IRS updates guidance on EV tax credits

The Internal Revenue Service has updated its frequently asked questions to offer more guidance on what kinds of components can be used in electric vehicles to qualify for tax credits.

The guidance comes after the IRS and the Treasury issued new regulations last week related to the Commercial Clean Vehicle Credit under the Inflation Reduction Act. One of the touchier subjects has involved the mineral and battery component requirements for the electric vehicles since one of the goals of the 2022 law was to develop more U.S. manufacturing capacity for EV batteries without relying so heavily on components from China, which is considered a "foreign entity of concern" under the U.S. However, U.S. production continues to rely heavily on imports from abroad. On Tuesday, the IRS updated its frequently asked questions in Fact Sheet 2023-29 to offer more guidance related to the critical mineral and battery component requirements for the New, Previously Owned, and Qualified Commercial Clean Vehicle Credits. The FAQs supersede earlier FAQs that were posted in Fact Sheet 2023-22 on Oct. 6, 2023.

The FAQ revisions involved Topic A: Eligibility Rules for the New Clean Vehicle Credit, where the IRS added Questions 13 and 14 and the accompanying answers.

Question 13 asks, "If I place a vehicle in service in 2024, and it has battery components manufactured by a foreign entity of concern but it meets the critical mineral applicable percentage requirements for 2024, does my vehicle qualify for the $3,750 portion of the new clean vehicle credit for meeting critical mineral requirements?"

The answer is no. A vehicle placed in service after Dec. 31, 2023, with battery components manufactured or assembled by a foreign entity of concern is not eligible for any amount of new clean vehicle credit, as statutorily provided in section 30D(d)(7)(B) of the Tax Code. "If a vehicle has any battery components that were manufactured or assembled by a foreign entity of concern, then the vehicle is no longer considered a new clean vehicle and therefore is not eligible for a partial new clean vehicle credit ($3,750)," says the guidance.

Photo of an electric car charging at a mall parking lot in California.
An electric car charges at a mall parking lot on June 27, 2022 in Corte Madera, California.

Question 14 asks, "Is a qualified manufacturer required in its written report to make an attestation under penalties of perjury, demonstrating compliance with the foreign entity of concern requirements of section 30D?"

The answer in this case is yes. "A qualified manufacturer is required to include in its written report the following attestation: 'Under penalties of perjury, I declare that I have examined this certification, including accompanying documents, and to the best of my knowledge and belief, the facts presented in support of this certification are true, correct, and complete.' As such, a qualified manufacturer's attestation of compliance with the foreign entity of concern requirements should be made to the best of the qualified manufacturer's knowledge and belief."

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Tax IRS Tax credits Tax regulations Auto industry
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