December 15, 2023

The Internal Revenue Service published a proposed rule that would implement the Internal Revenue Code (IRC) section 45X advanced manufacturing production credit, which was established by the Inflation Reduction Act (IRA) and is aimed at incentivizing the production of certain “eligible components” for energy systems in the United States. Eligible components under the section 45X credit include: (1) certain components for solar energy; (2) certain components for wind energy; (3) inverters; (4) qualifying battery components; and (5) applicable critical minerals. Under this proposed rule, the IRS would provide, among other things: (1) general rules applicable to the section 45X credit; (2) definitions and credit amounts for certain eligible components, including solar energy components; and (3) definitions and credit amounts for applicable critical minerals that are eligible components.

With regard to the general rules applicable to the section 45X credit, the proposed rule would establish that the section 45X credit for any taxable year is an amount equal to the sum of the credit amounts determined under section 45X(b) with respect to each eligible component. For example, if a taxpayer produces components for both solar energy and wind energy, the section 45X credit would be worth the total sum of each individual credit for the specific components. Additionally, the IRS is proposing to establish that the section 45X credit is available for certain components “produced by the taxpayer” for both primary (i.e., producing an eligible component using non-recycled materials) and secondary (i.e., producing an eligible component using recycled materials) production. Specifically, the IRS would define “produced by the taxpayer” as “a process conducted by the taxpayer that substantially transforms constituent elements, materials, or subcomponents into a complete and distinct eligible component that is functionally different from that which would result from mere assembly or superficial modification of the elements, materials, or subcomponents.” However, the definition for “produced by the taxpayer” would not include patrial transformation (i.e., transformation that does not result in substantial transformation of constituent elements, materials, or subcomponents into a complete and distinct eligible component) or “mere assembly or superficial modification” (i.e., minor assembly of two or more constituent elements, materials, or subcomponents, or superficial modification of the final eligible component, if the taxpayer does not also engage in the process resulting in a substantial transformation). As a result, to be eligible for the section 45X credit, the subject component must be “produced by the taxpayer” and the taxpayer must be the person that performs the actual production activities that bring about a substantial transformation resulting in the eligible component and that sells such eligible component to an unrelated person (i.e., someone who is not part of the taxpayer’s partnerships, trusts, estates, corporations, or sole proprietorships under common control).

With regard to solar energy, solar energy components eligible for the section 45X credit include: (1) solar modules, which are defined as the connection and lamination of photovoltaic cells into an environmentally protected final assembly that is suitable to generate electricity when exposed to sunlight and ready for installation without an additional manufacturing process and have a credit amount of 7 cents per watt-direct current; (2) photovoltaic cells, which are the smallest semiconductor element of a solar module that performs the immediate conversion of light into electricity that is either a thin film photovoltaic cell or a crystalline photovoltaic cell and have a credit amount of 4 cents per watt-direct current; (3) photovoltaic wafers, which are defined as a thin slice, sheet, or layer of semiconductor material of at least 240 square centimeters that comprises the substrate or absorber layer of one or more photovoltaic cells and have a credit amount of $12 per square meter; (4) solar grade polysilicon, which is defined as silicon that is suitable for use in photovoltaic manufacturing and purified to a minimum purity of 99.999999 percent silicon by mass and has a credit amount of $3 per kilogram; (5) torque tube, which is defined as a structural steel support element that supports solar panels and is connected to a mounting attachment for solar panels and has a credit amount worth 87 cents per kilogram; (6) structural fastener, which is defined as a component that is used to connect the mechanical and drive system components of a solar tracker to the foundation of such solar tracker and has a credit amount worth $2.28 per kilogram; and (7) polymeric backsheet, which is defined as a sheet on the back of a solar module that acts as an electric insulator and protects the inner components of such module from the surrounding environment and has a credit amount worth 40 cents per square meter.

Comments are due by February 13, 2024 and should be submitted here using Docket ID REG-107423-23. Additionally, the IRS will host a public hearing in connection with this proposed rule on February 22, 2024 at 10am ET. Requests to speak and outlines of topics to be discussed at the public hearing are due by February 13, 2024 and should be submitted by email to publichearings@irs.gov. The IRS notes that if no requests to speak or outlines are submitted by February 13, 2024, then the hearing will be cancelled.

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