The Department of the Treasury and the Internal Revenue Service on December 14 issued proposed regulations to provide guidance for the advanced manufacturing production credit established by the Inflation Reduction Act (IRA). A public hearing on this proposed regulation has been scheduled for February 22, 2024, at 10 a.m. ET. The full text of the new regulations is available here.
The new Section 45X provides a credit for the production (within the United States) and sale of certain eligible components including solar and wind energy components, inverters, qualifying battery components and applicable critical minerals. The manufacturing tax credit rates for eligible components remain the same as in previous guidance.
The Treasury details Section 45X-eligible components in the regulations:
- Inverter: End-product that is suitable to convert direct current (DC) electricity from one or more solar modules or certified distributed wind energy systems into alternating current (AC) electricity
- Solar energy component: Solar module, photovoltaic cell, photovoltaic wafer, solar grade polysilicon, torque tube, structural fastener or polymeric backsheet
- Qualifying battery component: Electrode active materials, battery cells and battery modules
The proposed regulations affect taxpayers who produce and sell eligible components and intend to claim the credit.
The guidance provides rules for the production of eligible components and sale to unrelated persons, as well as special rules that apply to sales between related persons. The proposed regulations also include rules for a taxpayer to make an election to treat sales to related persons as made to unrelated persons, known as the Related Person Election.
The proposed regulations provide rules related to calculating the credit, as well as specific recordkeeping and reporting requirements. They also clarify a special rule that lets entities in a contract manufacturing arrangement determine who will claim the section 45X credit for eligible components.
In response to the new guidance, the Solar Energy Manufacturers for America Coalition issued the following statement from executive director Mike Carr, who helped develop the incentive program:
“We commend the Administration for their important work taking this crucial step in creating good manufacturing jobs across the country. We are especially grateful to Senator Ossoff and Representative Kildee for their dogged leadership to ensure this well-designed, production-based solar manufacturing tax credit made it into the Inflation Reduction Act.
“While today’s proposal is critical to supporting investments in new and mothballed factories, U.S. solar manufacturers are still facing headwinds that may jeopardize these projects. With deteriorating solar market conditions due to continued market manipulation by China, the future of U.S. solar manufacturing is under attack. We very much appreciate the Administration’s efforts to construct this critical leg of the stool in 45X implementation and we look forward to continuing to work with them on the needed remaining legs: strong domestic content guidance and smart trade policy.”
