[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





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Internal Revenue Service





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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]]


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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.

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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 
<a href="/cdn-cgi/l/email-protection#f9898c9b95909a919c988b90979e8ab9908b8ad79e968f"><span class="__cf_email__" data-cfemail="d4a4a1b6b8bdb7bcb1b5a6bdbab3a794bda6a7fab3bba2">[email protected]</span></a> (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


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