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IRS Provides Guidance on Transfers of Clean Vehicle Credits Beginning in 2024
(Parker Tax Publishing October 2023)
The IRS issued proposed regulations, a procedure, and frequently asked questions with respect to the transfer of new and previously owned clean vehicle credits from a taxpayer to an eligible dealer for vehicles placed in service after December 31, 2023. The guidance clarifies how taxpayers can elect to transfer new and previously owned clean vehicle credits to eligible dealers and for dealers to become eligible entities to receive advance payments of new or previously owned clean vehicle credits. REG-113064-23; Rev. Proc. 2023-33.
Background
Code Sec. 30D provides a credit with respect to each new clean vehicle that a taxpayer purchases and places in service (Section 30D credit). Code Sec. 25E provides a credit with respect to a previously-owned clean vehicle purchased and placed in service by a taxpayer (Section 25E credit). The Inflation Reduction Act of 2022 (IRA) (Pub. L. 117-169) amended Code Sec. 30D and added Code Sec. 25E.
Effective beginning on April 18, 2023, Code Sec. 30D(b) provides a maximum credit of $7,500 per new clean vehicle, consisting of $3,750 if certain critical minerals requirements are met and $3,750 if certain battery components requirements are met. Code Sec. 30D(f)(10) provides that no Section 30D credit is allowed for any tax year if the lesser of the taxpayer's modified adjusted gross income (AGI) for the year that the new clean vehicle was placed in service or for the preceding year exceeds (1) $300,000 for taxpayers filing joint returns, (2) $225,000 for heads of household, and (3) $150,000 for all other filers.
The IRA added Code Sec. 30D(g), which allows a taxpayer to transfer the Section 30D credit for vehicles placed in service after December 31, 2023. Code Sec. 30D(g)(1) provides that, subject to such regulations or other guidance as the IRS determines necessary, a taxpayer may elect to transfer a Code Sec. 30D credit to an eligible entity. An "eligible entity" is defined in Code Sec. 30D(g)(2) as the dealer that sold the vehicle to the taxpayer and satisfies the requirements set forth in Code Sec. 30D(g)(2)(A) through (D). Under Code Sec. 30D(g)(3), any vehicle transfer election cannot be made by the taxpayer any later than the date on which the vehicle for which the Code Sec. 30D credit is allowed is purchased.
Code Sec. 25E provides that, in the case of a qualified buyer who during a tax year places in service a previously-owned clean vehicle, a credit is allowed in an amount equal to the lesser of (1) $4,000 or (2) 30 percent of the sale price of such vehicle. Under Code Sec. 25E(b), the Section 25E credit is not allowed for any tax year if the lesser of the taxpayer's modified AGI for the year that the previously-owned clean vehicle was placed in service or for the preceding year exceeds (1) $150,000 for taxpayers filing joint returns, (2) $112,500 for heads of household, and $75,000 for all other filers. In order to qualify for the Section 25E credit, the previously-owned clean vehicle must be sold by a dealer for a sale price which does not exceed $25,000, and the sale is the first transfer of the vehicle since August 16, 2022 to a qualified buyer other than the person with whom the original use of the vehicle commenced. A "qualified buyer" means an individual taxpayer who cannot be claimed as a dependent by another taxpayer who purchases the vehicle for use and not for resale and who has not been allowed a Section 25E credit for any sale during the 3-year period ending on the date of the sale of such vehicle. Under Code Sec. 25E(f), for purposes of the Section 25E credit, rules similar to the credit transfer rules of Code Sec. 30D(g) apply. The ability of a taxpayer to elect to transfer a Section 25E credit under Code Sec. 25E(f) applies to vehicles placed in service by the taxpayer after December 31, 2023.
In December of 2022, the IRS issued Rev. Proc. 2022-42 to provide guidance for qualified manufacturers to enter into written agreements with the IRS and to report certain information regarding vehicles produced by such manufacturers that may be eligible for credits under Code Sec. 30D, 25E and the qualified commercial clean credit under Code Sec. 45W. Rev. Proc. 2022-42 also provides the procedures for sellers of new clean vehicles or previously-owned clean vehicles to report certain information to the IRS and the purchasers of such clean vehicles. In April of 2023, the IRS published proposed regulations in REG-120080-22, which provided proposed definitions for certain terms related to Code Sec. 30D; proposed rules regarding personal and business use and other special rules; and additional proposed rules related to the critical mineral and battery component requirements.
On October 6, the IRS issued guidance, including proposed regulations (REG-113064-23), Rev. Proc. 2023-33, and frequently asked questions (FAQs) posted on the IRS website, with respect to the transfer of new and previously owned clean vehicle credits from a taxpayer to an eligible entity.
Proposed Regulations
The proposed regulations establish an advance payment program for transfers of Section 30D and Section 25E credits. The "advance payment program" is the program described by Code Sec. 30D(g)(7) (and Code Sec. 25E(f) by cross reference to Code Sec. 30D(g)) and Prop. Reg. Secs. 1.25E-3(b)(1) and 1.30D-5(a)(1) under which an eligible entity may receive an advance payment from the Treasury Department in the case of a vehicle transfer election made by an electing taxpayer. The advance payment program represents the exclusive means by which an eligible entity may receive a transferred clean vehicle credit. Under Prop. Reg. Secs. 1.25E-3(c)(1) and 1.30D-5(b)(1), before being eligible to participate in the advance payment program and receive transfers of clean vehicle credits from an electing taxpayer, a dealer must register (thereby becoming a registered dealer). The dealer will register in the manner set forth in Rev. Proc. 2023- 33.
For clean vehicles placed in service after December 31, 2023, Prop. Reg. Secs. 1.25E-3(d) and 1.30D-5(c) provide that an electing taxpayer may make an election to transfer a clean vehicle credit otherwise allowable to the electing taxpayer to an eligible entity pursuant to a vehicle transfer election. The vehicle transfer election is made by the electing taxpayer no later than at the time of sale and, once made, is irrevocable. To make a valid vehicle transfer election, the electing taxpayer must transfer the entire amount of the clean vehicle credit otherwise allowable to it and, in exchange for the transferred clean vehicle credit, the eligible entity must pay the electing taxpayer an amount equal to the clean vehicle credit included in the vehicle transfer election or treat the credit amount as a down payment or partial payment.
Under Prop. Reg. Secs. 1.25E-3(e)(1) and 1.30D-5(d)(1), the amount of the clean vehicle credit an electing taxpayer may transfer as part of a vehicle transfer election can exceed the electing taxpayer's regular tax liability (as defined in Code Sec. 26(b)(1)) for the tax year in which the sale occurs, and the excess amount, if any, generally is not subject to recapture unless recapture under Code Sec. 30D(f)(5) or (g)(10) applies. In addition, the payment made (whether in cash or in the form of a partial payment or down payment for the purchase of such vehicle) by the eligible entity to the electing taxpayer is not includible in the electing taxpayer's gross income for the tax year. Finally, to ensure appropriate application of the basis reduction rule in Code Sec. 30D(f)(1) (and Code Sec. 25E(e) by cross reference to Code Sec. 30D(f)(1)), the proposed regulations provide that the payment described in the preceding sentence is treated as repaid by the electing taxpayer to the eligible entity as part of the purchase price of the vehicle.
Recapture rules in Prop. Reg. Secs. 1.25E-3(g)(1) and 1.30D-5(f)(1) provide that, in the case of a clean vehicle credit that would otherwise not be allowable to a taxpayer that made a vehicle transfer election because the taxpayer exceeds the limitation based on modified adjusted gross income, the income tax imposed on the taxpayer for the tax year in which the vehicle was placed in service is increased by the amount of the payment received by the taxpayer pursuant to the vehicle transfer election. The taxpayer in such a case must reconcile the amounts on its tax return for the tax year.
Under Prop. Reg. Secs. 1.25E-3(i) and 1.30D-5(h), a taxpayer may make no more than two transfer elections per tax year, consisting of elections either for two Section 30D credits or for one Section 30D credit and one Section 25E credit. In the case of a joint return, each spouse may make two transfer elections per tax year, for a maximum of four vehicle transfer elections. The IRS noted that this rule is intended to ensure program integrity by limiting transfer elections to vehicle sales that appear to be for legitimate personal or individual use.
Rev. Proc. 2023-33
In Rev. Proc. 2023-33, the IRS provides the procedures under Code Secs. 30D(g) and 25E(f) for the transfer of the Section 30D credit or Section 25E credit from the electing taxpayer to an eligible entity. These procedures include registration procedures for dealer registration on an "IRS Energy Credits Online Portal" on the IRS's website. Rev. Proc. 2023-33 also establishes the advance payment program for making advance payments of clean vehicle credits to eligible dealers.
Under Section 5.02 of Rev. Proc. 2023-33, a taxpayer electing to transfer a new or previously-owned clean vehicle credit must furnish the information listed in (1) through (3) and (11) below to the registered dealer. The taxpayer must also make the attestations in (4) through (10) below through the IRS Energy Credits Online Portal under penalty of perjury. No later than the time of sale, the registered dealer must upload the information provided by the electing taxpayer through the IRS Energy Credits Online Portal. The information the electing taxpayer must furnish is as follows:
(1) The date of the taxpayer's transfer election;
(2) The taxpayer's taxpayer identification number (TIN);
(3) A photocopy of the taxpayer's valid, government-issued photo identification document;
(4) An attestation, that either: (i) the taxpayer's prior year modified AGI did not exceed the modified AGI limitation provided in Code Sec. 30D(f)(10) or Code Sec. 25E(b)(2), as applicable, or, if not known, to the best of the taxpayer's knowledge and belief, the taxpayer's prior year modified AGI did not exceed such limitation; or (ii) to the extent of the taxpayer's knowledge and belief, the taxpayer's current year modified AGI will not exceed the modified AGI limitation;
(5) In the case of the Section 30D credit, an attestation that the vehicle will be used predominantly for personal use;
(6) In the case of the Section 25E credit, an attestation that the taxpayer is a "qualified buyer" as defined Code Sec. 25E(c)(3);
(7) An attestation that the taxpayer will file a timely income tax return for the tax year in which the vehicle is placed in service reporting the taxpayer's eligibility for the Section 30D or Section 25E credit, as applicable, including the vehicle's vehicle identification number (VIN), and the taxpayer's election to transfer the credit to the eligible entity, and repaying any credit amounts subject to recapture, if applicable;
(8) An attestation that the taxpayer is making this election prior to placing the vehicle in service and that the taxpayer has made no more than two transfer elections (including the election for which the attestation is being made) during the tax year;
(9) An attestation that in the event the taxpayer's modified AGI exceeds the applicable modified AGI limitations, they will repay the amount received as an addition to tax for the tax year the vehicle was placed in service;
(10) An attestation that the taxpayer has voluntarily elected to transfer the credit; and
(11) Such other information as may be required by the IRS Energy Credits Online Portal.
For a discussion of the new clean vehicle credit, see Parker Tax ¶101,701. For a discussion of the credit for previously owned clean vehicles, see Parker Tax ¶101,705.
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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