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IRS Issues Proposed Regs on Alternative Fuel Vehicle Refueling Property Credit
(Parker Tax Publishing October 2024)
The IRS issued proposed regulations regarding the federal income tax credit under Code Sec. 30C, as amended by the Inflation Reduction Act of 2022 (Pub. L. ), for certain costs relating to qualified alternative fuel vehicle refueling property that is placed in service within a low-income community or within a non-urban census tract. The IRS also issued a notice that modifies the guidance in Notice 2024-20 relating to eligible census tracts for the Code Sec. 30C credit. REG-118269-23; Notice 2024-64.
Background
Code Sec. 30C allows an income tax credit (Section 30C credit) with respect to each item of qualified alternative fuel vehicle refueling property that a taxpayer places in service. The Section 30C credit is determined and allowed with respect to the tax year in which the taxpayer places the item of property in service.
Code Sec. 30C was originally enacted in 2005 and has been amended several times, most recently by the Inflation Reduction Act of 2022 (IRA) (Pub. L. 117-169). As amended by the IRA, Code Sec. 30C allows taxpayers to claim a credit for up to 30 percent of the cost of qualified alternative fuel vehicle refueling property placed in service after December 31, 2022, and on or before December 31, 2032.
The amount of the Section 30C credit is treated as a personal credit or a general business credit depending on the character of the property that the taxpayer places in service. In general, the Section 30C credit is a nonrefundable personal credit. However, the amount of the credit that is attributable to depreciable property is treated under Code Sec. 30C(d)(1) as a current year business credit under Code Sec. 38(b) instead of being allowed under Code Sec. 30C(a).
For property placed in service after December 31, 2022, and on or before December 31, 2032, Code Sec. 30C(a) provides a credit equal to 6 percent of the cost of any qualified alternative fuel vehicle refueling property that the taxpayer places in service during the year, if the property is depreciable property. However, for depreciable property that is placed in service as part of a qualified alternative fuel vehicle refueling project that satisfies the prevailing wage and apprenticeship requirements in Code Secs. 6417 and 6418, the amount of the Section 30C credit is multiplied by five. For property that is not subject to depreciation, Code Sec. 30C(a) allows a 30 percent credit for any property placed in service during the tax year, with no requirement to satisfy any prevailing wage and apprenticeship requirements.
The Section 30C credit with respect to any single item of qualified alternative fuel vehicle refueling property placed in service by the taxpayer during the tax year is limited to $100,000 in the case of depreciable property, and $1,000 in any other case. Before the IRA's amendments to Code Sec. 30C became applicable, prior law limited the Section 30C credit, on a per location basis, to $30,000 in the case of depreciable property and to $1,000 in the case of any other property. The IRA modified the limitation on the Section 30C credit so that it now applies with respect to any single item of qualified alternative fuel vehicle refueling property instead of with respect to all qualified alternative fuel vehicle refueling property at a location.
Under Code Sec. 30C(e)(1), taxpayers who claim a Section 30C credit are required to reduce the basis of any property for which the Section 30C credit is allowable by the amount of the credit allowed. Under Code Sec. 30C(e)(3), no Section 30C credit is allowable for the portion of the cost of any property taken into account under Code Sec. 179.
Qualified Alternative Fuel Vehicle Refueling Property
Code Sec. 30C(c) defines "qualified alternative fuel vehicle refueling property" (i.e., Section 30C property) by reference to Code Sec. 179A with some modifications. The definition therefore generally includes any depreciable property (not including a building and its structural components), the original use of which begins with the taxpayer, and that is (1) for the storage or dispensing of a clean-burning fuel into the fuel tank of a motor vehicle propelled by such fuel, but only if the storage or dispensing of the fuel is at the point where such fuel is delivered into the fuel tank of the motor vehicle, or (2) for the recharging of motor vehicles propelled by electricity, but only if the property is located at the point where the motor vehicles are recharged.
Observation: Notwithstanding the general requirement in former Code Section 179A that the property be depreciable, Code Sec. 30C allows a taxpayer to claim a credit for qualified alternative fuel vehicle refueling property that is not depreciable property, provided that the property is installed at the taxpayer's principal residence (within the meaning of Code Sec. 121).
Code Sec. 30C, as amended by the IRA, requires that property be placed in service in an "eligible census tract" in order to qualify for the credit. Under Code Sec. 30C(c)(3)(B), an "eligible census tract" is any population census tract that either (1) is a low-income community under Code Sec. 45D(e) or (2) is not an urban area (non-urban area). Census tracts are identified by an 11-digit census tract Geographic Identifier (GEOID).
In Notice 2007-43, the IRS provided interim guidance on the then-recently enacted Code Sec. 30C. This notice provided specific guidance relating to the computation of the Section 30C credit and the treatment for purposes of the credit of converted and dual-use refueling property. In Notice 2022-56, the IRS requested comments on issues arising under Code Sec. 30C, as amended by the IRA. In Notice 2024-20, the IRS provided guidance on eligible census tracts for the Section 30C credit and announced the intent to propose regulations for the credit.
Proposed Regulations
On September 19, the IRS issued proposed regulations in REG-118269-23 regarding the Code Sec. 30C credit that take into account the comments submitted in response to Notice 2022-56. Notice 2007-43 is withdrawn as a result of the issuance of the proposed regulations.
Apportionment for Dual-Use Property
If the business use of Section 30C property is 50 percent or less, the proposed regulations provide rules in Prop. Reg. Sec. 1.30C-2(a)(3) for apportioning the Section 30C credit between business use and personal use.
If the business use is more than 50 percent, then the Section 30C credit is treated under the proposed regulations only as a general business credit under Code Sec. 30C(d)(1) (and subject to the $100,000 limitation). If the business use of the Section 30C property is 50 percent or less, then the property is considered "apportioned-use property" and the taxpayer's Section 30C credit for that tax year for that property is apportioned in accordance with the taxpayer's use of the property between the general business credit under Code Sec. 30C(d)(1) and the personal credit allowed under Code Sec. 30C(a). To be within these apportionment rules, the proposed regulations provide that the Section 30C property must be installed at the taxpayer's personal residence to qualify for the personal credit, but also be used for business use. For example, the proposed rules apply to a taxpayer who operates a delivery service and installs an electric vehicle charger and her personal residence, which she uses to charge both her personal vehicle and her delivery vehicle.
If property is apportioned-use property, Prop. Reg. Sec. 1.30C-2(a)(4)(ii) provides that the dollar-amount limitation must be apportioned in the same manner as the taxpayer's credit under Code Sec. 30C. For example, in the case of Section 30C property the business use of which is 40 percent of a taxpayer's total use of the property for the tax year in which the property is placed in service, the portion treated as a general business credit under Code Sec. 30C(d)(1) cannot exceed $40,000 ($100,000 multiplied by 40 percent), and the portion treated as a Section 30C credit allowed under Code Sec. 30C(a) cannot exceed $600 ($1,000 multiplied by 60 percent).
Single Item of Property
One major change that the IRA made to Code Sec. 30C was to allow the credit per single item of Section 30C property, rather than per location. Code Sec. 30C does not define "single item of property."
Prop. Reg. Sec. 1.30C-2(b)(1) defines a single item of Section 30C property as each charging port for recharging property, each fuel dispenser for refueling property, or each qualified alternative fuel storage property or electrical energy storage property. For purposes of the proposed regulations, a charging port means the system within a charger that charges one motor vehicle. Under Prop. Reg. Sec. 1.30C-1(b)(6), a charging port may have multiple connectors, but it can provide power at its rated electrical output to charge only one motor vehicle through one connector at a time. Some chargers may have more than one port, in which case the proposed regulations provide that the cost of the charger must be allocated among the number of ports for purposes of determining the credit. The IRS noted that allowing the credit based on the number of motor vehicles that could be charged simultaneously at the port's rated electrical output is appropriate based on the IRA amendments to Code Sec. 30C to provide a credit limit per single item of property, rather than a broader term such as per charging property or per location.
Prevailing Wage and Apprenticeship Requirements
The proposed regulations supplement the final prevailing wage and apprenticeship (PWA) regulations in Reg. Sec. 1.30C-3 to further define "qualified alternative fuel vehicle refueling project" (Section 30C project) for purposes of satisfying the PWA requirements. Prop. Reg. Sec. 1.30C-3(b)(2) would provide that multiple Section 30C properties will be treated as a single Section 30C project if the items of property are constructed and operated on a contiguous piece of land, owned by a single taxpayer (subject to the related party rule), placed in service in a single tax year, and one or more of the following factors is present: (1) the properties are described in one or more common environmental or other regulatory permits; (2) the properties are constructed pursuant to a single master construction contract; or (3) the construction of the properties is financed pursuant to the same loan agreement. Under the related party rule in Prop. Reg. Sec. 1.30C-3(b)(3), related taxpayers are treated as one taxpayer in determining whether multiple items of property are treated as a single project. For these purposes, related taxpayers are treated as a single taxpayer if they are members of a group of trades or businesses that are under common control (as defined in Reg. Sec. 1.52-1(b)).
Recapture
Prop. Reg. Sec. 1.30C-4(b) requires taxpayers to recapture the benefit of any Section 30C credit allowed with respect to any property that ceases to be property eligible for such credit. If a recapture event occurs with respect to a taxpayer's Section 30C property, then the taxpayer must include the recapture amount in taxable income for the tax year in which the recapture event occurs.
Under Prop. Reg. Sec. 1.30C-4(b)(2), a recapture event generally occurs if, within three years of the property being placed in service:
(1) the taxpayer claiming the Section 30C credit modifies the property such that the property no longer qualifies as Section 30C property;
(2) unless the property is subject to Code Sec. 6417(d)(2)(B), a depreciable property ceases to be used predominantly in a trade or business (meaning that 50 percent or more of the use of the property in a tax year is for use other than in a trade or business);
(3) if the property is apportioned-use property, the property completely ceases to be used in a trade or business, but continues to be used for personal use; or
(4) the taxpayer sells or disposes of the property and the taxpayer knows or has reason to know that the property will cease to qualify as Section 30C property for one of the reasons listed in (1) or (2) above.
Except as provided in (4), a sale or other disposition (including a disposition by reason of an accident or other casualty) of Section 30C property is not a recapture event. Prop. Reg. Sec. 1.30C-4(b)(3) clarifies that property is not subject to the recapture provisions solely because it is placed in service in a location that subsequently ceases to be in a qualified census tract. Thus, a change in the identification of eligible census tracts alone would not require a taxpayer to recapture the Section 30C credit.
Notice 2024-64
In Notice 2024-64, the IRS modified Notice 2024-20 by updating the mapping tools referenced in Sections 5.02 and 5.03 of Notice 2024-20 and extending the period to which Section 5.03 of Notice 2024-20 applies.
For a discussion of the alternative fuel vehicle refueling property credit, see Parker Tax ¶101,770.
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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