Complexities in Modified Energy Credits - Refueling Property As Example

IRC §30C, Alternative Fuel Vehicle Refueling Property Credit has been a temporary provision for awhile and expired at the end of 2021. The Inflation Reduction Act of 2022 retroactively extended it to now expire after 2032. Starting after 12/31/22, it will work differently than it does for 2021. This is a significant credit. For 2021, it can be up to $30,000 where the property is depreciable (owned and used by a business) or $1,000 for anyone else. The business credit goes up to $100,000 for 2023 through 2032. The credit rate is 30%  - but only 6% for depreciable proprty if the new wage and apprenticeship requirements are not met (see new §30C(g)).

I created a track changes version of this §30C credit to help understand the changes - here. There are some changes that are complex to understand. For example, qualified alternative fuel vehicle refueling property will have to be located in eligible census tracts (see §30C(c)(3)). This requirement says property is only eligible if "placed in service" in an eligible census tract. Usually "placed in service" refers to depreciable property, but the description doesn't say this requirement is only for depreciable property so likely applies to all such refueling property.

An "eligible census tract" means "any population census tract which is described in IRC §45D(e) or is not an urban area."  An "urban area" means "a census tract (as defined by the Bureau of the Census) which, according to the most recent decennial census, has been designated as an urban area by the Secretary of Commerce."

That all sounds confusing. I could only find information on the 2010 Urban Areas (perhaps 2020 data will be announced soon). The details on this state: "Urban areas - defined as densely developed residential, commercial and other nonresidential areas - now account for 80.7% of the U.S. population, up from 79.0 percent in 2000."

So, it appears that refueling property (such as charging stations) will only qualify if located where 20% of the population resides. Why not allow them anywhere?

But the definition of "eligible census tract" seems to say (I wish it were worded more clearly), that it is permissible to have the property in a population census tract described in IRC §45D(e) (§45D is for the new markets tax credit). That is a long definition (I included it in the track changes doc). Basically, these tracts are where the poverty rate is at least 20% or if not located in a metropolitan area, the median family income does not exceed 80% of statewide median family income or ...." But that is just about one-quarter of the definition.

Hopefully the IRS can provide a zip code list of what areas qualify for placing property that will qualify for the credit.  But that is a significant task for the IRS in addition to all of the other guidance needed under the IRA 2022. 

Seems the focus was to put the refueling property in rural and low-income communities. Is that the best investment for these areas? Will it create jobs that will remain after the property is placed in service?

Am I missing something here?

What do you think?

Observations on the Inflation Reduction Act of 2022

On August 16 President Biden signed the Inflation Reduction Act of 2022 (P.L. 117-169; H.R. 5376). This was enacted via the budget reconciliation process so only 51 votes were needed to pass this in the Senate (VP Harris cast the tie-breaking vote). And there are various restrictions on what can go in the bill and it can't lose revenue in the 11th year out and beyond. So the numerous energy credits added or expanded in this law generally expire 12/31/32. And this law's official name is "an act to provide for reconciliation pursuant to title II of S. Con. Res. 14" due to the required process (has to have the word reconciliation in it). The unofficial name that you'll hear is Inflation Reduction Act of 2022 or IRA (which might be confusing).

Single-spaced, this act is 273 pages with 128 pages - or 47% related to tax law changes (these are in Title I of the Act but a lot of these pages are in Subtitle B on prescription drug pricing reform (which tax-wise only includes a minor change to IRC §223 on health savings accounts and a new drug excise tax at §5000D).

How will this bill reduce inflation? Likely via:

• Lowering of drug prices such as a cap of $2,000/year if the person is on Medicare (not sure it that means drug prices might increase elsewhere).
• Possible lowering of energy pries and increasing supply.
• Continuation of access to the Premium Tax Credit (PTC) for more households (even if income exceeds 400% of the federal poverty line) through 2025 (continues beyond 2021 and 2022).
• New energy tax credits will lower the cost if you buy the right clean energy car or home energy savings device and likely the credit will be more than prices might be increased by the manufacturer and seller.
• Deficit reduction - about $300 billion over 10 years which should also mean less interest expense paid by the government.

Revenue raisers:

• 15% alternative minimum tax for corporations with average annual adjusted financial statement income in any 3-year prior period greater than $1 billion. The Joint Committee on Taxation estimates this could affect about 150 corporations. A similar version was in the House-passed Build Back Better Act (11/19/21) but that also include various international tax changes not in the IRA. This is the largest revenue raiser at $222 billion over 10 years (per JCT). Like the old corporate AMT, this AMT creates a minimum tax credit (IRC §53 modified) so is really a prepayment of future regular income tax. But some of these corporations may be owing this AMT for many years before using their MTC.
• 1% excise tax on corporate stock buybacks if over $1 million (and a few other exceptions). This is estimated to raise $74 billion over 10 years.
• IRS enforcement with $80 billion additional funds over 10 years. CBO estimates this will generate $124 billion over 10 years.  I'll have more on this later.
• Extend the §461(l) loss limitation added by the TCJA through 2028. The BBB passed in the House last November would have made this permanent and restricted use of the unusable annual loss. The CARES Act in March 2020 postponed the effective date by three years. The American Rescue Plan Act (ARPA) in March 2021 added one more year to its life so with the IRA, this returns to a n 8-year rule (2021 through 2028) provision as intended by the TCJA. JCT estimates it will raise $53 billion over 10 years.
• Reinstatement of Superfund taxes - estimated to generate $12 billion over 10 years.

Tax savings opportunities for individuals and small businesses:

• If you otherwise qualify for the PTC but have household income above 400% of the federal poverty line, getting a PTC to help reduce insurance costs is a savings.
• Energy credits for individuals and businesses (including §179D deduction) such as:  [I have links here to track change versions I created]
• IRC §25C, Energy Efficient Home Improvement Credit
• IRC §25D, Residential Clean Energy
• IRC §25E, Previously-Owned Clean Vehicles
• IRC §30C, Alternative Fuel Vehicle Refueling Property Credit
• IRC §30D, Clean Vehicle Credit
• IRC §45W, Credit for Qualified Commercial Clean Vehicles (if you're in business)
• IRC §179D, Energy Efficient Commercial Buildings Deduction
• Doubling of the amount of the research credit (up to $500,000 starting in 2023) that can be applied against payroll taxes by eligible start-up businesses (changes made to IRC §41 and §3111).
• Possible monetization of some of the business energy credits. New §6418 will let businesses transfer specified credits. I assume we might see some ways that individuals can buy and use these credits in the future.

The energy credits add a good deal of complexity to the law due to lots of qualifications, restrictions, limitations and definitions. Basically, we will have to rely on manufacturers and sellers to confirm in writing that the vehicle or equipment qualifies for a credit. The IRC §30D, Clean Energy Vehicle, that replaces the plug-in credit has a lot of requirements including one that starts 8/17/22 that the vehicle be assembled in North America. And the "critical minerals" requirement for the credit (defined at §45X(c)(6)) likely is the longest definition in the IRC at 809 words (see it in the track changes doc for §30D - and they are complex words like dysprosium and ruthenium). I'll have more on the clean vehicle credit later, but in the meantime, you'll find a lot of helpful items in my track changes version (+ notes) of IRC §30D.

There is a lot from the House-passed BBB and President Biden's FY 2023 Greenbook that did not make it into the IRA. In fact, nothing from the President's FY 2023 Greenbook made it but a few items from the FY 2022 Greenbook did (such as a version of the 15% corporate AMT and some of the energy credits). Notable items missing from the IRA include EITC and Child Tax Credit expansion that we had for 2021 from ARPA, increasing the SALT cap to $80,000 and extending it past its 12/31/25 expiration, making more income of high-income individuals subject to the NIIT, and a surcharge on individuals, estates and trusts with AGI above $10 million.

What do you think?