The requirements for the Clean Vehicle Credit seemed a little complicated when they were introduced in the Inflation Reduction Act in 2022, and they are proving to be a little difficult in practice. 

There were restrictions based on where the vehicle was assembled and where the critical minerals and battery components originated. Then there were limits on the manufacturer’s suggested retail price for the vehicle and the income of the purchaser. The manufacturer was required to have vehicles pre-approved for a given level of credit and the dealer was required to be registered.

Some provisions were phased in over time, including the option to transfer the credit to the dealer, which became effective for 2024. The Internal Revenue Service then added certain compliance requirements, including filing a time of sale report (the Clean Vehicle Seller Report (Form 15400)) within 72 hours of the vehicle being placed in service and submitting information through an Energy Credits Online portal.

Some of these provisions were designed to simplify the process. When a potential purchaser entered the showroom, the purchaser would be able to find out in real time what amount of credit was associated with a particular vehicle. A time-of-sale report could be filed with the IRS electronically via the portal to determine even before the sale was finalized if the vehicle qualified for the credit. 

Unfortunately, things have not worked out quite so well in practice. 

The more simplified requirements in place for purchases in 2023 appear to have lulled dealers into the belief that the same practices would be fine for 2024. Some dealers, far from using the time-of-sale reports to make sure the credit was cleared for approval at the time of sale, failed even to prepare the reports. Purchasers, unaware of the new requirement, failed to demand a copy at the time of sale. In those instances where the purchaser retained entitlement to the credit, rather than transferring it to the dealer, the purchaser found that, when they filed their 2024 tax return in 2025, the IRS rejected the claim for the credit. When the purchaser contacted the dealer about the problem, the dealer found they were unable to correct the issue because the time-of-sale report had not been filed within the required 72-hour period and any late submission was rejected as untimely. 

Only 7% of purchasers in 2024 retained their entitlement to the credit. The rest of the purchasers transferred entitlement to the credit to the dealer, resulting in a price rebate on the vehicle purchase. However, again, when the dealer sought to claim the credit transferred from the purchaser, the dealer encountered the same problem of an untimely time-of-sale report, which could not be corrected because the 72-hour time period had expired.

This glitch in the system impacted dealers even more than purchasers and got the attention of the National Automobile Dealers Association, which immediately started pressuring the IRS and Congress to find a solution to the problem. In response, the IRS has informed NADA that it is waiving the 72-hour requirement and is accepting late time-of-sale reports into the Energy Credits Online portal. The IRS has set no time limits so far on the submission of late reports.

Corrective action

Dealers will want to refile all rejected time-of-sale reports that had been rejected as untimely. Dealers will also want to make sure they are registered with the IRS and notify any purchasers that the credit has now been approved. 

Purchasers will want to contact the dealer for a copy of the time-of-sale report and make sure the dealer is resubmitting the report or submitting it for the first time. Purchasers will need to file a Form 8936, “Clean Vehicle Credits,” to be used for the Clean Vehicle Credit, the Previously Owned Clean Vehicle Credit and the Qualified Commercial Clean Vehicle Credit. Form 8936 is required to be filed either when the purchaser is claiming the credit on the purchaser’s tax return or when the purchaser has transferred the credit to the dealer. 

In some cases, where the purchaser had already filed a tax return where the credit was rejected by the IRS, the purchaser will be required to file an amended tax return to claim the credit once the time-of-sale report has been accepted.

Termination of the Clean Vehicle Credit

While under current law, the Clean Vehicle Credit is scheduled to continue until 2032, Congress is working on tax legislation expected to be enacted this year that might repeal the credit. President Trump has expressed his opposition to many of the clean energy credits included in the Inflation Reduction Act enacted in 2022, and in particular opposition to the Clean Vehicle Credit. 

Congress is still in the early stages of working on this legislation, and it is not clear to what extent this provision might be included in the final legislation. If enacted at all, it is likely that the legislation would not be enacted until later in 2025. This makes it unlikely that any repeal of the Clean Vehicle Credit would be made retroactive to the beginning of 2025. However, it is possible repeal could be effective as of the enactment date of the legislation. 

Taxpayers considering the purchase of an electric vehicle in 2025 may want to monitor the progress of this tax legislation through Congress and whether a repeal of the clean vehicle credit appears to be included. Purchase of the vehicle before enactment of the legislation may preserve the credit for the taxpayer. 

Tariffs

The limit on the manufacturer’s suggested retail price for electric vehicles could become more difficult for manufacturers and dealers to stay under if the tariffs on imported automobiles and auto parts force manufacturers to raise prices. The MSRP limit for vans, SUVs and pick-ups is $80,000 and for other vehicles $55,000. If the electric vehicle currently under consideration for purchase is close to these price limits, a taxpayer might want to consider purchasing the vehicle sooner, before these tariffs achieve their full impact.

An aggressive suite of tariffs announced Wednesday by President Donald Trump will significantly complicate the Federal Reserve’s job as it struggles to quash inflation and avoid an economic downturn, likely keeping officials in wait-and-see mode.

“They’re basically our worst-case scenario,” said Diane Swonk, chief economist at KPMG, who said the tariffs raised the likelihood of an economic slowdown in the U.S.

But Swonk and other economists said Fed officials will likely hold off on lowering rates to cushion the economy while they assess the potential impact of the tariffs on inflation.

The levies, which are harsher than many analysts were anticipating, are expected to raise prices on trillions of dollars in goods imported each year if left in place. A full blown trade war, with escalating retaliatory tariffs between the U.S. and other countries, could disrupt supply chains, reignite inflation and worsen a souring economic outlook.

Trump said Wednesday the U.S. would apply a minimum 10% levy on all imports to the U.S., but tariffs on many countries will far exceed that. China’s cumulative effective rate is estimated to exceed 50%. The European Union will have a 20% levy and Vietnam is seeing a 46% tariff.

Bloomberg Economics estimated the new levies could lift the average effective tariff rate in the U.S. to around 22%, from 2.3% in 2024. Omair Sharif, president of Inflation Insights LLC, calculated a level of 25% to 30%.

For Fed officials still working to rein in the price gains that spiked during the pandemic, however, the inflationary fallout from the president’s actions may limit policymakers’ ability to step in and bolster the economy. 

Fed Chair Jerome Powell is scheduled to speak at a conference Friday in Arlington Virginia.

“It puts the Fed between a rock and a hard place,” said Jay Bryson, chief economist for Wells Fargo & Co. “On the one hand, if growth slows and the unemployment rate comes up, they want to be more accommodative, they want to be cutting rates. On the other hand, if inflation goes up from here, they kind of want to be raising rates. So it really puts them in a tough spot.”

Joseph Brusuelas, chief economist at RSM US LLP, agreed the new regime was far tougher than many analysts expected and will raise the probability of a US recession.

“I expect inflation into 3% to 4% range by the end of the year,” he said, adding the Fed isn’t likely to provide a cushion to the economy with rate cuts in the near to medium term. “The act taken today by the White House puts the Fed in much more difficult position, given the pressure on both sides of its mandate.”

By Thursday morning, some economists had lowered their projections for the number of interest-rate cuts they see in 2025. Morgan Stanley said they now expect no cuts this year, down from one.

Investors, however, tilted the other way. Fed funds futures, possibly reflecting higher recession fears, implied the outlook for rate reductions had increased. That market now points to three to four cuts this year. 

The Fed left borrowing costs unchanged last month. Policymakers have emphasized the labor market is healthy and the economy is solid overall. But the uncertainty caused by Trump’s rapidly-evolving trade policies had stoked fears of higher inflation and tanked sentiment among consumers and businesses even before Wednesday’s announcement.

A closely watched survey from the University of Michigan showed consumers’ outlook for inflation over the next 5 to 10 years rose in March to its highest level in more than three decades. The outlook for personal finances declined to a record low.

Many business leaders are in wait-and-see mode, putting investment plans on hold until there is more clarity in the outlook for tariff policy and tax legislation. Forecasters have also downgraded their growth outlook for the year, according to the latest Bloomberg survey of economists.

A substantial escalation in tariff tensions with back-and-forth retaliatory levies against major trading partners could slow economic activity in the U.S. and globally, economists said.

“If you get that escalation scenario, then you’re just talking about fundamentally less productive economies around the world,” Seth Carpenter, chief global economist at Morgan Stanley, said Wednesday morning on Bloomberg TV ahead of the tariff announcement. “It’s not a zero-sum game. It could actually be a net loss for the whole global order.”

External auditors have long been tasked with ensuring financial integrity, detecting fraud and providing an independent opinion on a company’s financial statements.

Now, with the rise of continuous auditing, this role is evolving. Should auditors be involved in real-time financial monitoring? Will continuous auditing enhance audit quality or introduce new risks? And will AI and automation result in continuous audits that are more efficient, or will it drive up complexity and costs?

These questions go beyond technology — they redefine the audit function, independence and financial reporting expectations. The potential is huge, but so are the challenges that come with it.

What is continuous auditing?

Think of a traditional audit like an annual medical check-up — you go in once a year, the doctor reviews your health and gives you an assessment based on that visit. Continuous auditing? That’s more like wearing a smartwatch that tracks your health 24/7, constantly looking for issues as they happen. It uses AI, automation and analytics to monitor transactions in real time. Instead of waiting until the end of the reporting cycle, risks, anomalies and possible control issues are flagged as they happen.

At first glance, continuous auditing seems like a clear win — faster fraud detection, stronger financial oversight and fewer year-end surprises. But it also raises a critical question: If auditors are reviewing financial data year-round, are they expected to report findings externally in real time? And if they are not, could that expose them to greater liability?

The shift from traditional audits to continuous audits

Auditors traditionally provide independent opinions after management closes the books, but continuous auditing challenges this boundary. When auditors monitor financials year-round, the distinction between independent oversight and management’s control function can become blurred — at least in perception.

Flagging issues at many touchpoints during the year may also introduce concerns about their accountability for financial outcomes before the final opinion is issued.

Independence will always be a core pillar of auditing, both in fact and perception. As auditors engage in real-time monitoring, the challenge becomes ensuring they remain objective third parties rather than part of management’s oversight process. Regulators must then establish clear safeguards to uphold auditor independence while leveraging continuous auditing’s benefits.

AI and automation

This shift isn’t just happening because companies want it — it’s happening because AI and automation have made it possible. And let’s be honest: this technology is a game-changer. AI is transforming auditing by enabling real-time anomaly detection, predictive risk assessment and full population testing with greater accuracy than traditional sampling.

For audit firms, this means a fundamental shift in how audits are conducted. AI isn’t just making audits faster — it’s enabling full population analysis to catch risks that sampling might miss, automating repetitive tasks to give auditors more time for complex judgment calls, and strengthening fraud detection with continuous monitoring that builds investor confidence. How ready are firms to embrace this transformation?

What about the cost of continuous auditing?

Cost is another part of this debate around continuous auditing. Continuous auditing smooths workloads year-round, optimizing firm resources and specialists. AI handles routine transactions, freeing auditors to focus on complex, high-risk (high value) areas requiring expert judgment. It also allows management to have visibility of the audit fee build-up — distinguishing between tasks that can be automated with AI and the specialized work that demands deeper professional judgement. 

While continuous auditing offers those advantages, one could argue this may lead to higher audit fees if auditors are “on the ground” 24/7, the cost of upfront investment in AI tools, and added complexity in maintaining compliance with new regulations. The final answer depends on how firms adopt it — but in the long run, efficiency gains and stronger risk detection (i.e., preventing costly year-end financial restatements) may strongly justify the investment.

Will auditors fully embrace continuous auditing?

The demand for faster financial assurance is already here. Shareholders want more transparency and faster reporting, regulators want better oversight, and companies see AI-driven monitoring as an advantage. For this to happen, regulatory standards will need to evolve to address real-time assurance and how it aligns with auditor independence. Audit firms will need to balance technology investment with governance structures that ensure objectivity, transparency and liability-mitigation.

As companies (and internal audit practitioners) adopt rolling and periodic assurance models with AI-driven monitoring, the shift to a fully continuous audit model for external audit is not just a possibility — it’s within reach. But getting there requires more than just technology; it demands clear regulatory frameworks, strategic investment, and strong legal protection and independence safeguards to maintain trust in the audit process.

AI and automation will rewrite the playbook, shifting audit expectations from a single annual opinion to rolling, real-time insights. With historical audits losing their shine, more stakeholders are asking for a better solution.

Continuous auditing is no longer theoretical — it’s happening now. The challenge is ensuring it enhances audit quality while maintaining independence. With AI redefining expectations, are audit firms, regulators and businesses ready to embrace this shift? The conversation is just beginning — where do you stand?