ISRI to IRS: Unfair, Inconsistent Tax Policy Disincentivizes Recycling

Feb 29, 2024, 17:19 PM
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Arnulfo Moreno
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On Thursday, Feb. 22, ISRI participated in a public hearing to the Internal Revenue Service (IRS) on its proposed regulations to implement the Section 45X Advanced Manufacturing Production Credit. During the hearing, ISRI argued that current guidance on the tax credit disincentivizes recycling and provided recommendations and comments on how to resolve these issues.

Section 45X provides a credit to eligible taxpayers for the production (within the U.S.) and sale of certain eligible components including solar and wind energy components, inverters, qualifying battery components, and applicable critical minerals.

“ISRI strongly supports the legislative initiatives approved by Congress and the Biden-Harris Administration to incentivize the recycling of critical minerals,” said ISRI Chief Economist and Director of Commodities Joe Pickard during the hearing. “Unfortunately, the recently proposed rulemaking by the IRS and Treasury Department falls well short of those objectives.”

Clarify the Term “Production”

According to ISRI, the current guidance severely restricts the eligibility of recyclers and recycled metal manufacturers from applying for these credits. While the preamble of the rulemaking acknowledges the production of eligible components from both primary and secondary production, ISRI argued that additional language should be included in the rules to clearly stipulate that secondary production is “produced by the taxpayer.” Without this addition, it would be particularly difficult for aluminum recyclers to claim the tax credit.

Reverse Decision on Commodity-Grade Aluminum

Secondary aluminum manufacturers are currently excluded from claiming the credit because in the guidance the term “commodity-grade aluminum” is limited to the primary production of unwrought forms by specifying that commodity-grade aluminum must be “produced directly” from certain forms of aluminum. ISRI argued that excluding recycled aluminum and other recycled metals from these tax credits is at odds with the administration’s advanced manufacturing, critical minerals and supply chain initiatives.

Expand Eligibility of Metals and Metal Alloys

ISRI also expressed concern that the lack of guidance with respect to the purity of recycled materials and metal alloys may also disincentivize recycling. For example, the guidance does not acknowledge that secondary production (from recycled material) can be refined to the same high quality and purity levels as primary metal production.

The association argued that the eligibility of production of secondary metal alloys (such as copper-beryllium and other master alloys) that meet primary metal purity levels should also be clarified.

Include Recycled Raw Materials in Critical Mineral List

To further incentivize secondary production of critical minerals, ISRI noted that the eligibility of raw material input costs — which typically represent the largest share of production costs for secondary metal producers — should be expanded to fully achieve the administration’s recycling goals.

The association argued that the guidance should include the cost of production as it relates to electrode active material and expand the list of critical minerals to include recycled raw materials. Recycled materials do not post significant substantiation and administrability issues and meet the conditions for inclusion of direct and indirect material costs under Section 45X, which themselves should be included.

“ISRI looks forward to working with IRS and Treasury Department officials to remove the unintended disincentives to recycling contained in the proposed rulemaking,” Pickard said.

The proposed regulations are expected to be finalized in the coming weeks.

On Thursday, Feb. 22, ISRI participated in a public hearing to the Internal Revenue Service...
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