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December 15, 2023

New guidance assists manufacturers and suppliers in determining foreign-entity-of-concern compliance for IRC Section 30D critical mineral and battery component requirements

  • The Proposed Regulations' definition of "foreign entities of concern (FEOC)-compliant" would narrow the clean vehicles eligible for the credit by clarifying that an entity only has be 25% owned by an FEOC to disqualify the vehicle.
  • Qualified manufacturers would be required to conduct due diligence on all battery components and critical minerals, including constituent materials, to determine FEOC compliance, but a transition rule would temporarily exclude specific non-traceable battery materials from the due diligence requirements.
  • Manufacturers and suppliers throughout the battery supply chain should take a close look at the various definitions in the proposed regulations to determine which apply to their situation and whether they affect their eligibility calculations under IRC Section 30D.

In proposed regulations (REG-118492-23) (Proposed Regulations), the IRS and Treasury offer further guidance on how to determine whether clean vehicles comply with the critical mineral and battery component requirements to qualify for the IRC Section 30D credit. The Proposed Regulations also contain guidance for qualified manufacturers on how to determine whether the critical minerals contained in a clean vehicle battery were extracted, processed or recycled by an FEOC or whether the battery components were manufactured or assembled by an FEOC.

Related regulations from the Department of Energy (DOE) include definitions of certain terms such as foreign entity of concern (FEOC) and apply to the determination of FEOC-compliant batteries under IRC Section 30D. Revenue Procedure 2023-38, released at the same time as the proposed regulations, consolidates the procedural rules for the reporting, certification and attestation requirements for IRC Sections 30D, 25E (previously-owned vehicles) and 45W (commercial vehicles).


The Inflation Reduction Act modified the IRC Section 30D "new qualified plug-in electric drive motor vehicles credit" to a "clean vehicle credit." The non-refundable clean vehicle credit is a dollar-for-dollar reduction of federal income taxes by up to $7,500 for new clean vehicles acquired and placed in service by a taxpayer during the tax year before January 1, 2033.

To be eligible for a credit under IRC Section 30D, the clean vehicle must satisfy certain requirements, including the following: (1) the original use of the clean vehicle must commence with the taxpayer, (2) the clean vehicle cannot be acquired for resale, (3) the clean vehicle must be made by a qualified manufacturer, and (4) the final assembly of the clean vehicle must occur in North America.

The IRC Section 30D credit can reach $7,500, so long as the sourcing requirements are satisfied for both the critical minerals and battery components contained in the clean vehicle's battery. The credit consists of two parts. For vehicles placed into service after April 17, 2023, taxpayers' eligibility for the first $3,750 of the credit depends on the percentage of the critical minerals that were either extracted or processed in the United States (or extracted or processed in any country with which the United States has a free trade agreement in effect) or recycled in North America. The applicable percentage is 40% for vehicles placed in service before 2024, with the percentage increasing to 80% for vehicles placed into service after December 31, 2026. Taxpayers' eligibility for the remaining $3,750 of the credit depends on the applicable percentage of the value of the battery components that were manufactured or assembled in the United States. The applicable percentage is 50% for clean vehicles placed in service before 2024, with the applicable percentage increasing to 100% for vehicles placed in service after December 31, 2028.

For vehicles placed in service after December 31, 2023, the credit will not apply for battery components sourced from FEOCs. A similar limitation for critical minerals takes effect on January 1, 2025.

In addition, for the credit to apply, the manufacturer's suggested retail price (i.e., sticker price) for a vehicle may not exceed a specified threshold (e.g., $80,000 for vans, SUVs and pickup trucks, $55,000 for sedans and others). Limitations on a taxpayer's adjusted gross income also apply. Taxpayers may elect to transfer credits to an eligible dealer subject to certain requirements. Additionally, certain recapture rules apply.

Previous guidance

On April 17, 2023, the IRS and Treasury released proposed regulations (REG-120080-22) on the critical minerals and battery component requirements (see Tax Alert 2023-0660), after releasing earlier guidance (see Tax Alerts 2022-1262, 2023-0076 and 2023-0251). In addition, proposed regulations were released on October 10, 2023, on transferring IRC Sections 30D credits (see Tax Alert 2023-1723).

Proposed Regulations

The much-anticipated Proposed Regulations detail how to determine if the critical minerals, associated constituent materials and battery components of new clean vehicles are FEOC-compliant for qualifying for the IRC Section 30D tax credit. The definitions in the Proposed Regulations are generally consistent with Prop. Treas. Reg. Section 1.30D-3(c) in the April 2023 proposed regulations.

Definition of FEOC

The Proposed Regulations incorporate the DOE definition of FEOCs. A FEOC is defined in the Infrastructure Investment and Jobs Act (IIJA), Section 40207(a)(5), as a foreign entity of a "covered nation," which is defined as the People's Republic of China, the Russian Federation, the Democratic People's Republic of Korea and the Islamic Republic of Iran, as well as foreign entities owned by, controlled by, or subject to the jurisdiction or direction of a government of a covered nation.

According to the DOE guidance, "an entity incorporated in, headquartered in, or performing the relevant activities in a covered nation would be classified as a FEOC. For purposes of [the DOE] rules, an entity would be 'owned by, controlled by, or subject to the direction' of another entity if 25[%] or more of the entity's board seats, voting rights, or equity interest are cumulatively held by such other entity. In addition, licensing agreements or other contractual agreements may also create control. Finally, 'government of a foreign country' would be defined to include subnational governments and certain current or former senior foreign political figures."

Due diligence

Prop. Treas. Reg. Section 1.30D-6(b) contains the due diligence requirements that qualified manufacturers would have to meet to show the critical minerals (and associated constituent materials) and battery components are FEOC-compliant. The required due diligence must comply "with standards of tracing for battery materials available in the industry at the time of the attestation or certification." The IRS said in the Preamble that tracing standards may include international battery passport certifications and enhanced battery material and component tracking and labeling. Qualified manufacturers can rely on supplier attestation or certification if the qualified manufacturer does not know or have reason to know that attestation or certification is incorrect.

Transition rule for non-traceable battery materials: The IRS said that the "industry has not developed standards or systems for tracing certain low-value materials with precision," so the Proposed Regulations would allow qualified manufacturers to exclude identified nontraceable battery materials until 2027, as long as they currently report how they will comply after that time.

Three-step process

The Proposed Regulations set out a three-step process for a qualified manufacturer to determine whether a battery is FEOC-compliant.

  1. Determine whether battery components and critical minerals (and associated constituent materials) are FEOC-compliant by taking into account each step of extraction, processing or recycling through when the mineral is processed or recycled into a constituent material (with an exception for critical minerals that are fully consumed in the production of the constituent material or battery component and no longer remain in any form in the battery).
  2. Physically track the battery components and critical minerals (and associated constituent materials) to specific battery cells, or alternatively, due to the possibility of materials commingling, allocate the critical minerals and associated constituent materials to battery cells.
  3. Physically track the battery components, including battery cells, to specific batteries (by using a serial number or other identification system).

While physical tracking is generally required, the Proposed Regulations provide for a temporary allocation-based determination for critical materials and associated constituent materials incorporated into a battery cell. Under this temporary rule, a cell may be deemed FEOC-compliant by allocating the available mass of applicable minerals and materials specific to battery cells assembled or manufactured at the facility without the need for physical tracking. Under the Proposed Regulations, this temporary allocation method would be available for any new clean vehicles through December 31, 2026.


Under the Proposed Regulations, the IRS would determine whether the critical minerals or battery components are FEOC-compliant as follows:

  • For critical minerals, FEOC compliance would be determined by reviewing all phases of extraction, processing and recycling
  • For battery components, FEOC compliance would be determined at the time of manufacturing or assembly
  • For constituent materials, the determination of whether a critical mineral is FEOC-compliant would be determined at the end of processing or recycling of the critical mineral into a constituent material

Compliant-battery ledger

The IRS would track compliance for new clean vehicles placed in service after December 31, 2024, through a compliant-battery ledger. Qualified manufacturers would have to determine and provide information to the IRS each calendar year estimating the number of FEOC-compliant batteries they expect to procure, along with supporting documentation. One compliant-battery ledger could be established for all vehicles for a calendar year, or separate ledgers could be established for specific models or classes of vehicles to account for different battery cell chemistries or differing quantities of cells in each battery.

Upfront review: The qualified manufacturer would have to determine the number of FEOC-compliant batteries for which the qualified manufacturer anticipates providing a periodic written report during the calendar year and provide the basis for making that determination. The IRS and DOE would review the documentation and approve or reject the number of FEOC-compliant batteries, either in whole or in part. The qualified manufacturer would then have to adjust the balance of the ledger for changes in the number of FEOC-compliant batteries. "If the balance of the compliant-battery ledger for a calendar year of the qualified manufacturer is zero or less than zero, the qualified manufacturer would not be able to submit additional periodic written reports with respect to section 30D."

Rule for vehicles placed in service in 2024

As part of the transition to the new rules, Prop. Treas. Reg. Section 1.30D-6(e) would apply to new clean vehicles placed in service in 2024. The qualified manufacturer would have to provide attestations, certifications and documentation demonstrating compliance with the requirements of IRC Section 30D(e), at the time and in the manner that will be provided in the Internal Revenue Bulletin.

The IRS may consider, however, that battery components are FEOC-compliant if a qualified manufacturer provides a periodic written report at least 30 days before the Proposed Regulations are finalized, provided that the qualified manufacturer has determined that its supply chains of each battery component contain only FEOC-compliant battery components.

Attestations, certifications and documentation

Third-party manufacturers or suppliers that operate a battery cell production facility would be contractually required to provide the due diligence information to the qualified manufacturer, and would also be contractually required to inform them of any changes in the supply chain that could affect determination of FEOC compliance.

Inadvertent attestations, certifications or documentation

If the IRS determines that a qualified manufacturer inadvertently made erroneous attestations, certifications or documentation for a new clean vehicle, the qualified manufacturer could cure the errors by adjusting the compliant-battery ledger.

If the qualified manufacturer does not cure the error, the new clean vehicle for which the error was made would no longer eligible for the IRC Section 30D credit.

Intentional disregard or fraud

If the IRS determines that a qualified manufacturer intentionally disregarded the attestation, certification or documentation requirements or reported information fraudulently or with intentional disregard, the IRS could determine that all vehicles of the qualified manufacturer that have not been placed in service are no longer eligible for the IRC Section 30D credit. The IRS could also terminate the manufacturer's status as a qualified manufacturer. The manufacturer would be required to submit a new written agreement to reestablish qualified manufacturer status at the time and in the manner provided in the Internal Revenue Bulletin.

Applicability dates

Under IRC Section 30D(d)(7), the excluded entity provisions apply to vehicles placed in service after December 31, 2023, for battery components, and after December 31, 2024, for applicable critical minerals. Accordingly, Prop. Treas. Reg. Section 1.30D-6 from the Proposed Regulations would apply to new clean vehicles placed in service after December 31, 2023.


The Proposed Regulations provide important clarity for manufacturers as they look to determine if their batteries meet the FEOC-compliant requirements and which of their vehicles are eligible for the IRC Section 30D credit. While the transition rule and temporary allocation method give some initial relief from physical tracking requirements, the rules' applicability is fairly narrow and will be better defined when the IRS determines which minerals and materials are considered non-traceable.

Although these two provisions may provide temporary relief from some of the requirements, manufacturers must continue to prepare for the phase-in of the more robust requirements for vehicles placed in service after December 31, 2024, when the IRS will begin the upfront review of certifications and documentation related to IRC Section 30D(e) requirements. Finally, the applicability of the FEOC definition beyond state-owned entities to private companies located in the applicable countries may trigger non-FEOC compliance.


Contact Information
For additional information concerning this Alert, please contact:
National Tax
   • Greg Matlock, EY’s Global Energy & Resources Industry Tax Leader (
Tax Credit Investment Advisory Services
   • Michael Bernier (
Credits and incentives and sustainability
   • Paul Naumoff (
   • Akshay Honnatti (
   • David Camerucci (

Published by NTD’s Tax Technical Knowledge Services group; Andrea Ben-Yosef, legal editor