Clean Vehicle Reporting Requirements

The Inflation Reduction Act of 2022 created a new tax credit for certain vehicles that meet certain standards with respect to the use of "clean" energy.  The maximum credit is $7,500--$3,750 if certain critical minerals requirements are met and $3,750 if certain battery components requirements are met.  Now, the IRS has released detailed guidance requiring manufacturers to submit information about their vehicles to determine whether those vehicles are eligible for the Section 30D tax credit.  Among other requirements, starting in 2025 the manufacturer must provide information so that the IRS can establish a compliant battery ledger each year.  The manufacturer is subject to certain due diligence requirements with respect to all battery components and relevant critical minerals.

We asked two professors and authors of ALM's Tax Facts with opposing political viewpoints to share their opinions about whether the IRS' new reporting requirements for clean vehicle tax credits will have a positive impact.

Below is a summary of the debate that ensued between the two professors.

Their Votes:





Their Reasons:

Bloink: This guidance provides much-needed clarity for taxpayers and vehicle manufacturers alike.  These new vehicle credits completely changed the way the government is rewarding taxpayers for investing in clean energy.  Without comprehensive guidance as to the information reporting the IRS will require in exchange for the credits, taxpayers may be wary about taking advantage of the credits by purchasing clean vehicles.

Byrnes: The reporting requirements are overly complex and will significantly discourage car manufacturers from participating in the program.  We can't increase the use of green energy in vehicles unless we have the cooperation of all major car manufacturers.  The IRS is asking for details that manufacturers simply aren't accustomed to providing and may not be equipped to evaluate.

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Bloink: The rules for taking advantage of the clean energy credits are complex because they must be.  We must ensure that the credits are operating as intended and rewarding only taxpayers who purchase qualified clean energy vehicles going forward.  Only certain vehicles and certain taxpayers qualify.  Without strong reporting requirements, these clean vehicle credits could become yet another loophole to allow the ultra-wealthy to avoid paying their fair share of taxes simply by purchasing luxury vehicles that wouldn't qualify for the new tax credits.

Byrnes: The tax credits do nothing to encourage taxpayers to purchase clean vehicles if we're imposing an unreasonably rigid reporting regime.  Yes, the IRS needs the information to ensure correct application of the tax credit, but we must also consider the burden on manufacturers and taxpayers alike--and take our time to develop a more streamlined procedure designed to encourage compliance.

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Bloink: The information required forms the basis for determining whether the vehicle is qualified for the purposes of the new tax credit.  That means the IRS will need information both from the taxpayer who purchases the vehicle and the vehicle's manufacturer.  Yes, the rules are complex, partially because the information required is unfamiliar to many taxpayers—but the IRS has taken steps to mitigate the burden by releasing a template that the manufacturer can use to make compliance less onerous.  The IRS has also created a transition period, so that when battery materials are impractical to trace prior to 2027, those battery requirements can be excluded in completing the due diligence for reporting purposes.  Like any new law, there will be an adjustment period—but that doesn't mean the IRS shouldn't implement strong procedures to prevent taxpayers from taking advantage of the new credit with respect to vehicles that do not legitimately qualify.

Byrnes: The IRS and DOE do need certain information with respect to qualifying vehicles.  That is no excuse for implementing a reporting regime that is going to create such a significant administrative burden.  In many cases, manufacturers may have to bring in consultants to comply with these due diligence requirements.  That may detract from the actual work of developing eco-friendly vehicles that are attractive to consumers.  Yes, we're dealing with a new law—but that doesn't mean the IRS is not equipped to create a reporting regime that is manageable for both manufacturers and individual taxpayers who are claiming the credits.