted by section 205(a) of the Energy 
Improvement and Extension Act of 2008, Division B of Public Law 110-
343, 122 Stat. 3765, 3835 (October 3, 2008), to provide a credit for 
the purchase and placing in service of new qualified plug-in electric 
drive motor vehicles (section 30D credit). Section 30D was amended 
several times since its enactment, most recently by section 13401 of 
the IRA. Section 30D, as amended by the IRA, relates to new clean 
vehicles.
    The section 30D credit may be treated as either a personal credit 
or a general business credit, depending on whether the vehicle is used 
for personal use or is of a character subject to the allowance for 
depreciation.
    Section 30D(d)(1) defines ``new clean vehicle'' as a motor vehicle 
that satisfies eight requirements set forth in section 30D(d)(1)(A) 
through (H). As relevant to section 45W and these proposed regulations, 
section 30D(d)(1)(C) provides that the vehicle must be made by a 
qualified manufacturer, and section 30D(d)(1)(D) provides that the 
vehicle must be treated as a motor vehicle for purposes of title II of 
the Clean Air Act (CAA).
    Section 30D(d)(3) defines ``qualified manufacturer'' as any 
manufacturer (within the meaning of the regulations prescribed by the 
Administrator of the Environmental Protection Agency (EPA) for purposes 
of the administration of title II of the CAA (42 U.S.C. 7521-7590)) 
that enters into a written agreement with the Secretary under which 
such manufacturer agrees to make periodic written reports to the 
Secretary (at such times and in such manner as the Secretary may 
provide) providing vehicle identification numbers and such other 
information related to each vehicle manufactured by such manufacturer 
as the Secretary may require.
    Section 30D(f)(1)-(9) provides special rules for purposes of 
section 30D that are relevant to section 45W by virtue of the cross-
reference in section 45W(d)(1). Section 30D(f)(1) provides that the 
basis of any property for which a credit is allowable under section 
30D(a) is reduced by the amount of such credit so allowed (determined 
without regard to section 30D(c)).
    Section 30D(f)(2) provides that the amount of any deduction or 
other credit allowable under chapter 1 for a vehicle for which a credit 
is allowable under section 30D(a) is reduced by the amount of credit 
allowed under section 30D(a) for such vehicle (determined without 
regard to section 30D(c)).
    Section 30D(f)(3) provides that in the case of a vehicle the use of 
which is described in section 50(b)(3) or (4) of the Code (generally, 
use by tax-exempt organizations, the United States, a government 
entity, or foreign person or entities) and that is not subject to a 
lease, the person who sold such vehicle to the person or entity using 
such vehicle is treated as the taxpayer that placed such vehicle in 
service, but only if such person clearly discloses to such person or 
entity in a document the amount of any credit allowable under section 
30D(a) with respect to such vehicle (determined without regard to 
section 30D(c)). Section 30D(f)(3) was repealed for vehicles placed in 
service after December 31, 2023.
    Section 30D(f)(4) provides that no section 30D credit is allowable 
with respect to any property referred to in section 50(b)(1) 
(generally, property used predominantly outside of the United States).
    Section 30D(f)(5) authorizes the Secretary to promulgate 
regulations providing for the recapture of the benefit of any section 
30D credit allowable with respect to any property which ceases to be 
property eligible for such credit.
    Section 30D(f)(6) provides that no section 30D credit is allowed 
for any vehicle if the taxpayer elects to not have section 30D apply to 
such vehicle.
    Section 30D(f)(7) provides that a vehicle is not considered 
eligible for a section 30D credit unless such vehicle is in compliance 
with: (A) the applicable provisions of the CAA for the applicable make 
and model year of the vehicle (or applicable air quality provisions of 
State law in the case of a State which has adopted such provisions 
under a waiver under section 209(b) of the CAA), and (B) the motor 
vehicle safety provisions of 49 U.S.C. 30101 through 30169.
    Section 30D(f)(8) provides that in the case of any vehicle, the 
credit described in section 30D(a) is only allowed once with respect to 
such vehicle, as determined based upon the vehicle identification 
number of such vehicle, including any vehicle with respect to which the 
taxpayer elects the application of section 30D(g).
    Section 30D(f)(9) provides that no section 30D credit is allowed 
with respect to any vehicle unless the

[[Page 3508]]

taxpayer includes the vehicle identification number of such vehicle on 
the return of tax for the taxable year.

V. Section 6417

    Section 6417 of the Code allows an applicable entity (as defined in 
section 6417(d)(1)(A)) to make an election with respect to an 
applicable credit (as defined in section 6417(b)) to be treated as 
making a payment against the tax imposed by subtitle A of the Code 
(related to income taxes) for the taxable year equal to the amount of 
such credit. Under section 6417(b)(6), in the case of a tax-exempt 
entity described in section 168(h)(2)(A)(i), (ii), or (iv), the term 
``applicable credit'' includes the section 45W credit determined under 
section 45W by reason of section 45W(d)(2).\1\
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    \1\ The reference in section 6417(b)(6) to section 45W(d)(3) was 
intended to be a reference to section 45W(d)(2). See General 
Explanation of Tax Legislation Enacted in the 117th Congress, JCS-1-
23 (December 21, 2023) at 282. Thus, the proposed regulations refer 
to section 45W(d)(2). See also TD 9988, 89 FR 17546, at 17546 n.1.
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VI. Prior Guidance

A. Notice 2022-56
    On November 3, 2022, the Treasury Department and the IRS published 
Notice 2022-56, 2022-47 I.R.B. 480, seeking comments regarding sections 
45W and 30C of the Code. The notice requested general comments on 
issues arising under section 45W, as well as specific comments 
concerning: (1) factors to determine ``comparable in size and use'' for 
purposes of the comparable vehicle definition in section 45W(b)(3) used 
to determine incremental cost; (2) the definition of mobile machinery; 
(3) the application of ``rules similar to the rules under section 
30D(f)'' to section 45W; (4) the ``no double benefit'' rule in section 
45W(d)(3); (5) compliance considerations for qualified manufacturers; 
(6) the definition of ``significant extent'' for purposes of section 
45W(c)(3)(A); (7) the term ``property of a character subject to an 
allowance for depreciation'' for purposes of section 45W(c)(4); and (8) 
other terms in section 45W that require definition or additional 
guidance.
    The Treasury Department and the IRS received over 130 comments on 
Notice 2022-56. These comments were carefully considered in the 
preparation of these proposed regulations.
B. Revenue Procedures
    On December 27, 2022, the Treasury Department and the IRS published 
Revenue Procedure 2022-42, 2022-52 I.R.B. 565. Among other things, Rev. 
Proc. 2022-42 provided guidance for qualified manufacturers to enter 
into written agreements with the IRS, as required in sections 30D, 25E, 
and 45W, and to report certain information regarding vehicles produced 
by such manufacturers that may be eligible for credits under these 
sections.
    On October 23, 2023, the Treasury Department and the IRS published 
Revenue Procedure 2023-33, 2023-43 I.R.B. 1135. Among other things, 
Rev. Proc. 2023-33 superseded certain provisions of Rev. Proc. 2022-42, 
and provided updated information on the submission of written 
agreements by manufacturers to the IRS in order to be considered 
qualified manufacturers, as well as updated information on the method 
of submission of monthly reports by qualified manufacturers.
    On December 18, 2023, the Treasury Department and the IRS published 
Revenue Procedure 2023-38, 2023-51 I.R.B. 1544. Among other things, 
Rev. Proc. 2023-38 updated and consolidated the procedural rules for 
qualified manufacturers with respect to the section 25E credit, the 
section 30D credit, and the section 45W credit, and superseded certain 
provisions of Rev. Proc. 2022-42 and Rev. Proc. 2023-33.
C. Safe Harbor Notices
    On January 17, 2023, the Treasury Department and the IRS published 
Notice 2023-9, 2023-3 I.R.B. 402, which provides a safe harbor for 
purposes of the section 45W credit regarding the incremental cost of 
certain qualified commercial clean vehicles placed in service in 
calendar year 2023, based on a December 2022 incremental cost analysis 
by the U.S. Department of Energy (DOE) across classes of street 
vehicles (DOE analysis).
    On January 8, 2024, the Treasury Department and the IRS published 
Notice 2024-5, 2024-2 I.R.B. 347, which provides a safe harbor for the 
purposes of the section 45W credit regarding the incremental cost of 
certain qualified commercial clean vehicles placed in service in 
calendar year 2024. The safe harbor for 2024 is based on the DOE 
analysis, as amended by the DOE in December 2023 to incorporate minor 
modifications that did not alter the incremental cost results. Notice 
2024-5 also requested comments regarding additional types or classes of 
vehicles that should be included in the safe harbor in the future. The 
Treasury Department and the IRS received comments in response to the 
Notice. These comments were carefully considered in the preparation of 
these proposed regulations.
D. Final Regulations Under Sections 25E, 30D, and 6213
    On May 6, 2024, the Treasury Department and the IRS published final 
regulations (TD 9995) in the Federal Register (89 FR 37706) providing 
rules and definitions for the section 25E credit and the section 30D 
credit. In addition, the final regulations provide guidance under 
section 6213(g)(2)(T) through (V) of the Code on the meaning of 
``mathematical or clerical error'' with regard to certain assessments 
of tax without a notice of deficiency in connection with the section 
25E credit, the section 30D credit, and the section 45W credit.

Explanation of Provisions

I. Overview

    Proposed Sec.  1.45W-1 would provide definitions applicable to 
section 45W and the section 45W regulations. Proposed Sec.  1.45W-2 
would provide rules for determining the amount of the section 45W 
credit, including the determination of incremental cost for qualified 
commercial clean vehicles. Proposed Sec.  1.45W-3 would provide rules 
related to a vehicle's qualification as a qualified commercial clean 
vehicle. Proposed Sec.  1.45W-4 would provide special rules relating to 
the credit eligibility of a vehicle involved in certain transactions 
and uses, the interaction of the section 45W credit with other credits, 
and recapture of the section 45W credit. Proposed Sec.  1.45W-5 would 
provide reporting requirements for purposes of the section 45W credit.

II. Credit for Qualified Commercial Clean Vehicles; Definitions

    Proposed Sec.  1.45W-1 would provide definitions applicable to 
section 45W and the section 45W regulations.
A. Battery
    Proposed Sec.  1.45W-1(b)(1) would define the term ``battery'' to 
mean a collection of one or more battery modules, each of which has two 
or more battery cells, electrically configured in series or parallel, 
to create voltage or current. The term ``battery'' does not include 
items such as thermal management systems or other parts of a battery 
cell or module that do not directly contribute to the electrochemical 
storage of energy within the battery, such as battery cell cases, cans, 
or pouches. This definition is consistent with section 45W(c)(3)(A) 
because battery modules and cells are the sources from which an 
electric motor draws electricity. The definition is also consistent 
with the definition of battery in Sec.  1.30D-2(b)(5).

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B. Battery Electric Vehicle
    Proposed Sec.  1.45W-1(b)(2) would define the term ``battery 
electric vehicle'' (BEV) as a vehicle propelled solely by an electric 
motor that draws electricity from batteries capable of being recharged 
from an external source of electricity. This definition is consistent 
with section 45W(c)(3)(A), which requires, in part, that a qualified 
commercial clean vehicle be propelled to a significant extent by an 
electric motor that draws electricity from a battery.
C. Fuel Cell Electric Vehicle
    Proposed Sec.  1.45W-1(b)(3) would define ``fuel cell electric 
vehicle'' (FCEV) as a vehicle (i) that is propelled by power derived 
from one or more cells that convert chemical energy directly into 
electricity by combining oxygen with hydrogen fuel which is stored on 
board the vehicle in any form and may or may not require reformation 
prior to use, and (ii) that, in the case of a light duty vehicle (that 
is, a passenger automobile or light truck), has received on or after 
August 8, 2005 (the date of the enactment of section 30B), a 
certificate that such vehicle meets or exceeds the Bin 5 Tier II 
emission level established in regulations prescribed by the 
Administrator of the Environmental Protection Agency (EPA) under 
section 202(i) of the CAA for that make and model year vehicle. This 
definition repeats the substance of section 30B(b)(3)(A) and (B) and 
adds the enactment date of section 30B (August 8, 2005) to implement 
section 45W(c)(3)(B), which incorporates the requirements of section 
30B(b)(3)(A) and (B).
D. Gross Vehicle Weight Rating
    Proposed Sec.  1.45W-1(b)(4) would define ``gross vehicle weight 
rating'' (GVWR) as having the meaning provided in 49 CFR 571.3(b) and 
40 CFR 86.082-2. The Department of Transportation (DOT) definition of 
GVWR in 49 CFR 571.3(b) (providing definitions related to Federal Motor 
Vehicle Safety Standards) is substantially identical to the EPA 
definition of GVWR in 40 CFR 86.082-2 (related to the control of 
emissions from highway vehicles and engines). Because ``gross vehicle 
weight rating'' is a term of art embedded in the regulatory regimes of 
two other Federal agencies, proposed Sec.  1.45W-1(b)(4) would provide 
a definition consistent with existing DOT and EPA regulations.
E. Manufacturer
    Proposed Sec.  1.45W-1(b)(5)(i) would define ``manufacturer'' as 
any manufacturer within the meaning of the regulations prescribed by 
the Administrator of the EPA for purposes of the administration of 
title II of the Clean Air Act (42 U.S.C. 7521 et seq.) and as defined 
in 42 U.S.C. 7550(1). This definition would repeat the substance of the 
definition of ``manufacturer'' within section 30D(d)(3)'s definition of 
``qualified manufacturer,'' which is incorporated by section 45W(c)(1). 
Consistent with the definition of ``manufacturer'' provided in Sec.  
1.30D-2(b)(28), proposed Sec.  1.45W-1(b)(5)(i) would provide that, if 
multiple manufacturers are involved in the production of a vehicle, the 
requirements of section 30D(d)(3) must be met by the manufacturer that 
satisfies the reporting requirements of the greenhouse gas emissions 
standards set by the EPA under the Clean Air Act (42 U.S.C. 7521 et 
seq.) for the subject vehicle.
    In addition, the proposed rules would move the existing rule 
regarding the modification of a new motor vehicle that has not yet been 
placed in service from Sec.  1.30D-2(b)(28)(ii)(B) to Sec.  1.45W-
1(b)(5)(ii) so that all rules related to the section 45W credit would 
be included in the section 45W regulations. This rule allows a 
manufacturer that modifies a new motor vehicle (as defined in 42 U.S.C. 
7550(3)) that does not satisfy the requirements of section 45W(c)(3) so 
that the vehicle, after modification, does satisfy such requirements to 
enter into an agreement under section 30D(d)(3) if such modification 
occurs prior to the new motor vehicle being placed in service.
F. Placed in Service
    Under proposed Sec.  1.45W-1(b)(6), a qualified commercial clean 
vehicle would be considered ``placed in service'' on the date the 
taxpayer takes possession of the vehicle. This proposed definition is 
consistent with the definition provided in Sec.  1.30D-2(b)(36) and 
Sec.  1.25E-1(b)(10), which gives effect, in the specific context of 
vehicles, to the general concept of ``placed in service'' from other 
Code provisions addressing credits and depreciation. See Sec.  1.46-
3(d)(1)(ii) and (d)(4)(i) (for qualified investments, property is 
considered placed in service in the earlier of the period for 
depreciation with respect to such property begins or when placed in a 
condition or state of readiness and availability for a specifically 
assigned function); Sec.  1.167(a)-11(e)(1)(i) (for purposes of 
depreciation, property is first placed in service when first placed in 
a condition or state of readiness and availability for a specifically 
assigned function); and Sec.  1.179-4(e) (property is considered placed 
in service when placed in a condition or state of readiness and 
availability for a specifically assigned function); see also Consumers 
Power Co. v. Comm'r, 89 T.C. 710 (1987) (citing Sec. Sec.  1.46-
3(d)(1)(ii) and 1.167(a)-11(e)(1)(i), hydroelectric plant placed in 
service for purposes of depreciation and investment credit when all 
phases of preoperational testing were completed, thereby demonstrating 
that the plant was available for service on a regular basis); Noell v. 
Comm'r, 66 T.C. 718, 728-729 (1976) (citing Sec.  1.46-3(d)(1)(ii), 
landing strip placed in service for purposes of investment credit when 
strip was paved and therefore available for full service). The proposed 
definition is also consistent with regulations issued under Code 
sections addressing the excise tax on heavy trucks and trailers, 26 CFR 
145.4051-1(c)(2) of the Temporary Excise Tax Regulations under the 
Highway Revenue Act of 1982 (Pub. L. 97-424) (``a vehicle shall be 
considered placed in service on the date on which the owner of the 
vehicle took actual possession of the vehicle'').
G. Plug-in Hybrid Electric Vehicle
    Proposed Sec.  1.45W-1(b)(7) would define ``plug-in hybrid electric 
vehicle'' (PHEV) as a vehicle that uses batteries that can be recharged 
from an external source of electricity to power an electric motor that 
propels the vehicle to a significant extent, and another fuel, such as 
gasoline or diesel, to power an ICE or other propulsion source. This 
definition is consistent with section 45W(c)(3)(A), which requires, in 
part, a vehicle propelled by an electric motor that draws electricity 
from a battery, and with section 45W(b)(1)(A), which contemplates 
differing basis percentages for purposes of calculating the amount of 
the section 45W credit depending on whether a vehicle is powered in 
part by a gasoline or diesel ICE.
H. Plug-in Hybrid Fuel Cell Electric Vehicle
    Proposed Sec.  1.45W-1(b)(8) would define ``plug-in hybrid fuel 
cell electric vehicle'' (PHFCEV) as a vehicle that uses batteries that 
can be recharged from an external source of electricity to power an 
electric motor that propels the vehicle to a significant extent and a 
hydrogen fuel source that powers an electric motor through the fuel 
cell system. This definition is consistent with section 45W(c)(3)(A), 
which requires, in part, a vehicle propelled by an electric motor that 
draws electricity from a battery.

[[Page 3510]]

I. Qualified Commercial Clean Vehicle
    Proposed Sec.  1.45W-1(b)(9) would define ``qualified commercial 
clean vehicle'' to mean a vehicle that meets the requirements of 
section 45W(c) and Sec.  1.45W-3(b) through (d). Because section 
30D(d)(1)(C), incorporated by section 45W(c)(1), requires a qualified 
commercial clean vehicle to be made by a qualified manufacturer, 
proposed Sec.  1.45W-1(b)(9)(i), (ii), and (iii) would add that a 
vehicle does not meet the requirements of section 45W(c) if the 
qualified manufacturer fails to provide a periodic written report for 
such vehicle prior to the vehicle being placed in service by the 
taxpayer claiming the credit reporting the vehicle identification 
number of such vehicle, and certifying compliance with the requirements 
of section 45W(c); if the qualified manufacturer provides incorrect 
information with respect to the vehicle on such report; or if the 
qualified manufacturer fails to update its report in the event of a 
material change with respect to the vehicle. These proposed rules are 
consistent with those that apply to qualified manufacturers in the 
context of other clean vehicle credits. See Sec.  1.30D-2(b)(32).
J. Qualified Manufacturer
    Proposed Sec.  1.45W-1(b)(10) would define ``qualified 
manufacturer,'' consistent with Sec.  1.30D-2(b)(42), to mean a 
manufacturer that meets the requirements described in section 30D(d)(3) 
at the time the manufacturer submits a periodic written report to the 
IRS under a written agreement described in section 30D(d)(3). The term 
``qualified manufacturer'' would not, under the proposed rule, include 
any manufacturer whose qualified manufacturer status has been 
terminated by the IRS. Proposed Sec.  1.45W-1(b)(10) would further 
provide that the IRS may terminate qualified manufacturer status for 
fraud, intentional disregard, or gross negligence with respect to any 
requirements of sections 25E, 30D, 45W, regulations or any guidance 
thereunder, including with respect to the periodic written reports 
described in section 30D(d)(3). See Sec.  601.601 of the Statement of 
Procedural Rules (26 CFR part 1).
K. Secretary
    Proposed Sec.  1.45W-1(b)(11) would provide that the term 
``Secretary'' has the meaning provided in section 7701(a)(11)(B) of the 
Code.
L. Section 45W Regulations
    Proposed Sec.  1.45W-1(b)(12) would define the term ``section 45W 
regulations'' to mean Sec. Sec.  1.45W-1 through 1.45W-5.

III. Amount of Section 45W Credit; Incremental Cost

    Proposed Sec.  1.45W-2 would provide rules for determining the 
amount of the section 45W credit, including the determination of 
incremental cost for qualified commercial clean vehicles.
A. Per-Vehicle Credit Amount
    Section 45W(b)(1) provides that, subject to section 45W(b)(4), the 
amount of the section 45W credit for a qualified commercial clean 
vehicle placed in service during the taxable year is equal to the 
lesser of: (1) 15 percent of the basis in such vehicle, or 30 percent 
in the case of a vehicle not powered by a gasoline or diesel ICE; or 
(2) the incremental cost of such vehicle (as that phrase is defined in 
section 45W(b)(2)). Section 45W(b)(4) limits the amount of the section 
45W credit with respect to any qualified commercial clean vehicle to 
$7,500 in the case of a vehicle that has a GVWR of less than 14,000 
pounds, and $40,000 in the case of any other vehicle.
    Proposed Sec.  1.45W-2(a) would therefore provide that, subject to 
the limitation in section 45W(b)(4), the per-vehicle credit amount 
under section 45W(b)(1) with respect to any qualified commercial clean 
vehicle is the lesser of 15 percent of the basis of such vehicle (or 30 
percent in the case of a vehicle not powered by a gasoline or diesel 
ICE), or the incremental cost of such vehicle.
B. Incremental Cost of a Qualified Commercial Clean Vehicle
    Section 45W(b)(2) provides that the incremental cost of any 
qualified commercial clean vehicle is an amount equal to the excess of 
the purchase price for such vehicle over such price of a comparable 
vehicle. Section 45W(b)(3) defines a comparable vehicle, with respect 
to any qualified commercial clean vehicle, as a vehicle powered solely 
by a gasoline or diesel ICE that is comparable in size and use to such 
vehicle.
    Section 45W incentivizes taxpayers to purchase vehicles with 
certain clean propulsion technologies instead of vehicles powered 
solely by a gasoline or diesel ICE. Any cost comparison between such 
vehicles and their ICE alternatives, no matter how precisely defined, 
would inevitably reflect cost differences beyond those associated with 
the propulsion technologies (for example, a custom body would likely 
create a cost difference between two otherwise similar vehicles). If 
such cost differences were reflected in the amount of the credit, the 
credit could incentivize adoption of vehicle features unrelated to the 
purposes of section 45W.
    Proposed Sec.  1.45W-2(b) would therefore provide that incremental 
cost is determined by multiplying the manufacturer's cost of the 
components necessary for the powertrain of the qualified commercial 
clean vehicle by the retail price equivalent (RPE) of that vehicle, and 
then subtracting from that amount the product of the manufacturer's 
cost of the powertrain of the comparable vehicle and the RPE of that 
vehicle. Expressed formulaically, the rule is as follows:

Incremental cost = (cost of qualified commercial clean vehicle 
powertrain x RPE of qualified commercial clean vehicle)-(cost of 
comparable vehicle powertrain x RPE of comparable vehicle)

    This approach attempts to eliminate, to the extent possible, any 
cost differences unrelated to the propulsion technologies of the 
vehicles (see also the discussion of ``comparable vehicle'' in section 
III.D of this Explanation of Provisions). Application of an RPE (see 
section III.C of this Explanation of Provisions) adjusts the 
manufacturer's cost of a powertrain to reflect the taxpayer's cost with 
respect to that powertrain. See section III of this Explanation of 
Provisions for a discussion of the ways in which a taxpayer might 
ascertain manufacturer's costs.
    The Treasury Department and the IRS, in consultation with the DOE, 
are proposing an incremental cost equation based on the incremental 
cost of the powertrain because the powertrain is a large fraction of 
the incremental cost between a clean vehicle and a comparable vehicle 
and because there is robust data available to verify the difference in 
costs between vehicles. This incremental cost equation is consistent 
with current modeling done by the DOE regarding the costs of clean 
vehicles compared to ICE vehicles. As modeling techniques, data 
capabilities, and vehicle design evolve, the Treasury Department and 
the IRS will continue to study this approach.
    To implement this approach in the context of the range of 
propulsion technologies and configurations contemplated by the statute 
(that is, BEVs, FCEVs, PHEVs, and PHFCEVs), the Treasury Department and 
the IRS, in consultation with the DOE, developed specific equations and 
associated definitions for BEVs, FCEVs, PHEVs, and PHFCEVs that would 
be provided

[[Page 3511]]

in proposed Sec.  1.45W-2(c)(2) through (5) and (d). These equations 
would be powertrain-specific versions of the general equation described 
in proposed Sec.  1.45W-2(b) and would specify the cost of the 
components that, with respect to each type of powertrain, comprise the 
powertrain cost. For example, the cost of a BEV powertrain would, under 
the rule provided in Sec.  1.45W-2(c)(2), be equal to the sum of the 
costs of the electric traction drive system, the battery, and the 
electrical accessories, each a term defined in Sec.  1.45W-2(d)(1) 
through (3). These equations and rules provided in proposed Sec.  
1.45W-2(c)(2) through (5), which address the cost of BEV, PHEV, FCEV, 
and PHFCEV powertrains and the cost of ICE powertrains of comparable 
vehicles, are consistent with the incremental cost provisions of 
section 45W(b)(2) and (3). The Treasury Department and the IRS welcome 
comments on these proposed incremental cost equations and rules. In 
particular, comments are requested on whether other vehicle equipment 
or aspects of a vehicle's design should be included in the incremental 
cost equations. Any recommended additions, however, must be supportable 
by robust, verifiable quantitative data.
C. Retail Price Equivalent and Safe Harbor
    Because section 45W(b)(2) defines incremental cost in terms of 
purchase price rather than manufacturer's cost, an RPE is necessary to 
adjust a manufacturer's cost of a qualified commercial clean vehicle 
powertrain and an ICE powertrain to reflect a taxpayer's purchase price 
of such powertrains. RPEs vary from vehicle to vehicle, manufacturer to 
manufacturer, and across different segments of the market (that is, a 
reasonable RPE for a lightweight vehicle may differ from a reasonable 
RPE for medium or a heavy-duty vehicle). Consistent with this 
understanding, proposed Sec.  1.45W-2(b)(1) would allow taxpayers to 
calculate the incremental cost of a qualified commercial clean vehicle 
using the RPE applicable to such vehicle.
    Proposed Sec.  1.45W-2(b)(3)(i) would provide that a qualified 
commercial clean vehicle's RPE is determined by calculating the ratio 
of the manufacturer's suggested retail price (MSRP) of such vehicle to 
the manufacturer's cost to manufacture such vehicle. Proposed Sec.  
1.45W-2(b)(3)(i) through (iii) would further provide that the MSRP 
represents the sum of the retail price and the retail delivered price 
suggested by the manufacturer for each accessory or item of optional 
equipment which is not included within the retail price as reported on 
the label that is affixed to the windshield or side window of the 
vehicle, as described in 15 U.S.C. 1232. Because RPE represents the 
ratio of the MSRP of the vehicle to the manufacturer's cost, it is 
understood, for purposes of the incremental cost determination required 
by section 45W and proposed Sec.  1.45W-2(b)(3), to represent that 
ratio with respect to every component of the vehicle, including those 
that comprise the vehicle's powertrain.
    The Treasury Department and the IRS understand that providing the 
precise RPE for a vehicle may involve the effective disclosure of 
proprietary information. For this reason, the Treasury Department and 
the IRS, in consultation with the DOE, intend to provide RPE safe 
harbors for different segments of the vehicle market in the near term. 
Taxpayers are advised to check www.irs.gov for updates. See section 
VI.C of the Background section of this preamble.
D. Comparable Vehicle
    Section 45W(b)(3) provides that, for purposes of determining 
incremental cost, the term ``comparable vehicle'' means, with respect 
to any qualified commercial clean vehicle, any vehicle that is powered 
solely by a gasoline or diesel ICE and that is comparable in size and 
use to such vehicle. To clarify the meaning of ``size and use,'' 
proposed Sec.  1.45W-2(b)(4) would provide that a vehicle powered 
solely by a gasoline or diesel ICE is comparable in size and use to a 
qualified commercial clean vehicle if the vehicles have substantially 
similar GVWRs, number of doors, towing capacity, passenger capacity, 
cargo capacity, mounted equipment, drivetrain type, overall width, 
height and ground clearance, trim level, and so on. The Treasury 
Department and the IRS intend this list to be representative of the 
types of criteria under which the comparability of two vehicles would 
be assessed. This list also distinguishes such criteria from the mere 
performance characteristics of powertrains (which, if used as a sole 
basis for comparison, could result in a negative incremental cost and 
therefore a section 45W credit of $0). In other words, a solely 
gasoline- or diesel-powered ICE vehicle is not necessarily comparable 
to a qualified commercial clean vehicle simply because the performance 
characteristics of the powertrains are identical. Rather, a comparable 
vehicle must be in the same class and share other characteristics, as 
appropriate to the vehicle, such as number of doors, cargo capacity, 
drivetrain type, and trim level. See the example provided in Sec.  
1.45W-2(b)(4)(iv).
    Proposed Sec.  1.45W-2(b)(4)(ii) would provide that, in the 
specific circumstance where the qualified manufacturer of a qualified 
commercial clean vehicle manufactures a solely gasoline- or diesel-
powered ICE version (excluding prototype or other non-production 
versions) of such qualified commercial clean vehicle, meaning a vehicle 
of the same model and model year, and with features substantially 
similar to those of the qualified commercial clean vehicle (such as 
those noted in the prior paragraph), such vehicle is the only 
comparable vehicle for purposes of the incremental cost determination 
under section 45W(b)(1)(B) and (2). In circumstances in which a 
qualified manufacturer of a qualified commercial clean vehicle does not 
manufacture a solely gasoline- or diesel-powered ICE version of such 
qualified commercial clean vehicle that is of the same model and model 
year, and with features substantially similar to those of the qualified 
commercial clean vehicle, the comparable vehicle for purposes of the 
incremental cost determination under section 45W(b)(1)(B) and (2) would 
be determined by the taxpayer (or manufacturer) based on the criteria 
identified in the prior paragraph.
E. Negative Incremental Cost Treated as Zero
    Proposed Sec.  1.45W-2(c)(8) would treat an incremental cost 
calculation that results in a negative figure (meaning the qualified 
manufacturer's cost of the qualified commercial clean vehicle's 
powertrain is less than the manufacturer's cost of the ICE powertrain 
of a comparable vehicle) as zero. Because zero would in every case be 
the lesser of the allowable basis percentage, as provided in section 
45W(b)(1), no credit would be allowed with respect to such vehicle. 
This rule is consistent with the ``lesser of'' comparison required by 
section 45W(b)(1) and the general purpose of section 45W to incentivize 
the purchase of vehicles with certain clean propulsion technologies 
instead of ICE alternatives. The fact that a taxpayer's calculation of 
incremental cost under the general rule is zero for a particular 
qualified commercial clean vehicle would not preclude that taxpayer 
from using a safe harbor described in proposed Sec.  1.45W-2(c)(11) to 
determine incremental cost in order to claim the section 45W credit 
with respect to that vehicle.

[[Page 3512]]

F. Incremental Cost if No Comparable Vehicle Exists
    If the particular characteristics of a qualified commercial clean 
vehicle lead a taxpayer to conclude that no comparable vehicle exists 
and, as a result, no incremental cost is calculable for that vehicle, 
proposed Sec.  1.45W-2(c)(9) would provide that the incremental cost of 
such vehicle is zero. However, consistent with the proposed rule 
described in the preceding paragraph, the fact that the incremental 
cost under the general rule is zero for a particular qualified 
commercial clean vehicle does not preclude that taxpayer from using a 
safe harbor described in proposed Sec.  1.45W-2(c)(11) to determine 
incremental cost in order to claim the section 45W credit with respect 
to that vehicle. This proposed rule would apply only to situations in 
which no ICE vehicle alternative is produced by any manufacturer, for 
example, because the intended operating environment precludes the use 
of ICE vehicles. At this time, the Treasury Department and the IRS, in 
consultation with the DOE, have not identified any qualified commercial 
clean vehicles for which no comparable vehicle exists. For these 
reasons, proposed Sec.  1.45W-2(c)(9) is expected to be relevant only 
in rare instances. The Treasury Department and the IRS note that 
proposed Sec.  1.45W-2(c)(9) aligns with one purpose of section 45W--to 
incentivize the adoption of electric, hybrid, and fuel cell vehicles 
instead of ICE alternatives.
G. Power Takeoffs
    Some vehicles eligible for the section 45W credit may use power 
takeoffs to transmit power to drive machinery or equipment other than 
the vehicle itself.
    In the case of a BEV or hybrid vehicle, the use of power takeoffs 
might necessitate additional batteries; in the case of an FCEV, the use 
of power takeoffs might necessitate additional fuel cells or additional 
hydrogen storage. This situation, however, appears indistinguishable 
from a situation in which a BEV or hybrid vehicle might be equipped 
with additional batteries for other reasons (for example, extended 
range), or a situation in which an FCEV might be equipped with 
additional fuel cells for other reasons. Even if this were not the 
case, determining, at the time the taxpayer claims the credit, the 
relative extent to which the batteries in any given qualified 
commercial clean vehicle might be employed to power the vehicle and the 
ancillary machinery would present significant challenges. As a result, 
proposed Sec.  1.45W-2(c)(7) would provide that the incremental cost 
calculation for a qualified commercial clean vehicle with a power 
takeoff would be carried out in the same manner as the incremental cost 
calculation for a qualified commercial clean vehicle without a power 
takeoff. Specifically, an appropriate comparable vehicle would be 
selected (likely a vehicle with the same type of takeoff-powered 
machinery or equipment or machinery) and the manufacturer's cost of the 
ICE powertrain would be subtracted from the qualified manufacturer's 
cost of the BEV, FCEV, PHEV, or PHFCEV powertrain (inclusive of any 
additional batteries, fuel cells, or hydrogen storage).
H. Auxiliary Power Units
    Some vehicles eligible for the section 45W credit may use auxiliary 
power units (APUs) to drive machinery or equipment that is mounted or 
installed on the vehicle; such APUs are not necessarily electric, 
hybrid, or fuel cell based. Proposed Sec.  1.45W-2(c)(6) would clarify 
that the incremental cost of qualified commercial clean vehicles 
outfitted with APUs is calculated exclusive of the installed APUs. For 
example, the comparable vehicle for a BEV outfitted with an APU to 
drive an aerial lift may be an ICE truck outfitted with an APU to drive 
an aerial lift (see discussion of comparable vehicles in section III.D 
of this Explanation of Provisions), but the manufacturer's cost of the 
APU is disregarded in the incremental cost equation for both the BEV 
and the ICE vehicles. Similarly, to calculate the incremental cost of a 
FCEV with an installed APU that powers the refrigeration unit, the 
appropriate comparable vehicle may be an ICE refrigerator truck, but 
the manufacturer's cost of the APU is disregarded for both vehicles.
I. Reliance on Qualified Manufacturer's Incremental Cost Calculation 
and Safe Harbor
    Information regarding a qualified manufacturer's cost for the 
components of a qualified commercial clean vehicle powertrain may not 
be readily available to taxpayers. If a qualified manufacturer 
discloses this information to a taxpayer to facilitate the taxpayer's 
calculation of incremental cost, or if the qualified manufacturer 
discloses its incremental cost calculation for a qualified commercial 
clean vehicle it manufactures as provided in section 45W and these 
regulations, proposed Sec.  1.45W-2(c)(10) would permit taxpayers to 
rely on such disclosure. Taxpayers would, however, be required to 
retain the disclosure documentation in their records as long as the 
period of limitations for the taxable period in which the credit was 
claimed remains open. A qualified manufacturer that discloses its 
incremental cost calculation for a qualified commercial clean vehicle 
it manufactures must base such incremental cost calculation on actual 
cost data for both the qualified commercial clean vehicle and the 
comparable vehicle. Similarly, a taxpayer that calculates incremental 
cost by using cost data for the qualified commercial clean vehicle 
provided by the qualified manufacturer must use actual cost data for 
the comparable vehicle for such calculation. See the definition of 
``qualified manufacturer'' provided in proposed Sec.  1.45W-1(b)(10) 
and discussed in section II.J of this Explanation of Provisions for the 
potential consequences of qualified manufacturer fraud, intentional 
disregard, and gross negligence with respect to the requirements of 
section 45W, the section 45W regulations, and any guidance issued under 
section 45W.
    Alternatively, taxpayers may rely on the incremental cost safe 
harbors published in Notice 2023-9 and Notice 2024-5, and any 
succeeding guidance published in the Internal Revenue Bulletin, as 
applicable, for the taxable year in which a credit is claimed. These 
incremental cost safe harbors are based on the incremental cost 
analysis conducted by the DOE, as described in periodic reports 
published by the DOE.
J. Powertrain Subcomponents
    The Treasury Department and the IRS, in consultation with the DOE, 
developed proposed Sec.  1.45W-2(d)(1) through (9) to provide 
definitions and clarify the typical subcomponents of a BEV, FCEV, PHEV, 
PHFCEV, and ICE powertrain for purposes of determining a qualified 
commercial clean vehicle's incremental cost under section 45W(b)(2) and 
(3) and Sec.  1.45W-2(c). Recognizing that different vehicles may 
implement different technologies, system configurations, and design 
decisions, the subcomponents listed in the definitions in Sec.  1.45W-
2(d)(1) through (9) are not intended to prescribe required 
subcomponents or to be an exhaustive list of those that may be 
appropriate to consider for purposes of determining the incremental 
cost of a given vehicle. For example, the qualified manufacturer's cost 
of a BEV powertrain must reflect the qualified manufacturer's cost of 
the electric traction drive system, battery, transmission, and 
electrical accessories, but each of those components are comprised of 
subcomponents that may vary among vehicles.

[[Page 3513]]

K. Incremental Cost of Qualified Commercial Clean Vehicle Previously 
Placed in Service by Another Person
    Proposed Sec.  1.45W-2(f)(1) would provide that the incremental 
cost of a qualified commercial clean vehicle previously placed in 
service by another person is calculated by multiplying the incremental 
cost of such vehicle when new by a residual value factor determined by 
the age of the vehicle. Proposed Sec.  1.45W-2(f)(2) would provide that 
the age of such a vehicle is determined by subtracting the model year 
of the vehicle from the calendar year in which the taxpayer places the 
vehicle in service as a qualified commercial clean vehicle. Because 
model years are, in some cases, released ahead of calendar years, and 
because it is possible for a single vehicle to be sold more than once 
within a twelve-month period, an age of zero (or a negative number in 
the case of a vehicle placed in service twice before the calendar year 
corresponding to its model year) does not result in an incremental cost 
of a used qualified commercial clean vehicle equal to that of the 
vehicle when new.
    The residual value factor table in proposed Sec.  1.45W-2(f)(3) 
reflects an analysis conducted by the DOE with respect to the decline 
in the value of vehicles with ICE powertrains over time. The analysis 
for light-duty vehicles (Class 1-3 Passenger Car and Light Truck) 
utilized MSRP and ``True Market Value'' estimates from Edmunds to 
calculate residual values across specific makes and models, 
powertrains, vehicle age, and size classes for vehicles with model 
years from 2010 to 2021. For medium to heavy duty vehicles (Class 4-8), 
residual values were calculated from used vehicle listing data from 
Commercial Truck Trader and TruckPaper.com, validated against data from 
Price Digests for vehicles with model years from 2000 to 2020. As a 
mature propulsion technology, ICE vehicles exhibit a relatively stable 
pattern of declining value compared to their clean vehicle 
counterparts, meaning, in part, that ICE vehicles tend to retain more 
value over time than clean vehicles. Analysis of the declining value 
patterns of ICE vehicles compared to their clean counterparts, however, 
suggests that the residual values of clean vehicles are coming into 
alignment with those of ICE vehicles. As a result, the ICE vehicle 
depreciation pattern represents a good approximation of the likely 
depreciation pattern for clean vehicles as clean vehicle technologies 
continue to mature. The residual value factor is applied to the 
incremental cost of the qualified commercial clean vehicle when new, 
regardless of whether that incremental cost is determined by the 
taxpayer, supplied to the taxpayer by the qualified manufacturer, or 
provided by safe harbor guidance published in the Internal Revenue 
Bulletin for the tax year in which such vehicle is originally placed in 
service.

IV. Qualified Commercial Clean Vehicle

    Proposed Sec.  1.45W-3 would provide rules related to a vehicle's 
qualification as a qualified commercial clean vehicle.
A. Vehicles Acquired for Use or Lease and Not for Resale
    Section 45W(c)(1) provides, in part, that a qualified commercial 
clean vehicle must be acquired for use or lease by the taxpayer and not 
for resale. Proposed Sec.  1.45W-3(b)(1), would provide that, except in 
cases involving tax-exempt entities identified in section 45W(d)(2), a 
taxpayer acquires a vehicle for use or lease if the taxpayer acquires 
it for use or lease in a trade or business of the taxpayer. Thus, for 
example, if a taxpayer that is engaged in the business of leasing 
vehicles to customers acquires a commercial clean vehicle for the 
purpose of leasing the vehicle to customers as part of that business, 
this requirement would be satisfied.\2\ For further consideration of 
vehicles purchased by a vehicle leasing business qualifying for a 
section 45W credit, see the recapture rules explained in V.E of this 
Explanation of Provisions.
---------------------------------------------------------------------------

    \2\ Whether an activity is treated as a trade or business 
depends on the facts and circumstances of the activity. Courts have 
considered factors such as the profit motive of the taxpayer and the 
regularity and continuity of the activity. Commissioner v. 
Groetzinger, 480 U.S. 23 (1987).
---------------------------------------------------------------------------

    Proposed Sec.  1.45W-3(b)(1) is consistent with the requirement 
under section 45W(c)(4) that the vehicle be of a character subject to 
the allowance for depreciation, which, under section 167(a), extends 
only to property used in a trade or business or held for the production 
of income. The proposed rule is also consistent with the trade or 
business purposes expressed in section 45W(c)(1), the statutory 
identification of the section 45W credit as being for ``commercial'' 
clean vehicles, and the allowance of the credit as a section 38 general 
business credit.
    If the lease of a qualified commercial clean vehicle would not be 
respected as a lease for Federal income tax purposes, proposed Sec.  
1.45W-3(b)(2) would treat the lessor as having acquired the vehicle for 
resale and disallow the credit to such lessor with respect to the 
purportedly leased vehicle. Whether the lessee may claim the section 
45W credit with respect to the vehicle would depend on whether the 
requirements of section 45W and the section 45W regulations are met 
with respect to the vehicle. This rule, which recognizes that a sale 
may, in some cases, be mischaracterized as a lease for Federal income 
tax purposes, aligns with section 45W(c)(1) to limit ``use and lease'' 
to the scenarios in which the section 45W credit is allowable to a 
taxpayer.
B. On-Road Vehicles
    Section 45W(c)(2)(A) provides that a qualified commercial clean 
vehicle may be a vehicle ``that meets the requirements of subparagraph 
(D) of section 30D(d)(1) and is manufactured primarily for use on 
public streets, roads, and highways (not including a vehicle operated 
exclusively on a rail or rails).'' Regarding the former requirement, 
section 30D(d)(1)(D) states that the vehicle must be ``treated as a 
motor vehicle for purposes of title II of the [CAA],'' a determination 
that implicitly incorporates the EPA's application of the relevant CAA 
provisions, as well as any applicable regulations or guidance 
thereunder. The latter requirement, ``manufactured primarily for use on 
public streets, roads, and highways,'' occurs with sufficient frequency 
in the Internal Revenue Code, the U.S. Code more broadly, and various 
regulations and guidance issued thereunder to warrant deference to 
existing understandings of the phrase across Federal statutes.
    Section 45W(c)(2)(B) provides, in the alternative, that a qualified 
commercial clean vehicle may be a vehicle ``that is mobile machinery, 
as defined in section 4053(8) (including vehicles that are not designed 
to perform a function of transporting a load over the public 
highways).'' The definition of mobile machinery provided in section 
4053(8) presents significant challenges for taxpayers and the IRS in 
the context of section 45W. For a discussion of the complexities of 
section 4053(8) in the context of section 45W generally, and the 
implications of those complexities for the credit-eligibility of off-
road vehicles in particular, see section VII of this Explanation of 
Provisions.
    Section 4053(8) is an exemption to certain Federal excise taxes 
imposed on highway vehicles (see sections 4051(a), 4071(a), and 
4481(a)), a concept defined in Sec.  48.4061(a)-1(d) of the 
Manufacturers and Retailers Excise Tax Regulations as ``any self-
propelled vehicle, or any trailer or semitrailer, designed to perform a 
function of transporting a load over public highways, whether or not 
also designed

[[Page 3514]]

to perform other functions.'' In other words, mobile machinery as 
defined in 4053(8), in the context of existing Federal excise taxes, is 
meaningful only as a subset of highway vehicles. As a result, most, if 
not all, vehicles traditionally considered ``mobile machinery'' 
(including those exempt from the aforementioned Federal excise taxes) 
would be eligible for the section 45W credit under section 
45W(c)(2)(A).
    A vehicle may satisfy the requirements of both section 45W(c)(2)(A) 
and (B). For example, a digger derrick truck exempt from the tax 
imposed by section 4051 by reason of section 4053(8) would qualify for 
the credit under section 45W(c)(2)(B). Furthermore, because it is a 
``highway vehicle'' under Sec.  48.4061(a)-1(d), the digger derrick 
would almost certainly also qualify under section 45W(c)(2)(A), meaning 
that it would be treated as a motor vehicle for purposes of title II of 
the CAA and be considered manufactured primarily for use on the public 
streets, roads, and highways. In such instances, the taxpayer may 
choose the prong of section 45W(c)(2) under which the vehicle will 
qualify, which may be relevant for recordkeeping and other purposes.
C. Electric Motor and Battery Requirements
    Section 45W(c)(3)(A) provides requirements with respect to the 
electric motor and battery of certain qualified commercial clean 
vehicles. In part, section 45W(c)(3)(A) requires that a qualified 
commercial clean vehicle be propelled to a significant extent by an 
electric motor that draws electricity from a battery that meets certain 
specifications depending on the GVWR of the vehicle. Proposed Sec.  
1.45W-3(d)(1) would repeat the substance of section 45W(c)(3)(A). 
Proposed Sec.  1.45W-3(d)(2) would clarify that a battery is capable of 
being recharged from an external source of electricity if such source 
of electricity is not an integral part of the vehicle. Proposed Sec.  
1.45W-3(d)(2) would also provide the example of a regenerative braking 
system as an integral part of the vehicle and, thus, not an external 
source of electricity. This rule would render certain hybrid vehicles 
ineligible for the section 45W credit, a result consistent with the 
requirement that the vehicle be propelled to a significant extent by an 
electric motor which draws electricity from a battery and the 
requirement for an external source of electricity.

V. Special Rules

    Section 45W(d) provides three special rules. First, section 
45W(d)(1) provides, by cross reference to section 30D(f), that rules 
similar to the rules under section 30D(f)(1) through (9) apply for 
purposes of the section 45W credit. Second, section 45W(d)(2) provides 
that a qualified commercial clean vehicle placed in service by a tax-
exempt entity described in section 168(h)(2)(A)(i), (ii), or (iv) is 
not required to be of a character subject to the allowance for 
depreciation if it is not subject to a lease. Third, section 45W(d)(3) 
provides that any vehicle for which a credit was allowed under section 
30D is not allowed a section 45W credit.
    Proposed Sec.  1.45W-4 would provide special rules relating to the 
credit eligibility of a vehicle resulting from certain transactions and 
uses, the interaction of the section 45W credit with other credits, and 
recapture of the section 45W credit. These rules are described in Part 
V.A. through E. of this Explanation of Provisions.
A. No Double Benefit Rule
    Section 30D(f)(8), as incorporated by section 45W(d)(1), provides 
that a section 45W credit is allowed only once with respect to a 
vehicle, as determined based upon the vehicle identification number of 
such vehicle. Section 45W(d)(3) provides that no credit is allowed 
under section 45W with respect to any vehicle for which a credit was 
allowed under section 30D. To consolidate these two rules, proposed 
Sec.  1.45W-4(a)(1) would provide that no credit will be allowed under 
section 45W(a) with respect to any vehicle for which a section 45W 
credit or a section 30D credit was previously allowed for such vehicle.
    Section 45W(d)(1), which incorporates section 30D(f)(2), provides a 
general no double benefit rule with respect to any deduction or other 
credit allowable under chapter 1 for a vehicle for which a credit was 
allowed under section 45W. Proposed Sec.  1.45W-4(a)(2) would repeat 
the substance of section 30D(f)(2). This proposed rule is consistent 
with the no double benefit rule provided in Sec.  1.25E-2(b)(1).
B. Vehicles Previously Placed in Service
    Section 45W does not explicitly prohibit vehicles previously placed 
in service from being eligible for a section 45W credit.\3\ Vehicles 
previously placed in service present challenges with regard to the 
statutory no double benefit rules in that taxpayers seeking to claim 
the section 45W credit for such vehicles may not have access to 
information about whether a deduction or credit was previously allowed, 
or to what extent, and the IRS would be prohibited from providing such 
information because disclosure of information related to another 
taxpayer's claim for a tax credit for a particular vehicle is 
confidential return information and is protected from disclosure under 
section 6103 of the Code. Nonetheless, the normal rules requiring 
taxpayers to establish their entitlement to a credit or other tax 
benefit apply. Accordingly, a taxpayer claiming a 45W credit for a 
vehicle previously placed in service must maintain evidence in their 
books and records sufficient to establish that no credit under section 
30D or section 45W has been allowed previously with respect to the 
vehicle, and in the case of any prior credit allowed under section 25E, 
the amount of such prior credit, and must provide such information to 
the IRS upon request. See Sec.  1.6001-1; Roberts v. Comm'r, 62 T.C. 
834, 836 (T.C. 1974); Isaacs v. Comm'r, 109 T.C.M. (CCH) 1624 (T.C. 
2015). Such evidence may include signed attestations from all previous 
owners that a credit was not claimed with respect to such vehicle.
---------------------------------------------------------------------------

    \3\ In the Description of Energy Tax Changes Made by Public Law 
117-169, the Joint Committee on Taxation describes section 45W as 
``creat[ing] a credit for qualified commercial clean vehicles 
originally placed in service by a taxpayer,'' and in footnote 111 
adds: ``A technical correction may be necessary to reflect this 
intent.'' JCT, Description of Energy Tax Changes Made by Public Law 
117-169, p. 58 (Apr. 19, 2023).
---------------------------------------------------------------------------

    The proposed regulations would also amend Sec.  1.25E-2 by adding a 
new paragraph (b)(3), which would clarify that a vehicle for which a 
credit was allowed under section 45W may qualify for a section 25E 
credit in a subsequent year with no reduction in the amount of 
allowable section 25E credit. This rule would be consistent with Sec.  
1.25E-2(b)(2), which provides a similar rule regarding the interaction 
between the section 25E credit and the section 30D credit.
C. Credit Ineligibility Resulting From Certain Transactions and Uses
    Proposed Sec.  1.45W-4(b)(2) would provide that if a sale of a 
qualified commercial clean vehicle is cancelled before the taxpayer 
places the vehicle in service, then (i) the taxpayer may not claim the 
section 45W credit with respect to such vehicle; (ii) the vehicle may 
still be eligible for the section 45W credit; and (iii) a subsequent 
buyer will not be required to apply the residual value rules of Sec.  
1.45W-2(f)(3) to determine the incremental cost of the vehicle.
    Proposed Sec.  1.45W-4(b)(3) would provide that if a taxpayer 
returns a qualified commercial clean vehicle to the seller within 30 
days of placing such vehicle in service, then (i) the taxpayer may not 
claim the section 45W credit

[[Page 3515]]

with respect to such vehicle; (ii) the vehicle may still be eligible 
for the section 45W credit; and (iii) a subsequent buyer must apply the 
residual value rules of Sec.  1.45W-2(f)(3) to determine the 
incremental cost of the vehicle.
    In the case of a resale of a qualified commercial clean vehicle, 
proposed Sec.  1.45W-4(b)(4) would provide that if a taxpayer resells 
such vehicle within 30 days of placing the vehicle in service, then (i) 
the taxpayer is treated as having acquired such vehicle with the intent 
to resell; (ii) the taxpayer may not claim the section 45W credit with 
respect to the vehicle; (iii) the vehicle may still be eligible for the 
section 45W credit; and (iv) a subsequent buyer must apply the residual 
value rules of Sec.  1.45W-2(f)(3) to determine the incremental cost of 
the vehicle.
D. Business Use of Qualified Commercial Clean Vehicle Required
    Section 45W(c)(4) requires a qualified commercial clean vehicle to 
be of a character subject to the allowance for depreciation. Nothing in 
section 45W indicates that a partial section 45W credit is allowable 
with respect to a vehicle that is used only partially for business use 
and is therefore only partially depreciable. Section 30D, a related 
clean vehicle credit that was amended by the IRA, explicitly includes 
an allocation rule to treat such credit as either a business or 
personal credit based upon business or personal use. See section 
30D(c)(1). Section 30C, also enacted as part of the IRA, has a similar 
allocation rule. See section 30C(d)(1). The absence of such an 
allocation rule in section 45W, which was enacted as part of the same 
legislation, suggests that Congress did not intend for the section 45W 
credit to reflect less than 100 percent business use.
    Proposed Sec.  1.45W-4(b)(5) would provide that if a taxpayer's 
trade or business use of a qualified commercial clean vehicle is less 
than 100 percent of the taxpayer's total use of that vehicle (with the 
exception of incidental personal use, such as a stop for lunch on the 
way between two job sites) for the taxable year such vehicle is placed 
in service, including because the vehicle is sold or otherwise disposed 
of, then the vehicle is ineligible for the section 45W credit. This 
rule would also apply to a qualified commercial clean vehicle placed in 
service by a tax-exempt entity, except that 100 percent trade or 
business use means the tax-exempt entity's use that is related to an 
exempt purpose or an unrelated trade or business purpose.
E. Recapture
    Section 30D(f)(5), which is incorporated in section 45W(d)(1), 
authorizes the Secretary to provide for recapturing the benefit of any 
section 45W credit allowable with respect to any property which ceases 
to be property eligible for such credit. Proposed Sec.  1.45W-
4(c)(2)(i) would provide that if a taxpayer ceases to use the vehicle 
for 100 percent trade or business use during the 18-month period 
beginning on the date the vehicle is placed in service, including 
because the vehicle is sold or otherwise disposed of, then (i) the 
taxpayer may not claim the section 45W credit with respect to the 
vehicle, and if the taxpayer has already claimed the credit, the credit 
is recaptured; (ii) the vehicle may still be eligible for the section 
45W credit; and (iii) a subsequent buyer must apply the residual value 
rules of Sec.  1.45W-2(f)(3) to determine the incremental cost of the 
vehicle. In determining the 18-month period as the appropriate length 
of time for which the vehicle must be used in a trade or business for 
purposes of recapturing the benefit of any section 45W credit 
allowable, the Treasury Department and the IRS took into consideration 
commercial vehicle leasing practices and sought to accommodate such 
practices.
    Proposed Sec.  1.45W-4(c)(2)(ii) would provide that, for a vehicle 
placed in service by a tax-exempt entity, the 100 percent trade or 
business use rule (excepting incidental personal use) in Sec.  1.45W-
4(b)(5) applies, which means use for an exempt purpose or unrelated 
trade or business purpose.
F. Elective Payment Election
1. Section 6417
    Section 6417, enacted by the IRA, provides a benefit to applicable 
entities (defined in section 6417(d)(1)(A) and Sec.  1.6417-1(c)), 
which include certain tax-exempt and government entities that are 
described in section 50(b)(3) or (4). Section 6417 allows an applicable 
entity to make an election to be treated as making a payment of tax in 
the amount of certain applicable credits, including the section 45W 
credit, which results in a refund equal to the amount of the applicable 
credits if such entity has no other tax liability. Section 
6417(d)(2)(A) requires an entity making an election to determine an 
applicable credit without regard to section 50(b)(3) or (4)(A)(i), 
effectively turning those sections off for purposes of calculating an 
applicable credit.
    These proposed regulations would make a clarification to proposed 
Sec.  1.6417-6(b)(1) \4\ to align with these proposed section 45W 
regulations. Proposed Sec.  1.6417-6(b)(1) in these proposed 
regulations would add a reference to section 45W(d)(1) (which 
incorporates the rules of section 30D(f)(1) related to basis reduction 
and section 30D(f)(5) and the related proposed Sec.  1.45W-4(c) 
pertaining to recapture) to the list of examples of provisions of the 
Code that apply. Accordingly, proposed Sec.  1.6417-6(b)(1) would state 
that if ``another provision of the Code contains a rule that operates 
without reference to section 50 to reduce the basis of property with 
respect to which an applicable credit is determined and/or recapture 
any amount of an applicable credit (such as sections 30C, 45Q(f)(4), 
45W(d)(1), and 48(a)(10)), then the rules of that provision of the Code 
and the regulations issued under that provision of the Code apply, 
except that any applicable credit continues to be determined without 
regard to section 50(b)(3) and (4)(A)(i) and by treating any property 
with respect to which such applicable credit is determined as used in a 
trade or business of the applicable entity, consistent with section 
6417(d)(2) and Sec.  1.6417-2(c).''
---------------------------------------------------------------------------

    \4\ Revisions to Sec.  1.6417-6(b)(1) were previously proposed 
in the notice of proposed rulemaking (REG-118269-23), published in 
the Federal Register (89 FR 76759, September 19, 2024), which sets 
forth rules regarding the Section 30C Alternative Fuel Vehicle 
Refueling Property Credit. These proposed regulations include 
identical proposed language to Sec.  1.6417-6(b)(1) other than the 
addition of a reference to section 45W(d)(1).
---------------------------------------------------------------------------

2. Leases
    Section 45W(d)(2) provides that the section 45W(c)(4) rule 
regarding depreciation does not apply to any vehicle that is not 
subject to a lease and that is placed in service by a tax-exempt entity 
described in section 168(h)(2)(A)(i), (ii), or (iv).
    Proposed Sec.  1.45W-4(d)(3) would provide that for purposes of 
section 45W(d)(2), a vehicle is ``subject to a lease'' if it is leased 
within 30 days of being placed in service by a tax-exempt entity. For 
example, a school district purchases and places in service a fleet of 
electric school buses that otherwise qualify for the section 45W 
credit. The school district then leases the fleet to a school 
transportation contractor 31 days after the school district placed the 
fleet in service. The fleet of electric school buses is not subject to 
a lease within the meaning of section 45W(d)(2) and proposed Sec.  
1.45W-4(d)(3) because the buses were leased more than 30 days after 
being placed in service by the school district. As a result, the fleet 
of

[[Page 3516]]

electric school buses may be eligible for the section 45W credit.
    This definition of ``subject to a lease'' aligns with the statutory 
language that tax-exempt entities may be eligible for the section 45W 
credit if the qualified commercial clean vehicle at issue meets the 
relevant criteria near the time of being placed in service, which is 
when vehicle eligibility is measured.

VI. Reporting Requirements

    Proposed Sec.  1.45W-5 would provide reporting requirements for 
purposes of the section 45W credit.
A. Requirement To File Return
    Section 45W(e) provides that no section 45W credit can be 
determined with respect to any vehicle unless the taxpayer includes the 
vehicle identification number of such vehicle on the return of tax for 
the taxable year. Proposed Sec.  1.45W-5(a) would provide that no 
section 45W credit is allowed unless the taxpayer claiming such credit 
files a Federal income tax return or information return, as 
appropriate, for the taxable year in which the qualified commercial 
clean vehicle is placed in service. The taxpayer must attach to such 
return a completed Form 8936, Clean Vehicle Credits, or successor form, 
that includes all information required by the form and instructions. 
The taxpayer must also attach a completed Schedule A (Form 8936), Clean 
Vehicle Credit Amount, or successor form or schedule, that includes all 
information required by the schedule and instructions, such as the 
vehicle identification number of the qualified commercial clean 
vehicle.
B. Credit May Generally Be Claimed on Only One Tax Return
    Proposed Sec.  1.45W-5(b)(1) would provide a general rule, subject 
to the exceptions discussed later in this Explanation of Provisions, 
that the amount of the section 45W credit attributable to a qualified 
commercial clean vehicle may be claimed on only one Federal income tax 
return, including on a joint return in which one of the spouses or the 
spouse's wholly-owned business entity is listed on the title as the 
sole owner of the vehicle. In the event a qualified commercial clean 
vehicle is placed in service by multiple taxpayers that do not file a 
joint tax return (for example, in the case of married individuals 
filing separate returns), no allocation or proration of the section 45W 
credit will be available, and only one of the taxpayers placing the 
qualified commercial clean vehicle in service will be eligible for the 
entirety of the allowable section 45W credit.
    Proposed Sec.  1.45W-5(b)(2) would provide a rule for grantor 
trusts. Specifically, proposed Sec.  1.45W-5(b)(2) would provide that 
for qualified commercial clean vehicles placed in service by a trust, 
to the extent the grantor or another person is treated as owning all or 
part of a trust under sections 671 through 679 of the Code, the section 
45W credit will be allocated to such grantor or other person in 
accordance with Sec.  1.671-3(a)(1).
    Proposed Sec.  1.45W-5(b)(3) would provide an exception for 
qualified commercial clean vehicles placed in service by certain 
passthrough entities, namely a partnership or S corporation. In such 
cases, the section 45W credit will be allocated among the partners of 
the partnership under Sec.  1.704-1(b)(4)(ii) or among the shareholders 
of the S corporation under sections 1366(a) and 1377(a) of the Code and 
claimed on the tax returns of the ultimate partners or of the S 
corporation shareholders.
C. Taxpayer Reliance on Manufacturer Certifications and Periodic 
Written Reports to IRS
    Proposed Sec.  1.45W-5(c) would allow taxpayers to rely on certain 
certifications and information provided by a manufacturer. Under this 
proposed rule, a taxpayer that acquires a qualified commercial clean 
vehicle and places it in service would be able to rely on the 
information and certifications contained in the qualified 
manufacturer's written reports to the IRS. The procedures for such 
periodic written reports are established in guidance published in the 
Internal Revenue Bulletin. To the extent a taxpayer relies on 
certifications or attestations from the qualified manufacturer, the 
qualified commercial clean vehicle the taxpayer acquires will be deemed 
to meet the requirements of sections 30D(d)(1)(C) and 45W(c)(1).

VII. Off-Road Mobile Machinery

    Section 45W(c)(2) provides, in part, that the term ``qualified 
commercial clean vehicle'' includes ``mobile machinery, as defined in 
section 4053(8) (including vehicles that are not designed to perform a 
function of transporting a load over the public highways).'' Section 
4053(8), in turn, defines mobile machinery as any vehicle which 
consists of a chassis (A) to which there has been permanently mounted 
(by welding, bolting, riveting, or other means) machinery or equipment 
to perform a construction, manufacturing, processing, farming, mining, 
drilling, timbering, or similar operation if the operation of the 
machinery or equipment is unrelated to transportation on or off the 
public highways, (B) which has been specially designed to serve only as 
a mobile carriage and mount (and a power source, if applicable) for the 
particular machinery or equipment involved, whether or not such 
machinery or equipment is in operation, and (C) which, by reason of 
such special design, could not, without substantial structural 
modification, be used as a component of a vehicle designed to perform a 
function of transporting any load other than that particular machinery 
or equipment or similar machinery or equipment requiring such a 
specially designed chassis.
    Section 4053(8) is an exemption from the tax imposed by section 
4051(a) and has been employed as an exemption from the taxes imposed by 
sections 4071(a) and 4481(a), all of which contribute to the Highway 
Trust Fund. See section 9503(b) of the Code. In that context, the 
section 4053(8) definition is relevant only to highway vehicles, 
defined in Sec.  48.4061(a)-1(d) \5\ as ``any self-propelled vehicle, 
or any trailer or semitrailer, designed to perform a function of 
transporting a load over public highways, whether or not also designed 
to perform other functions.'' The parenthetical in section 
45W(c)(2)(B)--``including vehicles that are not designed to perform a 
function of transporting a load over the public highways''--contradicts 
that definition and, therefore, arguably expands the traditional 
category of ``mobile machinery'' to include off-road vehicles. Such an 
expanded category might, for purposes of section 45W, include certain 
agricultural vehicles, construction vehicles, forestry vehicles, 
utility vehicles designed for airport operations, and other types of 
off-road vehicles.
---------------------------------------------------------------------------

    \5\ The section 4061 manufacturers excise tax on certain highway 
vehicles was repealed and replaced with the section 4051 retail 
excise tax on similar vehicles. See Highway Revenue Act of 1982 
(Public Law 97-424), effective April 1, 1983. The Sec.  48.4061(a)-
1(d) definition of ``highway vehicle'' is incorporated into the 
current section 4051 regime by Sec.  145.4051-1(a)(2).
---------------------------------------------------------------------------

    However, section 4053(8) and several provisions of section 45W 
present significant challenges with respect to the administrability of 
a section 45W credit that encompasses such off-road vehicles. 
Recognizing that, whenever possible, every word and every provision of 
a statute should be given effect, Washington Market Co. v. Hoffman, 101 
U.S. 112, 115-6 (1879), the Treasury Department and the IRS continue to 
study, and request any relevant comments on, the considerations 
described in section

[[Page 3517]]

VII.A through G of this Explanation of Provisions.
A. Section 4053(8) as Applied to Off-Road Vehicles
    The definition of ``mobile machinery'' provided in section 4053(8) 
is vehicle specific and fact intensive. Vehicles with chassis that 
include a pintle hook or that have been modified to accommodate a water 
tank do not qualify as mobile machinery because such vehicles are not 
specially designed to serve only (solely) as the mobile carriage or 
mount for the mounted equipment or machinery. Florida Power & Light Co. 
v. U.S., 375 F.3d 1119 (Fed. Cir. 2004). For the same reason, peanut 
drying trailers and boat trailers are not mobile machinery. Rockwater, 
Inc. v. U.S., No. 4:21-CV-00125-CDL, 2023 WL 2473452 (M.D. Ga. Jan. 3, 
2023), aff'd in part, reversed in part and remanded in part, 2024 WL 
4799277, (11th Cir. Nov. 16, 2024); Hostar Marine Transp. Systems, Inc. 
v. U.S., No. 06-10834-DPW, 2008 WL 4615464 (D. Mass. Oct. 16, 2008), 
aff'd, 592 F.3d 202 (1st Cir. 2010). In addition, highway tractors 
fitted with winches, compressors, or blowers are not mobile machinery 
because such equipment, used to load or unload cargo, is not 
``unrelated to transportation on or off the public highways.'' 
Schlumberger Technology Corp. and Subsidiaries v. U.S., 55 Fed. Cl. 203 
(2003).
    When applied to off-road vehicles, a category to which section 
4053(8) was not traditionally relevant, the text of section 4053(8) 
presents significant challenges for taxpayers and the IRS. Particular 
vehicles would, on a vehicle-by-vehicle basis, be rendered ineligible 
for the section 45W credit for reasons irrelevant to the purpose of the 
credit, such as the presence of a pintle hook or the fact that the 
vehicle can carry a load other than its mounted machinery or equipment. 
Consideration of these types of vehicle features, although critical to 
ensuring the correct taxation of highway vehicles for purposes of the 
Highway Trust Fund, would lead to arbitrary results in the context of a 
credit intended to incentivize the use of clean vehicle propulsion 
technologies--for example, the eligibility of one vehicle for the 
section 45W credit and the ineligibility of an identical vehicle, 
except for the addition of a pintle hook.
    To mitigate these challenges, the Treasury Department and the IRS 
are considering an approach that would deem off-road vehicles (that is, 
``vehicles not designed to perform a function of carrying a load over 
the public highways'') to satisfy the requirements of section 
4053(8)(B) and (C). Such an approach would acknowledge that section 
4053(8)(B) and (C) assess a vehicle's potential to cause wear and tear 
on the public highways. While this is critical in determining whether a 
vehicle qualifies for an exemption from taxes that fund the Highway 
Trust Fund, it has no relevance to off-road vehicles. Therefore, this 
approach would apply the core definition of ``mobile machinery'' 
provided in section 4053(8)(A) and, consistent with the cross reference 
provided in section 45W(c)(2)(B), do so in precisely the same way as 
section 4053(8)(A) is applied in the context of Federal excise taxes.
    While this approach would render vehicle-by-vehicle analysis 
unnecessary in many cases and might eliminate certain types of 
inconsistent results with respect to vehicle eligibility for the 
section 45W credit, categorical bars on eligibility for certain types 
of vehicles would remain. For example, off-road dump trucks would be 
ineligible for the credit because their permanently mounted machinery 
or equipment, that is, the hydraulics that lift the dump body, is not 
``unrelated to transportation'' (the dump structure itself is a vehicle 
body rather than machinery or equipment; see Notice 2017-5, 2017-6 IRB 
779). Agricultural tractors would be ineligible to the extent they lack 
permanently mounted machinery or equipment. Forklifts could be 
ineligible because their permanently mounted equipment, which can be 
used to load and unload goods and transport goods from one location to 
another, is related to transportation. And mowers would be ineligible 
because their permanently mounted machinery or equipment does not 
perform an operation similar to those enumerated in section 4053(8)(A). 
The Treasury Department and the IRS request comments on other 
approaches that might be adopted in applying section 4053(8) to off-
road vehicles in a manner consistent with both the purpose and text of 
section 45W and the statutory requirements of section 4053(8), 
including established case law interpreting section 4053(8).
B. Off-Road Vehicles Lack NHTSA-Required VINs
1. In General
    Section 45W(e) provides that no credit can be determined under 
section 45W(a) with respect to any vehicle unless the taxpayer includes 
the vehicle identification number of such vehicle on the return of tax 
for the taxable year. See also section 45W(d)(1), which requires, among 
other things, the application of rules similar to those provided in 
section 30D(f)(8) (``In the case of any vehicle, the credit described 
in [section 30D](a) shall only be allowed once with respect to such 
vehicle, as determined based upon the vehicle identification number of 
such vehicle [. . . .]''); section 30D(f)(9) (``No credit shall be 
allowed under this section with respect to any vehicle unless the 
taxpayer includes the vehicle identification number of such vehicle on 
the return of tax for the taxable year.''); and, the definition of 
``qualified manufacturer'' provided by section 30D(d)(3), incorporated 
by section 45W(c)(1) by cross-reference to ``the requirements of 
section 30D(1)(C),'' which, by definition, requires a qualified 
manufacturer to enter into a written agreement with the Secretary under 
which such manufacturer agrees to make periodic written reports to the 
Secretary providing, among other things, vehicle identification numbers 
``related to each vehicle manufactured by such manufacturer as the 
Secretary may require.''
    Neither section 45W nor any other section of the Code provides a 
definition of ``vehicle identification number'' or ``VIN.'' See 
sections 25E, 30D, 45W, 170(f)(12), and 6213(g)(2)(T) through (V). A 
``vehicle identification number,'' as a term of art and in common 
speech, refers specifically to the series of Arabic numbers and Roman 
letters (defined in 49 CFR 565.13(a)) that the manufacturer assigns to 
every motor vehicle in the United States, including imported vehicles, 
subject to the authority of the National Highway Traffic Safety 
Administration (NHTSA), an operating administration that is part of the 
DOT. See 49 CFR 565.10 through 565.14. For this purpose, motor vehicles 
are vehicles ``driven or drawn by mechanical power and manufactured 
primarily for use on public streets, roads, and highways.'' 49 U.S.C. 
30101-30102. As a result, manufacturers of off-road vehicles are not 
required by NHTSA to assign VINs to such vehicles.
    To give effect to the parenthetical in section 45W(c)(2)(B) that 
includes off-road vehicles, therefore, requires a more general 
understanding of the term ``vehicle identification number'' as used in 
section 45W. Such an understanding might encompass other numbering 
systems, provided that those systems would, if integrated with the 
NHTSA-required VIN system, allow qualified manufacturers and the IRS to 
uniquely identify each credit-eligible vehicle for purposes of the 
qualified manufacturer requirements of section 30D(d)(3) and the one-
credit-per-vehicle provision of

[[Page 3518]]

section 30D(f)(8)--for example, product identification numbers (PINs) 
administered by the Society of Automotive Engineers (SAE) or the 
Association of Equipment Manufacturers (AEM). Compliance with section 
30D(d)(3) and (f)(8)--and, thus, the eligibility of any off-road 
vehicle for the section 45W credit--would depend on the integration of 
the various ``vehicle identification number'' systems in question, 
which would determine eligibility based on either a NHTSA-required VIN 
or a unique identifier system for vehicles that do not have a NHTSA-
required VIN. The IRS must be able to identify each section 45W credit-
eligible vehicle based solely on the ``vehicle identification number'' 
assigned to the vehicle, and the ``vehicle identification number'' must 
be unique across all numbering systems accepted by the IRS for the 
purpose of administering section 45W. To integrate the unique 
identifier system with the NHTSA-required VIN, the unique identifier 
system should be a 17-digit alpha-numeric identifier.
2. Potential Integrated System for Vehicle Identification Numbers
    The Treasury Department and the IRS are studying various potential 
options for an integrated system of vehicle identification numbers for 
purposes of section 45W. Until guidance is published detailing any such 
future system, vehicles without a NHTSA-required VIN are unable to 
satisfy the statutory VIN requirement in section 45W(e) and are 
therefore ineligible for the section 45W credit.
    The various potential options under consideration by the Treasury 
Department and the IRS include the following structural elements:
    i. If a qualified commercial clean vehicle has a NHTSA-required 
VIN, the qualified manufacturer of such vehicle would need to report 
the NHTSA-required VIN to the IRS for such vehicle to be eligible for 
the section 45W credit. The taxpayer claiming a section 45W credit for 
the qualified commercial clean vehicle in such a case would need to 
report the NHTSA-required VIN on their tax return for the taxable year 
in which the section 45W credit is claimed for such claim to be valid.
    ii. If a qualified manufacturer assigns a PIN to a qualified 
commercial clean vehicle and that PIN is also a unique 17-digit 
identifier consisting of a three-digit World Manufacturer Code (WMC) 
and 14 alpha-numeric characters that follow, the qualified manufacturer 
would need to provide the PIN to the taxpayer no later than 15 days 
from the time the identity of the taxpayer purchasing the vehicle is 
known, or 15 days from when the taxpayer requests a PIN from the 
qualified manufacturer, whichever is later. The qualified manufacturer 
could choose to satisfy this requirement by labeling the PIN on the 
vehicle, including adding the PIN to the item of specified property by 
affixing a label to the vehicle or by etching the PIN on the vehicle. 
Alternatively, a qualified manufacturer could choose to affix a label 
containing the PIN to the vehicle's documentation or purchase records. 
The qualified manufacturer would need to report the PIN and the 
identity of the taxpayer purchasing the vehicle to the IRS no later 
than 15 days from the time that the identity of the taxpayer purchasing 
the vehicle is known for the vehicle to be considered eligible. A 
taxpayer claiming a section 45W credit in such a case would need to 
report the PIN on their tax return or information return for the 
taxable year in which the section 45W credit is claimed for such claim 
to be valid.
    iii. If a qualified commercial clean vehicle does not have a VIN or 
a PIN issued by a qualified manufacturer, the qualified manufacturer 
could apply to receive a valid three-digit unique qualified 
manufacturer identifier (QMID). Upon the issuance of a QMID, the 
qualified manufacturer would assign unique 17-digit PINs to the 
qualified commercial clean vehicles it manufactures. Each 17-digit PIN 
would begin with the QMID followed by 14 alpha-numeric digits that the 
qualified manufacturer assigns to each vehicle. The qualified 
manufacturer would need to provide the PIN to the taxpayer no later 
than 15 days from the time the identity of the taxpayer purchasing the 
vehicle is known, or 15 days from when the taxpayer requests a PIN from 
the qualified manufacturer, whichever is later. The qualified 
manufacturer could choose to satisfy this requirement by labeling the 
PIN on the vehicles, including adding the PIN to the item of specified 
property by affixing a label to the vehicle or by etching the PIN on 
the vehicle. Alternatively, a qualified manufacturer could choose to 
affix a label containing the PIN to the vehicle's documentation or 
purchase records. The qualified manufacturer would need to report the 
PIN and the identity of the taxpayer purchasing the vehicle to the IRS 
no later than 15 days from the time that the identity of the taxpayer 
purchasing the vehicle is known for the vehicle to be considered 
eligible. A taxpayer claiming a section 45W credit in such a case would 
need to report the PIN on the taxpayer's tax return or information 
return for the taxable year in which the section 45W credit is claimed 
for such claim to be valid.
    iv. A qualified manufacturer would not be able to set prerequisites 
for a taxpayer receiving a PIN that are not required to verify the 
purchase of the qualified commercial clean vehicle, such as requiring 
taxpayers to sign up for promotional emails, texts, or other 
communications from the qualified manufacturer, its related entities, 
or partners. However, qualified manufacturers could choose to provide 
PINs to taxpayers through the mail, online, email, or other means of 
electronic delivery. Qualified manufacturers could choose to provide 
PINs in conjunction with a formal registration for a warranty, provided 
that the taxpayer could easily obtain the PIN without completing the 
formal warranty registration.
    v. For qualified commercial clean vehicles previously placed in 
service by another person or entity, a subsequent taxpayer could be 
required to contact the qualified manufacturer to obtain a PIN.
    vi. Qualified manufacturers that manufacture vehicles without a 
NHTSA-required VIN would need to enter into new qualified manufacturer 
agreements.
3. Vehicles Without a NHTSA-Required VIN Are Not Currently Eligible for 
the Credit
    Eligibility of any off-road vehicle for the section 45W credit is 
dependent on the issuance of final regulations establishing an 
integrated vehicle identification number system that accommodates off-
road mobile machinery or other vehicles without a NHTSA-required VIN 
that is sufficient to satisfy the statutory vehicle identification 
number requirement. This means that off-road mobile machinery without a 
NHTSA-required VIN is not eligible for the section 45W credit.
4. Request for Comments
    The Treasury Department and the IRS request comments on the 
potential integrated vehicle identification number system described in 
section VII.B2 of this Explanation of Provisions. Specifically, the 
Treasury Department and the IRS request comments on the following 
questions:
    i. What challenges, if any, would manufacturers have in 
implementing and complying with the integrated vehicle identification 
number system described in section VII.B2 of this Explanation of 
Provisions? What would be the costs and timeline for manufacturers to 
implement and comply with the proposed system? Are

[[Page 3519]]

there cases in which manufacturers or other stakeholders, such as 
retailers, would decline to employ the system because compliance would 
be overly burdensome? Commenters are encouraged to specifically 
identify types and amounts of costs that manufacturers would incur in 
implementing and complying with the proposed system, as well as 
specific aspects of the proposal that would require set amounts of time 
to develop and implement.
    ii. Should the Treasury Department and the IRS leverage existing 
systems, e.g. SAE or AEM, that assign WMCs that could be used as the 
first three digits of the PIN? Are there perceived problems with these 
systems? Do these systems ensure there is no overlap with any VINs 
assigned under NHTSA's rules? Are there other PIN tracking systems in 
place that the IRS could leverage?
    iii. If the Treasury Department and the IRS were to implement the 
integrated vehicle identification number system described in section 
VII.B2 of this Explanation of Provisions, what changes or exceptions, 
if any, should be made?
    iv. What modifications, if any, could be made to the integrated 
vehicle identification number system described in section VII.2 of this 
Explanation of Provisions to accommodate limitations while still 
adhering to the unique identifier requirement?
    v. How would qualified manufacturers furnish PINs to taxpayers 
(e.g., with the vehicle, through an online website, etc.) in a manner 
that ensures the taxpayer has easy access to the PIN when filing their 
tax return or information return? How would off-road vehicle 
manufacturers obtain and provide information on the identity of those 
purchasing qualified commercial clean vehicles to assist the IRS in 
ensuring compliance? What labelling requirements should apply in 
assigning PINs?
C. Manufacturers That Exclusively Manufacture Off-Road Clean Vehicles 
Are Not Qualified Manufacturers
    Section 45W(c)(1) provides, in part, that a qualified commercial 
clean vehicle must meet the requirements of section 30D(d)(1)(C). 
Section 30D(d)(1)(C), in turn, provides that a vehicle must be made by 
a qualified manufacturer. Section 30D(d)(3), incorporated by section 
45W(c)(1)'s cross reference to section 30D(d)(1)(C), defines 
``qualified manufacturer,'' in part, as any manufacturer within the 
meaning of the regulations prescribed by the Administrator of the EPA 
for purposes of the administration of title II of the CAA (42 U.S.C. 
7521-7590).
    Section 216(1) of the CAA, generally referenced in regulations 
under title II of the CAA (see, for example, 40 CFR 86.082-2(b), 
85.1902(f), and 1037.801), defines ``manufacturer'', in relevant part, 
as ``any person engaged in the manufacturing or assembling of new motor 
vehicles, new motor vehicle engines, new nonroad vehicles or new 
nonroad engines, or importing such vehicles or engines for resale . . . 
.'' Section 216(2) of the CAA defines ``motor vehicle'' as any self-
propelled vehicle designed for transporting persons or property on a 
street or highway. Section 216(11) of the CAA defines ``nonroad 
vehicle'' as a vehicle that is powered by a nonroad engine and that is 
not a motor vehicle or a vehicle used solely for competition. Section 
216(10) of the CAA in turn defines ``nonroad engine'' as an ICE 
(including the fuel system) that is not used in a motor vehicle or a 
vehicle used solely for competition.
    Under these definitions, ``manufacturer'' includes a maker of an 
off-road vehicle with a ``conventional'' ICE, a maker of an off-road 
vehicle with a hybrid engine (to the extent that such vehicle includes 
an ICE), or a maker of motor vehicles. It does not include a maker of 
only off-road vehicles with an exclusively electric motor or fuel cell 
system. Consequently, makers of such off-road vehicles that do not also 
make any motor vehicles or off-road vehicles with ICEs or hybrid 
engines cannot be ``qualified manufacturers'' for purposes of section 
45W, and their vehicles are, consequently, ineligible for the credit. 
This result, which might allow a section 45W credit for an off-road 
vehicle equipped with a hybrid powertrain but in some cases disallow a 
credit for a functionally identical vehicle equipped with an electric 
powertrain, may disadvantage manufacturers who make only products that 
appear well aligned with the purposes of the credit.
D. Some Off-Road Vehicles May Not Display Their Gross Vehicle Weight 
Ratings
    Section 45W(b)(4) provides a limitation for the credit based on the 
vehicle's GVWR, such that the amount of the section 45W credit does not 
exceed $7,500 in the case of a vehicle that has a GVWR of less than 
14,000 pounds, and $40,000 for other vehicles. Similarly, section 
45W(c)(3)(A) bases battery capacity requirements applicable to certain 
vehicles by reference to GVWR: a battery that has a capacity of not 
less than 15 kilowatt hours (or, in the case of a vehicle that has a 
GVWR of less than 14,000 pounds, 7 kilowatt hours).
    GVWR is not defined in the Internal Revenue Code or any regulations 
thereunder. However, the DOT and the EPA have defined the term for 
purposes of regulating motor vehicle safety and emissions. DOT 
regulations define the term ``gross vehicle weight rating'' as the 
value specified by the manufacturer as the loaded weight of a single 
vehicle. See 49 CFR 383.5 and 571.3(b). Similarly, EPA regulations 
define the term ``gross vehicle weight rating'' as the value specified 
by the manufacturer as the maximum design loaded weight of a single 
vehicle. See 40 CFR 86.082-2.
    Motor vehicles are required by DOT regulations to be affixed with 
labels including the GVWR of the vehicle (see 49 CFR parts 567 and 
568). The only vehicles to which those standards apply are motor 
vehicles, which are defined in 49 U.S.C. 30102 as ``vehicle[s] driven 
or drawn by mechanical power and manufactured primarily for use on 
public streets, roads, and highways [. . . .]'' Off-road vehicles may 
not have a GVWR affixed. It may, therefore, be difficult for taxpayers 
to determine and substantiate the appropriate credit limitation under 
section 45W(b)(4).
E. Off-Road Vehicles Employing Fuel Cells May Be Ineligible
    Section 45W(c)(3)(B) provides that a qualified commercial clean 
vehicle includes ``a motor vehicle which satisfies the requirements 
under subparagraphs (A) and (B) of section 30B(b)(3) if the vehicle 
satisfies the other requirements of section 45W(c).'' Section 30B(b)(3) 
defines a ``new qualified fuel cell motor vehicle'' for purposes of 
section 30B as a motor vehicle, and provides among other requirements 
that it be a motor vehicle (A) that is propelled by power derived from 
1 or more cells that convert chemical energy directly into electricity 
by combining oxygen with hydrogen fuel that is stored on board the 
vehicle in any form and may or may not require reformation prior to 
use, and (B) that, in the case of a passenger automobile or light 
truck, has received on or after the date of the enactment of this 
section a certificate that such vehicle meets or exceeds the Bin 5 Tier 
II emission level established in regulations prescribed by the 
Administrator of the EPA under section 202(i) of the CAA for that make 
and model year vehicle. Section 30B(b)(3)(A) and (B) apply, in the 
context of section 30B, only to ``motor vehicles,'' a term defined in 
section 30B(h)(1) to mean ``any vehicle which is manufactured primarily 
for use on public streets, roads, and highways (not including a vehicle 
operated exclusively

[[Page 3520]]

on a rail or rails) and which has at least 4 wheels.'' If this 
definition of ``motor vehicle'' applies to section 45W(c)(3)(B)--a 
meaning suggested by that subparagraph's use of the term ``motor 
vehicle'' (which appears nowhere else in section 45W)--then off-road 
vehicles powered by otherwise eligible fuel-cell technology would be 
ineligible for the section 45W credit.
F. DOT Vehicle Safety Provisions
    Section 45W(d)(1) requires, among other things, the application of 
a rule similar to section 30D(f)(7). Section 30D(f)(7) provides, in 
part, that a vehicle is not considered eligible for a credit unless 
such vehicle is in compliance with the motor vehicle safety provisions 
of 49 U.S.C. 30101 through 30169. As described in section VII.B of this 
Explanation of Provisions, the grant of authority under those 
provisions of law do not extend to off-road vehicles. See 49 U.S.C. 
30101 through 30102. It is unlikely that any off-road vehicle might be, 
as a factual matter, compliant with safety provisions that, legally, do 
not apply to it.
    However, given the broad scope of vehicles that potentially fall 
under the category of off-road vehicles for purposes of section 45W, 
and the scope of the safety provisions provided in 49 U.S.C. 30101 
through 30169, identifying similar safety provisions and the criteria 
by which such similarity might be judged appear to present significant 
challenges.
G. Math Error Authority
    Section 6213(g)(2)(V) provides that the term ``mathematical or 
clerical error'' means an omission of a correct vehicle identification 
number required to be included on a return under section 45W(e). As 
noted in section VII.B of this Explanation of Provisions, treating off-
road mobile machinery (as described in the parenthetical in section 
45W(c)(2)(B)) as eligible for the 45W credit would require a broad 
interpretation of the term ``vehicle identification number'' as that 
term is used in section 45W(e) and the provisions of section 30D that 
are incorporated into section 45W through section 45W(d)(1). If the 
Treasury Department and the IRS were to develop an integrated vehicle 
identification number system that could accommodate a broad, general 
definition of the term ``vehicle identification number'' to encompass 
off-road mobile machinery in the section 45W context, the Treasury 
Department and the IRS would propose a conforming amendment to Sec.  
301.6213-2. Such an amendment would provide clarity to taxpayers by 
providing a cross-reference to this broad, general definition of the 
term ``vehicle identification number.''
H. Other Considerations
    The proposed regulations may introduce challenges to allowing 
section 45W credits for off-road vehicles beyond those flowing from the 
statutory language, particularly in the calculation of incremental cost 
of off-road vehicles. Determining the residual value of off-road 
vehicles that have been previously placed in service by another person 
or entity, the appropriate considerations for identifying a comparable 
vehicle, and the appropriate RPE or RPEs for purposes of a safe harbor, 
all present considerable difficulties given the range of vehicles that 
may fall into the off-road vehicle category.
I. Request for Comments
    The Treasury Department and the IRS are, in consultation with the 
DOE, continuing to study these and related questions. The Treasury 
Department and the IRS request comments on each of the considerations 
described in section VII.A through H of this Explanation of Provisions 
related to the eligibility of off-road mobile machinery for the section 
45W credit.

Proposed Applicability Dates

    Proposed Sec. Sec.  1.45W-1 through 1.45W-5 are proposed to apply 
to taxable years ending after [date of publication of the final 
regulations in the Federal Register]. Proposed Sec.  1.25E-2(b)(3) is 
proposed to apply to taxable years ending after [date of publication of 
the final regulations in the Federal Register]. Proposed Sec.  1.30D-
2(b)(28)(ii) is proposed to apply to taxable years ending after [date 
of publication of the final regulations in the Federal Register]. The 
second and third sentences of proposed Sec.  1.6417-6(b)(1) are 
proposed to apply to property placed in service in taxable years ending 
after [date of publication of the final regulations in the Federal 
Register].

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 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. An agency may not 
conduct or sponsor, and a person is not required to respond to, a 
collection of information unless it displays a valid control number 
assigned by the Office of Management and Budget.
    OMB Control Number 1545-2137 covers Form 8936 and Form 8936-A 
regarding clean vehicle credits, including the requirement to include 
on the taxpayer's return for the taxable year the vehicle 
identification number of the vehicle for which the section 45W credit 
is claimed. Rev. Proc. 2022-42 and Rev. Proc. 2023-38 describe the 
procedural requirements for qualified manufacturers to make periodic 
written reports to the IRS to provide information related to each 
vehicle manufactured by such manufacturer that is eligible for the 
section 45W credit as required in section 30D(d)(3). The collections of 
information contained in Rev. Proc. 2022-42 and Rev. Proc. 2023-38 are 
described in those documents and were submitted to the Office of 
Management and Budget in accordance with the PRA under control number 
1545-2137. The notice of proposed rulemaking is not changing or 
creating these already approved collection requirements.
    In accordance with Sec.  1.6001-1, a taxpayer claiming a credit 
under section 45W must keep permanent books of account or records 
sufficient to establish the amount of any such credit required to be 
shown by such taxpayer in any return of tax or information. 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. The notice of proposed rulemaking is 
not changing or creating these already approved collection 
requirements.
    The collections of information in the proposed regulations creates 
reporting, third-party disclosure and recordkeeping requirements that 
are necessary to ensure that specified property meets the requirements 
for the qualified commercial clean vehicle credit under section 45W. 
These collections of information generally would be used by the IRS for 
tax compliance purposes and by taxpayers to ensure the vehicle 
qualifies for the credit.
    The reporting requirements include a provision requiring 
manufacturers to

[[Page 3521]]

register with the IRS to become qualified manufacturers, as detailed in 
Sec.  1.45W-5(c). The third-party disclosure requirement includes the 
requirement that manufacturers provide taxpayers with a PIN number that 
identifies the specified property as qualified under section 45W. The 
likely respondents are businesses and other for-profit entities. The 
burden for these requirements is as follows:
    Estimated number of respondents: 4,500.
    Estimated frequency of responses: 1.
    Estimated average annual burden per response: 0.25 hours.
    Estimated total reporting burden: 1,125 hours.
    The proposed regulations include a third-party disclosure and 
associated recordkeeping requirements for qualified manufacturers to 
provide taxpayers with the incremental cost value, which may include 
detailed cost information for the powertrains, and for taxpayers to 
keep records of these disclosures, as detailed in Sec.  1.45W-2(c)(10).
    The likely respondents are businesses and other for-profit and tax-
exempt entities. The burden for these requirements is as follows:
    Estimated number of respondents: 500.
    Estimated frequency of responses: 1.
    Estimated average annual burden per response: 1.0 hours.
    Estimated total reporting burden: 500 hours.
    The collections of information contained in this notice of proposed 
rulemaking have been submitted to the Office of Management and Budget 
for review in accordance with the Paperwork Reduction Act under OMB 
Control Number 1545-2137. Commenters are strongly encouraged to submit 
public comments electronically. Written comments and recommendations 
for the proposed information collection should be sent to https://www.reginfo.gov/public/do/PRAMain, with copies to the IRS. Find this 
particular information collection by selecting ``Currently under 
Review--Open for Public Comments,'' and then by using the search 
function. Submit electronic submissions for the proposed information 
collection to the IRS via email at [email protected] (indicate REG-
123525-23 on the Subject line). Comments on the collection of 
information must be received by March 17, 2025.

III. Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes 
certain requirements with respect to Federal rules that are subject to 
the notice and comment requirements of section 553(b) of the 
Administrative Procedure Act (5 U.S.C. 551 et seq.) and that are likely 
to have a significant economic impact on a substantial number of small 
entities. Unless an agency determines that a proposal will not have a 
significant economic impact on a substantial number of small entities, 
section 603 of the RFA requires the agency to present an initial 
regulatory flexibility analysis (IRFA) of the proposed rule. The 
Treasury Department and the IRS have not determined whether the 
proposed rule, when finalized, will have a significant economic impact 
on a substantial number of small entities. This determination requires 
further study. However, because there is a possibility of a significant 
economic impact on a substantial number of small entities, these 
proposed regulations include an IRFA. The Treasury Department and the 
IRS invite comments on both the number of entities affected by these 
proposed regulations and the economic impact of these proposed 
regulations on small entities.
    Small business entities that claim the section 45W credit must 
satisfy reporting requirements. They will continue to file Form 8936, 
Clean Vehicle Credits (or successor form as the Secretary prescribes), 
as was the case for the section 45W credit prior to the publication of 
these proposed regulations. The estimated burden for business taxpayers 
filing Form 8936 is approved under OMB control number 1545-2137 and 
1545-0123.
    Although the Treasury Department and IRS estimate that small 
business entities will claim the credit under section 45W in a given 
year, the proposed regulations will not have a significant economic 
impact on such entities because the proposed regulations do not impose 
any additional burden on taxpayers outside of what is provided by the 
statute. For example, section 30D(f)(5), which is incorporated into the 
section 45W regime by section 45W(d)(1), requires the Secretary to 
prescribe regulations that provide for the recapture of the credit with 
respect to any property which ceases to be property eligible for such 
credit. These proposed rules merely provide the framework for the 
statutorily required recapture.
    The Treasury Department and IRS have determined that the continued 
requirement to file a Form 8936 (or successor form as the Secretary 
prescribes) is unlikely to involve significant administrative costs 
beyond what was previously required.
A. Need for and Objectives of the Rule
    The proposed regulations would provide the eligibility rules and 
key definitions applicable to the section 45W credit to allow taxpayers 
to know whether the clean vehicle they intend to purchase is eligible 
for the section 45W credit. In addition, the proposed regulations would 
provide rules regarding the recapture authority under section 
45W(d)(1), so that taxpayers and the IRS would have clear rules 
regarding when a clean vehicle may cease to be eligible property for 
purposes of the section 45W credit. Further, the proposed regulations 
would provide rules for determining the amount of the section 45W 
credit, including the determination of incremental cost for qualified 
commercial clean vehicles.
    The proposed rules are expected to encourage taxpayers to purchase 
and place in service qualified commercial clean vehicles, thereby 
increasing the number of clean vehicles on the roads. Thus, the 
Treasury Department and the IRS intend and expect that the proposed 
rules will deliver benefits across the economy and environment that 
will beneficially impact various industries, including clean vehicle 
manufacturers and dealers.
B. Affected Small Entities
    The Small Business Administration estimates in its 2023 Small 
Business Profile that 99.9 percent of United States businesses meet its 
definition of a small business. The applicability of these proposed 
regulations does not depend on the size of the business, as defined by 
the Small Business Administration. As described more fully in the 
preamble to this proposed regulation and in this IRFA, these rules may 
affect a variety of different businesses across several different 
industries, but will primarily affect commercial purchasers of 
qualified commercial clean vehicles and qualified manufacturers of 
qualified commercial clean vehicles. The Treasury Department and the 
IRS currently estimate the number of manufacturers of on-road qualified 
commercial clean vehicles to be approximately 77, and the number of 
manufacturers of off-road mobile machinery to be approximately 4,500.
    For off-road mobile machinery manufacturer estimates, the Treasury 
Department and IRS reviewed tax return filings for relevant industry 
codes for prior taxable years and made assumptions regarding the 
likelihood of such taxpayers manufacturing electric or hydrogen-powered 
off-road mobile machinery. For taxpayers that are not likely to meet 
the definition of small

[[Page 3522]]

business entity, the Treasury Department and the IRS assumed that 100 
percent would manufacture off-road mobile machinery that may qualify 
for the credit under section 45W. For taxpayers likely to meet the 
definition of small business entity, the Treasury Department and the 
IRS assumed that varying percentages of such taxpayers, based on the 
size of their operations, would manufacture off-road mobile machinery 
that may qualify for the credit under section 45W.
    Of the estimated 77 manufacturers of on-road qualified commercial 
clean vehicles, the Treasury Department and the IRS have determined 
that none of them are small businesses entities. Of the estimated 4,500 
manufacturers of off-road mobile machinery, the Treasury Department and 
the IRS estimate that more than half would likely be considered a small 
business entity.
    The Treasury Department and the IRS expect to receive more 
information on the impact on small businesses through comments on this 
proposed rule and again if the integrated system for vehicle 
identification numbers for purposes of section 45W is established.
1. Impact of the Rules
    The recordkeeping and reporting requirements would increase for 
qualified manufacturers of off-road mobile machinery seeking to become 
qualified manufacturers in the event of the establishment of an 
integrated system for vehicle identification numbers. Although the 
Treasury Department and the IRS do not have sufficient data to 
precisely determine the likely extent of the increased costs of 
compliance, the estimated burden of complying with the recordkeeping 
and reporting requirements are described in the PRA section of the 
preamble. Based on the total number of estimated manufacturers of off-
road mobile machinery (4500) and an estimated registration time of 0.25 
hours per registration, the Treasury Department and IRS estimate that 
off-road mobile machinery manufacturers will spend a total of 1,125 
hours registering as qualified manufacturers.
2. Alternatives Considered
    The Treasury Department and the IRS considered various alternatives 
in promulgating these proposed regulations. Significant alternatives 
and issues considered include: (1) the application of NHTSA rules 
toward administering vehicle identification numbers; (2) the 
appropriate length of time for which a vehicle must be used in a trade 
or business as it relates to the recapture rules provided in proposed 
Sec.  1.45W-4(c); and (3) how best to implement the no double benefit 
rules and incremental cost calculation to the eligibility of used 
vehicles for the section 45W credit.
    Regarding the application of NHTSA's rules administering vehicle 
identification numbers compared to an integrated vehicle identification 
system, the Treasury Department and the IRS considered the appropriate 
scope of the definition of ``vehicle identification number'' and how 
that definition should be consistent with or diverge from the inclusion 
of and reference to off-road mobile machinery in the statutory text of 
section 45W(c)(2)(B). The Treasury Department and the IRS considered 
interpreting the ``VIN number'' requirement in section 45W(e) to mean a 
NHTSA-required VIN, consistent with the established definition of 
``vehicle identification number'' in DOT regulations. See 49 CFR 565.10 
through 565.14. However, the only vehicles regulated by NHTSA are motor 
vehicles, which are vehicles manufactured primarily for use on public 
streets, roads, and highways. See 49 U.S.C. 30102(7). Thus, off-road 
vehicles do not have NHTSA-required VINs. Therefore, this 
interpretation would effectively exclude all off-road mobile machinery, 
which Congress may have intended to include, as reflected in the 
parenthetical of section 45W(c)(2)(B).
    The Treasury Department and the IRS considered alternatives to the 
recapture rules provided in proposed Sec.  1.45W-4(c). Given that some 
taxpayers may consider using vehicles for partial business and partial 
personal use, the Treasury Department and the IRS determined it was 
necessary to provide rules regarding when the value of the section 45W 
credit can be recaptured when the vehicle is used less than 100 percent 
for trade or business use, other than incidental personal use. The 
Treasury Department and the IRS also considered the appropriate length 
of time for which the vehicle must be used in a trade or business. 
Longer and shorter periods of time were considered. Based on knowledge 
of commercial vehicle leasing practices (fleet leasing), the Treasury 
Department and the IRS determined that it was appropriate to require a 
qualified commercial clean vehicle to be used for 100 percent trade or 
business use for 18 months after it is placed in service.
    The Treasury Department and the IRS considered issues raised by the 
applicability of the section 45W credit to used vehicles, since the 
statute does not contain an original use requirement. In particular, 
the Treasury Department and the IRS considered how best to implement 
the statutory no double benefit rules. Section 45W(d)(3) provides that 
no credit is allowed with respect to any vehicle for which a credit was 
allowed under section 30D. Section 45W(d)(1), in turn, incorporates 
section 30D(f)(8), which provides in relevant part that in the case of 
any vehicle, the credit shall only be allowed once with respect to such 
vehicle, as determined based upon the vehicle identification number of 
such vehicle. Section 45W(d)(1) also incorporates the no double benefit 
rule in section 30D(f)(2). Subsequent buyers of qualified commercial 
clean vehicles generally would not know if a prior tax credit for clean 
vehicles had been claimed with respect to a particular used vehicle. In 
addition, the IRS generally is legally prohibited from disclosing such 
confidential tax information. Given these constraints and to ensure 
compliance with the no double benefit rules, a taxpayer claiming such 
credit must establish that they are entitled to the credit by keeping 
evidence in their books and records, which may be provided to the IRS 
upon request, sufficient to establish that no deduction or other credit 
was previously allowed on such vehicle.
3. Duplicative, Overlapping, or Conflicting Federal Rules
    The proposed regulations would not duplicate, overlap, or conflict 
with any relevant Federal rules. As discussed in the Explanation of 
Provisions, the proposed regulations would merely provide requirements, 
procedures, and definitions related to the section 45W credit. The 
Treasury Department and the IRS invite input from interested members of 
the public about identifying and avoiding overlapping, duplicative, or 
conflicting requirements.
C. Section 7805(f)
    Pursuant to section 7805(f), this notice of proposed rulemaking has 
been submitted to the Chief Counsel for the Office of Advocacy of the 
Small Business Administration for comment on their impact on small 
business.

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 
proposed regulations

[[Page 3523]]

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. This proposed rule does not have 
federalism implications and does not impose substantial direct 
compliance costs on State and local governments or preempt State law 
within the meaning of the Executive order.

Comments and Public Hearing

    Before these proposed amendments to the regulations are adopted as 
final regulations, consideration will be given to comments regarding 
the notice of proposed rulemaking that are submitted timely to the IRS 
as prescribed in the preamble under the ADDRESSES section. The Treasury 
Department and the IRS request comments on all aspects of the proposed 
regulations. All comments will be made available at https://www.regulations.gov. Once submitted to the Federal eRulemaking Portal, 
comments cannot be edited or withdrawn.
    A public hearing with respect to this notice of proposed rulemaking 
has been scheduled for April 28, 2025, beginning at 10 a.m. EST in the 
Auditorium at the Internal Revenue Building, 1111 Constitution Avenue 
NW, Washington, DC. Due to building security procedures, visitors must 
enter at the Constitution Avenue entrance. In addition, all visitors 
must present photo identification to enter the building. Because of 
access restrictions, visitors will not be admitted beyond the immediate 
entrance area more than 30 minutes before the hearing starts. 
Participants may alternatively attend the public hearing by telephone.
    The rules of 26 CFR 601.601(a)(3) apply to the public hearing. 
Persons who wish to present oral comments at the public hearing must 
submit an outline of the topics to be discussed and the time to be 
devoted to each topic by March 17, 2025. A period of 10 minutes will be 
allotted to each person for making comments. An agenda showing the 
scheduling of the speakers will be prepared after the deadline for 
receiving outlines has passed. Copies of the agenda will be available 
free of charge at the public hearing. If no outline of the topics to be 
discussed at the public hearing is received by March 17, 2025, the 
public hearing will be cancelled. If the public hearing is cancelled, a 
notice of cancellation of the public hearing will be published in the 
Federal Register.
    Individuals who want to testify in person at the public hearing 
must send an email to [email protected] to have your name added to 
the building access list. The subject line of the email must contain 
the regulation number REG-123525-23 and the language TESTIFY In Person. 
For example, the subject line may say: Request to TESTIFY In Person at 
Hearing for REG-123525-23.
    Individuals who want to testify by telephone at the public hearing 
must send an email to [email protected] to receive the telephone 
number and access code for the public hearing. The subject line of the 
email must contain the regulation number REG-123525-23 and the language 
TESTIFY Telephonically. For example, the subject line may say: Request 
to TESTIFY Telephonically at Hearing for REG-123525-23.
    Individuals who want to attend the public hearing in person without 
testifying must also send an email to [email protected] to have 
your name added to the building access list. The subject line of the 
email must contain the regulation number REG-123525-23 and the language 
ATTEND In Person. For example, the subject line may say: Request to 
ATTEND Hearing In Person for REG-123525-23. Requests to attend the 
public hearing must be received by 5 p.m. EST on April 24, 2025.
    Individuals who want to attend the public hearing by telephone 
without testifying must also send an email to [email protected] to 
receive the telephone number and access code for the public hearing. 
The subject line of the email must contain the regulation number REG-
123525-23 and the language ATTEND Hearing Telephonically. For example, 
the subject line may say: Request to ATTEND Hearing Telephonically for 
REG-123525-23. Requests to attend the public hearing must be received 
by 5 p.m. EST on April 24, 2025.
    Public hearings will be made accessible to people with 
disabilities. To request special assistance during a public hearing 
please contact the Publications and Regulations Section of the Office 
of Associate Chief Counsel (Procedure and Administration) by sending an 
email to [email protected] (preferred) or by telephone at (202) 
317-6901 (not a toll-free number) and must be received by at least 
April 23, 2025.

Statement of Availability of IRS Documents

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

Drafting Information

    The principal authors of these proposed regulations are James 
Williford, Iris Chung, David Villagrana, and Rika Valdman of the Office 
of the Associate Chief Counsel (Passthroughs and Special Industries). 
However, other personnel from the Treasury Department, the DOE, and the 
IRS participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

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

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 is amended by adding 
entries in numerical order for Sec. Sec.  1.45W-1 through 1.45W-5 to 
read in part as follows:

    Authority:  26 U.S.C. 7805 * * *
* * * * *
    Section 1.45W-1 also issued under 26 U.S.C. 45W(f) and 
30D(d)(3).
    Section 1.45W-2 also issued under 26 U.S.C. 45W(f).
    Section 1.45W-3 also issued under 26 U.S.C. 45W(f).
    Section 1.45W-4 also issued under 26 U.S.C. 45W(f) and 
30D(f)(5).
    Section 1.45W-5 also issued under 26 U.S.C. 45W(f).
* * * * *
0
Par. 2. Section 1.25E-2 is amended by:
0
1. Adding paragraph (b)(3); and
0
2. Revising paragraph (i).
    The addition and revision read as follows:


Sec.  1.25E-2  Special rules.

* * * * *
    (b) * * *
    (3) Interaction between section 25E and section 45W credits. A 
credit that has been allowed under section 45W of

[[Page 3524]]

the Code with respect to a vehicle in a taxable year before the taxable 
year in which a section 25E credit is allowable for that vehicle does 
not reduce the amount allowable under section 25E.
* * * * *
    (i) Applicability dates--(1) In general. Except as provided in 
paragraph (i)(2) of this section, this section applies to previously-
owned clean vehicles placed in service after December 31, 2022, in 
taxable years ending after October 10, 2023.
    (2) Paragraph (b)(3) of this section. Paragraph (b)(3) of this 
section applies to taxable years ending after [date of publication of 
the final regulations in the Federal Register].
0
Par. 3. Section 1.30D-2 is amended by revising paragraphs (b)(28)(ii) 
and (d) to read as follows:


Sec.  1.30D-2  Definitions for purposes of section 30D.

* * * * *
    (b) * * *
    (28) * * *
    (ii) Modification of a new motor vehicle. If a manufacturer 
modifies a new motor vehicle (as defined in 42 U.S.C. 7550(3)) that 
does not satisfy the requirements of section 30D(d)(1)(F) or (6) so 
that the new motor vehicle, after modification, does satisfy such 
requirements, then such manufacturer may satisfy the requirements of 
section 30D(d)(3) if the modification occurred prior to the new motor 
vehicle being placed in service.
* * * * *
    (d) Applicability dates--(1) In general. Except as provided in 
paragraph (d)(2) of this section, this section applies to taxable years 
ending after December 4, 2023.
    (2) Paragraph (b)(28)(ii) of this section. Paragraph (b)(28)(ii) of 
this section applies to taxable years ending after [date of publication 
of the final regulations in the Federal Register].
0
Par. 4. Sections 1.45W-0 through 1.45W-5 are added to read as follows:
Sec.
* * * * *
1.45W-0 Table of contents.
1.45W-1 Credit for qualified commercial clean vehicles; definitions.
1.45W-2 Amount of section 45W credit; incremental cost.
1.45W-3 Qualified commercial clean vehicle.
1.45W-4 Special rules.
1.45W-5 Reporting requirements.
* * * * *


Sec.  1.45W-0  Table of contents.

    This section lists the captions contained in Sec. Sec.  1.45W-1 
through 1.45W-5.

Sec.  1.45W-1 Credit for qualified commercial clean vehicles; 
definitions.

    (a) In general.
    (b) Definitions.
    (1) Battery.
    (2) Battery electric vehicle or BEV.
    (3) Fuel cell electric vehicle of FCEV.
    (4) Gross Vehicle Weight Rating or GVWR.
    (5) Manufacturer.
    (6) Placed in service.
    (7) Plug-in hybrid electric vehicle or PHEV.
    (8) Plug-in hybrid fuel cell electric vehicle or PHFCEV.
    (9) Qualified commercial clean vehicle.
    (10) Qualified manufacturer.
    (11) Secretary.
    (12) Section 45W regulations.
    (13) Statutory references.
    (i) Chapter 1.
    (ii) Code.
    (iii) Subtitle A.
    (c) Applicability date.

Sec.  1.45W-2 Amount of section 45W credit; incremental cost.
    (a) Per vehicle amount.
    (b) Incremental cost.
    (1) In general.
    (2) Manufacturer's cost.
    (3) Retail price equivalent.
    (i) In general.
    (ii) Retail price.
    (iii) Retail delivered price.
    (iv) Safe harbor.
    (4) Comparable vehicle.
    (i) In general.
    (ii) Gasoline- or diesel-powered vehicle by same manufacturer.
    (iii) Vehicle comparable in size and use.
    (iv) Example.
    (A) Facts.
    (B) Analysis.
    (c) Incremental cost equations and calculations.
    (1) ICE powertrain cost.
    (2) Battery electric vehicles.
    (3) Plug-in hybrid electric vehicles.
    (4) Fuel cell electric vehicles.
    (5) Plug-in hybrid fuel cell electric vehicles.
    (6) Incremental cost determined exclusive of auxiliary power 
units.
    (7) Incremental cost determine inclusive of additional 
batteries, fuel cells, or hydrogen storage.
    (8) Negative incremental cost treated as zero.
    (9) Incremental cost if no comparable vehicle exists.
    (10) Taxpayer reliance on qualified manufacturer's incremental 
cost determination.
    (11) Safe harbor.
    (d) Definitions.
    (1) Battery.
    (2) Electric traction drive system and components.
    (3) Electrical accessories.
    (4) Engine and engine components.
    (5) Fuel cell.
    (6) Hydrogen storage.
    (7) Hydrogen storage cost.
    (8) Mechanical accessories.
    (9) Transmission.
    (e) Examples.
    (1) Example 1.
    (i) Facts.
    (ii) Analysis.
    (2) Example 2.
    (i) Facts.
    (ii) Analysis.
    (3) Example 3.
    (i) Facts.
    (ii) Analysis.
    (f) Incremental cost of qualified commercial clean vehicle 
previously placed in service by another person or entity.
    (1) In general.
    (2) Age of a qualified commercial clean vehicle previously 
placed in service by another person or entity.
    (3) Residual value factor.
    (4) Example.
    (i) Facts.
    (ii) Analysis.
    (g) Applicability date.

Sec.  1.45W-3 Qualified commercial clean vehicle.

    (a) In general.
    (b) Acquired for use or lease and not for resale by the 
taxpayer.
    (1) In general.
    (2) Recharacterization of lease.
    (c) Type of vehicle.
    (1) In general.
    (2) On-road vehicle.
    (3) Mobile machinery.
    (d) Electric motor and battery requirements.
    (1) In general.
    (2) Battery capable of being recharged from an external source 
of electricity.
    (e) Applicability date.

Sec.  1.45W-4 Special rules.

    (a) No double benefit.
    (1) Previous allowance of section 45W or 30D credit.
    (2) Allowance of other deduction or credit.
    (b) Credit ineligibility resulting from certain transactions and 
uses.
    (1) In general.
    (2) Cancelled sale.
    (3) Vehicle return.
    (4) Resale.
    (5) Less than 100 percent trade or business use in taxable year 
vehicle is placed in service.
    (c) Recapture.
    (1) In general.
    (2) Recapture in the case of less than 10 percent trade or 
business use.
    (i) In general.
    (ii) Applicability to vehicles placed in service by a tax-exempt 
entity.
    (d) Elective payment elections.
    (e) Leases.
    (f) Applicability date.

Sec.  1.45W-5 Reporting requirements.

    (a) Requirement to file return.
    (b) Credit may generally be claimed on only one tax return.
    (1) In general.
    (2) Grantor trusts.
    (3) Partnerships and S corporations.
    (c) Taxpayer reliance on manufacturer certifications and 
periodic written reports to the IRS.
    (d) Applicability date.

[[Page 3525]]

Sec.  1.45W-1  Credit for qualified commercial clean vehicles; 
definitions.

    (a) In general. The section 45W regulations (defined in paragraph 
(b)(12) of this section) apply for purposes of determining the 
availability and amount of any credit under section 45W of the Internal 
Revenue Code (Code) with respect to a qualified commercial clean 
vehicle placed in service by a taxpayer during such taxpayer's taxable 
year (section 45W credit). Paragraph (b) of this section provides 
definitions of terms for purposes of applying section 45W and the 
section 45W regulations. Section 1.45W-2 provides rules for determining 
the per-vehicle credit amount under section 45W(b). Section 1.45W-3 
provides rules related to the definition of qualified commercial clean 
vehicle under section 45W(c). Section 1.45W-4 provides special rules 
related to section 45W(d). Section 1.45W-5 provides reporting 
requirements for purposes of section 45W.
    (b) Definitions. The following definitions apply for purposes of 
section 45W and the section 45W regulations. For definitions specific 
to incremental cost calculations, see Sec.  1.45W-2(d).
    (1) Battery. Battery means a collection of one or more battery 
modules, each of which has two or more battery cells, electrically 
configured in series or parallel, to create voltage or current. The 
term battery does not include items such as thermal management systems 
or other parts of a battery cell or module that do not directly 
contribute to the electrochemical storage of energy within the battery, 
such as battery cell cases, cans, or pouches.
    (2) Battery electric vehicle or BEV. Battery electric vehicle or 
BEV means a vehicle propelled solely by an electric motor that draws 
electricity from batteries capable of being recharged from an external 
source of electricity.
    (3) Fuel cell electric vehicle or FCEV. Fuel cell electric vehicle 
or FCEV means a vehicle--
    (i) That is propelled by power derived from one or more cells that 
convert chemical energy directly into electricity by combining oxygen 
with hydrogen fuel that is stored on board the vehicle in any form and 
may or may not require reformation prior to use; and
    (ii) That, in the case of a light-duty vehicle (that is, a 
passenger automobile or light truck), has received on or after August 
8, 2005 (the date of the enactment of section 30B of the Code), a 
certificate indicating that such vehicle meets or exceeds the Bin 5 
Tier II emission level established in regulations in 40 CFR chapter I 
prescribed by the Administrator of the Environmental Protection Agency 
(EPA) under section 202(i) of the Clean Air Act (CAA) (42 U.S.C. 
7521(i)) for that make and model year vehicle.
    (4) Gross vehicle weight rating or GVWR. Gross vehicle weight 
rating or GVWR has the meaning provided in 40 CFR 86.082-2 and 49 CFR 
571.3(b).
    (5) Manufacturer--(i) In general. Manufacturer means any 
manufacturer within the meaning of the regulations in 40 CFR chapter I 
prescribed by the Administrator of the EPA for purposes of the 
administration of title II of the CAA (42 U.S.C. 7521 et seq.) and as 
defined in 42 U.S.C. 7550(1). If multiple manufacturers are involved in 
the production of a vehicle, the requirements of section 30D(d)(3) must 
be met by the manufacturer that satisfies the reporting requirements of 
the greenhouse gas emissions standards set by the EPA under the CAA (42 
U.S.C. 7521 et seq.) for the subject vehicle.
    (ii) Modification of a new motor vehicle. If a manufacturer 
modifies a new motor vehicle (as defined in 42 U.S.C. 7550(3)) that 
does not satisfy the requirements of section 45W(c)(3) so that the 
vehicle, after modification, does satisfy such requirements, then such 
manufacturer may satisfy the requirements of section 30D(d)(3) of the 
Code and Sec.  1.30D-2(b)(28)(i) for purposes of paragraph (b)(5)(i) of 
this section if the modification occurs prior to the vehicle being 
placed in service.
    (6) Placed in service. A qualified commercial clean vehicle is 
considered to be placed in service on the date the taxpayer takes 
possession of the vehicle.
    (7) Plug-in hybrid electric vehicle or PHEV. Plug-in hybrid 
electric vehicle or PHEV means a vehicle that uses batteries that can 
be recharged from an external source of electricity to power an 
electric motor that propels the vehicle to a significant extent, and 
another fuel, such as gasoline or diesel, to power an internal 
combustion engine or other propulsion source.
    (8) Plug-in hybrid fuel cell electric vehicle or PHFCEV. Plug-in 
hybrid fuel cell electric vehicle or PHFCEV means a vehicle that uses 
batteries that can be recharged from an external source of electricity 
to power an electric motor that propels the vehicle to a significant 
extent and a hydrogen fuel source that powers an electric motor through 
the fuel cell system.
    (9) Qualified commercial clean vehicle. Qualified commercial clean 
vehicle means a vehicle that meets the requirements of section 45W(c) 
and Sec.  1.45W-3(b) through (d). Vehicles that may qualify as 
qualified commercial clean vehicles include BEVs, FCEVs, PHEVs, and 
PHFCEVs. A vehicle does not meet the requirements of section 45W(c) 
if--
    (i) The qualified manufacturer fails to provide a periodic written 
report for such vehicle prior to the vehicle being placed in service by 
the taxpayer claiming the credit that reports the vehicle 
identification number of such vehicle and certifies compliance with the 
requirements of section 45W(c);
    (ii) The qualified manufacturer provides incorrect information with 
respect to the periodic written report for such vehicle; or
    (iii) The qualified manufacturer fails to update its periodic 
written report in the event of a material change with respect to such 
vehicle.
    (10) Qualified manufacturer. Qualified manufacturer means a 
manufacturer that meets the requirements described in section 30D(d)(3) 
at the time the manufacturer submits a periodic written report to the 
Internal Revenue Service (IRS) under a written agreement described in 
section 30D(d)(3). The term qualified manufacturer does not include any 
manufacturer whose qualified manufacturer status has been terminated by 
the IRS. The IRS may terminate qualified manufacturer status for fraud, 
intentional disregard, or gross negligence with respect to any 
requirements of section 45W, the section 45W regulations, or any 
guidance under section 45W, including with respect to the periodic 
written reports described in section 30D(d)(3) and this paragraph 
(b)(10). The IRS may also terminate qualified manufacturer status for 
fraud, intentional disregard, or gross negligence with respect to any 
requirement of section 25E or 30D or any regulations in this chapter or 
guidance thereunder.
    (11) Secretary. Secretary has the meaning provided in section 
7701(a)(11)(B) of the Code.
    (12) Section 45W regulations. Section 45W regulations means this 
section and Sec. Sec.  1.45W-2 through 1.45W-5.
    (13) Statutory references--(i) Chapter 1. Chapter 1 means chapter 1 
of the Code.
    (ii) Code. Code means the Internal Revenue Code.
    (iii) Subtitle A. Subtitle A means subtitle A of the Code.
    (c) Applicability date. This section applies to qualified 
commercial clean vehicles placed in service in taxable years ending 
after [date of publication of the final regulations in the Federal 
Register].

[[Page 3526]]

Sec.  1.45W-2  Amount of section 45W credit; incremental cost.

    (a) Per-vehicle credit amount. Subject to the limitation in section 
45W(b)(4) of the Code, the per-vehicle credit amount under section 
45W(b)(1) with respect to any qualified commercial clean vehicle is the 
lesser of 15 percent of the basis of such vehicle (or 30 percent in the 
case of a vehicle not powered by a gasoline or diesel internal 
combustion engine (ICE)), or the incremental cost of such vehicle.
    (b) Incremental cost--(1) In general. For purposes of section 
45W(b)(2), the incremental cost of any qualified commercial clean 
vehicle is determined using the incremental cost calculations and 
equations in paragraph (c) of this section to determine the amount 
equal to the excess of--
    (i) The product of the qualified manufacturer's cost of components 
necessary for the BEV powertrain, FCEV powertrain, PHEV powertrain, or 
PHFCEV powertrain used in the vehicle and the retail price equivalent 
(RPE) of such vehicle; minus
    (ii) The product of the manufacturer's cost of components necessary 
for the powertrain of a comparable vehicle powered solely by a gasoline 
or diesel ICE and the RPE of such comparable vehicle.
    (2) Manufacturer's cost. For purposes of this section, a 
manufacturer's cost includes only its direct manufacturing costs, which 
may include, but are not limited to, the costs of materials and labor.
    (3) Retail price equivalent--(i) In general. The RPE is the ratio 
of the manufacturer's suggested retail price (MSRP) of a vehicle to the 
manufacturer's cost to manufacture such vehicle. The MSRP is the sum of 
the retail price and the retail delivered price.
    (ii) Retail price. For purposes of paragraph (b)(3)(i) of this 
section, retail price is the retail price of the vehicle suggested by 
the manufacturer as described in 15 U.S.C. 1232(f)(1).
    (iii) Retail delivered price. Retail delivered price, for purposes 
of paragraph (b)(3)(i) of this section, is the retail delivered price 
suggested by the manufacturer for each accessory or item of optional 
equipment physically attached to such vehicle at the time of its 
delivery to the dealer that is not included within the price of such 
vehicle as stated pursuant to 15 U.S.C. 1232(f)(1), as described in 15 
U.S.C. 1232(f)(2).
    (iv) Safe harbor. The Secretary may publish guidance in the 
Internal Revenue Bulletin (see Sec.  601.601 of this chapter) no more 
frequently than annually that will provide RPE safe harbors for 
different segments of the vehicle market. Any taxpayer that uses an RPE 
provided in safe harbor guidance published in the Internal Revenue 
Bulletin (see Sec.  601.601 of this chapter) to determine the cost of a 
BEV, PHEV, FCEV, PHFCEV, or ICE powertrain will be deemed to have 
satisfied the requirements of this paragraph (b)(3), provided all 
requirements specified in the applicable RPE safe harbor guidance have 
been met. No formal election is required for a taxpayer to use a safe 
harbor RPE.
    (4) Comparable vehicle--(i) In general. A comparable vehicle is any 
vehicle that is powered solely by a gasoline or diesel ICE and is 
comparable in size and use to the qualified commercial clean vehicle. 
Except as provided in paragraph (b)(4)(ii) of this section, the 
manufacturer of the comparable vehicle need not be the manufacturer of 
the qualified commercial clean vehicle.
    (ii) Gasoline- or diesel-powered vehicle by same manufacturer. If 
the qualified manufacturer of a qualified commercial clean vehicle also 
manufactures a solely gasoline- or diesel-powered ICE version of such 
vehicle, meaning a vehicle of the same model, produced in the same 
model year, and with features substantially similar to those of the 
qualified commercial clean vehicle, such solely gasoline- or diesel-
powered vehicle is the only comparable vehicle with respect to such 
qualified commercial clean vehicle.
    (iii) Vehicle comparable in size and use. A vehicle is comparable 
to a qualified commercial clean vehicle in size and use if, as relevant 
to the particular qualified commercial clean vehicle, it has 
substantially similar features, such as GVWR, number of doors, towing 
capacity, passenger capacity, cargo capacity, mounted equipment, 
drivetrain type, overall width, height and ground clearance, and trim 
level.
    (iv) Example: Comparable vehicle--(A) Facts. A passenger car with a 
BEV powertrain (BEV X) that is a qualified commercial clean vehicle has 
a GVWR of 4,800 pounds, four doors, five-passenger seating capacity, a 
mid-range trim level, and a 250-horsepower powertrain. A passenger car 
with an ICE powertrain (ICE Car 1) has a GVWR of 4,500 pounds, four 
doors, five-passenger seating capacity, a mid-range trim level, and a 
200-horsepower powertrain. A second passenger car with an ICE 
powertrain (ICE Car 2) has a GVWR of 4,500 pounds, two doors, two-
passenger seating capacity, a high-end trim level, and a 250-horsepower 
powertrain.
    (B) Analysis. ICE Car 1 is comparable to BEV X because ICE Car 1 
and BEV X have substantially similar GVWRs (4,800 pounds compared to 
4,500 pounds), numbers of doors (4), passenger capacity (5), and trim 
levels (mid-range). The fact that ICE Car 1 and BEV X have dissimilar 
horsepower is not determinative because whether two vehicles are 
comparable vehicles under the rules of paragraph (b)(4) of this section 
is not entirely dependent on the performance characteristics of the 
powertrains. ICE Car 2 and BEV X, which have different numbers of doors 
(4 compared to 2), passenger capacities (5 compared to 2), and trim 
levels (mid-range compared to high-end), are not comparable. Therefore, 
ICE Car 1 is a comparable vehicle for purposes of calculating the 
incremental cost of BEV X, but ICE Car 2 is not.
    (c) Incremental cost equations and calculations. The incremental 
cost equations and calculations set forth in this paragraph (c) apply 
to determine the incremental cost of a qualified commercial clean 
vehicle for purposes of section 45W(b)(2) and this section.
    (1) ICE powertrain cost. For purposes of the equations and 
calculations in this paragraph (c), the ICE powertrain cost is the sum 
of the cost of the engine, the ICE transmission, and the mechanical 
accessories.
    (2) Battery electric vehicles. In the case of a BEV, the 
incremental cost of the BEV is the product of the manufacturer's cost 
of the BEV powertrain and the RPE of such vehicle, less the product of 
the manufacturer's cost of the comparable vehicle ICE powertrain and 
the RPE of such vehicle. The BEV powertrain cost is the sum of the cost 
of the electric traction drive system (which, for purposes of equation 
1 to this paragraph (c)(2), includes the BEV transmission), the 
battery, and the electrical accessories. Expressed formulaically, the 
rule is as follows:
Equation 1 to Paragraph (c)(2)
Incremental cost of BEV = (BEV powertrain cost x RPE)-(ICE powertrain 
cost x RPE)

    (3) Plug-in hybrid electric vehicles. In the case of a PHEV, the 
incremental cost of the PHEV is the product of the manufacturer's cost 
of the PHEV powertrain and the RPE of such vehicle, less the product of 
the manufacturer's cost of the comparable vehicle ICE powertrain and 
the RPE of such vehicle. The PHEV powertrain cost is the sum of the 
cost of the engine, the electric traction drive system (which, for

[[Page 3527]]

purposes of equation 2 to this paragraph (c)(3), includes the PHEV 
transmission), the battery, and the electrical accessories. Expressed 
formulaically, the rule is as follows:
Equation 2 to Paragraph (c)(3)
Incremental cost of PHEV = (PHEV powertrain cost x RPE)-(ICE powertrain 
cost x RPE)

    (4) Fuel cell electric vehicles. In the case of a FCEV, the 
incremental cost of the FCEV is the product of the manufacturer's cost 
of the FCEV powertrain and the RPE of such vehicle, less the product of 
the manufacturer's cost of the comparable vehicle ICE powertrain and 
the RPE of such vehicle. The FCEV powertrain cost is the sum of the 
cost of the fuel cell system, the hydrogen storage, the electric 
traction drive system (which, for purposes of equation 3 to this 
paragraph (c)(4), includes the FCEV transmission), the battery, and the 
electrical accessories. Expressed formulaically, the rule is as 
follows:
Equation 3 to Paragraph (c)(4)
Incremental cost of FCEV = (FCEV powertrain cost x RPE)-(ICE powertrain 
cost x RPE)

    (5) Plug-in hybrid fuel cell electric vehicles. In the case of a 
PHFCEV, the incremental cost of the PHFCEV is the product of the 
manufacturer's cost of the PHFCEV powertrain and the RPE of such 
vehicle, less the product of the manufacturer's cost of the comparable 
vehicle ICE powertrain and the RPE of such vehicle. The PHFCEV 
powertrain cost is the sum of the cost of the fuel cell system, the 
hydrogen storage, the electric traction drive system (which, for 
purposes of equation 4 to this paragraph (c)(5), includes the PHFCEV 
transmission), the battery, and the electrical accessories. Expressed 
formulaically, the rule is as follows:
Equation 4 to Paragraph (c)(5)
Incremental cost of PHFCEV = (PHFCEV powertrain cost x RPE)-(ICE 
powertrain cost x RPE)

    (6) Incremental cost determined exclusive of auxiliary power units. 
The incremental cost of a qualified commercial clean vehicle is 
determined without regard to any auxiliary power unit installed on such 
vehicle or on a comparable vehicle.
    (7) Incremental cost determined inclusive of additional batteries, 
fuel cells, or hydrogen storage. The incremental cost of a qualified 
commercial clean vehicle is determined by adding to the cost of the 
BEV, FCEV, PHEV, or PHFCEV powertrain the cost of additional batteries 
installed on such vehicle, regardless of whether such additional 
batteries are required by a power takeoff, as well as additional fuel 
cells or additional hydrogen storage installed on such vehicle, 
regardless of whether such additional fuel cells are required by a 
power takeoff.
    (8) Negative incremental cost treated as zero. If the incremental 
cost calculation results in a negative number, meaning that the cost of 
the BEV, FCEV, PHEV, or PHFCEV powertrain used in the qualified 
commercial clean vehicle is less than the cost of the ICE powertrain of 
a comparable vehicle, then the incremental cost of the qualified 
commercial vehicle is zero. This paragraph (c)(8) does not affect the 
availability of the safe harbor described in paragraph (c)(11) of this 
section.
    (9) Incremental cost if no comparable vehicle exists. If a taxpayer 
or manufacturer cannot identify a comparable vehicle with respect to a 
particular qualified commercial clean vehicle, then the incremental 
cost of such qualified commercial clean vehicle is zero. This paragraph 
(c)(9) does not affect the availability of the safe harbor described in 
paragraph (c)(11) of this section.
    (10) Taxpayer reliance on qualified manufacturer's incremental cost 
determination. If a qualified manufacturer provides a taxpayer with 
written documentation of the incremental cost of a qualified commercial 
clean vehicle that identifies the comparable vehicle such manufacturer 
used for the incremental cost calculation and the taxpayer keeps such 
incremental cost documentation in the taxpayer's records for as long as 
the period of limitations for the taxable period in which the credit 
was claimed is open, the taxpayer may rely on such incremental cost for 
purposes of calculating the amount of the section 45W credit (defined 
in Sec.  1.45W-1(a)) with respect to such vehicle. See Sec.  1.45W-
1(b)(9) for consequences of qualified manufacturer fraud, intentional 
disregard, or gross negligence with respect to any requirements of 
section 45W, the section 45W regulations (defined in Sec.  1.45W-
1(b)(12)), or any guidance issued by the Secretary under section 45W.
    (11) Safe harbor. The Secretary may publish guidance in the 
Internal Revenue Bulletin (see Sec.  601.601 of this chapter) no more 
frequently than annually that will provide incremental cost safe 
harbors for different types and classes of qualified commercial clean 
vehicles placed in service during a specified period. Any taxpayer that 
uses an incremental cost safe harbor provided in guidance published in 
the Internal Revenue Bulletin (see Sec.  601.601 of this chapter) will 
be deemed to have satisfied the requirements of section 45W(b)(1)(B) 
and (2) and paragraphs (b) and (c) of this section, provided all 
requirements specified in the applicable safe harbor guidance have been 
met. No formal election is required for a taxpayer to use an 
incremental cost safe harbor.
    (d) Definitions. This paragraph (d) provides definitions related to 
the incremental cost rules in section 45W(b)(1)(B) and paragraphs (b) 
and (c) of this section.
    (1) Battery. Battery has the meaning provided in Sec.  1.45W-
1(b)(1).
    (2) Electric traction drive system and components--(i) Electric 
traction drive system. Electric traction drive system means a system 
used to provide vehicle propulsion in BEVs, FCEVs, PHEVs, and PHFCEVs 
by delivering torque to the wheels and axle of the vehicle, and 
includes, but is not limited to, an electric motor, an inverter, and a 
transmission.
    (ii) Electric motor. Electric motor means the component that 
includes the stator, rotor, shaft, housing, bearings, and lubrication 
elements. Multiple electric motors may be used in a vehicle.
    (iii) Inverter. Inverter means a component that converts direct 
current (DC) from the battery into alternating current (AC) to power 
the electric motor, providing precise control over motor operations.
    (iv) BEV, FCEV, PHEV, and PHFCEV transmission. For the definition 
of transmission for BEVs, FCEVs, PHEVs, and PHFCEVs, see paragraph 
(d)(9)(i) of this section.
    (3) Electrical accessories--(i) In general. Electrical accessories 
means accessories that support, but do not independently facilitate, 
the function of essential vehicle systems, and include, but are not 
limited to, battery enclosures, a compressor, an electric steering 
pump, high voltage cables and connections, thermal management systems, 
and a vacuum pump.
    (ii) Battery enclosures. Battery enclosures means components that 
consist of battery cases, cans or pouches, or casings or packaging used 
to enclose and protect battery cells and modules into a pack.
    (iii) Compressor. Compressor means a component that powers the air 
conditioning system, ensuring effective climate control within the 
vehicle.
    (iv) Electric steering pump. Electric steering pump means a 
component that provides hydraulic assistance for the

[[Page 3528]]

steering mechanism, enhancing ease of steering and vehicle 
maneuverability.
    (v) High voltage cables and connections. High voltage cables and 
connections means components that include all high voltage cables, 
connections to electric drive units, cables from the onboard charger, 
DC-DC converter, air compressors, and the charging cable from the 
charging port to the onboard charger.
    (vi) Thermal management systems. Thermal management systems means 
components that manage heating and cooling loads to ensure the 
efficient operation of the battery and electric traction drive system.
    (vii) Vacuum pump. Vacuum pump means a component that is essential 
for various vehicle systems that require vacuum assistance, 
contributing to overall system functionality.
    (4) Engine and engine components--(i) Engine. The engine generates 
power by burning fuel with air inside the engine. The engine includes, 
but is not limited to, air intake and cooling systems, assembly 
accessories, core engine components, engine management sensors and 
electronics, exhaust gas regulator and breather systems, fuel systems, 
induction air charging and fuel induction systems, power distribution 
and sensing for after-treatment, primary exhaust and after-treatment 
modules, and a valve train.
    (ii) Air intake and cooling systems. Air intake and cooling systems 
means components that ensure adequate airflow for combustion and 
regulate engine temperature through the use of pumps, pipes, and 
cooling fans.
    (iii) Assembly accessories. Assembly accessories means auxiliary 
components that are necessary for the assembly and integration of the 
powertrain system.
    (iv) Core engine components. Core engine components means 
components that include the engine cylinder head, crankshaft, and 
cylinder block, which form the fundamental structure of the engine, 
facilitating combustion and power generation.
    (v) Engine management sensors and electronics. Engine management 
sensors and electronics means control units and sensors that monitor 
and adjust engine parameters to maximize engine performance and 
minimize emissions.
    (vi) Exhaust gas regulator and breather systems. Exhaust gas 
regulator and breather systems means components that control the 
release of exhaust gases and maintain proper ventilation of the engine 
crankcase.
    (vii) Fuel system. Fuel system means components that encompass fuel 
storage, distribution, and evaporative control components, ensuring 
proper fuel delivery and reducing emissions.
    (viii) Induction air charging and fuel induction systems. Induction 
air charging and fuel induction systems means components that regulate 
the intake of air and fuel into the combustion chambers, ensuring 
efficient mixing and combustion.
    (ix) Power distribution and sensing for after-treatment. Power 
distribution and sensing for after-treatment means sensors and 
distribution mechanisms that manage the after-treatment process, 
ensuring effective emission control.
    (x) Primary exhaust and after-treatment modules. Primary exhaust 
and after-treatment modules means components that handle the initial 
expulsion of exhaust gases and subsequent treatment to meet emission 
standards.
    (xi) Valve train. Valve train means a component that manages the 
timing and operation of the engine's intake and exhaust valves, 
optimizing airflow and exhaust processes.
    (5) Fuel cell. Fuel cell means one or more cells in a stack that 
convert chemical energy directly into electricity by combining oxygen 
with hydrogen fuel that is stored on board the vehicle in any form and 
may or may not require reformation prior to use. The fuel cell system 
includes the stack as well as auxiliary components that include but are 
not limited to pumps, sensors, heat exchangers, gaskets, compressors, 
recirculation blowers, or humidifiers.
    (6) Hydrogen storage. Hydrogen storage means storage of hydrogen on 
board the vehicle in high-pressure tanks as a gas or liquid.
    (7) Hydrogen storage cost. Hydrogen storage cost includes the cost 
of the tank and the components that manage the flow of hydrogen from 
the tank to the fuel cell system (that is, hydrogen supply and 
regulation).
    (8) Mechanical accessories--(i) In general. Mechanical accessories 
are accessories that support, but do not independently facilitate, the 
function of essential vehicle systems, and include, but are not limited 
to, a compressor, a mechanical steering pump, and a water pump.
    (ii) Compressor. Compressor means a component that powers the air 
conditioning system, ensuring effective climate control within the 
vehicle.
    (iii) Mechanical steering pump. Mechanical steering pump means a 
component that provides hydraulic assistance to the steering mechanism, 
reducing the effort required by the driver to turn the steering wheel.
    (iv) Water pump. Water pump means a component that circulates 
coolant throughout the engine to maintain optimal operating 
temperatures and prevent overheating.
    (9) Transmission--(i) BEVs, FCEVs, PHEVs and PHFCEVs. For BEVs, 
FCEVs, PHEVs, and PHFCEVs, transmission means a mechanical device that 
uses a gear set--two or more gears working together--to change the 
speed or direction of rotation in a machine. For BEVs and FCEVs 
(electric vehicles), transmission means a component that consists of a 
single- or multi-speed, single- or multi-reduction gearbox that 
transfers power from the electric machine to the wheels. For PHEVs and 
PHFCEVs (plug-in hybrid vehicles), transmission components will depend 
on the vehicle driveline and orientation of the hybrid system (i.e., 
parallel or series) and may include, but are not limited to:
    (A) Two transmissions (one ICE transmission and one electric 
vehicle transmission);
    (B) One transmission with some components of both ICE and EV 
transmissions; and
    (C) One electric vehicle transmission only.
    (ii) ICE vehicles--(A) In general. For ICE vehicles, transmission 
means a mechanical device that uses a gear set (that is, two or more 
gears working together) to change the speed or direction of rotation in 
a machine. For ICE vehicles, a transmission may include, but is not 
limited to, a case, a drivetrain and geartrain, an internal clutch and 
torque converter, a lubrication system, a mechanical controls and 
electronic distribution system, a park-brake mechanism, and a 
transmission cooling system.
    (B) Case, drivetrain, and geartrain. Case, drivetrain, and 
geartrain means the mechanical components within the transmission that 
transfer power from the engine to the wheels, including gears and 
shafts.
    (C) Internal clutch and torque converter. Internal clutch and 
torque converter means components that facilitate smooth power transfer 
and gear changes, enhancing drivability.
    (D) Lubrication system. Lubrication system means components that 
ensure all moving parts within the transmission are adequately 
lubricated, reducing friction and wear.
    (E) Mechanical controls and electronic distribution system. 
Mechanical controls and electronic distribution system means components 
that manage the operation of the transmission, including gear selection 
and shifting through both mechanical and electronic means.

[[Page 3529]]

    (F) Park-brake mechanism. Park-brake mechanism means a component 
that ensures the vehicle remains stationary when parked.
    (G) Transmission cooling system. Transmission cooling system means 
components that prevent overheating of the transmission components, 
ensuring reliable performance under various operating conditions.
    (e) Examples--(1) Example 1: Incremental cost calculation for a 
qualified commercial clean vehicle--(i) Facts. Manufacturer is the 
qualified manufacturer of a model year 2024 battery electric sport 
utility vehicle (BEV SUV). The BEV SUV is a qualified commercial clean 
vehicle with a GVWR of 4,600 pounds. Manufacturer is also the 
manufacturer of a gasoline-powered ICE SUV (ICE SUV) that, except for 
the powertrain, is identical to the BEV SUV. Manufacturer's costs of 
the BEV SUV powertrain components are: electric traction drive system 
($1,881.00), battery ($12,060.00), and electrical accessories 
($1,437.00). The RPE of the BEV SUV is 1.49. Manufacturer's costs of 
the ICE SUV powertrain components are: engine ($5,757.00), transmission 
($1,744.00), and mechanical accessories ($415.00). The RPE of the ICE 
SUV is 1.52. In 2025, Taxpayer purchases the BEV SUV for $50,000 and 
places the vehicle in service. At the time of Taxpayer's purchase, 
Manufacturer provides Taxpayer with a written disclosure of 
Manufacturer's incremental cost calculation, which Manufacturer 
calculated as described in paragraphs (b) and (c) of this section.
    (ii) Analysis--(A) Calculation of incremental cost. Under paragraph 
(b)(1) of this section, the incremental cost of the BEV SUV is the 
product of Manufacturer's cost of the BEV SUV powertrain and the RPE of 
such vehicle, less the product of Manufacturer's cost of the comparable 
vehicle ICE powertrain and the RPE of such vehicle.
    (1) Step 1. Under paragraph (c)(2) of this section, the BEV SUV 
powertrain cost is the sum of the cost of the electric traction drive 
system ($1,881.00), the battery ($12,060.00), and the electrical 
accessories ($1,437.00), multiplied by the RPE of the vehicle (1.49), 
or $22,913.22.
    (2) Step 2. Under paragraph (b)(4) of this section, the ICE SUV is 
the comparable vehicle with respect to the BEV SUV. Under paragraph 
(c)(1) of this section, the ICE SUV powertrain cost is the sum of the 
cost of the engine ($5,757.00), the ICE transmission ($1,744.00), and 
the mechanical accessories ($415.00), multiplied by the RPE of the 
vehicle (1.52), or $12,032.32.
    (3) Step 3. Under paragraph (c)(2) of this section, the incremental 
cost of the BEV SUV is determined by subtracting the cost of the ICE 
SUV powertrain in step 2 ($12,032.32) from the cost of the BEV SUV 
powertrain in step 1 ($22,913.22), or $10,880.90 ($22,913.22-$12,032.32 
= $10,880.90).
    (B) Determination of credit amount. Under paragraph (c)(10) of this 
section, Taxpayer may rely on Manufacturer's incremental cost 
calculation, which is described in paragraphs (b) and (c) of this 
section, for purposes of determining the amount of the section 45W 
credit allowable for the BEV SUV. Subject to the limitation in section 
45W(b)(4), the credit amount is the lesser of 30 percent of Taxpayer's 
basis in the BEV SUV ($50,000.00 x 30% = $15,000.00) or the incremental 
cost of the BEV SUV ($10,880.90). Under section 45W(b)(4), the 
taxpayer's credit is limited to a maximum of $7,500.00 because the 
vehicle has a GVWR of less than 14,000 pounds. Therefore, the allowable 
section 45W credit with respect to the BEV SUV is $7,500.00.
    (2) Example 2: Section 45W credit equal to 30 percent of Taxpayer's 
basis in a qualified commercial clean vehicle--(i) Facts. The facts are 
the same as in paragraph (e)(1) of this section (Example 1), except 
that Taxpayer purchases the BEV SUV for $21,600.00 and the incremental 
cost calculated by Manufacturer and provided in writing to Taxpayer is 
$7,000.00.
    (ii) Analysis. Under paragraph (c)(10) of this section, Taxpayer 
may rely on Manufacturer's incremental cost calculation, which is 
described in paragraphs (b) and (c) of this section, for purposes of 
determining the amount of the section 45W credit allowable for the BEV 
SUV. Subject to the limitation in section 45W(b)(4), the credit amount 
equals the lesser of 30 percent of Taxpayer's basis in the BEV SUV 
($21,600.00 x 30% = $6,480.00) or the incremental cost of the BEV SUV 
($7,000.00). Because $6,480.00 is below the $7,500 limitation in 
section 45W(b)(4), the allowable section 45W credit with respect to the 
BEV SUV is $6,840.00.
    (3) Example 3: Incremental cost limit for a BEV with a GVWR over 
14,000 pounds--(i) Facts. Manufacturer is the qualified manufacturer of 
a model year 2025 battery electric bus (BEV Bus). The BEV Bus has a 
GVWR of 14,500 pounds and is a qualified commercial clean vehicle. 
Manufacturer is also the manufacturer of an ICE Bus that, except for 
the powertrain, is substantially similar to the BEV Bus. Manufacturer's 
costs of the BEV Bus powertrain components are: electric traction drive 
system ($4,586.00), battery ($18,535.00), and electrical accessories 
($2,150.00). The RPE of the BEV Bus is 1.49. Manufacturer's costs of 
the ICE Bus powertrain components are: engine ($7,350.00), ICE 
transmission ($4,730.00), and mechanical accessories ($780.00). The RPE 
of the ICE Bus is 1.52. In 2025, Taxpayer purchases the BEV Bus for 
$105,500.00, takes possession of the vehicle, and places it in service 
that same year. At the time Taxpayer purchases the BEV Bus, 
Manufacturer provides Taxpayer with a written disclosure of 
Manufacturer's incremental cost calculation, which Manufacturer 
calculated in the manner described in paragraphs (b) and (c) of this 
section.
    (ii) Analysis--(A) Calculation of incremental cost. Under paragraph 
(c)(2) of this section, the incremental cost of the BEV Bus is the 
product of Manufacturer's cost of the BEV Bus powertrain and the RPE of 
such vehicle, less the product of Manufacturer's cost of the comparable 
vehicle ICE powertrain and the RPE of such vehicle.
    (1) Step 1. Under paragraph (c)(2) of this section, the BEV Bus 
powertrain cost is the sum of the cost of the electric traction drive 
system ($4,586.00), the battery ($18,535.00), and the electrical 
accessories ($2,150.00) multiplied by the RPE of the vehicle (1.49), or 
$37,653.79.
    (2) Step 2. Under paragraph (b)(4) of this section, the ICE Bus is 
the comparable vehicle with respect to the BEV Bus. Under paragraph 
(c)(1) of this section, the ICE Bus powertrain cost is the sum of the 
cost of the engine ($7,350.00), the ICE transmission ($4,730.00), and 
the mechanical accessories ($780.00) multiplied by the RPE of the 
vehicle (1.52), or $19,547.20.
    (3) Step 3. Under paragraph (c)(2) of this section, the incremental 
cost of the BEV Bus is determined by subtracting the cost of the ICE 
Bus powertrain ($19,547.20) from the cost of the BEV Bus powertrain 
($37,653.79), or $18,106.59 ($37,653.79 - $19,547.20 = $18,106.59).
    (B) Determination of credit amount. Under paragraph (c)(1) of this 
section, Taxpayer may rely on Manufacturer's incremental cost 
calculation, which is described in paragraphs (b) and (c) of this 
section. Subject to the limitation in section 45W(b)(4), the credit 
amount is the lesser of 30 percent of Taxpayer's basis in the BEV Bus 
($105,500 x 30% = $31,650.00) or the incremental cost of the BEV Bus 
($18,106.59). Under section 45W(b)(4), the section 45W credit is 
limited to $40,000 for the BEV Bus because it has a GVWR of more than 
14,000 pounds. Because $18,106.59 is

[[Page 3530]]

below the $40,000.00 limitation in section 45W(b)(4), the allowable 
section 45W credit with respect to the BEV Bus is $18,106.59.
    (f) Incremental cost of qualified commercial clean vehicle 
previously placed in service by another person or entity--(1) In 
general. The incremental cost of a qualified commercial clean vehicle 
previously placed in service by another person or entity is the product 
of the incremental cost of the qualified commercial clean vehicle as 
calculated under paragraphs (b) and (c) of this section (that is, the 
incremental cost of such vehicle when new) and the residual value 
factor that corresponds to the age of the qualified commercial clean 
vehicle as determined under paragraph (f)(2) of this section.
    (2) Age of a qualified commercial clean vehicle previously placed 
in service by another person or entity. The age of a qualified 
commercial clean vehicle previously placed in service by another person 
or entity is determined by subtracting the model year of the vehicle 
from the calendar year in which the taxpayer places the vehicle in 
service. For purposes of this paragraph (f)(2) and paragraph (f)(3) of 
this section, a negative age (for example, a case in which a model year 
vehicle is sold twice prior to the calendar year that corresponds to 
that model year) is treated as zero.
    (3) Residual value factor. The residual value factor described in 
paragraph (f)(1) of this section applicable to relevant vehicle 
classes, based on GVWR, is as provided in the following tables:

                       Table 1 to Paragraph (f)(3)
------------------------------------------------------------------------
            Vehicle class and description                 GVWR (lbs.)
------------------------------------------------------------------------
Class 1 Passenger car................................            <14,000
Class 1 or 2-3 Light Truck (Van, Sport Utility                   <14,000
 Vehicle, Pickup Truck)..............................
Class 4-5............................................      14,000-19,500
Class 6..............................................      19,500-26,000
Class 7-8 Box/Other..................................      26,000-60,000
Class 8 Day Cab/Sleeper..............................            >33,000
------------------------------------------------------------------------


                                           Table 2 to Paragraph (f)(3)
----------------------------------------------------------------------------------------------------------------
                                      Class 1     Class 1 or                             Class 7-8   Class 8 day
     Vehicle class/vehicle age       passenger    2-3 light    Class 4-5   Class 6 box   box/other   cab/sleeper
                                      car (%)     truck (%)       (%)          (%)          (%)          (%)
----------------------------------------------------------------------------------------------------------------
0 years...........................           70           75           95           90           95           85
1 year............................           60           70           85           80           85           75
2 years...........................           55           60           80           70           80           60
3 years...........................           50           55           75           60           70           55
4 years...........................           40           45           70           55           65           45
5 years...........................           40           40           65           45           60           40
6 years...........................           35           35           60           40           55           35
7 years...........................           30           35           55           35           50           30
8 years...........................           25           30           50           35           45           25
9 years...........................           25           25           45           30           45           25
10 years..........................           20           25           45           25           40           20
11 years..........................           20           20           40           25           35           20
12 years..........................           15           20           40           20           35           15
13 years..........................           15           15           35           20           30           15
14 or more years..................           10           15           35           15           30           15
----------------------------------------------------------------------------------------------------------------

    (4) Example--(i) Facts. In December 2024, X purchases and places in 
service a model year 2025 battery electric car (BEV car). The BEV car 
is a qualified commercial clean vehicle and has a GVWR of 3,900 pounds 
and an incremental cost of $15,000. X did not claim a section 45W 
credit with respect to the BEV car. X sells the BEV car to Y in 
December 2025 for $40,000. Y is a fiscal year taxpayer whose taxable 
year begins on October 1.
    (ii) Analysis. Under paragraph (f)(2) of this section, the BEV car 
is 0 years old because the model year of the BEV car (2025) subtracted 
from the calendar year Y placed the BEV car in service (2025) equals 0. 
Neither the calendar year in which X places the BEV car in service nor 
Y's fiscal year is relevant to determining the age of the BEV car for 
purposes of paragraph (f)(2) of this section. The applicable residual 
value factor under paragraph (f)(3) of this section is therefore 70%. 
The incremental cost of the BEV car is $10,500 ($15,000 x 70%). Because 
the incremental cost of the BEV car ($10,500) is less than 30% of Y's 
basis in the vehicle ($40,000 x 30% = $12,000), $10,500 is the amount 
determined under section 45W(b)(1). Under section 45W(b)(4), the 
allowable section 45W credit for the BEV car is limited to $7,500 
because the BEV car has a GVWR of less than 14,000 pounds. Therefore, 
Y's allowable section 45W credit with respect to the BEV car is $7,500.
    (g) Applicability date. This section applies to qualified 
commercial clean vehicles placed in service in taxable years ending 
after [date of publication of the final regulations in the Federal 
Register].


Sec.  1.45W-3  Qualified commercial clean vehicle.

    (a) In general. To qualify as a qualified commercial clean vehicle 
for purposes of section 45W of the Code, a vehicle must meet the 
requirements of section 45W(c) and paragraphs (b) through (d) of this 
section.
    (b) Acquired for use or lease and not for resale by the taxpayer--
(1) In general. Under section 45W(c)(1), a qualified commercial clean 
vehicle must be acquired for use or lease and not for

[[Page 3531]]

resale by the taxpayer. For purposes of section 45W(c)(1), a taxpayer 
that is not a tax-exempt entity described in section 168(h)(2)(A)(i), 
(ii), or (iv) of the Code acquires a vehicle for use or lease if the 
taxpayer acquires the vehicle for use or lease in a trade or business 
of the taxpayer.
    (2) Recharacterization of lease. If a lease of a qualified 
commercial clean vehicle would be treated as a sale rather than a lease 
for purposes of subtitle A, such lease will not be respected for 
purposes of section 45W(c)(1). In such case, the lessor will be treated 
as having acquired the vehicle for resale, and no credit will be 
allowed to such lessor under section 45W with respect to the vehicle. 
To the extent the lessor has claimed a section 45W credit (defined in 
Sec.  1.45W-1(a)) with respect to such vehicle, the recapture rules in 
Sec.  1.45W-4(c) apply.
    (c) Type of vehicle--(1) In general. Under section 45W(c)(2), a 
qualified commercial clean vehicle must be either an on-road vehicle, 
as described in section 45W(c)(2)(A) and paragraph (c)(2) of this 
section, or mobile machinery, as described in section 45W(c)(2)(B) and 
paragraph (c)(3) of this section. Some vehicles, such as a digger 
derrick truck, may qualify as both an on-road vehicle and mobile 
machinery.
    (2) On-road vehicle. An on-road vehicle is a vehicle that meets the 
requirements of section 30D(d)(1)(D) of the Code (that is, the vehicle 
is treated as a motor vehicle for purposes of title II of the Clean Air 
Act), is manufactured primarily for use on public streets, roads, and 
highways (not including a vehicle operated exclusively on a rail or 
rails).
    (3) Mobile machinery. Mobile machinery has the meaning provided in 
section 4053(8) of the Code.
    (d) Electric motor and battery requirements--(1) In general. Under 
section 45W(c)(3), a qualified commercial clean vehicle must be 
propelled to a significant extent by an electric motor that draws 
electricity from a battery that has a capacity of not less than 15 
kilowatt hours (or, in the case of a vehicle that has a gross vehicle 
weight rating of less than 14,000 pounds, 7 kilowatt hours) and is 
capable of being recharged from an external source of electricity, or 
is a motor vehicle that satisfies the requirements under section 
30B(b)(3)(A) and (B).
    (2) Battery capable of being recharged from an external source of 
electricity. For purposes of section 45W(c)(3)(A), a battery is capable 
of being recharged from an external source of electricity if such 
source of electricity is not an integral part of the vehicle. For 
example, a regenerative braking system, in which the kinetic energy 
generated by the motion of the vehicle is used to recharge a battery, 
is not an external source of electricity for purposes of section 
45W(c)(3)(A) and this paragraph (d)(2).
    (e) Applicability date. This section applies to taxable years 
ending after [date of publication of the final regulations in the 
Federal Register].


Sec.  1.45W-4  Special rules.

    (a) No double benefit--(1) Previous allowance of section 45W or 30D 
credit. No credit is allowed under section 45W(a) of the Code (section 
45W credit) with respect to any vehicle for which a section 45W credit 
or a section 30D credit was previously allowed for such vehicle.
    (2) Allowance of other deduction or credit. Under sections 
45W(d)(1) and 30D(f)(2) of the Code, the amount of any deduction or 
other credit allowable under chapter 1 of the Code (chapter 1) for a 
vehicle for which a section 45W credit is allowable must be reduced by 
the amount of the section 45W credit allowed for such vehicle. See also 
Sec.  1.25E-2(b)(1).
    (3) Recordkeeping for the qualified commercial clean vehicle 
credit. In accordance with Sec.  1.6001-1, a taxpayer claiming a credit 
under section 45W must keep permanent books of account or records 
sufficient to establish the amount of any such credit required to be 
shown by such taxpayer in any return of tax or information return. Such 
records must be sufficient to establish, for example, that the section 
45W credit claimed is not disallowed by paragraph (a)(1) of this 
section, subject to reduction under Sec.  1.25E-2(b)(1), or, if any 
such reduction is required, the amount of such reduction.
    (b) Credit ineligibility resulting from certain transactions and 
uses--(1) In general. This paragraph (b) provides rules that apply to 
certain transactions involving qualified commercial clean vehicles and 
certain uses of such vehicles, including cancelled sales, vehicle 
returns, resales, or less than 100 percent use in a trade or business.
    (2) Cancelled sale. If a sale of a qualified commercial clean 
vehicle is cancelled before the taxpayer places the vehicle in service, 
then--
    (i) The taxpayer may not claim the section 45W credit with respect 
to the vehicle;
    (ii) The vehicle may still be eligible for the section 45W credit; 
and
    (iii) A subsequent buyer of the vehicle will not be required to 
apply the residual value rules of Sec.  1.45W-2(f) to determine the 
incremental cost of the vehicle.
    (3) Vehicle return. If a taxpayer returns a qualified commercial 
clean vehicle to the seller within 30 days of placing such vehicle in 
service, then--
    (i) The taxpayer may not claim the section 45W credit with respect 
to the vehicle;
    (ii) The vehicle may still be eligible for the section 45W credit; 
and
    (iii) A subsequent buyer of the vehicle must apply the residual 
value rules of Sec.  1.45W-2(f) to determine the incremental cost of 
the vehicle.
    (4) Resale. If a taxpayer resells a qualified commercial clean 
vehicle within 30 days of placing the vehicle in service, then--
    (i) The taxpayer is treated as having acquired such vehicle with 
the intent to resell;
    (ii) The taxpayer may not claim the section 45W credit with respect 
to the vehicle;
    (iii) The vehicle may still be eligible for the section 45W credit; 
and
    (iv) A subsequent buyer of the vehicle must apply the residual 
value rules of Sec.  1.45W-2(f) to determine the incremental cost of 
the vehicle.
    (5) Less than 100 percent trade or business use in taxable year 
vehicle is placed in service. If a taxpayer's trade or business use of 
a qualified commercial clean vehicle for the taxable year such vehicle 
is placed in service by the taxpayer is less than 100 percent of the 
taxpayer's total use of that vehicle for that taxable year (other than 
incidental personal use, such as a stop for lunch on the way between 
two job sites), including because the vehicle is sold or otherwise 
disposed of, the vehicle is ineligible for the section 45W credit. This 
rule also applies to a qualified commercial clean vehicle placed in 
service by a tax-exempt entity, except that 100 percent trade or 
business use means the tax-exempt entity's use that is related to an 
exempt purpose or an unrelated trade or business purpose.
    (c) Recapture--(1) In general. This paragraph (c) provides rules 
regarding the recapture of the section 45W credit pursuant to sections 
45W(d)(1) and 30D(f)(5).
    (2) Recapture in the case of less than 100 percent trade or 
business use--(i) In general. Except as provided in paragraph 
(c)(2)(ii) of this section, if a taxpayer ceases to use a qualified 
commercial clean vehicle for 100 percent trade or business use (other 
than incidental personal use) during the 18-month period beginning on 
the date the vehicle is placed in service, including because the 
vehicle is sold or otherwise disposed of, then--
    (A) The taxpayer may not claim the section 45W credit with respect 
to the

[[Page 3532]]

vehicle. If the taxpayer has already claimed the section 45W credit, 
the credit is recaptured as a tax under chapter 1.
    (B) The vehicle may still be eligible for the section 45W credit; 
and
    (C) A subsequent buyer must apply the residual value rules of Sec.  
1.45W-2(f)(3) to determine the incremental cost of the vehicle.
    (ii) Applicability to vehicles placed in service by a tax-exempt 
entity. For a qualified commercial clean vehicle placed in service by a 
tax-exempt entity, the 100 percent trade or business use rule in 
paragraph (c)(2)(i) of this section applies, except that, as provided 
in paragraph (b)(5) of this section, 100 percent trade or business use 
means the tax-exempt entity's use that is related to an exempt purpose 
or an unrelated trade or business purpose.
    (d) Elective payment elections. In the case of an applicable 
entity, as described in section 6417(d)(1) of the Code and Sec.  
1.6417-1(c) with respect to which an applicable credit listed in 
section 6417(b) is determined for a taxable year, section 6417(a) 
allows the applicable entity to make an election to treat the 
applicable entity as making a payment against the tax imposed by 
subtitle A of the Code equal to the amount of the applicable credit. 
Section 6417(b)(6) and Sec.  1.6417-1(d)(6) include the section 45W 
credit as an applicable credit, but only with respect to a section 45W 
credit determined by reason of section 45W(d)(2) by a tax-exempt entity 
described in section 168(h)(2)(A)(i), (ii), or (iv) that is also an 
applicable entity listed in section 6417(d)(1) and Sec.  1.6417-1(c).
    (e) Leases. For purposes of section 45W(d)(2), a vehicle is subject 
to a lease if it is leased within 30 days of being placed in service by 
a tax-exempt entity.
    (f) Applicability date. This section applies to taxable years 
ending after [date of publication of the final regulations in the 
Federal Register].


Sec.  1.45W-5  Reporting requirements.

    (a) Requirement to file return. No section 45W credit (defined in 
Sec.  1.45W-1(a)) can be determined unless the taxpayer claiming such 
credit files a Federal income tax return or information return, as 
appropriate, for the taxable year in which the qualified commercial 
clean vehicle is placed in service. The taxpayer must attach to such 
return a completed Form 8936, Clean Vehicle Credits, or successor form, 
that includes all information required by the form and instructions. 
The taxpayer must also attach a completed Schedule A (Form 8936), Clean 
Vehicle Credit Amount, or successor form or schedule, that includes all 
information required by the schedule and instructions, including the 
vehicle identification number of the qualified commercial clean 
vehicle.
    (b) Credit may generally be claimed on only one tax return--(1) In 
general. Except as provided in paragraphs (b)(2) and (3) of this 
section, the amount of the section 45W credit attributable to a 
qualified commercial clean vehicle may be claimed on only one Federal 
income tax return, including on a joint return in which one of the 
spouses or the spouse's wholly-owned business entity is listed on the 
title as the sole owner of the vehicle. In the event a qualified 
commercial clean vehicle is placed in service by multiple taxpayers 
that do not file a joint tax return (for example, in the case of 
married individuals filing separate returns), no allocation or 
proration of the section 45W credit is available.
    (2) Grantor trusts. In the case of a qualified commercial clean 
vehicle placed in service by a trust, to the extent the grantor or 
another person is treated as owning all or part of the trust under 
sections 671 through 679 of the Code, the section 45W credit is 
allocated to such grantor or other person in accordance with Sec.  
1.671-3(a)(1).
    (3) Partnerships and S corporations. In the case of a qualified 
commercial clean vehicle placed in service by a partnership or S 
corporation, the section 45W credit is allocated among the partners of 
the partnership under Sec.  1.704-1(b)(4)(ii) or among the shareholders 
of the S corporation under sections 1366(a) and 1377(a) of the Code and 
claimed on the tax returns of the ultimate partners or of the S 
corporation shareholder(s).
    (c) Taxpayer reliance on manufacturer certifications and periodic 
written reports to the IRS. A taxpayer that acquires a qualified 
commercial clean vehicle and places it in service may rely on the 
information and certifications contained in the qualified 
manufacturer's written reports to the IRS. The procedures for such 
periodic written reports are established in guidance published in the 
Internal Revenue Bulletin (see Sec.  601.601 of this chapter). To the 
extent a taxpayer relies on certifications or attestations from the 
qualified manufacturer, the qualified commercial clean vehicle the 
taxpayer acquires will be deemed to meet the requirements of sections 
30D(d)(1)(C) and 45W(c)(1) of the Code.
    (d) Applicability date. This section applies to taxable years 
ending after [date of publication of the final regulations in the 
Federal Register].
0
Par. 5. Section 1.6417-6 is amended by:
0
1. Adding two sentences to the end of paragraph (b)(1); and
0
2. Revising paragraph (e).
    The addition and revision read as follows:


Sec.  1.6417-6  Special rules.

* * * * *
    (b) * * *
    (1) * * * For purposes of this paragraph (b)(1), if an applicable 
credit is subject to section 50, then section 50 applies without regard 
to section 50(b)(3) and (b)(4)(A)(i). If another provision of the Code 
contains a basis reduction and/or recapture provision outside of 
section 50 that impacts the available credit (such as sections 30C(e), 
45Q(f)(4), 45W(d)(1), and 48(a)(10)), then the rules of that provision 
of the Code and the regulations in this chapter issued under that 
provision of the Code apply, except that any applicable credit 
continues to be determined without regard to section 50(b)(3) and 
(b)(4)(A)(i) and by treating any property with respect to which such 
credit is determined as used in a trade or business of the applicable 
entity, consistent with section 6417(d)(2) and Sec.  1.6417-2(c).
* * * * *
    (e) Applicability dates--(1) In general. Except as provided in 
paragraph (e)(2) of this section, this section applies to taxable years 
ending on or after March 11, 2024. For taxable years ending before 
March 11, 2024, taxpayers, however, may choose to apply the rules of 
Sec. Sec.  1.6417-1 through 1.6417-4 and this section, provided the 
taxpayers apply the rules in their entirety and in a consistent manner.
    (2) Paragraph (b)(1) of this section. The second and third 
sentences of paragraph (b)(1) of this section apply to property placed 
in service in taxable years ending after [date of publication of the 
final regulations in the Federal Register].

Douglas W. O'Donnell,
Deputy Commissioner.
[FR Doc. 2025-00256 Filed 1-10-25; 8:45 am]
BILLING CODE 4830-01-P`