IRS issues guidance on transferring clean vehicle credits to dealers

Newly released IRS guidance explains how taxpayers would transfer advanced payments of tax credits for new or previously owned clean vehicles to the dealership from which they purchased the vehicle. The guidance includes proposed regulations, a revenue procedure and updates to the commercial clean vehicle FAQ.

Under the proposed rules, a taxpayer would be allowed to transfer the full amount of the credit for which they are eligible, regardless of their tax liability. The transfer will be made to eligible dealers at the time of sale beginning in 2024 using a website the IRS is launching later this month.

The Inflation Reduction Act (IRA) of 2022 included tax credits of up to $7,500 for eligible taxpayers who purchase a qualifying plug-in electric vehicle (EV) or fuel cell electric vehicle beginning. The legislation also included a tax credit of up to 30% of the sales price of a qualifying used EV or fuel cell vehicle for $25,000 or less, up to a maximum of $4,000. Eligible taxpayers must meet income requirements to claim the credit and the purchased vehicle must meet pricing and manufacturing requirements. A taxpayer can only elect to transfer two clean vehicle tax credits in a year.

In most situations, when a dealer accepts the transfer of advanced payments of the clean vehicle credit from buyers, the dealer’s tax liability would not be affected.

Claiming the credit using the new website

For an eligible taxpayer to claim or transfer the credit beginning Jan. 1, 2024, the dealer must be registered with the IRS’s energy credits online website, which should be operational by the end of October. Registered dealers will be able to submit information on the sales of clean vehicles directly to the IRS and promptly receive payment for the transferred credit. The “time of sale” reports submitted by the dealer will be used to confirm the taxpayer’s eligibility for the credit, regardless of whether the buyer decides to transfer the credit to the dealer.

When an eligible taxpayer purchases an eligible vehicle and transfers the credit, the dealer must reduce the vehicle’s purchase price by the full amount of the credit or make a cash payment to the buyer. According to the U.S. Treasury Department, when the dealer submits the necessary information to the energy credits website, it should receive an advance payment for the amount of the credit within 72 hours. Dealers will be required to provide disclosures to the purchaser, including written confirmation that their vehicle is eligible for the credit as part of the submission process.

To prevent fraud or abuse of the credit transfer process, the IRS will verify the information collected through the energy credits online website during dealer registration. A registration ID will be provided to a dealer when the IRS has established the validity of the dealer’s registration. The IRS plans to make fact sheets, FAQs, checklists and other materials explaining the process before the end of the year.

Affirming the taxpayer’s eligibility

Taxpayers who purchase new or used clean vehicles can transfer their clean vehicle credit if they attest that they are eligible because their income fell below the applicable threshold for the last tax year, and they expect that it will do so again in the year it is placed into service. Taxpayers who transferred their credit but don’t meet the modified adjusted gross income eligibility requirements will be required to repay the full value of the transferred credit to the IRS when they file their next tax return.