The IRS issued final regulations (T.D. 9995) Friday for new and previously owned clean vehicle credits, including rules for how buyers can transfer credits for such vehicles to registered dealers at the point of sale rather than waiting until they file their returns. Also included in the final regulations are rules about the process for dealers to become eligible entities to receive advance payments of the transferred credits.

The final regulations provide rules regarding the critical mineral and battery component requirements for the new clean vehicle credit, and they add a new test for mineral content.

The Inflation Reduction Act of 2022, P.L. 116-179, under Sec. 30D, allowed a maximum credit of $7,500 per new clean vehicle. The credit allowed $3,750 for a new vehicle that meets certain requirements for critical minerals and $3,750 for a new vehicle that meets certain requirements for battery components.

To qualify for the credit, a new vehicle must meet certain other requirements, including a limit on the manufacturer’s suggested retail price. Also, the taxpayer claiming the credit must meet certain requirements, including income limitations.

The previously owned clean vehicle credit under Sec. 25E is $4,000 for the purchase of an eligible vehicle with a sale price of $25,000 or less that a qualified buyer places into service during a tax year. To claim the credit, a qualified buyer must meet certain income limitations, and the vehicle must meet specified eligibility requirements.

Over 100,000 credits have been transferred at the point of sale so far this year, representing over $700 million in upfront savings for consumers, Treasury said in a news release.

The regulations also finalize the rules for qualified manufacturers of new clean vehicles to determine if the battery components and applicable critical minerals contained in a vehicle battery are foreign entity of concern (FEOC) compliant.

For purposes of the FEOC-compliance requirements, the final regulations

• provide relevant definitions;
• impose a due diligence requirement for battery components and applicable critical minerals;
• describe the methods by which FEOC-compliance is determined; and
• outline a reporting and review process for determinations of FEOC-compliance.

The new test for mineral content, the traced qualifying value add test, requires manufacturers to conduct a detailed supply chain tracing to determine the actual value-added percentage for extraction, processing, and recycling. The actual percentage, according to the Treasury release, is used to determine the value for the applicable critical mineral that is qualifying. Manufacturers may continue to use the 50% roll-up described in the proposed regulations as a transition rule until 2027.

The IRS, with analytical assistance from the Energy Department, will review documentation and certifications addressing materials sourcing requirements to ensure that qualified manufacturers represent their battery contents accurately, Treasury said. The final rules say taxpayers will not be penalized if manufacturers make mistakes in the information they provide on vehicle eligibility.