Clifford Chance

Turning Green Into More Green: Proposed Regulations Revise The Internal Revenue Code In Push For "New Clean Vehicles" And Tax Credits

May 9, 2023

On March 31, 2023, the U.S. Treasury Department and the Internal Revenue Service released proposed guidance for the "new clean vehicle" provisions of the Inflation Reduction Act of 2022, clarifying how the proposed tax credits will work as part of the Administration's push (and financial incentives) around the energy transition, including in the automotive sector. While the approach is simple, tax credit eligibility and the mechanics, as described below, require a careful reading through defined terms, navigating multi-step processes, and a calculator.

Subject to certain restrictions, Section 30D(a) of the Internal Revenue Code provides a tax credit (a personal credit or general business credit) with respect to each "new clean vehicle" that a taxpayer purchases and places in service. The IRA amended Section 30D in a number of significant ways. For vehicles placed in service after the date of the proposed regulations, Section 13401(a) of the IRA amended Section 30D(b) of the Code to provide a maximum credit of $7,500 per vehicle, consisting of $3,750 where a vehicle meets certain requirements relating to critical minerals (the "Critical Minerals Requirement") and $3,750 where a vehicle meets certain requirements relating to battery components (the "Battery Component Requirement"). However, no tax credit pursuant to Section 30D may be taken with respect to a vehicle placed in service after December 31, 2032.

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