IRS Provides Guidance Regarding Clean Vehicle and Commercial Clean Vehicle Credits

(Parker Tax Publishing January 2023)

The IRS issued guidance informing taxpayers that it intends to propose regulations under Code Sec. 30D addressing the definitions of certain terms relevant to the requirements of the clean vehicle credit under Code Sec. 30D. The IRS also issued guidance on the incremental cost of certain qualified commercial clean vehicles placed in service in calendar year 2023 for purposes of the new credit for qualified commercial clean vehicles under Code Sec. 45W. Notice 2023-1; Notice 2023-9.

Background

The Inflation Reduction Act of 2022 (2022 IRA) (Pub. L. 117-169), amended the clean vehicle credit under Code Sec. 30D. Generally, the amendments made by the 2022 IRA to Code Sec. 30D apply to vehicles placed in service after December 31, 2022. The 2022 IRA also added new Code Sec. 45W to allow a credit for qualified commercial clean vehicles, which is effective for vehicles acquired after December 31, 2022, and before January 1, 2033.

Clean Vehicle Credit Under Code Sec. 30D

As amended by the 2022 IRA, Code Sec. 30D(d)(1)(G) requires, as of August 17, 2022, any vehicle eligible for the Code Sec. 30D credit to undergo final assembly in North America. Code Sec. 30D(d)(5) defines "final assembly" as the process by which a manufacturer produces a new clean vehicle at, or through the use of, a plant, factory, or other place from which the vehicle is delivered to a dealer or importer with all component parts necessary for the mechanical operation of the vehicle included with the vehicle, whether or not the component parts are permanently installed in or on the vehicle.

New Code Sec. 30D(f)(11)(A) provides that no Code Sec. 30D credit is allowed for a vehicle with a manufacturer's suggested retail price in excess of the applicable limitation. Under new Code Sec. 30D(f)(11)(B), the applicable limitation for each vehicle classification is as follows: in the case of a van, $80,000; in the case of a sport utility vehicle, $80,000; in the case of a pickup truck, $80,000; and in the case of any other vehicle, $55,000. New Code Sec. 30D(f)(11)(C) authorizes the Secretary of the Treasury 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 and the Department of the Energy to determine size and class of vehicles.

Notice 2023-1

In Notice 2023-1, the IRS stated that it intends to issue proposed regulations to address the amendments made to Code Sec. 30D by the 2022 IRA. The forthcoming proposed regulations will include definitions of the following terms, which are relevant for new clean vehicles placed in service after December 31, 2022: (1) final assembly; (2) North America; (3) manufacturer's suggested retail price; (4) vehicle classifications for vans, sport utility vehicles, pickup trucks, and other vehicles; and (5) placed in service. In addition, the forthcoming proposed regulations will provide guidance regarding the critical mineral and battery component requirements under Code Sec. 30D(e).

Notice 2023-1 provides the following subset of the expected content of the forthcoming proposed regulations:

(1) For purposes of Code Sec. 30D(d)(5), "final assembly" means the process by which a manufacturer produces a new clean vehicle at, or through the use of, a plant, factory, or other place from which the vehicle is delivered to a dealer or importer with all component parts necessary for the mechanical operation of the vehicle included with the vehicle, whether or not the component parts are permanently installed in or on the vehicle.

(2) To establish where final assembly of a new clean vehicle occurred, the taxpayer may rely on the following information: (1) the vehicle's plant of manufacture as reported in the vehicle identification number pursuant to 49 C.F.R. Part 565; or (2) the final assembly point reported on the label affixed to the vehicle as described in 49 C.F.R. Section 583.5(a)(3).

(3) For purposes of Code Sec. 30D(d)(1)(G), "North America" means the territory of the United States, Canada, and Mexico as defined in 19 C.F.R. Part 182, Appendix A, Section 1(1).

(4) For purposes of Code Sec. 30D(f)(11)(A), "manufacturer's suggested retail price" means the sum of: (1) the retail price of the automobile suggested by the manufacturer; and (2) the retail delivered price suggested by the manufacturer for each accessory or item of optional equipment, physically attached to such automobile at the time of its delivery to the dealer, which is not included within the price of such automobile as stated pursuant to 15 U.S.C. Section 1232(f)(1), as described in 15 U.S.C. Section 1232(f)(2). This information is reported on the label that is affixed to the windshield or side window of the vehicle, as described in 15 U.S.C. Section 1232.

(5) For purposes of Code Sec. 30D(f)(11)(B), 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, $80,000; (3) in the case of a pickup truck, $80,000; and (4) in the case of any other vehicle, $55,000. For purposes of Code Sec. 30D(f)(11)(B), a vehicle's vehicle classification is to be determined consistent with the rules and definitions provided in 40 C.F.R. Section 600.002 for vans, sport utility vehicles, and pickup trucks. 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 C.F.R. Section 600.002.

(6) For purposes of the Code Sec. 30D credit, a new clean vehicle is considered to be placed in service on the date the taxpayer takes possession of the vehicle.

For purposes of Code Sec. 30D(e)(3)(B), the publication of Notice 2023-1 is not the publication of proposed guidance with respect to the critical mineral and battery component requirements under Code Sec. 30D(e) and does not trigger the applicability of the requirements. The Treasury Department and the IRS stated that they will explicitly identify when they have published proposed guidance with respect to the critical mineral and battery component requirements under Code Sec. 30D(e).

Commercial Clean Vehicle Credit Under Code Sec. 45W

The 2022 IRA also added new Code Sec. 45W to allow a credit for qualified commercial clean vehicles, which is effective for vehicles acquired after December 31, 2022, and before January 1, 2033. For purposes of the general business credit under Code Sec. 38, Code Sec. 45W(a) allows a taxpayer a 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 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.

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. Under Code Sec. 45W(b)(3), 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) includes (1) a vehicle that is treated as a motor vehicle for purposes of Title II of the Clean Air Act and is manufactured primarily for use on public streets, roads, and highways, not including a vehicle operated exclusively on a rail or rails (street vehicle) and (2) mobile machinery as defined in Code Sec. 4053(8).

Notice 2023-9

In Notice 2023-9, the Treasury Department and the IRS informed taxpayers that they have reviewed the incremental cost for all street vehicles in calendar year 2023. The analysis shows that the incremental cost of all street vehicles (other than in the case of compact car plug-in electric hybrids) that have a gross vehicle weight rating of less than 14,000 pounds will be greater than $7,500 in calendar year 2023.

Accordingly, the incremental cost will not limit the available credit amount for street vehicles that have a gross vehicle weight rating of less than 14,000 pounds and are placed in service in calendar year 2023.

For compact car plug-in electric hybrids for which the incremental cost was calculated to be less than $7,500, the Treasury Department and the IRS will accept for vehicles placed in service during calendar year 2023 a taxpayer's use, in calculating the credit amount, of the incremental cost published by the Department of Energy.

For a discussion of the post-2022 clean vehicle credit, see Parker Tax ¶101,701. For a discussion of the credit for qualified commercial clean vehicles, 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.

Parker Tax Pro Library - An Affordable Professional Tax Research Solution. www.parkertaxpublishing.com

We hope you find our professional tax research articles comprehensive and informative. Parker Tax Pro Library gives you unlimited online access all of our past Biweekly Tax Bulletins, 22 volumes of expert analysis, 250 Client Letters, Bob Jennings Practice Aids, time saving election statements and our comprehensive, fully updated primary source library.

Try Our Easy, Powerful Search Engine

A Professional Tax Research Solution that gives you instant access to 22 volumes of expert analysis and 185,000 authoritative source documents. But having access won’t help if you can’t quickly and easily find the materials that answer your questions. That’s where Parker’s search engine – and it’s uncanny knack for finding the right documents – comes into play

Things that take half a dozen steps in other products take two steps in ours. Search results come up instantly and browsing them is a cinch. So is linking from Parker’s analysis to practice aids and cited primary source documents. Parker’s powerful, user-friendly search engine ensures that you quickly find what you need every time you visit Our Tax Research Library.

Dear Tax Professional,

My name is James Levey, and a few years back I founded a company named Kleinrock Publishing. I started Kleinrock out of frustration with the prohibitively high prices and difficult search engines of BNA, CCH, and RIA tax research products ... kind of reminiscent of the situation practitioners face today.

Now that Kleinrock has disappeared into CCH, prices are soaring again and ease-of-use has fallen by the wayside. The needs of smaller firms and sole practitioners are simply not being met.

To address the problem, I’ve partnered with a group of highly talented tax writers to create Parker Tax Publishing ... a company dedicated to the idea that comprehensive, authoritative tax information service can be both easy-to-use and highly affordable.

Our product, the Parker Tax Pro Library, is breathtaking in its scope. Check out the contents listing to the left to get a sense of all the valuable material you'll have access to when you subscribe.

Or better yet, take a minute to sign yourself up for a free trial, so you can experience first-hand just how easy it is to get results with the Pro Library!

Sincerely,

James Levey

Parker Tax Pro Library - An Affordable Professional Tax Research Solution. www.parkertaxpublishing.com