IRS Revises Vehicle Classifications for Purposes of Sec. 30D Clean Vehicle Credit

(Parker Tax Publishing February 2023)

The IRS issued a notice revising the vehicle classification standard provided in Notice 2023-1 that the IRS intends to propose in regulations under Code Sec. 30D for classifying vehicles as vans, sport utility vehicles, pickup trucks, and other vehicles for purposes of the clean vehicle credit. Instead of the standard described in Notice 2023-1, the proposed regulations are expected to provide that, for purposes of Code Sec. 30D(f)(11)(B), a vehicle's vehicle classification is to be determined consistent with the fuel economy labeling regime described in 40 CFR 600.315-08 for vans, sport utility vehicles, pickup trucks, and passenger vehicles, as classified by the Administrator of the EPA. Notice 2023-16.

Practice Aid: Download 40 CFR 600.315-08 (from Title 40 of the U.S. Code of Federal Regulations, dealing with environmental protection), which is referenced throughout.

Background

Code Sec. 30D(f)(11)(A) provides that no clean vehicle credit under Code Sec. 30D is allowed for a vehicle with a manufacturer's suggested retail price in excess of the applicable limitation. Code Sec. 30D(f)(11)(B) provides that the "applicable limitation" for each vehicle classification is as follows:

(1) in the case of a van, $80,000;

(2) in the case of a sport utility vehicle (SUV), $80,000;

(3) in the case of a pickup truck, $80,000; and

(4) in the case of any other vehicle, $55,000.

Under Code Sec. 30D(f)(11)(C), the Treasury Secretary is authorized to prescribe such regulations or other guidance as the Secretary determines necessary to determine vehicle classifications using criteria similar to that employed by the Environmental Protection Agency (EPA) and the Department of Energy to determine size and class of vehicles.

On December 29, 2022, the Treasury Department and the IRS issued Notice 2023-1, which describes the expected definitions of certain terms to be included in the forthcoming proposed regulations announced in Notice 2023-1. Section 3.04 of Notice 2023-1 stated that, for purposes of Code Sec. 30D(f)(11)(B), the proposed regulations are expected to provide that (1) a vehicle's vehicle classification is to be determined consistent with the rules and definitions provided in 40 CFR 600.002 for vans, sport utility vehicles, and pickup trucks, and (2) a vehicle described in Code Sec. 30D(f)(11)(B)(iv) is a vehicle that is not considered a van, sport utility vehicle, or pickup truck consistent with the rules and definitions provided in 40 CFR 600.002.

The Treasury Department and the IRS subsequently determined that a different vehicle classification standard should be used for purposes of Code Sec. 30D(f)(11)(B).

Notice 2023-16

On February 2, the IRS issued Notice 2023-16, which modifies the expected vehicle classification standard set forth in Notice 2023-1 for determining whether a vehicle is a van, sport utility vehicle, pickup truck, or other vehicle for purposes of the Code Sec. 30D credit. Instead of the standard described in Notice 2023-1, the proposed regulations are expected to provide that, for purposes of Code Sec. 30D(f)(11)(B), a vehicle's vehicle classification is to be determined consistent with the fuel economy labeling regime described in 40 CFR 600.315-08 for vans, sport utility vehicles, pickup trucks, and passenger vehicles, as classified by the Administrator of the EPA. Accordingly:

(1) "Van" means a vehicle classified as a van or minivan under 40 CFR 600.315-08(a)(2)(iii) and (iv), or otherwise so classified by the Administrator of the EPA pursuant to 40 CFR 600.315-08(a)(3)(ii).

(2) "Sport utility vehicle" means a vehicle classified as a small sport utility vehicle or standard sport utility vehicle under 40 CFR 600.315-08(a)(2)(v) and (vi), or otherwise so classified by the Administrator of the EPA pursuant to 40 CFR 600.315-08(a)(3)(ii).

(3) "Pickup truck" means a vehicle classified as a small pickup truck or standard pickup truck under 40 CFR 600.315-08(a)(2)(i) and (ii), or otherwise so classified by the Administrator of the EPA pursuant to 40 CFR 600.315-08(a)(3)(ii).

(4) "Other vehicle" means any vehicle classified in one of the classes of passenger automobiles listed in 40 CFR 600.315-08(a)(1), or otherwise so classified by the Administrator of the EPA pursuant to 40 CFR 600.315-08(a)(3)(ii).

Until the date of issuance of the forthcoming proposed regulations under Code Sec. 30D, taxpayers may rely on the expected definitions described in Section 3 of Notice 2023-1, as modified by Section 3 of Notice 2023-16, for new clean vehicles placed in service on or after January 1, 2023.

For a discussion of the Code Sec. 30D clean vehicle credit, see Parker Tax ¶101,701.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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