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IRS Issues Guidance on the Alternative Fuel Vehicle Refueling Property Credit
(Parker Tax Publishing February 2024)
The IRS issued a notice providing guidance on eligible census tracts for the qualified alternative fuel vehicle refueling property credit under Code Sec. 30C and announcing the intent to propose regulations for the credit. The notice specifies the requirements for qualifying as an eligible census tract and sets forth how taxpayers can verify that property satisfies the geographic requirements of Code Sec. 30C(c)(3); the notice also includes appendices which list population census tracts that the IRS has determined are eligible census tracts. Notice 2024-20.
Background
Code Sec. 30C provides a credit for the cost of qualified alternative fuel refueling property (Section 30C credit). The Inflation Reduction Act of 2022 (IRA) extended the Section 30C credit (as in effect prior to the IRA) for qualified alternative fuel vehicle refueling property placed in service after December 31, 2021, and modified the Section 30C credit, as described below, effective with respect to 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. In general, the Section 30C credit is a nonrefundable personal credit. However, the amount of the Section 30C credit that is attributable to property that is of a character subject to an allowance for depreciation (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).
The IRA modified Code Sec. 30C in several ways. First, the IRA modified the limitation on the Section 30C credit so that it no longer applies per location and instead applies per single item of qualified alternative fuel vehicle refueling property and increased the limitation for depreciable property. 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.
Second, the IRA added a requirement that qualified alternative fuel vehicle refueling property must be placed in service in an eligible census tract. An eligible census tract is any population census tract that is a low-income community as described in Code Sec. 45D(e) or that is not an urban area.
Third, the IRA clarified that property will not fail to be treated as qualified alternative fuel vehicle refueling property solely because such property can charge the battery of a motor vehicle propelled by electricity and can discharge electricity from such battery to an electric load external to such motor vehicle.
Fourth, the IRA modified the definition of qualified alternative fuel vehicle refueling property to include depreciable property designed to charge two- and three-wheeled motor vehicles manufactured primarily for use on public streets, roads, or highways and that are propelled by electricity.
Fifth, the IRA modified the credit amount for depreciable qualified alternative fuel vehicle refueling property from 30 percent to 6 percent and provided an enhanced credit amount for such property that is part of a qualified alternative fuel vehicle refueling project. A qualified alternative fuel vehicle refueling project is a project (1) that meets certain prevailing wage and apprenticeship requirements or (2) for which the construction began prior to January 29, 2023.
Separately, the IRA allows an applicable entity (as defined in Code Sec. 6417(d)(1)(A)) to make an election under Code Sec. 6417 to be treated as making a payment against income tax (for the tax year with respect to which an applicable credit (as defined in Code Sec. 6417(b)) was determined) equal to the amount of the applicable credit. The amount of a Section 30C credit, to the extent treated under Code Sec. 30C(d)(1) as a general business credit under Code Sec. 38, is an applicable credit. The IRA also permits an eligible taxpayer to make an election under Code Sec. 6418 to transfer all or a portion of the Section 30C credit determined with respect to such taxpayer for any tax year to an unrelated taxpayer.
Notice 2024-20
In Notice 2024-20, the IRS announced that it intends to issue proposed regulations (forthcoming proposed regulations) addressing the requirements for determining in which population census tracts qualified alternative fuel vehicle refueling property must be placed in service, in order to be eligible for the Section 30C credit. Sections 2 and 3 of Notice 2024-20 provide relevant background and definitions, respectively, with respect to the Section 30C credit. Section 4 specifies the requirements that the forthcoming proposed regulations would set forth for qualifying as an eligible census tract for purposes of the Section 30C credit. Section 5 provides guidance that the forthcoming proposed regulations would set forth on how taxpayers can verify that property satisfies the geographic requirements of Code Sec. 30C(c)(3).
As noted above, Code Sec. 30C(c)(3) requires qualified alternative fuel vehicle refueling property to be placed in service in an eligible census tract in order to be eligible for the Section 30C credit. An eligible census tract is any population census tract that qualifies as a low-income community as described in Code Sec. 45D(e), or that is not an urban area. Consistent with Code Sec. 30C(c)(3), the forthcoming proposed regulations will define eligible census tract to include (1) low-income community census tracts and (2) non-urban census tracts.
Low-Income Community Census Tracts
Under Code Sec. 30C(c)(3)(B)(i), an eligible census tract includes any population census tract that is described in Code Sec. 45D(e), which defines the term "low-income community" for purposes of the new markets tax credit under Code Sec. 45D (NMTC).
Code Sec. 45D is jointly administered with the Community Development Financial Institutions Fund (CDFI Fund). The CDFI Fund determines low-income community population census tracts based in part on ACS 5-year estimates, which are published by the Census Bureau. The CDFI Fund updates the NMTC determination of "low-income community" census tracts approximately every five years based on the updated ACS 5-year estimates. Prior to September 1, 2023, the NMTC low-income community census tracts were based on 2011-2015 ACS 5-year estimates (2011-2015 NMTC tracts), which use the 2015 delineation of census tract boundaries (2015 census tract boundaries). On September 1, 2023, the NMTC low-income community census tracts were updated to be based on the 2016-2020 ACS 5-year estimates (2016-2020 NMTC tracts), which use the 2020 delineation of census tract boundaries (2020 census tract boundaries).
For purposes of Code Sec. 30C(c)(3)(B)(i)(I), the IRS intends to propose regulations that will designate population census tracts as low-income community census tracts. For qualified alternative fuel vehicle refueling property that is placed in service after December 31, 2022, and before January 1, 2025, the IRS intends to provide guidance stating that a taxpayer may utilize either the 2011-2015 NMTC tracts or the 2016-2020 NMTC tracts to determine if property is placed in service in a low-income community. This transition period is largely consistent with the transition period for purposes of the NMTC. However, the period in which a taxpayer may make a determination based on either NMTC determination and related census tract boundary delineation for purposes of the Section 30C credit would be extended to include the periods from January 1, 2023, to August 31, 2023, and from September 1, 2024, to December 31, 2024, so that taxpayers could rely on the same NMTC determination and relevant census tract boundary delineation for all property placed in service in the same calendar year. This transition period will be applicable only for purposes of the Section 30C credit.
Non-Urban Census Tracts
Under Code Sec. 30C(c)(3)(B)(ii), the term "urban area" means a population census tract that has been designated as an urban area by the Secretary of Commerce in the most recent decennial census. However, as of the 2020 Census (the most recent decennial census), the Census Bureau defines urban areas on the basis of census blocks and not on the basis of population census tracts.
For purposes of Code Sec. 30C(c)(3)(B)(i)(II), the IRS intends to propose regulations providing that any population census tract in which at least 10 percent of the census blocks are not designated as urban areas would be a "non-urban census tract." The IRS also intends to use the 2020 census tract boundaries, and the Census Bureau's determination of urban areas using the 2020 Census. Thus, these "2020 non-urban census tracts" would be eligible census tracts for purposes of Code Sec. 30C. Low-income community census tracts will be updated for purposes of the Section 30C credit upon future releases of NMTC census tract determinations by the CDFI Fund.
In Section 5 of Notice 2024-20, the IRS provides appendices that list the eligible low-income community census tracts using the 2011-2015 NMTC tracts with the 2015 census tract boundaries (Appendix A) and the eligible low-income community census tracts using the 2016-2020 NMTC tracts and 2020 non-urban census tracts, both with the 2020 census tract boundaries (Appendix B).
Qualified alternative fuel refueling property placed in service after December 31, 2022, and before January 1, 2025, will be considered placed in service in an eligible census tract, and thus eligible for the Section 30C credit, if the 11-digit census tract GEOID for the population census tract in which it is placed in service is listed in the applicable appendix, either Appendix A or Appendix B. Qualified alternative fuel refueling property placed in service after December 31, 2024, and before January 1, 2030, will be considered placed in service in an eligible census tract, and thus eligible for the Section 30C credit, if the 11-digit census tract GEOID for the population census tract in which it is placed in service is listed in Appendix B.
Until the issuance of the forthcoming proposed regulations, taxpayers may rely on Notice 2024-20 and its appendices for purposes of determining whether qualified alternative fuel vehicle property has been placed in service in an eligible census tract. In addition, until the issuance of the forthcoming proposed regulations, the IRS will administer Code Sec. 30C in a manner consistent with the appendices and related rules described in Notice 2024-20.
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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