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New IRA Clean Vehicle Credit guidance

ARTICLE | December 22, 2023

Authored by RSM US LLP

Executive summary

The U.S. Department of Energy (DOE) has issued proposed regulations on the statutory definition of “foreign entity of concern” (FEOC). This is significant as the clean vehicle credit under section 30D of the Internal Revenue Code is not available to vehicles placed in service where a FEOC is involved in the battery component and critical mineral requirements.

The DOE guidance was issued in conjunction with proposed regulations issued by the Department of the Treasury (Treasury) and the Internal Revenue Service (IRS). Supplementing prior guidance, the Treasury regulations filled in missing details related to the excluded entity requirement. Under the excluded entity requirement, qualified manufacturers must attest that the battery components, applicable critical minerals, battery cells and battery are FEOC-compliant. Treasury and IRS also released Revenue Procedure 2023-38 establishing procedural rules for qualified manufacturers under the excluded entity provision.


The Inflation Reduction Act modified the clean vehicle credit through requirements placed on vehicle manufacturers, sellers and buyers. Proposed regulations released by Treasury on March 31, 2023, outlined new battery component and critical mineral requirements that must be satisfied for a vehicle to be eligible for the credit. The prior guidance did not define the term “excluded entities.” For the earlier alert, see Clean vehicle credit: Proposed regulations clarify qualification rules.

Excluded entity requirement

Under the excluded entity requirement, vehicles placed in service beginning in 2024 are not eligible for the clean vehicle credit if any of the battery components of the battery are manufactured or assembled by a FEOC. Additionally, vehicles placed in service beginning in 2025 are not eligible for the clean vehicle credit if any of the applicable critical minerals of the battery are extracted, processed or recycled by a FEOC.

The proposed Treasury regulations provide the framework for determining when a battery component and applicable critical mineral are FEOC-compliant. Qualified manufacturers are required to perform due diligence confirming FEOC-compliance. Compliance is determined through a set of cascading rules including the tracing of the battery materials. Penalty rules exist.

Comments on the proposed guidance and requests for a public hearing are due by Jan. 18, 2024.


A foreign entity can qualify as a FEOC by designation or engagement in certain illegal activities. A foreign entity can also qualify as a FEOC if it 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 proposed guidance released by the DOE clarifies the term FEOC by providing interpretations of the following key terms:

  • government of a foreign country;
  • foreign entity;
  • subject to the jurisdiction; and
  • owned by, controlled by, or subject to the direction.

This is important because this section is cross-referenced by the excluded entity provision under section 30D(d)(7).

A “covered nation” includes the People’s Republic of China, the Russian Federation, the Democratic People’s Republic of North Korea and the Islamic Republic of Iran.

Comments on the DOE proposed regulations are due by Jan. 3, 2024.

Rev. Proc. 2023-38

Rev. Proc. 2023-38 updates and consolidates procedural rules for qualified manufacturers of new clean vehicles to comply with reporting, certification and attestation requirements under section 30D. It also provides guidance regarding year end attestation of FEOC-compliance, including the requirement for the submission of an annual compliant-battery ledger that is required to be reviewed and approved by the IRS before entry into the IRS Energy Credits Online Portal.

For earlier alerts on reporting obligations, see Treasury issues guidance for clean vehicle manufacturers and sellers and IRS issues guidance on the transfer of clean vehicle credits.

Washington National Tax takeaways

Qualified manufacturers will ultimately be required to determine FEOC-compliance of their battery components (other than battery cells), applicable critical minerals, battery cells and batteries.  The proposed guidance isolates battery cells from battery components as battery cells could contain both battery components and critical minerals. This will require diligence and detailed tracing and tracking on the part of the qualified manufacturer.  The proposed guidance does offer transition rules through 2026 to assist with the tracking.

Determining whether a foreign entity is a FEOC due to ownership or control may be difficult. The relationship of each foreign entity and its specific activities will need to be analyzed considering, among other factors, board seats, voting rights, equity interests and licensing agreements. However, there could be fact patterns where a foreign entity has production activities both inside and outside a covered nation. Depending on the entity’s place of incorporation, the foreign entity may be considered a FEOC with respect only to the production activities conducted inside the covered nation. Additionally, the proposed guidance indicates that a subsidiary of a foreign entity that is a FEOC is not automatically tainted as a FEOC.

The compliance requirements to claim a clean vehicle credit continue to grow. Clean vehicle manufacturers will need to remain diligent regarding the procedural requirements and timing for registration and reporting through the IRS Energy Credits Online Portal.

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This article was written by Deborah Gordon, Brent Sabot and originally appeared on 2023-12-22.
2022 RSM US LLP. All rights reserved.

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