The Treasury Department and the IRS on Monday issued a new revenue procedure providing reporting guidance on modified parts of the electric vehicle tax credit. Most significantly from the new revenue procedure, the IRS has introduced guidance on several issues being phased in following the passage of the Inflation Reduction Act.
Among other things, the IRS has provided guidance to sellers and manufacturers of EVs on how to enter into written agreements. The agency also clarified how buyers of used EVs can qualify for a newly enacted credit.
Used Vehicle Tax Credit up to $4,000
As part of the phasing in of the new tax-and-climate law, Section 25E of the tax code was amended to include an allowance of a credit for a qualified buyer purchasing a used EV from a dealer to be eligible for a credit equal to the lesser of $4,000 or 30% of the sales price.
The revenue procedure helps clarify several terms set in the amended statute. For a vehicle to qualify for the new credit, it must be a model that’s at least two years old, measured from the calendar year of which the vehicle is being placed into service. Additionally, the vehicle must have been bought new by a person other than the individual claiming the credit, comply with technical requirements for a new vehicle in Section 30D, and weigh less than 14,000 pounds.
Further, the revenue procedure defines a qualified sale as any transfer to a qualified buyer where the sales price is less than $25,000. A qualified buyer is defined as an individual who is purchasing the vehicle for personal use and hasn’t been allowed an EV tax credit during the past three years.
Most notably in the revenue procedure are the limitations on who qualifies as a buyer and the length of time between purchases of electric vehicles. Buyers must be individual persons and have not been eligible for the credit during a three-year lookback period. Expanding this credit should have a lasting impact on EV access through the secondary market, and it further contributes to an audience of consumers interested in wading into the EV market.
Qualified Manufacturer’s Written Agreement
Another provision being phased in by the tax-and-climate law was a new requirement for EV manufacturers to enter into written agreements with the IRS to be deemed as a “qualified” manufacturer and provide ongoing written reports on vehicles being put into circulation.
To satisfy their requirements, manufacturers will need to provide information such as the make, model, and year of each car put in to service. They also will need to certify that a qualified manufacturer made the vehicles, report the gross weight of the vehicle and battery capacity, and comply with additional reporting requirements. Similar requirements also will need to be furnished by “any person who sells any vehicle to the taxpayer” to qualify for the used-vehicle credit.
On their face, these agreement and reporting requirements should benefit used vehicles buyers to qualify for a credit. Theoretically, users will have assurances that vehicles they are purchasing meet the required government standards and qualify for the credits.
However, these requirements also stand to create an administrative nightmare in the IRS. The new law defines a dealer as any person licensed to sell vehicles in the US. The ramifications of a broad definition of dealer stands to leave the agency inundated with even more paperwork, as auto dealers around the country will be required to furnish reports on the sales of used EVs to customers.
The benefits of the new EV tax credits shouldn’t be downplayed. Expansion of the credit to include used vehicles ultimately will encourage more consumers to consider purchasing an EV, where otherwise such purchases may be prohibitively expensive. However, it is important to not overlook the additional reporting obligations that will create further administrative headaches within the IRS.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Josh Lowenthal is a business, tax attorney, and owner of the Law Office of Joshua A. Lowenthal PLC in Bloomfield Hills, Mich. He focuses on working with start-ups and small businesses to start, run, and sell their companies.
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