The penalties for not meeting battery sourcing requirements under the U.S. clean vehicle tax credit program are structured through eligibility loss rather than direct fines. Key consequences include:
Loss of Tax Credits
- Partial credit loss: Vehicles must meet critical mineral and battery component requirements separately. Non-compliance in either category results in losing the corresponding $3,750 credit portion.
- Full credit loss: Failure to meet both requirements disqualifies the vehicle entirely from the $7,500 credit.
FEOC Compliance Restrictions
- Foreign Entity of Concern (FEOC) bans:
- Battery components from FEOCs made vehicles ineligible starting January 1, 2024.
- Critical minerals from FEOCs render vehicles ineligible starting 2025.
- Ledger system (2025+): Manufacturers must submit annual FEOC-compliant battery estimates to the IRS. Credits are deducted from this ledger as vehicles qualify. Exhausting the ledger blocks further credit claims for that year.
No explicit monetary penalties are outlined in the guidance, but non-compliance results in disqualified tax incentives, creating financial pressure to adhere to sourcing rules. For critical minerals, even partial FEOC involvement (e.g., processing by a FEOC) invalidates compliance.
State-level penalties for battery recycling (unrelated to federal sourcing rules) vary. Examples include:
- Retailer fees: Charging deposits (e.g., $1.50/battery in Florida) or restricting trade-ins.
- Landfill bans: Prohibitions in Nebraska and Tennessee for lead-acid batteries.
- Disclosure requirements: Mandating clear fee breakdowns (e.g., South Carolina).
Federal penalties focus on credit disqualification, not fines. Manufacturers are incentivized to meet requirements to retain access to tax credits.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/what-are-the-penalties-for-not-meeting-battery-sourcing-requirements/
