Establishment of domestic magnet input usage credit

(a) In general Subpart D of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 (as amended by section 3(a)) is amended by adding at the end the following new section: 45CC. Domestic magnet input usage credit (a) Allowance of credit For purposes of section 38, the domestic magnet input usage credit for any taxable year is an amount equal to the applicable percentage of qualified domestic magnet expenditures paid or incurred by the taxpayer during such taxable year in connection with the manufacture of a covered product in the United States. (b) Applicable percentage For purposes of this section, the applicable percentage with respect to any qualified domestic magnet expenditures paid or incurred during any taxable year is an amount equal to— (1) 15 percent, in the case of such expenditures being paid or incurred in taxable years beginning before January 1, 2035, (2) 10 percent, in the case of such expenditures being paid or incurred in taxable years beginning after December 31, 2034, and ending before January 1, 2037, and (3) 5 percent, in the case of such expenditures being paid or incurred in taxable years beginning after December 31, 2036, and ending before January 1, 2039. (c) Qualified domestic magnet expenditures (1) In general For purposes of this section, the term qualified domestic magnet expenditures means any amounts paid or incurred by the taxpayer to an unrelated person for qualified permanent magnets (as defined in section 45BB(c)(1)(A)) which— (A) are manufactured (as defined in section 45BB(c)(1)(G)) in the United States, (B) are not sourced from a prohibited foreign entity, and (C) are substantiated (by documentation maintained by the taxpayer to the extent sufficient to support the credit claimed under this section) with respect to purchase price, supplier identity, quantity, and country of production. (2) Anti-manipulation rule For purposes of paragraph (1), the purchase price used to calculate qualified domestic magnet expenditures shall not exceed the arm's-length price for qualified permanent magnets, as determined under principles consistent with section 482. The Secretary shall prescribe regulations establishing safe harbors for arm's-length pricing of domestic permanent magnets, including by reference to published benchmark prices where available. (d) Election and non-Duplication A taxpayer shall not claim a credit under this section for any qualified domestic magnet expenditure for which a deduction has otherwise been taken under this chapter. The Secretary shall prescribe regulations to prevent any double recovery of the same cost under both credits with respect to the same quantity of magnet material. (e) Covered products (1) In general For purposes of this section, and except as provided in paragraph (2), the term covered products means— (A) any core powertrain or generation component, including motors, generators, and rotating electrical machinery, used in any high-performance electronic device incorporating permanent magnets essential to cooling, actuation, data storage, robotics, or telecommunications, or (B) any core powertrain or generation component, including motors, generators, and rotating electrical machinery, used in power conversion, including server-grade computers, telecommunications equipment, robotics systems, manned and unmanned aerial vehicles, manned and unmanned surface vessels, manned and unmanned underwater vehicles and submersibles, medical devices, precision munitions, attritable munitions, guided munitions, infrared tracking systems, gimbals and optics, and other critical defense applications. (2) Excluded products For purposes of paragraph (1), the term covered products does not include— (A) low-power consumer appliances or disposable devices, including toasters, blenders, basic kitchen appliances, handheld vacuums, hair dryers, consumer-grade fans, toys, and novelty electronics, and (B) any other product that the Secretary determines, by regulation, to be non-strategic for purposes of this section, provided that such determination shall not apply to any product that the Secretary finds to be materially important to United States industrial capacity, technological leadership, supply-chain resilience, or national security. (f) Other definitions Except as otherwise provided in this section, terms used in this section which are also used in section 45BB shall have the same meaning as when used in such section. (g) Prohibited foreign entity restriction No credit shall be allowed under this section if any permanent magnet, magnet metal input, or precursor material input used in the covered product was manufactured by a prohibited foreign entity. (h) Termination This section shall not apply to any taxable year beginning after December 31, 2038.. (b) Credit allowed as part of general business credit Section 38(b) of such Code (as amended by section 3(b)) is amended by striking plus at the end of paragraph (41), by striking the period at the end of paragraph (42) and inserting, plus, and by adding at the end the following new paragraph: (43) the domestic magnet input usage credit determined under section 45CC(a).. (c) Clerical amendment The table of sections for subpart D of part IV of subchapter A of chapter 1 of such Code (as amended by section 3(d)) is amended by adding after the item relating to section 45BB the following new item: Sec. 45CC. Domestic magnet input usage credit.. (d) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2026.