IRS issues guidance on the transfer of clean vehicle credits

ARTICLE | November 21, 2023

Authored by RSM US LLP

Executive summary

IRS and Treasury release guidance on the transfer of credits under sections 25E and 30D

The IRS and the Department of the Treasury (Treasury) have released proposed regulations and a revenue procedure with guidance on the rules for buyers transferring clean vehicle credits to eligible sellers and dealers through an advance payment program. The program allows clean vehicle buyers to attest to their eligibility for clean vehicle credits and receive a payment (whether in the form of cash or in the form of a partial payment or down payment) from a registered dealer not later than the time of sale. Registered dealers can then claim the credit with the IRS. These advance payments may be made with respect to vehicles placed in service after Dec. 31, 2023. 

Proposed regulations and Rev. Proc. 2023-33

Treasury and the IRS released proposed regulations and Rev. Proc. 2023-33 (the guidance), providing information concerning the transferability of clean vehicle credits under sections 25E (previously-owned vehicles) and 30D (clean vehicles) established and modified, respectively, by the Inflation Reduction Act of 2022 (IRA).

The guidance explains the rules for taxpayers who purchase either qualifying previously owned vehicles or qualifying new clean vehicles and intend to transfer credits associated with those purchases to dealers or sellers as a down payment on the vehicle. The regulations establish the advance payment program for such transfers. Through certain attestations, electing taxpayers may request that at a dealer or seller pay them the entire amount of an allowable credit (either in cash or in the form of a partial payment or down payment on the vehicle) not later than at the time of sale. The regulations detail the tax consequences of this payment to the dealer and buyer.

Moreover, the guidance informs dealers on how they can become eligible entities to receive advanced payments of the credits beginning Jan. 1, 2024. Sellers and dealers must register to become eligible entities and must maintain “dealer tax compliance,” which essentially requires them to remain current on tax payments and other compliance obligations.

The guidance also introduces rules regarding the potential recapture of the credit, suspension and revocation of dealer registrations, and other limitations.

IRS energy credits online portal

The IRS launched the new IRS Energy Credits Online Portal that will be used by qualified manufacturers and registered dealers to register their vehicles as eligible for clean vehicle credits and their participation in the advance payment program, respectively.

Notably, Rev. Proc. 2023-33, supersedes sections 5.01 and 6.03 of Rev. Proc. 2022-42, by providing new information for the timing and manner of submission of seller reports. Rev. Proc. 2023-33 also supersedes sections 6.01 and 6.02 of Rev. Proc. 2022-42, by providing updated information on the submission of written agreements by manufacturers to the IRS to be considered qualified manufacturers, along with the method of submission of monthly reports by qualified manufacturers. In practice, clean vehicle manufacturers and dealers must consider the new registration requirements using the IRS Energy Credits Online Portal to ensure their eligibility for and compliance with the new advance payment program. Previously, qualified manufacturers and sellers were required to enter into written agreements and issue written reports via email.

Updated FAQs for clean vehicle credits

As a result of the new guidance, the IRS updated the “frequently asked questions” (FAQs) for clean vehicle credits. These FAQs provide information on how the IRA revises the credits under sections 30D (new clean vehicle credit) for individuals and businesses, 25E (previously owned clean vehicle credit) for individuals and the new credit for qualified commercial clean vehicles under section 45W of the Internal Revenue Code.

The updates to the FAQs outlined in Fact Sheet 2023-22 related to the clean energy credits are as followed:

• Topic A: Eligibility rules for the new clean vehicle credit: updated questions one, two, four and seven; added question 12
• Topic B: Income and price limitations for the new clean vehicle credit: updated questions one, three, seven, eight, nine, 10, and 11
• Topic C: When the new requirements apply to the new clean vehicle credit: updated question two
• Topic D: Eligibility rules for the previously owned clean vehicles credit: updated questions one, two, three, seven, nine; added questions 11, 12
• Topic E: Income and price limitations for previously owned clean vehicles: updated question two
• Topic F: Claiming the previously owned clean vehicles credit: updated questions two, three
• Topic G: Qualified commercial clean vehicles credit: updated question four
• Topic H: Transfer of new clean vehicle credit and previously owned clean vehicles credit: added questions one through 21
• Topic I: Registering a dealer/seller for seller reporting and clean vehicle tax credit transfers: added questions one through 17
• Topic J: Seller report information for buyers of new and previously owned clean vehicle tax credits beginning in 2024: added questions one through two

Washington National Tax takeaways

Prior to the launch of the advance payment program, taxpayers that purchased a clean vehicle would have to wait until the filing of their income tax return to claim the credit. The new advance payment program allows taxpayers to monetize the credit at the time of sale. The new program’s impact on the timing of credit monetization will be advantageous to clean vehicle buyers. Dealers should register with the IRS Energy Credits Online Portal prior to Jan. 1, 2024 to be able to offer these advance payments to buyers.

Notably, comments on the proposed regulations and requests for a public hearing are due by Dec. 9, 2023.

For more information, please consult with your tax advisor.