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News

Driving Sustainability: New IRS, Treasury Proposed Rules Propel Clean Vehicles and Fuels Forward

By:
Emma Slack-Jorgensen
Published Date:
Jan 13, 2025

On Jan. 10, the U.S. Treasury Department and IRS publishedNotice of Proposed Rulemaking (NPRM) on the credit for Qualified Commercial Clean Vehicles (45W) established by the Inflation Reduction Act.

As reported by Accounting Today, these updates aim to provide clarity for businesses and taxpayers while promoting sustainable practices across industries. 

Th NPRM addresses the commercial clean vehicle credit under Section 45W of the Tax Code. The credit is equivalent to the lesser amount of either 30% of the vehicle’s basis (15% for a plug-in hybrid EV or PHEV) or the vehicle’s incremental cost in excess of a vehicle that is comparable in size or use and is powered solely by gasoline or diesel. 

This credit incentivizes the purchase of qualified clean vehicles, including electric, plug-in hybrid and fuel cell models, by offering up to $7,500 for light-duty vehicles  (with a Gross Vehicle Weight Rating (GVWR) of less than 14,000 pounds) and $40,000 for heavy-duty options like buses and trucks (GVWR equal to or greater than 14,000 pounds).

“The release of Treasury’s proposed rules for the commercial clean vehicle credit marks an important step forward in the Biden-Harris Administration’s work to lower transportation costs and strengthen U.S. energy security,” said U.S. Deputy Secretary of the Treasury Wally Adeyemo. “Today’s guidance will provide the clarity and certainty needed to grow investment in clean vehicle manufacturing.” 

The NPRM proposes different ways for taxpayers to determine the incremental cost of a qualifying commercial clean vehicle to calculate the amount of 45W credit. For instance, the NPRM proposes that taxpayers continue utilizing the incremental cost safe harbors, including those outlined in Notice 2023-9 and Notice 2024-5. Taxpayers may also depend on a manufacturer’s written cost determination or may also calculate the incremental cost of a qualifying clean vehicle versus an internal combustion engine vehicle relying on the different costs of the vehicle powertrains. 

The NPRM also clarified the requirements for qualifying vehicles and eligibility. The NPRM proposes rules on the kinds of vehicles that qualify for the credit and aligns certain definitional concepts with those applicable to the 30D and 25E credits. Additionally, the NPRM proposes that vehicles are only eligible if they are used 100% for trade or business, except de minimize personal use. The 45W credit is disallowed for qualified commercial clean vehicles that were previously permitted to use a clean vehicle credit under 30D or 45W.

The NPRM is requesting for comments on issues related to off-road mobile machinery, including approaches that might be adopted in applying the definition of mobile machinery to off-road vehicles. It also soliciting input on whether to create a product identification number system for this machinery to comply with statutory requirements. 

The agencies are soliciting comments on the NPRM 60 days after its Jan. 14 publication in the Federal Register. A public hearing is set for April 28. 

Aside from releasing the NPRM, the agencies in tandem also published guidance and requested input on the Clean Fuels Production Credit under Section 45Z, which provides per-gallon incentives for producers of clean transportation fuels that are based on the greenhouse gas emissions produced.

The guidance includes a notice of intent to propose regulations on the section 45Z credit. It also contains a notice providing the annual emissions rate table for section 45Z, which refers taxpayers to the appropriate methodologies for determining the total amount of greenhouse gas emissions that are produced in the entire life cycle of a fuel. Together with this guidance, the Department of Energy is set to release the 45ZCF-GREET model for use in determining emissions rates for 45Z in the coming days.

The guidance clarifies eligibility requirements, including the exclusion of fuel blenders and compressors, and offers methodologies for calculating emissions, such as using the newly developed 45ZC-GREET model or international standards for sustainable aviation fuel. 

“This guidance will help put America on the cutting-edge of future innovation in aviation and renewable fuel while also lowering transportation costs for consumers,” Adeyemo noted. “Decarbonizing transportation and lowering costs is a win-win for America.”

Written comments are due on April 10. The subject line for the comments should include a reference to Notice 2025-10.