The Inflation Reduction Act expanded the ability for buyers of clean vehicles to claim tax credits for their purchases. Available credits include up to $7,500 for the purchase of a new clean vehicle (§30D), up to $4,000 for the purchase of a previously owned clean vehicle (§25E), and even up to $40,000 for the purchase of certain heavy duty commercial clean vehicles (§45W). Importantly, for vehicles placed in service January 1, 2024, or later, the dealership must submit certain time-sensitive information reports to both the buyer and the IRS.
Dealers should use the IRS’s Energy Credits Online (“IRS ECO”) tool to electronically submit the required reports. The first step in the process is for one authorized official of the dealership to register for IRS ECO (note: additional users can be added later). Dealership registration, in IRS ECO, includes:
- Dealership information (name, address, and taxpayer identification number or employer identification number)
- Proof of dealer license to sell vehicles (license number and copy of license)
- Bank account information (if your dealership plans to receive advance payment – see below)
- Certain verifications (i.e., will provide required documentation to buyers)
Once registered, the dealership will be able to submit Time of Sale Reports, which are required for any §30D or §25E credits to be eligible. Buyers must be given a copy of the Time of Sale Report and confirmation of acceptance by IRS ECO to be used when they file their annual federal tax return. The Time of Sale Report, in IRS ECO, includes:
- Dealership information (name, address, and taxpayer identification number or employer identification number)
- Buyer information (name and taxpayer identification number)
- Vehicle information (VIN, battery capacity, model year, price)
- Certain verifications and attestations to the veracity of the report and eligibility requirements
- Advance payment credit transfer information, if applicable (see below)
As of this year, buyers of qualifying new and previously owned clean vehicles can transfer their tax expected tax credits to a dealership (who has registered with the IRS, as described above), such that the dealership can provide full amount of the expected credit to the buyer in the form of a downpayment for the purchase or cash. This advanced payment transfer process allows the buyer to receive their full credit at the time of the sale. The advance payment request, in IRS ECO, includes:
- Transfer election
- Driver’s license number and upload
- Acknowledgment of transfer
- Buyer attestation
Once submitted, there will be a real-time confirmation of submission acceptance, and the dealership should receive payment in the amount that they provided to the buyer in around 72 hours. It is important to note that, because these credits have income threshold limitations, dealerships must provider buyers with disclosures around the specific income requirements for the credit (they do not have to independently verify a buyer’s income). The required disclosures are a portion of the Time of Sale reporting process.
Given that the required reporting processes for Inflation Reduction Act clean vehicle credits are meticulous and time-sensitive, it is more important than ever that dealerships are familiar and compliant with the required reports. If you need further guidance or have any questions on this topic, we are here to help. Please do not hesitate to reach out to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
