Code of Federal Regulations · Section

§ 1.30D-6 — d-6 Foreign Entity Of Concern Restriction

26 C.F.R. § 1.30D-6

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(a) In general. This section provides rules related to the excluded entities provision of section 30D(d)(7) of the Internal Revenue Code (Code), which imposes certain restrictions on the extraction, processing, or recycling of applicable critical minerals, and the manufacturing or assembly of battery components contained in a clean vehicle battery by a foreign entity of concern (FEOC). Specifically, section 30D(d)(7) provides that the term new clean vehicle does not include any vehicle placed in service after December 31, 2023, with respect to which any of the battery components in the clean vehicle battery were manufactured or assembled by a FEOC, or any vehicle placed in service after December 31, 2024, with respect to which any of the applicable critical minerals contained in the clean vehicle battery were extracted, processed, or recycled by a FEOC (FEOC restriction). See § 1.30D-2(b) for definitions applicable to section 30D(d)(7) and this section.

(b) Due diligence required—(1) In general. The qualified manufacturer must conduct due diligence with respect to all battery components and applicable critical minerals (and associated constituent materials) that are relevant to determining whether such components or minerals are FEOC-compliant. Such due diligence must comply with standards of tracing for battery materials available in the industry at the time of the attestation or certification that enables the qualified manufacturer to know with reasonable certainty the provenance of applicable critical minerals, associated constituent materials, and battery components. Reasonable reliance on a supplier attestation or certification will be considered due diligence if the qualified manufacturer, or any third-party manufacturer or supplier, does not know or have reason to know that such supplier attestation or certification is incorrect. See paragraph (c)(5) of this section for rules related to third-party manufacturers and suppliers. The qualified manufacturer must conduct due diligence prior to the qualified manufacturer determining the information necessary to establish any compliant-battery ledger under paragraph (d) of this section, and the qualified manufacturer must continue to conduct due diligence on an ongoing basis.

(2) Transition rule for impracticable-to-trace battery materials. For any new clean vehicles for which the qualified manufacturer provides a periodic written report before January 1, 2027, the due diligence requirement of paragraph (b)(1) of this section may be satisfied by excluding identified impracticable-to-trace battery materials. To use this transition rule, a qualified manufacturer must submit a report during the up-front review process described in paragraph (d)(2)(ii) of this section demonstrating how the qualified manufacturer will comply with the FEOC restriction of section 30D(d)(7) and this section, including information about efforts made to date to secure a FEOC-compliant supply of these battery materials once the transition rule is no longer in effect.

(c) FEOC compliance—(1) In general. In the case of any new clean vehicle placed in service after December 31, 2023, the clean vehicle battery or batteries of the vehicle must be FEOC-compliant. A serial number or other identification system must be used to physically track FEOC-compliant batteries to specific new clean vehicles. The determination that a clean vehicle battery is FEOC-compliant is made as follows:

(i) Step 1. The qualified manufacturer determines whether battery components and applicable critical minerals (and associated constituent materials) are FEOC-compliant, in accordance with paragraph (c)(4) of this section.

(ii) Step 2. The FEOC-compliant battery components and FEOC-compliant applicable critical minerals (and associated constituent materials) are physically tracked to specific battery cells, in accordance with paragraph (c)(3)(i) of this section. Alternatively, FEOC-compliant applicable critical minerals and associated constituent materials (but not battery components) may be allocated to battery cells, without physical tracking, in accordance with paragraph (c)(3)(ii) of this section. In addition, the determination of whether a battery cell is FEOC-compliant may be made by applying the transition rule for impracticable-to-trace battery materials, in accordance with paragraph (c)(3)(iii) of this section.

(iii) Step 3. The battery components, including battery cells, are physically tracked to specific clean vehicle batteries, in accordance with paragraph (c)(2) of this section.

(2) FEOC-compliant batteries. The determination that a clean vehicle battery is FEOC-compliant must be made by physically tracking FEOC-compliant battery components (including battery cells) to such battery. With respect to battery cells, a serial number or other identification system must be used to physically track FEOC-compliant battery cells to such batteries.

(3) FEOC-compliant battery cells—(i) In general. Except as provided in paragraph (c)(3)(ii) of this section, the determination that a battery cell contains FEOC-compliant battery components and FEOC-compliant applicable critical minerals and their associated constituent materials must be made by physically tracking FEOC-compliant battery components to specific battery cells, and by physically tracking the mass of FEOC-compliant applicable critical minerals and their associated constituent materials to specific battery cells.

(ii) Allocation-based determination for applicable critical minerals and associated constituent materials of a battery cell—(A) In general. The determination that a battery cell is FEOC-compliant may be based on an allocation of available mass, procured or contracted for, of applicable critical minerals and their associated constituent materials to specific battery cells manufactured or assembled in a battery cell production facility, without the physical tracking of mass of applicable critical minerals and associated constituent materials to specific battery cells.

(B) Allocation limited to applicable critical minerals in the battery cell. The rules of this paragraph (c)(3)(ii) are limited to applicable critical minerals and their associated constituent materials that are incorporated into a battery cell or its battery components. Battery components must be physically tracked.

(C) Separate allocation required for each type of associated constituent material—(1) In general. Any allocation under this paragraph (c)(3)(ii) with respect to the mass of an applicable critical mineral must be made within the type of associated constituent material (such as powders of cathode active materials, powders of anode active materials, or foils) in which such applicable critical mineral is contained. Masses of an applicable critical mineral may not be aggregated across constituent materials with which such applicable critical mineral is not associated, and an allocation of a mass of an applicable critical mineral may not be made from one type of constituent material to another.

(2) Example. M, a qualified manufacturer, operates a battery cell production facility. M manufactures a line of battery cells that contains applicable critical mineral Z (ACM-Z) in constituent material 1 and in constituent material 2. With respect to constituent material 1, M procures 20,000,000 kilograms (kg) of ACM-Z for the battery cell production facility, of which 4,000,000 kg are FEOC-compliant and 16,000,000 kg are not FEOC-compliant. With respect to constituent material 2, M procures another 15,000,000 kg of ACM-Z for the battery cell production facility, of which 7,500,000 kg are FEOC-compliant and 7,500,000 kg are not FEOC-compliant. M determines which battery cells are FEOC-compliant through an allocation-based determination with respect to battery cells manufactured or assembled in the battery cell production facility. Under this paragraph (c)(3)(ii)(C), any allocation with respect to the mass of ACM-Z must be made within the type of constituent material in which ACM-Z is contained. Thus, M may not aggregate the 4,000,000 kg of FEOC-compliant ACM-Z contained in constituent material 1 with the 7,500,000 kg of FEOC-compliant ACM-Z contained in constituent material 2, and allocations may not be made from constituent material 1 to constituent material 2. As a result, overall FEOC compliance is constrained by the 20% of constituent material 1 that is FEOC-compliant due to having 4,000,000 kg of ACM-Z, even though 33% (4,000,000 + 7,500,000)/(20,000,000 + 15,000,000) of the total mass of ACM-Z is FEOC-compliant.

(D) Allocation within each product line of battery cells. Any allocation under this paragraph (c)(3)(ii) with respect to applicable critical minerals and their associated constituent materials must be allocated within one or more specific battery cell product lines of the battery cell production facility.

(E) Limitation on number of FEOC-compliant battery cells. If a qualified manufacturer uses an allocation-based determination described in this paragraph (c)(3)(ii), the number of FEOC-compliant battery cells that can be produced from such allocation may not exceed the total number of battery cells for which there is enough of every FEOC-compliant applicable critical mineral. That number will necessarily be limited by the applicable critical mineral that has the lowest percentage of FEOC-compliant supply. For example, if a qualified manufacturer allocates applicable critical mineral A, which is 20 percent FEOC-compliant, and applicable critical mineral B, which is 60 percent FEOC-compliant, to a battery cell product line, no more than 20 percent of the battery cells in that battery cell product line will be treated as FEOC-compliant.

(iii) Transition rule for impracticable-to-trace battery materials. For any new clean vehicles for which the qualified manufacturer provides a periodic written report before January 1, 2027, the qualified manufacturer's determination of whether a battery cell is FEOC-compliant under this paragraph (c)(3) may be satisfied by excluding identified impracticable-to-trace battery materials (and associated constituent materials).

(4) FEOC-compliant battery components and applicable critical minerals—(i) In general. The determination of whether battery components and applicable critical minerals (and their associated constituent materials) are FEOC-compliant must be made prior to any determination under paragraphs (c)(2) and (3) of this section.

(ii) Timing of determination of FEOC or FEOC-compliant status. Whether an entity is a FEOC is determined at the time of the entity's performance of the relevant activity, which for applicable critical minerals is the time of extraction, processing, or recycling, and for battery components is the time of manufacturing or assembly. The determination of whether an applicable critical mineral is FEOC-compliant is determined at the end of processing or recycling the applicable critical mineral into a constituent material, taking into account all applicable steps through and including final processing or recycling.

(iii) Example: Timing of FEOC compliance determination. Mineral X, an applicable critical mineral, was not extracted by a FEOC but was later processed by a FEOC. Mineral X is not FEOC-compliant because one step of the extraction and processing was performed by a FEOC. Therefore, any battery containing Mineral X is not FEOC-compliant.

(5) Third-party manufacturers or suppliers. The determinations under paragraphs (c)(2) through (4) of this section, which are generally made by the qualified manufacturer, may be made by a third-party manufacturer or supplier that operates a battery cell production facility, provided the third-party manufacturer satisfies the requirements of paragraph (c)(5)(i) through (iii) of this section, and paragraph (c)(5)(iv) of this section, if applicable.

(i) Due diligence required. The third-party manufacturer or supplier must perform the due diligence described in paragraph (b) of this section.

(ii) Provision of required information to qualified manufacturer. The third-party manufacturer or supplier must provide the qualified manufacturer of the new clean vehicle information sufficient to establish a basis for the determinations under paragraphs (c)(2) through (4) of this section, including information related to the due diligence described in paragraph (c)(5)(i) of this section.

(iii) Contractual obligations. The third-party manufacturer or supplier must be contractually required to provide the information in paragraph (c)(5)(ii) of this section to the qualified manufacturer and must be contractually required to inform the qualified manufacturer of any change in the supply chain that affects the determinations of FEOC compliance under paragraph (c)(2) through (4) of this section.

(iv) Additional requirements in case of multiple third-party manufacturers or suppliers. If there are multiple third-party manufacturers or suppliers (such as a case in which a qualified manufacturer contracts with a battery manufacturer, that, in turn, contracts with a battery cell manufacturer or supplier that operates a battery cell production facility), the due diligence and information requirements of this paragraph (c) must be satisfied by each third-party manufacturer or supplier, either by providing all required information directly to the qualified manufacturer or indirectly through contractual relationships.

(d) Compliant-battery ledger—(1) In general. For new clean vehicles placed in service after December 31, 2024, the qualified manufacturer must determine and provide information to the IRS to establish a compliant-battery ledger for each calendar year, as described in paragraphs (d)(2)(i) and (ii) of this section. The qualified manufacturer may establish one compliant-battery ledger for all vehicles for a calendar year, or separate ledgers for specific models or classes of vehicles to account for different battery cell chemistries or differing quantities of cells in each clean vehicle battery.

(2) Determination of number of batteries—(i) In general. To establish a compliant-battery ledger for a calendar year, the qualified manufacturer must determine the number of clean vehicle batteries, with respect to new clean vehicles for which the qualified manufacturer anticipates providing a periodic written report during the calendar year, that it knows or reasonably anticipates will be FEOC-compliant, pursuant to the requirements of paragraphs (b) and (c) of this section. The determination is based on the battery components and applicable critical minerals (and associated constituent materials) that are procured or contracted for the calendar year and that are known or reasonably anticipated to be FEOC-compliant battery components or FEOC-compliant applicable critical minerals, as applicable.

(ii) Upfront review. The qualified manufacturer must attest to the number of FEOC-compliant clean vehicle batteries determined under paragraph (d)(2)(i) of this section and provide the basis for the determination, including attestations, certifications and documentation demonstrating compliance with paragraphs (b) and (c) of this section, at the time and in the manner provided in the Internal Revenue Bulletin (see § 601.601 of this chapter). The IRS, with analytical assistance from the Department of Energy (DOE), will review the attestations, certifications, and documentation. Once the IRS determines that the qualified manufacturer provided the required attestations, certifications, and documentation, the IRS will approve or reject the determined number of FEOC-compliant batteries. The IRS may approve the determined number in whole or part. The approved number is the initial balance in the compliant-battery ledger.

(iii) Decrease or increase to compliant-battery ledger—(A) Once the compliant-battery ledger is established with respect to a calendar year, the qualified manufacturer must determine and take into account any decrease in the number of FEOC-compliant batteries for such calendar year and any of the prior three calendar years for which the qualified manufacturer had a compliant-battery ledger, within 30 days of discovery. In addition, the qualified manufacturer may determine and take into account any increase in the number of FEOC-compliant batteries. Such determinations, and any supporting attestations, certifications, and documentation, must be provided on a periodic basis, in accordance with paragraph (d)(2)(ii) of this section and the manner provided in the Internal Revenue Bulletin (see § 601.601 of this chapter).

(B) The decrease described in paragraph (d)(2)(iii)(A) of this section may decrease the compliant-battery ledger below zero, creating a negative balance in the compliant-battery ledger.

(C) If any decrease described in paragraph (d)(2)(iii)(A) of this section is determined subsequent to the calendar year to which it relates, the decrease must be taken into account in the year in which the change is discovered.

(D) Any remaining balance in the compliant-battery ledger at the end of the calendar year, whether positive or negative, will be included in the compliant-battery ledger for the subsequent calendar year. If a qualified manufacturer has multiple negative compliant-battery accounts, any negative balance will first be included in the compliant-battery ledger for the same model or class of vehicles for the subsequent calendar year. However, if there is no ledger for the same model or class of vehicles in the subsequent calendar year, the IRS can account for such negative balance in the ledger of a different model or class of vehicles of the qualified manufacturer.

(3) Tracking FEOC-compliant batteries. The compliant-battery ledger for a calendar year must be updated to track the qualified manufacturer's available FEOC-compliant batteries, by reducing the balance in the ledger as the qualified manufacturer submits periodic written reports reporting the vehicle identification numbers of new clean vehicles as eligible for the credit under section 30D, at the time and in the manner provided in the Internal Revenue Bulletin (see § 601.601 of this chapter). If the balance in the compliant-battery ledger of the qualified manufacturer for a calendar year is zero or less than zero, the qualified manufacturer may not submit additional periodic written reports with respect to section 30D until the number of available FEOC-compliant batteries is increased as described in paragraph (d)(2)(iii)(A) of this section.

(4) Reconciliation of battery estimates. After the end of any calendar year for which a compliant-battery ledger is established, the IRS may require a qualified manufacturer to provide attestations, certifications, and documentation to support the accuracy of the number of the qualified manufacturer's FEOC-compliant batteries for such calendar year, including with respect to any changes described in paragraph (d)(2)(iii) of this section, at the time and in the manner provided in the Internal Revenue Bulletin (see § 601.601 of this chapter).

(e) Rule for 2024—(1) In general. For new clean vehicles that are placed in service after December 31, 2023, and prior to January 1, 2025, the qualified manufacturer must determine whether the battery components contained in the vehicles satisfy the requirements of section 30D(d)(7)(B), and whether batteries contained in the vehicles are FEOC-compliant under the rules of paragraphs (b) and (c) of this section. The qualified manufacturer must make an attestation with respect to such determinations at the time and in the manner provided in the Internal Revenue Bulletin (see § 601.601 of this chapter). However, for any new clean vehicles for which the qualified manufacturer provides a periodic written report before June 5, 2024, provided that the qualified manufacturer has determined that its supply chains for each battery component with respect such vehicles contain only FEOC-compliant battery components:

(i) For purposes of paragraphs (c)(2) and (3) of this section, the determination of which battery cells or clean vehicle batteries, as applicable, contain FEOC-compliant battery components may be made without physical tracking;

(ii) For purposes of paragraph (c)(2) of this section, the determination of which clean vehicle batteries contain FEOC-compliant battery cells may be made without physical tracking (and without the use of a serial number or other identification system); and

(iii) For purposes of paragraph (c)(1) of this section, the determination of which vehicles contain FEOC-compliant batteries may be made without physical tracking (and without the use of a serial number or other identification system).

(2) Determination. The determination that a qualified manufacturer's supply chains of each battery component contain only FEOC-compliant battery components may be made with respect to specific models or classes of vehicles.

(f) Inaccurate attestations, certifications, or documentation—(1) In general. If the IRS determines, with analytical assistance from the DOE and after review of the attestations, certification, and documentation described in paragraph (d) of this section, that a qualified manufacturer has provided attestations, certifications, or documentation that contain inaccurate information, the IRS may take appropriate action, as described in paragraphs (f)(2) and (3) of this section. Such action would affect vehicles and qualified manufacturers on a prospective basis.

(2) Inadvertence—(i) Inaccurate information may be cured by qualified manufacturer. If the IRS determines that the qualified manufacturer's attestations, certifications, or documentation for a specific new clean vehicle contain inaccurate information due to inadvertence, the qualified manufacturer may, within a reasonable period of time after discovery of the inaccurate information, cure the errors, including by a decrease in the compliant-battery ledger as described in paragraph (d)(2)(iii) of this section. If the qualified manufacturer has multiple compliant-battery ledgers, the IRS may determine which ledger is to be decreased.

(ii) Consequences if errors not cured. If the qualified manufacturer does not cure the errors, the IRS may take any of the following actions:

(A) In the case of a new clean vehicle that has not been placed in service but for which the qualified manufacturer has submitted a periodic written report certifying compliance with the requirements of section 30D(d), the IRS may determine that such vehicle is no longer considered a new clean vehicle eligible for the section 30D credit.

(B) In the case of a new clean vehicle that has not been placed in service and for which the qualified manufacturer has not submitted a periodic written report certifying compliance with the requirements of section 30D(d), the qualified manufacturer may not submit such periodic written report.

(C) In the case of a new clean vehicle that has been placed in service, the IRS may require a decrease in the qualified manufacturer's compliant-battery ledger as described in paragraph (d)(2)(iii) of this section. If the qualified manufacturer has multiple compliant-battery ledgers, the IRS may determine which ledger is to be decreased.

(3) Intentional disregard or fraud. If the IRS determines that a qualified manufacturer intentionally disregarded attestation, certification, or documentation requirements, or reported information fraudulently or with intentional disregard, the IRS may take any of the actions described in paragraph (f)(3)(i) or (ii) of this section.

(i) All vehicles ineligible for credit. The IRS may determine that all vehicles manufactured by the qualified manufacturer that have not been placed in service are no longer considered new clean vehicles eligible for the section 30D credit.

(ii) Termination of written agreement. The IRS may terminate the written agreement between the IRS and the manufacturer, thereby terminating the manufacturer's status as a qualified manufacturer. In such instance, the manufacturer would be required to submit a new written agreement to reestablish qualified manufacturer status at the time and in the manner provided in the Internal Revenue Bulletin (see § 601.601 of this chapter).

(g) Rules inapplicable to new qualified fuel cell motor vehicles. The requirements of section 30D(d)(7) and this section do not apply to new qualified fuel cell motor vehicles.

(h) Examples. The following examples illustrate the rules under paragraphs (b) through (e) of this section:

(1) Example 1: In general—(i) Facts. M is a manufacturer of new clean vehicles and batteries. M also manufactures and assembles battery cells at its own battery cell production facility. M manufactures a line of new clean vehicles that it anticipates will be placed in service in calendar year 2025. Each vehicle contains one clean vehicle battery, and each clean vehicle battery contains 1,000 battery cells. All battery cells are produced at the same battery cell production facility. The battery cells are not manufactured or assembled by a FEOC. Each battery cell contains 10 units of battery component A. M has procured or is under contract to procure 10,000,000 units of battery component A for the battery cell production facility, of which 6,000,000 units are from supplier 1 and 4,000,000 units are from supplier 2.

(ii) Analysis—(A) Under paragraph (b) of this section, M must conduct due diligence on all battery components and applicable critical minerals (and associated constituent materials) that are contained in the clean vehicle batteries to determine whether such components or minerals are FEOC-compliant.

(B) Under paragraph (c)(4) of this section, M must first determine whether the battery components and applicable critical minerals (and associated constituent materials) are FEOC-compliant. From its due diligence, M determines that, of the 10,000,000 units of battery component A, the 6,000,000 units from supplier 1 are FEOC-compliant while the 4,000,000 units from supplier 2 are not FEOC-compliant. M determines that all other battery components and applicable critical minerals (and associated constituent materials) of the battery cells are FEOC-compliant, that the battery cell is not manufactured or assembled by a FEOC, and that all battery components (excluding components of the battery cell) of the clean vehicle batteries are FEOC-compliant.

(C) Under paragraph (c)(3) of this section, M must determine which battery cells are FEOC-compliant through the physical tracking of the 6,000,000 units of FEOC-compliant battery component A to determine which 600,000 (6,000,000/10) battery cells are FEOC-compliant. Under paragraph (c)(2) of this section, M must use a serial number or other identification system to track the 600,000 FEOC-compliant battery cells to 600 (600,000/1,000) specific clean vehicle batteries.

(D) Under paragraph (d)(1) of this section, a compliant-battery ledger must be established for calendar year 2025. For purposes of paragraph (d)(2)(i) of this section, M determines that it will manufacture 600 batteries for calendar year 2025 that are FEOC-compliant. Under paragraph (d)(2)(ii) of this section, M attests to the 600 FEOC-compliant batteries and provides the basis for the determination, including attestations, certifications, and documentation demonstrating compliance with paragraphs (b) and (c) of this section. Once the IRS, with analytical assistance from the DOE, approves the number, a compliant-battery ledger is established with a balance of 600 FEOC-compliant batteries.

(E) M manufactures 100 vehicles that it anticipates will be placed in service in 2025, for which it provides periodic written reports providing the vehicle identification numbers of the vehicles and indicating that such vehicles qualify for the section 30D credit. Under paragraph (d)(3) of this section, the compliant-battery ledger is updated to track the number of FEOC-compliant batteries. The number of FEOC-compliant batteries contained in the compliant-battery ledger is reduced from 600 to 500. Assuming all of the other requirements of section 30D and the regulations thereunder are met, the 100 vehicles are new clean vehicles for purposes of section 30D.

(2) Example 2: Rules for third-party suppliers—(i) Facts. The facts are the same as in paragraph (h)(1)(i) of this section (facts of Example 1), except that M contracts with a battery manufacturer, BM, for the provision of clean vehicle batteries, and BM contracts with a battery cell supplier, BCS, that operates a battery cell production facility, for the provision of battery cells.

(ii) Analysis. Under paragraph (c)(5) of this section, BCS may make the determination in paragraphs (c)(2) through (4) of this section, provided that M, BM, and BCS perform due diligence as described in paragraph (b) of this section. In addition, BM and BCS must provide M with information sufficient to establish a basis for the determinations under paragraphs (c)(2) through (4) of this section, including information related to due diligence. Finally, BM and BCS must be contractually required to provide the required information to M, and must also be required to inform the qualified manufacturer of any change in supply chains that affects the determinations of FEOC compliance under paragraphs (c)(2) and (4) of this section. The contractual requirement may be satisfied if BM and BCS each have the contractual obligation to M. Alternatively, it may be satisfied if BCS has a contractual obligation to BM and BM, in turn, has a contractual obligation to M.

(3) Example 3: Applicable critical minerals—(i) Facts. The facts are the same as in paragraph (h)(1)(i) of this section (facts of Example 1). In addition, each battery cell contains 20 kilograms (kg) of applicable critical mineral Z (ACM-Z) contained in a constituent material. M has procured or is under contract to procure 20,000,000 kg of ACM-Z for the battery cell production facility, of which 4,000,000 kg are from supplier 3 and 16,000,000 kg are from supplier 4.

(ii) Analysis. The analysis is the same as in paragraph (h)(1)(ii) of this section (analysis of Example 1). In addition, from its due diligence, M determines that of the 20,000,000 kg of ACM-Z, the 4,000,000 kg from supplier 3 is FEOC-compliant while the 16,000,000 kg from supplier 4 is not FEOC-compliant. Under paragraph (c)(3) of this section, M may determine which battery cells are FEOC-compliant through the physical tracking of the 4,000,000 kg of FEOC-compliant ACM-Z to 200,000 (4,000,000/20) of the battery cells that also contain battery component A, in order to determine which 200,000 battery cells are FEOC-compliant. Alternatively, M may determine which 200,000 battery cells are FEOC-compliant through an allocation of ACM-Z (but not battery component A) to battery cells, without physical tracking, under paragraph (c)(3)(ii) of this section. Under paragraph (c)(2) of this section, M must use a serial number or other identification system to track the 200,000 FEOC-compliant battery cells to 200 (200,000/1,000) specific clean vehicle batteries.

(4) Example 4: Comprehensive example—(i) Facts. M is a manufacturer of new clean vehicles and batteries. M also manufactures or assembles battery cells at its own battery cell production facility. M manufactures a line of new clean vehicles. Each vehicle contains one battery. All battery cells are produced at the same battery cell production facility. The battery cells are not manufactured or assembled by a FEOC. Each battery contains 1,000 NMC 811 battery cells. M anticipates manufacturing 1,000,000 such battery cells for a line of new clean vehicles that it anticipates will be placed in service in calendar year 2025.

(A) Each battery cell contains 1 cathode electrode, 1 anode electrode, 1 separator, and 1 liquid electrolyte. Thus, M procures 1,000,000 units of each battery component for the battery cell production facility.

(B) In addition, each NMC 811 cathode incorporates cathode active material (a constituent material) produced using 2.5 kg of applicable critical minerals, consisting of 0.5 kg of lithium hydroxide, 1.6 kg of nickel sulfate, 0.2 kg of cobalt sulfate, and 0.2 kg of manganese sulfate. Thus, M procures 2,500 metric tons (2.5 kg × 1,000,000/1,000) of applicable critical minerals for the battery cell production facility, resulting in purchase agreements for 500 metric tons of lithium, 1,600 metric tons of nickel, 200 metric tons of cobalt, and 200 metric tons of manganese.

(ii) Analysis—(A) Under paragraph (b) of this section, M must conduct due diligence on all battery components and applicable critical minerals (and associated constituent materials) that are contained in the clean vehicle batteries to determine whether such components or minerals are FEOC-compliant.

(B) Under paragraph (c)(4) of this section, M must first determine whether the battery components and applicable critical minerals (and associated constituent materials) are FEOC-compliant. From its due diligence M determines that, of the cathode electrodes, 600,000 are not manufactured by a FEOC and are therefore FEOC-compliant; 400,000 are manufactured by a FEOC and are therefore non-compliant. Because each battery cell contains 1 cathode electrode, a maximum of 600,000 battery cells would be FEOC-compliant. Of the critical minerals that M has procured, M determines that 250 metric tons of lithium hydroxide, 1,200 metric tons of nickel sulfate, and all of the cobalt sulfate and manganese sulfate are FEOC-compliant. M determines that all other battery components and applicable critical minerals of the battery cells are FEOC-compliant.

(C) Under paragraph (c)(3) of this section, M must determine which battery cells are FEOC-compliant through the physical tracking of battery components. M may determine which battery cells are FEOC-compliant through the physical tracking of applicable critical minerals. Alternatively, M may determine which battery cells are FEOC-compliant through an allocation of applicable critical minerals (and associated constituent materials) but not battery components.

(D) Under an allocation-based determination, M has procured 500 metric tons of lithium hydroxide incorporated into a constituent material for the battery cell production facility, of which 50% (250/500 metric tons) is FEOC-compliant. M has procured 1,600 metric tons of nickel sulfate incorporated into a constituent material for the battery cell production facility, of which 75% (1,200/1,600 metric tons) is FEOC-compliant. Because the lithium hydroxide is the least compliant applicable critical mineral or component, M allocates the FEOC-compliant lithium hydroxide mass to 50% or 500,000 (50% × 1,000,000) of the total battery cells, and to battery cells that contain FEOC-compliant cathode electrodes and have been allocated FEOC-compliant nickel sulfate. Under paragraph (c)(3)(ii)(E) of this section, the quantity of FEOC-compliant battery cells is limited by the applicable critical mineral (lithium hydroxide) that has the lowest percentage (50%) of FEOC-compliant supply.

(E) Under paragraph (c)(2) of this section, M must use a serial number or other identification system to track the 500,000 FEOC-compliant battery cells to 500 (500,000/1,000) specific clean vehicle batteries.

(F) Under paragraph (d)(1) of this section, a compliant-battery ledger must be established for calendar year 2025. For purposes of paragraph (d)(2)(i) of this section, M determines that it will manufacture 500 batteries for calendar year 2025 that are FEOC-compliant, allocating its FEOC-compliant applicable critical minerals to the cells containing FEOC-compliant battery components. Under paragraph (d)(2)(ii) of this section, M attests to the 500 FEOC-compliant batteries and provides the basis for the determination, including attestations, certifications, and documentation demonstrating compliance with paragraphs (b) and (c) of this section. Once the IRS, with analytical assistance from the DOE, has approved the number, a compliant-battery ledger is established with a balance of 500 FEOC-compliant batteries.

(i) Severability. The provisions of this section are separate and severable from one another. If any provision of this section is stayed or determined to be invalid, it is the agencies' intention that the remaining provisions will continue in effect.

(j) Applicability date. This section applies to new clean vehicles placed in service after December 31, 2023, in taxable years ending after December 31, 2023.

26 C.F.R. § 1.30D-5 26 C.F.R. § 1.31-1

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