On October 6, 2023, Treasury and the IRS released proposed regulations, Revenue Procedure (Rev. Proc.) 2023-33, and updated and added new frequently asked questions related to the transfer of clean vehicle credits associated with new and previously-owned clean vehicles placed in service after December 31, 2023.
This guidance clarifies the required process for qualifying taxpayers electing to transfer the credit to an eligible entity beginning January 1, 2024. The guidance also notes how dealers can participate in the transfer of the credit through the IRS Energy Credits Online Portal, lays out the details surrounding receipt of advance payments of the credit by eligible entities, addresses the potential recapture of the credit, and updates information concerning the timing and required submittal process with the IRS of seller reports and agreements by manufacturers in connection with becoming a qualified manufacturer.
The IRS recently made available Form 15400, Clean Vehicle Seller Report, for sellers and dealers to report required information to the IRS and to buyers in connection with making a vehicle eligible for a clean vehicle credit. This form includes instructions on how to complete it and when the form may not be required, including when the buyer is not willing to provide their tax identification number. Presently, the IRS has not released many of the details regarding the requirement to submit these reports to the IRS on or before January 15, 2024 for sales of certain clean vehicles in 2023. Even so, the first step will be registering to use the IRS Energy Credits Online Portal.
On November 1, 2023, the IRS made the IRS Energy Credits Online Portal available. This tool is known as IRS Energy Credits Online or IRS ECO for short. Currently, dealers and sellers can only register their businesses with the IRS. Future updates will allow dealers to submit seller reports at the time of sale for new and previously-owned clean vehicles, to provide the ability to see previously submitted seller reports, and to participate in the advance payment program related to the election to transfer the credits that goes into effect January 1, 2024. The IRS has initially indicated that dealers should not use the IRS ECO to submit seller reports for sales that happened before the IRS ECO was released as more information is to come on this process.
Proposed Regulations
The proposed regulations contain guidance under Internal Revenue Code (IRC) Section 25E, Previously-owned Clean Vehicles, as well as IRC §30D, Clean Vehicle Credit. The proposed regulations for IRC §25E cover topics including the calculation of the credit, definitions for purposes of IRC §25E and the related proposed regulations, rules related to the calculation of modified adjusted gross income (MAGI), situations where there may be multiple owners of a vehicle, rules related to the transfer of the credit, and various special rules. These proposed regulations include various applicable dates so taxpayers will need to verify the proper applicable date prior to relying on any of the guidance.
In general, the proposed regulations follow guidance previously provided within the IRC §30D proposed regulations where terms and concepts are present in both code sections. Therefore, this article will focus mainly on the areas that are different within IRC §25E when compared to IRC §30D, areas specific to IRC §25E, additions to prior guidance for IRC §30D, or modifications made to prior guidance for IRC §30D by these proposed regulations.
The term “dealer” for purposes of IRC §25E is slightly narrower than that of IRC §30D as it will not include persons licensed only by a U.S. territory but will include dealers that sell outside of the jurisdiction in which they are licensed to sell, except for dealers exclusively licensed only by a U.S. territory. This is primarily because of clean vehicles not eligible for the credit if used outside of the U.S. or by U.S. citizens that are residents of U.S. territories.
To help both dealers and potential buyers determine if a previously-owned clean vehicle qualifies for a credit, the proposed regulations provide for the “first transfer rule.” Under this rule, only the first transfer of the vehicle after August 16, 2022 can qualify for a credit under IRC §25E. The dealer will make this determination based upon the vehicle history and the buyer will generally be able to rely on the dealer’s representation if the seller report has been accepted. In addition, taxpayers may utilize public tools to verify for themselves. The proposed regulations refer to an approved list of data providers. Transfers to or between dealers would not be counted as a transfer for purposes of determining whether a previously-owned clean vehicle is eligible.
The sales price of a previously-owned clean vehicle would be defined to generally mean the agreed-upon price in a contract plus any delivery charges less any incentives. However, it would not include any taxes and fees that are required by either a state or local law, would be before any trade-in value, and would not include any amount for separate finance and insurance products. It is worth noting that the preamble to the proposed regulations mention that any fees or charges that are added by the dealer and not required by law will be included in the sales price to keep dealers from separately stating these to try to circumvent the $25,000 sales price limit.
The proposed regulations and simultaneously issued Rev. Proc. 2023-33 update and unify guidance surrounding the seller report that is required to be submitted in connection with the sale of a clean vehicle that qualifies for a credit under IRC §30D or §25E. For additional information, see the Rev. Proc. 2023-33 section of this article.
Clean vehicles that have their sales canceled will still generally have the applicable credit—either IRC §30D or §25E—available since the vehicles would not be considered to have been placed in service or transferred. Any seller report previously submitted will need to be undone pursuant to the procedures within Rev. Proc. 2023-33 as explained later in this article.
If a taxpayer returns a clean vehicle within 30 days of placing the vehicle in service, the taxpayer will not be allowed to claim a credit under either IRC §30D or §25E for the vehicle, as applicable. A new clean vehicle returned within 30 days of purchase will no longer be eligible for a credit under IRC §30D since it will be considered to have been previously placed in service. A previously-owned clean vehicle returned within 30 days of purchase will no longer be eligible for a credit under IRC §25E if the vehicle history reflects that the prior sale and return was a qualified sale. However, if the vehicle history does not reflect the prior sale and return, the vehicle would generally remain eligible for a credit under IRC §25E. When a vehicle is returned, the seller report will need to be updated to reflect the return. If the taxpayer elected to transfer the credit, the dealer will be subject to repayment of the credit as the credit related to the transfer will be treated as an excessive advance payment. While excessive payments will generally carry an additional 20% repayment requirement, the requirement will not apply if the eligible entity can show the IRS reasonable cause for the excessive payment that is presumed to be the case for a vehicle returned within 30 days of the original sale.
If any clean vehicle eligible for a credit under either IRC §30D or §25E is resold by a taxpayer within 30 days of being placed in service by that taxpayer, neither the original buyer nor the subsequent buyer will be able to claim a clean vehicle credit. In such case, the original buyer will be treated as having acquired the vehicle for resale, which disqualifies the taxpayer from being able to claim a clean vehicle credit. The subsequent buyer will not be able to claim a credit under IRC §30D as the vehicle will be treated as previously placed in service. The subsequent buyer of a previously-owned clean vehicle that was purchased by the original buyer as a previously-owned clean vehicle will not be eligible for a credit under IRC §25E as the original buyer’s transaction will be considered the first transfer of the previously-owned clean vehicle subsequent to August 16, 2022. Since the original seller may not be aware of the subsequent sale, the seller’s report does not have to be updated, nor will the original seller be subject to the excessive payment rules. The original buyer in this case will be subject to recapture on their individual tax return.
If a clean vehicle eligible for a credit under either IRC §30D or §25E is returned or resold after 30 days, the taxpayer will generally still qualify for the credit. Seller reports will generally not need to be updated since the original seller will not have knowledge of the subsequent sale, nor will it need to be updated in the case of a return. In addition, neither the original seller nor the taxpayer will be subject to the excess payment rules or the recapture rules, respectively. However, while the proposed regulations do not provide for recapture in these situations, the IRS may disallow the credit if it concludes the vehicle was acquired with the intent to return or resell.
The credit transfer election is irrevocable once made and the taxpayer must transfer the entire credit allowable for the clean vehicle the election is made for. This transfer can be in the form of a full or partial down payment or a cash payment to the taxpayer. The proposed regulations make clear that the amount that is transferred can be more than the taxpayer’s applicable tax liability and any excess amount is generally not subject to recapture on their tax return.
Rev. Proc. 2023-33
The Rev. Proc. issued in connection with the proposed regulations provides the program and procedures to transfer clean vehicle credits under either IRC §30D(g) or §25E(f) beginning after December 31, 2023. Further, guidance addresses how qualified manufacturers, dealers, and sellers can register through the IRS ECO, as well as in which circumstances dealers may have their registration suspended or revoked. The Rev. Proc. also supersedes certain sections of Rev. Proc. 2022-42 specific to the timing and process to submit seller reports, as well as to what information is required to be submitted by manufacturers to be considered a qualified manufacturer and how the monthly reports required to be submitted by a qualified manufacturer are to be submitted.
The IRS has made available the IRS ECO for manufacturers and sellers to register to be qualified manufacturers, sellers, or registered dealers. This portal will be utilized by manufacturers to become qualified manufacturers, by sellers who must submit a seller report, and by sellers who desire to become registered dealers and thus participate in the advance payment program.
Manufacturers will need an authorized individual to register through the IRS ECO using an irs.gov account to provide the necessary information pursuant to §4.01(1) of Rev. Proc. 2022-42. This individual also will verify the business tax information in connection with the registration process. This individual must be legally able to bind the manufacturer; beginning in December 2023, multiple employees will be able to act on behalf of the manufacturer.
Sellers will need to have an authorized individual create an irs.gov account as well in connection with registering to use the IRS ECO. The authorized individual will need to provide the seller’s business tax information and make several certifications to complete the registration. Sellers of previously-owned clean vehicles also will need to provide proof they are licensed to sell vehicles in one of the qualifying locations. Also beginning in December 2023, sellers will be able to authorize multiple individuals to utilize the portal on their behalf.
An individual authorized to act on behalf of a dealer will need to create an irs.gov account to register to use the IRS ECO and multiple users will be able to act on behalf of the dealer beginning in December 2023. A dealer will need to be registered at least 15 days before it will be able to receive an advance payment related to the transfer credit election under IRC §30D(g) or §25E(f) from a taxpayer. Dealers can now begin registering but will not become an eligible entity to receive advance payments until January 1, 2024 when the applicable law takes effect. Dealers will need to provide all the information required to be provided by a seller plus bank account information to receive the advance payment of the credit and make several additional certifications, among other items.
The IRS will validate the registration by any seller or dealer upon completion of the process and if the process fails, the applicable individual will be notified. Once approved, a dealer will receive a unique identification number to be used with the IRS ECO. Dealers that receive a rejection notice will be able to appeal the determination but will be unable to accept any transfers of a credit from a taxpayer until the approval is resolved.
In addition to the dealer having to provide the taxpayer with certain information on or before the time of the sale, the taxpayer electing to transfer a credit to the dealer also must provide and attest to certain information under penalties of perjury, and this election must be made on or before the date of the sale as well. The information required includes the date of the election to transfer the credit, and a photocopy of a government-issued photo ID. The attestations required will include among others:
- That the taxpayer meets either the prior year or current year applicable MAGI threshold,
- If claiming a credit under IRC §30D, that the vehicle will be primarily used for personal use,
- If claiming a credit under IRC §25E, that the buyer meets the definition of a qualified buyer,
- That the taxpayer will file a timely income tax return for the year the vehicle is placed into service reporting the credit and the VIN on the applicable form,
- If required to repay the credit due to recapture, not meeting the MAGI limits, or other rules, the credit amount will be repaid, and
- That no more than two transfers of the credit elections by the taxpayer, including the current election, have been made for the tax year the vehicle is placed into service.
Manufacturers must enter into a written agreement using the IRS ECO beginning January 1, 2024 to be considered a qualified manufacturer. This means that manufacturers that previously entered into a written agreement pursuant to §6.01 of Rev. Proc. 2022-42 will need to enter into a new agreement via the portal. Also beginning January 1, 2024, qualified manufacturers will need to submit monthly written reports pursuant to §4.02 of Rev. Proc. 2022-42 by the 15th of the month following the month the reports are for; however, these reports can be filed more frequently if desired.
Seller reports related to vehicles placed in service on or after January 1, 2024 that must be filed pursuant to §5.01 of Rev. Proc. 2022-42 will now be required to be filed through the IRS ECO within three calendar days of the date of sale. However, when practical the seller should consider filing this report at the same time the sale is completed. Sellers will have the option to file these reports through the portal prior to January 1, 2024. Regardless of when the report is submitted, the seller will be required to provide confirmation of the submittal within three calendar days of submission. This is in addition to the seller report required to be provided to the customer on or before the date of sale.
Additional procedures are included in the Rev. Proc. related to the IRS rejection of a seller’s report, as well as how the seller can either update or rescind a report. In the case of a rejected seller’s report, a dealer will not be eligible for the advance payment program and must notify the buyer within three calendar days. Sellers will be able to update a previously submitted report if done so within 48 hours of the original report being submitted or will be able to submit a new seller’s report to correct unintentional mistakes in the original submittal. If a vehicle is subsequently returned to the seller, the seller must submit a new seller’s report notifying the IRS of the return. Any updated or new seller’s report submitted for any purpose will require the seller to notify the buyer and provide a copy within three calendar days of the submittal or subsequent rejection of the submittal.
Dealers will face tax compliance checks by the IRS in connection with the initial registration, each time a buyer elects to transfer a credit and an advance repayment is made, and on a regular basis. Tax compliance checks based upon the proposed regulations will include verifying that the dealer has filed all federal information and tax returns, including income and employment tax returns. The dealer must have paid any federal tax, including any associated interest and penalties. If the dealer is participating in an installment agreement related to any federal tax due, the dealer will need to be current on the installment agreement. This compliance check will apply to the five most recent tax years.
Advance payments will be made to dealers electronically once the dealer provides the necessary information for both the seller’s report and the advance payment through the IRS ECO and all information is confirmed, including the tax compliance check. Based on new Topic H, Q14, the IRS anticipates this payment to take between 48 and 72 hours after the dealer’s successful submittal of both the seller’s report and advance payment request. Paper checks will not be issued in connection with these payments.
Dealers will need to retain the information the buyer is required to disclose in connection with the transfer election for a period of three years after the date the transfer election is made by the buyer. Sellers will need to retain information related to each seller’s report they are required to submit for a period of three years after the date the report is filed with the IRS ECO.
Dealers risk having their registration suspended under six predefined scenarios, including for providing inaccurate information and for being out of tax compliance. The IRS also may, at its discretion, suspend a dealer’s registration to protect the advance payment program from abuse. If this occurs, the IRS will notify the dealer and the dealer will no longer be able to participate in the advance payment program until the issues are resolved. If the dealer fails to correct the issues within one year, the dealer’s registration will be revoked.
In addition to having their registration revoked for failure to correct the issues that led to their registration being suspended, dealers can have their registration revoked for other reasons, including the dealer losing their license to sell vehicles, failure to maintain appropriate records, having had their registration suspended three times within the past year, and in certain cases where the IRS determines revocation rather than suspension is the more appropriate course of action. The IRS will notify the dealer within 30 days of determining their registration should be revoked and dealers will have the opportunity to request a review of the decision, at which point the final decision surrounding the dealer’s registration will be that it either remains revoked, is reinstated with conditions, or is reinstated in full. A dealer whose registration has been revoked must wait one year before they can re-register. If a dealer has their registration revoked three times, the dealer will be permanently barred from re-registering with the IRS to participate in the advance payment program.
Several Updated FAQs & a Few New Ones
In connection with the issuance of the proposed regulations and Rev. Proc. 2023-33, the IRS updated several FAQs issued specific to clean vehicles and added three new topics to the FAQs. Updated FAQs can be found within all of the prior Topics (A through G). New Topics H, I, and J were added to help taxpayers with the transfer election involving the new clean vehicle or previously-owned clean vehicle credits, to help dealers and sellers register and file the necessary reports related to the elections, and to help sellers understand the new seller report filing obligations beginning January 1, 2024.
Additional Resources From the IRS
- Publication 5862, Energy Credits Online: Register for Energy Credits Online
- Publication 5867, Clean Vehicle Dealer and Seller Energy Credits Online Registration User Guide
- Publication 5863, A Step-By-Step Guide for New and Used Clean Vehicle Dealers and Sellers for the Energy Credits Online
- Publication 5864, New and Previously Owned Clean Vehicle Credit Time of Sale Reporting with Energy Credits Online
- Publication 5865, Clean Vehicle Credit Transfer
- Publication 5866, New Clean Vehicle Tax Credit Checklist
- Publication 5866-A, Used Vehicle Tax Credit Checklist
- Dealer Registration Frequently Asked Questions
- Video: How Dealers and Sellers Register for Energy Credits Online
- Fact Sheet 2023-22, Frequently Asked Questions About the New, Previously Owned and Qualified Commercial Clean Vehicles Credit
How FORVIS Can Help
Taxpayers, sellers, or dealers interested in or needing to comply with the various reporting involved with clean vehicle credits may need help. Our tax professionals stand ready to assist with questions to help you better understand the requirements. If you have questions or need assistance, please reach out to a professional at FORVIS.