7500 EV tax credit update with new bill

[joec]

Icing on cake, even the same lawyer can have different ways to interpret the same law. Lawyer have various skills and tool sets to manipulate evidence to fit what they want.

Lawyers can get as fancy with interpretation as they want. All that matters is the IRS interpretation.

 

[gunick06]

Lawyers can get as fancy with interpretation as they want. All that matters is the IRS interpretation.

Yep. I posted this sentiment in one of these tax forums. Technically you can sue the IRS but in the end, their interpretation being the opposite of what you did is probably going to cause a lot of pain.

 

[Pavlova]

I wonder if entering into a contract means anything with this... This email is what I've received back in August.

 

[gunick06]

I wonder if entering into a contract means anything with this... This email is what I've received back in August.

View attachment 7834

Not enough, unfortunately. The sales contract explains that the non-refundable deposit will serve as liquidated damages. The IRS states with a fair amount of certainty that it’s not enough.

 

[misanoblue]

Its definitely an AND. IRS is using prior definitions of "written binding contract" which requires 5% non-refundable to be seen as not limiting damages. This was for construction though, and doesn't make sense in the context of buying a car. IRS will need to either redefine "written binding contract" again or use the old definition, in which case almost no one will get the credit (except Ocean One customers).

Legal Alert: IRS Clarifies "Binding Written Contract" Definition in Renewable Energy Tax Credit Begun Construction Guidance | JD Supra

On April 25, 2013, the Internal Revenue Service updated guidance issued on April 15, 2013, that explained how to satisfy the new “begun construction”...

www.jdsupra.com

 

[gunick06]

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.

Here’s my prior explanation. This is only about option 1: written binding contract prior to the new rules.

 

[gunick06]

Its definitely an AND. IRS is using prior definitions of "written binding contract" which requires 5% non-refundable to be seen as not limiting damages. This was for construction though, and doesn't make sense in the context of buying a car. IRS will need to either redefine "written binding contract" again or use the old definition, in which case almost no one will get the credit (except Ocean One customers).

Legal Alert: IRS Clarifies "Binding Written Contract" Definition in Renewable Energy Tax Credit Begun Construction Guidance | JD Supra

On April 25, 2013, the Internal Revenue Service updated guidance issued on April 15, 2013, that explained how to satisfy the new “begun construction”...

www.jdsupra.com

Thanks for linking that. I was always curious how old that rule was! Just makes it more frustrating that Lucid did not offer anyone the ability to put 5% down.

 

[Bobby]

Here’s what my CPA said: just take the credit and hope for the best. In the worst case scenario, you will owe it back with some minor interest. Pretend you’re not gonna actually get it and if you do, you win. Most taxes are done on the honor code and are not audited. Just make sure that the rest of your taxes don’t have any questionable stuff going on. If you are not being 100% forthcoming with your taxes, this could be a red flag that you don’t need.

Also, it would be nice to have a $7500 discount on the car. If you’re absolute counting on that to make this car affordable, you probably should reconsider your purchase.

Nothing I just said should be construed as legal or financial advice, it’s just thoughts.

 

[hydbob]

Treasury Department delays electric vehicle tax credit guidance until March

The sourcing of materials and batteries for EVs is a major part of the federal tax credits of up to $7,500 for consumers under the Inflation Reduction Act.

www.cnbc.com

 

[LucidNJ]

Good news! Keep claiming until March!

Treasury Department delays electric vehicle tax credit guidance until March

The sourcing of materials and batteries for EVs is a major part of the federal tax credits of up to $7,500 for consumers under the Inflation Reduction Act.

www.cnbc.com

Isn't that only with regards to the battery sourcing? If I interpreted the article correctly, the other factors of the IRA will still go into effect on Jan 1st. But then again, I'm no lawyer or tax expert

 

[maazymaaz]

Good news! Keep claiming until March!

Treasury Department delays electric vehicle tax credit guidance until March

The sourcing of materials and batteries for EVs is a major part of the federal tax credits of up to $7,500 for consumers under the Inflation Reduction Act.

www.cnbc.com

Since the car is over 55k it won’t qualify starting Jan 1st

 

[noobzilla]

Isn't that only with regards to the battery sourcing? If I interpreted the article correctly, the other factors of the IRA will still go into effect on Jan 1st. But then again, I'm no lawyer or tax expert

This. Lucid still above the price point and won't qualify Jan 1. Bummer

 

[AlignTrex]

This. Lucid still above the price point and won't qualify Jan 1. Bummer

Yup. Lucid is over the price cap.

 

[gunick06]

Yup. Lucid is over the price cap.

yea, the article clearly says “Cars with a retail price of more than $55,000 also aren’t eligible, nor are vans, SUVs or trucks that cost $80,000 or more.”

 

[hydbob]

Doh! I retract my previous statement.

 

[pjdcorp]

I just read your link & I'm not sure that provides us with the guidance you suggest. It appears to my uneducated view that the limits on the car price still go into effect on 1/1/23 & it's only the battery sourcing component requirement that's delayed until March (at least). I hope you're right, but perhaps you could explain your reasoning/interpretation. Thanks.

 

[HariK]

Here’s what my CPA said: just take the credit and hope for the best. In the worst case scenario, you will owe it back with some minor interest. Pretend you’re not gonna actually get it and if you do, you win. Most taxes are done on the honor code and are not audited. Just make sure that the rest of your taxes don’t have any questionable stuff going on. If you are not being 100% forthcoming with your taxes, this could be a red flag that you don’t need.

Also, it would be nice to have a $7500 discount on the car. If you’re absolute counting on that to make this car affordable, you probably should reconsider your purchase.

Nothing I just said should be construed as legal or financial advice, it’s just thoughts.

I totally agree. If I take delivery for my car EOY, I will file taxes in 23 for 22 and claim 7.5k tax credit. If you want to avoid a penalty just pay 7.5k more and get a refund if they allow the tax credit. No point debating this issue.

 

[nikp]

Would this apply to those who have confirmed orders in 2022 or does delivery date matter?

 

[Babyrocko1908]

Would this apply to those who have confirmed orders in 2022 or does delivery date matter?

It depends on whether you converted your reservation to a non-refundable order prior to the passage of the IRA on August 16, 2022. If you did like most of us, you would fall under the transition rule that we've discussed here. The delivery date would not matter based on the actual language of the bill because the bill allows a customer to select their date that the vehicle was placed in service as the day before the passage of the IRA which would be August 15, 2022.

 

[gunick06]

It depends on whether you converted your reservation to a non-refundable order prior to the passage of the IRA on August 16, 2022. If you did like most of us, you would fall under the transition rule that we've discussed here. The delivery date would not matter based on the actual language of the bill because the bill allows a customer to select their date that the vehicle was placed in service as the day before the passage of the IRA which would be August 15, 2022.

To be clear, this is just one opinion, and it’s the minority view on how the rules will be applied.