IRS Extends Safe Harbor for Incremental Cost of Commercial Clean Vehicles to 2024

(Parker Tax Publishing December 2023)

The IRS provided a safe harbor regarding the incremental cost of certain qualified commercial clean vehicles placed in service in calendar year 2024 for purposes of the credit for qualified commercial clean vehicles under Code Sec. 45W. The notice applies the safe harbor provisions that applied to vehicles placed in service in calendar year 2023 under Notice 2023-9 to vehicles placed in service in calendar year 2024. Notice 2024-5.

Background

The Inflation Reduction Act of 2022 (Pub. L. 117-169) added Code Sec. 45W to allow a credit for qualified commercial clean vehicles (Section 45W credit), which is effective for vehicles acquired after December 31, 2022, and before January 1, 2033.

For purposes of Code Sec. 38, Code Sec. 45W(a) allows a taxpayer a Section 45W credit for the purchase of each qualified commercial clean vehicle, as defined in Code Sec. 45W(c), placed in service by the taxpayer during the tax year. Under Code Sec. 45W(b)(1), the amount of the Section 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. Under Code Sec. 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.

Code Sec. 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.

A qualified commercial clean vehicle under Code Sec. 45W(c) means (1) a street vehicle and (2) mobile machinery as defined in Code Sec. 4053(8). For purposes of Code Sec. 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 IRS released Notice 2023-9, which provides a safe harbor regarding the incremental cost of certain qualified commercial clean vehicles for 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). 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 (PHEV), 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 modifications 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 IRS has concluded it is appropriate to rely on the DOE Analysis, as amended.

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

Safe Harbor

The DOE Analysis calculated the incremental cost for compact car PHEVs, which include minicompact and subcompact cars, to be less than $7,500. For compact car PHEVs, the modeled incremental cost is $7,000. The IRS will accept a taxpayer's use of the modeled incremental cost published in the DOE Analysis to calculate the Section 45W credit amount for compact car PHEVs placed in service during calendar year 2024.

In addition, the DOE Analysis provided an incremental cost analysis of current costs for several representative classes of street electric vehicles with a gross vehicle weight rating of 14,000 pounds or more. The IRS will accept a taxpayer's use of the incremental cost published in the DOE Analysis for the appropriate class of street electric vehicle to calculate the Section 45W credit amount for clean vehicles placed in service during calendar year 2024.

For all street electric vehicles (other than compact, including minicompact and subcompact, car PHEVs) with a gross vehicle weight rating of less than 14,000 pounds, the results of the DOE Analysis lead the IRS to conclude that incremental cost will not limit the available Section 45W credit amount for such vehicles placed in service in calendar year 2024. Accordingly, the IRS will accept a taxpayer's use of $7,500 as the incremental cost for all street electric vehicles (other than compact, including minicompact and subcompact, car PHEVs) with a gross vehicle weight rating of less than 14,000 pounds to calculate the Section 45W credit amount for vehicles placed in service during calendar year 2024.

Request for Comments

The IRS requests comments regarding additional classes or types of vehicles that should be considered for future safe harbors, in addition to the safe harbor described in Notice 2024-5. In particular, the IRS requests comments on classes or types of vehicles that are not adequately represented by the existing classes or types of vehicles listed in the DOE Analysis.

For a discussion of the commercial clean vehicle credit, see Parker Tax ¶101,710.

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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