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Tax Strategy: Updates on the Clean Vehicle Tax Credit

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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.

Plug-in vehicle parking spot

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.

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Accounting

IAASB tweaks standards on working with outside experts

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The International Auditing and Assurance Standards Board is proposing to tailor some of its standards to align with recent additions to the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants when it comes to using the work of an external expert.

The proposed narrow-scope amendments involve minor changes to several IAASB standards:

  • ISA 620, Using the Work of an Auditor’s Expert;
  • ISRE 2400 (Revised), Engagements to Review Historical Financial Statements;
  • ISAE 3000 (Revised), Assurance Engagements Other than Audits or Reviews of Historical Financial Information;
  • ISRS 4400 (Revised), Agreed-upon Procedures Engagements.

The IAASB is asking for comments via a digital response template that can be found on the IAASB website by July 24, 2025.

In December 2023, the IESBA approved an exposure draft for proposed revisions to the IESBA’s Code of Ethics related to using the work of an external expert. The proposals included three new sections to the Code of Ethics, including provisions for professional accountants in public practice; professional accountants in business and sustainability assurance practitioners. The IESBA approved the provisions on using the work of an external expert at its December 2024 meeting, establishing an ethical framework to guide accountants and sustainability assurance practitioners in evaluating whether an external expert has the necessary competence, capabilities and objectivity to use their work, as well as provisions on applying the Ethics Code’s conceptual framework when using the work of an outside expert.  

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Accounting

Tariffs will hit low-income Americans harder than richest, report says

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President Donald Trump’s tariffs would effectively cause a tax increase for low-income families that is more than three times higher than what wealthier Americans would pay, according to an analysis from the Institute on Taxation and Economic Policy.

The report from the progressive think tank outlined the outcomes for Americans of all backgrounds if the tariffs currently in effect remain in place next year. Those making $28,600 or less would have to spend 6.2% more of their income due to higher prices, while the richest Americans with income of at least $914,900 are expected to spend 1.7% more. Middle-income families making between $55,100 and $94,100 would pay 5% more of their earnings. 

Trump has imposed the steepest U.S. duties in more than a century, including a 145% tariff on many products from China, a 25% rate on most imports from Canada and Mexico, duties on some sectors such as steel and aluminum and a baseline 10% tariff on the rest of the country’s trading partners. He suspended higher, customized tariffs on most countries for 90 days.

Economists have warned that costs from tariff increases would ultimately be passed on to U.S. consumers. And while prices will rise for everyone, lower-income families are expected to lose a larger portion of their budgets because they tend to spend more of their earnings on goods, including food and other necessities, compared to wealthier individuals.

Food prices could rise by 2.6% in the short run due to tariffs, according to an estimate from the Yale Budget Lab. Among all goods impacted, consumers are expected to face the steepest price hikes for clothing at 64%, the report showed. 

The Yale Budget Lab projected that the tariffs would result in a loss of $4,700 a year on average for American households.

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Accounting

At Schellman, AI reshapes a firm’s staffing needs

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Artificial intelligence is just getting started in the accounting world, but it is already helping firms like technology specialist Schellman do more things with fewer people, allowing the firm to scale back hiring and reduce headcount in certain areas through natural attrition. 

Schellman CEO Avani Desai said there have definitely been some shifts in headcount at the Top 100 Firm, though she stressed it was nothing dramatic, as it mostly reflects natural attrition combined with being more selective with hiring. She said the firm has already made an internal decision to not reduce headcount in force, as that just indicates they didn’t hire properly the first time. 

“It hasn’t been about reducing roles but evolving how we do work, so there wasn’t one specific date where we ‘started’ the reduction. It’s been more case by case. We’ve held back on refilling certain roles when we saw opportunities to streamline, especially with the use of new technologies like AI,” she said. 

One area where the firm has found such opportunities has been in the testing of certain cybersecurity controls, particularly within the SOC framework. The firm examined all the controls it tests on the service side and asked which ones require human judgment or deep expertise. The answer was a lot of them. But for the ones that don’t, AI algorithms have been able to significantly lighten the load. 

“[If] we don’t refill a role, it’s because the need actually has changed, or the process has improved so significantly [that] the workload is lighter or shared across the smarter system. So that’s what’s happening,” said Desai. 

Outside of client services like SOC control testing and reporting, the firm has found efficiencies in administrative functions as well as certain internal operational processes. On the latter point, Desai noted that Schellman’s engineers, including the chief information officer, have been using AI to help develop code, which means they’re not relying as much on outside expertise on the internal service delivery side of things. There are still people in the development process, but their roles are changing: They’re writing less code, and doing more reviewing of code before it gets pushed into production, saving time and creating efficiencies. 

“The best way for me to say this is, to us, this has been intentional. We paused hiring in a few areas where we saw overlaps, where technology was really working,” said Desai.

However, even in an age awash with AI, Schellman acknowledges there are certain jobs that need a human, at least for now. For example, the firm does assessments for the FedRAMP program, which is needed for cloud service providers to contract with certain government agencies. These assessments, even in the most stable of times, can be long and complex engagements, to say nothing of the less predictable nature of the current government. As such, it does not make as much sense to reduce human staff in this area. 

“The way it is right now for us to do FedRAMP engagements, it’s a very manual process. There’s a lot of back and forth between us and a third party, the government, and we don’t see a lot of overall application or technology help… We’re in the federal space and you can imagine, [with] what’s going on right now, there’s a big changing market condition for clients and their pricing pressure,” said Desai. 

As Schellman reduces staff levels in some places, it is increasing them in others. Desai said the firm is actively hiring in certain areas. In particular, it’s adding staff in technical cybersecurity (e.g., penetration testers), the aforementioned FedRAMP engagements, AI assessment (in line with recently becoming an ISO 42001 certification body) and in some client-facing roles like marketing and sales. 

“So, to me, this isn’t about doing more with less … It’s about doing more of the right things with the right people,” said Desai. 

While these moves have resulted in savings, she said that was never really the point, so whatever the firm has saved from staffing efficiencies it has reinvested in its tech stack to build its service line further. When asked for an example, she said the firm would like to focus more on penetration testing by building a SaaS tool for it. While Schellman has a proof of concept developed, she noted it would take a lot of money and time to deploy a full solution — both of which the firm now has more of because of its efficiency moves. 

“What is the ‘why’ behind these decisions? The ‘why’ for us isn’t what I think you traditionally see, which is ‘We need to get profitability high. We need to have less people do more things.’ That’s not what it is like,” said Desai. “I want to be able to focus on quality. And the only way I think I can focus on quality is if my people are not focusing on things that don’t matter … I feel like I’m in a much better place because the smart people that I’ve hired are working on the riskiest and most complicated things.”

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