Search PillsburyLaw.com
  • All
  • Lawyers
  • Capabilities
  • Insights

Alert

Treasury Department and IRS Issue Final Regulations on the Advanced Manufacturing Production Credit Under Section 45X of the Internal Revenue Code

By Don Lonczak, Megan L. Jones, Baylee Beeman

Alert

By Don Lonczak, Megan L. Jones, Baylee Beeman

Takeaways

Under the final regulations, taxpayers are permitted to produce eligible components using recycled materials.
Components which are sold and then later become defective will not be considered defective components for purposes of the related party anti-abuse rule.
The final regulations make necessary clarifications to numerous definitions.

11.27.24

As amended by the Inflation Reduction Act of 2022, section 45X of the Internal Revenue Code (IRC) grants an advanced manufacturing production credit (AMPC) to manufacturers who produce certain clean energy components in the United States. The APMC is available for eligible components produced and sold after December 31, 2022. Eligible components include solar and wind components, inverters, some battery components and applicable critical minerals. In addition to being produced in the United States, the components must be sold to an unrelated party in the course of the taxpayer’s trade or business. The credit amounts available under IRC section 45X vary based on the type of eligible component that is produced and sold by the taxpayer.

On December 14, 2023, Treasury and the Internal Revenue Service (IRS) published proposed regulations [REG-107423-23] in the Federal Register regarding the AMPC (Prior Regulations). The Prior Regulations supplemented Notices 2022-27, 2023-18 and 2023-44 that were published on October 14, 2023, March 6, 2023, and June 20, 2023, respectively. After considering comments to the Prior Regulations submitted by industry members, Treasury and the IRS released final regulations on the AMPC on October 24, 2024, which were published in the Federal Register on October 28, 2024 (Final Regulations). The Final Regulations generally adopt the Prior Regulations, but certain changes were made in response to the submitted comments.

High-Level Overview of the Final Regulations

  • The preamble for the Prior Regulations provided that both primary and secondary production were included in the definition of “produced by the taxpayer,” but the actual text of the Prior Regulations failed to address the issue. The Final Regulations expressly include secondary production in the definition of “produced by the taxpayer” to make clear that taxpayers are permitted to produce eligible components using recycled materials.
  • The Final Regulations slightly modify the distinction between substantial transformation and partial transformation, mere assembly or superficial modification by replacing any references to “mere” assembly with “minor” assembly. With such change, Treasury and the IRS acknowledged that solar modules and battery modules using battery cells, which are produced primarily by the assembly of other components, will be eligible for the AMPC even though no additional work is done after the assembly. This limited situation is distinguished from “minor assembly” where the eligible components have undergone a significant transformation and all that is left for the taxpayer to do is the assembly.
  • The Prior Regulations discussed the overlap between IRC section 45X credits with the IRC section 48C credits. Under the Final Regulations, if components are made at an AMPC facility that overlaps with an IRC section 48C facility, the AMPC generally will not be available for components produced there.
  • The Prior Regulations provided an anti-abuse provision with respect to the related party election where defective products sold to related parties would not be eligible for the AMPC. The Final Regulations confirm that defects that arise in an eligible component after its sale in the ordinary course of business will not be considered a “defective component” for purposes of the related-party election anti-abuse rule.
  • The Final Regulations make changes to the rules and definitions applicable to the following:

     - Solar energy components, specifically: photovoltaic cell, polymeric

      backsheet and solar-grade polysilicon,

     - Related offshore wind vessels,

     - Total rated capacity of completed wind turbines,

     - Inverters,

     - Qualified battery components,

     - Battery cells and modules using battery cells, and

     - Applicable critical minerals.

  • The Final Regulations provide that certain extraction costs for eligible critical minerals and/or electrode active materials can be included in a taxpayers’ credit basis if such costs were paid or incurred by the taxpayer. Certification and substantiation requirements apply, however, in order for a taxpayer to include such costs in the calculation of the AMPC.

Final Points
The Final Regulations include impactful guidance for manufacturers of clean energy components and producers of critical minerals looking to take advantage of the AMPC. The Final Regulations apply to eligible components which are produced and sold after December 31, 2022, and during taxable years ending on or after October 28, 2024.

Tags
Tax, Federal Funding Resource Center, Renewable Energy
These and any accompanying materials are not legal advice, are not a complete summary of the subject matter, and are subject to the terms of use found at: https://www.pillsburylaw.com/en/terms-of-use.html. We recommend that you obtain separate legal advice.

Related Insights

View More