Transfer of Clean Vehicle Credits Under Section 25E and Section 30D, 70310-70335 [2023-22353]
Download as PDF
70310
Federal Register / Vol. 88, No. 194 / Tuesday, October 10, 2023 / Proposed Rules
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 301
[REG–113064–23]
RIN 1545–BQ86
Transfer of Clean Vehicle Credits
Under Section 25E and Section 30D
Internal Revenue Service (IRS),
Treasury.
ACTION: Notice of proposed rulemaking.
AGENCY:
This document contains
proposed regulations that would
provide guidance regarding certain
clean vehicle credits as established by
the Inflation Reduction Act of 2022. The
proposed regulations would provide
guidance for taxpayers who purchase
qualifying previously-owned clean
vehicles or purchase qualifying new
clean vehicles and intend to transfer the
amount of any previously-owned clean
vehicle credit or new clean vehicle
credit to dealers who are entities eligible
to receive advance payments of either
credit. The proposed regulations also
would provide guidance for dealers to
become eligible entities to receive
advance payments of previously-owned
clean vehicle credits or new clean
vehicle credits, and rules regarding
recapture of the credits. The proposed
regulations would affect taxpayers
intending to transfer previously-owned
clean vehicle or new clean vehicle
credits and eligible entities to whom the
credits are transferred, as well as
taxpayers who purchased previouslyowned clean vehicles or new clean
vehicles in the event the vehicles cease
being eligible for the credits. The
proposed regulations also provide
guidance on the meaning of three new
definitions added to the exclusive list of
‘‘mathematical or clerical errors’’
relating to certain assessments of tax
without a notice of deficiency.
DATES: Written or electronic comments
and requests for a public hearing must
be received by December 11, 2023.
Requests for a public hearing must be
submitted as prescribed in the
‘‘Comments and Requests for a Public
Hearing’’ section.
ADDRESSES: Commenters are strongly
encouraged to submit public comments
electronically via the Federal
eRulemaking Portal at https://
www.regulations.gov (indicate IRS and
REG–113064–23) by following the
online instructions for submitting
comments. Requests for a public hearing
must be submitted as prescribed in the
‘‘Comments and Requests for a Public
ddrumheller on DSK120RN23PROD with PROPOSALS3
SUMMARY:
VerDate Sep<11>2014
22:35 Oct 06, 2023
Jkt 262001
Hearing’’ section. Once submitted to the
Federal eRulemaking Portal, comments
cannot be edited or withdrawn. The
Department of the Treasury (Treasury
Department) and the IRS will publish
for public availability any comments
submitted to the IRS’s public docket.
Send paper submissions to:
CC:PA:LPD:PR (REG–113064–23), Room
5203, Internal Revenue Service, P.O.
Box 7604, Ben Franklin Station,
Washington, DC 20044.
FOR FURTHER INFORMATION CONTACT:
Concerning the proposed regulations,
the Office of Associate Chief Counsel
(Passthroughs & Special Industries) at
(202) 317–6853 (not a toll-free number);
concerning submissions of comments
and requests for a public hearing, call
Vivian Hayes (202) 317–6901 (not a tollfree number) or send an email to
publichearings@irs.gov (preferred).
SUPPLEMENTARY INFORMATION:
Background
I. Overview
Public Law 117–169, 136 Stat. 1818
(August 16, 2022), commonly known as
the Inflation Reduction Act of 2022
(IRA), added section 25E to the Internal
Revenue Code (Code) and amended
section 30D of the Code. Section 25E
provides a credit (section 25E credit)
against the tax imposed by chapter 1 of
the Code (chapter 1) with respect to a
previously-owned clean vehicle that a
taxpayer purchases and places in
service. Section 30D provides a credit
(section 30D credit) against the tax
imposed by chapter 1 with respect to
each new clean vehicle that a taxpayer
purchases and places in service. Both
the section 25E credit and section 30D
credit are determined and allowable
with respect to the taxable year in
which the taxpayer places the
previously-owned clean vehicle or new
clean vehicle, as applicable, in service.
In addition, several of the provisions of
section 25E incorporate by crossreference some of the definitions and
rules of section 30D. The IRA also
amended section 6213 of the Code by
adding three new definitions to the
exclusive list of ‘‘mathematical or
clerical errors’’ in section 6213(g)(2).
These new definitions are set out in
sections 6213(g)(2)(T), (U), and (V).
This document contains proposed
amendments to the Income Tax
Regulations (26 CFR part 1) under
sections 25E and 30D and to the
Procedure and Administration
Regulations (26 CFR part 301) under
section 6213 (proposed regulations).
The proposed regulations under section
30D supplement a notice of proposed
rulemaking (REG–120080–22) published
PO 00000
Frm 00002
Fmt 4701
Sfmt 4702
in the Federal Register (88 FR 23370) on
April 17, 2023 (April 2023 proposed
regulations) that contains initial
proposed regulations under section 30D
as amended by the IRA.
A. Section 30D New Clean Vehicle
Credit
Section 30D was enacted by section
205(a) of the Energy Improvement and
Extension Act of 2008, Division B of
Public Law 110–343, 122 Stat. 3765,
3835 (October 3, 2008), to provide a
credit for purchasing and placing in
service new qualified plug-in electric
drive motor vehicles. Section 30D has
been amended several times since its
enactment, most recently by section
13401 of the IRA. In general, the
amendments made by section 13401 of
the IRA to section 30D apply to vehicles
placed in service after December 31,
2022, except as provided in section
13401(k)(2) through (5) of the IRA.
Effective beginning on April 18, 2023,
section 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. These
requirements are described in section
30D(e)(1) and (2), respectively, and the
April 2023 proposed regulations.
The amount of the section 30D credit
is treated as a personal credit or a
general business credit depending on
the character of the vehicle. In general,
the section 30D credit is treated as a
personal credit allowable under subpart
A of part IV of subchapter A of chapter
1. Section 30D(c)(2). However, the
amount of the section 30D credit that is
attributable to property that is of a
character subject to an allowance for
depreciation is treated as a current year
business credit under section 38(b)
instead of being allowed under section
30D. Section 30D(c)(1). Section
38(b)(30) lists as a current year business
credit the portion of the section 30D
credit to which section 30D(c)(1)
applies. The IRA did not amend section
30D(c)(1) or (2).
The April 2023 proposed regulations
addressed the case of mixed-use
vehicles. Section 30D(c)(1) requires that
so much of the section 30D credit that
would be allowed under section 30D(a)
for any taxable year (determined
without regard to section 30D(c)) that is
attributable to a depreciable vehicle
must be treated as a general business
credit under section 38 that is listed in
section 38(b)(30) for such taxable year
(and not allowed under section 30D(a)).
In the case of a depreciable vehicle the
use of which is 50 percent or more
business use in the taxable year such
E:\FR\FM\10OCP3.SGM
10OCP3
ddrumheller on DSK120RN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 194 / Tuesday, October 10, 2023 / Proposed Rules
vehicle is placed in service, the section
30D credit that would be allowed under
section 30D(a) for that taxable year
(determined without regard to section
30D(c)) that is attributable to such
depreciable vehicle must be treated as a
general business credit under section 38
that is listed in section 38(b)(30) for
such taxable year (and not allowed
under section 30D(a)). In the case of a
depreciable vehicle the business use of
which is less than 50 percent of a
taxpayer’s total use of the vehicle for the
taxable year in which the vehicle is
placed in service, the taxpayer’s section
30D credit for that taxable year with
respect to that vehicle must be
apportioned as follows: (i) the portion of
the section 30D credit corresponding to
the percentage of the taxpayer’s
business use of the vehicle is treated as
a general business credit under section
30D(c)(1) (and not allowed under
section 30D(a)); and (ii) the portion of
the section 30D credit corresponding to
the percentage of the taxpayer’s
personal use of the vehicle is treated as
a section 30D credit allowed under
section 30D(a) pursuant to section
30D(c)(2).
The IRA added several special rules
under section 30D(f) applicable to
vehicles placed in service after
December 31, 2022. These special rules
include the rule in section 30D(f)(9) that
requires a taxpayer to include on the
taxpayer’s return for the taxable year the
vehicle identification number (VIN) of
the vehicle for which the section 30D
credit is claimed. In addition, section
30D(f)(10) denies the section 30D credit
to certain high-income taxpayers. More
specifically, section 30D(f)(10)(A)
provides that no credit is allowed for
any taxable year if (i) the lesser of (I) the
modified adjusted gross income of the
taxpayer for such taxable year, or (II) the
modified adjusted gross income of the
taxpayer for the preceding taxable year,
exceeds (ii) the threshold amount
(modified adjusted gross income (AGI)
Limitation). New section 30D(f)(10)(B)
provides that the threshold amount is (i)
in the case of a joint return or a
surviving spouse (as defined in section
2(a) of the Code), $300,000, (ii) in the
case of a head of household (as defined
in section 2(b) of the Code), $225,000,
and (iii) in the case of any other
taxpayer, $150,000. New section
30D(f)(10)(C) defines ‘‘modified
adjusted gross income’’ as adjusted
gross income (AGI) increased by any
amount excluded from gross income
under sections 911, 931, or 933.
The IRA added new section 30D(g) to
the Code, which allows the taxpayer to
elect to transfer the section 30D credit
in certain situations for vehicles placed
VerDate Sep<11>2014
22:35 Oct 06, 2023
Jkt 262001
in service after December 31, 2023.
Section 30D(g)(1) provides that subject
to such regulations or other guidance as
the Secretary of the Treasury or her
delegate (Secretary) determines
necessary, a taxpayer may elect to
transfer a section 30D credit with
respect to a new clean vehicle to an
eligible entity (vehicle transfer election).
If the taxpayer who acquires a new
clean vehicle makes a vehicle transfer
election under section 30D(g) with
respect to such vehicle, the section 30D
credit that would otherwise be allowed
to such taxpayer with respect to such
vehicle is allowed to the eligible entity
specified in such election (and not the
taxpayer). Section 30D(g)(2) defines an
‘‘eligible entity’’ with respect to the
vehicle for which the section 30D credit
is allowed as the dealer that sold such
vehicle to the taxpayer and that satisfies
the following four requirements set forth
in section 30D(g)(2)(A) through (D): (i)
the dealer, subject to section 30D(g)(4),
must be registered with the Secretary for
purposes of section 30D(g)(2), at such
time, and in such form and manner, as
the Secretary prescribes; (ii) the dealer,
prior to the vehicle transfer election and
not later than at the time of sale, must
have disclosed to the taxpayer
purchasing such vehicle the
manufacturer’s suggested retail price,
the value of the section 30D credit
allowed and any other incentive
available for the purchase of such
vehicle, and the amount provided by the
dealer to such taxpayer as a condition
of the vehicle transfer election; (iii) the
dealer, not later than at the time of sale,
must have paid the taxpayer (whether in
cash or in the form of a partial payment
or down payment for the purchase of
such vehicle) an amount equal to the
credit otherwise allowable to such
taxpayer; and (iv) the dealer with
respect to any incentive otherwise
available for the purchase of a vehicle
for which a section 30D credit is
allowed, including any incentive in the
form of a rebate or discount provided by
the dealer or manufacturer, must have
ensured that the availability or use of
such incentive does not limit the ability
of a taxpayer to make a vehicle transfer
election, and such election does not
limit the value or use of such incentive.
Section 30D(g)(3) addresses the timing
of the transfer and provides that any
vehicle transfer election cannot be made
by the taxpayer any later than the date
on which the vehicle for which the
section 30D credit is allowed is
purchased.
Section 30D(g)(4) provides that upon
determination by the Secretary that a
dealer has failed to comply with the
requirements described in section
PO 00000
Frm 00003
Fmt 4701
Sfmt 4702
70311
30D(g)(2), the Secretary may revoke the
dealer’s registration.
Section 30D(g)(5) provides that with
respect to any payment described in
section 30D(g)(2)(C), such payment is
not includible in the gross income of the
taxpayer and is not deductible with
respect to the dealer.
Section 30D(g)(6) addresses the
application of certain other
requirements to the transfer of credit
and provides that in the case of any
vehicle transfer election with respect to
any vehicle: (i) the basis reduction and
no double benefit requirements of
section 30D(f)(1) and (2) apply to the
taxpayer who acquired the vehicle in
the same manner as if the section 30D
credit determined with respect to such
vehicle were allowed to such taxpayer;
(ii) the election in section 30D(f)(6) to
not take the section 30D credit does not
apply; and (iii) the VIN requirement of
section 30D(f)(9) is treated as satisfied if
the eligible entity provides the VIN of
such vehicle to the Secretary in such
manner as the Secretary may provide.
Section 30D(g)(7)(A) provides for the
establishment of a program to make
advance payments to eligible entities in
an amount equal to the cumulative
amount of the credits allowed with
respect to any vehicles sold by such
entity for which a vehicle transfer
election described in section 30D(g)(1)
has been made. Section 30D(g)(7)(B)
provides that rules similar to the rules
of section 6417(d)(6) of the Code apply
for purposes of the advance payment
rules, and section 30D(g)(7)(C) provides
that for purposes of 31 U.S.C. 1324, the
payments under section 30D(g)(7)(A) are
treated in the same manner as a refund
due from a credit provision referred to
in 31 U.S.C. 1324(b)(2).
Section 30D(g)(8) defines the term
‘‘dealer’’ as a person licensed by a State,
the District of Columbia, the
Commonwealth of Puerto Rico, any
other territory or possession of the
United States, an Indian tribal
government, or any Alaska Native
Corporation (as defined in section 3 of
the Alaska Native Claims Settlement Act
(43 U.S.C. 1602(m)) to engage in the sale
of vehicles. Section 30D(g)(9) defines an
‘‘Indian tribal government’’ as the
recognized governing body of any
Indian or Alaska Native tribe, band,
nation, pueblo, village, community,
component band, or component
reservation, individually identified
(including parenthetically) in the list
published most recently as of the date
of enactment of section 30D(g) (that is,
August 16, 2022) pursuant to section
104 of the Federally Recognized Indian
Tribe List Act of 1994 (25 U.S.C. 5131).
E:\FR\FM\10OCP3.SGM
10OCP3
70312
Federal Register / Vol. 88, No. 194 / Tuesday, October 10, 2023 / Proposed Rules
ddrumheller on DSK120RN23PROD with PROPOSALS3
Section 30D(g)(10) provides that in
the case of any taxpayer who has made
a vehicle transfer election with respect
to a new clean vehicle and received a
payment from an eligible entity, if the
section 30D credit would otherwise (but
for section 30D(g)) not be allowable to
such taxpayer pursuant to the
application of the modified AGI
limitations in section 30D(f)(10), the
income tax imposed on such taxpayer
under chapter 1 for the taxable year in
which such vehicle was placed in
service must be increased by the amount
of the payment received by such
taxpayer.
No section 30D credit is allowed with
respect to a vehicle placed in service
after December 31, 2032. Section
13401(k)(4) of the IRA provides that the
ability for a taxpayer to elect to transfer
a section 30D credit under section
30D(g) applies to vehicles placed in
service after December 31, 2023.
B. Section 25E Previously-Owned
Clean Vehicles Credit
Section 13402 of the IRA added
section 25E to the Code. Section 25E
provides that, in the case of a qualified
buyer who during a taxable year places
in service a previously-owned clean
vehicle, an income tax credit (that is,
the section 25E credit) is allowed for the
taxable year in an amount equal to the
lesser of: (1) $4,000, or (2) the amount
equal to 30 percent of the sale price
with respect to such vehicle.
Section 25E(b)(1) sets a limitation
based on modified adjusted gross
income and provides that no section
25E credit is allowed for any taxable
year if (A) the lesser of (i) the modified
adjusted gross income of the taxpayer
for such taxable year, or (ii) the
modified adjusted gross income of the
taxpayer for the preceding taxable year,
exceeds (B) the threshold amount. The
threshold amount is set forth in section
25E(b)(2) and varies based on a
taxpayer’s filing status. In the case of a
taxpayer filing a joint return or who is
a surviving spouse (as defined in section
2(a)), the threshold amount is $150,000.
In the case of a taxpayer who is a head
of household (as defined in section
2(b)), the threshold amount is $112,500.
In the case of any other taxpayer, the
threshold amount is $75,000. Section
25E(b)(3) defines modified adjusted
gross income as adjusted gross income
increased by any amount excluded from
gross income under sections 911, 931, or
933.
Section 25E(c) defines certain terms
for purposes of the section 25E credit.
Section 25E(c)(1) defines a ‘‘previouslyowned clean vehicle’’ as, with respect to
a taxpayer, a motor vehicle that satisfies
VerDate Sep<11>2014
22:35 Oct 06, 2023
Jkt 262001
the following four requirements set forth
in section 25E(c)(1)(A) through (D): (i)
the model year of the motor vehicle is
at least 2 years earlier than the calendar
year in which the taxpayer acquires
such vehicle; (ii) the original use of the
motor vehicle commences with a person
other than the taxpayer; (iii) the motor
vehicle is acquired by the taxpayer in a
qualified sale, and (iv) the motor vehicle
meets the requirements of section
30D(d)(1)(C), (D), (E), (F), and (H)
(except for the original use requirement
of section 30D(d)(1)(H)(iv)), or is a
motor vehicle that satisfies the
requirements under section 30B(b)(3)(A)
and (B), and has a gross vehicle weight
rating of less than 14,000 pounds.
Section 25E(c)(2) defines a ‘‘qualified
sale’’ as a sale of a motor vehicle (i) by
a dealer (as defined in section
30D(g)(8)), (ii) for a sale price which
does not exceed $25,000, and (iii) that
is the first transfer since the date of
enactment of the IRA (that is, August 16,
2022) to a qualified buyer other than the
person with whom the original use of
such vehicle commenced.
Section 25E(c)(3) defines a ‘‘qualified
buyer’’ as, with respect to a sale of a
motor vehicle, a taxpayer who is an
individual with respect to whom no
deduction is allowable with respect to
another taxpayer under section 151,
who purchases such 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.
Section 25E(c)(4) defines a ‘‘motor
vehicle’’ and ‘‘capacity’’ to have the
meaning given to such terms in section
30D(d)(2) and (4), respectively.
Section 25E(d) provides that no
section 25E credit is allowed with
respect to any vehicle unless the
taxpayer includes the VIN of such
vehicle on the taxpayer’s tax return for
the taxable year. Section 25E(e) provides
that rules similar to the rules of section
30D(f) (without regard to paragraph (10)
or (11) thereof) apply for purposes of
section 25E. Section 25E(f) provides that
rules similar to section 30D(g) apply to
the transfer of a section 25E credit for
previously-owned vehicles (thus, a
taxpayer also may elect to transfer a
section 25E credit).
Section 25E applies to vehicles
acquired after December 31, 2022. No
section 25E credit is allowed with
respect to a vehicle acquired after
December 31, 2032. Section 13402(e)(2)
of the IRA provides that the ability of a
taxpayer to elect to transfer a section
25E credit under section 25E(f) applies
to vehicles placed in service by the
taxpayer after December 31, 2023.
PO 00000
Frm 00004
Fmt 4701
Sfmt 4702
C. Section 45W Qualified Commercial
Clean Vehicle Credit
Section 13403(a) of the IRA added
section 45W to the Code, which is
effective for vehicles acquired after
December 31, 2022, and before January
1, 2033. A taxpayer can claim a section
45W credit for purchasing and placing
in service a qualified commercial clean
vehicle, as defined in section 45W(c),
during the taxable year. Section
45W(b)(1) provides that the amount of
the section 45W credit is the lesser of:
15 percent of the taxpayer’s basis in the
vehicle (30 percent in the case of a
vehicle not powered by a gasoline or
diesel internal combustion engine), or
the incremental cost of the vehicle.
Section 45W(b)(2) provides that the
incremental cost of any qualified
commercial clean vehicle is an amount
equal to the excess of the purchase price
for such vehicle over the purchase price
of a comparable vehicle. Section
45W(b)(3) defines ‘‘comparable vehicle’’
to mean any vehicle that is powered
solely by a gasoline or diesel internal
combustion engine and is comparable in
size and use to such vehicle. Section
45W(b)(4) provides that the 45W credit
is limited to $7,500 in the case of a
vehicle that has a gross vehicle weight
rating of less than 14,000 pounds, and
$40,000 for all other vehicles.
Section 45W(c) defines ‘‘qualified
commercial clean vehicle’’ for purposes
of the section 45W credit. Section
45W(d) establishes special rules for
purposes of the section 45W credit,
including the application of basis
reduction, domestic usage, and
recapture rules similar to those under
section 30D(f) of the Code and a rule
disallowing a double benefit under
section 45W for a taxpayer claiming a
new clean vehicle credit under section
30D. Section 45W(e) provides that no
section 45W credit is allowed with
respect to any vehicle unless the
taxpayer includes the VIN of such
vehicle on the tax return for the taxable
year. Section 45W(f) grants the Secretary
authority to issue regulations or other
guidance to carry out the purposes of
section 45W, including regulations or
other guidance relating to determination
of the incremental cost of any qualified
commercial clean vehicle.
D. Section 6213 Restrictions
Applicable to Deficiencies; Petition to
Tax Court
Section 6213(b)(1) authorizes the IRS
to make certain assessments of
mathematical or clerical errors without
first issuing a notice of deficiency under
section 6213(a). In lieu of a notice of
deficiency giving the taxpayer 90 days
E:\FR\FM\10OCP3.SGM
10OCP3
ddrumheller on DSK120RN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 194 / Tuesday, October 10, 2023 / Proposed Rules
to file a petition in the Tax Court,
section 6213(b)(1) requires the IRS to
provide the taxpayer notice that an
assessment has been or will be made
based on a mathematical or clerical
error. Section 6213(b)(2)(A) provides
that the taxpayer has 60 days to request
an abatement of such assessment. If the
taxpayer timely requests abatement,
then the IRS must abate the assessment.
If an assessment is abated, the IRS must
first provide a notice of deficiency
under section 6213(a) before the IRS can
reassess the tax.
Math error assessments were first
authorized by section 274(f) of the
Revenue Bill of 1926. The legislative
history provided that ‘‘in the case of a
mere mathematical error appearing
upon the face of the return, assessment
of a tax due to such mathematical error
may be made at any time, and that such
assessment shall not be regarded as a
deficiency notification.’’ H.R. Rep. No.
69–1, at 11 (1926). The Tax Reform Act
of 1976 added section 6213(f)(2)
(current section (g)(2)) to the Code,
which defined ‘‘mathematical or clerical
error’’ as: (A) an error in addition,
subtraction, multiplication, or division
shown on the return; (B) an incorrect
use of an IRS table if the error is
apparent from the existence of other
information on the return; (C)
inconsistent entries on the return; (D) an
omission of information required to be
supplied on the return in order to
substantiate an item on that return; and
(E) an entry of a deduction or credit
item in an amount which exceeds a
statutory limit which is either (a) a
specified monetary amount or (b) a
percentage, ratio, or fraction—if the
items entering into the application of
that limit appear on that return.
The definition of mathematical or
clerical error as set out in 1976
contained only these five specific items,
all of which could be ascertained
directly from the face of a return. These
items remain in current section
6213(g)(2)(A)–(E). Since that time,
Congress has expanded the definition of
‘‘mathematical or clerical error’’ in
section 6213(g)(2) several times, and in
1998, added flush language to section
6213(g)(2) that applies to all section
6213(g)(2) subparagraphs: ‘‘A taxpayer
shall be treated as having omitted a
correct TIN [taxpayer identification
number] for purposes of the preceding
sentence if information provided by the
taxpayer on the return with respect to
the individual whose TIN was provided
differs from the information the
Secretary obtains from the person
issuing the TIN.’’ The legislative history
indicates that Congress added this
language to clarify that a correct TIN is
VerDate Sep<11>2014
22:35 Oct 06, 2023
Jkt 262001
one that was assigned by the Social
Security Administration (SSA) or the
IRS to the individual identified on the
return, and that there should be no
inconsistencies between the data that is
reported on the return and the data from
the agency issuing the TIN. H.R. Conf.
Rep. No. 825, 105th Cong. 2d Sess. 1588
(1998).
II. Prior Guidance
A. Notice 2022–46
On October 5, 2022, the Treasury
Department and the IRS published
Notice 2022–46, 2022–43 I.R.B. 302. The
notice requested general comments on
issues arising under sections 25E and
30D, as well as specific comments
concerning: (1) definitions; (2) critical
minerals and battery components; (3)
foreign entities of concern; (4)
recordkeeping and reporting; (5) eligible
entities; (6) elections to transfer and
advance payments; and (7) recapture.
The Treasury Department and the IRS
received 884 comments from industry
participants, environmental groups,
individual consumers, and other
stakeholders. The Treasury Department
and the IRS appreciate the commenters’
interest and engagement on these issues.
These comments have been carefully
considered in the preparation of the
proposed regulations.
B. Revenue Procedure 2022–42
On December 12, 2022, the Treasury
Department and the IRS published
Revenue Procedure 2022–42, 2022–52
I.R.B. 565, providing guidance for
qualified manufacturers to enter into
written agreements with the IRS, as
required in sections 30D, 25E, and 45W,
and to report certain information
regarding vehicles produced by such
manufacturers that may be eligible
credits under these sections. In
addition, Revenue Procedure 2022–42
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.
C. April 2023 Proposed Regulations
On April 17, 2023, the Treasury
Department and the IRS published the
April 2023 proposed regulations in the
Federal Register, 88 FR 23370, which
provided proposed definitions for
certain terms related to section 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. The deadline
to submit public comments expired on
June 16, 2023.
PO 00000
Frm 00005
Fmt 4701
Sfmt 4702
70313
D. Revenue Procedure 2023–33
On October 6, 2023, in addition to
filing this notice of proposed
rulemaking for public inspection, the
Treasury Department and the IRS
released Revenue Procedure 2023–33,
which will be published on October 23,
2023, in Internal Revenue Bulletin
2023–43, to provide guidance for
taxpayers electing to transfer credits
under section 25E or 30D and for
eligible entities receiving advance
payments of credits under sections 30D
and 25E. This revenue procedure sets
forth the procedures under sections
30D(g) and 25E(f) for the transfer of the
previously-owned clean vehicle credit
and the new clean vehicle credit from
the taxpayer to an eligible entity,
including the procedures for dealer
registration with the IRS, the procedures
for the revocation and suspension of
that registration, and the establishment
of an advance payment program to
eligible entities. In addition, this
revenue procedure supersedes sections
5.01 and 6.03 of Revenue Procedure
2022–42, providing new information for
the timing and manner of submission of
seller reports, respectively. This revenue
procedure also supersedes sections 6.01
and 6.02 of Revenue Procedure 2022–
42, providing updated information on
submission of written agreements by
manufacturers to the IRS to be
considered qualified manufacturers, as
well as the method of submission of
monthly reports by qualified
manufacturers.
Explanation of Provisions
I. Proposed Section 25E Regulations
A. Overview
Section 25E(a) provides that, in the
case of a qualified buyer who during a
taxable year places in service a
previously-owned clean vehicle, an
income tax credit is allowed for the
taxable year equal to the lesser of: (1)
$4,000, or (2) the amount equal to 30
percent of the sale price with respect to
such vehicle. Proposed § 1.25E–1(a)
would state the general rule that an
income tax credit is available under
section 25E for a qualified buyer of a
previously-owned clean vehicle placed
in service during the taxable year in an
amount equal to the lesser of: (1) $4,000,
or (2) the amount equal to 30 percent of
the sale price with respect to such
vehicle. Proposed § 1.25E–1(b) would
provide definitions that apply for
purposes of section 25E and the
proposed section 25E regulations (that
is, proposed §§ 1.25E–1 through 1.25E–
3). Proposed § 1.25E–1(c) would provide
rules regarding the modified adjusted
E:\FR\FM\10OCP3.SGM
10OCP3
70314
Federal Register / Vol. 88, No. 194 / Tuesday, October 10, 2023 / Proposed Rules
gross income limitation. Proposed
§ 1.25E–1(d) would provide rules
regarding multiple owners of a vehicle.
Proposed § 1.25E–2 would provide
special rules under section 25E(e).
Proposed § 1.25E–3 would provide rules
regarding the election to transfer the 25E
credit under section 25E(f).
As discussed later in this Explanation
of Provisions section, the proposed rules
under section 25E also include
severability clauses and generally are
proposed to apply to taxable years
beginning after the date these
regulations are published in the Federal
Register.
B. General Rules for Purposes of Section
25E
1. Limitations on Modified Adjusted
Gross Income
ddrumheller on DSK120RN23PROD with PROPOSALS3
Proposed § 1.25E–1(c)(1) would
provide, consistent with section 25E(b),
limitations based on the amount of a
taxpayer’s modified adjusted gross
income, proposing that no credit is
allowed under section 25E for any
taxable year if the lesser of the modified
adjusted gross income of the taxpayer
for such taxable year, or, the modified
adjusted gross income of the taxpayer
for the preceding taxable year, exceeds
the threshold amount. Proposed
§ 1.25E–1(c)(2), consistent with section
25E(b)(2), would define the ‘‘threshold
amount’’ as, in the case of a joint return
or a surviving spouse (as defined in
section 2(a)), $150,000; in the case of a
head of household (as defined in section
2(b)), $112,500; and in any other case,
$75,000. Proposed § 1.25E–1(b)(3)
would define ‘‘modified adjusted gross
income’’ as adjusted gross income
increased by any amount excluded from
gross income under sections 911, 931, or
933 of the Code. Proposed § 1.25E–
1(c)(3) would provide that if the
taxpayer’s filing status for the taxable
year differs from the taxpayer’s filing
status in the preceding taxable year, the
taxpayer satisfies the limitation if the
taxpayer’s modified AGI does not
exceed the threshold amount in either
year based on the applicable filing
status for that taxable year. This
proposed rule is consistent with
proposed § 1.30D–4(b)(4) in the April
2023 proposed regulations.
2. Limitation on Multiple Owners
Proposed § 1.25E–1(d)(1) would
provide that the amount of the section
25E credit attributable to a previouslyowned clean vehicle may be claimed on
only one tax return. In the event a
previously-owned clean vehicle is
placed in service by multiple owners,
no allocation or proration of the section
VerDate Sep<11>2014
22:35 Oct 06, 2023
Jkt 262001
25E credit is available. This proposed
rule is necessary because the structure
of section 25E provides for one taxpayer
to claim the section 25E credit per
vehicle placed in service. See generally
section 25E(a), (c)(3), (e) (providing for
rules similar to section 30D(f)(8) and (9))
and section 6213(g)(2)(U) of the Code.
Section 25E does not contain rules for
allocation or proration of the section
25E credit with respect to a single
vehicle to multiple taxpayers placing
that vehicle in service, and such an
allocation or proration would present
administrative challenges. Proposed
§ 1.25E–1(d)(2) would provide that for
seller reporting, the name and taxpayer
identification number of the vehicle
owner claiming the section 25E credit
must be listed on the seller report
pursuant to sections 25E(c)(1)(D)(i) and
30D(d)(1)(H). The credit will be allowed
only on the tax return of the owner
listed in the seller report. This proposed
rule is consistent with proposed
§ 1.30D–4(c) in the April 2023 proposed
regulations.
C. Definitions for Purposes of Section
25E
1. Dealer
Proposed § 1.25E–1(b)(1) would
define ‘‘dealer’’ by reference to the
statutory definition provided in section
25E(c)(2)(A) and section 30D(g) except
that the term does not include persons
licensed solely by a territory of the
United States, and does include a dealer
licensed in any jurisdiction described in
section 30D(g) (other than one
exclusively licensed in a territory) that
makes sales at sites outside of the
jurisdiction in which its licensed. The
dealer does not include persons
licensed solely by a territory because
clean vehicle credits generally are not
allowed for vehicles used
predominantly outside of the 50 States
and the District of Columbia. See
sections 30D(f)(4), 25E(e), 50(b)(1), and
7701(a)(9) of the Code. In addition,
United States citizens who are bona fide
residents of U.S. territories are generally
ineligible for Federal tax credits. See
sections 931, 932, 933, and former
section 935 of the Code. To allow for
flexibility, especially in the case of
direct-to-consumer sales, the proposed
definition of dealer includes a dealer
licensed in any jurisdiction described in
section 30D(g) (other than one
exclusively licensed in a U.S. territory)
that makes sales in jurisdictions in
which it may not be licensed.
2. Incentive
Proposed § 1.25E–1(b)(2) would
define ‘‘incentive,’’ for purposes of the
PO 00000
Frm 00006
Fmt 4701
Sfmt 4702
sale price definition in proposed
§ 1.25E–1(b)(9), as any reduction in total
sale price offered to and accepted by a
taxpayer from the dealer or
manufacturer, other than a reduction in
the form of a partial payment or down
payment for the purchase of a
previously-owned clean vehicle
pursuant to section 25E(f) and proposed
§ 1.25E–3.
3. Modified Adjusted Gross Income
Proposed § 1.25E–1(b)(3) would
define ‘‘modified adjusted gross
income’’ by reference to the statutory
definition provided in section 25E(b)(3).
4. Placed in Service
Proposed § 1.25E–1(b)(4) would
provide that a previously-owned clean
vehicle is considered to be placed in
service on the date the taxpayer takes
possession of the vehicle. This proposed
definition is consistent with the
meaning of ‘‘placed in service’’ for
purposes of other provisions of the Code
under which property is considered to
be ‘‘placed in service’’ when the
property is ‘‘placed in a condition or
state of readiness and availability for a
specifically assigned function’’ and as
‘‘the date on which the owner of the
vehicle took actual possession of the
vehicle.’’ See §§ 1.46–3(d)(1)(ii) and
(d)(4)(i), 1.179–4(e), and 145.4051–
1(c)(2); see also § 1.1250–4(b)(2);
Consumers Power Co. v. Commissioner,
89 T.C. 710 (1987); Noell v.
Commissioner, 66 T.C. 718, 728–729
(1976).
5. Previously-Owned Clean Vehicle
Proposed § 1.25E–1(b)(5) would
define ‘‘previously-owned clean
vehicle’’ by reference to the statutory
definition provided in section 25E(c)(1).
6. Qualified Buyer
Proposed § 1.25E–1(b)(6), consistent
with section 25E(c)(3), would define
‘‘qualified buyer’’ as, with respect to a
sale of a motor vehicle, a taxpayer who
is an individual, who purchases such
vehicle for use and not for resale, with
respect to whom no deduction is
allowable to another taxpayer under
section 151, 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.
7. Qualified Manufacturer
Proposed § 1.25E–1(b)(7) would
define ‘‘qualified manufacturer’’ by
reference to section 30D(d)(3).
8. Qualified Sale
Section 25E(c)(2) defines ‘‘qualified
sale’’ as a sale of a motor vehicle by a
E:\FR\FM\10OCP3.SGM
10OCP3
Federal Register / Vol. 88, No. 194 / Tuesday, October 10, 2023 / Proposed Rules
ddrumheller on DSK120RN23PROD with PROPOSALS3
dealer (as defined in section 30D(g)(8)),
for a sale price which does not exceed
$25,000, and which is the first transfer
since August 16, 2022 (the date of
enactment of section 25E), to a qualified
buyer other than the person with whom
the original use of such vehicle
commenced. Proposed § 1.25E–1(b)(8)(i)
would define ‘‘qualified sale’’ as a sale
of a motor vehicle by a dealer (as
defined in proposed § 1.25E–1(b)(1)) for
a sale price which does not exceed
$25,000, and which is the first transfer
since August 16, 2022 (the date of
enactment of section 25E), to a qualified
buyer other than the person with whom
the original use of such vehicle
commenced.
9. First Transfer Rule
Proposed § 1.25E–1(b)(8)(ii) would
provide the first transfer rule, which
proposes that to be a qualified sale, a
transfer must be the first transfer of the
previously-owned clean vehicle since
August 16, 2022, as shown by the
vehicle history of such vehicle, after the
sale to the original owner. The proposed
first transfer rule would provide
certainty that the previously-owned
clean vehicle is eligible for the section
25E credit, since the dealer and taxpayer
may not otherwise know if the transfer
was a qualified sale due to the
difficulties in determining whether
previous transfers were to qualified
buyers. For example, dealers and
taxpayers would not be able to
determine whether a previous transfer
of the vehicle as a used vehicle was to
an individual or to a taxpayer who is
not a dependent. The taxpayer would be
able to rely on the dealer’s
representation of the vehicle history in
determining whether the first transfer
rule is satisfied, provided the seller
report is accepted by the IRS. However,
taxpayers would also be encouraged to
independently examine the vehicle
history to confirm whether the first
transfer rule is satisfied, using publicly
available tools.1
For purposes of the proposed first
transfer rule, the proposed regulations
would ignore a transfer to or between
dealers. The definition of qualified sale
in section 25E(c)(2) requires that a sale
must be by a dealer to an individual for
the buyer to be able to claim the section
25E credit. If a transfer to a dealer were
taken into account as a transfer, the vast
majority of eligible vehicles would
never qualify for the section 25E credit
because a dealer (itself ineligible for the
credit) selling a used vehicle will have
1 A list of approved National Motor Vehicle Title
Information System data providers can be found at:
vehiclehistory.bja.ojp.gov/nmvtis_vehiclehistory.
VerDate Sep<11>2014
22:35 Oct 06, 2023
Jkt 262001
acquired the vehicle from the prior
owner (for example, as a trade-in) before
selling the vehicle as a used vehicle.
Treating transfers to dealers as a transfer
would thus frustrate Congress’s purpose
in enacting section 25E. In addition, the
Treasury Department and the IRS
understand that transfers between
dealers generally do not result in a
change of title that would appear on a
vehicle history. Accordingly, selling or
trading in a vehicle to a dealer for resale
should not disqualify the vehicle for
purposes of the first transfer rule.
Examples illustrating the first transfer
rule are provided in proposed § 1.25E–
1(e).
10. Sale Price
Proposed § 1.25E–1(b)(9) would
define the ‘‘sale price’’ of a previouslyowned clean vehicle as the total sale
price agreed upon by the buyer and
dealer in a written contract at the time
of sale, including any delivery charges
and after the application of any
incentives, but excluding separatelystated taxes and fees required by law.
The sale price of a previously-owned
clean vehicle is determined before the
application of any trade-in value. This
proposed definition of sale price would
include fees and charges imposed by the
dealer to prevent dealers from allocating
a portion of the price of the previouslyowned clean vehicle to separately stated
fees (other than those required by law)
and charges to avoid the $25,000 sales
price cap in section 25E(c)(2)(B). This
proposed definition does not include
separate financing, extended warranties,
insurance, or maintenance service
charges.
11. Section 25E Regulations
Proposed § 1.25E–1(b)(10) would
define ‘‘section 25E regulations’’ to
mean proposed §§ 1.25E–1, 1.25E–2,
and 1.25E–3.
12. Seller Report
Proposed § 1.25E–1(b)(11) would
define ‘‘seller report’’ as the report
described in section 25E(c)(1)(D)(i) by
reference to section 30D(d)(1)(H) and
provided by the dealer of a vehicle to
the taxpayer and the IRS in the manner
provided in, and containing the
information described in Revenue
Procedure 2023–33. Seller reports must
be provided to the IRS electronically.
See section II of this Explanation of
Provisions for a more detailed
discussion of this definition.
II. Section 1.30D–2 Definitions
As noted in part II.C of the
Background section, the April 2023
proposed regulations provided, in
PO 00000
Frm 00007
Fmt 4701
Sfmt 4702
70315
relevant part, definitions that apply for
purposes of section 30D and the section
30D regulations. These proposed
regulations would modify proposed
§ 1.30D–2 by adding paragraph (j),
which proposes a definition for seller
report. Sections 5 and 6 of Revenue
Procedure 2022–42 provided initial
procedures for sellers of vehicles to
provide seller reports to the IRS.
Proposed § 1.30D–2(j) would define a
‘‘seller report’’ as the report described in
section 30D(d)(1)(H) (which section
25E(c)(1)(D)(i) cross references as part of
the definition of a previously-owned
clean vehicle) that is provided by the
seller of a vehicle to the taxpayer and
the IRS. The seller report must be
provided to the IRS electronically, and
the additional time and manner
procedures for providing the seller
report, as well as the information that
must be included in the seller report, is
contained in Revenue Procedure 2023–
33, which will supersede relevant
portions of Revenue Procedure 2022–42.
III. Special Rules That Apply for
Purposes of Section 25E and Section
30D
A. In General
As noted in section II.C of the
Background section of this preamble,
the April 2023 proposed regulations
provided guidance regarding the special
rules under section 30D(f). See proposed
§ 1.30D–4 of the April 2023 proposed
regulations. These proposed regulations
add provisions to those special rules
that are relevant to recapture of the
section 25E credit and the section 30D
credit. These proposed regulations also
add special rules relevant to section
25E. These proposed regulations are
accompanied by Revenue Procedure
2023–33.
B. No Double Benefit Rule
Proposed § 1.25E–2(b)(1) would
provide that for purposes of sections
25E(e) and 30D(f)(2), the amount of any
deduction or other credit allowable
under chapter 1 of the Code for a
vehicle for which a section 25E credit is
allowable must be reduced by the
amount of the section 25E credit
allowed for such vehicle. Proposed
§ 1.25E–2(b)(2) would provide rules for
the interaction of sections 30D and
section 25E and provide that a section
30D credit that has been allowed with
respect to a vehicle in a taxable year
before the year in which a section 25E
credit is allowable for that vehicle does
not reduce the amount allowable under
section 25E. Accordingly, a taxpayer
who otherwise satisfies the
requirements of section 25E would be
E:\FR\FM\10OCP3.SGM
10OCP3
70316
Federal Register / Vol. 88, No. 194 / Tuesday, October 10, 2023 / Proposed Rules
eligible to claim the section 25E credit
for a vehicle for which another taxpayer
previously claimed the section 30D
credit.
ddrumheller on DSK120RN23PROD with PROPOSALS3
C. Recapture of the Section 25E Credit
or the Section 30D Credit
Section 25E(e) provides that, for
purposes of section 25E, rules similar to
the rules of section 30D(f) apply.
Section 30D(f)(5) instructs the Secretary
to provide regulations for recapturing
the benefit of any section 30D credit
with respect to any property that ceases
to be eligible for the section 30D credit.
Thus, proposed §§ 1.25E–2(c) and
1.30D–4(d) would provide
corresponding rules under section
30D(f)(5) for cancelled sales, returns,
and resales of the vehicle. Because the
rules proposed under each section
generally are the same, with the
exception of references to the clean
vehicle credit applicable to the section
(that is, the section 25E credit under
proposed § 1.25E–2(c) and the section
30D credit under proposed § 1.30D–
4(d)), the discussion in section III.D.1
through III.D.3 of this Explanation of
Provisions, unless otherwise noted,
refers to a ‘‘clean vehicle credit’’ to
denote the credit under section 25E and
section 30D.
1. Cancelled Sale
Proposed §§ 1.25E–2(c)(1)(i) and
1.30D–4(d)(1)(i) would provide the
Federal income tax consequences that
apply if the sale of a vehicle between
the taxpayer and seller is cancelled
before the taxpayer places the vehicle in
service (that is, before the taxpayer takes
possession of the vehicle). Specifically,
in the case of a cancelled sale, the
taxpayer may not claim a clean vehicle
credit with respect to the vehicle. The
vehicle will still be eligible for a clean
vehicle credit upon a subsequent
qualifying sale to another taxpayer
because the vehicle was not placed in
service as part of the prior cancelled
sale. Additionally, the seller report (as
defined in proposed §§ 1.25E–1(b)(11)
and 1.30D–2(j) and described in part II
of this Explanation of Provisions), if
already submitted, must be rescinded by
the seller pursuant to the procedures in
the procedural guidance published in
Revenue Procedure 2023–33. Finally,
because the taxpayer is not eligible for
the credit, no vehicle transfer election is
available under the clean vehicle credit
transfer rules described in section IV of
this Explanation of Provisions.
2. Vehicle Returns
Proposed §§ 1.25E–2(c)(1)(ii) and
1.30D–4(d)(1)(ii) would provide the
Federal income tax consequences that
VerDate Sep<11>2014
22:35 Oct 06, 2023
Jkt 262001
apply if the taxpayer returns the vehicle
to the seller within 30 days of placing
the vehicle in service. Specifically, in
the case of such return, the taxpayer
cannot claim a clean vehicle credit with
respect to the vehicle. The Treasury
Department and the IRS understand that
vehicle retailers may have return
policies that range from several days up
to 30 days, so the proposed rules
regarding returns within 30 days reflect
industry practice.
In the case of a return within 30 days
of what was a new clean vehicle, the
vehicle, once returned, already was
placed in service by the taxpayer and
therefore is not available for original use
by another taxpayer. Because section
30D(d)(1)(A) requires that original use of
a new clean vehicle commence with the
taxpayer, for purposes of section 30D,
the returned vehicle is not eligible for
the section 30D credit upon a
subsequent sale. In the case of a return
of a previously-owned clean vehicle, the
vehicle, once returned, is not eligible for
the section 25E credit upon a
subsequent sale if the vehicle history
reflects that the prior sale and return
was a qualified sale per section
25E(c)(2)(C). However, if the vehicle
history does not reflect the prior sale
and return, the vehicle remains eligible
for the section 25E credit under the first
transfer rule described in proposed
§ 1.25E–1(b)(8)(ii). The seller report, in
the case of a return, must be updated by
the seller to reflect the return pursuant
to the procedures published in Revenue
Procedure 2023–33. Finally, if the
taxpayer made an election to transfer
the clean vehicle credit, that vehicle
transfer election is nullified, and any
advance payment made pursuant to the
clean vehicle transfer rules will be
recaptured from the eligible entity as an
excessive payment.
See section IV.E.1 of this Explanation
of Provisions for a discussion of the
excessive payment rules described in
the preceding paragraph.
3. Resales
Proposed §§ 1.25E–2(c)(1)(iii) and
1.30D–4(d)(1)(iii) would treat the
taxpayer as having purchased the
vehicle with an intent to resell such
vehicle if the resale occurs within 30
days of the taxpayer placing the vehicle
in service. Section 30D(d)(1)(B) provides
that a new clean vehicle must be
acquired for use or lease by the taxpayer
and not for resale, and section
25E(c)(3)(B) defines a qualified buyer as
purchasing the vehicle for use and not
for resale. The Treasury Department and
the IRS propose that a resale within 30
days is a sufficiently short period of
time to presume that the purchase was
PO 00000
Frm 00008
Fmt 4701
Sfmt 4702
done with the intent to resell. As a
result, in such a case the taxpayer who
purchased the new clean vehicle and
resold it within 30 days may not claim
a clean vehicle credit with respect to the
vehicle.
In the case of a resale by the taxpayer
within 30 days of what was a new clean
vehicle, the vehicle, once placed in
service for use by the taxpayer, is not
considered available for original use by
another taxpayer for purposes of section
30D, so the vehicle is not eligible for the
section 30D credit upon a subsequent
sale. In the case of a resale by the
taxpayer within 30 days of what was a
previously-owned clean vehicle, the
vehicle, once placed in service for use
by the taxpayer, is not eligible for the
section 25E credit upon a subsequent
sale. In the case of a resale of such
vehicle, however, the seller report is not
required to be updated because the
seller may not have knowledge of the
subsequent resale. Finally, if the
taxpayer made an election to transfer
the clean vehicle credit, that vehicle
transfer election remains in effect and
the value of any transferred credit
pursuant to the clean vehicle transfer
rules will be recaptured from the
taxpayer (as opposed to the advance
payment being collected from the
eligible entity as an excessive payment,
since the eligible entity is not a party to
the subsequent resale).
See section IV.E.2 of this Explanation
of Provisions for a discussion of the
excessive payment rules of proposed
§§ 1.25E–3(g)(2) and 1.30D–5(f)(2)
described in the preceding paragraph.
4. Other Returns or Resales
Proposed §§ 1.25E–2(c)(1)(iv) and
1.30D–4(d)(iv) would provide a rule for
returns or resales not described in
section III.D.2 and 3 of this Explanation
of Provisions (that is, returns or resales
occurring more than 30 days after the
date on which the taxpayer places the
vehicle in service). Generally, taxpayers
returning or reselling a clean vehicle
more than 30 days after the date the
taxpayer places in service will remain
eligible for the section 30D or section
25E credit for the purchase of such
vehicle. The proposed regulations
would provide that, in the case of what
was a new clean vehicle before the
return or resale, the vehicle, once
returned or resold, is not available for
original use by another taxpayer and,
therefore, is not eligible for a section
30D credit. Similarly, in the case of
what was a previously-owned clean
vehicle before the return or resale, the
vehicle, once returned or resold,
generally is not eligible for the section
25E credit upon a subsequent sale
E:\FR\FM\10OCP3.SGM
10OCP3
Federal Register / Vol. 88, No. 194 / Tuesday, October 10, 2023 / Proposed Rules
pursuant to the first transfer rule
described in proposed § 1.25E–
1(b)(8)(ii). In the case of return
occurring more than 30 days after the
date on which the taxpayer places the
vehicle in service, the seller report is
not required to be updated because the
taxpayer generally will be eligible for
the clean vehicle credit in this
circumstance. In addition, in the case of
a resale of such vehicle, the seller report
is not required to be updated because
the seller would not have knowledge of
the subsequent resale. Finally, if the
taxpayer made an election to transfer
the clean vehicle credit, that vehicle
transfer election remains in effect and
the value of any transferred credit
pursuant to the clean vehicle transfer
rules generally is not subject to
recapture or excessive payment.
Although the proposed regulations
would not provide an automatic clean
vehicle credit recapture rule for returns
or resales more than 30 days after a
return or resale, the IRS may determine
upon facts and circumstances that a
clean vehicle was purchased with the
intent to return or resell and may
disallow the clean vehicle credit in such
cases.
The Treasury Department and the IRS
request comments as to whether 30 days
is the appropriate length of time for the
return rule in proposed §§ 1.25E–
2(c)(1)(ii) and 1.30D–4(d)(1)(ii) and the
resale rule in proposed §§ 1.25E–
2(c)(1)(iii) and 1.30D–4(d)(1)(iii).
D. Branded Title Rule
Proposed § 1.25E–2(d) would provide
that a title to a previously-owned clean
vehicle indicating that such vehicle has
been damaged or is otherwise a branded
title does not impact the vehicle’s
eligibility for a section 25E credit.
ddrumheller on DSK120RN23PROD with PROPOSALS3
E. Seller Registration
In general, to be eligible for the
section 25E credit and the section 30D
credit, a clean vehicle must be
accompanied by a seller report. See
sections 30D(d)(1)(H) and
25E(c)(1)(D)(i). Proposed §§ 1.25E–2(e)
and 1.30D–4(g) would provide that the
seller must register with the IRS in the
manner set forth in Revenue Procedure
2023–33 for purposes of filing seller
reports.
F. Requirement To File a Complete
Income Tax Return
As discussed in the April 2023
proposed regulations and in these
regulations, a taxpayer will continue to
use Form 8936, now titled Clean
Vehicle Credits, to claim the section 25E
or 30D credit, regardless of whether the
taxpayer transfers the credit to the
VerDate Sep<11>2014
22:35 Oct 06, 2023
Jkt 262001
dealer. The IRS cannot properly monitor
claims of these credits if taxpayers do
not include a completed Form 8936
with their individual income tax
returns. Section 6213(g)(2)(D) defines a
‘‘mathematical or clerical error’’ for
purposes of math error authority, to
include an omission of information
which is required to be supplied on the
return to substantiate an entry on the
return. To ensure that the IRS can
appropriately monitor these credits,
proposed §§ 1.25E–2(f) and 1.30D–4(h)
would clarify that taxpayers must file an
income tax return for the taxable year in
which the clean vehicle is placed in
service to be entitled to the credit under
section 25E or 30D. For this purpose, an
income tax return is defined as a Form
1040, U.S. Individual Income Tax
Return, with an attached Form 8936,
Clean Vehicle Credits, or successor
form, and any additional forms,
schedules, or statements prescribed by
the Commissioner for the purpose of
making a return to report the tax under
chapter 1 that includes all of the
information required on the forms and
in instructions.
IV. Transfer Rules for the Section 25E
Credit and the Section 30D Credit
Section 30D(g), as noted in more
detail in section I.A of the Background
section of this preamble, generally
establishes a set of rules under which a
taxpayer may transfer a section 30D
credit to certain dealers, referred to as
eligible entities, in which case the
eligible entity (and not the taxpayer) is
allowed the section 30D credit and in
exchange the eligible entity must pay
the taxpayer an amount equal to the
transferred section 30D credit (with
such payment being made either in cash
or in the form of a partial payment or
down payment for the purchase of the
vehicle). Section 25E(f) provides that,
for purposes of section 25E, rules
similar to the rules of section 30D(g)
apply.
The proposed regulations described in
this section IV of the Explanation of
Provisions are designed in part to
ensure program integrity. Advance
payment of the section 30D and section
25E credits poses unique compliance
challenges, since such advance
payments are not subject to the same tax
administration procedures that apply to
claiming a credit via return filing.
Furthermore, participation in the credit
transfer and advance payment program
is optional. The transfer of the section
30D and 25E credits is elective on the
part of the taxpayer, and the eligible
entity can decide whether to offer to the
taxpayer the ability to transfer such
credits (thereby participating in the
PO 00000
Frm 00009
Fmt 4701
Sfmt 4702
70317
advance payment program). Taxpayers
instead may choose to wait and claim a
section 30D or section 25E credit on the
taxpayer’s return. Section 30D(g)(1)
provides that a taxpayer election to
transfer the 30D credit is subject to the
regulations or other guidance that the
Secretary determines necessary. Section
30D(g)(7) instructs the Secretary to
establish a program for making advance
payments to eligible entities—that is,
payments made by the IRS to the
eligible entity before the eligible entity
files its Federal income tax return for
the relevant taxable year. Taken
together, these provisions provide
authority for the Secretary to establish
the parameters and conditions of the
transfer election and the accompanying
advance payment program for those
taxpayers and eligible entities that
choose to participate, in furtherance of
sound tax administration.
Proposed §§ 1.25E–3 and 1.30D–5
would provide transfer rules under
these provisions (section 30D(g) and
section 25E(f) by cross reference to
section 30D(g)), including by
establishing an advance payment
program for such transfers. Because the
rules proposed under each section are
the same, with the exception of
references to the clean vehicle credit
applicable to the section (that is, the
section 25E credit under proposed
§ 1.25E–3 and the section 30D credit
under proposed § 1.30D–5), the
discussion in section IV of this
Explanation of Provisions, unless
otherwise noted, refers to a ‘‘clean
vehicle credit’’ to denote the credit
under section 25E and section 30D.
The rules below do not specifically
address the requirements, under section
30D(g)(2)(B)(ii) and (D), relating to the
disclosure by the dealer of other
incentives and the requirement that the
dealer ensures that the availability or
use of such other incentives do not limit
the ability of a taxpayer to make a
vehicle transfer election, and such
election does not limit the value or use
of such incentives. The Treasury
Department and the IRS request
comments as what guidance, if any,
should be given here.
A. Definitions That Apply for Purposes
of the Transfer Rules
Proposed §§ 1.25E–3(b) and 1.30D–
5(a) would provide definitions that
apply for purposes of the transfers of a
clean vehicle credit. The definitions
described in this section IV.A of the
Explanation of Provisions apply to both
proposed § 1.25E–3(b) and proposed
§ 1.30D–5(a).
E:\FR\FM\10OCP3.SGM
10OCP3
70318
Federal Register / Vol. 88, No. 194 / Tuesday, October 10, 2023 / Proposed Rules
1. Advance Payment Program
Proposed regulations 1.25E–3(b)(1)
and 1.30D–5(a)(1) would define
‘‘advance payment program’’ as the
program described in section 30D(g)(7)
(and section 25E(f) by cross reference to
section 30D(g)) and these proposed
regulations 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.
2. Dealer
Dealer for purposes of the transfer
rules in proposed §§ 1.25E–3(b)(2) and
1.30D–(a)(2) has the same meaning as
that in proposed § 1.25E–1(b)(1) and
described in section I.C.1 of this
Explanation of Provisions.
ddrumheller on DSK120RN23PROD with PROPOSALS3
3. Dealer Tax Compliance
Dealer tax compliance means that all
required Federal information and tax
returns of the dealer have been filed,
including for Federal income and
employment tax, and the dealer has
paid all Federal tax, penalties, and
interest due of the dealer at the time of
sale. In the case of an installment
agreement, the proposed regulations
clarify that a dealer is in dealer tax
compliance if the dealer is current on its
obligations under that installment
agreement. See proposed §§ 1.25E–
3(b)(2) and 1.30D–5(a)(3).
4. Electing Taxpayer
Electing taxpayer means the
individual that purchases and places in
service a clean vehicle and that elects to
transfer a clean vehicle credit associated
with that vehicle that would otherwise
be allowable to that individual. To be an
electing taxpayer, the individual must
make certain attestations regarding
anticipated eligibility for the credit to a
registered dealer as provided in
Revenue Procedure 2023–33. See
proposed §§ 1.25E–3(b)(3) and 1.30D–
5(a)(4). For example, the electing
taxpayer must make an attestation
regarding satisfaction of the modified
adjusted gross income limitations for
the clean vehicle credit. In addition, for
purposes of section 30D, the electing
taxpayer must attest to the registered
dealer that it plans to use the vehicle
predominantly for personal use. Id.
Because the election to transfer a credit
under section 30D(g) is limited to the
credit allowable under subsection 30D,
a taxpayer may not elect to transfer a
general business credit for a new clean
vehicle allowable under section 38
VerDate Sep<11>2014
22:35 Oct 06, 2023
Jkt 262001
instead of section 30D, pursuant to
section 30D(c)(1). As described in
proposed § 1.30D–1(b)(1) of the April
2023 proposed regulations, a
depreciable vehicle the use of which is
50 percent or more business use in the
taxable year the vehicle is placed in
service is not apportioned between
section 38 and section 30D, but instead
is creditable entirely under section 38 as
a general business credit. Thus, the use
of a new clean vehicle must be
predominantly personal for a taxpayer
to be able to make the election to
transfer the credit under section 30D(g).
These attestations will help prevent a
transfer of the credit for which the
taxpayer is ineligible, and therefore will
reduce instances of recapture.
5. Eligible Entity
Eligible entity means a registered
dealer that meets certain requirements
and, by reason of meeting those
requirements, is eligible to receive
advance payments from the IRS under
the advance payment program. See
proposed §§ 1.25E–3(b)(4) and 1.30D–
5(a)(5). The requirements the eligible
entity must meet are described in
section IV.D of this Explanation of
Provisions.
6. Registered Dealer
Registered dealer refers to a dealer
that has completed the registration
described in proposed §§ 1.25E–3(c) and
1.30D–5(b) and section IV.B of this
Explanation of Provisions. See proposed
§§ 1.25E–3(b)(5) and 1.30D–5(a)(6).
7. Time of Sale
Time of sale means the date the clean
vehicle is placed in service. The date
the clean vehicle is placed in service is
the date the taxpayer takes possession of
the vehicle. See proposed §§ 1.25E–
3(b)(6) and 1.30D–5(a)(7); see also
proposed § 1.30D–2(e) of the April 2023
proposed regulations for the definition
of placed in service.
B. Dealer Registration and Taxpayer
Election
1. Dealer Registration
Proposed §§ 1.25E–3(c)(1) and 1.30D–
5(b)(1) would provide that, 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 Revenue Procedure 2023–33.
Proposed §§ 1.25E–3(c)(2) and 1.30D–
5(b)(2) would provide rules regarding
dealer tax compliance. Specifically, if
the dealer is not in dealer tax
compliance for any of the taxable
PO 00000
Frm 00010
Fmt 4701
Sfmt 4702
periods during the most recent five
taxable years, the dealer may register to
become a registered dealer, but the
dealer cannot receive advance payments
under the advance payment program
until the dealer tax compliance issue is
resolved. In such case, the dealer, while
registered, is not an eligible entity until
it comes into dealer tax compliance.
Relevant procedural guidance regarding
dealer tax compliance will be published
in the Internal Revenue Bulletin.
Pursuant to section 30D(g)(1) and
(g)(7), participation in the advance
payment program is elective and is
subject to the requirements and
conditions that the Secretary determines
necessary. Requiring registration of a
dealer before it may participate in the
advance payment program ensures that
only entities that are valid, licensed
vehicle dealers are eligible to receive
advance payments of the transferred
credits. In addition, requiring dealer tax
compliance ensures that entities
receiving advance payments are current
on their Federal tax obligations. Taken
together, these requirements help ensure
that only compliant, registered dealers
receive the benefit of the elective
advance payment program by
preventing fraud and ensuring sound
tax administration.
2. Vehicle Transfer Election
For clean vehicles placed in service
after December 31, 2023, the proposed
regulations would 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. See proposed
§§ 1.25E–3(d) and 1.30D–5(c). The
vehicle transfer election is made by the
electing taxpayer no later than at the
time of sale pursuant to Revenue
Procedure 2023–33, and, once made, the
vehicle transfer election 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.
C. Federal Income Tax Consequences of
the Vehicle Transfer Election
1. Treatment of Electing Taxpayer
Proposed §§ 1.25E–3(e)(1) and 1.30D–
5(d)(1) would provide the Federal
income tax treatment of a vehicle
transfer election as to an electing
E:\FR\FM\10OCP3.SGM
10OCP3
Federal Register / Vol. 88, No. 194 / Tuesday, October 10, 2023 / Proposed Rules
ddrumheller on DSK120RN23PROD with PROPOSALS3
taxpayer. Specifically, the proposed
regulations provide that 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 section 26(b)(1) of the
Code) for the taxable year in which the
sale occurs, and the excess amount, if
any, generally is not subject to recapture
unless recapture pursuant to section
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
taxable year. Finally, to ensure
appropriate application of the basis
reduction rule in section 30D(f)(1) (and
section 25E(e) by cross reference to
section 30D(f)(1)), the proposed
regulations would 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.
2. Treatment of Eligible Entity
Proposed §§ 1.25E–3(e)(2) and 1.30D–
5(d)(2) would provide the Federal
income tax treatment of a vehicle
transfer election as to an eligible entity.
Specifically, the eligible entity may
receive as an advance payment from the
Treasury Department the amount of the
clean vehicle credit transferred to the
eligible entity as part of a vehicle
transfer election, which is not
includible in the eligible entity’s gross
income for the taxable year in which
such payment is received or accrued, as
appropriate, and such payment may
exceed the eligible entity’s regular tax
liability (as defined in section 26(b)(1))
for such taxable year and generally is
not subject to recapture unless the
excessive payment rules apply. The
eligible entity may not deduct the
payment made to the electing taxpayer,
and, consistent with the treatment as to
the electing taxpayer described in
section IV.C.1 of this Explanation of
Provisions, the electing taxpayer is
treated as paying the eligible entity the
amount of the transferred clean vehicle
credit as part of the purchase price of
the clean vehicle. The amount of this
payment by the electing taxpayer is
treated as part of the amount realized by
the eligible entity under section 1001
from the sale of the clean vehicle.
The proposed regulations would
provide special rules in the case of an
eligible entity that is a partnership or an
S corporation. See proposed §§ 1.25E–
3(e)(2)(vi) and 1.30D–5(d)(2)(vi).
Because the electing taxpayer is treated
VerDate Sep<11>2014
22:35 Oct 06, 2023
Jkt 262001
as paying the eligible entity the amount
of the transferred clean vehicle credit as
part of the purchase price of the clean
vehicle and the amount of this payment
is treated as part of the amount realized
by the eligible entity under section 1001
from the sale of the clean vehicle, the
advance payment is not treated as tax
exempt income to the partnership or S
corporation for purposes of the Code.
These rules would ensure proper basis
and capital accounting reporting for
advance payments received by
partnerships and S corporations and
parity in Federal tax treatment
regardless of the form through which
the eligible entity conducts its business.
3. Other Rules
Proposed §§ 1.25E–3(e)(3) and 1.30D–
5(d)(3) would provide that the Federal
income tax treatment of the payments
associated with a vehicle transfer
election are the same regardless of
whether the payment is made in cash or
in the form of a partial payment or
down payment for the purchase of the
clean vehicle. Additionally, proposed
§§ 1.25E–3(e)(4) and 1.30D–5(d)(4)
would describe the additional rules that
apply by reason of a vehicle transfer
election (that is, section 30D(f)(1) and
(f)(2), section 30D(f)(6), and section
30D(f)(9), including with respect to the
section 25E proposed regulations by
reason of the cross reference to section
30D(g) in section 25E(f)).
Proposed § 1.30D–5(d)(5) would
provide examples demonstrating the
Federal income tax treatment of a
vehicle transfer election.
D. Advance Payment Program
As noted earlier in this section, the
advance payment program allows an
eligible entity to receive payments from
the IRS corresponding to the amount of
the clean vehicle credit for which a
vehicle transfer election was made
before the eligible entity files its Federal
income tax return for the taxable year
with respect to which the vehicle
transfer election relates. See proposed
§§ 1.25E–3(f) and 1.30D–5(e). To qualify
for the advance payment program, a
registered dealer (that is, a dealer that
meets the registration requirements
described in section IV.B of this
Explanation of Provisions), must meet
additional requirements to be an eligible
entity. Those requirements are that the
registered dealer must submit additional
registration information and be in dealer
tax compliance, the registered dealer
must retain information related to the
vehicle transfer election for the period
specified in the proposed regulations,
and the registered dealer must meet any
other requirements provided in
PO 00000
Frm 00011
Fmt 4701
Sfmt 4702
70319
procedural guidance published in the
Internal Revenue Bulletin.
The proposed regulations would also
refer to suspension and revocation
procedures identified in Revenue
Procedure 2023–33. See proposed
§§ 1.25E–3(f)(3) and (4) and 1.30D–
5(e)(3) and (4). Section 7803(e)(3)
provides it is the function of the IRS
Independent Office of Appeals
(Appeals) to resolve Federal tax
controversies without litigation.
Decisions made by the IRS relating to
the suspension or revocation of a
dealer’s registration are not Federal tax
controversies within the meaning of the
section 7803(e)(3) because registration is
too attenuated and separate from any tax
liability of the registering dealer. These
registration-related decisions would
have no direct effect on the amount of
a dealer’s tax liability and likely would
only affect the source of the dealer’s
income. For example, a dealer’s ability
to benefit from sections 30D(g) or 25E(f)
is predicated on registration, a buyer
purchasing the eligible clean vehicle,
and a buyer making an election to
transfer the credit under sections 30D(g)
or 25E(f). Only upon those three events
would the registration affect the dealer’s
tax liability. Accordingly, proposed
§§ 1.25E–3(f)(3) and (4) and 1.30D–
5(e)(3) and (4) would provide that a
dealer could not administratively appeal
the IRS’s decisions relating to the
suspension or revocation of a dealer’s
registration unless the IRS and the IRS
Independent Office of Appeals agree
that such review is available and the IRS
provides the time and manner for such
review.
E. Increases in Tax
1. Recapture From Taxpayer
As noted in section I of the
Background section of this preamble,
section 30D(g)(10) provides that, in the
case of any taxpayer who has made an
election described in section 30D(g)(1)
with respect to a new clean vehicle and
received a payment described in section
30D(g)(2)(C) from an eligible entity, if
the credit under section 30D would
otherwise (but for section 30D(g)) not be
allowable to such taxpayer pursuant to
the application of section 30D(f)(10)
(relating to the modified adjusted gross
income limitation), the tax imposed on
such taxpayer under chapter 1 for the
taxable year in which such vehicle was
placed in service will be increased by
the amount of the payment received by
such taxpayer. Because of the section
25E(f) cross reference to section 30D(g),
similar rules will apply for previouslyowned clean vehicles.
E:\FR\FM\10OCP3.SGM
10OCP3
70320
Federal Register / Vol. 88, No. 194 / Tuesday, October 10, 2023 / Proposed Rules
Proposed §§ 1.25E–3(g)(1) and 1.30D–
5(f)(1) would 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 under chapter 1 for the
taxable 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 taxable year.
ddrumheller on DSK120RN23PROD with PROPOSALS3
2. Excessive Payment as to Eligible
Entity
As noted in section I of the
Background section of this preamble,
section 30D(g)(7)(B) (and section 25E(f)
by cross reference to section 30D(g))
provides that rules similar to the rules
of section 6417(d)(6) apply for purposes
of the advance payment program.
Proposed §§ 1.25E–3(g)(2) and 1.30D–
5(f)(2) would provide that, in the case of
any advance payment that the IRS
determines constitutes an excessive
payment, the tax imposed on the
eligible entity by chapter 1, regardless of
whether such entity would otherwise be
subject to chapter 1 tax, for the taxable
year in which such determination is
made will be increased by the sum of
the amount of the excessive payment,
plus an amount equal to 20 percent of
such excessive payment. The latter
amount, however, will not apply if the
eligible entity demonstrates to the IRS
that the excessive payment was due to
reasonable cause, which is presumed to
be the case for a clean vehicle returned
within 30 days of placing such vehicle
in service. See proposed §§ 1.25E–
3(g)(2)(ii) and 1.30D–5(f)(2)(ii).
The proposed regulations would
provide that an excessive payment
means, with respect to an advance
payment to an eligible entity pursuant
to a vehicle transfer election made by an
electing taxpayer, an advance payment
made to a registered dealer that fails to
meet the requirements to be an eligible
entity, or to an eligible entity with
respect to a clean vehicle to the extent
the payment exceeds the amount of the
clean vehicle credit that would be
otherwise allowable to the electing
taxpayer with respect to the vehicle. See
proposed §§ 1.25E–3(g)(2)(iii) and
1.30D–5(f)(2)(iii). However, any excess
attributable to a taxpayer exceeding the
limitation based on modified adjusted
gross income is not treated as an
excessive payment to an eligible entity.
VerDate Sep<11>2014
22:35 Oct 06, 2023
Jkt 262001
F. Requirement To File Return
Proposed §§ 1.25E–3(h) and 1.30D–
5(g) would provide that an electing
taxpayer must file an income tax return
for the taxable year in which the vehicle
transfer election is made that reports
such election. Specifically, the electing
taxpayer must file a Form 1040, U.S.
Individual Income Tax Return, with an
attached Form 8936, Clean Vehicle
Credits, or successor form, and any
other additional forms, schedules, or
statements prescribed by the
Commissioner for purposes of making a
return to report tax under chapter 1. The
electing taxpayer must include the VIN
of the clean vehicle on the return of tax
for the taxable year in which the vehicle
transfer election is made, as provided
for in forms and instructions.
G. Two Vehicle Transfer Elections per
Year
Proposed §§ 1.25E–3(i) and 1.30D–
5(h) would provide that a taxpayer may
make no more than two transfer
elections per taxable 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 taxable year, for a
maximum of four vehicle transfer
elections in a taxable year. This
proposed rule is intended to ensure
program integrity by limiting transfer
elections to vehicle sales that appear to
be for legitimate personal or individual
use. The section 30D credit may only be
transferred for clean vehicles that are for
predominantly personal use, and a
taxpayer transferring the section 25E
credit must be an individual. Moreover,
a qualified buyer of a previously-owned
clean vehicle for the section 25E credit
must not have been allowed a prior
section 25E credit for a sale in the prior
three years. The Treasury Department
and the IRS believe that it is unlikely
that an individual who meets the
modified adjusted gross income
limitations would purchase more than
two clean vehicles in a taxable year for
legitimate personal or individual use.
Accordingly, in light of the unique
compliance challenges posed by
advance payments of the section 30D
and section 25E credits and pursuant to
the broad authority conferred by section
30D(g)(1) and section 25E(f), the
proposed regulations would limit
taxpayers to two vehicle transfer
elections in a taxable year.
PO 00000
Frm 00012
Fmt 4701
Sfmt 4702
V. Proposed Regulations Under Section
6213(g)(2)
A. Omission of a Correct Vehicle
Identification Number
The IRA added three new definitions
to the exclusive list of ‘‘mathematical or
clerical errors’’ in section 6213(g)(2).
These new definitions are set out in
sections 6213(g)(2)(T), (U), and (V).
Section 6213(g)(2)(T) provides that the
term ‘‘mathematical or clerical error’’
means an omission of a correct VIN
required under section 30D(f)(9)
(relating to credit for new clean
vehicles) to be included on a return;
section 6213(g)(2)(U) provides that the
term ‘‘mathematical or clerical error’’
means an omission of a correct VIN
required under section 25E(d) (relating
to credit for previously-owned clean
vehicles) to be included on a return; and
section 6213(g)(2)(V) provides that the
term ‘‘mathematical or clerical error’’
means an omission of a correct VIN
required under section 45W(e) (relating
to commercial clean vehicle credit) to be
included on a return.
The flush language added by Congress
in 1998 to clarify the meaning of a
correct TIN does not provide the
clarification that is necessary to
determine the meaning of ‘‘an omission
of a correct vehicle identification
number’’ under sections 6213(g)(2)(T)
through (V). Accordingly, proposed
§ 301.6213–2 would provide rules for
determining when the IRS is authorized
to use math error authority to make a
summary assessment when there has
been an ‘‘omission of a correct vehicle
identification number’’ on a taxpayer’s
return when claiming or electing to
transfer the credits under sections 30D,
25E and 45W.
Proposed § 301.6213–2 would
describe when taxpayers will be treated
as having omitted a correct VIN required
to be included on a taxpayer’s return
under section 30D, section 25E, and
section 45W. Under proposed
§ 301.6213–2(b), a taxpayer would be
treated as having omitted a correct VIN
(1) when the VIN required to be
reported under section 30D(f)(9), 25E(d),
or 45W(e) is not included on the tax
return; (2) when the VIN required to be
reported under section 30D(f)(9), 25E(d),
or 45W(e) is included on the tax return
but is not a VIN for an eligible vehicle
under section 30D(d)(1), 25E(c)(1), or
45W(c); (3) when the VIN required to be
reported under section 30D(f)(9), 25E(d),
or 45W(e) is included on the tax return
but the taxpayer claims the credit for a
year in which the vehicle is not eligible
for the credit; (4) when the VIN required
to be reported under section 30D(f)(9) is
included on the tax return but differs
E:\FR\FM\10OCP3.SGM
10OCP3
ddrumheller on DSK120RN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 194 / Tuesday, October 10, 2023 / Proposed Rules
from the VIN reported to the Secretary
under section 30D(d)(1)(H) for the
taxpayer who was issued the report; and
(5) when the VIN required to be
reported under section 25E(d) is
included on the tax return but differs
from the VIN reported to the Secretary
under section 25E(c)(1)(D)(i) for the
taxpayer who was issued the report.
proposed regulation, if the IRS
determines that a taxpayer reported a
VIN but the VIN is not for a vehicle
described in sections 30D(d)(1),
25E(c)(1), or 45W(c), the IRS is
authorized to make an assessment of the
tax based on an omission of a correct
VIN under section 6213(g)(2)(T), (U), or
(V), whichever is applicable.
B. Failure To Include the Vehicle
Identification Number on the Tax
Return
A taxpayer claiming a credit with
respect to a new clean vehicle under
section 30D, a previously-owned clean
vehicle under section 25E(a), or a
commercial clean vehicle under section
45W(a), is required under sections
30D(f)(9), 25E(d), or 45W(e), whichever
is applicable, to report the VIN of such
vehicle on the taxpayer’s return. Under
proposed § 301.6213–2, a taxpayer
would be treated as having omitted a
correct VIN required under sections
30D(f)(9), 25E(d), and 45W(e), if the VIN
is missing from the taxpayer’s return or
the number reported on the return is an
invalid VIN. A VIN is a unique
identifying code for a specific
automobile. Modern VINs comprise 17
characters (digits and capital letters)
that act as a unique identifier for the
vehicle and displays the car’s unique
features, specifications, and
manufacturer. An invalid VIN is a
number that does not match any
existing VIN reported by a qualified
manufacturer. Under the proposed
regulation, if the IRS determines that a
taxpayer has failed to include the VIN
with the tax return for the taxable year
because the VIN is missing or invalid,
the IRS is authorized to make an
assessment of the tax based on an
omission of a correct VIN under either
section 6213(g)(2)(T), (U), or (V),
whichever is applicable.
D. Vehicle Identification Number Is
Included on the Return but Is Claimed
for a Year in Which the Vehicle Is Not
Eligible for the Credit
The credit under section 30D is
available for each new clean vehicle
placed in service by the taxpayer during
the taxable year if the new clean vehicle
meets the critical mineral and battery
component requirements applicable for
that year, as defined in sections
30D(e)(1) and (2). Beginning in 2023, the
percentage of the value of the applicable
critical minerals contained in the
vehicle’s battery, as well as the
percentage of the value of the
components contained in the vehicle’s
battery that were manufactured or
assembled in North America, must
equal or exceed the applicable
percentages identified in sections
30D(e)(1) or (2) for the relevant year. If
the vehicle does not meet at least one of
the applicable percentage requirements
for critical minerals and battery
components for the specified year in
which it is placed in service, the vehicle
is ineligible for the section 30D credit
for the claimed year. Therefore, a VIN
reported on a taxpayer’s return that does
not meet the section 30D(e)(1) or (2)
requirements for the applicable year
cannot be a correct VIN under section
30D.
The credits under sections 30D, 25E,
and 45W are available for vehicles that
qualify as a new clean vehicle under
section 30D(d)(1), a previously-owned
clean vehicle under section 25E(c)(1), or
a qualified commercial clean vehicle
under section 45W(c) for the taxable
year the vehicle is placed in service. If
a taxpayer claims the credit under
sections 30D, 25E, or 45W, whichever is
applicable, for a year other than the year
that the vehicle was placed in service,
the vehicle is ineligible for the credit for
the claimed year. Therefore, a VIN
reported on a taxpayer’s return for a
vehicle that was not placed in service
for the year the taxpayer claims the
credit cannot be a correct VIN under
sections 30D, 25E or 45W. Under
proposed § 301.6213–2(b)(3), a taxpayer
would be treated as having omitted a
correct VIN required under section
30D(f)(9) if the VIN included on the tax
return is for a vehicle that is not eligible
for such credit under section 30D(e)(1)
C. Vehicle Identification Number
Included on the Return Is for Ineligible
Vehicle
The credit under sections 30D, 25E, or
45W is available for vehicles that
qualify as a new clean vehicle under
section 30D(d)(1), a previously-owned
clean vehicle under section 25E(c)(1), or
a qualified commercial clean vehicle
under section 45W(c). Under proposed
§ 301.6213–2, a taxpayer would be
treated as having omitted a correct VIN
required under sections 30D(f)(9),
25E(d), or 45W(e), if the VIN included
on the taxpayer’s return is not that of a
new clean vehicle under section
30D(d)(1), a previously-owned clean
vehicle under section 25E(c)(1), or a
qualified commercial clean vehicle
under section 45W(c). Under the
VerDate Sep<11>2014
22:35 Oct 06, 2023
Jkt 262001
PO 00000
Frm 00013
Fmt 4701
Sfmt 4702
70321
or (2) in the taxable year that the
taxpayer claims the credit, if the
taxpayer claims the credit under section
30D, 25E, or 45W for a year other than
the year that the vehicle was placed in
service, or if the taxpayer claims a credit
under section 25E for a previouslyowned clean vehicle with a model year
that is not at least two model years
earlier than the calendar year in which
such vehicle is acquired. Under the
proposed regulation, if the IRS
determines the taxpayer omitted a
correct VIN required under section
30D(f)(9) because the VIN included on
the tax return is for a vehicle that is not
eligible for such credit under section
30D(e)(1) or (2) in the taxable year that
the taxpayer claims the credit, or if the
taxpayer claims the credit under section
30D, 25E, or 45W for a year other than
the year that the vehicle was placed in
service, the IRS is authorized to make an
assessment of the tax based on an
omission of a correct VIN under section
6213(g)(2)(T), (U), or (V), whichever is
applicable.
E. Vehicle Identification Number Is
Included on the Return but Does Not
Match the Vehicle Identification
Number Included in the Section
30D(d)(1)(H) Seller Report for a
Particular Taxpayer
Section 30D(d)(1)(H) requires the
person who sells a new clean vehicle to
the taxpayer to furnish a report to the
taxpayer and to the Secretary that
contains (i) the name and TIN of the
taxpayer, (ii) the VIN of the vehicle,
unless, in accordance with any
applicable rules promulgated by the
Secretary of Transportation, the vehicle
is not assigned such a number, (iii) the
battery capacity of the vehicle, (iv)
verification that original use of the
vehicle commences with the taxpayer,
(v) the maximum credit under section
30D allowable to the taxpayer with
respect to the vehicle, and (vi) in the
case of a taxpayer who makes a vehicle
transfer election, any amount described
in section 30D(g)(2)(C) that was paid to
such taxpayer. These requirements for
the seller report reflect that it is a
fundamental reporting requirement that
the VIN for each vehicle eligible for the
credit be linked to a particular
taxpayer’s TIN. A VIN reported on a
taxpayer’s return by anyone other than
the reported taxpayer’s TIN cannot,
therefore, be a correct VIN for the
taxpayer claiming the section 30D
credit.
To reflect this TIN/VIN linkage and
ensure that only the taxpayer who
purchased the vehicle is able to claim
the VIN for the vehicle eligible for the
section 30D credit, proposed
E:\FR\FM\10OCP3.SGM
10OCP3
70322
Federal Register / Vol. 88, No. 194 / Tuesday, October 10, 2023 / Proposed Rules
§ 301.6213–2(b)(4) would provide that a
taxpayer is treated as having omitted a
correct VIN on a tax return as required
under section 30D(f)(9) if the VIN on the
tax return does not match the VIN
included in the seller report under
section 30D(d)(1)(H) for the taxpayer
claiming the credit. Under the proposed
regulation, if the IRS determines that a
taxpayer reported a VIN but the VIN
claimed on the taxpayer’s return is not
for a vehicle that was reported to the
IRS and the taxpayer on the section
30D(d)(1)(H) report for that taxpayer, the
IRS is authorized to make an assessment
of the tax based on an omission of a
correct VIN under section 6213(g)(2)(T).
ddrumheller on DSK120RN23PROD with PROPOSALS3
F. Vehicle Identification Number Is
Included on the Return but Does Not
Match the Vehicle Identification
Number Included in the Section
25E(c)(1)(D)(i) Seller Report for a
Particular Taxpayer
Section 25E(c)(1)(D)(i) requires the
person who sells a previously-owned
clean vehicle to the taxpayer to furnish
a report to the taxpayer and to the
Secretary that meets the requirements of
section 30D(d)(1)(H) (except for clause
(iv) thereof). Just like the requirements
for the seller report for a new clean
vehicle, the requirements for the seller’s
previously-owned clean vehicle report
reflect a fundamental linkage between
the VIN for each vehicle eligible for the
credit and a particular taxpayer’s TIN.
For the same reasons listed in section
V.E of this Explanation of Provisions, a
VIN reported on a taxpayer’s return by
anyone other than the reported
taxpayer’s TIN cannot, therefore, be a
correct VIN for the taxpayer claiming
the section 25E credit.
To reflect this TIN/VIN linkage and
ensure that only the taxpayer who
purchased the vehicle is able to claim
the VIN for the vehicle eligible for the
section 25E credit, proposed
§ 301.6213–2(b)(5) would provide that a
taxpayer is treated as having omitted a
correct VIN on a tax return as required
under section 25E(d) if the VIN on the
tax return does not match the VIN
included in the seller report under
section 25E(c)(1)(D)(i) for a taxpayer
claiming the credit. Under the proposed
regulation, if the IRS determines that a
taxpayer included a VIN on a tax return
but the VIN claimed on the taxpayer’s
return is not for a vehicle that was
reported to the IRS and the taxpayer
under sections 25E(c)(1)(D)(i) for that
taxpayer, the IRS would be authorized
to make an assessment of the tax based
on an omission of a correct VIN under
section 6213(g)(2)(U).
VerDate Sep<11>2014
22:35 Oct 06, 2023
Jkt 262001
VI. Severability
If any provision in this proposed
rulemaking is held to be invalid or
unenforceable facially, or as applied to
any person or circumstance, it shall be
severable from the remainder of this
rulemaking, and shall not affect the
remainder thereof, or the application of
the provision to other persons not
similarly situated or to other dissimilar
circumstances.
Proposed Applicability Dates
Except as described in the following
paragraph, these regulations are
generally proposed to apply to new
clean vehicles and previously-owned
clean vehicles placed in service in
taxable years beginning after October 10,
2023.
Proposed §§ 1.25E–3, 1.30D–5, and
301.6213–2 are proposed to apply to
taxable years beginning after December
31, 2023. The applicability date of
proposed §§ 1.25E–3 and 1.30D–5
would align with the applicability date
of the transfer provisions of the section
25E or section 30D credit, which apply
to vehicles acquired or placed in
service, respectively, after December 31,
2023. Proposed § 301.6213–2 describes
the exercise of math error authority with
respect to omission of a correct VIN,
which relates in part to seller reporting.
Application of this proposed rule to
taxable years beginning after December
31, 2023, would align with the
commencement of the electronic
submission of seller reporting to
improve administration of the section
25E and section 30D credits.
Effect on Other Documents
This notice of proposed rulemaking
modifies proposed §§ 1.30D–2 and
1.30D–4 of the April 2023 proposed
regulations.
Special Analyses
I. Paperwork Reduction Act
The Paperwork Reduction Act of 1995
(44 U.S.C. 3501–3520) (PRA) generally
requires that a Federal agency obtain the
approval of the Office of Management
and Budget (OMB) before collecting
information from the public, whether
such collection of information is
mandatory, voluntary, or required to
obtain or retain a benefit.
For purposes of the PRA, the
reporting burden associated with the
collection of information in proposed
§§ 1.25E–3 and 1.30D–5 regarding
vehicle transfer elections will be
reflected in the PRA Submissions
associated with Revenue Procedure
2023–33. The IRS is seeking OMB
approval and requesting a new OMB
PO 00000
Frm 00014
Fmt 4701
Sfmt 4702
control number for Revenue Procedure
2023–33. These proposed regulations do
not alter previously accounted for
information collection requirements and
do not create new collection
requirements. OMB Control Number
1545–2137 covers Form 8936 and Form
8936–A regarding electric vehicle
credits, including the new requirement
in section 30D(f)(9) to include on the
taxpayer’s return for the taxable year the
VIN of the vehicle for which the section
30D credit is claimed. Revenue
Procedure 2022–42 describes the
procedural requirements for qualified
manufacturers to make periodic written
reports to the Secretary to provide
information related to each vehicle
manufactured by such manufacturer
that is eligible for the section 30D credit
as required in section 30D(d)(3),
including the critical mineral and
battery component certification
requirements in section 30D(e)(1)(A)
and (2)(A). In addition, Revenue
Procedure 2022–42 also provides the
procedures for sellers of new clean
vehicles to report information required
by section 30D(d)(1)(H) for vehicles to
be eligible for the section 30D credit.
The collections of information
contained in Revenue Procedure 2022–
42 are described in that document and
were submitted to the Office of
Management and Budget in accordance
with the PRA under control number
1545–2137.
II. Regulatory Flexibility Act
The Regulatory Flexibility Act (5
U.S.C. 601 et seq.) (RFA) imposes
certain requirements with respect to
Federal rules that are subject to the
notice and comment requirements of
section 553(b) of the Administrative
Procedure Act (5 U.S.C. 551 et seq.) and
that are likely to have a significant
economic impact on a substantial
number of small entities. Unless an
agency determines that a proposal will
not have a significant economic impact
on a substantial number of small
entities, section 603 of the RFA requires
the agency to present an initial
regulatory flexibility analysis (IRFA) of
the proposed rule. The Treasury
Department and the IRS have not
determined whether the proposed rule,
when finalized, will have a significant
economic impact on a substantial
number of small entities. This
determination requires further study.
However, because there is a possibility
of a significant economic impact on a
substantial number of small entities, an
IRFA is provided in these proposed
regulations. The Treasury Department
and the IRS invite comments on both
E:\FR\FM\10OCP3.SGM
10OCP3
Federal Register / Vol. 88, No. 194 / Tuesday, October 10, 2023 / Proposed Rules
ddrumheller on DSK120RN23PROD with PROPOSALS3
the number of entities affected and the
economic impact on small entities.
A. Need for and Objectives of the Rule
The proposed regulations would
provide the eligibility rules and key
definitions regarding the section 25E
credit to allow taxpayers to know
whether their purchase of a used vehicle
is eligible for the section 25E credit. In
addition, the proposed regulations
would provide rules regarding the
recapture authority under sections
30D(f)(5) and 25E(e), so that taxpayers
and the IRS have clear rules regarding
when a clean vehicle may cease being
eligible property for purposes of the
section 25E and section 30D credits.
Further, the proposed regulations would
provide rules regarding the meaning of
the omission of a correct VIN for
purposes of math error authority as
described in section 6213(g)(2). Clear
rules regarding the exercise of math
error authority will provide for efficient
and fair tax administration.
The proposed regulations would
provide guidance for purposes of
taxpayers electing to transfer vehicle
credits under sections 25E(f) and 30D(g)
to eligible entities and for eligible
entities participating in the advance
payment program with respect to those
transferred credits. The proposed rules
would provide rules regarding the
process for taxpayers to elect to transfer
the credit and for eligible entities to
register and receive advance payments
from the IRS and rules regarding the
Federal income tax treatment of the
vehicle transfer election, including
recapture and excessive payments. The
proposed rules regarding the vehicle
transfer election ensure certainty
regarding the consequences of the
transfer election, decrease the risk of
fraud, and expedite the process by
which an eligible entity may receive an
advance payment under section 25E(f)
or 30D(g).
The proposed rules are expected to
encourage taxpayers to increase the
placing in service of new and
previously-owned clean vehicles. Thus,
the Treasury Department and the IRS
intend and expect that the proposed
rules will deliver benefits across the
economy and environment that will
beneficially impact various industries,
including clean vehicle manufacturers
and dealers.
B. Affected Small Entities
The Small Business Administration
estimates in its 2023 Small Business
Profile that 99.9 percent of United States
businesses meet its definition of a small
business. The applicability of these
proposed regulations does not depend
VerDate Sep<11>2014
22:35 Oct 06, 2023
Jkt 262001
on the size of the business, as defined
by the Small Business Administration.
As described more fully in the preamble
to this proposed regulation and in this
IRFA, these rules may affect a variety of
different businesses across several
different industries, but will primarily
affect dealers of new and previouslyowned clean vehicles who would like to
be eligible entities to receive a
transferred credit from the buyers of a
clean vehicle. The Treasury Department
and the IRS currently estimate the
number of dealers of new clean vehicles
to be approximately 16,000, and the
number of dealers of previously-owned
clean vehicles to be approximately
36,000.
Of the estimated 16,000 dealers of
new clean vehicles, we estimate that
10,000 will have receipts in excess of
$25 million; 3,000 will have receipts
between $10-$25 million; 1,000 will
have receipts between $5–10 million,
and 2,000 will have receipts under $5
million. Of the estimated 36,000 dealers
of previously-owned clean vehicles, we
estimate that 500 will have receipts in
excess of $25 million; 1,500 will have
receipts between $10-$25 million; 2,000
will have receipts between $5–10
million, and 32,000 will have receipts
under $5 million.
The Treasury Department and the IRS
expect to receive more information on
the impact on small businesses through
comments on this proposed rule and
again when participation in the election
to transfer credits under sections 25E(f)
and 30D(g) commences.
1. Impact of the Rules
The recordkeeping and reporting
requirements would increase for
taxpayers who elect to transfer the
section 25E or 30D credit to an eligible
entity. In addition, the recordkeeping
and reporting requirements would
increase for dealers who seek to qualify
as eligible entities and participate in the
advance payment program. Although
the Treasury Department and the IRS do
not have sufficient data to determine
precisely the likely extent of the
increased costs of compliance, the
estimated burden of complying with the
recordkeeping and reporting
requirements are described in the PRA
section of the preamble. The Treasury
Department and IRS estimate that, based
on the total of 52,000 dealers of new
(16,000) and previously-owned (36,000)
clean vehicles, it will take
approximately one hour to register as
entities eligible to receive advance
payments of credits under sections 25E
and 30D, for a total of 52,000 hours
total. The Treasury Department and IRS
further estimate that there are
PO 00000
Frm 00015
Fmt 4701
Sfmt 4702
70323
approximately 950,000 taxpayers who
will purchase new clean vehicles and
28,750 taxpayers who will purchase
previously-owned clean vehicles who
will elect to transfer their respective
credits to the eligible entity, for a total
of 978,750 elections annually. The
Treasury Department and IRS estimate
each election will take approximately 15
minutes to complete, for a total burden
of approximately 244,688 hours per
year.
2. Alternatives Considered
The Treasury Department and the IRS
considered various alternatives in
promulgating these proposed
regulations. Significant alternatives
considered include: (1) the sale price
definition in proposed § 1.25E–1(b)(9);
(2) the first transfer rule described in
proposed § 1.25E–1(b)(8); (3) the
recapture rules provided in proposed
§§ 1.25E–2(c) and 1.30D–4(f), and (4) the
dealer registration requirements
provided in proposed §§ 1.25E–3(b) and
1.30D–5(b).
Regarding the sale price definition in
proposed § 1.25E–1(b)(9), the Treasury
Department and the IRS considered the
appropriate scope of the definition and
how the definition of sale price should
be consistent with or diverge from the
definition of manufacturer’s suggested
retail price for purposes of section
30D(f)(11). The definition of
manufacturer’s suggested retail price in
proposed § 1.30D–2(c) of the April 2023
proposed regulations refers to a
statutory definition in 15 U.S.C. 1232
that is used for purposes of vehicle
labeling on the vehicle window sticker.
That proposed definition includes
optional accessories or items included
by the manufacturer at the time of
delivery to the dealer but excludes
delivery charges to the dealer. For used
vehicles, however, there are not similar
vehicle labeling standards that provide
a standard for defining sales price. In
addition, in a used vehicle sale the
dealer and buyer may negotiate to
characterize a portion of the sale price
as a separately stated fee or charge
(other than those required by law) to
avoid the section 25E sales price cap of
$25,000. To prevent this type of
recharacterization, proposed § 1.25E–
1(b)(9) defines sale price to mean the
total sale price agreed upon by the buyer
and the dealer, including any delivery
charges. This definition specifically
excludes separately-stated taxes and
fees required by State or local law, since
such taxes and fees are not subject to
negotiation or recharacterization by the
dealer and buyer.
The Treasury Department and the IRS
considered various alternatives to the
E:\FR\FM\10OCP3.SGM
10OCP3
ddrumheller on DSK120RN23PROD with PROPOSALS3
70324
Federal Register / Vol. 88, No. 194 / Tuesday, October 10, 2023 / Proposed Rules
first transfer rule described in proposed
§ 1.25E–1(b)(8). This rule is necessary to
determine whether a sale of a
previously-owned clean vehicle is a
qualified sale pursuant to section
25E(c)(2). One of the requirements to be
a qualified sale is that the sale be the
first transfer to a qualified buyer since
the enactment of section 25E other than
to the person with whom the original
use of the vehicle commenced.
However, some of the characteristics of
being a qualified buyer are unknowable
to the dealer and the buyer in a
subsequent sale, including that a
qualified buyer be an individual, not be
a dependent, and not have claimed the
section 25E credit in the prior three
years. As a result, if a previously-owned
clean vehicle is transferred more than
once after the date of enactment of
section 25E, there is no way for the
parties after the first transfer to know if
the first transfer was to a qualified
buyer. Because the IRS may have access
to some information necessary to
determine whether a first transfer was to
a qualified buyer, the Treasury
Department and the IRS considered
alternatives to the first transfer rule such
as a look-up tool regarding prior claims
of the section 25E credit for a particular
vehicle or information regarding prior
vehicle purchasers. However, disclosure
of this information raises significant
confidentiality issues. Accordingly, the
Treasury Department and the IRS have
proposed the first transfer rule to
provide certainty to buyers and dealers
as to which transfer of a previouslyowned clean vehicle is the first transfer
and will qualify for the section 25E
credit by relying on the vehicle history.
The Treasury Department and the IRS
considered alternatives to the recapture
rules provided in proposed §§ 1.25E–
2(c) and 1.30D–4(f). Given the increased
availability and benefits of the section
30D credit and the new section 25E
credit when the credit can be transferred
to an eligible entity and is not limited
by the taxpayer’s tax liability, the
Treasury Department and the IRS
determined it was necessary to provide
rules regarding when the value of the
clean vehicle credits can be recaptured.
The Treasury Department and the IRS
also considered the appropriate length
of time within which a return or resale
of a vehicle would make the taxpayer
ineligible for the credit. Longer and
shorter periods of time were considered.
Based on industry standard return
policies, including money back
guarantees, the Treasury Department
and the IRS determined that it was
appropriate to deny the benefit of the
credit if the credit was returned within
VerDate Sep<11>2014
22:35 Oct 06, 2023
Jkt 262001
30 days. In addition, the Treasury
Department and the IRS determined it
was reasonable to assume an intent to
resell the vehicle, making the purchase
of the vehicle ineligible, if the vehicle
was resold within 30 days.
Finally, with respect to the dealer
registration requirements provided in
proposed §§ 1.25E–3(b) and 1.30D–5(b),
the Treasury Department and the IRS
considered various processes by which
a seller could become an eligible entity
and participate in the advance payment
program. The Treasury Department and
the IRS considered a process that did
not require submission of a significant
amount of information prior to the
dealer becoming an eligible entity, but
such an approach could require more
back-end compliance. To ensure
efficient tax administration and reduce
fraud, the Treasury Department and the
IRS determined that an up-front,
electronic registration process was
necessary for the IRS to effectively
review and validate eligible entity
status. To ensure efficient tax
administration and reduce fraud, the
Treasury Department and the IRS
determined that an up-front, electronic
registration process was necessary for
the IRS to effectively review and
validate eligible entity status. In
addition, the Treasury Department and
the IRS determined that dealers must
submit identity information and
attestations regarding their participation
in the advance payment program to
ensure program integrity. Finally, the
Treasury Department and the IRS
determined that dealer tax compliance
was necessary to ensure that advance
payments are being paid only to
compliant dealers.
IV. Unfunded Mandates Reform Act
Section 202 of the Unfunded
Mandates Reform Act of 1995 (UMRA)
requires that agencies assess anticipated
costs and benefits and take certain other
actions before issuing a final rule that
includes any Federal mandate that may
result in expenditures in any one year
by a State, local, or Tribal government,
in the aggregate, or by the private sector,
of $100 million (updated annually for
inflation). This proposed rule does not
include any Federal mandate that may
result in expenditures by State, local, or
Tribal governments, or by the private
sector in excess of that threshold.
3. Duplicative, Overlapping, or
Conflicting Federal Rules
Comments and Requests for a Public
Hearing
Before these proposed amendments to
the regulations are adopted as final
regulations, consideration will be given
to comments that are submitted timely
to the IRS as prescribed in this preamble
under the ADDRESSES section. The
Treasury Department and the IRS
request comments on all aspects of the
proposed regulations. Any comments
submitted will be made available at
https://www.regulations.gov or upon
request.
A public hearing will be scheduled if
requested in writing by any person who
timely submits electronic or written
comments. Requests for a public hearing
are also encouraged to be made
electronically. If a public hearing is
scheduled, notice of the date and time
for the public hearing will be published
in the Federal Register.
The proposed rule would not
duplicate, overlap, or conflict with any
relevant Federal rules. As discussed in
the Explanation of Provisions, the
proposed rules would merely provide
requirements, procedures, and
definitions related to the clean vehicle
transfer election programs for sections
25E and 30D. The Treasury Department
and the IRS invite input from interested
members of the public about identifying
and avoiding overlapping, duplicative,
or conflicting requirements.
III. Section 7805(f)
Pursuant to section 7805(f), this
notice of proposed rulemaking has been
submitted to the Chief Counsel for the
Office of Advocacy of the Small
Business Administration for comment
on its impact on small business.
PO 00000
Frm 00016
Fmt 4701
Sfmt 4702
V. Executive Order 13132: Federalism
Executive Order 13132 (Federalism)
prohibits an agency from publishing any
rule that has federalism implications if
the rule either imposes substantial,
direct compliance costs on State and
local governments, and is not required
by statute, or preempts State law, unless
the agency meets the consultation and
funding requirements of section 6 of the
Executive order. This proposed rule
does not have federalism implications
and does not impose substantial direct
compliance costs on State and local
governments or preempt State law
within the meaning of the Executive
order.
VI. Regulatory Planning and Review
Pursuant to the Memorandum of
Agreement, Review of Treasury
Regulations under Executive Order
12866 (June 9, 2023), tax regulatory
actions issued by the IRS are not subject
to the requirements of section 6 of
Executive Order 12866, as amended.
Therefore, a regulatory impact
assessment is not required.
E:\FR\FM\10OCP3.SGM
10OCP3
Federal Register / Vol. 88, No. 194 / Tuesday, October 10, 2023 / Proposed Rules
Announcement 2023–16, 2023–20
I.R.B. 854 (May 15, 2023), provides that
public hearings will be conducted in
person, although the IRS will continue
to provide a telephonic option for
individuals who wish to attend or
testify at a hearing by telephone. Any
telephonic hearing will be made
accessible to people with disabilities.
Statement of Availability of IRS
Documents
Guidance cited in this preamble is
published in the Internal Revenue
Bulletin and is available from the
Superintendent of Documents, U.S.
Government Publishing Office,
Washington, DC 20402, or by visiting
the IRS website at https://www.irs.gov.
Drafting Information
The principal author of these
proposed regulations is the Office of the
Associate Chief Counsel (Passthroughs
and Special Industries). However, other
personnel from the Treasury
Department and the IRS participated in
their development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.
26 CFR Part 301
Employment taxes, Estate taxes,
Excise taxes, Gift taxes, Income taxes,
Penalties, Reporting and recordkeeping
requirements.
Proposed Amendments to the
Regulations
Accordingly, the Treasury Department
and the IRS propose to amend 26 CFR
parts 1 and 301 as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 is amended by adding entries
in numerical order for §§ 1.25E–1
through 1.25E–3 and 1.30D–5 to read in
part as follows:
■
Authority: 26 U.S.C. 7805 * * *
Sections 1.25E–1 through 1.25E–3 also
issued under 26 U.S.C. 25E.
*
*
*
*
*
ddrumheller on DSK120RN23PROD with PROPOSALS3
Section 1.30D–5 also issued under 26
U.S.C. 30D.
*
*
*
*
*
Par 2. Sections 1.25E–0 through
1.25E–3 are added to read as follows:
■
Sec.
*
*
*
*
*
1.25E–0 Table of contents.
1.25E–1 Credit for previously-owned clean
vehicles.
1.25E–2 Special rules.
VerDate Sep<11>2014
22:35 Oct 06, 2023
Jkt 262001
1.25E–3
*
*
§ 1.25E–0
Transfer of credit.
*
*
*
Table of contents.
This section lists the captions
contained in §§ 1.25E–1 through 1.25E–
3.
§ 1.25E–1 Credit for previously-owned clean
vehicles.
(a) In general.
(b) Definitions.
(1) Dealer.
(2) Incentive.
(3) Modified adjusted gross income.
(4) Placed in service.
(5) Previously-owned clean vehicle.
(6) Qualified buyer.
(7) Qualified manufacturer.
(8) Qualified sale.
(i) In general.
(ii) First transfer rule.
(9) Sale price.
(10) Section 25E regulations.
(11) Seller report.
(c) Limitation based on modified adjusted
gross income.
(1) In general.
(2) Threshold amount.
(3) Special rule for change in filing status.
(d) Limitation on multiple owners.
(1) In general.
(2) Seller reporting.
(e) Examples.
(1) Example 1.
(2) Example 2.
(3) Example 3.
(4) Example 4.
(5) Example 5.
(6) Example 6.
(f) Severability.
(g) Applicability date.
§ 1.25E–2 Special rules.
(a) In general.
(b) No double benefit.
(1) In general.
(2) Interaction of section 30D and section
25E no double benefit rules.
(c) Recapture.
(1) In general.
(i) Cancelled sale.
(ii) Vehicle return.
(iii) Resale.
(iv) Other returns and resales.
(2) Recapture rules in the case of a vehicle
transfer election.
(3) Example.
(d) Branded title.
(e) Seller registration.
(f) Requirement to file a complete income
tax return.
(g) Severability.
(h) Applicability date.
§ 1.25E–3 Transfer of credit.
(a) In general.
(b) Definitions.
(1) Advance payment program.
(2) Dealer.
(3) Dealer tax non-compliance.
(4) Electing taxpayer.
(5) Eligible entity.
(6) Registered dealer.
(7) Time of sale.
(8) Vehicle transfer election.
(c) Dealer registration.
PO 00000
Frm 00017
Fmt 4701
Sfmt 4702
70325
(1) In general.
(2) Effect of dealer tax non-compliance.
(d) Vehicle transfer election by electing
taxpayer to transfer credit.
(e) Federal income tax consequences of the
vehicle transfer election.
(1) Treatment of electing taxpayer.
(2) Treatment of eligible entity.
(3) Form of payment from eligible entity to
electing taxpayer.
(4) Application of certain other
requirements.
(5) Examples.
(f) Advance payments received by eligible
entities.
(1) In general.
(2) Requirements for a registered dealer to
become an eligible entity.
(3) Suspension of registered dealer
eligibility.
(4) Revocation of registered dealer
eligibility.
(g) Increase in tax.
(1) Recapture where taxpayer exceeds
modified adjusted gross income limitation.
(2) Excessive payments.
(i) In general.
(ii) Reasonable cause.
(iii) Excessive payment defined.
(iv) Special rule for cases in which the
purchaser’s modified adjusted gross income
exceeds the limitation.
(3) Example.
(h) Requirement of return.
(1) In general.
(2) Income tax return.
(i) Two vehicle transfer elections per year.
(j) Severability.
(k) Applicability date.
§ 1.25E–1 Credit for previously-owned
clean vehicles.
(a) In general. Section 25E(a) of the
Internal Revenue Code (Code) allows as
a credit against the tax imposed by
chapter 1 of the Code (chapter 1) for the
taxable year of a taxpayer an amount
equal to the lesser of $4,000, or the
amount equal to 30 percent of the sale
price of a previously-owned clean
vehicle, when that previously-owned
clean vehicle is placed in service during
the taxable year by a taxpayer that
acquired the previously-owned clean
vehicle in a qualified sale in which that
taxpayer is a qualified buyer. This
section provides definitions and
generally applicable rules that apply for
purposes of determining the credit
under section 25E and the section 25E
regulations (as defined in paragraph
(b)(10) of this section) (section 25E
credit). Section 1.25E–2 provides
special rules under section 25E(e).
Section 1.25E–3 provides rules under
section 25E(f).
(b) Definitions. The following
definitions apply for purposes of the
section 25E regulations.
(1) Dealer. Dealer has the meaning
provided in section 25E(c)(2)(A) by
reference to section 30D(g)(8), except
that the term does not include persons
E:\FR\FM\10OCP3.SGM
10OCP3
ddrumheller on DSK120RN23PROD with PROPOSALS3
70326
Federal Register / Vol. 88, No. 194 / Tuesday, October 10, 2023 / Proposed Rules
licensed solely by a territory of the
United States, and includes a dealer
licensed in any jurisdiction described in
section 30D(g)(8) (other than one
licensed solely by a territory of the
United States) that makes sales at sites
outside of the jurisdiction in which its
licensed.
(2) Incentive. For purposes of the
definition of sale price in paragraph
(b)(9) of this section, incentive means
any reduction in total sale price offered
to and accepted by a taxpayer from the
dealer or manufacturer, other than a
reduction in the form of a partial
payment or down payment for the
purchase of a previously-owned clean
vehicle pursuant to section 25E(f) and
§ 1.25E–3.
(3) Modified adjusted gross income.
Modified adjusted gross income has the
meaning provided in section 25E(b)(3).
(4) Placed in service. A previouslyowned clean vehicle is considered to be
placed in service on the date the
taxpayer takes possession of the vehicle.
(5) Previously-owned clean vehicle.
Previously-owned clean vehicle has the
meaning provided in section 25E(c)(1).
(6) Qualified buyer. Qualified buyer
means, with respect to a sale of a motor
vehicle, a taxpayer—
(i) Who is an individual;
(ii) Who purchases such vehicle for
use and not for resale;
(iii) With respect to whom no
deduction is allowable to another
taxpayer under section 151 of the Code;
and
(iv) Who has not been allowed a
credit under section 25E and this
section for any sale occurring during the
period beginning three calendar years
before the date of the sale of the vehicle
and ending on the date of the sale.
(7) Qualified manufacturer. Qualified
manufacturer has the meaning provided
in section 30D(d)(3).
(8) Qualified sale—(i) In general.
Qualified sale means a sale of a motor
vehicle—
(A) By a dealer (as defined in
paragraph (b)(1) of this section);
(B) For a sale price that does not
exceed $25,000; and
(C) That is the first transfer of the
motor vehicle after August 16, 2022 (the
date of enactment of section 25E), to a
qualified buyer other than the person
with whom the original use of such
vehicle commenced.
(ii) First transfer rule. To be a
qualified sale, a transfer must be the
first transfer since August 16, 2022, as
shown by vehicle history, of a
previously-owned clean vehicle after
the sale to the person with whom the
original use of such vehicle
commenced. For purposes of this
VerDate Sep<11>2014
22:35 Oct 06, 2023
Jkt 262001
paragraph (b)(8)(ii), a transfer to or
between dealers is ignored. The
taxpayer may rely on the dealer’s
provision of the vehicle history in
determining whether the first transfer
rule in this paragraph (b)(8)(ii) is
satisfied.
(9) Sale price. The sale price of a
previously-owned clean vehicle means
the total sale price agreed upon by the
buyer and dealer in a written contract at
the time of sale, including any delivery
charges and after the application of any
incentives, but excluding separatelystated taxes and fees required by State
or local law. The sale price of a
previously-owned clean vehicle is
determined before the application of
any trade-in value.
(10) Section 25E regulations. Section
25E regulations means this section and
§§ 1.25E–2 and 1.25E–3.
(11) Seller report. Seller report means
the report described in section
25E(c)(1)(D)(i) by reference to section
30D(d)(1)(H) and provided by the seller
of a vehicle to the taxpayer and to the
IRS electronically in the manner
provided in, and containing the
information described in, guidance
published in the Internal Revenue
Bulletin (see § 601.601(d)(2)(ii)(a) of this
chapter). The seller report must be
provided to the IRS electronically. The
term seller report does not include a
report rejected by the IRS due to the
information contained therein not
matching IRS records.
(c) Limitation based on modified
adjusted gross income—(1) In general.
No section 25E credit is allowed for any
taxable year if—
(i) The lesser of—
(A) The modified adjusted gross
income of the taxpayer for such taxable
year; or
(B) The modified adjusted gross
income of the taxpayer for the preceding
taxable year; exceeds
(ii) The threshold amount.
(2) Threshold amount. For purposes
of paragraph (c)(1) of this section, the
threshold amount is determined based
on the taxpayer’s return filing status for
the taxable year, as set forth in
paragraphs (c)(2)(i) through (iii) of this
section—
(i) In the case of a joint return or a
surviving spouse (as defined in section
2(a) of the Code), the threshold amount
is $150,000.
(ii) In the case of a head of household
(as defined in section 2(b) of the Code),
the threshold amount is $112,500.
(iii) In the case of a taxpayer not
described in paragraph (c)(2)(i) or (ii) of
this section, the threshold amount is
$75,000.
PO 00000
Frm 00018
Fmt 4701
Sfmt 4702
(3) Special rule for change in filing
status. If the taxpayer’s filing status for
the taxable year differs from the
taxpayer’s filing status in the preceding
taxable year, then the taxpayer satisfies
the limitation described in paragraph
(c)(1) of this section if the taxpayer’s
modified adjusted gross income does
not exceed the threshold amount in
either year based on the applicable
filing status for that taxable year.
(d) Limitation on multiple owners—
(1) In general. The amount of the section
25E credit attributable to a previouslyowned clean vehicle may be claimed on
only one tax return. In the event a
previously-owned clean vehicle is
placed in service by multiple owners
(for example, in the case of married
individuals filing separate returns), no
allocation or proration of the section
25E credit is available.
(2) Seller reporting. The name and
taxpayer identification number of the
vehicle owner claiming the section 25E
credit must be listed on the seller report
pursuant to sections 25E(c)(1)(D)(i) and
30D(d)(1)(H). The credit will be allowed
only on the tax return of the owner
listed in the seller report.
(e) Examples. The following examples
illustrate the application of the rules in
this section.
(1) Example 1: First transfer since
enactment of section 25E. A two-yearold qualifying vehicle has been sold as
used prior to August 16, 2022 (the date
of enactment of section 25E). The next
sale of the vehicle occurs on September
1, 2023, for a sale price below $25,000
from a dealer to a qualified buyer whose
modified adjusted gross income does
not exceed the limitation described in
paragraph (c) of this section. This sale
is a qualified sale pursuant to paragraph
(b)(8) of this section and, therefore, the
buyer will qualify for the section 25E
credit.
(2) Example 2: Multiple transfers
since enactment of section 25E. The
facts are the same as in paragraph (e)(1)
of this section (Example 1), except that
the first sale of the used vehicle occurs
after August 16, 2022, for a sale price
above $25,000. The first sale of the used
vehicle would not qualify for a credit
under section 25E because the sale price
exceeded $25,000. The second sale is
not a qualified sale because it was not
the first transfer after enactment of
section 25E.
(3) Example 3: First buyer is a
commercial buyer. The facts are the
same as in paragraph (e)(1) of this
section (Example 1), except that the first
sale of the used vehicle occurs after
August 16, 2022, to a partnership, for a
sale price below $25,000. The first sale
would not qualify for a credit under
E:\FR\FM\10OCP3.SGM
10OCP3
Federal Register / Vol. 88, No. 194 / Tuesday, October 10, 2023 / Proposed Rules
section 25E because the buyer is a
partnership, not an individual. The
second sale is not a qualified sale
because it is not the first transfer after
enactment of section 25E.
(4) Example 4: First buyer exceeds the
modified adjusted gross income limits.
The facts are the same as in paragraph
(e)(1) of this section (Example 1), except
that the first sale of the used vehicle
occurs after August 16, 2022, and was
sold to a buyer whose modified adjusted
gross income exceeds the limitation
described in paragraph (c) of this
section. Subsequently, the vehicle is
sold again for less than $25,000 to a
qualified buyer whose modified
adjusted gross income is below the
limitation. The first sale would not
qualify for a credit under section 25E
because the buyer’s modified adjusted
gross income exceeds the limitation,
and the second sale is not a qualified
sale because it is not the first transfer
after the enactment of section 25E.
(5) Example 5: First buyer elects to not
take the section 25E credit. The facts are
the same as in paragraph (e)(1) of this
section (Example 1), except that the first
sale of the used vehicle occurred after
August 16, 2022, and was sold to a
qualified buyer for a sale price below
$25,000, but that first buyer elects to not
claim the section 25E credit. The second
sale is not a qualified sale because it is
not the first transfer after the enactment
of section 25E.
(f) Severability. The provisions of this
section are separate and severable from
one another. If any provision of this
section is stayed or determined to be
invalid, it is the agencies’ intention that
the remaining provisions shall continue
in effect.
(g) Applicability date. This section
applies to previously-owned clean
vehicles placed in service in taxable
years beginning after October 10, 2023.
ddrumheller on DSK120RN23PROD with PROPOSALS3
§ 1.25E–2
Special rules.
(a) In general. This section provides
additional guidance under section
25E(e) of the Internal Revenue Code
(Code), which incorporates rules similar
to the rules of section 30D(f) other than
section 30D(f)(10) or 30D(f)(11). Unless
otherwise provided in this section, the
rules of section 30D(f) apply to section
25E and the section 25E regulations (as
defined in § 1.25E–1(b)(10)) in the same
manner by replacing, if applicable, any
reference to section 30D or the section
30D credit with a reference to section
25E or the section 25E credit.
(b) No double benefit—(1) In general.
Under sections 25E(e) and 30D(f)(2), the
amount of any deduction or other credit
allowable under chapter 1 of the Code
(chapter 1) for a vehicle for which a
VerDate Sep<11>2014
22:35 Oct 06, 2023
Jkt 262001
section 25E credit is allowable must be
reduced by the amount of the section
25E credit allowed for such vehicle.
(2) Interaction of section 30D and
section 25E no double benefit rules. A
section 30D credit that has been allowed
with respect to a vehicle in a taxable
year before the year in which a section
25E credit under section 25E is
allowable for that vehicle does not
reduce the amount allowable under
section 25E.
(c) Recapture—(1) In general. This
paragraph (c) provides rules regarding
the recapture of the section 25E credit.
(i) Cancelled sale. If the sale of a
vehicle between the taxpayer and dealer
is cancelled before the taxpayer places
the vehicle in service, then—
(A) The taxpayer may not claim the
section 25E credit with respect to the
vehicle;
(B) The sale will be treated as not
having occurred (and no transfer is
considered to have occurred by reason
of the cancelled sale), and the vehicle
will, therefore, still qualify for the
section 25E credit upon a subsequent
sale meeting the requirements of section
25E and the section 25E regulations;
(C) The seller report (as defined in
§ 1.25E–1(b)(11)) must be rescinded by
the seller in the manner set forth in
guidance published in the Internal
Revenue Bulletin (see
§ 601.601(d)(2)(ii)(a) of this chapter);
and
(D) The taxpayer cannot make an
election to transfer the credit under
section 25E(f) and § 1.25E–3.
(ii) Vehicle return. If a taxpayer
returns a vehicle to the dealer within 30
days of placing such vehicle in service,
then—
(A) The taxpayer cannot claim the
section 25E credit with respect to the
vehicle;
(B) The sale will be treated as having
occurred (and a transfer is therefore
considered as having occurred by reason
of the sale), and the vehicle will not
qualify for the section 25E credit upon
a subsequent sale, unless the vehicle
history does not reflect the prior sale
and return; if the vehicle history does
not reflect the prior sale and return, the
vehicle remains eligible for the section
25E credit under the first transfer rule
described in § 1.25E–1(b)(8)(ii);
(C) The seller report (as defined in
§ 1.25E–1(b)(11)) must be updated by
the seller; and
(D) Any vehicle transfer election
made pursuant to section 25E(f) and
§ 1.25E–3, if applicable, will be treated
as nullified and any advance payment
made pursuant to section 25E(f) and
§ 1.25E–3, if applicable, will be
collected from the eligible entity as an
PO 00000
Frm 00019
Fmt 4701
Sfmt 4702
70327
excessive payment pursuant to § 1.25E–
3.
(iii) Resale. If a taxpayer resells the
vehicle within 30 days of placing the
vehicle in service, then the taxpayer is
treated as having purchased the
previously-owned clean vehicle with
the intent to resell, and—
(A) The taxpayer may not claim the
section 25E credit with respect to the
vehicle;
(B) The sale to the taxpayer will be
treated as occurring (and a transfer is
therefore considered as occurring by
reason of the sale), and the vehicle will
not qualify for the section 25E credit
upon a subsequent sale;
(C) The seller report (as defined in
§ 1.25E–1(b)(11)) will not be updated;
and
(D) Any vehicle transfer election
made pursuant to section 25E(f) and
§ 1.25E–3, if applicable, will remain in
effect and any advance payment made
pursuant to section 25E(f) and § 1.25E–
3 will not be collected from the eligible
entity; and
(E) The value of the transferred credit
will be collected from the taxpayer.
(iv) Other returns and resales. In the
case of a vehicle return not described in
paragraph (c)(1)(ii) or a resale not
described in paragraph (c)(1)(iii), the
vehicle will no longer be eligible for the
section 25E credit upon a subsequent
sale.
(2) Recapture rules in the case of a
vehicle transfer election. For additional
recapture rules that apply in the case of
a vehicle transfer election, see § 1.25E–
3(g)(1). For excessive payment rules that
apply in the case where an advance
payment is made to an eligible entity,
see § 1.25E–3(g)(2).
(3) Example: First buyer returns
vehicle. A two-year-old qualifying
vehicle is sold to a qualified buyer after
August 16, 2022, for less than $25,000,
but the buyer returns the vehicle to the
dealer within 30 days and does not
claim the credit under section 25E. The
vehicle history reflects the first used
sale and return. A second sale of the
used vehicle is not a qualified sale
because the first sale occurred after the
enactment of section 25E, regardless of
whether the first buyer claimed the
credit under section 25E.
(d) Branded title. A title to a
previously-owned clean vehicle
indicating that such vehicle has been
damaged, or is otherwise a branded title,
does not impact the vehicle’s eligibility
for a section 25E credit.
(e) Seller registration. A seller must
register with the IRS in the manner set
forth in guidance published in the
Internal Revenue Bulletin (see
E:\FR\FM\10OCP3.SGM
10OCP3
70328
Federal Register / Vol. 88, No. 194 / Tuesday, October 10, 2023 / Proposed Rules
§ 601.601(d)(2)(ii)(a) of this chapter) for
purposes of filing seller reports.
(f) Requirement to file a complete
income tax return. No section 25E credit
is allowed unless the taxpayer claiming
such credit files an income tax return
for the taxable year in which the
previously-owned clean vehicle is
placed in service. For purpose of this
paragraph (f), the term income tax
return means a Form 1040, U.S.
Individual Income Tax Return, with an
attached Form 8936, Clean Vehicle
Credits, or successor forms, and any
additional forms, schedules, or
statements prescribed by the
Commissioner for the purpose of
making a return to report the tax under
chapter 1 that includes all of the
information required on the forms and
in instructions.
(g) Severability. The provisions of this
section are separate and severable from
one another. If any provision of this
section is stayed or determined to be
invalid, it is the agencies’ intention that
the remaining provisions shall continue
in effect.
(h) Applicability date. This section
applies to previously-owned clean
vehicles placed in service in taxable
years beginning after [DATE OF
PUBLICATION OF FINAL RULE].
ddrumheller on DSK120RN23PROD with PROPOSALS3
§ 1.25E–3
Transfer of credit.
(a) In general. This section provides a
credit transfer program under section
25E(f).
(b) Definitions. This paragraph (b)
provides definitions that apply for
purposes of section 25E(f) and this
section.
(1) Advance payment program.
Advance payment program means the
program described in paragraph (f)(1) of
this section.
(2) Dealer. Dealer has the meaning
provided in § 1.25–1(b)(1).
(3) Dealer tax compliance. Dealer tax
compliance means that all required
Federal information and tax returns of
the dealer have been filed, including for
Federal income and employment tax
purposes, and all Federal tax, penalties,
and interest due of the dealer as of the
time of sale have been paid. A dealer
that has entered into an installment
agreement with the IRS for which a
dealer is current on its obligations is
treated as being in dealer tax
compliance.
(4) Electing taxpayer. Electing
taxpayer means the individual who
purchases the previously-owned clean
vehicle and elects to transfer the section
25E credit that would otherwise be
allowable to such individual to an
eligible entity pursuant to section 25E(f)
and the rules of this section. A taxpayer
VerDate Sep<11>2014
22:35 Oct 06, 2023
Jkt 262001
is an electing taxpayer only if the
taxpayer makes certain attestations to
the registered dealer, pursuant to
procedures provided in guidance
published in the Internal Revenue
Bulletin, including that the taxpayer
does not anticipate exceeding the
modified adjusted gross income
limitations.
(5) Eligible entity. Eligible entity has
the meaning provided in section
30D(g)(2) and paragraph (f)(2) of this
section.
(6) Registered dealer. Registered
dealer is a dealer that has completed
registering with the IRS as provided in
paragraph (c) of this section.
(7) Time of sale. Time of sale means
the date the previously-owned clean
vehicle is placed in service, as defined
in § 1.25E–1(b)(4).
(8) Vehicle transfer election. Vehicle
transfer election has the meaning
provided in sections 25E(f) and 30D(g)
and paragraph (d) of this section.
(c) Dealer registration—(1) In general.
A dealer must first register with the IRS
in the manner set forth in guidance
published in the Internal Revenue
Bulletin (see § 601.601(d)(2)(ii)(a) of this
chapter) for the dealer to receive credits
transferred by an electing taxpayer
pursuant to section 25E(f) and
paragraph (d) of this section.
(2) Effect of dealer tax noncompliance. If the dealer is not in dealer
tax compliance for any of the taxable
periods during the last five taxable
years, then the dealer may complete its
initial registration with the IRS, but the
dealer will not be eligible for the
advance payment program (and,
therefore, the dealer will not be eligible
to receive transferred section 25E
credits) until the compliance issue is
resolved. The IRS will notify the dealer
in writing that the dealer is not in dealer
tax compliance, and the dealer will have
the opportunity to address any failure
through regular procedures. If the
failure is corrected, the IRS will
complete the dealer’s registration for the
advance payment program, and,
provided all other requirements of this
section are met, the dealer will then be
allowed to participate in the advance
payment program. Additional
procedural guidance regarding this
paragraph (c)(2) will be set forth in
guidance published in the Internal
Revenue Bulletin.
(d) Vehicle transfer election by
electing taxpayer to transfer credit. For
a previously-owned clean vehicle
placed in service after December 31,
2023, an electing taxpayer may elect to
apply the rules of section 25E(f) and this
section to make a vehicle transfer
election with respect to the vehicle, so
PO 00000
Frm 00020
Fmt 4701
Sfmt 4702
that the 25E credit with respect to the
vehicle is allowed to the eligible entity
specified in the vehicle transfer election
(and not to the taxpayer) pursuant to the
advance payment program described in
paragraph (f) of this section. The
electing taxpayer, as part of the vehicle
transfer election, must transfer the
entire amount of the section 25E credit
that would otherwise be allowable to
the electing taxpayer with respect to the
vehicle, and the eligible entity specified
in the vehicle transfer election must pay
the electing taxpayer an amount equal to
the amount of the credit included in the
vehicle transfer election. A vehicle
transfer election is made no later than
at the time of sale in the manner set
forth in guidance published in the
Internal Revenue Bulletin (see
§ 601.601(d)(2)(ii)(a) of this chapter),
and, once made the vehicle transfer
election is irrevocable.
(e) Federal income tax consequences
of the vehicle transfer election—(1)
Treatment of electing taxpayer. In the
case of a vehicle transfer election, the
Federal income tax consequences for the
electing taxpayer are as follows—
(i) The amount of the section 25E
credit that the electing taxpayer elects to
transfer to the eligible entity under
section 30D(g) (by reason of section
25E(f)) and paragraph (d) of this section
may exceed the electing taxpayer’s
regular tax liability (as defined in
section 26(b)(1) of the Code) for the
taxable year in which the sale occurs,
and the excess, if any, is not subject to
recapture;
(ii) The payment made by an eligible
entity to an electing taxpayer under
section 30D(g)(2)(C) (by reason of 25E(f))
and paragraph (d) of this section to an
electing taxpayer pursuant to a vehicle
transfer election is not includible in the
gross income of the electing taxpayer;
and
(iii) The payment made by an eligible
entity under section 30D(g)(2)(C) (by
reason of section 25E(f)) and paragraph
(d) of this section is treated as repaid by
the electing taxpayer to the eligible
entity as part of the purchase price of
the previously-owned clean vehicle.
Thus, the repayment by the electing
taxpayer is part of the electing
taxpayer’s basis in the previouslyowned clean vehicle prior to the
application of the basis reduction rule of
section 30D(f)(1) that applies by reason
of section 25E(e) and § 1.25E–2(a).
(2) Treatment of eligible entity. In the
case of a vehicle transfer election, the
Federal income tax consequences for the
eligible entity are as follows—
(i) The eligible entity is allowed the
section 25E credit with respect to the
previously-owned clean vehicle and
E:\FR\FM\10OCP3.SGM
10OCP3
ddrumheller on DSK120RN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 194 / Tuesday, October 10, 2023 / Proposed Rules
may receive an advance payment
pursuant to section 30D(g)(7) (by reason
of section 25(f)) and paragraph (f) of this
section;
(ii) Advance payments received by the
eligible entity are not treated as a tax
credit in the hands of the eligible entity
and may exceed the eligible entity’s
regular tax liability (as defined in
section 26(b)(1)) for the taxable year in
which the sale occurs;
(iii) An advance payment received by
the eligible entity is not included in the
gross income of the eligible entity;
(iv) The payment made by an eligible
entity under section 30D(g)(2)(C) (by
reason of section 25(f)) and paragraph
(d) of this section to an electing taxpayer
is not deductible by the eligible entity;
and
(v) The payment made by an eligible
entity to the electing taxpayer under
section 30D(g)(2)(C) (by reason of
section 25(f)) and paragraph (d) of this
section is treated as paid by the electing
taxpayer to the eligible entity as part of
the purchase price of the previouslyowned clean vehicle. Thus, the
repayment by the electing taxpayer is
treated as an amount realized of the
eligible entity under section 1001 of the
Code and the regulations in this part
under section 1001.
(vi) If the eligible entity is a
partnership or an S corporation, then—
(A) The IRS will make the advance
payment to such partnership or S
corporation equal to the amount of the
section 25E credit allowed that is
transferred to the eligible entity;
(B) Such section 25E credit is reduced
to zero and is, for any other purpose of
the Code, deemed to have been allowed
solely to such entity (and not allocated
or otherwise allowed to its partners or
shareholders) for such taxable year; and
(C) The amount of the advance
payment is not treated as tax exempt
income to the partnership or S
corporation for purposes of the Code.
(3) Form of payment from eligible
entity to electing taxpayer. The tax
treatment of the payment made by the
eligible entity to the electing taxpayer
described in paragraphs (e)(1) and (2) of
this section is the same regardless of
whether the payment is made in cash or
in the form of a partial payment or
down payment for purchase of the
previously-owned clean vehicle.
(4) Application of certain other
requirements. In the case of a vehicle
transfer election, the following
additional rules apply—
(i) The requirements of section
30D(f)(1) (regarding basis reduction) and
30D(f)(2) (regarding no double benefit),
by reason of section 25E(e), apply to the
electing taxpayer as if the vehicle
VerDate Sep<11>2014
22:35 Oct 06, 2023
Jkt 262001
transfer election were not made (so, for
example, the electing taxpayer must
reduce the taxpayer’s basis in the
vehicle by the amount of the section 25E
credit, regardless of the vehicle transfer
election).
(ii) Section 30D(f)(6) (regarding the
election not to take the credit), by
reason of section 25E(e), will not apply
(in other words, by electing to transfer
the credit, the electing taxpayer is
electing to take the credit).
(iii) Section 30D(f)(9) (regarding the
vehicle identification number (VIN)
requirement), by reason of section
25E(e), and section 25E(d) (regarding the
VIN requirement) will be treated as
satisfied if the eligible entity provides
the VIN of such vehicle to the IRS in the
form and manner set forth in guidance
published in the Internal Revenue
Bulletin.
(5) Examples. The following examples
illustrate the rules under paragraph (e)
of this section.
(i) Example 1: Electing taxpayer’s
regular tax liability less than value of
the credit—(A) Facts. A taxpayer, who
is an individual, purchases a
previously-owned clean vehicle from a
dealer, which is a C corporation. The
taxpayer satisfies the requirements to be
an electing taxpayer and elects to
transfer the section 25E credit to the
dealer. The dealer is a registered dealer
and satisfies the requirements to be an
eligible entity. The sales price the
vehicle is $24,000. The section 25E
credit otherwise allowable to the
electing taxpayer is $4,000. The eligible
entity makes the payment required to be
made to the electing taxpayer in the
form of a cash payment of $4,000. The
electing taxpayer pays back the $4,000
to the eligible entity and pays an
additional $20,000 as the purchase price
of the vehicle. The electing taxpayer’s
regular tax liability for the year is less
than $4,000.
(B) Analysis. Under paragraph (e)(1)
of this section, the electing taxpayer
may transfer the credit even though the
electing taxpayer’s regular tax liability is
less than $4,000, and no amount of the
credit will be recaptured from the
taxpayer on the basis that the allowable
credit exceeded their regular tax
liability. The eligible entity’s $4,000
payment to the electing taxpayer is not
included in the electing taxpayer’s gross
income, and the electing taxpayer’s
purchase price for the vehicle is $24,000
(including both the $4,000 payment and
the additional $20,000 purchase price
paid), prior to the application of the
basis reduction rule of section 30D(f)(1)
(by reason of section 25E(e)). After
application of the basis reduction, the
electing taxpayer’s basis in the vehicle
PO 00000
Frm 00021
Fmt 4701
Sfmt 4702
70329
is $20,000. The eligible entity is eligible
to receive an advance payment of $4,000
for the transferred section 25E credit as
provided in section 30D(g)(7) (by reason
of section 25E(f)) and paragraph (f) of
this section. Under paragraph (d)(2) of
this section, the eligible entity may
receive the advance payment regardless
of whether the eligible entity’s regular
tax liability is less than $4,000. The
advance payment is not treated as a
credit toward the eligible entity’s tax
liability (if any), nor is it included in the
eligible entity’s gross income, the
eligible entity’s $4,000 payment to the
electing taxpayer is not deductible, and
the eligible entity’s amount realized is
$24,000 upon the sale of the vehicle
(including both the $4,000 payment and
the additional $20,000 purchase price of
the vehicle).
(ii) Example 2: Non-cash payment by
eligible entity to electing taxpayer—(A)
Facts. The facts are the same as in
paragraph (e)(5)(i)(A) of this section
(facts of Example 1), except that the
eligible entity makes the payment to the
electing taxpayer in the form of a
reduction in the purchase price (rather
than as a cash payment).
(B) Analysis. Paragraph (e)(3) of this
section provides that the application of
paragraphs (e)(1) and (2) of this section
is not dependent on the form of
payment from an eligible entity to an
electing taxpayer (for example, a
payment in cash or a payment in the
form of a reduction in purchase price).
Thus, the analysis is the same as in
paragraph (e)(5)(i)(B) of this section
(analysis of Example 1).
(iii) Example 3: Eligible entity is a
partnership—(A) Facts. The facts are the
same as in paragraph (e)(5)(i)(A) of this
section (facts of Example 1), except that
the dealer is a partnership.
(B) Analysis. The analysis as to the
electing taxpayer is the same as in
paragraph (e)(5)(i)(B) of this section
(analysis of Example 1). Because the
eligible entity is a partnership,
paragraph (e)(2)(vi) of this section
applies. Thus, the advance payment is
made to the partnership, the credit is
reduced to zero and is, for any other
purpose of the Code, deemed to have
been allowed solely to the partnership
(and not allocated or otherwise allowed
to its partners) for such taxable year.
The amount of the advance payment is
not treated as tax exempt income to the
partnership for purposes of the Code.
(f) Advance payments received by
eligible entities—(1) In general. An
eligible entity may receive advance
payments from the IRS corresponding to
the amount of the section 25E credit for
which an election was made by an
electing taxpayer to transfer the credit to
E:\FR\FM\10OCP3.SGM
10OCP3
ddrumheller on DSK120RN23PROD with PROPOSALS3
70330
Federal Register / Vol. 88, No. 194 / Tuesday, October 10, 2023 / Proposed Rules
the eligible entity pursuant to section
30D(g) (by reason of section 25E(f)) and
paragraph (d) of this section before the
eligible entity files its Federal income
tax return for the taxable year that
includes the taxable year with respect to
which the vehicle transfer election
corresponds. This advance payment
program is the exclusive mechanism for
an eligible entity to receive the section
25E credit transferred under section
25E(f) pursuant to paragraph (d) of this
section. An eligible entity receiving an
advance payment may not claim the
section 25E credit on a Federal income
tax return.
(2) Requirements for a registered
dealer to become an eligible entity. A
registered dealer qualifies as an eligible
entity, and may therefore receive an
advance payment, by meeting the
following requirements—
(i) The registered dealer submits all
required registration information and is
in dealer tax compliance.
(ii) The registered dealer retains
information regarding the vehicle
transfer election for three calendar years
beginning with the year immediately
after the year in which the vehicle is
placed in service, as described in
guidance published in the Internal
Revenue Bulletin (see § 601.601 of this
chapter).
(iii) The eligible entity meets any
other requirements of section 25E(f) by
reference to section 30D(g) and this
section included in guidance published
in the Internal Revenue Bulletin (see
§ 601.601 of this chapter) or in forms
and instructions.
(3) Suspension of registered dealer
eligibility. A registered dealer may be
suspended from the advance payment
program pursuant to the procedures
described in guidance published in the
Internal Revenue Bulletin (see § 601.601
of this chapter). Any decision made by
the IRS relating to the suspension of a
dealer’s registration is not subject to
administrative appeal to the IRS
Independent Office of Appeals unless
the IRS and the IRS Independent Office
of Appeals agree that such review is
available and the IRS provides the time
and manner for such review.
(4) Revocation of registered dealer
eligibility. A registered dealer’s
registration may be revoked pursuant to
the procedures described in guidance
published in the Internal Revenue
Bulletin (see § 601.601 of this chapter).
Any decision made by the IRS relating
to the revocation of a dealer’s
registration is not subject to
administrative appeal to the IRS
Independent Office of Appeals unless
the IRS and the IRS Independent Office
of Appeals agree that such review is
VerDate Sep<11>2014
22:35 Oct 06, 2023
Jkt 262001
available and the IRS provides the time
and manner for such review.
(g) Increase in tax—(1) Recapture
where taxpayer exceeds modified
adjusted gross income limitation. If a
taxpayer who elected to transfer the
credit under section 25E(f) and this
section has modified adjusted gross
income that exceeds the limitation in
section 25E(b), the income tax imposed
on such taxpayer under chapter 1 of the
Code (chapter 1) for the taxable year in
which the vehicle was placed in service
is increased by the amount of the
payment received by the taxpayer. The
taxpayer must reconcile such amounts
on the tax return described in paragraph
(h) of this section.
(2) Excessive payments—(i) In
general. This paragraph (g)(2) provides
rules under section 25E(f) by reference
to section 30D(g)(7)(B), under which
rules similar to the rules of section
6417(d)(6) of the Code apply to the
advance payment program. In the case
of any advance payment that the IRS
determines constitutes an excessive
payment, the tax imposed on the
eligible entity under chapter 1,
regardless of whether such entity would
otherwise be subject to tax under
chapter 1, for the taxable year in which
such determination is made will be
increased by the sum of:
(A) The amount of the excessive
payment; plus
(B) An amount equal to 20 percent of
such excessive payment.
(ii) Reasonable cause. The amount
described in paragraph (g)(2)(i)(B) of
this section will not apply to an eligible
entity if the eligible entity demonstrates
to the satisfaction of the IRS that the
excessive payment resulted from
reasonable cause. In the case of a
vehicle returned to the eligible entity
within 30 days of placing the vehicle in
service for which a vehicle transfer
election was made by the electing
taxpayer, as described in § 1.25E–
2(c)(1)(ii), the eligible entity will be
treated as demonstrating reasonable
cause.
(iii) Excessive payment defined.
Excessive payment means an advance
payment made—
(A) To a registered dealer that fails to
meet the requirements to be an eligible
entity provided in paragraph (f)(2) of
this section; or
(B) Except as provided in paragraph
(g)(2)(iv) of this section, to an eligible
entity with respect to a vehicle to the
extent the payment exceeds the amount
of the credit that, without application of
section 25E(f) and this section, would be
otherwise allowable to the electing
taxpayer with respect to the vehicle for
such tax year.
PO 00000
Frm 00022
Fmt 4701
Sfmt 4702
(iv) Special rule for cases in which the
purchaser’s modified adjusted gross
income exceeds the limitation. Any
excess described in paragraph
(g)(2)(iii)(B) of this section due to the
purchaser exceeding the limitation
based on modified adjusted gross
income provided in section 25E(b) is not
an excessive payment. Instead, the value
of the amount of the advance payment
is recaptured from the purchaser under
section 25E(e) and paragraph (g)(1) of
this section.
(3) Example. This paragraph (g)(3)
provides an example to illustrate the
excessive payment rules provided in
paragraph (g)(2) of this section.
(i) Facts. In 2024, D, a registered
dealer, receives an advance payment of
$4,000 with respect to a credit
transferred under section 25E(f)(1) and
paragraph (d) of this section with
respect to a previously-owned clean
vehicle. In 2025, the IRS determines that
the registered dealer was not an eligible
entity with respect to the vehicle at the
time of the receipt of the advance
payment in 2024 because the registered
dealer failed to satisfy a requirement in
section 30D(g)(2) (applicable by reason
of section 25E(f)) and paragraph (f)(2) of
this section to be an eligible entity with
respect to the vehicle. D is unable to
show reasonable cause for the failure.
(ii) Analysis. Under paragraph (g)(2)(i)
of this section, the tax imposed on D is
increased by the amount of the
excessive payment if the advance
payment received by D constitutes an
excessive payment. Under paragraph
(g)(2)(iii) of this section, the entire
amount of the $4,000 advance payment
received by D is an excessive payment
because D did not meet the
requirements to be an eligible entity
under section 30D(g)(2) (applicable by
reason of section 25E(f)) and paragraph
(g)(2) of this section. Additionally,
because D cannot show reasonable
cause for its failure to meet these
requirements, the tax imposed under
chapter 1 on D is increased by $4,800
in 2025 (the taxable year of the IRS
determination). This is comprised of the
$4,000 value of the credit plus the $800
penalty, calculated as 20% penalty on
such $4,000 (20% * $4,000 = $800).
This treatment applies regardless of
whether D is otherwise subject to tax
under chapter 1 (for example, if D is a
partnership).
(h) Requirement of return—(1) In
general. An electing taxpayer that makes
a vehicle transfer election must file an
income tax return for the taxable year in
which the vehicle transfer election is
made and indicate such election on the
return per instructions. The electing
taxpayer must include the VIN of the
E:\FR\FM\10OCP3.SGM
10OCP3
Federal Register / Vol. 88, No. 194 / Tuesday, October 10, 2023 / Proposed Rules
new clean vehicle on such return, as
provided for in forms and instructions.
(2) Income tax return. For purposes of
this section, the term income tax return
means a Form 1040, U.S. Individual
Income Tax Return, with an attached
Form 8936, Clean Vehicle Credits, or
successor forms, or any other forms,
schedules, or statements prescribed by
the Commissioner for the purpose of
making a return to report the tax under
chapter 1 that includes all of the
information required on the forms and
in instructions.
(i) Two vehicle transfer elections per
year. A taxpayer may make no more
than two transfer elections per taxable
year, consisting of either two section
30D credits or one section 30D credit
and one section 25E credit. In the case
of a joint return, each individual
taxpayer may make no more than two
transfer elections per taxable year.
(j) Severability. The provisions of this
section are separate and severable from
one another. If any provision of this
section is stayed or determined to be
invalid, it is the agency’s intention that
the remaining provisions will continue
in effect.
(k) Applicability date. This section
applies to taxable years ending after
December 31, 2023.
■ Par 3. Section 1.30D–0, as proposed to
be added at 88 FR 23370 (April 17,
2023), is amended by:
■ 1. Adding entry (j) to § 1.30D–2;
■ 2. In § 1.30D–4:
■ i. Revising the heading; and
■ ii. Adding entries (f), (f)(1), (f)(1)(i)
through (iv), (f)(2), (g), and (h); and
■ 3. Adding an entry in numerical order
for § 1.30D–5.
The revisions and additions read as
follows:
§ 1.30D–0
Table of contents.
*
*
*
*
*
*
*
*
*
*
*
*
(j) Seller report.
ddrumheller on DSK120RN23PROD with PROPOSALS3
*
*
*
§ 1.30D–4
Special rules.
*
*
*
*
*
(f) Recapture rules.
(1) In general.
(i) Cancelled sale.
(ii) Vehicle return.
(iii) Resale.
(iv) Other vehicle returns and resales.
(2) Recapture rules in the case of a vehicle
transfer election.
(g) Seller registration.
(h) Requirement to file a complete income
tax return.
§ 1.30D–5 Transfer of credit and recapture.
(a) Definitions.
(1) Advance payment program.
(2) Dealer.
VerDate Sep<11>2014
22:35 Oct 06, 2023
Jkt 262001
Par 4. Section 1.30D–2, as proposed to
be added at 88 FR 23370 (April 17,
2023), is amended by adding paragraph
(j) to read as follows:
■
§ 1.30D–2 Definitions for purposes of
section 30D.
§ 1.30D–2 Definitions for purposes of
section 30D.
*
(3) Dealer tax compliance.
(4) Electing taxpayer.
(5) Eligible entity.
(6) Registered dealer.
(7) Time of sale.
(8) Vehicle registration election.
(b) Dealer registration.
(1) In general.
(2) Effect of dealer tax non-compliance.
(c) Election by electing taxpayer to transfer
credit.
(d) Federal income tax consequences of the
vehicle transfer election.
(1) Treatment of electing taxpayer.
(2) Treatment of eligible entity.
(3) Form of payment from eligible entity to
electing taxpayer.
(4) Application of certain other
requirements.
(5) Examples.
(e) Advance payments received by eligible
entities.
(1) In general.
(2) Requirements for a registered dealer to
become an eligible entity.
(3) Suspension of registered dealer
eligibility.
(4) Revocation of registered dealer
eligibility.
(f) Increase in tax.
(1) Recapture where taxpayer exceeds
modified adjusted gross income limitation.
(2) Excessive payments.
(i) In general.
(ii) Reasonable cause.
(iii) Excessive payment defined.
(iv) Special rule for cases in which the
purchaser’s modified adjusted gross income
exceeds the limitation.
(3) Example.
(g) Requirement of return.
(1) In general.
(2) Income tax return.
(h) Two vehicle transfer elections per year.
(i) Severability.
(j) Applicability date.
*
*
*
*
(j) Seller report. Seller report means
the report described in section
30D(d)(1)(H) and provided by the seller
of a vehicle to the taxpayer and the IRS
in the manner provided in, and
containing the information described in,
guidance published in the Internal
Revenue Bulletin (see
§ 601.601(d)(2)(ii)(a) of this chapter).
The seller report must be provided to
the IRS electronically. The term seller
report does not include a report rejected
by the IRS due to the information
contained therein not matching IRS
records.
■ Par 5. Section 1.30D–4, as proposed to
be added at 88 FR 23370 (April 17,
2023), is amended by adding paragraphs
(f) through (h) to read as follows:
PO 00000
Frm 00023
Fmt 4701
Sfmt 4702
§ 1.30D–4
70331
Special rules.
*
*
*
*
*
(f) Recapture rules—(1) In general.
This paragraph (f) provides rules under
section 30D(f)(5) regarding the recapture
of the section 30D credit.
(i) Cancelled sale. If the sale of a
vehicle between the taxpayer and seller
is cancelled before the taxpayer places
the vehicle in service, then—
(A) The taxpayer may not claim the
section 30D credit with respect to the
vehicle;
(B) The sale will be treated as not
having occurred and the vehicle will be
considered available for original use by
another taxpayer (regardless of the
cancelled sale), and the vehicle will,
therefore, still be eligible for the section
30D credit;
(C) The seller report must be
rescinded by the seller in the manner set
forth in guidance published in the
Internal Revenue Bulletin (see
§ 601.601(d)(2)(ii)(a) of this chapter);
and
(D) The taxpayer cannot make a
vehicle transfer election under section
30D(g) and § 1.30D–5(c) with respect to
the cancelled sale.
(ii) Vehicle return. If a taxpayer
returns to the seller a vehicle within 30
days of placing such vehicle in service,
then—
(A) The taxpayer cannot claim the
section 30D credit with respect to the
vehicle;
(B) The vehicle will no longer be
considered available for original use by
another taxpayer, and, therefore, the
vehicle will no longer be eligible for the
section 30D credit;
(C) The seller report must be updated
by the seller; and
(D) A vehicle transfer election under
30D(g) and § 1.30D–5(c), if applicable,
will be treated as nullified and any
advance payment made pursuant to
section 30D(g) and § 1.30D–5(e) will be
collected from the eligible entity as an
excessive payment pursuant to § 1.30D–
5(f).
(iii) Resale. If a taxpayer resells the
vehicle within 30 days of placing the
vehicle in service, then the taxpayer is
treated as having purchased the new
clean vehicle with the intent to resell,
and—
(A) The taxpayer cannot claim the
section 30D credit with respect to the
vehicle;
(B) The vehicle will no longer be
considered available for original use by
another taxpayer, and, therefore, the
vehicle will no longer be eligible for the
section 30D credit;
(C) The seller report will not be
updated;
E:\FR\FM\10OCP3.SGM
10OCP3
70332
Federal Register / Vol. 88, No. 194 / Tuesday, October 10, 2023 / Proposed Rules
(D) A vehicle transfer election under
30D(g) and § 1.30D–5(c), if applicable,
will remain in effect and any advance
payment made pursuant to section
30D(g) and § 1.30D–5(e) will not be
collected from the eligible entity; and
(E) The value of any transferred credit
will be collected from the taxpayer.
(iv) Other vehicle returns and resales.
In the case of a vehicle return not
described in paragraph (f)(1)(ii) of this
section or a resale not described in
paragraph (f)(1)(iii) of this section, the
vehicle will no longer be considered
available for original use by another
taxpayer, and, therefore, the vehicle will
no longer be eligible for the section 30D
credit.
(2) Recapture rules in the case of a
vehicle transfer election. For additional
recapture rules that apply in the case of
a vehicle transfer election, see § 1.30D–
5(f)(1). For excessive payment rules that
apply in the case where an advance
payment is made to an eligible entity,
see § 1.30D–5(f)(2).
(g) Seller registration. A seller must
first register with the IRS in the manner
set forth in guidance published in the
Internal Revenue Bulletin (see
§ 601.601(d)(2)(ii)(a) of this chapter) for
purposes of filing seller reports.
(h) Requirement to file a complete
income tax return. No section 30D
credit is allowed unless the taxpayer
claiming such credit files an income tax
return for the taxable year in which the
new clean vehicle is placed in service.
For purpose of this paragraph (h), the
term income tax return means a Form
1040, U.S. Individual Income Tax
Return, with an attached Form 8936,
Clean Vehicle Credits, or successor
forms, and any additional forms,
schedules, or statements prescribed by
the Commissioner for the purpose of
making a return to report the tax under
chapter 1 that includes all of the
information required on the forms and
in instructions.
■ Par 6. Section 1.30D–5 is added to
read as follows:
ddrumheller on DSK120RN23PROD with PROPOSALS3
§ 1.30D–5
Transfer of credit and recapture.
(a) Definitions. This paragraph (a)
provides definitions that apply for
purposes of section 30D(g) and this
section.
(1) Advance payment program.
Advance payment program means the
program described in paragraph (e)(1) of
this section.
(2) Dealer. Dealer has the meaning
provided in section 30D(g)(8), except
that, for purposes of this section, the
term does not include persons licensed
solely by a territory of the United States,
and includes a dealer licensed in any
jurisdiction (other than one licensed
VerDate Sep<11>2014
22:35 Oct 06, 2023
Jkt 262001
solely by a territory of the United States)
that makes sales at sites outside of the
jurisdiction in which its licensed.
(3) Dealer tax compliance. Dealer tax
compliance means that all required
Federal information and tax returns of
the dealer have been filed, including for
Federal income and employment tax
purposes, and all Federal tax, penalties,
and interest due of the dealer as of the
time of sale have been paid. A dealer
who has entered into an installment
agreement with the Internal Revenue
Service (IRS) for which a dealer is
current on its obligations is treated as in
Dealer tax compliance.
(4) Electing taxpayer. Electing
taxpayer means the individual who
purchases and places in service a new
clean vehicle and elects to transfer the
credit under section 30D that would
otherwise be allowable to such
individual to an eligible entity pursuant
to section 30D(g) and paragraph (c) of
this section. A taxpayer is an electing
taxpayer only if the taxpayer make
certain attestations to the registered
dealer, pursuant to procedures provided
in guidance published in the Internal
Revenue Bulletin, including that the
taxpayer does not anticipate exceeding
the modified adjusted gross income
limitations and that the taxpayer will
use the vehicle predominantly for
personal use.
(5) Eligible entity. Eligible entity has
the meaning provided in section
30D(g)(2) and paragraph (e)(2) of this
section.
(6) Registered dealer. A registered
dealer is a dealer that has completed
registration with the IRS as provided in
paragraph (b) of this section.
(7) Time of sale. Time of sale means
the date the new clean vehicle is placed
in service. A new clean vehicle is
placed in service on the date the
electing taxpayer takes possession of the
vehicle.
(8) Vehicle transfer election. Vehicle
transfer election has the meaning
provided in section 30D(g) and
paragraph (c) of this section.
(b) Dealer registration—(1) In general.
A dealer must first register with the IRS
in the manner set forth in guidance
published in the Internal Revenue
Bulletin (see § 601.601(d)(2)(ii)(a) of this
chapter) for the dealer to receive credits
transferred by an electing taxpayer
pursuant to section 30D(g) and
paragraph (c) of this section.
(2) Effect of dealer tax noncompliance. If the dealer is not in dealer
tax compliance for any of the taxable
periods during the last five taxable
years, the dealer may complete its initial
registration with the IRS, but the dealer
will not be eligible for the advance
PO 00000
Frm 00024
Fmt 4701
Sfmt 4702
payment program (and, therefore, the
dealer will not be eligible to receive
transferred section 30D credits) until the
compliance issue is resolved. If the
failure is corrected, the IRS will
complete the dealer’s registration for the
advance payment program, and,
provided all other requirements of
section 30D(g) and this section are met,
the dealer will then be allowed to
participate in the advance payment
program. Additional procedural
guidance regarding this paragraph (b)(2)
will be set forth in guidance published
in the Internal Revenue Bulletin.
(c) Vehicle transfer election by
electing taxpayer to transfer credit. For
a new clean vehicle placed in service
after December 31, 2023, an electing
taxpayer may elect to apply the rules of
section 30D(g) and this section to make
a vehicle transfer election with respect
to the vehicle so that the section 30D
credit with respect to the vehicle is
allowed to the eligible entity specified
in the vehicle transfer election (and not
to the electing taxpayer) pursuant to the
advance payment program described in
paragraph (e) of this section. The
electing taxpayer, as part of the vehicle
transfer election, must transfer the
entire amount of the credit that would
otherwise be allowable to the electing
taxpayer under section 30D with respect
to the vehicle, and the eligible entity
specified in the vehicle transfer election
must pay the electing taxpayer an
amount equal to the amount of the
credit included in the vehicle transfer
election. A vehicle transfer election is
made not later than at the time of sale
in the manner set forth in guidance
published in the Internal Revenue
Bulletin, and, once made, the vehicle
transfer election is irrevocable. No
vehicle transfer election may be made to
transfer an amount of credit that would
otherwise be allowed to the electing
taxpayer under section 38.
(d) Federal income tax consequences
of the vehicle transfer election—(1)
Treatment of electing taxpayer. In the
case of a vehicle transfer election, the
Federal income tax consequences for the
electing taxpayer are as follows—
(i) The credit amount under section
30D that the electing taxpayer elects to
transfer to the eligible entity under
section 30D(g) and paragraph (c) of this
section may exceed the electing
taxpayer’s regular tax liability (as
defined in section 26(b)(1) of the Code)
for the taxable year in which the sale
occurs, and the excess, if any, is not
subject to recapture.
(ii) The payment made by an eligible
entity to an electing taxpayer under
section 30D(g)(2)(C) and paragraph (c) of
this section to an electing taxpayer
E:\FR\FM\10OCP3.SGM
10OCP3
ddrumheller on DSK120RN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 194 / Tuesday, October 10, 2023 / Proposed Rules
pursuant to the vehicle transfer election
is not includible in the gross income of
the electing taxpayer.
(iii) The payment made by an eligible
entity to an electing taxpayer under
section 30D(g)(2)(C) and paragraph (c) of
this section is treated as repaid by the
electing taxpayer to the eligible entity as
part of the purchase price of the new
clean vehicle. Thus, the repayment by
the electing taxpayer is included in the
electing taxpayer’s basis in the new
clean vehicle prior to the application of
the basis reduction rule in section
30D(f)(1).
(2) Treatment of eligible entity. In the
case of a vehicle transfer election, the
Federal income tax consequences for the
eligible entity are as follows—
(i) The eligible entity is allowed the
credit under section 30D with respect to
the new clean vehicle and may receive
an advance payment pursuant to section
30D(g)(7) and paragraph (e) of this
section;
(ii) Advance payments received by the
eligible entity are not treated as a tax
credit in the hands of the eligible entity
and may exceed the eligible entity’s
regular tax liability (as defined in
section 26(b)(1)) for the taxable year in
which the sale occurs;
(iii) An advance payment received by
the eligible entity is not included in the
gross income of the eligible entity;
(iv) The payment made by an eligible
entity under section 30D(g)(2)(C) and
paragraph (c) of this section to an
electing taxpayer is not deductible by
the eligible entity;
(v) The payment made by an eligible
entity to an electing taxpayer under
section 30D(g)(2)(C) and paragraph (c) of
this section is treated as repaid by the
electing taxpayer to the eligible entity as
part of the purchase price of the new
clean vehicle. Thus, the repayment by
the electing taxpayer is treated as an
amount realized of the eligible entity
under section 1001 of the Code and the
regulations in this part under section
1001; and
(vi) If the eligible entity is a
partnership or an S corporation, then—
(A) The IRS will make the advance
payment to such partnership or S
corporation equal to the amount of the
section 30D credit allowed that is
transferred to the eligible entity;
(B) Such section 30D credit is reduced
to zero and is, for any other purpose of
the Code, deemed to have been allowed
solely to such entity (and not allocated
or otherwise allowed to its partners or
shareholders) for such taxable year; and
(C) The amount of the advance
payment is not treated as tax exempt
income to the partnership or S
corporation for purposes of the Code.
VerDate Sep<11>2014
22:35 Oct 06, 2023
Jkt 262001
(3) Form of payment from eligible
entity to electing taxpayer. The tax
treatment of the payment made by the
eligible entity to the electing taxpayer
described in paragraphs (d)(1) and (2) of
this section is the same regardless of
whether the payment is made in cash or
in the form of a partial payment or
down payment for purchase of the new
clean vehicle.
(4) Application of certain other
requirements. In the case of a vehicle
transfer election, the following
additional rules apply—
(i) The requirements of section
30D(f)(1) (regarding basis reduction) and
30D(f)(2) (regarding no double benefit)
apply to the electing taxpayer as if the
vehicle transfer election were not made
(so, for example, the electing taxpayer
must reduce its basis in the vehicle by
the amount of the section 30D credit,
regardless of the vehicle transfer
election);
(ii) Section 30D(f)(6) (regarding the
election not to take the credit) will not
apply (in other words, by electing to
transfer the credit, the electing taxpayer
is electing to take the credit); and
(iii) Section 30D(f)(9) (regarding the
VIN requirement) will be treated as
satisfied if the eligible entity provides
the vehicle identification number of
such vehicle to the IRS in the form and
manner set forth in guidance published
in the Internal Revenue Bulletin.
(5) Examples. The following examples
illustrate the rules under paragraph (d)
of this section.
(i) Example 1: Electing taxpayer’s
regular tax liability less than value of
the credit—(A) Facts. A taxpayer, who
is an individual, purchases a new clean
sports utility vehicle from a dealer that
is a C corporation. The taxpayer satisfies
the requirements to be an electing
taxpayer and elects to transfer the
section 30D credit to the dealer. The
dealer is a registered dealer and satisfies
the requirements to be an eligible entity.
The purchase price for the vehicle is
$57,500. The credit otherwise allowable
to the electing taxpayer by section 30D
with respect to the vehicle is $7,500.
The eligible entity makes the payment
required to be made to the electing
taxpayer in the form of a cash payment
of $7,500. The electing taxpayer pays
back the $7,500 to the eligible entity and
pays an additional $50,000 as the
purchase price of the vehicle. The
electing taxpayer’s regular tax liability
for the year is less than $7,500.
(B) Analysis. Under paragraph (d)(1)
of this section, the electing taxpayer
may transfer the credit even though the
electing taxpayer’s regular tax liability is
less than $7,500, and no amount of the
credit will be recaptured from the
PO 00000
Frm 00025
Fmt 4701
Sfmt 4702
70333
taxpayer on the basis that the allowable
credit exceeded their regular tax
liability. The eligible entity’s $7,500
payment to the electing taxpayer is not
included in the electing taxpayer’s gross
income, and the electing taxpayer’s
purchase price for the vehicle is $57,500
(including both the $7,500 payment and
the additional $50,000 purchase price
paid), prior to the application of the
basis reduction rule of section 30D(f)(1).
After application of the basis reduction,
the electing taxpayer’s basis in the
vehicle is $50,000. The eligible entity is
eligible to receive an advance payment
of $7,500 for the transferred section 30D
credit as provided in section 30D(g)(7)
and paragraph (e) of this section. Under
paragraph (d)(2) of this section, the
eligible entity may receive the advance
payment regardless of whether the
eligible entity’s regular tax liability is
less than $7,500. The advance payment
is not treated as a credit toward the
eligible entity’s tax liability (if any), nor
is it included in the eligible entity’s
gross income, the eligible entity’s $7,500
payment to the electing taxpayer is not
deductible, and the eligible entity’s
amount realized is $57,500 upon the
sale of the vehicle (including both the
$7,500 payment and the additional
$50,000 purchase price of the vehicle).
(ii) Example 2: Non-cash payment by
eligible entity to electing taxpayer—(A)
Facts. The facts are the same as in
paragraph (d)(5)(i)(A) of this section
(facts of Example 1), except that the
eligible entity makes the payment to the
electing taxpayer in the form of a
reduction in the purchase price (rather
than as a cash payment).
(B) Analysis. Paragraph (d)(3) of this
section provides that the application of
paragraphs (d)(1) and (2) of this section
is not dependent on the form of
payment from an eligible entity to an
electing taxpayer (for example, a
payment in cash or a payment in the
form of a reduction in purchase price).
Thus, the analysis is the same as in
paragraph (d)(5)(i)(B) of this section
(analysis of Example 1).
(iii) Example 3: Eligible entity is a
partnership—(A) Facts. The facts are the
same as in paragraph (d)(5)(i)(A) of this
section (facts of Example 1), except that
the dealer is a partnership.
(B) Analysis. The analysis as to the
electing taxpayer is the same as in
paragraph (d)(5)(i)(B) of this section
(analysis of Example 1). Because the
eligible entity is a partnership,
paragraph (d)(2)(vi) of this section
applies. Thus, the advance payment is
made to the partnership, the credit is
reduced to zero and is, for any other
purpose of the Code, deemed to have
been allowed solely to the partnership
E:\FR\FM\10OCP3.SGM
10OCP3
ddrumheller on DSK120RN23PROD with PROPOSALS3
70334
Federal Register / Vol. 88, No. 194 / Tuesday, October 10, 2023 / Proposed Rules
(and not allocated or otherwise allowed
to its partners) for such taxable year.
The amount of the advance payment is
not treated as tax exempt income to the
partnership for purposes of the Code.
(e) Advance payments received by
eligible entities—(1) In general. An
eligible entity may receive advance
payments from the IRS corresponding to
the amount of the section 30D credit for
which a vehicle transfer election was
made by an electing taxpayer to the
eligible entity pursuant to section
30D(g) and paragraph (c) of this section
before the eligible entity files its Federal
income tax return for the taxable year
that includes the taxable year with
respect to which the vehicle transfer
election corresponds. This advance
payment program is the exclusive
mechanism for an eligible entity to
receive any payment related to a section
30D credit pursuant to section 30D(g)
and paragraph (c) of this section. The
eligible entity may not claim a section
30D credit on a Federal income tax
return.
(2) Requirements for a registered
dealer to become an eligible entity. A
registered dealer qualifies as an eligible
entity, and may therefore receive an
advance payment, by meeting the
following requirements—
(i) The registered dealer submits
required registration information and is
in dealer tax compliance;
(ii) The registered dealer retains
information regarding the vehicle
transfer election for three calendar years
beginning with the year immediately
after the year in which the vehicle is
placed in service, as described in
guidance published in the Internal
Revenue Bulletin (see § 601.601 of this
chapter); and
(iii) The registered dealer meets any
other requirements of section 30D(g)
and this section included in guidance
published in the Internal Revenue
Bulletin (see § 601.601 of this chapter).
(3) Suspension of registered dealer
eligibility. A registered dealer may be
suspended from the advance payment
program pursuant to the procedures as
described in guidance published in the
Internal Revenue Bulletin (see § 601.601
of this chapter). Any decision made by
the IRS relating to the suspension of a
dealer’s registration is not subject to
administrative appeal to the IRS
Independent Office of Appeals unless
the IRS and the IRS Independent Office
of Appeals agree that such review is
available and the IRS provides the time
and manner for such review.
(4) Revocation of registered dealer
eligibility. A registered dealer’s
registration may be revoked pursuant to
the procedures as described in guidance
VerDate Sep<11>2014
22:35 Oct 06, 2023
Jkt 262001
published in the Internal Revenue
Bulletin (see § 601.601 of this chapter).
Any decision made by the IRS relating
to the revocation of a dealer’s
registration is not subject to
administrative appeal to the IRS
Independent Office of Appeals unless
the IRS and the IRS Independent Office
of Appeals agree that such review is
available and the IRS provides the time
and manner for such review.
(f) Increase in tax—(1) Recapture
where taxpayer exceeds modified
adjusted gross income limitation. If the
section 30D credit would otherwise (but
for section 30D(g) and the rules of this
section) not be allowable to a taxpayer
that elected to transfer the credit under
section 30D(g) and this section because
the taxpayer exceeds the limitation
based on modified adjusted gross
income in section 30D(f)(10), then the
income tax imposed on such taxpayer
under chapter 1 of the Code (chapter 1)
for the taxable year in which such
vehicle was placed in service is
increased by the amount of the payment
received by the taxpayer. The taxpayer
must reconcile such amounts on the tax
return described in paragraph (g)(2) of
this section.
(2) Excessive payments—(i) In
general. This paragraph (f)(2) provides
rules under section 30D(g)(7)(B), under
which rules similar to the rules of
section 6417(d)(6) of the Code apply to
the advance payment program. In the
case of any advance payment that the
IRS determines constitutes an excessive
payment, the tax imposed on the
eligible entity under chapter 1,
regardless of whether such entity would
otherwise be subject to tax under
chapter 1, for the taxable year in which
such determination is made will be
increased by the sum of the following
amounts—
(A) The amount of the excessive
payment; plus
(B) An amount equal to 20 percent of
such excessive payment.
(ii) Reasonable cause. The amount
described in paragraph (f)(2)(i)(B) of this
section will not apply to an eligible
entity if the eligible entity demonstrates
to the satisfaction of the IRS that the
excessive payment resulted from
reasonable cause. In the case of a
vehicle returned to the eligible entity
within 30 days of being placed in
service for which a vehicle transfer
election was made by the electing
taxpayer, as described in § 1.30D–
4(d)(1)(ii), the eligible entity will be
treated as demonstrating reasonable
cause.
(iii) Excessive payment defined.
Excessive payment means an advance
payment made—
PO 00000
Frm 00026
Fmt 4701
Sfmt 4702
(A) To a registered dealer that fails to
meet the requirements to be an eligible
entity provided in section 30D(g)(2) and
paragraph (e)(2) of this section; or
(B) Except as provided in paragraph
(f)(2)(iv) of this section, to an eligible
entity with respect to a vehicle to the
extent the payment exceeds the amount
of the credit that, without application of
section 30D(g) and this section, would
be otherwise allowable to the electing
taxpayer with respect to the vehicle for
such tax year.
(iv) Special rule for cases in which the
purchaser’s modified adjusted gross
income exceeds the limitation. Any
excess described in paragraph
(f)(2)(iii)(B) of this section due to the
purchaser exceeding the limitation
based on modified adjusted gross
income provided in section 30D(f)(10) is
not an excessive payment. Instead, the
value of the amount of the advance
payment is recaptured from the
purchaser under section 30D(f)(10) and
paragraph (f)(1) of this section.
(3) Example. This paragraph (f)(3)
provides an example to illustrate the
excessive payment rules provided in
paragraph (f)(2) of this section.
(i) Facts. In 2024, D, a registered
dealer, receives an advance payment of
$7,500 with respect to a credit
transferred under section 30D(g)(1) and
paragraph (c) of this section with
respect to a new clean vehicle. In 2025,
the IRS determines that the registered
dealer was not an eligible entity with
respect to the vehicle at the time of the
receipt of the advance payment in 2024
because the registered dealer failed to
satisfy a requirement in section
30D(g)(2) and paragraph (e)(2) of this
section to be an eligible entity with
respect to the vehicle. D is unable to
show reasonable cause for the failure.
(ii) Analysis. Under paragraph (f)(2)(i)
of this section, the tax imposed on D is
increased by the amount of the
excessive payment if the advance
payment received by D constitutes an
excessive payment. Under paragraph
(f)(2)(iii) of this section, the entire
amount of the $7,500 advance payment
received by D is an excessive payment
because D did not meet the
requirements to be an eligible entity
under section 30D(g)(2) and paragraph
(e)(2) of this section. Additionally,
because D cannot show reasonable
cause for its failure to meet these
requirements, the tax imposed under
chapter 1 on D is increased by $9,000
in 2025 (the taxable year of the IRS
determination). This is comprised of the
$7,500 value of the credit plus the
$1,500 penalty, calculated as 20%
penalty on such $7,500 (20% * $7,500
= $1,500). This treatment applies
E:\FR\FM\10OCP3.SGM
10OCP3
Federal Register / Vol. 88, No. 194 / Tuesday, October 10, 2023 / Proposed Rules
ddrumheller on DSK120RN23PROD with PROPOSALS3
regardless of whether D is otherwise
subject to tax under chapter 1 (for
example, if D is a partnership).
(g) Requirement of return—(1) In
general. An electing taxpayer that makes
a vehicle transfer election must file an
income tax return for the taxable year in
which the vehicle transfer election is
made and indicate such election on the
return per instructions. The electing
taxpayer must include the VIN of the
new clean vehicle on such return, as
provided for in forms and instructions.
(2) Income tax return. For purposes of
this section, the term income tax return
means a Form 1040, U.S. Individual
Income Tax Return, with an attached
Form 8936, Clean Vehicle Credits, or
successor forms, and any additional
forms, schedules, or statements
prescribed by the Commissioner for the
purpose of making a return to report the
tax under chapter 1 that includes all of
the information required on the forms
and in instructions.
(h) Two vehicle transfer elections per
year. A taxpayer may make no more
than two transfer elections per taxable
year, consisting of either two section
30D credits or one section 30D credit
and one section 25E credit. In the case
of a joint return, each individual
taxpayer may make no more than two
transfer elections per taxable year.
(i) Severability. The provisions of this
section are separate and severable from
one another. If any provision of this
section is stayed or determined to be
invalid, it is the agency’s intention that
the remaining provisions will continue
in effect.
VerDate Sep<11>2014
22:35 Oct 06, 2023
Jkt 262001
(j) Applicability date. This section
applies to taxable years beginning after
December 31, 2023.
PART 301—PROCEDURE AND
ADMINISTRATION
Par 7. The authority citation for part
301 is amended by adding an entry in
numerical order for § 301.6213–2 to
read, in part, as follows:
■
Authority: 26 U.S.C. 7805.
*
*
*
*
*
Section 301.6213–2 also issued under 26
U.S.C. 6213.
*
*
*
*
*
Par 8. Section 301.6213–2 is added to
read as follows:
■
§ 301.6213–2 Omission of correct vehicle
identification number.
(a) In general. The definition of the
term mathematical or clerical error in
section 6213(g)(2) of the Internal
Revenue Code (Code) includes:
(1) Under section 6213(g)(2)(T), an
omission of a correct vehicle
identification number required under
section 30D(f)(9) of the Code (relating to
credit for new clean vehicles) to be
included on a return;
(2) Under section 6213(g)(2)(U), an
omission of a correct vehicle
identification number required under
section 25E(d) of the Code (relating to
credit for previously-owned clean
vehicles) to be included on a return; and
(3) Under section 6213(g)(2)(V), an
omission of a correct vehicle
identification number required under
section 45W(e) of the Code (relating to
commercial clean vehicle credit) to be
included on a return.
PO 00000
Frm 00027
Fmt 4701
Sfmt 9990
70335
(b) Omission of a correct vehicle
identification number. For purposes of
paragraph (a) of this section, a taxpayer
is treated as having omitted a correct
vehicle identification number if:
(1) The vehicle identification number
required to be reported under section
30D(f)(9), 25E(d), or 45W(e) is not
included on the return of tax;
(2) The vehicle identification number
included on the return of tax is not that
of a vehicle eligible for a credit under
section 30D, 25E, or 45W;
(3) The vehicle identification number
included on the return of tax is not that
of a vehicle eligible for a credit under
section 30D, 25E, or 45W for the year in
which it is claimed;
(4) The vehicle identification number
included on the return of tax differs
from the vehicle identification number
reported to the IRS and the taxpayer
under section 30D(d)(1)(H) for each new
clean vehicle placed in service during
the taxable year by the taxpayer who
was issued the report; or
(5) The vehicle identification number
included on the return of tax differs
from the vehicle identification number
reported to the IRS and the taxpayer
under section 25E(c)(1)(D)(i) for each
previously-owned clean vehicle placed
in service during the taxable year by the
taxpayer who was issued the report.
(c) Applicability date. This section
applies to taxable years beginning after
December 31, 2023.
Douglas W. O’Donnell,
Deputy Commissioner for Services and
Enforcement.
[FR Doc. 2023–22353 Filed 10–6–23; 8:45 am]
BILLING CODE 4830–01–P
E:\FR\FM\10OCP3.SGM
10OCP3
Agencies
[Federal Register Volume 88, Number 194 (Tuesday, October 10, 2023)]
[Proposed Rules]
[Pages 70310-70335]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-22353]
[[Page 70309]]
Vol. 88
Tuesday,
No. 194
October 10, 2023
Part IV
Department of the Treasury
-----------------------------------------------------------------------
Internal Revenue Service
-----------------------------------------------------------------------
26 CFR Parts 1 and 301
Transfer of Clean Vehicle Credits Under Section 25E and Section 30D;
Proposed Rule
Federal Register / Vol. 88 , No. 194 / Tuesday, October 10, 2023 /
Proposed Rules
[[Page 70310]]
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 301
[REG-113064-23]
RIN 1545-BQ86
Transfer of Clean Vehicle Credits Under Section 25E and Section
30D
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: This document contains proposed regulations that would provide
guidance regarding certain clean vehicle credits as established by the
Inflation Reduction Act of 2022. The proposed regulations would provide
guidance for taxpayers who purchase qualifying previously-owned clean
vehicles or purchase qualifying new clean vehicles and intend to
transfer the amount of any previously-owned clean vehicle credit or new
clean vehicle credit to dealers who are entities eligible to receive
advance payments of either credit. The proposed regulations also would
provide guidance for dealers to become eligible entities to receive
advance payments of previously-owned clean vehicle credits or new clean
vehicle credits, and rules regarding recapture of the credits. The
proposed regulations would affect taxpayers intending to transfer
previously-owned clean vehicle or new clean vehicle credits and
eligible entities to whom the credits are transferred, as well as
taxpayers who purchased previously-owned clean vehicles or new clean
vehicles in the event the vehicles cease being eligible for the
credits. The proposed regulations also provide guidance on the meaning
of three new definitions added to the exclusive list of ``mathematical
or clerical errors'' relating to certain assessments of tax without a
notice of deficiency.
DATES: Written or electronic comments and requests for a public hearing
must be received by December 11, 2023. Requests for a public hearing
must be submitted as prescribed in the ``Comments and Requests for a
Public Hearing'' section.
ADDRESSES: Commenters are strongly encouraged to submit public comments
electronically via the Federal eRulemaking Portal at https://www.regulations.gov (indicate IRS and REG-113064-23) by following the
online instructions for submitting comments. Requests for a public
hearing must be submitted as prescribed in the ``Comments and Requests
for a Public Hearing'' section. Once submitted to the Federal
eRulemaking Portal, comments cannot be edited or withdrawn. The
Department of the Treasury (Treasury Department) and the IRS will
publish for public availability any comments submitted to the IRS's
public docket. Send paper submissions to: CC:PA:LPD:PR (REG-113064-23),
Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin
Station, Washington, DC 20044.
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
the Office of Associate Chief Counsel (Passthroughs & Special
Industries) at (202) 317-6853 (not a toll-free number); concerning
submissions of comments and requests for a public hearing, call Vivian
Hayes (202) 317-6901 (not a toll-free number) or send an email to
[email protected] (preferred).
SUPPLEMENTARY INFORMATION:
Background
I. Overview
Public Law 117-169, 136 Stat. 1818 (August 16, 2022), commonly
known as the Inflation Reduction Act of 2022 (IRA), added section 25E
to the Internal Revenue Code (Code) and amended section 30D of the
Code. Section 25E provides a credit (section 25E credit) against the
tax imposed by chapter 1 of the Code (chapter 1) with respect to a
previously-owned clean vehicle that a taxpayer purchases and places in
service. Section 30D provides a credit (section 30D credit) against the
tax imposed by chapter 1 with respect to each new clean vehicle that a
taxpayer purchases and places in service. Both the section 25E credit
and section 30D credit are determined and allowable with respect to the
taxable year in which the taxpayer places the previously-owned clean
vehicle or new clean vehicle, as applicable, in service. In addition,
several of the provisions of section 25E incorporate by cross-reference
some of the definitions and rules of section 30D. The IRA also amended
section 6213 of the Code by adding three new definitions to the
exclusive list of ``mathematical or clerical errors'' in section
6213(g)(2). These new definitions are set out in sections
6213(g)(2)(T), (U), and (V).
This document contains proposed amendments to the Income Tax
Regulations (26 CFR part 1) under sections 25E and 30D and to the
Procedure and Administration Regulations (26 CFR part 301) under
section 6213 (proposed regulations). The proposed regulations under
section 30D supplement a notice of proposed rulemaking (REG-120080-22)
published in the Federal Register (88 FR 23370) on April 17, 2023
(April 2023 proposed regulations) that contains initial proposed
regulations under section 30D as amended by the IRA.
A. Section 30D New Clean Vehicle Credit
Section 30D was enacted by section 205(a) of the Energy Improvement
and Extension Act of 2008, Division B of Public Law 110-343, 122 Stat.
3765, 3835 (October 3, 2008), to provide a credit for purchasing and
placing in service new qualified plug-in electric drive motor vehicles.
Section 30D has been amended several times since its enactment, most
recently by section 13401 of the IRA. In general, the amendments made
by section 13401 of the IRA to section 30D apply to vehicles placed in
service after December 31, 2022, except as provided in section
13401(k)(2) through (5) of the IRA.
Effective beginning on April 18, 2023, section 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. These requirements are
described in section 30D(e)(1) and (2), respectively, and the April
2023 proposed regulations.
The amount of the section 30D credit is treated as a personal
credit or a general business credit depending on the character of the
vehicle. In general, the section 30D credit is treated as a personal
credit allowable under subpart A of part IV of subchapter A of chapter
1. Section 30D(c)(2). However, the amount of the section 30D credit
that is attributable to property that is of a character subject to an
allowance for depreciation is treated as a current year business credit
under section 38(b) instead of being allowed under section 30D. Section
30D(c)(1). Section 38(b)(30) lists as a current year business credit
the portion of the section 30D credit to which section 30D(c)(1)
applies. The IRA did not amend section 30D(c)(1) or (2).
The April 2023 proposed regulations addressed the case of mixed-use
vehicles. Section 30D(c)(1) requires that so much of the section 30D
credit that would be allowed under section 30D(a) for any taxable year
(determined without regard to section 30D(c)) that is attributable to a
depreciable vehicle must be treated as a general business credit under
section 38 that is listed in section 38(b)(30) for such taxable year
(and not allowed under section 30D(a)). In the case of a depreciable
vehicle the use of which is 50 percent or more business use in the
taxable year such
[[Page 70311]]
vehicle is placed in service, the section 30D credit that would be
allowed under section 30D(a) for that taxable year (determined without
regard to section 30D(c)) that is attributable to such depreciable
vehicle must be treated as a general business credit under section 38
that is listed in section 38(b)(30) for such taxable year (and not
allowed under section 30D(a)). In the case of a depreciable vehicle the
business use of which is less than 50 percent of a taxpayer's total use
of the vehicle for the taxable year in which the vehicle is placed in
service, the taxpayer's section 30D credit for that taxable year with
respect to that vehicle must be apportioned as follows: (i) the portion
of the section 30D credit corresponding to the percentage of the
taxpayer's business use of the vehicle is treated as a general business
credit under section 30D(c)(1) (and not allowed under section 30D(a));
and (ii) the portion of the section 30D credit corresponding to the
percentage of the taxpayer's personal use of the vehicle is treated as
a section 30D credit allowed under section 30D(a) pursuant to section
30D(c)(2).
The IRA added several special rules under section 30D(f) applicable
to vehicles placed in service after December 31, 2022. These special
rules include the rule in section 30D(f)(9) that requires a taxpayer to
include on the taxpayer's return for the taxable year the vehicle
identification number (VIN) of the vehicle for which the section 30D
credit is claimed. In addition, section 30D(f)(10) denies the section
30D credit to certain high-income taxpayers. More specifically, section
30D(f)(10)(A) provides that no credit is allowed for any taxable year
if (i) the lesser of (I) the modified adjusted gross income of the
taxpayer for such taxable year, or (II) the modified adjusted gross
income of the taxpayer for the preceding taxable year, exceeds (ii) the
threshold amount (modified adjusted gross income (AGI) Limitation). New
section 30D(f)(10)(B) provides that the threshold amount is (i) in the
case of a joint return or a surviving spouse (as defined in section
2(a) of the Code), $300,000, (ii) in the case of a head of household
(as defined in section 2(b) of the Code), $225,000, and (iii) in the
case of any other taxpayer, $150,000. New section 30D(f)(10)(C) defines
``modified adjusted gross income'' as adjusted gross income (AGI)
increased by any amount excluded from gross income under sections 911,
931, or 933.
The IRA added new section 30D(g) to the Code, which allows the
taxpayer to elect to transfer the section 30D credit in certain
situations for vehicles placed in service after December 31, 2023.
Section 30D(g)(1) provides that subject to such regulations or other
guidance as the Secretary of the Treasury or her delegate (Secretary)
determines necessary, a taxpayer may elect to transfer a section 30D
credit with respect to a new clean vehicle to an eligible entity
(vehicle transfer election). If the taxpayer who acquires a new clean
vehicle makes a vehicle transfer election under section 30D(g) with
respect to such vehicle, the section 30D credit that would otherwise be
allowed to such taxpayer with respect to such vehicle is allowed to the
eligible entity specified in such election (and not the taxpayer).
Section 30D(g)(2) defines an ``eligible entity'' with respect to the
vehicle for which the section 30D credit is allowed as the dealer that
sold such vehicle to the taxpayer and that satisfies the following four
requirements set forth in section 30D(g)(2)(A) through (D): (i) the
dealer, subject to section 30D(g)(4), must be registered with the
Secretary for purposes of section 30D(g)(2), at such time, and in such
form and manner, as the Secretary prescribes; (ii) the dealer, prior to
the vehicle transfer election and not later than at the time of sale,
must have disclosed to the taxpayer purchasing such vehicle the
manufacturer's suggested retail price, the value of the section 30D
credit allowed and any other incentive available for the purchase of
such vehicle, and the amount provided by the dealer to such taxpayer as
a condition of the vehicle transfer election; (iii) the dealer, not
later than at the time of sale, must have paid the taxpayer (whether in
cash or in the form of a partial payment or down payment for the
purchase of such vehicle) an amount equal to the credit otherwise
allowable to such taxpayer; and (iv) the dealer with respect to any
incentive otherwise available for the purchase of a vehicle for which a
section 30D credit is allowed, including any incentive in the form of a
rebate or discount provided by the dealer or manufacturer, must have
ensured that the availability or use of such incentive does not limit
the ability of a taxpayer to make a vehicle transfer election, and such
election does not limit the value or use of such incentive.
Section 30D(g)(3) addresses the timing of the transfer and provides
that any vehicle transfer election cannot be made by the taxpayer any
later than the date on which the vehicle for which the section 30D
credit is allowed is purchased.
Section 30D(g)(4) provides that upon determination by the Secretary
that a dealer has failed to comply with the requirements described in
section 30D(g)(2), the Secretary may revoke the dealer's registration.
Section 30D(g)(5) provides that with respect to any payment
described in section 30D(g)(2)(C), such payment is not includible in
the gross income of the taxpayer and is not deductible with respect to
the dealer.
Section 30D(g)(6) addresses the application of certain other
requirements to the transfer of credit and provides that in the case of
any vehicle transfer election with respect to any vehicle: (i) the
basis reduction and no double benefit requirements of section 30D(f)(1)
and (2) apply to the taxpayer who acquired the vehicle in the same
manner as if the section 30D credit determined with respect to such
vehicle were allowed to such taxpayer; (ii) the election in section
30D(f)(6) to not take the section 30D credit does not apply; and (iii)
the VIN requirement of section 30D(f)(9) is treated as satisfied if the
eligible entity provides the VIN of such vehicle to the Secretary in
such manner as the Secretary may provide.
Section 30D(g)(7)(A) provides for the establishment of a program to
make advance payments to eligible entities in an amount equal to the
cumulative amount of the credits allowed with respect to any vehicles
sold by such entity for which a vehicle transfer election described in
section 30D(g)(1) has been made. Section 30D(g)(7)(B) provides that
rules similar to the rules of section 6417(d)(6) of the Code apply for
purposes of the advance payment rules, and section 30D(g)(7)(C)
provides that for purposes of 31 U.S.C. 1324, the payments under
section 30D(g)(7)(A) are treated in the same manner as a refund due
from a credit provision referred to in 31 U.S.C. 1324(b)(2).
Section 30D(g)(8) defines the term ``dealer'' as a person licensed
by a State, the District of Columbia, the Commonwealth of Puerto Rico,
any other territory or possession of the United States, an Indian
tribal government, or any Alaska Native Corporation (as defined in
section 3 of the Alaska Native Claims Settlement Act (43 U.S.C.
1602(m)) to engage in the sale of vehicles. Section 30D(g)(9) defines
an ``Indian tribal government'' as the recognized governing body of any
Indian or Alaska Native tribe, band, nation, pueblo, village,
community, component band, or component reservation, individually
identified (including parenthetically) in the list published most
recently as of the date of enactment of section 30D(g) (that is, August
16, 2022) pursuant to section 104 of the Federally Recognized Indian
Tribe List Act of 1994 (25 U.S.C. 5131).
[[Page 70312]]
Section 30D(g)(10) provides that in the case of any taxpayer who
has made a vehicle transfer election with respect to a new clean
vehicle and received a payment from an eligible entity, if the section
30D credit would otherwise (but for section 30D(g)) not be allowable to
such taxpayer pursuant to the application of the modified AGI
limitations in section 30D(f)(10), the income tax imposed on such
taxpayer under chapter 1 for the taxable year in which such vehicle was
placed in service must be increased by the amount of the payment
received by such taxpayer.
No section 30D credit is allowed with respect to a vehicle placed
in service after December 31, 2032. Section 13401(k)(4) of the IRA
provides that the ability for a taxpayer to elect to transfer a section
30D credit under section 30D(g) applies to vehicles placed in service
after December 31, 2023.
B. Section 25E Previously-Owned Clean Vehicles Credit
Section 13402 of the IRA added section 25E to the Code. Section 25E
provides that, in the case of a qualified buyer who during a taxable
year places in service a previously-owned clean vehicle, an income tax
credit (that is, the section 25E credit) is allowed for the taxable
year in an amount equal to the lesser of: (1) $4,000, or (2) the amount
equal to 30 percent of the sale price with respect to such vehicle.
Section 25E(b)(1) sets a limitation based on modified adjusted
gross income and provides that no section 25E credit is allowed for any
taxable year if (A) the lesser of (i) the modified adjusted gross
income of the taxpayer for such taxable year, or (ii) the modified
adjusted gross income of the taxpayer for the preceding taxable year,
exceeds (B) the threshold amount. The threshold amount is set forth in
section 25E(b)(2) and varies based on a taxpayer's filing status. In
the case of a taxpayer filing a joint return or who is a surviving
spouse (as defined in section 2(a)), the threshold amount is $150,000.
In the case of a taxpayer who is a head of household (as defined in
section 2(b)), the threshold amount is $112,500. In the case of any
other taxpayer, the threshold amount is $75,000. Section 25E(b)(3)
defines modified adjusted gross income as adjusted gross income
increased by any amount excluded from gross income under sections 911,
931, or 933.
Section 25E(c) defines certain terms for purposes of the section
25E credit. Section 25E(c)(1) defines a ``previously-owned clean
vehicle'' as, with respect to a taxpayer, a motor vehicle that
satisfies the following four requirements set forth in section
25E(c)(1)(A) through (D): (i) the model year of the motor vehicle is at
least 2 years earlier than the calendar year in which the taxpayer
acquires such vehicle; (ii) the original use of the motor vehicle
commences with a person other than the taxpayer; (iii) the motor
vehicle is acquired by the taxpayer in a qualified sale, and (iv) the
motor vehicle meets the requirements of section 30D(d)(1)(C), (D), (E),
(F), and (H) (except for the original use requirement of section
30D(d)(1)(H)(iv)), or is a motor vehicle that satisfies the
requirements under section 30B(b)(3)(A) and (B), and has a gross
vehicle weight rating of less than 14,000 pounds.
Section 25E(c)(2) defines a ``qualified sale'' as a sale of a motor
vehicle (i) by a dealer (as defined in section 30D(g)(8)), (ii) for a
sale price which does not exceed $25,000, and (iii) that is the first
transfer since the date of enactment of the IRA (that is, August 16,
2022) to a qualified buyer other than the person with whom the original
use of such vehicle commenced.
Section 25E(c)(3) defines a ``qualified buyer'' as, with respect to
a sale of a motor vehicle, a taxpayer who is an individual with respect
to whom no deduction is allowable with respect to another taxpayer
under section 151, who purchases such 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.
Section 25E(c)(4) defines a ``motor vehicle'' and ``capacity'' to
have the meaning given to such terms in section 30D(d)(2) and (4),
respectively.
Section 25E(d) provides that no section 25E credit is allowed with
respect to any vehicle unless the taxpayer includes the VIN of such
vehicle on the taxpayer's tax return for the taxable year. Section
25E(e) provides that rules similar to the rules of section 30D(f)
(without regard to paragraph (10) or (11) thereof) apply for purposes
of section 25E. Section 25E(f) provides that rules similar to section
30D(g) apply to the transfer of a section 25E credit for previously-
owned vehicles (thus, a taxpayer also may elect to transfer a section
25E credit).
Section 25E applies to vehicles acquired after December 31, 2022.
No section 25E credit is allowed with respect to a vehicle acquired
after December 31, 2032. Section 13402(e)(2) of the IRA provides that
the ability of a taxpayer to elect to transfer a section 25E credit
under section 25E(f) applies to vehicles placed in service by the
taxpayer after December 31, 2023.
C. Section 45W Qualified Commercial Clean Vehicle Credit
Section 13403(a) of the IRA added section 45W to the Code, which is
effective for vehicles acquired after December 31, 2022, and before
January 1, 2033. A taxpayer can claim a section 45W credit for
purchasing and placing in service a qualified commercial clean vehicle,
as defined in section 45W(c), during the taxable year. Section
45W(b)(1) provides that the amount of the section 45W credit is the
lesser of: 15 percent of the taxpayer's basis in the vehicle (30
percent in the case of a vehicle not powered by a gasoline or diesel
internal combustion engine), or the incremental cost of the vehicle.
Section 45W(b)(2) provides that the incremental cost of any qualified
commercial clean vehicle is an amount equal to the excess of the
purchase price for such vehicle over the purchase price of a comparable
vehicle. Section 45W(b)(3) defines ``comparable vehicle'' to mean any
vehicle that is powered solely by a gasoline or diesel internal
combustion engine and is comparable in size and use to such vehicle.
Section 45W(b)(4) provides that the 45W credit is limited to $7,500 in
the case of a vehicle that has a gross vehicle weight rating of less
than 14,000 pounds, and $40,000 for all other vehicles.
Section 45W(c) defines ``qualified commercial clean vehicle'' for
purposes of the section 45W credit. Section 45W(d) establishes special
rules for purposes of the section 45W credit, including the application
of basis reduction, domestic usage, and recapture rules similar to
those under section 30D(f) of the Code and a rule disallowing a double
benefit under section 45W for a taxpayer claiming a new clean vehicle
credit under section 30D. Section 45W(e) provides that no section 45W
credit is allowed with respect to any vehicle unless the taxpayer
includes the VIN of such vehicle on the tax return for the taxable
year. Section 45W(f) grants the Secretary authority to issue
regulations or other guidance to carry out the purposes of section 45W,
including regulations or other guidance relating to determination of
the incremental cost of any qualified commercial clean vehicle.
D. Section 6213 Restrictions Applicable to Deficiencies; Petition to
Tax Court
Section 6213(b)(1) authorizes the IRS to make certain assessments
of mathematical or clerical errors without first issuing a notice of
deficiency under section 6213(a). In lieu of a notice of deficiency
giving the taxpayer 90 days
[[Page 70313]]
to file a petition in the Tax Court, section 6213(b)(1) requires the
IRS to provide the taxpayer notice that an assessment has been or will
be made based on a mathematical or clerical error. Section
6213(b)(2)(A) provides that the taxpayer has 60 days to request an
abatement of such assessment. If the taxpayer timely requests
abatement, then the IRS must abate the assessment. If an assessment is
abated, the IRS must first provide a notice of deficiency under section
6213(a) before the IRS can reassess the tax.
Math error assessments were first authorized by section 274(f) of
the Revenue Bill of 1926. The legislative history provided that ``in
the case of a mere mathematical error appearing upon the face of the
return, assessment of a tax due to such mathematical error may be made
at any time, and that such assessment shall not be regarded as a
deficiency notification.'' H.R. Rep. No. 69-1, at 11 (1926). The Tax
Reform Act of 1976 added section 6213(f)(2) (current section (g)(2)) to
the Code, which defined ``mathematical or clerical error'' as: (A) an
error in addition, subtraction, multiplication, or division shown on
the return; (B) an incorrect use of an IRS table if the error is
apparent from the existence of other information on the return; (C)
inconsistent entries on the return; (D) an omission of information
required to be supplied on the return in order to substantiate an item
on that return; and (E) an entry of a deduction or credit item in an
amount which exceeds a statutory limit which is either (a) a specified
monetary amount or (b) a percentage, ratio, or fraction--if the items
entering into the application of that limit appear on that return.
The definition of mathematical or clerical error as set out in 1976
contained only these five specific items, all of which could be
ascertained directly from the face of a return. These items remain in
current section 6213(g)(2)(A)-(E). Since that time, Congress has
expanded the definition of ``mathematical or clerical error'' in
section 6213(g)(2) several times, and in 1998, added flush language to
section 6213(g)(2) that applies to all section 6213(g)(2)
subparagraphs: ``A taxpayer shall be treated as having omitted a
correct TIN [taxpayer identification number] for purposes of the
preceding sentence if information provided by the taxpayer on the
return with respect to the individual whose TIN was provided differs
from the information the Secretary obtains from the person issuing the
TIN.'' The legislative history indicates that Congress added this
language to clarify that a correct TIN is one that was assigned by the
Social Security Administration (SSA) or the IRS to the individual
identified on the return, and that there should be no inconsistencies
between the data that is reported on the return and the data from the
agency issuing the TIN. H.R. Conf. Rep. No. 825, 105th Cong. 2d Sess.
1588 (1998).
II. Prior Guidance
A. Notice 2022-46
On October 5, 2022, the Treasury Department and the IRS published
Notice 2022-46, 2022-43 I.R.B. 302. The notice requested general
comments on issues arising under sections 25E and 30D, as well as
specific comments concerning: (1) definitions; (2) critical minerals
and battery components; (3) foreign entities of concern; (4)
recordkeeping and reporting; (5) eligible entities; (6) elections to
transfer and advance payments; and (7) recapture. The Treasury
Department and the IRS received 884 comments from industry
participants, environmental groups, individual consumers, and other
stakeholders. The Treasury Department and the IRS appreciate the
commenters' interest and engagement on these issues. These comments
have been carefully considered in the preparation of the proposed
regulations.
B. Revenue Procedure 2022-42
On December 12, 2022, the Treasury Department and the IRS published
Revenue Procedure 2022-42, 2022-52 I.R.B. 565, providing guidance for
qualified manufacturers to enter into written agreements with the IRS,
as required in sections 30D, 25E, and 45W, and to report certain
information regarding vehicles produced by such manufacturers that may
be eligible credits under these sections. In addition, Revenue
Procedure 2022-42 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.
C. April 2023 Proposed Regulations
On April 17, 2023, the Treasury Department and the IRS published
the April 2023 proposed regulations in the Federal Register, 88 FR
23370, which provided proposed definitions for certain terms related to
section 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. The deadline to
submit public comments expired on June 16, 2023.
D. Revenue Procedure 2023-33
On October 6, 2023, in addition to filing this notice of proposed
rulemaking for public inspection, the Treasury Department and the IRS
released Revenue Procedure 2023-33, which will be published on October
23, 2023, in Internal Revenue Bulletin 2023-43, to provide guidance for
taxpayers electing to transfer credits under section 25E or 30D and for
eligible entities receiving advance payments of credits under sections
30D and 25E. This revenue procedure sets forth the procedures under
sections 30D(g) and 25E(f) for the transfer of the previously-owned
clean vehicle credit and the new clean vehicle credit from the taxpayer
to an eligible entity, including the procedures for dealer registration
with the IRS, the procedures for the revocation and suspension of that
registration, and the establishment of an advance payment program to
eligible entities. In addition, this revenue procedure supersedes
sections 5.01 and 6.03 of Revenue Procedure 2022-42, providing new
information for the timing and manner of submission of seller reports,
respectively. This revenue procedure also supersedes sections 6.01 and
6.02 of Revenue Procedure 2022-42, providing updated information on
submission of written agreements by manufacturers to the IRS to be
considered qualified manufacturers, as well as the method of submission
of monthly reports by qualified manufacturers.
Explanation of Provisions
I. Proposed Section 25E Regulations
A. Overview
Section 25E(a) provides that, in the case of a qualified buyer who
during a taxable year places in service a previously-owned clean
vehicle, an income tax credit is allowed for the taxable year equal to
the lesser of: (1) $4,000, or (2) the amount equal to 30 percent of the
sale price with respect to such vehicle. Proposed Sec. 1.25E-1(a)
would state the general rule that an income tax credit is available
under section 25E for a qualified buyer of a previously-owned clean
vehicle placed in service during the taxable year in an amount equal to
the lesser of: (1) $4,000, or (2) the amount equal to 30 percent of the
sale price with respect to such vehicle. Proposed Sec. 1.25E-1(b)
would provide definitions that apply for purposes of section 25E and
the proposed section 25E regulations (that is, proposed Sec. Sec.
1.25E-1 through 1.25E-3). Proposed Sec. 1.25E-1(c) would provide rules
regarding the modified adjusted
[[Page 70314]]
gross income limitation. Proposed Sec. 1.25E-1(d) would provide rules
regarding multiple owners of a vehicle. Proposed Sec. 1.25E-2 would
provide special rules under section 25E(e). Proposed Sec. 1.25E-3
would provide rules regarding the election to transfer the 25E credit
under section 25E(f).
As discussed later in this Explanation of Provisions section, the
proposed rules under section 25E also include severability clauses and
generally are proposed to apply to taxable years beginning after the
date these regulations are published in the Federal Register.
B. General Rules for Purposes of Section 25E
1. Limitations on Modified Adjusted Gross Income
Proposed Sec. 1.25E-1(c)(1) would provide, consistent with section
25E(b), limitations based on the amount of a taxpayer's modified
adjusted gross income, proposing that no credit is allowed under
section 25E for any taxable year if the lesser of the modified adjusted
gross income of the taxpayer for such taxable year, or, the modified
adjusted gross income of the taxpayer for the preceding taxable year,
exceeds the threshold amount. Proposed Sec. 1.25E-1(c)(2), consistent
with section 25E(b)(2), would define the ``threshold amount'' as, in
the case of a joint return or a surviving spouse (as defined in section
2(a)), $150,000; in the case of a head of household (as defined in
section 2(b)), $112,500; and in any other case, $75,000. Proposed Sec.
1.25E-1(b)(3) would define ``modified adjusted gross income'' as
adjusted gross income increased by any amount excluded from gross
income under sections 911, 931, or 933 of the Code. Proposed Sec.
1.25E-1(c)(3) would provide that if the taxpayer's filing status for
the taxable year differs from the taxpayer's filing status in the
preceding taxable year, the taxpayer satisfies the limitation if the
taxpayer's modified AGI does not exceed the threshold amount in either
year based on the applicable filing status for that taxable year. This
proposed rule is consistent with proposed Sec. 1.30D-4(b)(4) in the
April 2023 proposed regulations.
2. Limitation on Multiple Owners
Proposed Sec. 1.25E-1(d)(1) would provide that the amount of the
section 25E credit attributable to a previously-owned clean vehicle may
be claimed on only one tax return. In the event a previously-owned
clean vehicle is placed in service by multiple owners, no allocation or
proration of the section 25E credit is available. This proposed rule is
necessary because the structure of section 25E provides for one
taxpayer to claim the section 25E credit per vehicle placed in service.
See generally section 25E(a), (c)(3), (e) (providing for rules similar
to section 30D(f)(8) and (9)) and section 6213(g)(2)(U) of the Code.
Section 25E does not contain rules for allocation or proration of the
section 25E credit with respect to a single vehicle to multiple
taxpayers placing that vehicle in service, and such an allocation or
proration would present administrative challenges. Proposed Sec.
1.25E-1(d)(2) would provide that for seller reporting, the name and
taxpayer identification number of the vehicle owner claiming the
section 25E credit must be listed on the seller report pursuant to
sections 25E(c)(1)(D)(i) and 30D(d)(1)(H). The credit will be allowed
only on the tax return of the owner listed in the seller report. This
proposed rule is consistent with proposed Sec. 1.30D-4(c) in the April
2023 proposed regulations.
C. Definitions for Purposes of Section 25E
1. Dealer
Proposed Sec. 1.25E-1(b)(1) would define ``dealer'' by reference
to the statutory definition provided in section 25E(c)(2)(A) and
section 30D(g) except that the term does not include persons licensed
solely by a territory of the United States, and does include a dealer
licensed in any jurisdiction described in section 30D(g) (other than
one exclusively licensed in a territory) that makes sales at sites
outside of the jurisdiction in which its licensed. The dealer does not
include persons licensed solely by a territory because clean vehicle
credits generally are not allowed for vehicles used predominantly
outside of the 50 States and the District of Columbia. See sections
30D(f)(4), 25E(e), 50(b)(1), and 7701(a)(9) of the Code. In addition,
United States citizens who are bona fide residents of U.S. territories
are generally ineligible for Federal tax credits. See sections 931,
932, 933, and former section 935 of the Code. To allow for flexibility,
especially in the case of direct-to-consumer sales, the proposed
definition of dealer includes a dealer licensed in any jurisdiction
described in section 30D(g) (other than one exclusively licensed in a
U.S. territory) that makes sales in jurisdictions in which it may not
be licensed.
2. Incentive
Proposed Sec. 1.25E-1(b)(2) would define ``incentive,'' for
purposes of the sale price definition in proposed Sec. 1.25E-1(b)(9),
as any reduction in total sale price offered to and accepted by a
taxpayer from the dealer or manufacturer, other than a reduction in the
form of a partial payment or down payment for the purchase of a
previously-owned clean vehicle pursuant to section 25E(f) and proposed
Sec. 1.25E-3.
3. Modified Adjusted Gross Income
Proposed Sec. 1.25E-1(b)(3) would define ``modified adjusted gross
income'' by reference to the statutory definition provided in section
25E(b)(3).
4. Placed in Service
Proposed Sec. 1.25E-1(b)(4) would provide that a previously-owned
clean vehicle is considered to be placed in service on the date the
taxpayer takes possession of the vehicle. This proposed definition is
consistent with the meaning of ``placed in service'' for purposes of
other provisions of the Code under which property is considered to be
``placed in service'' when the property is ``placed in a condition or
state of readiness and availability for a specifically assigned
function'' and as ``the date on which the owner of the vehicle took
actual possession of the vehicle.'' See Sec. Sec. 1.46-3(d)(1)(ii) and
(d)(4)(i), 1.179-4(e), and 145.4051-1(c)(2); see also Sec. 1.1250-
4(b)(2); Consumers Power Co. v. Commissioner, 89 T.C. 710 (1987); Noell
v. Commissioner, 66 T.C. 718, 728-729 (1976).
5. Previously-Owned Clean Vehicle
Proposed Sec. 1.25E-1(b)(5) would define ``previously-owned clean
vehicle'' by reference to the statutory definition provided in section
25E(c)(1).
6. Qualified Buyer
Proposed Sec. 1.25E-1(b)(6), consistent with section 25E(c)(3),
would define ``qualified buyer'' as, with respect to a sale of a motor
vehicle, a taxpayer who is an individual, who purchases such vehicle
for use and not for resale, with respect to whom no deduction is
allowable to another taxpayer under section 151, 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.
7. Qualified Manufacturer
Proposed Sec. 1.25E-1(b)(7) would define ``qualified
manufacturer'' by reference to section 30D(d)(3).
8. Qualified Sale
Section 25E(c)(2) defines ``qualified sale'' as a sale of a motor
vehicle by a
[[Page 70315]]
dealer (as defined in section 30D(g)(8)), for a sale price which does
not exceed $25,000, and which is the first transfer since August 16,
2022 (the date of enactment of section 25E), to a qualified buyer other
than the person with whom the original use of such vehicle commenced.
Proposed Sec. 1.25E-1(b)(8)(i) would define ``qualified sale'' as a
sale of a motor vehicle by a dealer (as defined in proposed Sec.
1.25E-1(b)(1)) for a sale price which does not exceed $25,000, and
which is the first transfer since August 16, 2022 (the date of
enactment of section 25E), to a qualified buyer other than the person
with whom the original use of such vehicle commenced.
9. First Transfer Rule
Proposed Sec. 1.25E-1(b)(8)(ii) would provide the first transfer
rule, which proposes that to be a qualified sale, a transfer must be
the first transfer of the previously-owned clean vehicle since August
16, 2022, as shown by the vehicle history of such vehicle, after the
sale to the original owner. The proposed first transfer rule would
provide certainty that the previously-owned clean vehicle is eligible
for the section 25E credit, since the dealer and taxpayer may not
otherwise know if the transfer was a qualified sale due to the
difficulties in determining whether previous transfers were to
qualified buyers. For example, dealers and taxpayers would not be able
to determine whether a previous transfer of the vehicle as a used
vehicle was to an individual or to a taxpayer who is not a dependent.
The taxpayer would be able to rely on the dealer's representation of
the vehicle history in determining whether the first transfer rule is
satisfied, provided the seller report is accepted by the IRS. However,
taxpayers would also be encouraged to independently examine the vehicle
history to confirm whether the first transfer rule is satisfied, using
publicly available tools.\1\
---------------------------------------------------------------------------
\1\ A list of approved National Motor Vehicle Title Information
System data providers can be found at: vehiclehistory.bja.ojp.gov/nmvtis_vehiclehistory.
---------------------------------------------------------------------------
For purposes of the proposed first transfer rule, the proposed
regulations would ignore a transfer to or between dealers. The
definition of qualified sale in section 25E(c)(2) requires that a sale
must be by a dealer to an individual for the buyer to be able to claim
the section 25E credit. If a transfer to a dealer were taken into
account as a transfer, the vast majority of eligible vehicles would
never qualify for the section 25E credit because a dealer (itself
ineligible for the credit) selling a used vehicle will have acquired
the vehicle from the prior owner (for example, as a trade-in) before
selling the vehicle as a used vehicle. Treating transfers to dealers as
a transfer would thus frustrate Congress's purpose in enacting section
25E. In addition, the Treasury Department and the IRS understand that
transfers between dealers generally do not result in a change of title
that would appear on a vehicle history. Accordingly, selling or trading
in a vehicle to a dealer for resale should not disqualify the vehicle
for purposes of the first transfer rule.
Examples illustrating the first transfer rule are provided in
proposed Sec. 1.25E-1(e).
10. Sale Price
Proposed Sec. 1.25E-1(b)(9) would define the ``sale price'' of a
previously-owned clean vehicle as the total sale price agreed upon by
the buyer and dealer in a written contract at the time of sale,
including any delivery charges and after the application of any
incentives, but excluding separately-stated taxes and fees required by
law. The sale price of a previously-owned clean vehicle is determined
before the application of any trade-in value. This proposed definition
of sale price would include fees and charges imposed by the dealer to
prevent dealers from allocating a portion of the price of the
previously-owned clean vehicle to separately stated fees (other than
those required by law) and charges to avoid the $25,000 sales price cap
in section 25E(c)(2)(B). This proposed definition does not include
separate financing, extended warranties, insurance, or maintenance
service charges.
11. Section 25E Regulations
Proposed Sec. 1.25E-1(b)(10) would define ``section 25E
regulations'' to mean proposed Sec. Sec. 1.25E-1, 1.25E-2, and 1.25E-
3.
12. Seller Report
Proposed Sec. 1.25E-1(b)(11) would define ``seller report'' as the
report described in section 25E(c)(1)(D)(i) by reference to section
30D(d)(1)(H) and provided by the dealer of a vehicle to the taxpayer
and the IRS in the manner provided in, and containing the information
described in Revenue Procedure 2023-33. Seller reports must be provided
to the IRS electronically. See section II of this Explanation of
Provisions for a more detailed discussion of this definition.
II. Section 1.30D-2 Definitions
As noted in part II.C of the Background section, the April 2023
proposed regulations provided, in relevant part, definitions that apply
for purposes of section 30D and the section 30D regulations. These
proposed regulations would modify proposed Sec. 1.30D-2 by adding
paragraph (j), which proposes a definition for seller report. Sections
5 and 6 of Revenue Procedure 2022-42 provided initial procedures for
sellers of vehicles to provide seller reports to the IRS.
Proposed Sec. 1.30D-2(j) would define a ``seller report'' as the
report described in section 30D(d)(1)(H) (which section 25E(c)(1)(D)(i)
cross references as part of the definition of a previously-owned clean
vehicle) that is provided by the seller of a vehicle to the taxpayer
and the IRS. The seller report must be provided to the IRS
electronically, and the additional time and manner procedures for
providing the seller report, as well as the information that must be
included in the seller report, is contained in Revenue Procedure 2023-
33, which will supersede relevant portions of Revenue Procedure 2022-
42.
III. Special Rules That Apply for Purposes of Section 25E and Section
30D
A. In General
As noted in section II.C of the Background section of this
preamble, the April 2023 proposed regulations provided guidance
regarding the special rules under section 30D(f). See proposed Sec.
1.30D-4 of the April 2023 proposed regulations. These proposed
regulations add provisions to those special rules that are relevant to
recapture of the section 25E credit and the section 30D credit. These
proposed regulations also add special rules relevant to section 25E.
These proposed regulations are accompanied by Revenue Procedure 2023-
33.
B. No Double Benefit Rule
Proposed Sec. 1.25E-2(b)(1) would provide that for purposes of
sections 25E(e) and 30D(f)(2), the amount of any deduction or other
credit allowable under chapter 1 of the Code for a vehicle for which a
section 25E credit is allowable must be reduced by the amount of the
section 25E credit allowed for such vehicle. Proposed Sec. 1.25E-
2(b)(2) would provide rules for the interaction of sections 30D and
section 25E and provide that a section 30D credit that has been allowed
with respect to a vehicle in a taxable year before the year in which a
section 25E credit is allowable for that vehicle does not reduce the
amount allowable under section 25E. Accordingly, a taxpayer who
otherwise satisfies the requirements of section 25E would be
[[Page 70316]]
eligible to claim the section 25E credit for a vehicle for which
another taxpayer previously claimed the section 30D credit.
C. Recapture of the Section 25E Credit or the Section 30D Credit
Section 25E(e) provides that, for purposes of section 25E, rules
similar to the rules of section 30D(f) apply. Section 30D(f)(5)
instructs the Secretary to provide regulations for recapturing the
benefit of any section 30D credit with respect to any property that
ceases to be eligible for the section 30D credit. Thus, proposed
Sec. Sec. 1.25E-2(c) and 1.30D-4(d) would provide corresponding rules
under section 30D(f)(5) for cancelled sales, returns, and resales of
the vehicle. Because the rules proposed under each section generally
are the same, with the exception of references to the clean vehicle
credit applicable to the section (that is, the section 25E credit under
proposed Sec. 1.25E-2(c) and the section 30D credit under proposed
Sec. 1.30D-4(d)), the discussion in section III.D.1 through III.D.3 of
this Explanation of Provisions, unless otherwise noted, refers to a
``clean vehicle credit'' to denote the credit under section 25E and
section 30D.
1. Cancelled Sale
Proposed Sec. Sec. 1.25E-2(c)(1)(i) and 1.30D-4(d)(1)(i) would
provide the Federal income tax consequences that apply if the sale of a
vehicle between the taxpayer and seller is cancelled before the
taxpayer places the vehicle in service (that is, before the taxpayer
takes possession of the vehicle). Specifically, in the case of a
cancelled sale, the taxpayer may not claim a clean vehicle credit with
respect to the vehicle. The vehicle will still be eligible for a clean
vehicle credit upon a subsequent qualifying sale to another taxpayer
because the vehicle was not placed in service as part of the prior
cancelled sale. Additionally, the seller report (as defined in proposed
Sec. Sec. 1.25E-1(b)(11) and 1.30D-2(j) and described in part II of
this Explanation of Provisions), if already submitted, must be
rescinded by the seller pursuant to the procedures in the procedural
guidance published in Revenue Procedure 2023-33. Finally, because the
taxpayer is not eligible for the credit, no vehicle transfer election
is available under the clean vehicle credit transfer rules described in
section IV of this Explanation of Provisions.
2. Vehicle Returns
Proposed Sec. Sec. 1.25E-2(c)(1)(ii) and 1.30D-4(d)(1)(ii) would
provide the Federal income tax consequences that apply if the taxpayer
returns the vehicle to the seller within 30 days of placing the vehicle
in service. Specifically, in the case of such return, the taxpayer
cannot claim a clean vehicle credit with respect to the vehicle. The
Treasury Department and the IRS understand that vehicle retailers may
have return policies that range from several days up to 30 days, so the
proposed rules regarding returns within 30 days reflect industry
practice.
In the case of a return within 30 days of what was a new clean
vehicle, the vehicle, once returned, already was placed in service by
the taxpayer and therefore is not available for original use by another
taxpayer. Because section 30D(d)(1)(A) requires that original use of a
new clean vehicle commence with the taxpayer, for purposes of section
30D, the returned vehicle is not eligible for the section 30D credit
upon a subsequent sale. In the case of a return of a previously-owned
clean vehicle, the vehicle, once returned, is not eligible for the
section 25E credit upon a subsequent sale if the vehicle history
reflects that the prior sale and return was a qualified sale per
section 25E(c)(2)(C). However, if the vehicle history does not reflect
the prior sale and return, the vehicle remains eligible for the section
25E credit under the first transfer rule described in proposed Sec.
1.25E-1(b)(8)(ii). The seller report, in the case of a return, must be
updated by the seller to reflect the return pursuant to the procedures
published in Revenue Procedure 2023-33. Finally, if the taxpayer made
an election to transfer the clean vehicle credit, that vehicle transfer
election is nullified, and any advance payment made pursuant to the
clean vehicle transfer rules will be recaptured from the eligible
entity as an excessive payment.
See section IV.E.1 of this Explanation of Provisions for a
discussion of the excessive payment rules described in the preceding
paragraph.
3. Resales
Proposed Sec. Sec. 1.25E-2(c)(1)(iii) and 1.30D-4(d)(1)(iii) would
treat the taxpayer as having purchased the vehicle with an intent to
resell such vehicle if the resale occurs within 30 days of the taxpayer
placing the vehicle in service. Section 30D(d)(1)(B) provides that a
new clean vehicle must be acquired for use or lease by the taxpayer and
not for resale, and section 25E(c)(3)(B) defines a qualified buyer as
purchasing the vehicle for use and not for resale. The Treasury
Department and the IRS propose that a resale within 30 days is a
sufficiently short period of time to presume that the purchase was done
with the intent to resell. As a result, in such a case the taxpayer who
purchased the new clean vehicle and resold it within 30 days may not
claim a clean vehicle credit with respect to the vehicle.
In the case of a resale by the taxpayer within 30 days of what was
a new clean vehicle, the vehicle, once placed in service for use by the
taxpayer, is not considered available for original use by another
taxpayer for purposes of section 30D, so the vehicle is not eligible
for the section 30D credit upon a subsequent sale. In the case of a
resale by the taxpayer within 30 days of what was a previously-owned
clean vehicle, the vehicle, once placed in service for use by the
taxpayer, is not eligible for the section 25E credit upon a subsequent
sale. In the case of a resale of such vehicle, however, the seller
report is not required to be updated because the seller may not have
knowledge of the subsequent resale. Finally, if the taxpayer made an
election to transfer the clean vehicle credit, that vehicle transfer
election remains in effect and the value of any transferred credit
pursuant to the clean vehicle transfer rules will be recaptured from
the taxpayer (as opposed to the advance payment being collected from
the eligible entity as an excessive payment, since the eligible entity
is not a party to the subsequent resale).
See section IV.E.2 of this Explanation of Provisions for a
discussion of the excessive payment rules of proposed Sec. Sec. 1.25E-
3(g)(2) and 1.30D-5(f)(2) described in the preceding paragraph.
4. Other Returns or Resales
Proposed Sec. Sec. 1.25E-2(c)(1)(iv) and 1.30D-4(d)(iv) would
provide a rule for returns or resales not described in section III.D.2
and 3 of this Explanation of Provisions (that is, returns or resales
occurring more than 30 days after the date on which the taxpayer places
the vehicle in service). Generally, taxpayers returning or reselling a
clean vehicle more than 30 days after the date the taxpayer places in
service will remain eligible for the section 30D or section 25E credit
for the purchase of such vehicle. The proposed regulations would
provide that, in the case of what was a new clean vehicle before the
return or resale, the vehicle, once returned or resold, is not
available for original use by another taxpayer and, therefore, is not
eligible for a section 30D credit. Similarly, in the case of what was a
previously-owned clean vehicle before the return or resale, the
vehicle, once returned or resold, generally is not eligible for the
section 25E credit upon a subsequent sale
[[Page 70317]]
pursuant to the first transfer rule described in proposed Sec. 1.25E-
1(b)(8)(ii). In the case of return occurring more than 30 days after
the date on which the taxpayer places the vehicle in service, the
seller report is not required to be updated because the taxpayer
generally will be eligible for the clean vehicle credit in this
circumstance. In addition, in the case of a resale of such vehicle, the
seller report is not required to be updated because the seller would
not have knowledge of the subsequent resale. Finally, if the taxpayer
made an election to transfer the clean vehicle credit, that vehicle
transfer election remains in effect and the value of any transferred
credit pursuant to the clean vehicle transfer rules generally is not
subject to recapture or excessive payment.
Although the proposed regulations would not provide an automatic
clean vehicle credit recapture rule for returns or resales more than 30
days after a return or resale, the IRS may determine upon facts and
circumstances that a clean vehicle was purchased with the intent to
return or resell and may disallow the clean vehicle credit in such
cases.
The Treasury Department and the IRS request comments as to whether
30 days is the appropriate length of time for the return rule in
proposed Sec. Sec. 1.25E-2(c)(1)(ii) and 1.30D-4(d)(1)(ii) and the
resale rule in proposed Sec. Sec. 1.25E-2(c)(1)(iii) and 1.30D-
4(d)(1)(iii).
D. Branded Title Rule
Proposed Sec. 1.25E-2(d) would provide that a title to a
previously-owned clean vehicle indicating that such vehicle has been
damaged or is otherwise a branded title does not impact the vehicle's
eligibility for a section 25E credit.
E. Seller Registration
In general, to be eligible for the section 25E credit and the
section 30D credit, a clean vehicle must be accompanied by a seller
report. See sections 30D(d)(1)(H) and 25E(c)(1)(D)(i). Proposed
Sec. Sec. 1.25E-2(e) and 1.30D-4(g) would provide that the seller must
register with the IRS in the manner set forth in Revenue Procedure
2023-33 for purposes of filing seller reports.
F. Requirement To File a Complete Income Tax Return
As discussed in the April 2023 proposed regulations and in these
regulations, a taxpayer will continue to use Form 8936, now titled
Clean Vehicle Credits, to claim the section 25E or 30D credit,
regardless of whether the taxpayer transfers the credit to the dealer.
The IRS cannot properly monitor claims of these credits if taxpayers do
not include a completed Form 8936 with their individual income tax
returns. Section 6213(g)(2)(D) defines a ``mathematical or clerical
error'' for purposes of math error authority, to include an omission of
information which is required to be supplied on the return to
substantiate an entry on the return. To ensure that the IRS can
appropriately monitor these credits, proposed Sec. Sec. 1.25E-2(f) and
1.30D-4(h) would clarify that taxpayers must file an income tax return
for the taxable year in which the clean vehicle is placed in service to
be entitled to the credit under section 25E or 30D. For this purpose,
an income tax return is defined as a Form 1040, U.S. Individual Income
Tax Return, with an attached Form 8936, Clean Vehicle Credits, or
successor form, and any additional forms, schedules, or statements
prescribed by the Commissioner for the purpose of making a return to
report the tax under chapter 1 that includes all of the information
required on the forms and in instructions.
IV. Transfer Rules for the Section 25E Credit and the Section 30D
Credit
Section 30D(g), as noted in more detail in section I.A of the
Background section of this preamble, generally establishes a set of
rules under which a taxpayer may transfer a section 30D credit to
certain dealers, referred to as eligible entities, in which case the
eligible entity (and not the taxpayer) is allowed the section 30D
credit and in exchange the eligible entity must pay the taxpayer an
amount equal to the transferred section 30D credit (with such payment
being made either in cash or in the form of a partial payment or down
payment for the purchase of the vehicle). Section 25E(f) provides that,
for purposes of section 25E, rules similar to the rules of section
30D(g) apply.
The proposed regulations described in this section IV of the
Explanation of Provisions are designed in part to ensure program
integrity. Advance payment of the section 30D and section 25E credits
poses unique compliance challenges, since such advance payments are not
subject to the same tax administration procedures that apply to
claiming a credit via return filing. Furthermore, participation in the
credit transfer and advance payment program is optional. The transfer
of the section 30D and 25E credits is elective on the part of the
taxpayer, and the eligible entity can decide whether to offer to the
taxpayer the ability to transfer such credits (thereby participating in
the advance payment program). Taxpayers instead may choose to wait and
claim a section 30D or section 25E credit on the taxpayer's return.
Section 30D(g)(1) provides that a taxpayer election to transfer the 30D
credit is subject to the regulations or other guidance that the
Secretary determines necessary. Section 30D(g)(7) instructs the
Secretary to establish a program for making advance payments to
eligible entities--that is, payments made by the IRS to the eligible
entity before the eligible entity files its Federal income tax return
for the relevant taxable year. Taken together, these provisions provide
authority for the Secretary to establish the parameters and conditions
of the transfer election and the accompanying advance payment program
for those taxpayers and eligible entities that choose to participate,
in furtherance of sound tax administration.
Proposed Sec. Sec. 1.25E-3 and 1.30D-5 would provide transfer
rules under these provisions (section 30D(g) and section 25E(f) by
cross reference to section 30D(g)), including by establishing an
advance payment program for such transfers. Because the rules proposed
under each section are the same, with the exception of references to
the clean vehicle credit applicable to the section (that is, the
section 25E credit under proposed Sec. 1.25E-3 and the section 30D
credit under proposed Sec. 1.30D-5), the discussion in section IV of
this Explanation of Provisions, unless otherwise noted, refers to a
``clean vehicle credit'' to denote the credit under section 25E and
section 30D.
The rules below do not specifically address the requirements, under
section 30D(g)(2)(B)(ii) and (D), relating to the disclosure by the
dealer of other incentives and the requirement that the dealer ensures
that the availability or use of such other incentives do not limit the
ability of a taxpayer to make a vehicle transfer election, and such
election does not limit the value or use of such incentives. The
Treasury Department and the IRS request comments as what guidance, if
any, should be given here.
A. Definitions That Apply for Purposes of the Transfer Rules
Proposed Sec. Sec. 1.25E-3(b) and 1.30D-5(a) would provide
definitions that apply for purposes of the transfers of a clean vehicle
credit. The definitions described in this section IV.A of the
Explanation of Provisions apply to both proposed Sec. 1.25E-3(b) and
proposed Sec. 1.30D-5(a).
[[Page 70318]]
1. Advance Payment Program
Proposed regulations 1.25E-3(b)(1) and 1.30D-5(a)(1) would define
``advance payment program'' as the program described in section
30D(g)(7) (and section 25E(f) by cross reference to section 30D(g)) and
these proposed regulations 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.
2. Dealer
Dealer for purposes of the transfer rules in proposed Sec. Sec.
1.25E-3(b)(2) and 1.30D-(a)(2) has the same meaning as that in proposed
Sec. 1.25E-1(b)(1) and described in section I.C.1 of this Explanation
of Provisions.
3. Dealer Tax Compliance
Dealer tax compliance means that all required Federal information
and tax returns of the dealer have been filed, including for Federal
income and employment tax, and the dealer has paid all Federal tax,
penalties, and interest due of the dealer at the time of sale. In the
case of an installment agreement, the proposed regulations clarify that
a dealer is in dealer tax compliance if the dealer is current on its
obligations under that installment agreement. See proposed Sec. Sec.
1.25E-3(b)(2) and 1.30D-5(a)(3).
4. Electing Taxpayer
Electing taxpayer means the individual that purchases and places in
service a clean vehicle and that elects to transfer a clean vehicle
credit associated with that vehicle that would otherwise be allowable
to that individual. To be an electing taxpayer, the individual must
make certain attestations regarding anticipated eligibility for the
credit to a registered dealer as provided in Revenue Procedure 2023-33.
See proposed Sec. Sec. 1.25E-3(b)(3) and 1.30D-5(a)(4). For example,
the electing taxpayer must make an attestation regarding satisfaction
of the modified adjusted gross income limitations for the clean vehicle
credit. In addition, for purposes of section 30D, the electing taxpayer
must attest to the registered dealer that it plans to use the vehicle
predominantly for personal use. Id. Because the election to transfer a
credit under section 30D(g) is limited to the credit allowable under
subsection 30D, a taxpayer may not elect to transfer a general business
credit for a new clean vehicle allowable under section 38 instead of
section 30D, pursuant to section 30D(c)(1). As described in proposed
Sec. 1.30D-1(b)(1) of the April 2023 proposed regulations, a
depreciable vehicle the use of which is 50 percent or more business use
in the taxable year the vehicle is placed in service is not apportioned
between section 38 and section 30D, but instead is creditable entirely
under section 38 as a general business credit. Thus, the use of a new
clean vehicle must be predominantly personal for a taxpayer to be able
to make the election to transfer the credit under section 30D(g). These
attestations will help prevent a transfer of the credit for which the
taxpayer is ineligible, and therefore will reduce instances of
recapture.
5. Eligible Entity
Eligible entity means a registered dealer that meets certain
requirements and, by reason of meeting those requirements, is eligible
to receive advance payments from the IRS under the advance payment
program. See proposed Sec. Sec. 1.25E-3(b)(4) and 1.30D-5(a)(5). The
requirements the eligible entity must meet are described in section
IV.D of this Explanation of Provisions.
6. Registered Dealer
Registered dealer refers to a dealer that has completed the
registration described in proposed Sec. Sec. 1.25E-3(c) and 1.30D-5(b)
and section IV.B of this Explanation of Provisions. See proposed
Sec. Sec. 1.25E-3(b)(5) and 1.30D-5(a)(6).
7. Time of Sale
Time of sale means the date the clean vehicle is placed in service.
The date the clean vehicle is placed in service is the date the
taxpayer takes possession of the vehicle. See proposed Sec. Sec.
1.25E-3(b)(6) and 1.30D-5(a)(7); see also proposed Sec. 1.30D-2(e) of
the April 2023 proposed regulations for the definition of placed in
service.
B. Dealer Registration and Taxpayer Election
1. Dealer Registration
Proposed Sec. Sec. 1.25E-3(c)(1) and 1.30D-5(b)(1) would provide
that, 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 Revenue
Procedure 2023-33.
Proposed Sec. Sec. 1.25E-3(c)(2) and 1.30D-5(b)(2) would provide
rules regarding dealer tax compliance. Specifically, if the dealer is
not in dealer tax compliance for any of the taxable periods during the
most recent five taxable years, the dealer may register to become a
registered dealer, but the dealer cannot receive advance payments under
the advance payment program until the dealer tax compliance issue is
resolved. In such case, the dealer, while registered, is not an
eligible entity until it comes into dealer tax compliance. Relevant
procedural guidance regarding dealer tax compliance will be published
in the Internal Revenue Bulletin.
Pursuant to section 30D(g)(1) and (g)(7), participation in the
advance payment program is elective and is subject to the requirements
and conditions that the Secretary determines necessary. Requiring
registration of a dealer before it may participate in the advance
payment program ensures that only entities that are valid, licensed
vehicle dealers are eligible to receive advance payments of the
transferred credits. In addition, requiring dealer tax compliance
ensures that entities receiving advance payments are current on their
Federal tax obligations. Taken together, these requirements help ensure
that only compliant, registered dealers receive the benefit of the
elective advance payment program by preventing fraud and ensuring sound
tax administration.
2. Vehicle Transfer Election
For clean vehicles placed in service after December 31, 2023, the
proposed regulations would 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. See proposed Sec. Sec. 1.25E-3(d) and 1.30D-5(c).
The vehicle transfer election is made by the electing taxpayer no later
than at the time of sale pursuant to Revenue Procedure 2023-33, and,
once made, the vehicle transfer election 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.
C. Federal Income Tax Consequences of the Vehicle Transfer Election
1. Treatment of Electing Taxpayer
Proposed Sec. Sec. 1.25E-3(e)(1) and 1.30D-5(d)(1) would provide
the Federal income tax treatment of a vehicle transfer election as to
an electing
[[Page 70319]]
taxpayer. Specifically, the proposed regulations provide that 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 section 26(b)(1) of the Code) for
the taxable year in which the sale occurs, and the excess amount, if
any, generally is not subject to recapture unless recapture pursuant to
section 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 taxable year. Finally, to ensure appropriate application
of the basis reduction rule in section 30D(f)(1) (and section 25E(e) by
cross reference to section 30D(f)(1)), the proposed regulations would
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.
2. Treatment of Eligible Entity
Proposed Sec. Sec. 1.25E-3(e)(2) and 1.30D-5(d)(2) would provide
the Federal income tax treatment of a vehicle transfer election as to
an eligible entity. Specifically, the eligible entity may receive as an
advance payment from the Treasury Department the amount of the clean
vehicle credit transferred to the eligible entity as part of a vehicle
transfer election, which is not includible in the eligible entity's
gross income for the taxable year in which such payment is received or
accrued, as appropriate, and such payment may exceed the eligible
entity's regular tax liability (as defined in section 26(b)(1)) for
such taxable year and generally is not subject to recapture unless the
excessive payment rules apply. The eligible entity may not deduct the
payment made to the electing taxpayer, and, consistent with the
treatment as to the electing taxpayer described in section IV.C.1 of
this Explanation of Provisions, the electing taxpayer is treated as
paying the eligible entity the amount of the transferred clean vehicle
credit as part of the purchase price of the clean vehicle. The amount
of this payment by the electing taxpayer is treated as part of the
amount realized by the eligible entity under section 1001 from the sale
of the clean vehicle.
The proposed regulations would provide special rules in the case of
an eligible entity that is a partnership or an S corporation. See
proposed Sec. Sec. 1.25E-3(e)(2)(vi) and 1.30D-5(d)(2)(vi). Because
the electing taxpayer is treated as paying the eligible entity the
amount of the transferred clean vehicle credit as part of the purchase
price of the clean vehicle and the amount of this payment is treated as
part of the amount realized by the eligible entity under section 1001
from the sale of the clean vehicle, the advance payment is not treated
as tax exempt income to the partnership or S corporation for purposes
of the Code. These rules would ensure proper basis and capital
accounting reporting for advance payments received by partnerships and
S corporations and parity in Federal tax treatment regardless of the
form through which the eligible entity conducts its business.
3. Other Rules
Proposed Sec. Sec. 1.25E-3(e)(3) and 1.30D-5(d)(3) would provide
that the Federal income tax treatment of the payments associated with a
vehicle transfer election are the same regardless of whether the
payment is made in cash or in the form of a partial payment or down
payment for the purchase of the clean vehicle. Additionally, proposed
Sec. Sec. 1.25E-3(e)(4) and 1.30D-5(d)(4) would describe the
additional rules that apply by reason of a vehicle transfer election
(that is, section 30D(f)(1) and (f)(2), section 30D(f)(6), and section
30D(f)(9), including with respect to the section 25E proposed
regulations by reason of the cross reference to section 30D(g) in
section 25E(f)).
Proposed Sec. 1.30D-5(d)(5) would provide examples demonstrating
the Federal income tax treatment of a vehicle transfer election.
D. Advance Payment Program
As noted earlier in this section, the advance payment program
allows an eligible entity to receive payments from the IRS
corresponding to the amount of the clean vehicle credit for which a
vehicle transfer election was made before the eligible entity files its
Federal income tax return for the taxable year with respect to which
the vehicle transfer election relates. See proposed Sec. Sec. 1.25E-
3(f) and 1.30D-5(e). To qualify for the advance payment program, a
registered dealer (that is, a dealer that meets the registration
requirements described in section IV.B of this Explanation of
Provisions), must meet additional requirements to be an eligible
entity. Those requirements are that the registered dealer must submit
additional registration information and be in dealer tax compliance,
the registered dealer must retain information related to the vehicle
transfer election for the period specified in the proposed regulations,
and the registered dealer must meet any other requirements provided in
procedural guidance published in the Internal Revenue Bulletin.
The proposed regulations would also refer to suspension and
revocation procedures identified in Revenue Procedure 2023-33. See
proposed Sec. Sec. 1.25E-3(f)(3) and (4) and 1.30D-5(e)(3) and (4).
Section 7803(e)(3) provides it is the function of the IRS Independent
Office of Appeals (Appeals) to resolve Federal tax controversies
without litigation. Decisions made by the IRS relating to the
suspension or revocation of a dealer's registration are not Federal tax
controversies within the meaning of the section 7803(e)(3) because
registration is too attenuated and separate from any tax liability of
the registering dealer. These registration-related decisions would have
no direct effect on the amount of a dealer's tax liability and likely
would only affect the source of the dealer's income. For example, a
dealer's ability to benefit from sections 30D(g) or 25E(f) is
predicated on registration, a buyer purchasing the eligible clean
vehicle, and a buyer making an election to transfer the credit under
sections 30D(g) or 25E(f). Only upon those three events would the
registration affect the dealer's tax liability. Accordingly, proposed
Sec. Sec. 1.25E-3(f)(3) and (4) and 1.30D-5(e)(3) and (4) would
provide that a dealer could not administratively appeal the IRS's
decisions relating to the suspension or revocation of a dealer's
registration unless the IRS and the IRS Independent Office of Appeals
agree that such review is available and the IRS provides the time and
manner for such review.
E. Increases in Tax
1. Recapture From Taxpayer
As noted in section I of the Background section of this preamble,
section 30D(g)(10) provides that, in the case of any taxpayer who has
made an election described in section 30D(g)(1) with respect to a new
clean vehicle and received a payment described in section 30D(g)(2)(C)
from an eligible entity, if the credit under section 30D would
otherwise (but for section 30D(g)) not be allowable to such taxpayer
pursuant to the application of section 30D(f)(10) (relating to the
modified adjusted gross income limitation), the tax imposed on such
taxpayer under chapter 1 for the taxable year in which such vehicle was
placed in service will be increased by the amount of the payment
received by such taxpayer. Because of the section 25E(f) cross
reference to section 30D(g), similar rules will apply for previously-
owned clean vehicles.
[[Page 70320]]
Proposed Sec. Sec. 1.25E-3(g)(1) and 1.30D-5(f)(1) would 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 under chapter 1 for the
taxable 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 taxable year.
2. Excessive Payment as to Eligible Entity
As noted in section I of the Background section of this preamble,
section 30D(g)(7)(B) (and section 25E(f) by cross reference to section
30D(g)) provides that rules similar to the rules of section 6417(d)(6)
apply for purposes of the advance payment program. Proposed Sec. Sec.
1.25E-3(g)(2) and 1.30D-5(f)(2) would provide that, in the case of any
advance payment that the IRS determines constitutes an excessive
payment, the tax imposed on the eligible entity by chapter 1,
regardless of whether such entity would otherwise be subject to chapter
1 tax, for the taxable year in which such determination is made will be
increased by the sum of the amount of the excessive payment, plus an
amount equal to 20 percent of such excessive payment. The latter
amount, however, will not apply if the eligible entity demonstrates to
the IRS that the excessive payment was due to reasonable cause, which
is presumed to be the case for a clean vehicle returned within 30 days
of placing such vehicle in service. See proposed Sec. Sec. 1.25E-
3(g)(2)(ii) and 1.30D-5(f)(2)(ii).
The proposed regulations would provide that an excessive payment
means, with respect to an advance payment to an eligible entity
pursuant to a vehicle transfer election made by an electing taxpayer,
an advance payment made to a registered dealer that fails to meet the
requirements to be an eligible entity, or to an eligible entity with
respect to a clean vehicle to the extent the payment exceeds the amount
of the clean vehicle credit that would be otherwise allowable to the
electing taxpayer with respect to the vehicle. See proposed Sec. Sec.
1.25E-3(g)(2)(iii) and 1.30D-5(f)(2)(iii). However, any excess
attributable to a taxpayer exceeding the limitation based on modified
adjusted gross income is not treated as an excessive payment to an
eligible entity.
F. Requirement To File Return
Proposed Sec. Sec. 1.25E-3(h) and 1.30D-5(g) would provide that an
electing taxpayer must file an income tax return for the taxable year
in which the vehicle transfer election is made that reports such
election. Specifically, the electing taxpayer must file a Form 1040,
U.S. Individual Income Tax Return, with an attached Form 8936, Clean
Vehicle Credits, or successor form, and any other additional forms,
schedules, or statements prescribed by the Commissioner for purposes of
making a return to report tax under chapter 1. The electing taxpayer
must include the VIN of the clean vehicle on the return of tax for the
taxable year in which the vehicle transfer election is made, as
provided for in forms and instructions.
G. Two Vehicle Transfer Elections per Year
Proposed Sec. Sec. 1.25E-3(i) and 1.30D-5(h) would provide that a
taxpayer may make no more than two transfer elections per taxable 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 taxable year,
for a maximum of four vehicle transfer elections in a taxable year.
This proposed rule is intended to ensure program integrity by limiting
transfer elections to vehicle sales that appear to be for legitimate
personal or individual use. The section 30D credit may only be
transferred for clean vehicles that are for predominantly personal use,
and a taxpayer transferring the section 25E credit must be an
individual. Moreover, a qualified buyer of a previously-owned clean
vehicle for the section 25E credit must not have been allowed a prior
section 25E credit for a sale in the prior three years. The Treasury
Department and the IRS believe that it is unlikely that an individual
who meets the modified adjusted gross income limitations would purchase
more than two clean vehicles in a taxable year for legitimate personal
or individual use. Accordingly, in light of the unique compliance
challenges posed by advance payments of the section 30D and section 25E
credits and pursuant to the broad authority conferred by section
30D(g)(1) and section 25E(f), the proposed regulations would limit
taxpayers to two vehicle transfer elections in a taxable year.
V. Proposed Regulations Under Section 6213(g)(2)
A. Omission of a Correct Vehicle Identification Number
The IRA added three new definitions to the exclusive list of
``mathematical or clerical errors'' in section 6213(g)(2). These new
definitions are set out in sections 6213(g)(2)(T), (U), and (V).
Section 6213(g)(2)(T) provides that the term ``mathematical or clerical
error'' means an omission of a correct VIN required under section
30D(f)(9) (relating to credit for new clean vehicles) to be included on
a return; section 6213(g)(2)(U) provides that the term ``mathematical
or clerical error'' means an omission of a correct VIN required under
section 25E(d) (relating to credit for previously-owned clean vehicles)
to be included on a return; and section 6213(g)(2)(V) provides that the
term ``mathematical or clerical error'' means an omission of a correct
VIN required under section 45W(e) (relating to commercial clean vehicle
credit) to be included on a return.
The flush language added by Congress in 1998 to clarify the meaning
of a correct TIN does not provide the clarification that is necessary
to determine the meaning of ``an omission of a correct vehicle
identification number'' under sections 6213(g)(2)(T) through (V).
Accordingly, proposed Sec. 301.6213-2 would provide rules for
determining when the IRS is authorized to use math error authority to
make a summary assessment when there has been an ``omission of a
correct vehicle identification number'' on a taxpayer's return when
claiming or electing to transfer the credits under sections 30D, 25E
and 45W.
Proposed Sec. 301.6213-2 would describe when taxpayers will be
treated as having omitted a correct VIN required to be included on a
taxpayer's return under section 30D, section 25E, and section 45W.
Under proposed Sec. 301.6213-2(b), a taxpayer would be treated as
having omitted a correct VIN (1) when the VIN required to be reported
under section 30D(f)(9), 25E(d), or 45W(e) is not included on the tax
return; (2) when the VIN required to be reported under section
30D(f)(9), 25E(d), or 45W(e) is included on the tax return but is not a
VIN for an eligible vehicle under section 30D(d)(1), 25E(c)(1), or
45W(c); (3) when the VIN required to be reported under section
30D(f)(9), 25E(d), or 45W(e) is included on the tax return but the
taxpayer claims the credit for a year in which the vehicle is not
eligible for the credit; (4) when the VIN required to be reported under
section 30D(f)(9) is included on the tax return but differs
[[Page 70321]]
from the VIN reported to the Secretary under section 30D(d)(1)(H) for
the taxpayer who was issued the report; and (5) when the VIN required
to be reported under section 25E(d) is included on the tax return but
differs from the VIN reported to the Secretary under section
25E(c)(1)(D)(i) for the taxpayer who was issued the report.
B. Failure To Include the Vehicle Identification Number on the Tax
Return
A taxpayer claiming a credit with respect to a new clean vehicle
under section 30D, a previously-owned clean vehicle under section
25E(a), or a commercial clean vehicle under section 45W(a), is required
under sections 30D(f)(9), 25E(d), or 45W(e), whichever is applicable,
to report the VIN of such vehicle on the taxpayer's return. Under
proposed Sec. 301.6213-2, a taxpayer would be treated as having
omitted a correct VIN required under sections 30D(f)(9), 25E(d), and
45W(e), if the VIN is missing from the taxpayer's return or the number
reported on the return is an invalid VIN. A VIN is a unique identifying
code for a specific automobile. Modern VINs comprise 17 characters
(digits and capital letters) that act as a unique identifier for the
vehicle and displays the car's unique features, specifications, and
manufacturer. An invalid VIN is a number that does not match any
existing VIN reported by a qualified manufacturer. Under the proposed
regulation, if the IRS determines that a taxpayer has failed to include
the VIN with the tax return for the taxable year because the VIN is
missing or invalid, the IRS is authorized to make an assessment of the
tax based on an omission of a correct VIN under either section
6213(g)(2)(T), (U), or (V), whichever is applicable.
C. Vehicle Identification Number Included on the Return Is for
Ineligible Vehicle
The credit under sections 30D, 25E, or 45W is available for
vehicles that qualify as a new clean vehicle under section 30D(d)(1), a
previously-owned clean vehicle under section 25E(c)(1), or a qualified
commercial clean vehicle under section 45W(c). Under proposed Sec.
301.6213-2, a taxpayer would be treated as having omitted a correct VIN
required under sections 30D(f)(9), 25E(d), or 45W(e), if the VIN
included on the taxpayer's return is not that of a new clean vehicle
under section 30D(d)(1), a previously-owned clean vehicle under section
25E(c)(1), or a qualified commercial clean vehicle under section
45W(c). Under the proposed regulation, if the IRS determines that a
taxpayer reported a VIN but the VIN is not for a vehicle described in
sections 30D(d)(1), 25E(c)(1), or 45W(c), the IRS is authorized to make
an assessment of the tax based on an omission of a correct VIN under
section 6213(g)(2)(T), (U), or (V), whichever is applicable.
D. Vehicle Identification Number Is Included on the Return but Is
Claimed for a Year in Which the Vehicle Is Not Eligible for the Credit
The credit under section 30D is available for each new clean
vehicle placed in service by the taxpayer during the taxable year if
the new clean vehicle meets the critical mineral and battery component
requirements applicable for that year, as defined in sections 30D(e)(1)
and (2). Beginning in 2023, the percentage of the value of the
applicable critical minerals contained in the vehicle's battery, as
well as the percentage of the value of the components contained in the
vehicle's battery that were manufactured or assembled in North America,
must equal or exceed the applicable percentages identified in sections
30D(e)(1) or (2) for the relevant year. If the vehicle does not meet at
least one of the applicable percentage requirements for critical
minerals and battery components for the specified year in which it is
placed in service, the vehicle is ineligible for the section 30D credit
for the claimed year. Therefore, a VIN reported on a taxpayer's return
that does not meet the section 30D(e)(1) or (2) requirements for the
applicable year cannot be a correct VIN under section 30D.
The credits under sections 30D, 25E, and 45W are available for
vehicles that qualify as a new clean vehicle under section 30D(d)(1), a
previously-owned clean vehicle under section 25E(c)(1), or a qualified
commercial clean vehicle under section 45W(c) for the taxable year the
vehicle is placed in service. If a taxpayer claims the credit under
sections 30D, 25E, or 45W, whichever is applicable, for a year other
than the year that the vehicle was placed in service, the vehicle is
ineligible for the credit for the claimed year. Therefore, a VIN
reported on a taxpayer's return for a vehicle that was not placed in
service for the year the taxpayer claims the credit cannot be a correct
VIN under sections 30D, 25E or 45W. Under proposed Sec. 301.6213-
2(b)(3), a taxpayer would be treated as having omitted a correct VIN
required under section 30D(f)(9) if the VIN included on the tax return
is for a vehicle that is not eligible for such credit under section
30D(e)(1) or (2) in the taxable year that the taxpayer claims the
credit, if the taxpayer claims the credit under section 30D, 25E, or
45W for a year other than the year that the vehicle was placed in
service, or if the taxpayer claims a credit under section 25E for a
previously-owned clean vehicle with a model year that is not at least
two model years earlier than the calendar year in which such vehicle is
acquired. Under the proposed regulation, if the IRS determines the
taxpayer omitted a correct VIN required under section 30D(f)(9) because
the VIN included on the tax return is for a vehicle that is not
eligible for such credit under section 30D(e)(1) or (2) in the taxable
year that the taxpayer claims the credit, or if the taxpayer claims the
credit under section 30D, 25E, or 45W for a year other than the year
that the vehicle was placed in service, the IRS is authorized to make
an assessment of the tax based on an omission of a correct VIN under
section 6213(g)(2)(T), (U), or (V), whichever is applicable.
E. Vehicle Identification Number Is Included on the Return but Does Not
Match the Vehicle Identification Number Included in the Section
30D(d)(1)(H) Seller Report for a Particular Taxpayer
Section 30D(d)(1)(H) requires the person who sells a new clean
vehicle to the taxpayer to furnish a report to the taxpayer and to the
Secretary that contains (i) the name and TIN of the taxpayer, (ii) the
VIN of the vehicle, unless, in accordance with any applicable rules
promulgated by the Secretary of Transportation, the vehicle is not
assigned such a number, (iii) the battery capacity of the vehicle, (iv)
verification that original use of the vehicle commences with the
taxpayer, (v) the maximum credit under section 30D allowable to the
taxpayer with respect to the vehicle, and (vi) in the case of a
taxpayer who makes a vehicle transfer election, any amount described in
section 30D(g)(2)(C) that was paid to such taxpayer. These requirements
for the seller report reflect that it is a fundamental reporting
requirement that the VIN for each vehicle eligible for the credit be
linked to a particular taxpayer's TIN. A VIN reported on a taxpayer's
return by anyone other than the reported taxpayer's TIN cannot,
therefore, be a correct VIN for the taxpayer claiming the section 30D
credit.
To reflect this TIN/VIN linkage and ensure that only the taxpayer
who purchased the vehicle is able to claim the VIN for the vehicle
eligible for the section 30D credit, proposed
[[Page 70322]]
Sec. 301.6213-2(b)(4) would provide that a taxpayer is treated as
having omitted a correct VIN on a tax return as required under section
30D(f)(9) if the VIN on the tax return does not match the VIN included
in the seller report under section 30D(d)(1)(H) for the taxpayer
claiming the credit. Under the proposed regulation, if the IRS
determines that a taxpayer reported a VIN but the VIN claimed on the
taxpayer's return is not for a vehicle that was reported to the IRS and
the taxpayer on the section 30D(d)(1)(H) report for that taxpayer, the
IRS is authorized to make an assessment of the tax based on an omission
of a correct VIN under section 6213(g)(2)(T).
F. Vehicle Identification Number Is Included on the Return but Does Not
Match the Vehicle Identification Number Included in the Section
25E(c)(1)(D)(i) Seller Report for a Particular Taxpayer
Section 25E(c)(1)(D)(i) requires the person who sells a previously-
owned clean vehicle to the taxpayer to furnish a report to the taxpayer
and to the Secretary that meets the requirements of section
30D(d)(1)(H) (except for clause (iv) thereof). Just like the
requirements for the seller report for a new clean vehicle, the
requirements for the seller's previously-owned clean vehicle report
reflect a fundamental linkage between the VIN for each vehicle eligible
for the credit and a particular taxpayer's TIN. For the same reasons
listed in section V.E of this Explanation of Provisions, a VIN reported
on a taxpayer's return by anyone other than the reported taxpayer's TIN
cannot, therefore, be a correct VIN for the taxpayer claiming the
section 25E credit.
To reflect this TIN/VIN linkage and ensure that only the taxpayer
who purchased the vehicle is able to claim the VIN for the vehicle
eligible for the section 25E credit, proposed Sec. 301.6213-2(b)(5)
would provide that a taxpayer is treated as having omitted a correct
VIN on a tax return as required under section 25E(d) if the VIN on the
tax return does not match the VIN included in the seller report under
section 25E(c)(1)(D)(i) for a taxpayer claiming the credit. Under the
proposed regulation, if the IRS determines that a taxpayer included a
VIN on a tax return but the VIN claimed on the taxpayer's return is not
for a vehicle that was reported to the IRS and the taxpayer under
sections 25E(c)(1)(D)(i) for that taxpayer, the IRS would be authorized
to make an assessment of the tax based on an omission of a correct VIN
under section 6213(g)(2)(U).
VI. Severability
If any provision in this proposed rulemaking is held to be invalid
or unenforceable facially, or as applied to any person or circumstance,
it shall be severable from the remainder of this rulemaking, and shall
not affect the remainder thereof, or the application of the provision
to other persons not similarly situated or to other dissimilar
circumstances.
Proposed Applicability Dates
Except as described in the following paragraph, these regulations
are generally proposed to apply to new clean vehicles and previously-
owned clean vehicles placed in service in taxable years beginning after
October 10, 2023.
Proposed Sec. Sec. 1.25E-3, 1.30D-5, and 301.6213-2 are proposed
to apply to taxable years beginning after December 31, 2023. The
applicability date of proposed Sec. Sec. 1.25E-3 and 1.30D-5 would
align with the applicability date of the transfer provisions of the
section 25E or section 30D credit, which apply to vehicles acquired or
placed in service, respectively, after December 31, 2023. Proposed
Sec. 301.6213-2 describes the exercise of math error authority with
respect to omission of a correct VIN, which relates in part to seller
reporting. Application of this proposed rule to taxable years beginning
after December 31, 2023, would align with the commencement of the
electronic submission of seller reporting to improve administration of
the section 25E and section 30D credits.
Effect on Other Documents
This notice of proposed rulemaking modifies proposed Sec. Sec.
1.30D-2 and 1.30D-4 of the April 2023 proposed regulations.
Special Analyses
I. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) (PRA)
generally requires that a Federal agency obtain the approval of the
Office of Management and Budget (OMB) before collecting information
from the public, whether such collection of information is mandatory,
voluntary, or required to obtain or retain a benefit.
For purposes of the PRA, the reporting burden associated with the
collection of information in proposed Sec. Sec. 1.25E-3 and 1.30D-5
regarding vehicle transfer elections will be reflected in the PRA
Submissions associated with Revenue Procedure 2023-33. The IRS is
seeking OMB approval and requesting a new OMB control number for
Revenue Procedure 2023-33. These proposed regulations do not alter
previously accounted for information collection requirements and do not
create new collection requirements. OMB Control Number 1545-2137 covers
Form 8936 and Form 8936-A regarding electric vehicle credits, including
the new requirement in section 30D(f)(9) to include on the taxpayer's
return for the taxable year the VIN of the vehicle for which the
section 30D credit is claimed. Revenue Procedure 2022-42 describes the
procedural requirements for qualified manufacturers to make periodic
written reports to the Secretary to provide information related to each
vehicle manufactured by such manufacturer that is eligible for the
section 30D credit as required in section 30D(d)(3), including the
critical mineral and battery component certification requirements in
section 30D(e)(1)(A) and (2)(A). In addition, Revenue Procedure 2022-42
also provides the procedures for sellers of new clean vehicles to
report information required by section 30D(d)(1)(H) for vehicles to be
eligible for the section 30D credit. The collections of information
contained in Revenue Procedure 2022-42 are described in that document
and were submitted to the Office of Management and Budget in accordance
with the PRA under control number 1545-2137.
II. Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes
certain requirements with respect to Federal rules that are subject to
the notice and comment requirements of section 553(b) of the
Administrative Procedure Act (5 U.S.C. 551 et seq.) and that are likely
to have a significant economic impact on a substantial number of small
entities. Unless an agency determines that a proposal will not have a
significant economic impact on a substantial number of small entities,
section 603 of the RFA requires the agency to present an initial
regulatory flexibility analysis (IRFA) of the proposed rule. The
Treasury Department and the IRS have not determined whether the
proposed rule, when finalized, will have a significant economic impact
on a substantial number of small entities. This determination requires
further study. However, because there is a possibility of a significant
economic impact on a substantial number of small entities, an IRFA is
provided in these proposed regulations. The Treasury Department and the
IRS invite comments on both
[[Page 70323]]
the number of entities affected and the economic impact on small
entities.
A. Need for and Objectives of the Rule
The proposed regulations would provide the eligibility rules and
key definitions regarding the section 25E credit to allow taxpayers to
know whether their purchase of a used vehicle is eligible for the
section 25E credit. In addition, the proposed regulations would provide
rules regarding the recapture authority under sections 30D(f)(5) and
25E(e), so that taxpayers and the IRS have clear rules regarding when a
clean vehicle may cease being eligible property for purposes of the
section 25E and section 30D credits. Further, the proposed regulations
would provide rules regarding the meaning of the omission of a correct
VIN for purposes of math error authority as described in section
6213(g)(2). Clear rules regarding the exercise of math error authority
will provide for efficient and fair tax administration.
The proposed regulations would provide guidance for purposes of
taxpayers electing to transfer vehicle credits under sections 25E(f)
and 30D(g) to eligible entities and for eligible entities participating
in the advance payment program with respect to those transferred
credits. The proposed rules would provide rules regarding the process
for taxpayers to elect to transfer the credit and for eligible entities
to register and receive advance payments from the IRS and rules
regarding the Federal income tax treatment of the vehicle transfer
election, including recapture and excessive payments. The proposed
rules regarding the vehicle transfer election ensure certainty
regarding the consequences of the transfer election, decrease the risk
of fraud, and expedite the process by which an eligible entity may
receive an advance payment under section 25E(f) or 30D(g).
The proposed rules are expected to encourage taxpayers to increase
the placing in service of new and previously-owned clean vehicles.
Thus, the Treasury Department and the IRS intend and expect that the
proposed rules will deliver benefits across the economy and environment
that will beneficially impact various industries, including clean
vehicle manufacturers and dealers.
B. Affected Small Entities
The Small Business Administration estimates in its 2023 Small
Business Profile that 99.9 percent of United States businesses meet its
definition of a small business. The applicability of these proposed
regulations does not depend on the size of the business, as defined by
the Small Business Administration. As described more fully in the
preamble to this proposed regulation and in this IRFA, these rules may
affect a variety of different businesses across several different
industries, but will primarily affect dealers of new and previously-
owned clean vehicles who would like to be eligible entities to receive
a transferred credit from the buyers of a clean vehicle. The Treasury
Department and the IRS currently estimate the number of dealers of new
clean vehicles to be approximately 16,000, and the number of dealers of
previously-owned clean vehicles to be approximately 36,000.
Of the estimated 16,000 dealers of new clean vehicles, we estimate
that 10,000 will have receipts in excess of $25 million; 3,000 will
have receipts between $10-$25 million; 1,000 will have receipts between
$5-10 million, and 2,000 will have receipts under $5 million. Of the
estimated 36,000 dealers of previously-owned clean vehicles, we
estimate that 500 will have receipts in excess of $25 million; 1,500
will have receipts between $10-$25 million; 2,000 will have receipts
between $5-10 million, and 32,000 will have receipts under $5 million.
The Treasury Department and the IRS expect to receive more
information on the impact on small businesses through comments on this
proposed rule and again when participation in the election to transfer
credits under sections 25E(f) and 30D(g) commences.
1. Impact of the Rules
The recordkeeping and reporting requirements would increase for
taxpayers who elect to transfer the section 25E or 30D credit to an
eligible entity. In addition, the recordkeeping and reporting
requirements would increase for dealers who seek to qualify as eligible
entities and participate in the advance payment program. Although the
Treasury Department and the IRS do not have sufficient data to
determine precisely the likely extent of the increased costs of
compliance, the estimated burden of complying with the recordkeeping
and reporting requirements are described in the PRA section of the
preamble. The Treasury Department and IRS estimate that, based on the
total of 52,000 dealers of new (16,000) and previously-owned (36,000)
clean vehicles, it will take approximately one hour to register as
entities eligible to receive advance payments of credits under sections
25E and 30D, for a total of 52,000 hours total. The Treasury Department
and IRS further estimate that there are approximately 950,000 taxpayers
who will purchase new clean vehicles and 28,750 taxpayers who will
purchase previously-owned clean vehicles who will elect to transfer
their respective credits to the eligible entity, for a total of 978,750
elections annually. The Treasury Department and IRS estimate each
election will take approximately 15 minutes to complete, for a total
burden of approximately 244,688 hours per year.
2. Alternatives Considered
The Treasury Department and the IRS considered various alternatives
in promulgating these proposed regulations. Significant alternatives
considered include: (1) the sale price definition in proposed Sec.
1.25E-1(b)(9); (2) the first transfer rule described in proposed Sec.
1.25E-1(b)(8); (3) the recapture rules provided in proposed Sec. Sec.
1.25E-2(c) and 1.30D-4(f), and (4) the dealer registration requirements
provided in proposed Sec. Sec. 1.25E-3(b) and 1.30D-5(b).
Regarding the sale price definition in proposed Sec. 1.25E-
1(b)(9), the Treasury Department and the IRS considered the appropriate
scope of the definition and how the definition of sale price should be
consistent with or diverge from the definition of manufacturer's
suggested retail price for purposes of section 30D(f)(11). The
definition of manufacturer's suggested retail price in proposed Sec.
1.30D-2(c) of the April 2023 proposed regulations refers to a statutory
definition in 15 U.S.C. 1232 that is used for purposes of vehicle
labeling on the vehicle window sticker. That proposed definition
includes optional accessories or items included by the manufacturer at
the time of delivery to the dealer but excludes delivery charges to the
dealer. For used vehicles, however, there are not similar vehicle
labeling standards that provide a standard for defining sales price. In
addition, in a used vehicle sale the dealer and buyer may negotiate to
characterize a portion of the sale price as a separately stated fee or
charge (other than those required by law) to avoid the section 25E
sales price cap of $25,000. To prevent this type of recharacterization,
proposed Sec. 1.25E-1(b)(9) defines sale price to mean the total sale
price agreed upon by the buyer and the dealer, including any delivery
charges. This definition specifically excludes separately-stated taxes
and fees required by State or local law, since such taxes and fees are
not subject to negotiation or recharacterization by the dealer and
buyer.
The Treasury Department and the IRS considered various alternatives
to the
[[Page 70324]]
first transfer rule described in proposed Sec. 1.25E-1(b)(8). This
rule is necessary to determine whether a sale of a previously-owned
clean vehicle is a qualified sale pursuant to section 25E(c)(2). One of
the requirements to be a qualified sale is that the sale be the first
transfer to a qualified buyer since the enactment of section 25E other
than to the person with whom the original use of the vehicle commenced.
However, some of the characteristics of being a qualified buyer are
unknowable to the dealer and the buyer in a subsequent sale, including
that a qualified buyer be an individual, not be a dependent, and not
have claimed the section 25E credit in the prior three years. As a
result, if a previously-owned clean vehicle is transferred more than
once after the date of enactment of section 25E, there is no way for
the parties after the first transfer to know if the first transfer was
to a qualified buyer. Because the IRS may have access to some
information necessary to determine whether a first transfer was to a
qualified buyer, the Treasury Department and the IRS considered
alternatives to the first transfer rule such as a look-up tool
regarding prior claims of the section 25E credit for a particular
vehicle or information regarding prior vehicle purchasers. However,
disclosure of this information raises significant confidentiality
issues. Accordingly, the Treasury Department and the IRS have proposed
the first transfer rule to provide certainty to buyers and dealers as
to which transfer of a previously-owned clean vehicle is the first
transfer and will qualify for the section 25E credit by relying on the
vehicle history.
The Treasury Department and the IRS considered alternatives to the
recapture rules provided in proposed Sec. Sec. 1.25E-2(c) and 1.30D-
4(f). Given the increased availability and benefits of the section 30D
credit and the new section 25E credit when the credit can be
transferred to an eligible entity and is not limited by the taxpayer's
tax liability, the Treasury Department and the IRS determined it was
necessary to provide rules regarding when the value of the clean
vehicle credits can be recaptured. The Treasury Department and the IRS
also considered the appropriate length of time within which a return or
resale of a vehicle would make the taxpayer ineligible for the credit.
Longer and shorter periods of time were considered. Based on industry
standard return policies, including money back guarantees, the Treasury
Department and the IRS determined that it was appropriate to deny the
benefit of the credit if the credit was returned within 30 days. In
addition, the Treasury Department and the IRS determined it was
reasonable to assume an intent to resell the vehicle, making the
purchase of the vehicle ineligible, if the vehicle was resold within 30
days.
Finally, with respect to the dealer registration requirements
provided in proposed Sec. Sec. 1.25E-3(b) and 1.30D-5(b), the Treasury
Department and the IRS considered various processes by which a seller
could become an eligible entity and participate in the advance payment
program. The Treasury Department and the IRS considered a process that
did not require submission of a significant amount of information prior
to the dealer becoming an eligible entity, but such an approach could
require more back-end compliance. To ensure efficient tax
administration and reduce fraud, the Treasury Department and the IRS
determined that an up-front, electronic registration process was
necessary for the IRS to effectively review and validate eligible
entity status. To ensure efficient tax administration and reduce fraud,
the Treasury Department and the IRS determined that an up-front,
electronic registration process was necessary for the IRS to
effectively review and validate eligible entity status. In addition,
the Treasury Department and the IRS determined that dealers must submit
identity information and attestations regarding their participation in
the advance payment program to ensure program integrity. Finally, the
Treasury Department and the IRS determined that dealer tax compliance
was necessary to ensure that advance payments are being paid only to
compliant dealers.
3. Duplicative, Overlapping, or Conflicting Federal Rules
The proposed rule would not duplicate, overlap, or conflict with
any relevant Federal rules. As discussed in the Explanation of
Provisions, the proposed rules would merely provide requirements,
procedures, and definitions related to the clean vehicle transfer
election programs for sections 25E and 30D. The Treasury Department and
the IRS invite input from interested members of the public about
identifying and avoiding overlapping, duplicative, or conflicting
requirements.
III. Section 7805(f)
Pursuant to section 7805(f), this notice of proposed rulemaking has
been submitted to the Chief Counsel for the Office of Advocacy of the
Small Business Administration for comment on its impact on small
business.
IV. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA)
requires that agencies assess anticipated costs and benefits and take
certain other actions before issuing a final rule that includes any
Federal mandate that may result in expenditures in any one year by a
State, local, or Tribal government, in the aggregate, or by the private
sector, of $100 million (updated annually for inflation). This proposed
rule does not include any Federal mandate that may result in
expenditures by State, local, or Tribal governments, or by the private
sector in excess of that threshold.
V. Executive Order 13132: Federalism
Executive Order 13132 (Federalism) prohibits an agency from
publishing any rule that has federalism implications if the rule either
imposes substantial, direct compliance costs on State and local
governments, and is not required by statute, or preempts State law,
unless the agency meets the consultation and funding requirements of
section 6 of the Executive order. This proposed rule does not have
federalism implications and does not impose substantial direct
compliance costs on State and local governments or preempt State law
within the meaning of the Executive order.
VI. Regulatory Planning and Review
Pursuant to the Memorandum of Agreement, Review of Treasury
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory
actions issued by the IRS are not subject to the requirements of
section 6 of Executive Order 12866, as amended. Therefore, a regulatory
impact assessment is not required.
Comments and Requests for a Public Hearing
Before these proposed amendments to the regulations are adopted as
final regulations, consideration will be given to comments that are
submitted timely to the IRS as prescribed in this preamble under the
ADDRESSES section. The Treasury Department and the IRS request comments
on all aspects of the proposed regulations. Any comments submitted will
be made available at https://www.regulations.gov or upon request.
A public hearing will be scheduled if requested in writing by any
person who timely submits electronic or written comments. Requests for
a public hearing are also encouraged to be made electronically. If a
public hearing is scheduled, notice of the date and time for the public
hearing will be published in the Federal Register.
[[Page 70325]]
Announcement 2023-16, 2023-20 I.R.B. 854 (May 15, 2023), provides
that public hearings will be conducted in person, although the IRS will
continue to provide a telephonic option for individuals who wish to
attend or testify at a hearing by telephone. Any telephonic hearing
will be made accessible to people with disabilities.
Statement of Availability of IRS Documents
Guidance cited in this preamble is published in the Internal
Revenue Bulletin and is available from the Superintendent of Documents,
U.S. Government Publishing Office, Washington, DC 20402, or by visiting
the IRS website at https://www.irs.gov.
Drafting Information
The principal author of these proposed regulations is the Office of
the Associate Chief Counsel (Passthroughs and Special Industries).
However, other personnel from the Treasury Department and the IRS
participated in their development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 301
Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income
taxes, Penalties, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, the Treasury Department and the IRS propose to amend
26 CFR parts 1 and 301 as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 is amended by adding
entries in numerical order for Sec. Sec. 1.25E-1 through 1.25E-3 and
1.30D-5 to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Sections 1.25E-1 through 1.25E-3 also issued under 26 U.S.C.
25E.
* * * * *
Section 1.30D-5 also issued under 26 U.S.C. 30D.
* * * * *
0
Par 2. Sections 1.25E-0 through 1.25E-3 are added to read as follows:
Sec.
* * * * *
1.25E-0 Table of contents.
1.25E-1 Credit for previously-owned clean vehicles.
1.25E-2 Special rules.
1.25E-3 Transfer of credit.
* * * * *
Sec. 1.25E-0 Table of contents.
This section lists the captions contained in Sec. Sec. 1.25E-1
through 1.25E-3.
Sec. 1.25E-1 Credit for previously-owned clean vehicles.
(a) In general.
(b) Definitions.
(1) Dealer.
(2) Incentive.
(3) Modified adjusted gross income.
(4) Placed in service.
(5) Previously-owned clean vehicle.
(6) Qualified buyer.
(7) Qualified manufacturer.
(8) Qualified sale.
(i) In general.
(ii) First transfer rule.
(9) Sale price.
(10) Section 25E regulations.
(11) Seller report.
(c) Limitation based on modified adjusted gross income.
(1) In general.
(2) Threshold amount.
(3) Special rule for change in filing status.
(d) Limitation on multiple owners.
(1) In general.
(2) Seller reporting.
(e) Examples.
(1) Example 1.
(2) Example 2.
(3) Example 3.
(4) Example 4.
(5) Example 5.
(6) Example 6.
(f) Severability.
(g) Applicability date.
Sec. 1.25E-2 Special rules.
(a) In general.
(b) No double benefit.
(1) In general.
(2) Interaction of section 30D and section 25E no double benefit
rules.
(c) Recapture.
(1) In general.
(i) Cancelled sale.
(ii) Vehicle return.
(iii) Resale.
(iv) Other returns and resales.
(2) Recapture rules in the case of a vehicle transfer election.
(3) Example.
(d) Branded title.
(e) Seller registration.
(f) Requirement to file a complete income tax return.
(g) Severability.
(h) Applicability date.
Sec. 1.25E-3 Transfer of credit.
(a) In general.
(b) Definitions.
(1) Advance payment program.
(2) Dealer.
(3) Dealer tax non-compliance.
(4) Electing taxpayer.
(5) Eligible entity.
(6) Registered dealer.
(7) Time of sale.
(8) Vehicle transfer election.
(c) Dealer registration.
(1) In general.
(2) Effect of dealer tax non-compliance.
(d) Vehicle transfer election by electing taxpayer to transfer
credit.
(e) Federal income tax consequences of the vehicle transfer
election.
(1) Treatment of electing taxpayer.
(2) Treatment of eligible entity.
(3) Form of payment from eligible entity to electing taxpayer.
(4) Application of certain other requirements.
(5) Examples.
(f) Advance payments received by eligible entities.
(1) In general.
(2) Requirements for a registered dealer to become an eligible
entity.
(3) Suspension of registered dealer eligibility.
(4) Revocation of registered dealer eligibility.
(g) Increase in tax.
(1) Recapture where taxpayer exceeds modified adjusted gross
income limitation.
(2) Excessive payments.
(i) In general.
(ii) Reasonable cause.
(iii) Excessive payment defined.
(iv) Special rule for cases in which the purchaser's modified
adjusted gross income exceeds the limitation.
(3) Example.
(h) Requirement of return.
(1) In general.
(2) Income tax return.
(i) Two vehicle transfer elections per year.
(j) Severability.
(k) Applicability date.
Sec. 1.25E-1 Credit for previously-owned clean vehicles.
(a) In general. Section 25E(a) of the Internal Revenue Code (Code)
allows as a credit against the tax imposed by chapter 1 of the Code
(chapter 1) for the taxable year of a taxpayer an amount equal to the
lesser of $4,000, or the amount equal to 30 percent of the sale price
of a previously-owned clean vehicle, when that previously-owned clean
vehicle is placed in service during the taxable year by a taxpayer that
acquired the previously-owned clean vehicle in a qualified sale in
which that taxpayer is a qualified buyer. This section provides
definitions and generally applicable rules that apply for purposes of
determining the credit under section 25E and the section 25E
regulations (as defined in paragraph (b)(10) of this section) (section
25E credit). Section 1.25E-2 provides special rules under section
25E(e). Section 1.25E-3 provides rules under section 25E(f).
(b) Definitions. The following definitions apply for purposes of
the section 25E regulations.
(1) Dealer. Dealer has the meaning provided in section 25E(c)(2)(A)
by reference to section 30D(g)(8), except that the term does not
include persons
[[Page 70326]]
licensed solely by a territory of the United States, and includes a
dealer licensed in any jurisdiction described in section 30D(g)(8)
(other than one licensed solely by a territory of the United States)
that makes sales at sites outside of the jurisdiction in which its
licensed.
(2) Incentive. For purposes of the definition of sale price in
paragraph (b)(9) of this section, incentive means any reduction in
total sale price offered to and accepted by a taxpayer from the dealer
or manufacturer, other than a reduction in the form of a partial
payment or down payment for the purchase of a previously-owned clean
vehicle pursuant to section 25E(f) and Sec. 1.25E-3.
(3) Modified adjusted gross income. Modified adjusted gross income
has the meaning provided in section 25E(b)(3).
(4) Placed in service. A previously-owned clean vehicle is
considered to be placed in service on the date the taxpayer takes
possession of the vehicle.
(5) Previously-owned clean vehicle. Previously-owned clean vehicle
has the meaning provided in section 25E(c)(1).
(6) Qualified buyer. Qualified buyer means, with respect to a sale
of a motor vehicle, a taxpayer--
(i) Who is an individual;
(ii) Who purchases such vehicle for use and not for resale;
(iii) With respect to whom no deduction is allowable to another
taxpayer under section 151 of the Code; and
(iv) Who has not been allowed a credit under section 25E and this
section for any sale occurring during the period beginning three
calendar years before the date of the sale of the vehicle and ending on
the date of the sale.
(7) Qualified manufacturer. Qualified manufacturer has the meaning
provided in section 30D(d)(3).
(8) Qualified sale--(i) In general. Qualified sale means a sale of
a motor vehicle--
(A) By a dealer (as defined in paragraph (b)(1) of this section);
(B) For a sale price that does not exceed $25,000; and
(C) That is the first transfer of the motor vehicle after August
16, 2022 (the date of enactment of section 25E), to a qualified buyer
other than the person with whom the original use of such vehicle
commenced.
(ii) First transfer rule. To be a qualified sale, a transfer must
be the first transfer since August 16, 2022, as shown by vehicle
history, of a previously-owned clean vehicle after the sale to the
person with whom the original use of such vehicle commenced. For
purposes of this paragraph (b)(8)(ii), a transfer to or between dealers
is ignored. The taxpayer may rely on the dealer's provision of the
vehicle history in determining whether the first transfer rule in this
paragraph (b)(8)(ii) is satisfied.
(9) Sale price. The sale price of a previously-owned clean vehicle
means the total sale price agreed upon by the buyer and dealer in a
written contract at the time of sale, including any delivery charges
and after the application of any incentives, but excluding separately-
stated taxes and fees required by State or local law. The sale price of
a previously-owned clean vehicle is determined before the application
of any trade-in value.
(10) Section 25E regulations. Section 25E regulations means this
section and Sec. Sec. 1.25E-2 and 1.25E-3.
(11) Seller report. Seller report means the report described in
section 25E(c)(1)(D)(i) by reference to section 30D(d)(1)(H) and
provided by the seller of a vehicle to the taxpayer and to the IRS
electronically in the manner provided in, and containing the
information described in, guidance published in the Internal Revenue
Bulletin (see Sec. 601.601(d)(2)(ii)(a) of this chapter). The seller
report must be provided to the IRS electronically. The term seller
report does not include a report rejected by the IRS due to the
information contained therein not matching IRS records.
(c) Limitation based on modified adjusted gross income--(1) In
general. No section 25E credit is allowed for any taxable year if--
(i) The lesser of--
(A) The modified adjusted gross income of the taxpayer for such
taxable year; or
(B) The modified adjusted gross income of the taxpayer for the
preceding taxable year; exceeds
(ii) The threshold amount.
(2) Threshold amount. For purposes of paragraph (c)(1) of this
section, the threshold amount is determined based on the taxpayer's
return filing status for the taxable year, as set forth in paragraphs
(c)(2)(i) through (iii) of this section--
(i) In the case of a joint return or a surviving spouse (as defined
in section 2(a) of the Code), the threshold amount is $150,000.
(ii) In the case of a head of household (as defined in section 2(b)
of the Code), the threshold amount is $112,500.
(iii) In the case of a taxpayer not described in paragraph
(c)(2)(i) or (ii) of this section, the threshold amount is $75,000.
(3) Special rule for change in filing status. If the taxpayer's
filing status for the taxable year differs from the taxpayer's filing
status in the preceding taxable year, then the taxpayer satisfies the
limitation described in paragraph (c)(1) of this section if the
taxpayer's modified adjusted gross income does not exceed the threshold
amount in either year based on the applicable filing status for that
taxable year.
(d) Limitation on multiple owners--(1) In general. The amount of
the section 25E credit attributable to a previously-owned clean vehicle
may be claimed on only one tax return. In the event a previously-owned
clean vehicle is placed in service by multiple owners (for example, in
the case of married individuals filing separate returns), no allocation
or proration of the section 25E credit is available.
(2) Seller reporting. The name and taxpayer identification number
of the vehicle owner claiming the section 25E credit must be listed on
the seller report pursuant to sections 25E(c)(1)(D)(i) and
30D(d)(1)(H). The credit will be allowed only on the tax return of the
owner listed in the seller report.
(e) Examples. The following examples illustrate the application of
the rules in this section.
(1) Example 1: First transfer since enactment of section 25E. A
two-year-old qualifying vehicle has been sold as used prior to August
16, 2022 (the date of enactment of section 25E). The next sale of the
vehicle occurs on September 1, 2023, for a sale price below $25,000
from a dealer to a qualified buyer whose modified adjusted gross income
does not exceed the limitation described in paragraph (c) of this
section. This sale is a qualified sale pursuant to paragraph (b)(8) of
this section and, therefore, the buyer will qualify for the section 25E
credit.
(2) Example 2: Multiple transfers since enactment of section 25E.
The facts are the same as in paragraph (e)(1) of this section (Example
1), except that the first sale of the used vehicle occurs after August
16, 2022, for a sale price above $25,000. The first sale of the used
vehicle would not qualify for a credit under section 25E because the
sale price exceeded $25,000. The second sale is not a qualified sale
because it was not the first transfer after enactment of section 25E.
(3) Example 3: First buyer is a commercial buyer. The facts are the
same as in paragraph (e)(1) of this section (Example 1), except that
the first sale of the used vehicle occurs after August 16, 2022, to a
partnership, for a sale price below $25,000. The first sale would not
qualify for a credit under
[[Page 70327]]
section 25E because the buyer is a partnership, not an individual. The
second sale is not a qualified sale because it is not the first
transfer after enactment of section 25E.
(4) Example 4: First buyer exceeds the modified adjusted gross
income limits. The facts are the same as in paragraph (e)(1) of this
section (Example 1), except that the first sale of the used vehicle
occurs after August 16, 2022, and was sold to a buyer whose modified
adjusted gross income exceeds the limitation described in paragraph (c)
of this section. Subsequently, the vehicle is sold again for less than
$25,000 to a qualified buyer whose modified adjusted gross income is
below the limitation. The first sale would not qualify for a credit
under section 25E because the buyer's modified adjusted gross income
exceeds the limitation, and the second sale is not a qualified sale
because it is not the first transfer after the enactment of section
25E.
(5) Example 5: First buyer elects to not take the section 25E
credit. The facts are the same as in paragraph (e)(1) of this section
(Example 1), except that the first sale of the used vehicle occurred
after August 16, 2022, and was sold to a qualified buyer for a sale
price below $25,000, but that first buyer elects to not claim the
section 25E credit. The second sale is not a qualified sale because it
is not the first transfer after the enactment of section 25E.
(f) Severability. The provisions of this section are separate and
severable from one another. If any provision of this section is stayed
or determined to be invalid, it is the agencies' intention that the
remaining provisions shall continue in effect.
(g) Applicability date. This section applies to previously-owned
clean vehicles placed in service in taxable years beginning after
October 10, 2023.
Sec. 1.25E-2 Special rules.
(a) In general. This section provides additional guidance under
section 25E(e) of the Internal Revenue Code (Code), which incorporates
rules similar to the rules of section 30D(f) other than section
30D(f)(10) or 30D(f)(11). Unless otherwise provided in this section,
the rules of section 30D(f) apply to section 25E and the section 25E
regulations (as defined in Sec. 1.25E-1(b)(10)) in the same manner by
replacing, if applicable, any reference to section 30D or the section
30D credit with a reference to section 25E or the section 25E credit.
(b) No double benefit--(1) In general. Under sections 25E(e) and
30D(f)(2), the amount of any deduction or other credit allowable under
chapter 1 of the Code (chapter 1) for a vehicle for which a section 25E
credit is allowable must be reduced by the amount of the section 25E
credit allowed for such vehicle.
(2) Interaction of section 30D and section 25E no double benefit
rules. A section 30D credit that has been allowed with respect to a
vehicle in a taxable year before the year in which a section 25E credit
under section 25E is allowable for that vehicle does not reduce the
amount allowable under section 25E.
(c) Recapture--(1) In general. This paragraph (c) provides rules
regarding the recapture of the section 25E credit.
(i) Cancelled sale. If the sale of a vehicle between the taxpayer
and dealer is cancelled before the taxpayer places the vehicle in
service, then--
(A) The taxpayer may not claim the section 25E credit with respect
to the vehicle;
(B) The sale will be treated as not having occurred (and no
transfer is considered to have occurred by reason of the cancelled
sale), and the vehicle will, therefore, still qualify for the section
25E credit upon a subsequent sale meeting the requirements of section
25E and the section 25E regulations;
(C) The seller report (as defined in Sec. 1.25E-1(b)(11)) must be
rescinded by the seller in the manner set forth in guidance published
in the Internal Revenue Bulletin (see Sec. 601.601(d)(2)(ii)(a) of
this chapter); and
(D) The taxpayer cannot make an election to transfer the credit
under section 25E(f) and Sec. 1.25E-3.
(ii) Vehicle return. If a taxpayer returns a vehicle to the dealer
within 30 days of placing such vehicle in service, then--
(A) The taxpayer cannot claim the section 25E credit with respect
to the vehicle;
(B) The sale will be treated as having occurred (and a transfer is
therefore considered as having occurred by reason of the sale), and the
vehicle will not qualify for the section 25E credit upon a subsequent
sale, unless the vehicle history does not reflect the prior sale and
return; if the vehicle history does not reflect the prior sale and
return, the vehicle remains eligible for the section 25E credit under
the first transfer rule described in Sec. 1.25E-1(b)(8)(ii);
(C) The seller report (as defined in Sec. 1.25E-1(b)(11)) must be
updated by the seller; and
(D) Any vehicle transfer election made pursuant to section 25E(f)
and Sec. 1.25E-3, if applicable, will be treated as nullified and any
advance payment made pursuant to section 25E(f) and Sec. 1.25E-3, if
applicable, will be collected from the eligible entity as an excessive
payment pursuant to Sec. 1.25E-3.
(iii) Resale. If a taxpayer resells the vehicle within 30 days of
placing the vehicle in service, then the taxpayer is treated as having
purchased the previously-owned clean vehicle with the intent to resell,
and--
(A) The taxpayer may not claim the section 25E credit with respect
to the vehicle;
(B) The sale to the taxpayer will be treated as occurring (and a
transfer is therefore considered as occurring by reason of the sale),
and the vehicle will not qualify for the section 25E credit upon a
subsequent sale;
(C) The seller report (as defined in Sec. 1.25E-1(b)(11)) will not
be updated; and
(D) Any vehicle transfer election made pursuant to section 25E(f)
and Sec. 1.25E-3, if applicable, will remain in effect and any advance
payment made pursuant to section 25E(f) and Sec. 1.25E-3 will not be
collected from the eligible entity; and
(E) The value of the transferred credit will be collected from the
taxpayer.
(iv) Other returns and resales. In the case of a vehicle return not
described in paragraph (c)(1)(ii) or a resale not described in
paragraph (c)(1)(iii), the vehicle will no longer be eligible for the
section 25E credit upon a subsequent sale.
(2) Recapture rules in the case of a vehicle transfer election. For
additional recapture rules that apply in the case of a vehicle transfer
election, see Sec. 1.25E-3(g)(1). For excessive payment rules that
apply in the case where an advance payment is made to an eligible
entity, see Sec. 1.25E-3(g)(2).
(3) Example: First buyer returns vehicle. A two-year-old qualifying
vehicle is sold to a qualified buyer after August 16, 2022, for less
than $25,000, but the buyer returns the vehicle to the dealer within 30
days and does not claim the credit under section 25E. The vehicle
history reflects the first used sale and return. A second sale of the
used vehicle is not a qualified sale because the first sale occurred
after the enactment of section 25E, regardless of whether the first
buyer claimed the credit under section 25E.
(d) Branded title. A title to a previously-owned clean vehicle
indicating that such vehicle has been damaged, or is otherwise a
branded title, does not impact the vehicle's eligibility for a section
25E credit.
(e) Seller registration. A seller must register with the IRS in the
manner set forth in guidance published in the Internal Revenue Bulletin
(see
[[Page 70328]]
Sec. 601.601(d)(2)(ii)(a) of this chapter) for purposes of filing
seller reports.
(f) Requirement to file a complete income tax return. No section
25E credit is allowed unless the taxpayer claiming such credit files an
income tax return for the taxable year in which the previously-owned
clean vehicle is placed in service. For purpose of this paragraph (f),
the term income tax return means a Form 1040, U.S. Individual Income
Tax Return, with an attached Form 8936, Clean Vehicle Credits, or
successor forms, and any additional forms, schedules, or statements
prescribed by the Commissioner for the purpose of making a return to
report the tax under chapter 1 that includes all of the information
required on the forms and in instructions.
(g) Severability. The provisions of this section are separate and
severable from one another. If any provision of this section is stayed
or determined to be invalid, it is the agencies' intention that the
remaining provisions shall continue in effect.
(h) Applicability date. This section applies to previously-owned
clean vehicles placed in service in taxable years beginning after [DATE
OF PUBLICATION OF FINAL RULE].
Sec. 1.25E-3 Transfer of credit.
(a) In general. This section provides a credit transfer program
under section 25E(f).
(b) Definitions. This paragraph (b) provides definitions that apply
for purposes of section 25E(f) and this section.
(1) Advance payment program. Advance payment program means the
program described in paragraph (f)(1) of this section.
(2) Dealer. Dealer has the meaning provided in Sec. 1.25-1(b)(1).
(3) Dealer tax compliance. Dealer tax compliance means that all
required Federal information and tax returns of the dealer have been
filed, including for Federal income and employment tax purposes, and
all Federal tax, penalties, and interest due of the dealer as of the
time of sale have been paid. A dealer that has entered into an
installment agreement with the IRS for which a dealer is current on its
obligations is treated as being in dealer tax compliance.
(4) Electing taxpayer. Electing taxpayer means the individual who
purchases the previously-owned clean vehicle and elects to transfer the
section 25E credit that would otherwise be allowable to such individual
to an eligible entity pursuant to section 25E(f) and the rules of this
section. A taxpayer is an electing taxpayer only if the taxpayer makes
certain attestations to the registered dealer, pursuant to procedures
provided in guidance published in the Internal Revenue Bulletin,
including that the taxpayer does not anticipate exceeding the modified
adjusted gross income limitations.
(5) Eligible entity. Eligible entity has the meaning provided in
section 30D(g)(2) and paragraph (f)(2) of this section.
(6) Registered dealer. Registered dealer is a dealer that has
completed registering with the IRS as provided in paragraph (c) of this
section.
(7) Time of sale. Time of sale means the date the previously-owned
clean vehicle is placed in service, as defined in Sec. 1.25E-1(b)(4).
(8) Vehicle transfer election. Vehicle transfer election has the
meaning provided in sections 25E(f) and 30D(g) and paragraph (d) of
this section.
(c) Dealer registration--(1) In general. A dealer must first
register with the IRS in the manner set forth in guidance published in
the Internal Revenue Bulletin (see Sec. 601.601(d)(2)(ii)(a) of this
chapter) for the dealer to receive credits transferred by an electing
taxpayer pursuant to section 25E(f) and paragraph (d) of this section.
(2) Effect of dealer tax non-compliance. If the dealer is not in
dealer tax compliance for any of the taxable periods during the last
five taxable years, then the dealer may complete its initial
registration with the IRS, but the dealer will not be eligible for the
advance payment program (and, therefore, the dealer will not be
eligible to receive transferred section 25E credits) until the
compliance issue is resolved. The IRS will notify the dealer in writing
that the dealer is not in dealer tax compliance, and the dealer will
have the opportunity to address any failure through regular procedures.
If the failure is corrected, the IRS will complete the dealer's
registration for the advance payment program, and, provided all other
requirements of this section are met, the dealer will then be allowed
to participate in the advance payment program. Additional procedural
guidance regarding this paragraph (c)(2) will be set forth in guidance
published in the Internal Revenue Bulletin.
(d) Vehicle transfer election by electing taxpayer to transfer
credit. For a previously-owned clean vehicle placed in service after
December 31, 2023, an electing taxpayer may elect to apply the rules of
section 25E(f) and this section to make a vehicle transfer election
with respect to the vehicle, so that the 25E credit with respect to the
vehicle is allowed to the eligible entity specified in the vehicle
transfer election (and not to the taxpayer) pursuant to the advance
payment program described in paragraph (f) of this section. The
electing taxpayer, as part of the vehicle transfer election, must
transfer the entire amount of the section 25E credit that would
otherwise be allowable to the electing taxpayer with respect to the
vehicle, and the eligible entity specified in the vehicle transfer
election must pay the electing taxpayer an amount equal to the amount
of the credit included in the vehicle transfer election. A vehicle
transfer election is made no later than at the time of sale in the
manner set forth in guidance published in the Internal Revenue Bulletin
(see Sec. 601.601(d)(2)(ii)(a) of this chapter), and, once made the
vehicle transfer election is irrevocable.
(e) Federal income tax consequences of the vehicle transfer
election--(1) Treatment of electing taxpayer. In the case of a vehicle
transfer election, the Federal income tax consequences for the electing
taxpayer are as follows--
(i) The amount of the section 25E credit that the electing taxpayer
elects to transfer to the eligible entity under section 30D(g) (by
reason of section 25E(f)) and paragraph (d) of this section may exceed
the electing taxpayer's regular tax liability (as defined in section
26(b)(1) of the Code) for the taxable year in which the sale occurs,
and the excess, if any, is not subject to recapture;
(ii) The payment made by an eligible entity to an electing taxpayer
under section 30D(g)(2)(C) (by reason of 25E(f)) and paragraph (d) of
this section to an electing taxpayer pursuant to a vehicle transfer
election is not includible in the gross income of the electing
taxpayer; and
(iii) The payment made by an eligible entity under section
30D(g)(2)(C) (by reason of section 25E(f)) and paragraph (d) of this
section is treated as repaid by the electing taxpayer to the eligible
entity as part of the purchase price of the previously-owned clean
vehicle. Thus, the repayment by the electing taxpayer is part of the
electing taxpayer's basis in the previously-owned clean vehicle prior
to the application of the basis reduction rule of section 30D(f)(1)
that applies by reason of section 25E(e) and Sec. 1.25E-2(a).
(2) Treatment of eligible entity. In the case of a vehicle transfer
election, the Federal income tax consequences for the eligible entity
are as follows--
(i) The eligible entity is allowed the section 25E credit with
respect to the previously-owned clean vehicle and
[[Page 70329]]
may receive an advance payment pursuant to section 30D(g)(7) (by reason
of section 25(f)) and paragraph (f) of this section;
(ii) Advance payments received by the eligible entity are not
treated as a tax credit in the hands of the eligible entity and may
exceed the eligible entity's regular tax liability (as defined in
section 26(b)(1)) for the taxable year in which the sale occurs;
(iii) An advance payment received by the eligible entity is not
included in the gross income of the eligible entity;
(iv) The payment made by an eligible entity under section
30D(g)(2)(C) (by reason of section 25(f)) and paragraph (d) of this
section to an electing taxpayer is not deductible by the eligible
entity; and
(v) The payment made by an eligible entity to the electing taxpayer
under section 30D(g)(2)(C) (by reason of section 25(f)) and paragraph
(d) of this section is treated as paid by the electing taxpayer to the
eligible entity as part of the purchase price of the previously-owned
clean vehicle. Thus, the repayment by the electing taxpayer is treated
as an amount realized of the eligible entity under section 1001 of the
Code and the regulations in this part under section 1001.
(vi) If the eligible entity is a partnership or an S corporation,
then--
(A) The IRS will make the advance payment to such partnership or S
corporation equal to the amount of the section 25E credit allowed that
is transferred to the eligible entity;
(B) Such section 25E credit is reduced to zero and is, for any
other purpose of the Code, deemed to have been allowed solely to such
entity (and not allocated or otherwise allowed to its partners or
shareholders) for such taxable year; and
(C) The amount of the advance payment is not treated as tax exempt
income to the partnership or S corporation for purposes of the Code.
(3) Form of payment from eligible entity to electing taxpayer. The
tax treatment of the payment made by the eligible entity to the
electing taxpayer described in paragraphs (e)(1) and (2) of this
section is the same regardless of whether the payment is made in cash
or in the form of a partial payment or down payment for purchase of the
previously-owned clean vehicle.
(4) Application of certain other requirements. In the case of a
vehicle transfer election, the following additional rules apply--
(i) The requirements of section 30D(f)(1) (regarding basis
reduction) and 30D(f)(2) (regarding no double benefit), by reason of
section 25E(e), apply to the electing taxpayer as if the vehicle
transfer election were not made (so, for example, the electing taxpayer
must reduce the taxpayer's basis in the vehicle by the amount of the
section 25E credit, regardless of the vehicle transfer election).
(ii) Section 30D(f)(6) (regarding the election not to take the
credit), by reason of section 25E(e), will not apply (in other words,
by electing to transfer the credit, the electing taxpayer is electing
to take the credit).
(iii) Section 30D(f)(9) (regarding the vehicle identification
number (VIN) requirement), by reason of section 25E(e), and section
25E(d) (regarding the VIN requirement) will be treated as satisfied if
the eligible entity provides the VIN of such vehicle to the IRS in the
form and manner set forth in guidance published in the Internal Revenue
Bulletin.
(5) Examples. The following examples illustrate the rules under
paragraph (e) of this section.
(i) Example 1: Electing taxpayer's regular tax liability less than
value of the credit--(A) Facts. A taxpayer, who is an individual,
purchases a previously-owned clean vehicle from a dealer, which is a C
corporation. The taxpayer satisfies the requirements to be an electing
taxpayer and elects to transfer the section 25E credit to the dealer.
The dealer is a registered dealer and satisfies the requirements to be
an eligible entity. The sales price the vehicle is $24,000. The section
25E credit otherwise allowable to the electing taxpayer is $4,000. The
eligible entity makes the payment required to be made to the electing
taxpayer in the form of a cash payment of $4,000. The electing taxpayer
pays back the $4,000 to the eligible entity and pays an additional
$20,000 as the purchase price of the vehicle. The electing taxpayer's
regular tax liability for the year is less than $4,000.
(B) Analysis. Under paragraph (e)(1) of this section, the electing
taxpayer may transfer the credit even though the electing taxpayer's
regular tax liability is less than $4,000, and no amount of the credit
will be recaptured from the taxpayer on the basis that the allowable
credit exceeded their regular tax liability. The eligible entity's
$4,000 payment to the electing taxpayer is not included in the electing
taxpayer's gross income, and the electing taxpayer's purchase price for
the vehicle is $24,000 (including both the $4,000 payment and the
additional $20,000 purchase price paid), prior to the application of
the basis reduction rule of section 30D(f)(1) (by reason of section
25E(e)). After application of the basis reduction, the electing
taxpayer's basis in the vehicle is $20,000. The eligible entity is
eligible to receive an advance payment of $4,000 for the transferred
section 25E credit as provided in section 30D(g)(7) (by reason of
section 25E(f)) and paragraph (f) of this section. Under paragraph
(d)(2) of this section, the eligible entity may receive the advance
payment regardless of whether the eligible entity's regular tax
liability is less than $4,000. The advance payment is not treated as a
credit toward the eligible entity's tax liability (if any), nor is it
included in the eligible entity's gross income, the eligible entity's
$4,000 payment to the electing taxpayer is not deductible, and the
eligible entity's amount realized is $24,000 upon the sale of the
vehicle (including both the $4,000 payment and the additional $20,000
purchase price of the vehicle).
(ii) Example 2: Non-cash payment by eligible entity to electing
taxpayer--(A) Facts. The facts are the same as in paragraph
(e)(5)(i)(A) of this section (facts of Example 1), except that the
eligible entity makes the payment to the electing taxpayer in the form
of a reduction in the purchase price (rather than as a cash payment).
(B) Analysis. Paragraph (e)(3) of this section provides that the
application of paragraphs (e)(1) and (2) of this section is not
dependent on the form of payment from an eligible entity to an electing
taxpayer (for example, a payment in cash or a payment in the form of a
reduction in purchase price). Thus, the analysis is the same as in
paragraph (e)(5)(i)(B) of this section (analysis of Example 1).
(iii) Example 3: Eligible entity is a partnership--(A) Facts. The
facts are the same as in paragraph (e)(5)(i)(A) of this section (facts
of Example 1), except that the dealer is a partnership.
(B) Analysis. The analysis as to the electing taxpayer is the same
as in paragraph (e)(5)(i)(B) of this section (analysis of Example 1).
Because the eligible entity is a partnership, paragraph (e)(2)(vi) of
this section applies. Thus, the advance payment is made to the
partnership, the credit is reduced to zero and is, for any other
purpose of the Code, deemed to have been allowed solely to the
partnership (and not allocated or otherwise allowed to its partners)
for such taxable year. The amount of the advance payment is not treated
as tax exempt income to the partnership for purposes of the Code.
(f) Advance payments received by eligible entities--(1) In general.
An eligible entity may receive advance payments from the IRS
corresponding to the amount of the section 25E credit for which an
election was made by an electing taxpayer to transfer the credit to
[[Page 70330]]
the eligible entity pursuant to section 30D(g) (by reason of section
25E(f)) and paragraph (d) of this section before the eligible entity
files its Federal income tax return for the taxable year that includes
the taxable year with respect to which the vehicle transfer election
corresponds. This advance payment program is the exclusive mechanism
for an eligible entity to receive the section 25E credit transferred
under section 25E(f) pursuant to paragraph (d) of this section. An
eligible entity receiving an advance payment may not claim the section
25E credit on a Federal income tax return.
(2) Requirements for a registered dealer to become an eligible
entity. A registered dealer qualifies as an eligible entity, and may
therefore receive an advance payment, by meeting the following
requirements--
(i) The registered dealer submits all required registration
information and is in dealer tax compliance.
(ii) The registered dealer retains information regarding the
vehicle transfer election for three calendar years beginning with the
year immediately after the year in which the vehicle is placed in
service, as described in guidance published in the Internal Revenue
Bulletin (see Sec. 601.601 of this chapter).
(iii) The eligible entity meets any other requirements of section
25E(f) by reference to section 30D(g) and this section included in
guidance published in the Internal Revenue Bulletin (see Sec. 601.601
of this chapter) or in forms and instructions.
(3) Suspension of registered dealer eligibility. A registered
dealer may be suspended from the advance payment program pursuant to
the procedures described in guidance published in the Internal Revenue
Bulletin (see Sec. 601.601 of this chapter). Any decision made by the
IRS relating to the suspension of a dealer's registration is not
subject to administrative appeal to the IRS Independent Office of
Appeals unless the IRS and the IRS Independent Office of Appeals agree
that such review is available and the IRS provides the time and manner
for such review.
(4) Revocation of registered dealer eligibility. A registered
dealer's registration may be revoked pursuant to the procedures
described in guidance published in the Internal Revenue Bulletin (see
Sec. 601.601 of this chapter). Any decision made by the IRS relating
to the revocation of a dealer's registration is not subject to
administrative appeal to the IRS Independent Office of Appeals unless
the IRS and the IRS Independent Office of Appeals agree that such
review is available and the IRS provides the time and manner for such
review.
(g) Increase in tax--(1) Recapture where taxpayer exceeds modified
adjusted gross income limitation. If a taxpayer who elected to transfer
the credit under section 25E(f) and this section has modified adjusted
gross income that exceeds the limitation in section 25E(b), the income
tax imposed on such taxpayer under chapter 1 of the Code (chapter 1)
for the taxable year in which the vehicle was placed in service is
increased by the amount of the payment received by the taxpayer. The
taxpayer must reconcile such amounts on the tax return described in
paragraph (h) of this section.
(2) Excessive payments--(i) In general. This paragraph (g)(2)
provides rules under section 25E(f) by reference to section
30D(g)(7)(B), under which rules similar to the rules of section
6417(d)(6) of the Code apply to the advance payment program. In the
case of any advance payment that the IRS determines constitutes an
excessive payment, the tax imposed on the eligible entity under chapter
1, regardless of whether such entity would otherwise be subject to tax
under chapter 1, for the taxable year in which such determination is
made will be increased by the sum of:
(A) The amount of the excessive payment; plus
(B) An amount equal to 20 percent of such excessive payment.
(ii) Reasonable cause. The amount described in paragraph
(g)(2)(i)(B) of this section will not apply to an eligible entity if
the eligible entity demonstrates to the satisfaction of the IRS that
the excessive payment resulted from reasonable cause. In the case of a
vehicle returned to the eligible entity within 30 days of placing the
vehicle in service for which a vehicle transfer election was made by
the electing taxpayer, as described in Sec. 1.25E-2(c)(1)(ii), the
eligible entity will be treated as demonstrating reasonable cause.
(iii) Excessive payment defined. Excessive payment means an advance
payment made--
(A) To a registered dealer that fails to meet the requirements to
be an eligible entity provided in paragraph (f)(2) of this section; or
(B) Except as provided in paragraph (g)(2)(iv) of this section, to
an eligible entity with respect to a vehicle to the extent the payment
exceeds the amount of the credit that, without application of section
25E(f) and this section, would be otherwise allowable to the electing
taxpayer with respect to the vehicle for such tax year.
(iv) Special rule for cases in which the purchaser's modified
adjusted gross income exceeds the limitation. Any excess described in
paragraph (g)(2)(iii)(B) of this section due to the purchaser exceeding
the limitation based on modified adjusted gross income provided in
section 25E(b) is not an excessive payment. Instead, the value of the
amount of the advance payment is recaptured from the purchaser under
section 25E(e) and paragraph (g)(1) of this section.
(3) Example. This paragraph (g)(3) provides an example to
illustrate the excessive payment rules provided in paragraph (g)(2) of
this section.
(i) Facts. In 2024, D, a registered dealer, receives an advance
payment of $4,000 with respect to a credit transferred under section
25E(f)(1) and paragraph (d) of this section with respect to a
previously-owned clean vehicle. In 2025, the IRS determines that the
registered dealer was not an eligible entity with respect to the
vehicle at the time of the receipt of the advance payment in 2024
because the registered dealer failed to satisfy a requirement in
section 30D(g)(2) (applicable by reason of section 25E(f)) and
paragraph (f)(2) of this section to be an eligible entity with respect
to the vehicle. D is unable to show reasonable cause for the failure.
(ii) Analysis. Under paragraph (g)(2)(i) of this section, the tax
imposed on D is increased by the amount of the excessive payment if the
advance payment received by D constitutes an excessive payment. Under
paragraph (g)(2)(iii) of this section, the entire amount of the $4,000
advance payment received by D is an excessive payment because D did not
meet the requirements to be an eligible entity under section 30D(g)(2)
(applicable by reason of section 25E(f)) and paragraph (g)(2) of this
section. Additionally, because D cannot show reasonable cause for its
failure to meet these requirements, the tax imposed under chapter 1 on
D is increased by $4,800 in 2025 (the taxable year of the IRS
determination). This is comprised of the $4,000 value of the credit
plus the $800 penalty, calculated as 20% penalty on such $4,000 (20% *
$4,000 = $800). This treatment applies regardless of whether D is
otherwise subject to tax under chapter 1 (for example, if D is a
partnership).
(h) Requirement of return--(1) In general. An electing taxpayer
that makes a vehicle transfer election must file an income tax return
for the taxable year in which the vehicle transfer election is made and
indicate such election on the return per instructions. The electing
taxpayer must include the VIN of the
[[Page 70331]]
new clean vehicle on such return, as provided for in forms and
instructions.
(2) Income tax return. For purposes of this section, the term
income tax return means a Form 1040, U.S. Individual Income Tax Return,
with an attached Form 8936, Clean Vehicle Credits, or successor forms,
or any other forms, schedules, or statements prescribed by the
Commissioner for the purpose of making a return to report the tax under
chapter 1 that includes all of the information required on the forms
and in instructions.
(i) Two vehicle transfer elections per year. A taxpayer may make no
more than two transfer elections per taxable year, consisting of either
two section 30D credits or one section 30D credit and one section 25E
credit. In the case of a joint return, each individual taxpayer may
make no more than two transfer elections per taxable year.
(j) Severability. The provisions of this section are separate and
severable from one another. If any provision of this section is stayed
or determined to be invalid, it is the agency's intention that the
remaining provisions will continue in effect.
(k) Applicability date. This section applies to taxable years
ending after December 31, 2023.
0
Par 3. Section 1.30D-0, as proposed to be added at 88 FR 23370 (April
17, 2023), is amended by:
0
1. Adding entry (j) to Sec. 1.30D-2;
0
2. In Sec. 1.30D-4:
0
i. Revising the heading; and
0
ii. Adding entries (f), (f)(1), (f)(1)(i) through (iv), (f)(2), (g),
and (h); and
0
3. Adding an entry in numerical order for Sec. 1.30D-5.
The revisions and additions read as follows:
Sec. 1.30D-0 Table of contents.
* * * * *
Sec. 1.30D-2 Definitions for purposes of section 30D.
* * * * *
(j) Seller report.
* * * * *
Sec. 1.30D-4 Special rules.
* * * * *
(f) Recapture rules.
(1) In general.
(i) Cancelled sale.
(ii) Vehicle return.
(iii) Resale.
(iv) Other vehicle returns and resales.
(2) Recapture rules in the case of a vehicle transfer election.
(g) Seller registration.
(h) Requirement to file a complete income tax return.
Sec. 1.30D-5 Transfer of credit and recapture.
(a) Definitions.
(1) Advance payment program.
(2) Dealer.
(3) Dealer tax compliance.
(4) Electing taxpayer.
(5) Eligible entity.
(6) Registered dealer.
(7) Time of sale.
(8) Vehicle registration election.
(b) Dealer registration.
(1) In general.
(2) Effect of dealer tax non-compliance.
(c) Election by electing taxpayer to transfer credit.
(d) Federal income tax consequences of the vehicle transfer
election.
(1) Treatment of electing taxpayer.
(2) Treatment of eligible entity.
(3) Form of payment from eligible entity to electing taxpayer.
(4) Application of certain other requirements.
(5) Examples.
(e) Advance payments received by eligible entities.
(1) In general.
(2) Requirements for a registered dealer to become an eligible
entity.
(3) Suspension of registered dealer eligibility.
(4) Revocation of registered dealer eligibility.
(f) Increase in tax.
(1) Recapture where taxpayer exceeds modified adjusted gross
income limitation.
(2) Excessive payments.
(i) In general.
(ii) Reasonable cause.
(iii) Excessive payment defined.
(iv) Special rule for cases in which the purchaser's modified
adjusted gross income exceeds the limitation.
(3) Example.
(g) Requirement of return.
(1) In general.
(2) Income tax return.
(h) Two vehicle transfer elections per year.
(i) Severability.
(j) Applicability date.
0
Par 4. Section 1.30D-2, as proposed to be added at 88 FR 23370 (April
17, 2023), is amended by adding paragraph (j) to read as follows:
Sec. 1.30D-2 Definitions for purposes of section 30D.
* * * * *
(j) Seller report. Seller report means the report described in
section 30D(d)(1)(H) and provided by the seller of a vehicle to the
taxpayer and the IRS in the manner provided in, and containing the
information described in, guidance published in the Internal Revenue
Bulletin (see Sec. 601.601(d)(2)(ii)(a) of this chapter). The seller
report must be provided to the IRS electronically. The term seller
report does not include a report rejected by the IRS due to the
information contained therein not matching IRS records.
0
Par 5. Section 1.30D-4, as proposed to be added at 88 FR 23370 (April
17, 2023), is amended by adding paragraphs (f) through (h) to read as
follows:
Sec. 1.30D-4 Special rules.
* * * * *
(f) Recapture rules--(1) In general. This paragraph (f) provides
rules under section 30D(f)(5) regarding the recapture of the section
30D credit.
(i) Cancelled sale. If the sale of a vehicle between the taxpayer
and seller is cancelled before the taxpayer places the vehicle in
service, then--
(A) The taxpayer may not claim the section 30D credit with respect
to the vehicle;
(B) The sale will be treated as not having occurred and the vehicle
will be considered available for original use by another taxpayer
(regardless of the cancelled sale), and the vehicle will, therefore,
still be eligible for the section 30D credit;
(C) The seller report must be rescinded by the seller in the manner
set forth in guidance published in the Internal Revenue Bulletin (see
Sec. 601.601(d)(2)(ii)(a) of this chapter); and
(D) The taxpayer cannot make a vehicle transfer election under
section 30D(g) and Sec. 1.30D-5(c) with respect to the cancelled sale.
(ii) Vehicle return. If a taxpayer returns to the seller a vehicle
within 30 days of placing such vehicle in service, then--
(A) The taxpayer cannot claim the section 30D credit with respect
to the vehicle;
(B) The vehicle will no longer be considered available for original
use by another taxpayer, and, therefore, the vehicle will no longer be
eligible for the section 30D credit;
(C) The seller report must be updated by the seller; and
(D) A vehicle transfer election under 30D(g) and Sec. 1.30D-5(c),
if applicable, will be treated as nullified and any advance payment
made pursuant to section 30D(g) and Sec. 1.30D-5(e) will be collected
from the eligible entity as an excessive payment pursuant to Sec.
1.30D-5(f).
(iii) Resale. If a taxpayer resells the vehicle within 30 days of
placing the vehicle in service, then the taxpayer is treated as having
purchased the new clean vehicle with the intent to resell, and--
(A) The taxpayer cannot claim the section 30D credit with respect
to the vehicle;
(B) The vehicle will no longer be considered available for original
use by another taxpayer, and, therefore, the vehicle will no longer be
eligible for the section 30D credit;
(C) The seller report will not be updated;
[[Page 70332]]
(D) A vehicle transfer election under 30D(g) and Sec. 1.30D-5(c),
if applicable, will remain in effect and any advance payment made
pursuant to section 30D(g) and Sec. 1.30D-5(e) will not be collected
from the eligible entity; and
(E) The value of any transferred credit will be collected from the
taxpayer.
(iv) Other vehicle returns and resales. In the case of a vehicle
return not described in paragraph (f)(1)(ii) of this section or a
resale not described in paragraph (f)(1)(iii) of this section, the
vehicle will no longer be considered available for original use by
another taxpayer, and, therefore, the vehicle will no longer be
eligible for the section 30D credit.
(2) Recapture rules in the case of a vehicle transfer election. For
additional recapture rules that apply in the case of a vehicle transfer
election, see Sec. 1.30D-5(f)(1). For excessive payment rules that
apply in the case where an advance payment is made to an eligible
entity, see Sec. 1.30D-5(f)(2).
(g) Seller registration. A seller must first register with the IRS
in the manner set forth in guidance published in the Internal Revenue
Bulletin (see Sec. 601.601(d)(2)(ii)(a) of this chapter) for purposes
of filing seller reports.
(h) Requirement to file a complete income tax return. No section
30D credit is allowed unless the taxpayer claiming such credit files an
income tax return for the taxable year in which the new clean vehicle
is placed in service. For purpose of this paragraph (h), the term
income tax return means a Form 1040, U.S. Individual Income Tax Return,
with an attached Form 8936, Clean Vehicle Credits, or successor forms,
and any additional forms, schedules, or statements prescribed by the
Commissioner for the purpose of making a return to report the tax under
chapter 1 that includes all of the information required on the forms
and in instructions.
0
Par 6. Section 1.30D-5 is added to read as follows:
Sec. 1.30D-5 Transfer of credit and recapture.
(a) Definitions. This paragraph (a) provides definitions that apply
for purposes of section 30D(g) and this section.
(1) Advance payment program. Advance payment program means the
program described in paragraph (e)(1) of this section.
(2) Dealer. Dealer has the meaning provided in section 30D(g)(8),
except that, for purposes of this section, the term does not include
persons licensed solely by a territory of the United States, and
includes a dealer licensed in any jurisdiction (other than one licensed
solely by a territory of the United States) that makes sales at sites
outside of the jurisdiction in which its licensed.
(3) Dealer tax compliance. Dealer tax compliance means that all
required Federal information and tax returns of the dealer have been
filed, including for Federal income and employment tax purposes, and
all Federal tax, penalties, and interest due of the dealer as of the
time of sale have been paid. A dealer who has entered into an
installment agreement with the Internal Revenue Service (IRS) for which
a dealer is current on its obligations is treated as in Dealer tax
compliance.
(4) Electing taxpayer. Electing taxpayer means the individual who
purchases and places in service a new clean vehicle and elects to
transfer the credit under section 30D that would otherwise be allowable
to such individual to an eligible entity pursuant to section 30D(g) and
paragraph (c) of this section. A taxpayer is an electing taxpayer only
if the taxpayer make certain attestations to the registered dealer,
pursuant to procedures provided in guidance published in the Internal
Revenue Bulletin, including that the taxpayer does not anticipate
exceeding the modified adjusted gross income limitations and that the
taxpayer will use the vehicle predominantly for personal use.
(5) Eligible entity. Eligible entity has the meaning provided in
section 30D(g)(2) and paragraph (e)(2) of this section.
(6) Registered dealer. A registered dealer is a dealer that has
completed registration with the IRS as provided in paragraph (b) of
this section.
(7) Time of sale. Time of sale means the date the new clean vehicle
is placed in service. A new clean vehicle is placed in service on the
date the electing taxpayer takes possession of the vehicle.
(8) Vehicle transfer election. Vehicle transfer election has the
meaning provided in section 30D(g) and paragraph (c) of this section.
(b) Dealer registration--(1) In general. A dealer must first
register with the IRS in the manner set forth in guidance published in
the Internal Revenue Bulletin (see Sec. 601.601(d)(2)(ii)(a) of this
chapter) for the dealer to receive credits transferred by an electing
taxpayer pursuant to section 30D(g) and paragraph (c) of this section.
(2) Effect of dealer tax non-compliance. If the dealer is not in
dealer tax compliance for any of the taxable periods during the last
five taxable years, the dealer may complete its initial registration
with the IRS, but the dealer will not be eligible for the advance
payment program (and, therefore, the dealer will not be eligible to
receive transferred section 30D credits) until the compliance issue is
resolved. If the failure is corrected, the IRS will complete the
dealer's registration for the advance payment program, and, provided
all other requirements of section 30D(g) and this section are met, the
dealer will then be allowed to participate in the advance payment
program. Additional procedural guidance regarding this paragraph (b)(2)
will be set forth in guidance published in the Internal Revenue
Bulletin.
(c) Vehicle transfer election by electing taxpayer to transfer
credit. For a new clean vehicle placed in service after December 31,
2023, an electing taxpayer may elect to apply the rules of section
30D(g) and this section to make a vehicle transfer election with
respect to the vehicle so that the section 30D credit with respect to
the vehicle is allowed to the eligible entity specified in the vehicle
transfer election (and not to the electing taxpayer) pursuant to the
advance payment program described in paragraph (e) of this section. The
electing taxpayer, as part of the vehicle transfer election, must
transfer the entire amount of the credit that would otherwise be
allowable to the electing taxpayer under section 30D with respect to
the vehicle, and the eligible entity specified in the vehicle transfer
election must pay the electing taxpayer an amount equal to the amount
of the credit included in the vehicle transfer election. A vehicle
transfer election is made not later than at the time of sale in the
manner set forth in guidance published in the Internal Revenue
Bulletin, and, once made, the vehicle transfer election is irrevocable.
No vehicle transfer election may be made to transfer an amount of
credit that would otherwise be allowed to the electing taxpayer under
section 38.
(d) Federal income tax consequences of the vehicle transfer
election--(1) Treatment of electing taxpayer. In the case of a vehicle
transfer election, the Federal income tax consequences for the electing
taxpayer are as follows--
(i) The credit amount under section 30D that the electing taxpayer
elects to transfer to the eligible entity under section 30D(g) and
paragraph (c) of this section may exceed the electing taxpayer's
regular tax liability (as defined in section 26(b)(1) of the Code) for
the taxable year in which the sale occurs, and the excess, if any, is
not subject to recapture.
(ii) The payment made by an eligible entity to an electing taxpayer
under section 30D(g)(2)(C) and paragraph (c) of this section to an
electing taxpayer
[[Page 70333]]
pursuant to the vehicle transfer election is not includible in the
gross income of the electing taxpayer.
(iii) The payment made by an eligible entity to an electing
taxpayer under section 30D(g)(2)(C) and paragraph (c) of this section
is treated as repaid by the electing taxpayer to the eligible entity as
part of the purchase price of the new clean vehicle. Thus, the
repayment by the electing taxpayer is included in the electing
taxpayer's basis in the new clean vehicle prior to the application of
the basis reduction rule in section 30D(f)(1).
(2) Treatment of eligible entity. In the case of a vehicle transfer
election, the Federal income tax consequences for the eligible entity
are as follows--
(i) The eligible entity is allowed the credit under section 30D
with respect to the new clean vehicle and may receive an advance
payment pursuant to section 30D(g)(7) and paragraph (e) of this
section;
(ii) Advance payments received by the eligible entity are not
treated as a tax credit in the hands of the eligible entity and may
exceed the eligible entity's regular tax liability (as defined in
section 26(b)(1)) for the taxable year in which the sale occurs;
(iii) An advance payment received by the eligible entity is not
included in the gross income of the eligible entity;
(iv) The payment made by an eligible entity under section
30D(g)(2)(C) and paragraph (c) of this section to an electing taxpayer
is not deductible by the eligible entity;
(v) The payment made by an eligible entity to an electing taxpayer
under section 30D(g)(2)(C) and paragraph (c) of this section is treated
as repaid by the electing taxpayer to the eligible entity as part of
the purchase price of the new clean vehicle. Thus, the repayment by the
electing taxpayer is treated as an amount realized of the eligible
entity under section 1001 of the Code and the regulations in this part
under section 1001; and
(vi) If the eligible entity is a partnership or an S corporation,
then--
(A) The IRS will make the advance payment to such partnership or S
corporation equal to the amount of the section 30D credit allowed that
is transferred to the eligible entity;
(B) Such section 30D credit is reduced to zero and is, for any
other purpose of the Code, deemed to have been allowed solely to such
entity (and not allocated or otherwise allowed to its partners or
shareholders) for such taxable year; and
(C) The amount of the advance payment is not treated as tax exempt
income to the partnership or S corporation for purposes of the Code.
(3) Form of payment from eligible entity to electing taxpayer. The
tax treatment of the payment made by the eligible entity to the
electing taxpayer described in paragraphs (d)(1) and (2) of this
section is the same regardless of whether the payment is made in cash
or in the form of a partial payment or down payment for purchase of the
new clean vehicle.
(4) Application of certain other requirements. In the case of a
vehicle transfer election, the following additional rules apply--
(i) The requirements of section 30D(f)(1) (regarding basis
reduction) and 30D(f)(2) (regarding no double benefit) apply to the
electing taxpayer as if the vehicle transfer election were not made
(so, for example, the electing taxpayer must reduce its basis in the
vehicle by the amount of the section 30D credit, regardless of the
vehicle transfer election);
(ii) Section 30D(f)(6) (regarding the election not to take the
credit) will not apply (in other words, by electing to transfer the
credit, the electing taxpayer is electing to take the credit); and
(iii) Section 30D(f)(9) (regarding the VIN requirement) will be
treated as satisfied if the eligible entity provides the vehicle
identification number of such vehicle to the IRS in the form and manner
set forth in guidance published in the Internal Revenue Bulletin.
(5) Examples. The following examples illustrate the rules under
paragraph (d) of this section.
(i) Example 1: Electing taxpayer's regular tax liability less than
value of the credit--(A) Facts. A taxpayer, who is an individual,
purchases a new clean sports utility vehicle from a dealer that is a C
corporation. The taxpayer satisfies the requirements to be an electing
taxpayer and elects to transfer the section 30D credit to the dealer.
The dealer is a registered dealer and satisfies the requirements to be
an eligible entity. The purchase price for the vehicle is $57,500. The
credit otherwise allowable to the electing taxpayer by section 30D with
respect to the vehicle is $7,500. The eligible entity makes the payment
required to be made to the electing taxpayer in the form of a cash
payment of $7,500. The electing taxpayer pays back the $7,500 to the
eligible entity and pays an additional $50,000 as the purchase price of
the vehicle. The electing taxpayer's regular tax liability for the year
is less than $7,500.
(B) Analysis. Under paragraph (d)(1) of this section, the electing
taxpayer may transfer the credit even though the electing taxpayer's
regular tax liability is less than $7,500, and no amount of the credit
will be recaptured from the taxpayer on the basis that the allowable
credit exceeded their regular tax liability. The eligible entity's
$7,500 payment to the electing taxpayer is not included in the electing
taxpayer's gross income, and the electing taxpayer's purchase price for
the vehicle is $57,500 (including both the $7,500 payment and the
additional $50,000 purchase price paid), prior to the application of
the basis reduction rule of section 30D(f)(1). After application of the
basis reduction, the electing taxpayer's basis in the vehicle is
$50,000. The eligible entity is eligible to receive an advance payment
of $7,500 for the transferred section 30D credit as provided in section
30D(g)(7) and paragraph (e) of this section. Under paragraph (d)(2) of
this section, the eligible entity may receive the advance payment
regardless of whether the eligible entity's regular tax liability is
less than $7,500. The advance payment is not treated as a credit toward
the eligible entity's tax liability (if any), nor is it included in the
eligible entity's gross income, the eligible entity's $7,500 payment to
the electing taxpayer is not deductible, and the eligible entity's
amount realized is $57,500 upon the sale of the vehicle (including both
the $7,500 payment and the additional $50,000 purchase price of the
vehicle).
(ii) Example 2: Non-cash payment by eligible entity to electing
taxpayer--(A) Facts. The facts are the same as in paragraph
(d)(5)(i)(A) of this section (facts of Example 1), except that the
eligible entity makes the payment to the electing taxpayer in the form
of a reduction in the purchase price (rather than as a cash payment).
(B) Analysis. Paragraph (d)(3) of this section provides that the
application of paragraphs (d)(1) and (2) of this section is not
dependent on the form of payment from an eligible entity to an electing
taxpayer (for example, a payment in cash or a payment in the form of a
reduction in purchase price). Thus, the analysis is the same as in
paragraph (d)(5)(i)(B) of this section (analysis of Example 1).
(iii) Example 3: Eligible entity is a partnership--(A) Facts. The
facts are the same as in paragraph (d)(5)(i)(A) of this section (facts
of Example 1), except that the dealer is a partnership.
(B) Analysis. The analysis as to the electing taxpayer is the same
as in paragraph (d)(5)(i)(B) of this section (analysis of Example 1).
Because the eligible entity is a partnership, paragraph (d)(2)(vi) of
this section applies. Thus, the advance payment is made to the
partnership, the credit is reduced to zero and is, for any other
purpose of the Code, deemed to have been allowed solely to the
partnership
[[Page 70334]]
(and not allocated or otherwise allowed to its partners) for such
taxable year. The amount of the advance payment is not treated as tax
exempt income to the partnership for purposes of the Code.
(e) Advance payments received by eligible entities--(1) In general.
An eligible entity may receive advance payments from the IRS
corresponding to the amount of the section 30D credit for which a
vehicle transfer election was made by an electing taxpayer to the
eligible entity pursuant to section 30D(g) and paragraph (c) of this
section before the eligible entity files its Federal income tax return
for the taxable year that includes the taxable year with respect to
which the vehicle transfer election corresponds. This advance payment
program is the exclusive mechanism for an eligible entity to receive
any payment related to a section 30D credit pursuant to section 30D(g)
and paragraph (c) of this section. The eligible entity may not claim a
section 30D credit on a Federal income tax return.
(2) Requirements for a registered dealer to become an eligible
entity. A registered dealer qualifies as an eligible entity, and may
therefore receive an advance payment, by meeting the following
requirements--
(i) The registered dealer submits required registration information
and is in dealer tax compliance;
(ii) The registered dealer retains information regarding the
vehicle transfer election for three calendar years beginning with the
year immediately after the year in which the vehicle is placed in
service, as described in guidance published in the Internal Revenue
Bulletin (see Sec. 601.601 of this chapter); and
(iii) The registered dealer meets any other requirements of section
30D(g) and this section included in guidance published in the Internal
Revenue Bulletin (see Sec. 601.601 of this chapter).
(3) Suspension of registered dealer eligibility. A registered
dealer may be suspended from the advance payment program pursuant to
the procedures as described in guidance published in the Internal
Revenue Bulletin (see Sec. 601.601 of this chapter). Any decision made
by the IRS relating to the suspension of a dealer's registration is not
subject to administrative appeal to the IRS Independent Office of
Appeals unless the IRS and the IRS Independent Office of Appeals agree
that such review is available and the IRS provides the time and manner
for such review.
(4) Revocation of registered dealer eligibility. A registered
dealer's registration may be revoked pursuant to the procedures as
described in guidance published in the Internal Revenue Bulletin (see
Sec. 601.601 of this chapter). Any decision made by the IRS relating
to the revocation of a dealer's registration is not subject to
administrative appeal to the IRS Independent Office of Appeals unless
the IRS and the IRS Independent Office of Appeals agree that such
review is available and the IRS provides the time and manner for such
review.
(f) Increase in tax--(1) Recapture where taxpayer exceeds modified
adjusted gross income limitation. If the section 30D credit would
otherwise (but for section 30D(g) and the rules of this section) not be
allowable to a taxpayer that elected to transfer the credit under
section 30D(g) and this section because the taxpayer exceeds the
limitation based on modified adjusted gross income in section
30D(f)(10), then the income tax imposed on such taxpayer under chapter
1 of the Code (chapter 1) for the taxable year in which such vehicle
was placed in service is increased by the amount of the payment
received by the taxpayer. The taxpayer must reconcile such amounts on
the tax return described in paragraph (g)(2) of this section.
(2) Excessive payments--(i) In general. This paragraph (f)(2)
provides rules under section 30D(g)(7)(B), under which rules similar to
the rules of section 6417(d)(6) of the Code apply to the advance
payment program. In the case of any advance payment that the IRS
determines constitutes an excessive payment, the tax imposed on the
eligible entity under chapter 1, regardless of whether such entity
would otherwise be subject to tax under chapter 1, for the taxable year
in which such determination is made will be increased by the sum of the
following amounts--
(A) The amount of the excessive payment; plus
(B) An amount equal to 20 percent of such excessive payment.
(ii) Reasonable cause. The amount described in paragraph
(f)(2)(i)(B) of this section will not apply to an eligible entity if
the eligible entity demonstrates to the satisfaction of the IRS that
the excessive payment resulted from reasonable cause. In the case of a
vehicle returned to the eligible entity within 30 days of being placed
in service for which a vehicle transfer election was made by the
electing taxpayer, as described in Sec. 1.30D-4(d)(1)(ii), the
eligible entity will be treated as demonstrating reasonable cause.
(iii) Excessive payment defined. Excessive payment means an advance
payment made--
(A) To a registered dealer that fails to meet the requirements to
be an eligible entity provided in section 30D(g)(2) and paragraph
(e)(2) of this section; or
(B) Except as provided in paragraph (f)(2)(iv) of this section, to
an eligible entity with respect to a vehicle to the extent the payment
exceeds the amount of the credit that, without application of section
30D(g) and this section, would be otherwise allowable to the electing
taxpayer with respect to the vehicle for such tax year.
(iv) Special rule for cases in which the purchaser's modified
adjusted gross income exceeds the limitation. Any excess described in
paragraph (f)(2)(iii)(B) of this section due to the purchaser exceeding
the limitation based on modified adjusted gross income provided in
section 30D(f)(10) is not an excessive payment. Instead, the value of
the amount of the advance payment is recaptured from the purchaser
under section 30D(f)(10) and paragraph (f)(1) of this section.
(3) Example. This paragraph (f)(3) provides an example to
illustrate the excessive payment rules provided in paragraph (f)(2) of
this section.
(i) Facts. In 2024, D, a registered dealer, receives an advance
payment of $7,500 with respect to a credit transferred under section
30D(g)(1) and paragraph (c) of this section with respect to a new clean
vehicle. In 2025, the IRS determines that the registered dealer was not
an eligible entity with respect to the vehicle at the time of the
receipt of the advance payment in 2024 because the registered dealer
failed to satisfy a requirement in section 30D(g)(2) and paragraph
(e)(2) of this section to be an eligible entity with respect to the
vehicle. D is unable to show reasonable cause for the failure.
(ii) Analysis. Under paragraph (f)(2)(i) of this section, the tax
imposed on D is increased by the amount of the excessive payment if the
advance payment received by D constitutes an excessive payment. Under
paragraph (f)(2)(iii) of this section, the entire amount of the $7,500
advance payment received by D is an excessive payment because D did not
meet the requirements to be an eligible entity under section 30D(g)(2)
and paragraph (e)(2) of this section. Additionally, because D cannot
show reasonable cause for its failure to meet these requirements, the
tax imposed under chapter 1 on D is increased by $9,000 in 2025 (the
taxable year of the IRS determination). This is comprised of the $7,500
value of the credit plus the $1,500 penalty, calculated as 20% penalty
on such $7,500 (20% * $7,500 = $1,500). This treatment applies
[[Page 70335]]
regardless of whether D is otherwise subject to tax under chapter 1
(for example, if D is a partnership).
(g) Requirement of return--(1) In general. An electing taxpayer
that makes a vehicle transfer election must file an income tax return
for the taxable year in which the vehicle transfer election is made and
indicate such election on the return per instructions. The electing
taxpayer must include the VIN of the new clean vehicle on such return,
as provided for in forms and instructions.
(2) Income tax return. For purposes of this section, the term
income tax return means a Form 1040, U.S. Individual Income Tax Return,
with an attached Form 8936, Clean Vehicle Credits, or successor forms,
and any additional forms, schedules, or statements prescribed by the
Commissioner for the purpose of making a return to report the tax under
chapter 1 that includes all of the information required on the forms
and in instructions.
(h) Two vehicle transfer elections per year. A taxpayer may make no
more than two transfer elections per taxable year, consisting of either
two section 30D credits or one section 30D credit and one section 25E
credit. In the case of a joint return, each individual taxpayer may
make no more than two transfer elections per taxable year.
(i) Severability. The provisions of this section are separate and
severable from one another. If any provision of this section is stayed
or determined to be invalid, it is the agency's intention that the
remaining provisions will continue in effect.
(j) Applicability date. This section applies to taxable years
beginning after December 31, 2023.
PART 301--PROCEDURE AND ADMINISTRATION
0
Par 7. The authority citation for part 301 is amended by adding an
entry in numerical order for Sec. 301.6213-2 to read, in part, as
follows:
Authority: 26 U.S.C. 7805.
* * * * *
Section 301.6213-2 also issued under 26 U.S.C. 6213.
* * * * *
0
Par 8. Section 301.6213-2 is added to read as follows:
Sec. 301.6213-2 Omission of correct vehicle identification number.
(a) In general. The definition of the term mathematical or clerical
error in section 6213(g)(2) of the Internal Revenue Code (Code)
includes:
(1) Under section 6213(g)(2)(T), an omission of a correct vehicle
identification number required under section 30D(f)(9) of the Code
(relating to credit for new clean vehicles) to be included on a return;
(2) Under section 6213(g)(2)(U), an omission of a correct vehicle
identification number required under section 25E(d) of the Code
(relating to credit for previously-owned clean vehicles) to be included
on a return; and
(3) Under section 6213(g)(2)(V), an omission of a correct vehicle
identification number required under section 45W(e) of the Code
(relating to commercial clean vehicle credit) to be included on a
return.
(b) Omission of a correct vehicle identification number. For
purposes of paragraph (a) of this section, a taxpayer is treated as
having omitted a correct vehicle identification number if:
(1) The vehicle identification number required to be reported under
section 30D(f)(9), 25E(d), or 45W(e) is not included on the return of
tax;
(2) The vehicle identification number included on the return of tax
is not that of a vehicle eligible for a credit under section 30D, 25E,
or 45W;
(3) The vehicle identification number included on the return of tax
is not that of a vehicle eligible for a credit under section 30D, 25E,
or 45W for the year in which it is claimed;
(4) The vehicle identification number included on the return of tax
differs from the vehicle identification number reported to the IRS and
the taxpayer under section 30D(d)(1)(H) for each new clean vehicle
placed in service during the taxable year by the taxpayer who was
issued the report; or
(5) The vehicle identification number included on the return of tax
differs from the vehicle identification number reported to the IRS and
the taxpayer under section 25E(c)(1)(D)(i) for each previously-owned
clean vehicle placed in service during the taxable year by the taxpayer
who was issued the report.
(c) Applicability date. This section applies to taxable years
beginning after December 31, 2023.
Douglas W. O'Donnell,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2023-22353 Filed 10-6-23; 8:45 am]
BILLING CODE 4830-01-P