SECTION 2. BACKGROUND

Section 13403(a) of Public Law 117169, 136 Stat. 1818 (August 16, 2022), commonly known as the Inflation Reduction Act of 2022, added § 45W to the Code to allow a credit for qualified commercial clean vehicles (§ 45W credit), which is effective for vehicles acquired after December 31, 2022, and before January 1, 2033.

For purposes of § 38, § 45W(a) allows a taxpayer a § 45W credit for the purchase of each qualified commercial clean vehicle, as defined in § 45W(c), placed in service by the taxpayer during the taxable year. The amount of the § 45W credit for each qualified commercial clean vehicle is the lesser of (1) 30 percent of the taxpayer’s basis in the vehicle in the case of a vehicle not powered by a gasoline or diesel internal combustion engine (15 percent in any other case), or (2) the incremental cost of the vehicle. See § 45W(b)(1). Under § 45W(b)(4), the maximum credit allowed is $7,500 in the case of a qualified

commercial clean vehicle that has a gross vehicle weight rating of less than 14,000 pounds, and $40,000 for all other vehicles.

Section 45W(b)(2) provides that the incremental cost of a qualified commercial clean vehicle is the excess of the purchase price of such vehicle over the price of a comparable vehicle. A comparable vehicle with respect to any qualified commercial clean vehicle is any vehicle that is powered solely by a gasoline or diesel internal combustion engine and is comparable in size and use to such qualified commercial clean vehicle. See § 45W(b)(3).

A qualified commercial clean vehicle under § 45W(c) means (1) a street vehicle and (2) mobile machinery as defined in § 4053(8). For purposes of § 45W(c), a street vehicle is a vehicle that is: (a) treated as a motor vehicle for purposes of title II of the Clean Air Act; (b) manufactured primarily for use on public streets, roads, and highways; and (c) not a vehicle operated exclusively on a rail or rails.

On December 29, 2022, the Internal Revenue Service (IRS) released Notice 2023-9, 2023-3 I.R.B. 402 (January 17, 2023), which provides a safe harbor regarding the incremental cost of certain qualified commercial clean vehicles for purposes of the §45W credit for qualified commercial clean vehicles placed in service in calendar year 2023, based on an incremental cost analysis by the U.S. Department of Energy (DOE) across classes of street vehicles conducted in December 2022 (DOE Analysis). ² The DOE Analysis modeled the costs of representative electric vehicles, which include street electric vehicles, and comparable street internal combustion engine vehicles. For this purpose, street electric vehicles include battery electric, plug-in hybrid electric, fuel cell electric cars, SUVs, minivans, and pickup trucks.

The DOE has amended the DOE Analysis in December 2023 to incorporate minor modifications. The minor modifi

cations did not change the results of the analysis conducted in December 2022. For qualified commercial clean vehicles placed in service in calendar year 2024, the Department of the Treasury (Treasury Department) and the IRS have concluded it is appropriate for the IRS to rely on the DOE Analysis, as amended. ³

Results of the DOE Analysis show that the modeled incremental cost of all street electric vehicles, other than compact car PHEVs, ⁴ that have a gross vehicle weight rating of less than 14,000 pounds will be greater than $7,500.