TAKEAWAYS

• The proposed regulations add new definitions to clarify what is required under foreign entity of concern (FEOC) compliance.
• The Revenue Procedure provides guidance to qualified manufacturers on reporting and other requirements.
• The proposed regulations and Revenue Procedure come at the same time as proposed guidance from the Department of Energy on the definition of FEOC.

As amended by the Inflation Reduction Act of 2022, IRC 30D provides for a tax credit of up to $7,500 for a new clean vehicle, consisting of $3,750 if certain critical mineral requirements are met and $3,750 if certain battery components requirements are met. Under the relevant rules, vehicles placed in service beginning in 2024 are not eligible if the battery includes battery components manufactured or assembled by a foreign entity of concern (FEOC), while vehicles placed in service beginning in 2025 are not eligible if the battery contains certain critical minerals extracted, processed or recycled by an FEOC.

On December 1, 2023, the Internal Revenue Service (IRS) published proposed regulations [REG-118492-23] in the Federal Register and released Revenue Procedure 2023-38, both providing further guidance on the clean vehicle tax credits under section 30D of the Internal Revenue Code of 1986, as amended (the IRC). The proposed regulations supplement the proposed regulations that were published on April 17, 2023, as well as proposed regulations containing initial and additional proposed regulations under sections 25E and 30D published in the Federal Register on October 10, 2023. The Revenue Procedure provides clarity to qualified manufacturers on reporting, certification and attestation requirements. The Department of Energy (DOE) concurrently released proposed guidance which includes interpretations of the terms cross-referenced in IRC 30D to section 40207(a)(5) of the Infrastructure Investment and Jobs Act (IIJA).

High-Level Overview of the Proposed Regulations
The proposed regulations are quite detailed and impose some stringent requirements on clean vehicle manufacturers. Below is a high-level overview of the topics addressed therein:

• The proposed regulations expand the definitions of key terms including, but not limited to, (1) manufacturer, (2) qualified manufacturer and (3) new clean vehicle.
• The proposed regulations require qualified manufacturers to attest and certify that the new clean vehicles placed in service after December 31, 2024, satisfy the critical minerals and battery components requirements.
• The proposed regulations include definitions for terms related to the excluded entity provision including (1) applicable critical mineral, (2) assembly, (3) battery, (4) FEOC compliant and (5) non-traceable battery materials.
• The proposed regulations provide that critical minerals must be traced to ensure the batteries are FEOC compliant, but also adopt a transition rule which allows qualified manufacturers to allocate critical minerals to specific sets of battery cells until they are able to appropriately trace the materials.
• The proposed regulations allow for a simplified process for determining FEOC compliance for manufacturers for vehicles placed in service from January 1, 2024, to 30 days after the proposed regulations are finalized.
• The proposed regulations articulate the due diligence requirements for qualified manufacturers.
• Beginning in 2025, the proposed regulations will require qualified manufacturers to submit periodic written reports with an estimate of the number of FEOC-compliant batteries that they expect to procure for the year, along with substantiating documentation.

High-Level Overview of Revenue Procedure 2023-38
Revenue Procedure 2023-38 provides the steps qualified manufacturers must follow to enter into agreements with the IRS for review by the DOE to ensure vehicles are eligible for the section 30D credit. Manufacturers will not be considered qualified until they enter into written agreements with the IRS. The agreements can be completed through an online portal on the IRS website. Qualified manufacturers who entered into agreements relying on Revenue Procedure 2022-42, Revenue Procedure 2023-33 or Revenue Procedure 2023-38 will need to re-enter into an agreement using the online portal for the 2024 calendar year. Beginning in 2025, qualified manufacturers will need to establish a complaint-battery ledger to track the battery supply that will be FEOC-compliant.

Final Points
The proposed regulations and Revenue Procedure include important guidance for clean vehicle manufacturers as relates to FEOC compliance. The proposed regulations are proposed to apply to new clean vehicles placed in service on or after January 1, 2024, for taxable years ending after December 31, 2023. Taxpayers may rely on the proposed regulations until final regulations on the topic are published in the Federal Register, provided the regulations are followed in their entirety and in a consistent manner. Comments on the proposed regulations are invited until January 18, 2024.

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