Global Daily Tax News, US IRS Clarifies Clean Energy Tax Breaks, (Dec 28, 2023)

The US Internal Revenue Service (IRS) has issued new guidance on the Commercial Clean Vehicle Credit and on the tax credit for the production of clean hydrogen.

On December 20, 2023, the Treasury Department and IRS issued Notice 2024-05 regarding the commercial clean vehicle credit for commercial vehicles placed in service in 2024.

The guidance provides a safe harbor for certain qualified commercial clean vehicles placed in service in calendar year 2024, which allows for reliance on the Department of Energy (DOE) analysis of incremental costs. The analysis shows that the incremental cost of all street electric vehicles (other than in the case of compact car PHEVs) that have a gross vehicle weight rating of less than 14,000 pounds will be greater than USD7,500 in calendar year 2024.

Accordingly, the incremental cost will not limit the available credit amount for street electric vehicles that have a gross vehicle weight rating of less than 14,000 pounds and are placed in service in calendar year 2024.

For compact car plug-in electric hybrids placed in service during calendar year 2024, for which the incremental cost was calculated to be less than USD7,500, the IRS will accept a taxpayer's use, when calculating the credit amount, of the incremental cost published by the DOE.

In addition, the DOE analysis provided an incremental cost analysis of current costs for several representative classes of street electric vehicles with a gross vehicle weight rating of 14,000 pounds or more. For those vehicles placed in service during calendar year 2024, the IRS will accept a taxpayer's use, in calculating the credit amount, of the incremental cost published by the DOE.

Subsequently, on December 26, 2023, the IRS added new questions 13 and 14 to the frequently asked questions in Fact Sheet 2023-29 to provide guidance related to the critical mineral and battery component requirements for the New, Previously Owned, and Qualified Commercial Clean Vehicle Credits. These concern tax compliance requirements for dealerships.

Meanwhile, the new guidance on the tax credit for the production of clean hydrogen was released on December 22, 2023.

The Inflation Reduction Act (IRA) of 2022 provides a production credit for each kilogram of qualified clean hydrogen produced by a taxpayer at a qualified clean hydrogen production facility.

The credit amount is dependent on the emissions intensity of the hydrogen production process and the taxpayer's compliance with prevailing wage and apprenticeship requirements during the qualified clean hydrogen production facility's construction, alteration, and repair.

The proposed regulations provide definitions and procedures for administering and claiming this credit, including guidance for determining the lifecycle greenhouse gas emissions rate resulting from the hydrogen production process.

The guidance also provides procedures for petitioning the IRS for a provisional emissions rate, requirements for verifying the production and sale or use of hydrogen, and requirements for modifying an existing hydrogen production facility to obtain a new original placed in service date for purposes of the credit.