Summary
On September 19, 2024, the U.S. Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) issued a notice of proposed rulemaking (the Proposed Regulations) regarding certain aspects of the alternative fuel vehicle refueling property tax credit under Section 30C (the 30C Credit) of the Internal Revenue Code of 1986, as amended (the Code), pursuant to changes authorized by the Inflation Reduction Act of 2022 (IRA). The Proposed Regulations describe key aspects of Treasury’s implementation of the 30C Credit, including clarifying how to calculate the 30C Credit amount and determine compliance with prevailing wage and apprenticeship (PWA) requirements under Section 30C of the Code. Treasury also issued IRS Notice 2024-64 to provide certain updates to the 30C Credit, which are described in the final section of this Alert.
Key Takeaways
The Proposed Regulations:
- define credit-eligible property to include any property that contains components that are “functionally interdependent” of refueling property, and, if applicable comprise an “integral part” of such property;
- explain how to calculate the credit amount for a single item of property, including details addressing how to evaluate when an electric vehicle (EV) charger is capable of simultaneously charging multiple vehicles, and how to allocate the costs of “functionally interdependent” and “integral part” components across multiple properties;
- propose a methodology for determining whether a project is located in a low-income or non-urban census tract, with respect to the 30C Credit’s locational requirements;
- clarify the instances in which multiple 30C Credit properties will be considered to be part of a single “qualified alternative fuel vehicle refueling project” for purposes of determining compliance with PWA requirements under Section 30C of the Code; and
- clarify the application of dual-use property rules and recapture rules pertaining to the 30C Credit.
Overview of the Alternative Fuel Vehicle Refueling Property Tax Credit
The IRA updated the 30C Credit, which was originally enacted under the Energy Policy Act of 2005, to increase the credit amount to up to 30% of qualifying property costs. The new 30C Credit distinguishes between (a) property subject to depreciation (i.e., a property used for business purposes), which receives a base credit amount equal to 6% of the qualifying property cost, and increases to 30% if the PWA requirements1 are met, subject to a cap of $100,000, and (b) a credit of 30% for qualifying property used for all other purposes (i.e., a personal credit, such as a credit installed at a residence and used to charge or fuel a personal vehicle), which is capped at $1,000 and is not eligible for the PWA multiplier. Notably, prior to the IRA, the 30C Credit was capped at $30,000 per location where the charger(s) were installed. The IRA increased the total amount available under the 30C credit in two ways. First, the IRA made the credit available on a per-property basis (e.g., per charger or per refueling station), as opposed to a per-location basis. Second, the IRA increased the cap from $30,000 to $100,000 for depreciable property.
To qualify, the property must meet certain locational requirements. Specifically, the property must be located in an “eligible census tract,” defined as either: (i) a low-income community (as described for purposes of the New Markets Tax Credit under Section 45D of the Code) or (ii) a non-urban area (at the census block level, as defined under the 2020 Census).2
Definition of Credit-Eligible Property
Treasury and IRS propose to define “30C property” to include not just refueling property (i.e., property that stores and dispenses qualified alternative fuels, located at the point where the vehicle refuels) or recharging property (i.e., property that dispenses electricity into an EV, located at the point where the vehicle recharges), but also to include components that are “functionally interdependent” to such refueling or recharging property, as well as, if applicable, property that forms an “integral part” of the refueling or recharging property. The Proposed Regulations explain that: (a) a component is functionally interdependent if “the placing in service of each component is dependent upon the placing in service of each of the other components in order to refuel or recharge a motor vehicle,” and (b) property is an integral part of a refueling or recharging property if it (i) is used directly in the intended function of the refueling property or recharging property, (ii) is essential to the completeness of the property’s intended function, (iii) meets the other 30C Credit property requirements, (iv) is owned by the taxpayer that owns the refueling or recharging property, and (v) is specifically designed to be integrated with the refueling or recharging property.
Single Item of 30C Credit Property
As previously discussed, the IRA amended the 30C Credit to allow taxpayers to claim the credit for each 30C Credit property if the taxpayer places at least one single item of 30C Credit property in service during a taxable year. The Proposed Regulations describe what constitutes a “single item” of 30C Credit property in the EV charging context and in qualified alternative fuels context:
- In the EV charging context, a single item of property can mean the charging port, or an electrical energy storage property. A charging port means “the system within a charger that charges one motor vehicle.” The Proposed Regulations helpfully clarify that a charging port is only capable of charging a single vehicle at a time. Thus, if a charger is capable of charging multiple vehicles simultaneously, the charger would be considered multiple items of property for purposes of determining the 30C Credit, thereby increasing the incentive to install EV chargers. “Electrical energy storage property” means a property that “receives, stores, and delivers energy for conversion to electricity.”
- In the qualified alternative fuels context, a single item of property can mean the fuel dispenser, which is “the unit through which fuel is dispensed into the fuel tank of a motor vehicle if such unit is capable of fueling at or above the dispenser’s minimum rate of fueling and has at least one hose and nozzle”3 or the “qualified alternative fuel storage property,” which is the “property used for the storage of such qualified alternative fuel.”
The Proposed Regulations clarify that energy storage technologies cannot simultaneously qualify for the 30C Credit and the Section 48 investment tax credit or Section 48E technology-neutral investment tax credit. Specifically, electrical energy storage property for which a 30C Credit is claimed is treated as “primarily used in the transportation of goods or individuals and not for the production of electricity,” and thus does not qualify for the Section 48 or Section 48E credit. Conversely, energy storage property for which a 30C Credit is not claimed can be eligible for a credit under Section 48 or Section 48E, provided the requirements under the applicable section are met. For more information on the technology neutral Section 48E investment tax credit, please read our white paper, “Claiming Tech-Neutral Electricity Production and Investment Tax Credits Under the Inflation Reduction Act.”
Additionally, the costs of functionally interdependent property and the costs of any integral part of the property, if applicable (together with the functionally interdependent property, the “associated property”), may be included in the credit amount for the single item of property. If the associated property is “directly attributable and traceable” to a single item of 30C Credit property, the costs are allocated to the single item of 30C Credit property. If, however, the associated property is directly attributable and traceable to more than one item of 30C Credit property, then the cost of such associated property is allocated ratably among the multiple items of property, based on the cost of each single item of property. In this case, the total cost of such associated property divided among the 30C Credit properties cannot exceed 100% of the cost of such associated property.
In summary, the credit amount for each single item of 30C Credit property would equal the applicable credit percentage of 6% or 30%, multiplied by the sum of (i) the cost of the single item of 30C Credit property, (ii) the cost of associated property directly attributable and traceable to the single item of 30C Credit property, and (iii) the cost of the ratable share of associated property that is directly attributable and traceable to more than one single item of 30C Credit property, as applicable. As discussed above, the 30C Credit amount is subject to the applicable cap.
Apportionment for Multi-Use Properties
The Proposed Regulations clarify the tax treatment of 30C Credit property that is installed at a taxpayer’s personal residence, but also used for business purposes (e.g., a taxpayer that operates a delivery service using an EV and installs charging property at their residence). In such an instance, if the property’s business use exceeds 50%, the 30C Credit would be treated as a general business Credit under Code Section 30C(d)(1), and therefore would be eligible for the PWA multiplier and subject to the higher cap of $100,000. Conversely, if the business use of the property is 50% or less, the property would be considered “apportioned-use” property, which would apportion the credit amount corresponding to the taxpayer’s business use of the 30C Credit property as a general business credit, eligible for the PWA multiplier and subject to the $100,000 cap, multiplied by the percentage determined to be for business use. The remaining apportionment incorporating a taxpayer’s personal use of the 30C Credit property would be treated as a 30C Credit for non-depreciable property, subject to a cap of $1,000 multiplied by the percentage for personal use. As an example, if a taxpayer’s total use of 30C Credit property for business purposes equals 40% for the taxable year in which the property is placed in service, the portion treated as a general business credit would be eligible for the PWA multiplier, and would be capped at $40,000 (the product of $100,000 multiplied by 40%), and the portion corresponding to the taxpayer’s personal use would be treated as a 30C Credit for non-depreciable property with a cap of $600 (the product of $1,000 multiplied by 60%).
Dual Use Property
For purposes of prior Section 30C, IRS Notice 2007-43 provided rules regarding the availability of the 30C Credit for “dual-use property” (i.e., property that is used to store and/or dispense both alternative fuel and conventional fuel, or to store both alternative fuels dispensed onsite and alternative fuels transported offsite). Specifically, Notice 2007-43 provided that (i) for dual-use property used to store and / or dispense both alternative fuel and conventional fuel, the 30C Credit may be applied only towards the costs of the property that exceed the costs of an equivalent conventional refueling property, and (ii) for dual-use property use to store both alternative fuels dispensed onsite and alternative fuels transported offsite, the 30C Credit may be applied only towards the costs that exceed the costs of an equivalent storage facility that is used for the sole purpose of storing alternative fuel that is transported offsite. The Proposed Regulations adopt these existing rules, and add a similar rule to address the application of the 30C Credit towards dual-use property used to store or transmit electricity for recharging a motor vehicle and for “purposes other than charging a motor vehicle” (i.e., non-creditable purposes). Consistent with the dual-use rules in IRS Notice 2007-43, the Proposed Regulations provide that the 30C creditable portion of the cost of such property is limited to the increase in the cost of the dual-use property over the cost of equivalent property used only for the non-creditable use.
Bidirectional Charging
In the Proposed Regulations, Treasury and IRS have confirmed that bidirectional chargers are eligible for the 30C Credit, but declined to allow owners of bidirectional charging equipment include to the costs of such equipment contained within the motor vehicle if it is necessary for the propulsion of the vehicle when calculating their credit amount.
Property for Refueling Two- and Three-Wheeled Vehicles
The Proposed Regulations confirm that property used to recharge a two- or three-wheeled vehicle is subject to depreciation and may be eligible 30C Credit property.
Eligible Census Tracts
The Proposed Regulations announce the IRS’s intention to periodically publish lists of census tracts that are low-income or non-urban, and therein satisfy the 30C Credit locational requirements, along with instructions on how taxpayers can determine the project census tract’s identifying number for purposes of determining eligibility. Additionally, the Proposed Regulations explain Treasury’s proposed methodology for determining both low-income and non-urban census tracts. First, the Proposed Regulations state that properties that meet the New Markets Tax Credit requirements under Section 45D(e)(1)4 and Section 45D(e)(5)5 would qualify as low-income for purposes of determining 30C Credit eligibility. Treasury has requested comments on whether the population census tracts described under Section 45D(e)(2)-(4) should be considered low-income census tracts for purposes of determining 30C Credit eligibility. Treasury and the IRS have explained that, for Section 45D(e)(2)-(4) specifically, they have not been able to “identify with verifiable accuracy the population census tracts that currently meet” the requirements. Additionally, the Proposed Regulations define non-urban census tract to mean any census tract in which at least 10 percent of the census blocks within the census tract are not designated as urban areas by Census Bureau.
Mobile Equipment
Mobile EV charging equipment creates a unique nuance with respect to determining 30C Credit eligibility because this equipment can be transported into and out of eligible census tracts.
PWA Requirements
The Proposed Regulations clarify that, when determining whether PWA requirements are met for a project, a “qualified alternative fuel vehicle refueling project” would include multiple 30C Credit properties if: (a) the properties are located on a contiguous piece of land, (b) the properties are owned by a single taxpayer (or, in the case of the related party rule, owned by related taxpayers), (c) the properties are placed in service in a single taxable year, and (d) one or more of the following is true: (i) the properties share an environmental or regulatory permit, (ii) the properties are constructed using the same master construction contract, or (iii) the properties are financed under the same loan agreement. By combining multiple properties into a single project, the Proposed Regulations make it more difficult for eligible properties to qualify for the PWA multiplier; if one of the eligible properties in the “qualified alternative fuel vehicle refueling project” fails the PWA requirements, the entire project would be ineligible for the PWA multiplier.
Interaction with Direct Pay Eligibility
Section 30C(e)(2) allows a person who sells 30C Credit property that will be used by a tax-exempt or governmental entity and which is not subject to a lease to retain eligibility for the 30C Credit, if the seller clearly discloses the amount of the allowable credit. As noted in the preamble to the Proposed Regulations, typically this allows for a tax-exempt or governmental entity to pay a lower upfront purchase price for 30C Credit property, while also allowing the seller to retain the 30C Credit. Consistent with the ability of tax-exempt and governmental entities to make an election to receive direct payment of eligible credits, including the 30C Credit, under Section 6417 of the Code, the Proposed Regulations provide that if a person sells 30C Credit property to a tax-exempt or governmental entity, and the tax-exempt or governmental entity notifies the seller in writing of its intent to make the Section 6417 direct payment election, the seller is not entitled to any 30C Credit. Treasury and the IRS have requested comments on this notification process, including the timing for making any required notification and transition rules for projects for which contracts have already been signed.
Recapture Events
The Proposed Regulations provide that a “recapture event” with respect to 30C Credit property occurs if, within three years of the property being placed in service: (1) the taxpayer claiming the 30C Credit modifies the property such that the property no longer qualifies as 30C Credit property; (2) the depreciable property ceases to be used predominantly in a trade or business (i.e., 50 percent or more of the use of the property in a taxable year is for use other than in a trade or business), except in cases where the 30C Credit property is owned by a tax-exempt or governmental entity that has made an elective payment election with respect to such property, the depreciable property; (3) if the property is apportioned-use property, the property completely ceases to be used in a trade or business, but continues to be used for personal use; or (4) the taxpayer sells or disposes of the 30C Credit property and the taxpayer knows or has reason to know that the property will cease to qualify as 30C Credit property for one of the reasons listed in (1) or (2). For this purpose, except with respect to (4), a sale or other disposition (including by reason of a casualty event) is not a recapture event. The Proposed Regulations helpfully clarify that a recapture event does not occur solely because 30C Credit property is placed in service in a location that later ceases to be in a qualified census tract.
Treasury and the IRS have requested comments on how to apply the recapture rules in cases where a person sells 30C Credit property to a tax-exempt or governmental entity, including with respect to any required notifications in connection with any recapture event.
Request for Public comments
Treasury and the IRS request comments on all aspects of the Proposed Regulations, and in particular on the following topics:
- how to evaluate whether mobile EV charging equipment satisfies the 30C Credit locational requirements, and on any related rules to be adopted, particularly with respect to the administrative requirements to ensure that only qualifying mobile equipment is credited;
- how to apply the recapture rules to a person that sells 30C Credit property to a tax-exempt or governmental entity;
- whether, as provided in the Proposed Regulations, an entity that is selling 30C-eligible property should not be allowed to claim the 30C Credit, if the purchaser is a tax-exempt or governmental entity described in Section 50(b)(3) and 50(b)(4)(A)(i), and such purchaser notifies the seller of its intention to make an elective payment election with respect to the 30C Credit; and
- the notification process applicable to tax-exempt or governmental entities described in Section 50(b)(3) and 50(b)(4)(A)(i), who are purchasing 30C-eligible property and intend to make an elective payment, as described in more detail in the bullet immediately above.
Comments should be submitted by November 18, 2024, and a public hearing will be scheduled if requested.
Notice 2024-64
Concurrently with the Proposed Regulations, Treasury issued Notice 2024-64, which updates 30C Credit guidance contained in Notice 2024-20. Specifically, Notice 2024-64 provides updated links to the website addresses in Section 5.02 of Notice 2024-20, and extends the period during which taxpayers may rely on Notice 2024-20. These websites provide taxpayers with mapping tools that identify the 11-digit census tract GEOID associated with the location where the property is placed in service, which in turn helps the taxpayer determine whether their property meets the eligible census tract requirements of the 30C Credit. Notice 2024-64 explains that any taxpayer filing a tax return that includes a claim for a 30C Credit on or before November 15, 2024, may rely on either the mapping tools contained in Section 5.02 of the original Notice 2024-20, or the mapping tools contained in Section 5.02 of Notice 2024-20, as revised by Notice 2024-64 (i.e., the current mapping tools). Conversely, any taxpayer that files a tax return that includes a claim for a 30C Credit after November 15, 2024, must use the mapping tools contained in section 5.02 of Notice 2024-20, as revised by Notice 2024-64. Additionally, Notice 2024-64 extends the period during which taxpayers are entitled to rely on Notice 2024-20 to determine whether their property is located in an eligible census tract; Notice 2024-64 states that taxpayers may rely on Notice 2024-20 until “the forthcoming proposed regulations are issued as final regulations.” For more information on Notice 2024-20, please see our prior client alert.
[1] The 30C Credit PWA requirements allow an increased credit amount for “qualified alternative fuel vehicle refueling projects” if the laborers and mechanics working on the project are paid wages at rates not less than prevailing rates, and if the apprenticeship requirements are met. I.R.C. § 30C(g). PWA wage rates are determined by the Department of Labor (DOL), and are based on the type of work performed in the geographic area of the project. The DOL determination is intended to ensure that all laborers and mechanics working on a project are paid at wages at least equivalent to the prevailing rate. See Frequently asked questions about the prevailing wage and apprenticeship under the Inflation Reduction Act (https://www.irs.gov/credits-deductions/frequently-asked-questions-about-the-prevailing-wage-and-apprenticeship-under-the-inflation-reduction-act). To satisfy the apprenticeship requirements contained in Section 45(b)(8)(A)-(C), the taxpayer must ensure the project meets certain requirements with respect to labor hours, the apprentice-to-journeyworker ratio, and participation by apprentices, unless the taxpayer satisfies the good faith exception contained in Section 45(b)(8)(D)(ii), or makes a penalty payment to the IRS. For more details on the PWA requirements, please read our client alert, “Treasury and IRS Release Proposed Regulations Regarding the Prevailing Wage and Apprenticeship Requirements.”
[2] I.R.C. § 30C(c)(3).
[3] The Proposed Regulations add that a fuel dispenser may also include the meter, valve, controller, and enclosure.
[4] I.R.C. § 45D(e)(1) (“[T]he poverty rate for such tract is at least 20 percent, or … (i) in the case of a tract not located within a metropolitan area, the median family income for such tract does not exceed 80 percent of statewide median family income, or (ii) in the case of a tract located within a metropolitan area, the median family income for such tract does not exceed 80% of the greater of the statewide median family income or the metropolitan area median family income.”).
[5] I.R.C. § 45D(e)(5) (providing a modification of the income requirement for census tracts in high migration rural counties. Specifically, in such counties, the tract is considered low-income if the median family income does not exceed 85% of statewide median family income).
