7500 EV tax credit update with new bill

[noobzilla]

(l) <> Transition Rule.--Solely for purposes of the application of
section 30D of the Internal Revenue Code of 1986, in the case of a
taxpayer that--
(1) after December 31, 2021, and before the date of
enactment of this Act, purchased, or entered into a written
binding contract to purchase, a new qualified plug-in electric
drive motor vehicle (as defined in section 30D(d)(1) of the
Internal Revenue Code of 1986, as in effect on the day before
the date of enactment of this Act), and
(2) placed such vehicle in service on or after the date of
enactment of this Act,

such taxpayer may elect (at such time, and in such form and manner, as
the Secretary of the Treasury, or the Secretary's delegate, may
prescribe) to treat such vehicle as having been placed in service on the
day before the date of enactment of this Act.

https://www.congress.gov/bill/117th-congress/house-bill/5376/text

"... taxpayer may elect...to treat such vehicle as having been placed in service on the day before the date of enactment of this Act."

This is the part I'm referring to. If we are claiming it on tax return 2023, are we putting Placed in Service date as pre Aug 16 2022 in there? There has to be some way we can indicate on the tax return that this car is under transition rule. If we put say 5/5/2023 date in there how is that going to be differentiated from a car that was not ordered pre Aug 16? I'm guessing we put 2022 date in 2023 form then.

@Mr_rhythm

 

[Mr_rhythm]

(l) <> Transition Rule.--Solely for purposes of the application of
section 30D of the Internal Revenue Code of 1986, in the case of a
taxpayer that--
(1) after December 31, 2021, and before the date of
enactment of this Act, purchased, or entered into a written
binding contract to purchase, a new qualified plug-in electric
drive motor vehicle (as defined in section 30D(d)(1) of the
Internal Revenue Code of 1986, as in effect on the day before
the date of enactment of this Act), and
(2) placed such vehicle in service on or after the date of
enactment of this Act,

such taxpayer may elect (at such time, and in such form and manner, as
the Secretary of the Treasury, or the Secretary's delegate, may
prescribe) to treat such vehicle as having been placed in service on the
day before the date of enactment of this Act.

https://www.congress.gov/bill/117th-congress/house-bill/5376/text

"... taxpayer may elect...to treat such vehicle as having been placed in service on the day before the date of enactment of this Act."

This is the part I'm referring to. If we are claiming it on tax return 2023, are we putting Placed in Service date as pre Aug 16 2022 in there? There has to be some way we can indicate on the tax return that this car is under transition rule. If we put say 5/5/2023 date in there how is that going to be differentiated from a car that was not ordered pre Aug 16? I'm guessing we put 2022 date in 2023 form then.

@Mr_rhythm

This is referring to the tax treatment of the vehicle, and yes, you would treat it as the day before the bill was signed. I’m not privy to the exact wording of the deduction, but that’s how it would work.

 

[misanoblue]

If the IRS tries to argue that all the binding orders that Lucid, Rivian, Fisker, etc. did are not binding orders, there will be an uproar. This obviously is not what was intended by congress when passing the IRA. Warnock already has a bill that might address this, but I bet it would be fixed with other legislation if necessary.

And lets be real about what a substantial amount it. I'd say anything over $10 is substantial. Nobody goes around making donations of $300 or $1000 to for profit companies.

 

[misanoblue]

"a written contract is binding if it is a) enforceable under State law and b) does not limit damages to a specified amount (for example, by use of a liquidated damages provision or the forfeiture of a deposit)" -IRS

Also - its important to note that the second provision here makes no sense for car buying. It does make sense for buying a company. Is Lucid going to sue me for $1M for cancelling my order?

The whole point of the carve out in IRA was to grandfather in people currently in the process of buying a car. I believe there should be multiple definitions of "written binding contract" and that the "written binding contract" definition for a car would encompass the actual "written binding contracts" that the car makers actually use.

 

[joec]

If the IRS tries to argue that all the binding orders that Lucid, Rivian, Fisker, etc. did are not binding orders, there will be an uproar. This obviously is not what was intended by congress when passing the IRA. Warnock already has a bill that might address this, but I bet it would be fixed with other legislation if necessary.

And lets be real about what a substantial amount it. I'd say anything over $10 is substantial. Nobody goes around making donations of $300 or $1000 to for profit companies.

Oh, I think congress' intention was absolutely to end credits for EV buyers ASAP. Not only because many of them are in the pockets of oil companies, but because the vast majority of EV makers have long waiting lists for their cars. Why incentivize something when demand is already outstripping supply?

I completely disagree with this position, of course, because I think it's cutting EV adoption off at the kneecaps just as it starts to take off. But the bill makes it pretty clear that EV rebates are going the way of the dodo bird.

 

[gunick06]

Noob is wrong though on when you take the claim. If you get the car in 2023 you would take the credit on your 2023 tax return. If you get the car in 2024 you’d take the claim on 2024 return. No matter how this works out if you take the claim before you receive the car you will get dinged.

I’m not an accountant or Tax attorney, but the letter of what the IRS posted so far says that confirming the order before the new rules and taking delivery after (no end date) means it counts as being delivered in 2022, so that’s your 2023 tax filing and he’s actually not wrong.

This is of course separate from actually taking delivery in 2022, which is a separate rule and I think everyone agrees makes you eligible for the credit.

 

[Babyrocko1908]

What I think folks are missing here is the act of us converting our orders to non-refundable deposits. When we did this, we met the definition of a binding contract and satisfied the consideration requirement for a binding contract. Lots of discussion has been made regarding what exactly is sufficient value/consideration. For consideration to be satisfied, it generally requires giving something of value by the parties, forgoing doing something a party as a right to do, as well as performance by the parties. Any of these will satisfy the consideration element of a contract. Consideration can be as low as $1.00 in some instances. As I stated last night, the minute we converted our reservations to non-refundable deposits, that satisfied consideration and our contracts with Lucid became binding. In the language posted on the IRS's website under the transition rule, it says a contact is binding if there's a non-refundable deposit OR 5% of the purchase price is made (this I assume is in order to have your deposit become refundable.)

The intent of the transition rule under the Inflation Reduction Act was to protect (grandfather) buyers who already had binding contracts prior to the bill's passage but ran the risk of their vehicles not being "delivered" before the bill passed and signed into law. The IRS cannot just say, oh well, our binding contracts are no longer are valid because your vehicle isn't delivered in 2022! That's not how this works at all and more often than not, Congress, as well as the Courts, are loathe to interfere in contracts unless of course there is a breach or a contract is unjust or illegal.

Finally, the transition rule doesn't even state that delivery MUST occur in 2022 and this is critically important. By my reading, what's binding is the date we entered into the binding contract via the non-refundable deposit which for myself and a bunch of others was August 10, 2022 not the date the vehicle is "delivered." I agree with earlier posts regarding WHEN we claim the credit. We can't claim the credit on our 2022 taxes if the vehicle hasn't been "delivered." However, another question arises, does delivery mean when we paid for the car in full or when it's physically in our possession? Say we pay for the car on December 24th, but delivery doesn't occur until January 1st? Which date for delivery controls? I'm going to say when we pay. Delivery is different legally from possession. The transition rule specifically states possession not delivery. Another check in the column that we should be able to claim the credit for cars not in our possession by the end of 2022.

Transition Rule for Vehicles Purchased before August 16, 2022​

"If you entered into a written binding contract to purchase a new qualifying electric vehicle before August 16, 2022, but do not take possession of the vehicle until on or after August 16, 2022 (for example, because the vehicle has not been delivered), you may claim the EV credit based on the rules that were in effect before August 16, 2022. The final assembly requirement does not apply before August 16, 2022."

In any event, all of us could be dead wrong. We'll find out soon enough but my gut is telling me, the IRS will put out clearer guidance safeguarding our $7,500 credit soon. The IRS isn't out to screw people. They are here to ensure equity and fairness. Hell, they just increased our deductions and tax brackets for 2023 due to inflation.

-Babyrocko1908

 

[gunick06]

This isn't a Constitutional Law issue it's s a Contracts issue. I'm going to go 1L contacts law here. A valid contract requires an offer, acceptance and consideration. Consideration is a bargained for exchange of promises between the parties where there's a benefit to the seller and detriment to the buyer. The "amount" of consideration here is irrelevant. The detriment for us buyers occured when we converted our orders to non-refundable, that met the definition of consideration for a binding contract.

In addition, contrary to perception, the IRS isn't out to screw people. Further, the Biden Administration with the help of Congress is on record that they are planning to revisit the transition rule under Infrastructure bill. I'm 90% certain the IRS has no intention of punishing thousands of EV buyers by not accepting the $7,500 tax credit as it stood prior to the passage of the bill. The whole point is to encourage folks to purchase EV's, not penalize buyers because an automaker can't deliver their cars by December 31st.

It’s tax law, which I intentionally did not study in law school. This debate has been going on like this for over 500 posts now and no one will know until someone like the IRS clarifies or we see someone lose/win their case against the IRS trying to claw back the credit (you can sue the IRS and prove them wrong in court if you’re brave enough).

 

[Babyrocko1908]

It’s tax law, which I intentionally did not study in law school. This debate has been going on like this for over 500 posts now and no one will know until someone like the IRS clarifies or we see someone lose/win their case against the IRS trying to claw back the credit (you can sue the IRS and prove them wrong in court if you’re brave enough).

Same I didn't study tax law in law school either. But we did take contracts in 1L.

 

[joec]

it says a contact is binding if there's a non-refundable deposit OR 5% of the purchase price is made

You keep stating this as if it were a clear fact, but it’s not clear at all.

The exact language is “if a customer has made a non-refundable deposit or down payment of 5% of the total contract price, it is an indication of a binding contract.

It’s all about what the OR refers to. To me, it’s fairly obvious they mean a non-refundable deposit or down payment. Either of which needs to be at least 5% of the contract price. Our deposits were nowhere near 5% of the car’s price.

No official from the IRS has clarified this, though. And they only provided this as an example of what might be considered binding, anyway.

You can scream into the void as much as you like if it makes you happy (as long as you do it in this thread). But it’s not going to convince any of us who interpret those words the way I do. (And Lucid does, it seems.)

 

[Babyrocko1908]

You keep stating this as if it were a clear fact, but it’s not clear at all.

The exact language is “if a customer has made a non-refundable deposit or down payment of 5% of the total contract price, it is an indication of a binding contract.

It’s all about what the OR refers to. To me, it’s fairly obvious they mean a non-refundable deposit or down payment. Either of which needs to be at least 5% of the contract price. Our deposits were nowhere near 5% of the car’s price.

No official from the IRS has clarified this, though. And they only provided this as an example of what might be considered binding, anyway.

You can scream into the void as much as you like if it makes you happy (as long as you do it in this thread). But it’s not going to convince any of us who interpret those words the way I do. (And Lucid does, it seems.)

Joe, say what now? It is all about what the OR refers to?? OR is OR! Or as defined by MW means OR used as a function word to indicate an alternative. Here, the IRS states "if a customer has made a non-refundable deposit or down payment of 5% of the total contract price, it is an indication of a binding contract." The first choice is a non-refundable deposit, the second alternative is a down payment of 5% of the total contact price. If the IRS meant what you're trying to say-- either non-refundable deposit of 5% or 5% of the total contract price, the rule needs to say that which it clearly does not. This is a reach.

 

[noobzilla]

Guys guys.. and ladies can we just all wait for clarification from the govt?

 

[joec]

Joe, say what now? It is all about what the OR refers to?? OR is OR! Or as defined by MW means OR used as a function word to indicate an alternative. Here, the IRS states "if a customer has made a non-refundable deposit or down payment of 5% of the total contract price, it is an indication of a binding contract." The first choice is a non-refundable deposit, the second alternative is a down payment of 5% of the total contact price. If the IRS meant what you're trying to say-- either non-refundable deposit of 5% or 5% of the total contract price, the rule needs to say that which it clearly does not. This is a reach.

I think you're the one who is reaching.

How can you not acknowledge the possibility that they meant non-refundable deposit or down payment? All I'm saying is that there are clearly two ways to interpret this, and your wishful thinking is not allowing your logical mind to accept that obvious fact.

You can buy this Apple laptop in silver or space grey for $5,000. Does that mean the silver one is free?

They obviously could have worded it more clearly, but that's all I'm trying to get you to see. That it's not clear.

If they really meant to say the deposit could be any amount, they likely would have stated as much, no?

"if a customer has made a non-refundable deposit of any amount, or a down payment of 5% of the total contract price, it is an indication of a binding contract"

But they didn't write that. You don't find it strange that they only care that it's 5% if it's a down payment? Why would a 4% down payment not count, but a $1 deposit would? Does that really feel like the more likely interpretation? Let alone the ONLY interpretation that is acceptable?

 

[Babyrocko1908]

I think you're the one who is reaching.

How can you not acknowledge the possibility that they meant non-refundable deposit or down payment? All I'm saying is that there are clearly two ways to interpret this, and your wishful thinking is not allowing your logical mind to accept that obvious fact.

You can buy this Apple laptop in silver or space grey for $5,000. Does that mean the silver one is free?

They obviously could have worded it more clearly, but that's all I'm trying to get you to see. That it's not clear.

If they really meant to say the deposit could be any amount, they likely would have stated as much, no?

"if a customer has made a non-refundable deposit of any amount, or a down payment of 5% of the total contract price, it is an indication of a binding contract"

But they didn't write that. You don't find it strange that they only care that it's 5% if it's a down payment? Why would a 4% down payment not count, but a $1 deposit would? Does that really feel like the more likely interpretation? Let alone the ONLY interpretation that is acceptable?

Of course they could have stated a specific amount but that amount wouldn't always equal 5%. 5% of $100k is not 5% of $50k.

The main point I'm making is that in the law specific words like and, or, shall, or even must is it be interpreted strictly not liberally as your suggesting. So my point remains, if OR didn't mean non-refundable deposit OR $5% of the total contract price, the IRS would have said so. You're reading terms into the IRS' language for the transition rule under a binding contract that simply doesn't exist.

Now before I head home for the day, I could be completely wrong about this. However, rules like these are written in plain, easy to understand, English specifically for non-lawyers i.e. regular people to understand. Apparently, the the IRS has failed here.

Truce??

 

[gunick06]

What I think folks are missing here is the act of us converting our orders to non-refundable deposits. When we did this, we met the definition of a binding contract and satisfied the consideration requirement for a binding contract. Lots of discussion has been made regarding what exactly is sufficient value/consideration. For consideration to be satisfied, it generally requires giving something of value by the parties, forgoing doing something a party as a right to do, as well as performance by the parties. Any of these will satisfy the consideration element of a contract. Consideration can be as low as $1.00 in some instances. As I stated last night, the minute we converted our reservations to non-refundable deposits, that satisfied consideration and our contracts with Lucid became binding. In the language posted on the IRS's website under the transition rule, it says a contact is binding if there's a non-refundable deposit OR 5% of the purchase price is made (this I assume is in order to have your deposit become refundable.)

The intent of the transition rule under the Inflation Reduction Act was to protect (grandfather) buyers who already had binding contracts prior to the bill's passage but ran the risk of their vehicles not being "delivered" before the bill passed and signed into law. The IRS cannot just say, oh well, our binding contracts are no longer are valid because your vehicle isn't delivered in 2022! That's not how this works at all and more often than not, Congress, as well as the Courts, are loathe to interfere in contracts unless of course there is a breach or a contract is unjust or illegal.

Finally, the transition rule doesn't even state that delivery MUST occur in 2022 and this is critically important. By my reading, what's binding is the date we entered into the binding contract via the non-refundable deposit which for myself and a bunch of others was August 10, 2022 not the date the vehicle is "delivered." I agree with earlier posts regarding WHEN we claim the credit. We can't claim the credit on our 2022 taxes if the vehicle hasn't been "delivered." However, another question arises, does delivery mean when we paid for the car in full or when it's physically in our possession? Say we pay for the car on December 24th, but delivery doesn't occur until January 1st? Which date for delivery controls? I'm going to say when we pay. Delivery is different legally from possession. The transition rule specifically states possession not delivery. Another check in the column that we should be able to claim the credit for cars not in our possession by the end of 2022.

Transition Rule for Vehicles Purchased before August 16, 2022​

"If you entered into a written binding contract to purchase a new qualifying electric vehicle before August 16, 2022, but do not take possession of the vehicle until on or after August 16, 2022 (for example, because the vehicle has not been delivered), you may claim the EV credit based on the rules that were in effect before August 16, 2022. The final assembly requirement does not apply before August 16, 2022."

In any event, all of us could be dead wrong. We'll find out soon enough but my gut is telling me, the IRS will put out clearer guidance safeguarding our $7,500 credit soon. The IRS isn't out to screw people. They are here to ensure equity and fairness. Hell, they just increased our deductions and tax brackets for 2023 due to inflation.

-Babyrocko1908

The reason people keep bringing this up is because the IRS provided guidance that specifically called out liquidated damages here (copied below): https://www.irs.gov/businesses/plug-in-electric-vehicle-credit-irc-30-and-irc-30d

What Is a Written Binding Contract?​

In general, a written contract is binding if it is enforceable under State law and does not limit damages to a specified amount (for example, by use of a liquidated damages provision or the forfeiture of a deposit). While the enforceability of a contract under State law is a facts-and-circumstances determination to be made under relevant State law, if a customer has made a significant non-refundable deposit or down payment, it is an indication of a binding contract. For tax purposes in general, a contract provision that limits damages to an amount equal to at least 5 percent of the total contract price is not treated as limiting damages to a specified amount. For example, if a customer has made a non-refundable deposit or down payment of 5 percent of the total contract price, it is an indication of a binding contract. A contract is binding even if subject to a condition, as long as the condition is not within the control of either party. A contract will continue to be binding if the parties make insubstantial changes in its terms and conditions.

...

DISCLAIMER: THIS IS NOT LEGAL ADVICE AND I AM NOT COMPETENT TO PROVIDE ANYONE WITH LEGAL ADVICE ON THIS SUBJECT. CONSULT A PROFESSIONAL AND NOT SOMEONE ON THIS FORUM. PLEASE. AT THIS POINT, IT'S JUST PURE ENTERTAINMENT.

There are some linguistics issues mixed in with a bit contracts law if we just (inappropriately) ignore the tax law questions. This has pretty much all been discussed in this thread before, but I do enjoy the ongoing debate.

First, why the hell is the IRS calling out “enforceability” as a pre-requisite for “binding”? Is the IRS trying to use the term "binding" to mean "specific performance"? That is, if either party breaches the contract, can the non-breaching party bring the other to court and have the court require them to perform the contract (for us, pay the full price and take delivery of the car; for Lucid, deliver the car)? Or is the IRS asking whether the liquidated damages provisions are enforceable, thus making the contract binding? Maybe they just mean something else, like not being illegal. As noted again later in this post, this explanation from the IRS was not written carefully.

Point (A)(1): Enforceable under State law
If we tried to sue Lucid in court to nullify the contract and return our money (us in breach), the question we would care about is whether the liquidated damages provision is enforceable. The enforceability of liquidated damages provisions is actually not a simple question, and could vary widely on a state by state basis. However, I would not foresee many states sympathizing with a buyer who is in breach of this contract.

If Lucid wants to cancel the contract (Lucid in breach), then our remedies are also limited to $1K according to the limitation of liabilities section (technically not referred to as liquidated damages). So if we got our deposit back from Lucid, does that mean the contract was enforceable all along? Maybe, but for the sake of moving on with this discussion, let's just say it's enforceable under most state laws.

Point (A)(2): Does not limit damages to a specified amount
So now we see that a "binding" contract apparently also requires that the contract "does not limit damages to a specified amount (for example, by use of a liquidated damages provision or the forfeiture of a deposit)." Well, we definitely fail this test. $1K liquidated damages in both directions. Damages are limited to the specified amount of $1,000. It's specified in the contract, and also called liquidated damages.

So, end of debate, right? Wait, what about the proclamation that "a contract provision that limits damages to an amount equal to at least 5 percent of the total contract price is not treated as limiting damages to a specified amount." Okay, so "an amount ... is not treated as ... an amount"? At this point, the contracts law discussion is over, because we aren't trying to enforce a contract with the government based on this language (although if someone wants to IRAC their takings clause analysis here, I would be interested to read it).

Hmm... maybe an example would help this debate. Okay, so "if a customer has made a non-refundable deposit or down payment of 5 percent of the total contract price, it is an indication of a binding contract." So 5% is only limited to down payments, but non-refundable deposits can be in any amount and that counts? This sentence can technically be read two ways, but it's pretty clear they meant that a 5% deposit/down payment counts as "significant" if you read the two preceding sentences. However, that fact has not stopped people from honing in on the "or" as their Perry Mason moment.

At any rate, on to the real question.

Point (B): For Tax Purposes

Now if we forget all of this and turn to the fact that this is a tax question, you will see that the 5% example being "significant" is "for tax purposes." This entire debate is about whether or not we get a tax credit. The transition rules exist so that people who should have obtained their tax credits under the old rules are not screwed out of their money. This tax credit is a "thank you" for buying an EV. But we haven't actually bought an EV, and that's the problem. We have given a company $1,000 in the hopes that we would qualify under this rule, but it should have been at least 5% if we actually wanted to qualify. The IRS has provided this 5% rule, which has absolutely nothing to do with contracts law (I want pincites from anyone who says otherwise), as a way of recognizing the fact that you have really committed to doing something you're trying to claim on your taxes.

I know this will not end the debate, but maybe it will help a few people understand that this is as far as we can really take this.

P.S. It's extremely clear that taking delivery by the end of the year is okay because that is a separate rule. Lucid has no issues saying that's the case, but if you ask them what happens if you take delivery next year, they will tell you to talk to a tax consultant because they have all been trained not to opine on what looks like a terrible scheme to get everyone tax credits that only resulted in Lucid taking everyone's money for absolutely no benefit to the customer.

 

[joec]

Of course they could have stated a specific amount but that amount wouldn't always equal 5%. 5% of $100k is not 5% of $50k.

The main point I'm making is that in the law specific words like and, or, shall, or even must is it be interpreted strictly not liberally as your suggesting. So my point remains, if OR didn't mean non-refundable deposit OR $5% of the total contract price, the IRS would have said so. You're reading terms into the IRS' language for the transition rule under a binding contract that simply doesn't exist.

Now before I head home for the day, I could be completely wrong about this. However, rules like these are written in plain, easy to understand, English specifically for non-lawyers i.e. regular people to understand. Apparently, the the IRS has failed here.

Truce??

Hey, I got you to say you think it's possible your interpretation is not the correct one. That's all I can ask.

Heck, I'd love for you to be right. We'll know in a few months.

I dismissed this whole debate as impossible to win months ago. Just couldn't resist coming back into the fray to remind folks of that.

 

[maazymaaz]

Hey, I got you to say you think it's possible your interpretation is not the correct one. That's all I can ask.

Heck, I'd love for you to be right. We'll know in a few months.

I dismissed this whole debate as impossible to win months ago. Just couldn't resist coming back into the fray to remind folks of that.

how will we know exactly?

 

[joec]

how will we know exactly?

At some point, the IRS will provide more detailed guidance on how to interpret this new rule. They have not as yet done so officially. But as thousands of accountants attempt to make sense of this when they start their busy season in January / February, pressure will build on the IRS to take a firm stand on what qualifies and what does not.

If there's one thing I've learned about accountants, they do not like fuzzy interpretations of anything. They want to know for sure something is on the up and up before signing their name to anyone's return.

 

[Halodde]

Guys guys.. and ladies can we just all wait for clarification from the govt?

I'm going to go with "Guess not"

 

[ScottM]

how will we know exactly?

Hopefully (and I do mean hopefully!) when the IRS publishes the 2022 form 8936 and the instructions to that form. Right now the form says "Enter Date vehicle was placed in service". It would be nice if that language was expanded to include entered into a binding contract - or if the instructions say to use the binding contract date.