Treasury, IRS Release Proposed Regulations on Qualified Alternative Fuel Vehicle Refueling Property Credit
The IRS and the Treasury Department on September 18 released proposed regulations on the credit for qualified alternative fuel vehicle refueling property under IRC Section 30C, which was originally introduced in 2005 and most recently amended by the Inflation Reduction Act of 2022 (IRA). The changes introduced by the IRA apply to qualified alternative fuel vehicle property placed in service after December 31, 2022, and on or before December 31, 2032.
In addition to the proposed regulations, the IRS and Treasury also issued Notice 2024-64 to clarify prior guidance on qualifying geographies.
The IRS and Treasury had previously issued Notice 2022-56, requesting general comments on the amendments to the alternative fuel vehicle refueling property credit under Section 30C to help to inform the development of guidance. In response, the government received 135 comments from various stakeholders, which were considered in preparation of the proposed regulations.
The 30C credit can be claimed as either a personal credit or a general business credit, depending on whether the qualified alternative fuel vehicle refueling property (the “30C property”) is depreciable. For depreciable 30C property, the 30C credit is 30% of the cost of the 30C property, provided that prevailing wage and apprenticeship (PW&A) requirements are met. For nondepreciable 30C property, the personal credit version of the 30C credit is 30% without the need to meet PW&A requirements.
Like other credits under the IRA, the 30C credit is monetizable under Sections 6417 and 6418. For prior coverage, see Energy Tax Credit Update: Elective Pay Requirements, and New Guidance on Low-Income Communities Bonus Credit Program.
Definition of 30C Property
The proposed regulations define 30C property to include its components that are functionally interdependent, and an integral part as applicable, for the 30C property to serve as refueling property or recharging property. This approach is consistent with the functional interdependence approach found in the investment tax credit (ITC) proposed regulations.
Refueling property is defined as property for the storage and dispensing of a qualified alternative fuel into the fuel tank of a motor vehicle propelled by such fuel, but only if the storage or dispensing of the fuel is at the point where such fuel is delivered into the fuel tank of the motor vehicle. Recharging property is similarly defined but for property for the recharging of a motor vehicle propelled by electricity, but only if the property is located at the point where the motor vehicle is recharged.
In addition to the above, 30C property must be depreciable or installed on property that is the taxpayer’s principal residence, follow the original use requirement found in the ITC regulations, and be placed in service in an eligible census tract.
Location Consideration
Under the statute, the 30C credit is available only for 30C property placed in service in the qualifying low-income communities described under Section 45D(e) of the New Markets Tax Credit (NMTC) or non-urban areas. The NMTC has been administered by the Treasury’s CDFI Fund for over 20 years and has a regular process for determining the eligible census tracts every five years, relying on the Census Bureau. While 30C property eligibility based on this process has been straightforward, there has been a need for clarity regarding eligibility based on non-urban areas. As of the 2020 census, the Census Bureau identifies urban areas not by population census tracts, as is done for NMTC low-income communities, but rather by census blocks, which are smaller subdivisions of the tract.
The proposed regulations provide clarity by defining “non-urban census tracts” as any population census tract in which at least 10% of the census blocks are not urban areas.
Regarding the location requirement of the 30C credit, the government has requested comments on ways to verify the targeted population and low population qualifying low-income communities under the NMTC. While the low-income community criteria utilizing poverty rate and median family income are verifiable, the government has questions about verifying targeted population and low-population communities, which are also qualifying low-income communities under the NMTC. Additionally, the government requests comments on how mobile equipment may qualify from an administrative requirement when it is used in census tracts other than where it was placed in service.
Interplay with Investment Tax Credit
The proposed regulations also amend the ITC regulations to clarify that energy storage technology, for purposes of the ITC, does not include property for which a taxpayer claims a 30C credit. To prevent double-dipping by claiming both the ITC and the 30C credit, the government differentiates between the two by examining the primary use of the eligible property. The 30C credit is intended to support property used for the transportation of goods or individuals, whereas the ITC is designed to support the production and storage of electricity.
However, the proposed rules add a caveat that energy storage property for which a 30C credit is not claimed may still be eligible for an ITC under Sections 48 and 48E, provided it meets the requirements under those provisions.
Calculating the 30C Credit
One area in need of clarification was the single item limitation of 30C property, which capped the general business credit at $100,000 and personal credit at $1,000. There had been significant confusion regarding what constituted a “single item” of 30C property. The proposed regulations clarify that a single item is defined as each charging port for recharging property, each fuel dispenser for refueling property, or each qualified alternative fuel storage property or electrical energy storage property. For each single item, taxpayers will need to determine if cost allocations are necessary in determining the 30C credit.
Using a charging port as an example, the single item would mean the system within a charger that charges one motor vehicle. Understanding that a single charger may power several ports, the proposed rules provide guidance on how to allocate the costs of 30C property across multiple charging ports.
Proper allocations will be crucial when the 30C credit needs to be apportioned between business and personal use. Under the proposed rules, the business use of the 30C property must be more than 50%; otherwise, it is considered apportioned-use property. For example, if a 30C property is used 40% for business and 60% for personal purposes at a taxpayer’s principal home, the single item limitations would cap the 30C credit at $40,000 for business use (40% of $100,000) and $600 for personal use (60% of $1,000).
For dual-use properties that serve both qualifying 30C credit purposes and non-creditable purposes, the proposed rules specify that only the incremental cost of the dual-use property over the equivalent non-creditable cost is includable for 30C credit calculation purposes. For instance, only the excess cost of an alternative refueling property over a conventional refueling property is considered for the 30C credit.
While the proposed regulations provide clarity as to what constitutes a single item for the 30C credit, they also highlight the importance of accurately determining and calculating the appropriate cost allocations. The proposed regulations provide many additional examples of how to calculate the 30C credit for various types of 30C property.
For businesses, meeting the PW&A requirements is essential to access a 30% credit versus the 6% base credit. For purposes of the PW&A requirements, the proposed rules state that multiple 30C properties will be treated as a single project if the properties are constructed and operated on a contiguous piece of land, owned by a single taxpayer, placed in service in a single tax year, and meet one of the following criteria: (1) share a common environmental or other regulatory permit; (2) were constructed pursuant to a single master construction contract; or (3) are financed pursuant to the same loan agreement.
Miscellaneous
- The IRS and Treasury addressed a clerical error involving a requirement under a nonexistent provision under Section 30C. As a result, two- or three-wheeled electric vehicle recharging stations are confirmed to qualify as 30C property.
- The recapture period for 30C property has been clarified to be three years from the day the property is placed in service.
- Section 30C allows the seller of 30C property to claim the 30C credit on behalf of tax-exempt and governmental entities, provided the seller discloses the credit amount. This is presumably to facilitate a reduced purchase price as noted in the proposed rules. However, the proposed rules clarify that this option is not available if the tax-exempt or governmental entity intends to make a Section 6417 election for elective payment. The government requests comments on a notification approach and whether this process is administrable.
Written by Gabe Rubio, Jesse Tsai and Drew Norris. Copyright © 2024 BDO USA, P.C. All rights reserved. www.bdo.com