# Prop. Treas. Reg. § 1.45X-1: General rules applicable to the advanced manufacturing production credit. Proposed regulation, not in force. REG-107423-23, 88 FR 86844, published 2023-12-15 . Interprets 26 U.S.C. § 45X. Par. 2. Sections 1.45X-0 through 1.45X-4 are added to read as follows: (a) Overview —(1) In general. This section provides general rules regarding the advanced manufacturing production credit determined under section 45X of the Code (section 45X credit). Paragraph (a)(2) of this section provides definitions of certain terms that apply for purposes of section 45X and the section 45X regulations (defined in paragraph (a)(2)(xiv) of this section). Paragraphs (b) through (j) of this section provide the basic rules regarding the section 45X credit, including the definition of the term produced by the taxpayer, and rules to determine the taxpayer that produces an eligible component and whether such taxpayer is entitled to claim a section 45X credit in contract manufacturing arrangements; where the production of eligible components must occur; the treatment of integrated, incorporated or assembled eligible components; and the interaction between sections 45X and 48C of the Code. See § 1.45X-2 for rules regarding sales to unrelated persons, sales to related persons, and the Related Person Election, including rules regarding the time, place, and manner of making the Related Person Election. See § 1.45X-3 for the definitions of all eligible components (except applicable critical minerals) and the credit amounts available for each of these eligible components, including certain phase-out percentages. See § 1.45X-4 for the definitions of applicable critical minerals and the rules regarding the determination of the credit amount for applicable critical minerals. (2) Generally applicable definitions. This paragraph (a)(2) provides definitions of terms that apply for purposes of section 45X and the section 45X regulations. (i) Applicable critical mineral. The term applicable critical mineral means any of the minerals that are listed in section 45X(c)(6) and defined in § 1.45X-4(b). (ii) Code. The term Code means the Internal Revenue Code. (iii) Contract manufacturing arrangement. The term contract manufacturing arrangement is defined in paragraph (c)(3)(ii)(B) of this section. (iv) Electrode active materials. The term electrode active materials is defined in § 1.45X-3(e)(2). (v) Eligible component. The term eligible component is defined in section 45X(c)(1)(A) and described in §§ 1.45X-3 and 1.45X-4. (vi) Eligible taxpayer. The term e ligible taxpayer is defined in paragraph (c)(3) of this section. (vii) Guidance. The term guidance means guidance published in the Federal Register or Internal Revenue Bulletin, as well as administrative guidance such as forms, instructions, publications, or other guidance on the IRS.gov website. See §§ 601.601 and 601.602 of this chapter. (viii) IRA. The term IRA means Public Law 117-169, commonly known as the Inflation Reduction Act of 2022. (ix) IRS. The term IRS means the Internal Revenue Service. (x) Produced by the taxpayer. The term produced by the taxpayer is defined in paragraph (c) of this section, and the related terms production activities and production process have the meaning given those terms in paragraph (c) of this section. (xi) Related person. The term related person is defined in § 1.45X-2(b)(2). (xii) Related Person Election. The term Related Person Election is defined in § 1.45X-2(d)(1). (xiii) Secretary. The term Secretary means the Secretary of the Treasury or her delegate. (xiv) Section 45X regulations. The term section 45X regulations means the provisions of this section, §§ 1.45X-2 through 1.45X-4, and the regulations in this chapter under sections 6417 and 6418 of the Code that relate to the section 45X credit. (xv) Unrelated person. The term unrelated person is defined in section 45X(a)(3) and described in § 1.45X-2(b)(3). (b) Credit amount. Except as otherwise provided in section 45X(b)(3) and § 1.45X-3(f), for purposes of section 38 of the Code, the amount of the section 45X credit for any taxable year is equal to the sum of the credit amounts provided under section 45X(b) and described in §§ 1.45X-3 and 1.45X-4 with respect to each eligible component that is produced by the taxpayer and, within the taxable year, sold by the taxpayer to an unrelated person. See § 1.45X-2 for rules regarding sales of eligible components to related persons that may be treated as if sold to unrelated persons for purposes of section 45X(a). (c) Definition of produced by the taxpayer —(1) In general. The term produced by the taxpayer means 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. (i) Partial transformation. The term produced by the taxpayer does not include partial transformation that does not result in substantial transformation of constituent elements, materials, or subcomponents into a complete and distinct eligible component as described in this paragraph (c)(1). (ii) Mere assembly or superficial modification. The term produced by the taxpayer does not include 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 described in this paragraph (c)(1). (iii) Examples. The following examples illustrate the application of this paragraph (c)(1). (A) Example 1. Taxpayers X, Y, and Z each produce one of three sections of a wind tower that together make up the wind tower. No taxpayer has produced an eligible component within the meaning of section 45X(a)(1)(A) because no taxpayer has produced all sections of the wind tower. (B) Example 2. Same facts as paragraph (c)(1)(iii)(A) of this section ( Example 1 ), but taxpayers X, Y, and Z instead form Partnership XYZ. Partnership XYZ produces all three sections of the wind tower. Partnership XYZ has produced an eligible component within the meaning of section 45X(a)(1)(A). (C) Example 3. Taxpayer V puts the external casing on a battery module (within the meaning of § 1.45X-3(e)(4)(i)(A)) that already had cells, battery management systems, and other components integrated into it. Taxpayer V has engaged in minor assembly and has not produced an eligible component within the meaning of section 45X(a)(1)(A). (D) Example 4. Taxpayer U purchases two finished halves of a wind turbine nacelle and combines them into a single nacelle. Taxpayer U has engaged in minor assembly and has not produced an eligible component within the meaning of section 45X(a)(1)(A). (E) Example 5. Taxpayer T purchases a dry cell battery and fills the electrolyte of the battery. Taxpayer T has engaged in minor assembly and has not produced an eligible component within the meaning of section 45X(a)(1)(A). (F) Example 6. Taxpayer W purchases a prefabricated wind turbine blade and applies paint and finishes. Taxpayer W has engaged in superficial modification of the blade and has not produced an eligible component within the meaning of section 45X(a)(1)(A).b (2) Special rule for certain eligible components. For solar grade polysilicon, electrode active materials, and applicable critical minerals, the term produced by the taxpayer means processing, conversion, refinement, or purification of source materials, such as brines, ores, or waste streams, to derive a distinct eligible component. (3) Eligible taxpayer— (i) In general. Except as otherwise provided in paragraph (c)(3)(iii) of this section, a taxpayer claiming a section 45X credit with respect to an eligible component must be the taxpayer that directly performs the production activities that bring about a substantial transformation resulting in the eligible component, and must sell such eligible component to an unrelated person. (ii) Contract manufacturing arrangement —(A) In general. If the production of an eligible component is performed in whole or in part pursuant to a contract that is a contract manufacturing arrangement, then, provided the other requirements of section 45X are met, the party to such contract that may claim the section 45X credit with respect to such eligible component is the party that performs the actual production activities that bring about a substantial transformation resulting in the eligible component. (B) Contract manufacturing arrangement defined. The term contract manufacturing arrangement means any agreement (or agreements) providing for the production of an eligible component if the agreement is entered into before the production of the eligible component to be delivered under the contract is completed. A routine purchase order for off-the-shelf property is not treated as a contract manufacturing arrangement for purposes of this paragraph (c)(3). An agreement will be treated as a routine purchase order for off-the-shelf property if the contractor is required to make no more than de minimis modifications to the property to tailor it to the customer's specific needs, or if at the time the agreement is entered into, the contractor knows or has reason to know that the contractor can satisfy the agreement out of existing stocks or normal production of finished goods. (iii) Special rule for contract manufacturing arrangements. If an eligible component is produced by a taxpayer pursuant to a contract manufacturing arrangement, the parties to such agreement may determine by agreement the party that may claim the section 45X credit. If a taxpayer enters into contract manufacturing arrangements with multiple fabricators to produce an eligible component, the parties to such agreements may determine by agreement the party that may claim the section 45X credit. The IRS will not challenge the agreement of the parties provided all the parties submit signed certification statements (as described in paragraph (c)(3)(iv) of this section) indicating that all parties agree as to the party that may claim the section 45X credit. (iv) Certification statement requirements. A certification statement indicating that all parties to a contract manufacturing arrangement agree as to the party that will claim the section 45X credit must include— (A) All required information set forth in guidance; and (B) A properly signed penalty of perjury statement. (v) Examples. The following examples illustrate the application of this paragraph (c)(3). (A) Example 1: Contract manufacturing with sale. Taxpayers X, Y and Z are unrelated C corporations that have calendar year taxable years. In 2024, pursuant to a contract manufacturing arrangement as described in paragraph (c)(3)(ii)(B) of this section, X hires Y to produce a solar module. The contract is a tolling arrangement and provides that Y will produce the solar module according to X's designs and specifications and using the materials and subcomponents that X provides. X and Y enter an agreement providing that X is the sole party that may claim a section 45X credit for the production and sale of the solar module, and X and Y each sign a certification statement as described in paragraph (c)(3)(iv) of this section reflecting this agreement. In 2025, Y produces and delivers the solar module to X, and in 2026, X sells the solar module to Z. X may claim a section 45X credit in taxable year 2026 for the solar module it sold to Z provided all other requirements of section 45X are met and the certification statements signed by X and Y meet the requirements described in paragraph (c)(3)(iv) of this section and are properly submitted by X. Similarly, Y could claim a section 45X credit if the agreement between X and Y had designated Y as the sole party that could claim a section 45X credit for the production and sale of the solar module provided all other requirements of section 45X are met and the certification statements signed by X and Y meet the requirements described in paragraph (c)(3)(iv) of this section and are properly submitted by Y. (B) Example 2: Contract manufacturing with no sale. Assume the facts are the same as in paragraph (c)(3)(v)(A) of this section ( Example 1 ), except that X does not sell the solar module and instead X uses it to generate electricity for use in X's trade or business. Because there has been no sale, neither X nor Y may claim a section 45X credit for the solar module regardless of whether X and Y submit signed certification statements described in paragraph (c)(3)(iv) of this section. (C) Example 3: Multiple contract manufacturing arrangements. Taxpayers V, W, X, Y and Z are unrelated C corporations that have calendar year taxable years. In 2024, pursuant to three separate contract manufacturing arrangements as described in paragraph (c)(3)(ii)(B) of this section, V hires W, X, and Y to produce the bottom, middle and top segments, respectively, of a single wind tower that V designed. W, X, Y and V enter into an agreement providing that V is the sole party that may claim a section 45X credit for the production and sale of the wind tower, and W, X, Y and V each sign a certification statement as described in paragraph (c)(3)(iv) of this section reflecting this agreement. In 2024, W and X both produce and deliver their respective wind tower segments to the installation site, and in 2025, Y produces and delivers its wind tower segment to the installation site. In 2026, V sells the completed wind tower to Z. V may claim a section 45X credit in taxable year 2026 for the wind tower it sold to Z provided all other requirements of section 45X are met and the certification statements signed by V, W, X and Y meet the requirements described in paragraph (c)(3)(iv) of this section and are properly submitted by V. Similarly, W or X or Y could be the party that could claim a section 45X credit if the agreement between V, W, X and Y had designated W or X or Y as the sole party that could claim a section 45X credit for the production and sale of the wind tower provided all other requirements of section 45X are met and the certification statements signed by V, W, X and Y meet the requirements described in paragraph (c)(3)(iv) of this section and are properly submitted by the party designated as the sole party that could claim a section 45X credit. (4) Timing of production and sale —(i) In general. Production of eligible components for which a taxpayer is claiming a section 45X credit may begin before December 31, 2022. Production of eligible components must be completed, and sales of eligible components must occur, after December 31, 2022. (ii) Example. Taxpayer X has a calendar year taxable year. Taxpayer X begins production of a related offshore wind vessel (as defined in section 45X(4)(B)(iv) and described in § 1.45X-3(c)(4)) in January 2022. Production is completed in December 2024 and the sale to an unrelated person occurs in 2025. Taxpayer X is eligible to claim the section 45X credit in 2025, assuming that all other requirements of section 45X are met. (d) Produced in the United States —(1) In general. Sales are taken into account for purposes of the section 45X credit only for eligible components that are produced within the United States, as defined in section 638(1) of the Code, or a United States territory, which for purposes of section 45X and the section 45X regulations has the meaning of the term possession provided in section 638(2). (2) Subcomponents. Constituent elements, materials, and subcomponents used in the production of eligible components are not subject to the domestic production requirement provided in paragraph (d)(1) of this section. (e) Production and sale in a trade or business. An eligible component produced and sold by the taxpayer is taken into account for purposes of the section 45X credit only if the production and sale are in a trade or business (within the meaning of section 162 of the Code) of the taxpayer. (f) Sale of integrated components —(1) In general. For purposes of the section 45X credit, section 45X(d)(4) provides that a taxpayer is treated as having produced and sold an eligible component to an unrelated person if such component is integrated, incorporated, or assembled into another eligible component that is then sold to an unrelated person. (i) Integrated, incorporated, or assembled. The term integrated, incorporated,or assembled means the production activities by which an eligible component that is a constituent element, material, or subcomponent is substantially transformed into another complete and distinct eligible component that is not solar grade polysilicon, an electrode active material, or an applicable critical mineral. The term integrated, incorporated,or assembled does not mean the mere assembly or superficial modification of an eligible component used as an element, material, or subcomponent and other elements, materials, or subcomponents that results in a distinct product. (ii) Special rule for eligible components resulting in solar grade polysilicon, electrode active materials, or applicable critical minerals. For solar grade polysilicon, electrode active material, and applicable critical minerals, the term integrated, incorporated,or assembled means the production activities in which an eligible component is processed, converted, refined, or purified to derive a distinct eligible component that is solar grade polysilicon, an electrode active material, or an applicable critical mineral. The term integrated, incorporated, or assembled does not mean mere assembly or superficial modification of an eligible component used as an element, material, or subcomponent and other elements, materials, or subcomponents that results in a distinct product. (2) Application —(i) In general. A taxpayer may claim a section 45X credit for each eligible component the taxpayer produces and sells to an unrelated person, including any eligible component the taxpayer produces that was used as a constituent element, material, or subcomponent and integrated, incorporated, or assembled into another complete and distinct eligible component or another complete and distinct product (that is not itself an eligible component) that the taxpayer also produces and sells to an unrelated person. (ii) Example: Sale of product with incorporated eligible components to unrelated person. In 2022, X, a domestic corporation that has a calendar year taxable year, begins production of electrode active materials (EAMs) that are completed in 2023 and incorporated into battery cells that X also produces. In 2024, X incorporates those battery cells into battery modules (within the meaning of § 1.45X-3(e)(4)(i)(A)) and integrates the battery modules into electric vehicles. X sells the electric vehicles to Z, an unrelated person, in 2024. X may claim a section 45X credit for the EAMs, the battery cells, and the battery modules in 2024. (g) Interaction between sections 45X and 48C —(1) In general. For purposes of the section 45X credit, consistent with section 45X(c)(1)(B), an eligible component— (i) Must be produced by a section 45X facility; and (ii) Does not include any property (produced property) that is produced at a facility if the basis of any property that is part of the production unit (within the meaning of paragraph (g)(2)(ii) of this section) that produces the produced property— (A) Is eligible property that is included in a section 48C facility; and (B) Is taken into account for purposes of the credit allowed under section 48C (section 48C credit) after August 16, 2022. (2) Section 45X facility —(i) In general. A section 45X facility includes all tangible property that comprises an independently functioning production unit that produces one or more eligible components. (ii) Production unit. The production unit is the tangible property that substantially transforms the material inputs to complete the production process of an eligible component. (3) Section 48C facility —(i) In general. A section 48C facility includes all eligible property included in a qualifying advanced energy project for which a taxpayer receives an allocation of section 48C credits under the allocation program established under section 48C(e) and claims such credits after August 16, 2022. (ii) Eligible property. Eligible property is property that— (A) Is necessary for the production or recycling of property described in section 48C(c)(1)(A)(i), re-equipping an industrial or manufacturing facility described in section 48C(c)(1)(A)(ii), or re-equipping, expanding, or establishing an industrial facility described in section 48C(c)(1)(A)(iii); (B) Is tangible personal property, or other tangible property (not including a building or its structural components), but only if such property is used as an integral part of the qualified investment credit facility; and (C) With respect to which depreciation (or amortization in lieu of depreciation) is allowable. (4) Examples. The following examples illustrate the application of this paragraph (g): (i) Example 1: Two independent production units —(A) Facts. Taxpayer owns and operates a manufacturing site that contains Production Unit A and Production Unit B, each of which function independently and are arranged in serial fashion. Photovoltaic wafers produced by Production Unit A are utilized in Production Unit B to manufacture photovoltaic cells. Taxpayer was allocated a section 48C credit under the section 48C(e) program for a section 48C facility that includes Production Unit A and subsequently placed the section 48C facility and Production Unit A in service in taxable year 2026. Taxpayer claimed a section 48C credit for Production Unit A for taxable year 2026. (B) Analysis. Production Unit A is eligible property that is include in Taxpayer's section 48C facility. Therefore, Production Unit A cannot qualify as a section 45X facility under section 45X(c)(1)(B) and paragraph (g)(2) of this section. Production Unit B, however, is tangible property that comprises an independently functioning production unit that produces eligible components. Production Unit B can be treated as a section 45X facility because the tangible property comprising Production Unit B is not eligible property that is included in a section 48C facility. (ii) Example 2: Single production unit —(A) Facts. Taxpayer owns and operates two manufacturing sites. Manufacturing Site 1 includes tangible property that forms ingots from polysilicon to partially produce photovoltaic wafers. Manufacturing Site 2 completes the production process of the photovoltaic wafers. Taxpayer was allocated a section 48C credit under the section 48C(e) program for tangible property that is used to produce the ingots at Manufacturing Site 1. (B) Analysis. Manufacturing Site 1 and Manufacturing Site 2 comprise a single production unit. As a result, Taxpayer may not claim the section 45X credit for the photovoltaic wafers it produced at Manufacturing Site 1 and Manufacturing Site 2 because Taxpayer claimed the section 48C credit for the tangible property that was used to produce the ingots at Manufacturing Site 1, which is part of a single production unit. (iii) Example 3: Independent production units and production of subcomponent —(A) Facts. Taxpayer owns and operates two manufacturing sites. Manufacturing Site 1 contains Production Unit A and Production Unit B, which are arranged in parallel fashion and each produce photovoltaic cells. Manufacturing Site 2 contains Production Unit C and Production Unit D, which are arranged in serial fashion. Production Unit C produces photovoltaic cells. Production Unit D produces solar modules, in part, by combining the photovoltaic cells produced by Production Units A, B and C. Taxpayer was allocated a section 48C credit under the section 48C(e) program for a section 48C facility that includes Production Unit C. Subsequently, Taxpayer places the section 48C facility and Production Unit C in service in taxable year 2026. Taxpayer claimed a section 48C credit for Production Unit C in taxable year 2026. (B) Analysis. Production Units A and B each comprise a single production unit that produces eligible components. Production Units A and B can be treated as a section 45X facility because the tangible property comprising Production Units A and B are not eligible property that is included in a section 48C facility. Production Unit C cannot qualify as a section 45X facility under section 45X(c) because Production Unit C is eligible property that is included in a section 48C facility. Production Unit D is tangible property that comprises an independently functioning production unit that produces eligible components utilizing subcomponents produced by Taxpayer in a separate, independently functioning production unit. Therefore, Production Unit D can be treated as a section 45X facility because the tangible property comprising Production Unit D is not eligible property that is included in a section 48C facility. (iv) Example 4: Two independent production units manufacturing under a contract manufacturing arrangement —(A) Facts. X is hired by Y to manufacture photovoltaic cells. X owns and operates a manufacturing site that contains Production Unit A and Production Unit B. Production Unit A and Production Unit B function independently and are arranged in serial fashion. Photovoltaic wafers produced by Production Unit A are utilized in Production Unit B to manufacture photovoltaic cells. X was allocated a section 48C credit under the section 48C(e) program for a section 48C facility that includes Production Unit A and subsequently placed the section 48C Facility and Production Unit A in service in taxable year 2026. X claimed a section 48C credit for Production Unit A in taxable year 2026. (B) Analysis. Production Unit A is eligible property that is included in X's section 48C facility. Therefore, Production Unit A cannot qualify as a section 45X facility under section 45X(c)(1)(B) and paragraph (g)(2) of this section and X does not qualify for a section 45X credit with respect to Production Unit A. Production Unit B is, however, tangible property that comprises an independently functioning production unit that produces eligible components. Production Unit B can be treated as a section 45X facility by X, the party who produces the eligible components, because the tangible property comprising Production Unit B is not eligible property that is included in a section 48C facility. (v) Example 5: Two independent production units manufacturing under a contract manufacturing arrangement —(A) Facts. Assume the facts are the same as in paragraph (g)(4)(iv) of this section ( Example 4 ), except that Y owns Production Units A and B and hires X to operate Production Units A and B to produce the eligible components. (B) Analysis. Production Unit A is eligible property that is included in Y's section 48C facility. Y claimed a section 48C credit for Production Unit A in taxable year 2026. Therefore, Production Unit A cannot qualify as a section 45X facility under section 45X(c)(1)(B) and paragraph (g)(2) of this section and X does not qualify for a section 45X credit with respect to Production Unit A. Production Unit B, however, is tangible property that comprises an independently functioning production unit that produces eligible components. Production Unit B can be treated as a section 45X facility by X (and not Y) because the tangible property comprising Production Unit B is not eligible property that is included in a section 48C facility. (h) [Reserved] (i) Anti-abuse rule —(1) In general. The rules of section 45X and the section 45X regulations must be applied in a manner consistent with the purposes of section 45X and the section 45X regulations (and the regulations in this chapter under sections 6417 and 6418 related to the section 45X credit). A purpose of section 45X and the section 45X regulations (and the regulations in this chapter under sections 6417 and 6418 related to the section 45X credit) is to provide taxpayers an incentive to produce eligible components in a manner that contributes to the development of secure and resilient supply chains. Accordingly, the section 45X credit is not allowable if the primary purpose of the production and sale of an eligible component is to obtain the benefit of the section 45X credit in a manner that is wasteful, such as discarding, disposing of, or destroying the eligible component without putting it to a productive use. A determination of whether the production and sale of an eligible component is inconsistent with the purposes of section 45X and the section 45X regulations (and the regulations in this chapter under sections 6417 and 6418 related to the section 45X credit) is based on all facts and circumstances. (2) Example —(i) Facts. Taxpayer is engaged in the activity of producing and selling multiple units of Eligible Component 1 (EC1). Taxpayer engages in no other activities. The cost of producing each unit of EC1 is less than the amount of the section 45X credit that would be available if each EC1 qualified for the section 45X credit. Taxpayer sells some of its units of EC1 to related persons and makes a Related Person Election pursuant to section 45X(a)(3)(B)(i). Taxpayer also sells some of its units of EC1 to unrelated persons. Taxpayer sells all units of EC1 at an amount equal to cost plus a markup to reflect an anticipated accommodation fee and establishes corresponding accounts receivable at the time of the respective sales. In addition, Taxpayer knows or reasonably expects that after acquiring the units of EC1, the related and unrelated transferees will not resell the units of EC1 or use them in their trades or businesses. Taxpayer intends to obtain the benefit from the section 45X credit by claiming such credits itself or monetizing such credits through an election under sections 6417 or 6418. Taxpayer eliminates the aforementioned accounts receivable at the time it claims the section 45X credit or receives related payments attributable to the section 45X credit, and further makes payments to the related and unrelated transferees as accommodation fees computed as a percentage of such benefits. (ii) Analysis. Based on all of the facts and circumstances in paragraph (i)(2)(i) of this section, the primary purpose of Taxpayer's production and sale of EC1 is to obtain the benefit of the section 45X credit in a manner that is wasteful and will not be treated as the production and sale of eligible components in a trade or business of Taxpayer for purposes of section 45X(a)(1) and (2). Taxpayer is not eligible for the section 45X credit with respect to units of EC1 that it produced and sold. See sections 6417(d)(6) (excessive payments) and 6418(g)(2) (excessive credit transfer). (j) Severability. The provisions of this section are separate and severable from one another. If any provision of this section is stayed or determined to be invalid, it is the agencies' intention that the remaining provisions shall continue in effect. (k) Applicability date. This section applies to eligible components for which production is completed and sales occur after December 31, 2022, and during a taxable year ending on or after [date of publication of final regulations in the Federal Register ].