Welcome back from the holidays and “catch up” mode. We’re doing a bit of that ourselves – our weekly ESG in the News (available to members) will be available tomorrow, covering your “need to know” ESG news items from the past two weeks.
The Inflation Reduction Act (IRA), which passed into law in late 2022, contained a number of provisions creating and extending tax benefits to businesses and consumers. We wrote about those previously. However, the law was primarily a spending bill and many of the specifics regarding implementation were deferred to federal agencies for development through their guidance and rulemaking processes. On December 19, 2022, the Treasury Department announced a timeline on its implementation of the IRA stating in a press release that Treasury would publish an FAQs for consumers on the tax credit for energy efficient home improvement projects and residential energy property – which it did three days later in a Fact Sheet.
One of the most exciting things to come out of the IRA in 2023 is the tax credit for certain electric vehicles – up to $7,500. Treasury has worked with the Department of Transportation and Department of Energy to create a list of qualifying vehicles, but more requirements for vehicles will be introduced in 2023. To help alleviate confusion about the applicability of the credit, IRS published guidance that also attempted to clarify the requirement for qualifying vehicles to “undergo final assembly in North America.” Given that most EV batteries/battery minerals are sourced from outside the U.S., this provision is proving particularly troublesome at the moment.
Treasury has announced that it will begin rulemaking in March regarding the “critical mineral and battery components requirements” for qualifying vehicles. These requirements will not come into force until after the formal rulemaking process has concluded. In the meantime, it is possible that Treasury may issue additional guidance for both manufacturers and consumers given the level of confusion that has arisen surrounding the tax credit.