The IRS released substantial new guidance regarding the new clean vehicle credit and the used clean vehicle credit. The guidance updates procedures for manufacturer, dealer and seller registrations and written reports; and provides detailed rules for a taxpayer’s election to transfer a credit to the dealer after 2023. The guidance includes:
- — Rev. Proc. 2023-33, which is scheduled to be published on October 23, 2023, in I.R.B. 2023-43;
- — NPRM REG-113064-23, which is scheduled to published in the Federal Register on October 10, 2023; and
- — IRS Fact Sheet FS-2023-22, which updates the IRS Frequently Asked Questions (FAQs) for the clean vehicle credits.
The proposed regs are generally proposed to apply to tax years beginning after they are published in the Federal Register. However, the proposed regs for transferring credits to dealers are proposed to apply beginning on January 1, 2024, which is when the transfer election becomes available. Proposed regs for treating the omission of a correct vehicle identification number (VIN) as a mathematical or clerical error would also apply to the Code Sec. 45W clean commercial vehicle credit. They are proposed to apply to tax years beginning after December 31, 2023.
Comments are requested. Rev. Proc. 2022-42 is superseded in part.
Proposed Regs for the Clean Vehicle Credits
For purposes of the new clean vehicle credit, the used clean vehicle credit, and the commercial clean vehicle credit, the proposed regs would treat a taxpayer as having omitted the required correct vehicle identification number (VIN) for the vehicle if the VIN is missing from the taxpayer’s return or the number reported on the return is an invalid VIN. An invalid VIN is a number that does not match any existing VIN reported by a qualified manufacturer. A taxpayer would also be treated as omitting the VIN if the provided VIN is not for a qualified vehicle for the year the credit is claimed.
With respect to the new clean vehicle credit and the used clean vehicle credit, the proposed regs would clarify that taxpayer must file an income tax return for the year the clean vehicle is placed in service, including a Form 8936, Clean Vehicle Credits. The taxpayer is treated as having omitted the vehicle’s correct VIN if the VIN on the taxpayer’s return does not match the VIN in the seller’s report. In addition, a dealer under the proposed regs would not include persons licensed solely by a U.S. territory. To facilitate direct-to-consumer sales, a dealer generally could make sales outside the jurisdiction where it is licensed; however, it could not make sales at sites outside its own jurisdiction.
New Rules for Used Clean Vehicle Credit
The proposed regs would clarify that a vehicle’s eligibility for the used vehicle credit is not affected by a title that indicates it has been damaged or an otherwise a branded title. In addition, the used vehicle credit could not be divided among multiple owners of a single vehicle. With respect to the MAGI limit for eligible taxpayers, if the taxpayer’s filing status for the tax year differs from the taxpayer’s filing status in the preceding tax year, the taxpayer would satisfy the limit if MAGI does not exceed the threshold amount in either year based on the applicable filing status for that tax year. These last two rules are consistent with earlier proposed regs for the new clean vehicle credit.
The proposed regs would provide a first transfer rule, under which a qualified sale 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 rule would ignore transfers between dealers. The taxpayer generally could rely on the dealer’s representation of the vehicle history; however, taxpayers would also be encouraged to independently examine the vehicle history to confirm whether the first transfer rule is satisfied.
Under the proposed regs, a used vehicle’s sale price would include delivery charges, as well as fees and charges imposed by the dealer. The sale price it would not include separately-stated taxes and fees required by law, separate financing, extended warranties, insurance or maintenance service charges.
Cancellation of Sale, Return of Clean Vehicle, and Resale of Clean Vehicle
The proposed regs would clarify that a taxpayer cannot claim a clean vehicle credit if the sale is canceled before the taxpayer places th vehicle in service (that is, before the taxpayer takes delivery). The credits also would not be available if the taxpayer returns the vehicle within 30 days after placing it in service. A returned new clean vehicle would no longer qualify as a new clean vehicle. However, a returned used clean vehicle could continue to qualify for the credit if the vehicle history does not reflect the sale and return. A vehicle’s return would nullify any election the taxpayer made to transfer the credit for the vehicle.
Under the proposed regs, a taxpayer acquires a clean vehicle for resale if the resale occurs withing 30 days after the taxpayer places the vehicle in service. The resold vehicle would not qualify for either credit. If the taxpayer elected to transfer the credit, the election remains valid after the resale; thus, the credit is recaptured from the taxpayer, not from the dealer.
Taxpayers returning or reselling a clean vehicle more than 30 days after the date the taxpayer placed it in service would generally remain eligible for the applicable clean vehicle credit for purchasing the vehicle. Any election to transfer the taxpayer’s credit to the dealer also remains in effect. The returned or resold vehicle would not remain eligible for either credit. However, the IRS could disallow the credit if, based on the facts and circumstances, it determines that the taxpayer purchased the vehicle with the intent to resell or return it
Taxpayer’s Election to Transfer Clean Vehicle Credit to Dealer
A taxpayer that elects to transfer a credit to a registered dealer must transfer the entire amount of the allowable credit. Each taxpayer may transfer a total of two credits per year (either two new clean vehicle credits, or one new clean vehicle credit and one used clean vehicle credit). This is the case even if married taxpayers file a joint return. A transfer election is irrevocable.
Under the proposed regs, the amount of a clean vehicle credit an electing taxpayer could transfer could exceed the electing taxpayer’s regular tax liability; and the amount of a transferred credit would not be subject to recapture merely because it exceeds the taxpayer’s tax liability. The dealer’s payment for the transferred credit, whether in cash or as a partial payment or down payment for the vehicle, is not includible in the electing taxpayer’s gross income. To ensure that the credit properly reduces the taxpayer’s basis in the vehicle, the electing taxpayer is treated as repaying the payment to the dealer as part of the purchase price of the vehicle.
Both the electing taxpayer and the dealer must make detailed disclosures and attestations. Some of these disclosures must be made to the other party, and some must be made through the IRS Energy Credits Online Portal. All must be made no later than the time of the sale. A taxpayer cannot transfer any portion of the new clean vehicle credit that is treated as part of the general business credit.
A seller or a registered dealer must retain records of transferred credits for at least three years after the taxpayer makes the credit transfer election or a seller files its report for the sale.
Manufacturer, Dealer and Seller Registration and Report Requirements
Clean vehicle manufacturers, sellers and dealers must register through an IRS Energy Credits Online Portal that should be available on the IRS website later this month. A representative of the manufacturer, seller or dealer will have to create or sign into an account on irs.gov. Registration help is available at www.irs.gov/registerhelp. Manufacturers, sellers and dealers may check IRS.gov/cleanvehicles for updates.
Taxpayers and sellers may rely on information and certifications by a qualified manufacturer providing that a vehicle is eligible for the new clean vehicle credit or the used clean vehicle credit. However, this reliance is limited to information regarding the vehicle’s eligibility for the applicable credit.
Rev. Proc. 2023-33 details the required registration information for sellers and dealers. The IRS will confirm the information or notify the seller or dealer that it has been unable to do so. If the IRS accepts a dealer registration, it will issue a unique dealer identification number. If the IRS rejects the registration, the dealer may request administrative review.
s for a qualified manufacturer’s written agreement with and a dealer’s written reports to the IRS before January 1, 2024, manufacturers and sellers may still use the procedures described in Rev. Proc. 2022-42. However, as of January 1, 2024, qualified manufacturers must have entered into written agreements with the IRS via the IRS Energy Credits Online Portal, even if they previously registered and filed written agreements under Rev. Proc. 2022-42. Also as of January 1, 2024, qualified manufacturers and sellers must use the Portal to file their required reports to the IRS.
A seller must file its report within three calendar days of the sale, and provide a copy to the taxpayer within another three days. If the information in the report does not match information in IRS records, the IRS may reject the report and notify the seller. The seller must notify the buyer within three calendar days. If the IRS rejects a seller report, a dealer will not be eligible for advance credit payments. A seller must also use the Portal to update or rescind information for a scrivener’s error or the cancellation of a sale as promptly as possible (the seller must also file a new report noting the return of a vehicle). The seller must notify the buyer within three calendar days and provide a copy of the updated or rescinded report.
Advance Credit Payments to Dealers
When a buyer elects to transfer a clean vehicle credit to a dealer, the advance credit program allows the dealer to receive payment of the credit before the dealer files its tax return. The proposed regs would clarify that the advance payments are not included in the dealer’s income and they may exceed the dealer’s tax liability. The dealer cannot deduct the payment made to the electing taxpayer. The advance payment is included in the amount realized by the dealer on the sale of the clean vehicle. If the dealer is a partnership or an S corporation, the advance payment is not treated as exempt income.
To receive advance credit payments, the registered dealer must be an eligible entity under the proposed regs. An eligible entity is a registered dealer that submits additional registration information and is in dealer tax compliance. The IRS will conduct dealer tax compliance checks before disbursing an advance credit payment, and also on a continuing and regular basis.
Dealer tax compliance means that, for all tax periods during the most recent five tax years, the dealer has filed all of its required federal information and tax returns, including for federal income and employment tax; and paid all federal tax, penalties, and interest due at the time of sale (or is current on its obligations under any installment agreement with the IRS). The dealer must also retain information related to the vehicle sale or credit transfer for at least three years. A dealer that does not satisfy this test may still be a registered dealer, but it cannot be an eligible entity until the tax compliance issue is resolved.
The dealer that receives the transferred credit must provide the qualified vehicle’s VIN, the seller report, and the required taxpayer disclosure information through the IRS Energy Credits Online Portal. The IRS will disburse advance payments of the credits only through electronic payments; it will not issue any paper checks.
The IRS may suspend a registered dealer’s eligibility to participate in the advance payment program for sever reasons, including the provision of inaccurate information regarding eligible for the credit; failure to satisfy dealer tax compliance requirements; and failure to properly use the IRS Energy Credits Online Portal. The IRS will notify the dealer of its suspension, and give the dealer an opportunity correct the errors. If a suspended dealer does not correct the errors withing one year, the IRS will revoke its registration.
The IRS may also revoke a dealer’s registration to receive transferred credits and its eligibility for the advance payment program for failure to comply with the registration or tax compliance requirements, for losing its dealer license, for providing inaccurate information, for failing to retain required records for three years, or if it is suspended three times in the preceding year. The IRS will notify the dealer within 30 days of its decision to revoke eligibility for the advance payment program, and the dealer may request administrative review of the decision. The dealer may re-register after one year, but will be permanently barred after three revocations.
The proposed regs 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 the review.
The IRS requests comments on the proposed regs. Comments and requests for a public hearing must be received by December 11, 2023. They may be mailed to the IRS, or submitted electronically via the Federal eRulemaking Portal at https://www.regulations.gov (indicate IRS and REG-113064-23).
Effect on Other Documents
Rev. Proc. 2023-33 supersedes in part Rev. Proc. 2022-42, I.R.B. 2022-52 , 565.