Biden Administration releases final rules on EV tax credit

The U.S. Treasury Department and Internal Revenue Service (IRS) have released final rules on the clean vehicle provisions of the Inflation Reduction Act (IRA) that are designed to lower electric vehicle (EV) costs for consumers, aid U.S. manufacturing and strengthen energy security by building resilient supply chains with allies and partners.

According to the Treasury Department, $173 billion in private sector investment has been announced across the U.S. clean vehicle and battery supply chain since President Biden was elected.

“President Biden’s Inflation Reduction Act has unleashed an investment and manufacturing boom in the United States,” Secretary of the Treasury Janet L. Yellen says. “I’ve seen it firsthand in Tennessee, North Carolina and Kentucky how ecosystems have developed in communities nationwide to onshore the entire clean vehicle supply chain so the United States can lead in the field of green energy.

“The Inflation Reduction Act’s clean vehicle credits save consumers up to $7,500 on a new vehicle and hundreds of dollars per year on gas, while creating good-paying jobs and strengthening our energy security.”

After considering the extensive public feedback received in response to the proposed rules, the Treasury Department and IRS say they are providing definitions and rules regarding taxpayer and vehicle eligibility for the credit for new clean vehicles and the previously owned clean vehicle credit. The rules also address the critical minerals and battery components requirements and Foreign Entity of Concern (FEOC) restriction that were added to the clean vehicle credit by the IRA.

The FEOC rule applies to products from China, Russia, North Korea and Iran.

There also are rules included for transferring the 30D clean vehicle credit of up to $7,500 and the 25E previously owned clean vehicle credit of up to $4,000 to registered dealers. The Treasury Department says this mechanism created by the IRA already is extending the reach of the credits by making the credit available at the point of sale rather than when buyers file their taxes. The department cites research claiming that more than 100,000 credits have been transferred at the point of sale this year, representing more than $700 million in upfront savings for consumers.

Additionally, the rules include an upfront review of compliance with both critical mineral and battery component requirements and the FEOC restrictions starting this summer. The IRS, with analytical assistance from the Department of Energy (DOE), will conduct an upfront review of documentation and certifications addressing materials sourcing requirements to ensure that qualified manufacturers are accurately representing their battery contents. Also, taxpayers may rely on vehicle eligibility information provided by manufacturers so that taxpayers are not penalized for manufacturer mistakes.

The Treasury Department also announced a new traced qualifying value add test, in which manufacturers must conduct a detailed supply chain tracing to determine the actual value-added percentage for extraction, processing and recycling. The actual percentage will be used to determine the value for the applicable critical mineral that is qualifying. Manufacturers may continue to use the 50 percent roll-up described in the proposed regulations as a transition rule until 2027.

For the FEOC restriction, the final regulations make permanent the allocation-based accounting rules for applicable critical minerals contained in a battery cell. The final regulations also identify certain untraceable battery materials. As tracing standards and capabilities develop, the Treasury Department says qualified manufacturers may temporarily exclude these battery materials from FEOC due diligence and FEOC compliance determinations until 2027.

To take advantage of the FEOC transition rules for untraceable battery materials, qualified manufacturers must submit a report during the upfront review process demonstrating how the qualified manufacturer will comply with the FEOC restriction once the transition rule is no longer in effect.

“Today’s actions from Treasury and DOE provide clarity and certainty to an EV marketplace that’s rapidly growing,” says John Podesta, senior advisor to the president for international climate policy. “The direction we’re headed is clear—toward a future where many more Americans drive an EV or a plug-in hybrid and where those vehicles are affordable and made here in America.”

DOE offers FEOC clarity

The DOE has released related guidance interpreting the definition of FEOC in Section 40207 of the Bipartisan Infrastructure Law (BIL).

The FEOC interpretive guidance is designed to limit the participation of FEOCs in domestic battery supply chains and bolster the growth of domestic and “friend-shored” battery materials processing and manufacturing, the DOE says. The final guidance has remained largely as it originally was proposed in December 2023, with clarifications that consider public comments and will aid automakers and other stakeholders in identifying FEOCs in their battery supply chains.

The department says that even as EV sales grow, the U.S. still depends on foreign sources for many of the processed critical minerals needed to produce EV batteries.

“Through the president’s investing in America agenda, the Biden-Harris Administration has taken swift action to secure a reliable and sustainable battery supply chain sourced predominantly in America and allied trading partners,” the DOE says. “A key element of this action is the implementation of the FEOC provision in the BIL.”

The BIL defines a FEOC in part as an entity that is “owned by, controlled by or subject to the jurisdiction or direction of a government of a foreign country that is a covered nation.” The BIL defines “covered nations” as China, Russia, Iran and North Korea. Pursuant to the DOE’s guidance, an entity is considered a FEOC if it is headquartered, incorporated or performing relevant activities in a covered nation, if 25 percent or more of its voting rights, board seats or equity interest are held by the government of a covered nation, or if the entity is effectively controlled by a FEOC through a license or contract with that FEOC.

Pursuant to the Treasury Department and IRS final rule on the 30D clean vehicle tax credit, an EV containing battery components manufactured or assembled by a FEOC will be ineligible to receive the tax credit starting this year. Similarly, an EV with a battery containing critical minerals extracted, processed or recycled by a FEOC will be ineligible to receive this tax credit starting in 2025.

In the DOE’s Battery Materials Processing and Manufacturing grant program, the Office of Manufacturing and Energy Supply Chains (MESC) will prioritize applications that will not use battery material supplied by a FEOC.

Industry reaction

Reno, Nevada-based battery materials company American Battery Technology Co. (ABTC) commended the Biden-Harris Administration for providing the additional guidance.

In a statement, ABTC says, “The additional guidance provided today supports the intended use of federal investments allocated by the Bipartisan Infrastructure Law [BIL] to scale up and build out a new clean energy manufacturing sector that protects American interests, strengthens a domestic battery metals supply chain and diminishes our reliance on foreign sources.

“Across America, public and private partnerships are working together to cultivate long-term economic competitiveness, along with new job creation that supports responsibly sourced battery metals and battery metals manufacturing to drive our cleaner energy transition to electrification. We are one of these American companies that is engineered for innovation, propelled by ingenuity, and now better equipped to increase domestic battery metals supply through our recycling, mining and manufacturing operations.  We are very proud to have successfully completed the diligence process on multiple BIL grants over the past few years, and we look forward to introducing IRA-compliant metals into the domestic supply chain.”