[Federal Register Volume 60, Number 149 (Thursday, August 3, 1995)]
[Rules and Regulations]
[Pages 39649-39652]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-19028]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 8606]
RIN 1545-AR64
Definition of Qualified Electric Vehicle, and Recapture Rules for
Qualified Electric Vehicles, Qualified Clean-fuel Vehicle Property, and
Qualified Clean-fuel Vehicle Refueling Property
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
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SUMMARY: This document contains final regulations on the definition of
a qualified electric vehicle, the recapture of any credit allowable for
a qualified electric vehicle, and the recapture of any deduction
allowable for qualified clean-fuel vehicle property or qualified clean-
fuel vehicle refueling property. These regulations reflect changes to
the law made by the Energy Policy Act of 1992 and affect taxpayers who
are owners of qualified electric vehicles, clean-fuel vehicles, and
clean-fuel vehicle refueling property.
DATES: These regulations are effective August 3, 1995.
For dates of applicability of these regulations, see Sec. 1.30-1(c)
and Sec. 1.179A-1(h).
FOR FURTHER INFORMATION CONTACT: Joanne E. Johnson at (202) 622-3110
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
On October 14, 1994, the IRS published in the Federal Register a
notice of proposed rulemaking providing the definition of a qualified
electric vehicle under section 30(c) and the rules for the recapture of
the section 30 credit and section 179A deduction under sections
30(d)(2) and 179A(e)(4), respectively (59 FR 52105).
Written comments responding to the notice were received. No public
hearing was requested or held. After consideration of all the comments,
this Treasury decision adopts the regulations as proposed.
Explanation of Provisions
In General
The final regulations define a qualified electric vehicle for
purposes of section 30 of the Internal Revenue Code (Code). Several
commentators recommended expanding the definition to include a vehicle
converted from a used non-electric vehicle. The final regulations do
not adopt this recommendation because section 30(c)(1)(B) provides that
the original use of the vehicle must commence with the taxpayer.
Moreover, conversion costs are deductible under section 179A.
Some commentators suggested including a hybrid-electric vehicle in
the definition of a qualified electric vehicle. This issue will be
addressed along with other substantive rules in additional proposed
regulations under sections 30 and 179A of the Code.
Effective Date
The final regulations are effective on October 14, 1994. If the
recapture date is before the effective date of these regulations, a
taxpayer may use any reasonable method to recapture the benefit of any
section 30 credit allowable or section 179A deduction allowable
consistent with sections 30 and 179A and their legislative history.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in EO 12866. Therefore, a
regulatory assessment is not required. It also has been determined that
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5)
and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to
these regulations, and, therefore, a Regulatory Flexibility Analysis is
not required. Pursuant to section 7805(f) of the Internal Revenue Code,
the notice of proposed rulemaking preceding these regulations was
submitted to the Chief Counsel for Advocacy of the Small Business
Administration for comment on its impact on small business.
Drafting Information
The principal author of these regulations is Joanne E. Johnson,
Office of Assistant Chief Counsel (Passthroughs and Special
Industries). However, other personnel from the IRS and Treasury
Department participated in their development.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 is amended by adding
entries in numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.30-1 also issued under 26 U.S.C. 30(d)(2) * * *
Section 1.179A-1 also issued under 26 U.S.C. 179A(e)(4) * * *
Par. 2. Section 1.30-1 is added immediately following the
undesignated center heading ``Credits Allowable'' to read as follows:
Sec. 1.30-1 Definition of qualified electric vehicle and recapture of
credit for qualified electric vehicle.
(a) Definition of qualified electric vehicle. A qualified electric
vehicle is a
[[Page 39650]]
motor vehicle that meets the requirements of section 30(c).
Accordingly, a qualified electric vehicle does not include any motor
vehicle that has ever been used (for either personal or business use)
as a non-electric vehicle.
(b) Recapture of credit for qualified electric vehicle--(1) In
general--(i) Addition to tax. If a recapture event occurs with respect
to a taxpayer's qualified electric vehicle, the taxpayer must add the
recapture amount to the amount of tax due in the taxable year in which
the recapture event occurs. The recapture amount is not treated as
income tax imposed on the taxpayer by chapter 1 of the Internal Revenue
Code for purposes of computing the alternative minimum tax or
determining the amount of any other allowable credits for the taxable
year in which the recapture event occurs.
(ii) Reduction of carryover. If a recapture event occurs with
respect to a taxpayer's qualified electric vehicle, and if a portion of
the section 30 credit for the cost of that vehicle was disallowed under
section 30(b)(3)(B) and consequently added to the taxpayer's minimum
tax credit pursuant to section 53(d)(1)(B)(iii), the taxpayer must
reduce its minimum tax credit carryover by an amount equal to the
portion of any minimum tax credit carryover attributable to the
disallowed section 30 credit, multiplied by the recapture percentage
for the taxable year of recapture. Similarly, the taxpayer must reduce
any other credit carryover amounts (such as under section 469) by the
portion of the carryover attributable to section 30, multiplied by the
recapture percentage.
(2) Recapture event--(i) In general. A recapture event occurs if,
within 3 full years from the date a qualified electric vehicle is
placed in service, the vehicle ceases to be a qualified electric
vehicle. A vehicle ceases to be a qualified electric vehicle if--
(A) The vehicle is modified so that it is no longer primarily
powered by electricity;
(B) The vehicle is used in a manner described in section 50(b); or
(C) The taxpayer receiving the credit under section 30 sells or
disposes of the vehicle and knows or has reason to know that the
vehicle will be used in a manner described in paragraph (b)(2)(i)(A) or
(B) of this section.
(ii) Exception for disposition. Except as provided in paragraph
(b)(2)(i)(C) of this section, a sale or other disposition (including a
disposition by reason of an accident or other casualty) of a qualified
electric vehicle is not a recapture event.
(3) Recapture amount. The recapture amount is equal to the
recapture percentage times the decrease in the credits allowed under
section 30 for all prior taxable years that would have resulted solely
from reducing to zero the cost taken into account under section 30 with
respect to such vehicle, including any credits allowed attributable to
section 30 (such as under sections 53 and 469).
(4) Recapture date. The recapture date is the actual date of the
recapture event unless a recapture event described in paragraph
(b)(2)(i)(B) of this section occurs, in which case the recapture date
is the first day of the recapture year.
(5) Recapture percentage. For purposes of this section, the
recapture percentage is--
(i) 100, if the recapture date is within the first full year after
the date the vehicle is placed in service;
(ii) 66 \2/3\, if the recapture date is within the second full year
after the date the vehicle is placed in service; or
(iii) 33 \1/3\, if the recapture date is within the third full year
after the date the vehicle is placed in service.
(6) Basis adjustment. As of the first day of the taxable year in
which the recapture event occurs, the basis of the qualified electric
vehicle is increased by the recapture amount and the carryover
reductions taken into account under paragraphs (b)(1)(i) and (ii) of
this section, respectively. For a vehicle that is of a character that
is subject to an allowance for depreciation, this increase in basis is
recoverable over the remaining recovery period for the vehicle
beginning as of the first day of the taxable year of recapture.
(7) Application of section 1245 for sales and other dispositions.
For purposes of section 1245, the amount of the credit allowable under
section 30(a) with respect to any qualified electric vehicle that is
(or has been) of a character subject to an allowance for depreciation
is treated as a deduction allowed for depreciation under section 167.
Therefore, upon a sale or other disposition of a depreciable qualified
electric vehicle, section 1245 will apply to any gain recognized to the
extent the basis of the depreciable vehicle was reduced under section
30(d)(1) net of any basis increase described in paragraph (b)(6) of
this section.
(8) Examples. The following examples illustrate the provisions of
this section:
Example 1. A, a calendar-year taxpayer, purchases and places in
service for personal use on January 1, 1995, a qualified electric
vehicle costing $25,000. On A's 1995 federal income tax return, A
claims a credit of $2,500. On January 2, 1996, A sells the vehicle
to an unrelated third party who subsequently converts the vehicle
into a non-electric vehicle on October 15, 1996. There is no
recapture upon the sale of the vehicle by A provided A did not know
or have reason to know that the purchaser intended to convert the
vehicle to non-electric use.
Example 2. B, a calendar-year taxpayer, purchases and places in
service for personal use on October 11, 1994, a qualified electric
vehicle costing $20,000. On B's 1994 federal income tax return, B
claims a credit of $2,000, which reduces B's tax by $2,000. The
basis of the vehicle is reduced to $18,000 ($20,000-$2,000). On
March 8, 1996, B sells the vehicle to a tax-exempt entity. Because B
knowingly sold the vehicle to a tax-exempt entity described in
section 50(b) in the second full year from the date the vehicle was
placed in service, B must recapture $1,333 ($2,000 x 66 \2/3\
percent). This recapture amount increases B's tax by $1,333 on B's
1996 federal income tax return and is added to the basis of the
vehicle as of January 1, 1996, the beginning of the taxable year in
which the recapture event occurred.
Example 3. X, a calendar-year taxpayer, purchases and places in
service for business use on January 1, 1994, a qualified electric
vehicle costing $30,000. On X's 1994 federal income tax return, X
claims a credit of $3,000, which reduces X's tax by $3,000. The
basis of the vehicle is reduced to $27,000 ($30,000-$3,000) prior to
any adjustments for depreciation. On March 8, 1995, X converts the
qualified electric vehicle into a gasoline-propelled vehicle.
Because X modified the vehicle so that it is no longer primarily
powered by electricity in the second full year from the date the
vehicle was placed in service, X must recapture $2,000 ($3,000 x
66\2/3\ percent). This recapture amount increases X's tax by $2,000
on X's 1995 federal income tax return. The recapture amount of
$2,000 is added to the basis of the vehicle as of January 1, 1995,
the beginning of the taxable year of recapture, and to the extent
the property remains depreciable, the adjusted basis is recoverable
over the remaining recovery period.
Example 4. The facts are the same as in Example 3. In 1996, X
sells the vehicle for $31,000, recognizing a gain from this sale.
Under paragraph (b)(7) of this section, section 1245 will apply to
any gain recognized on the sale of a depreciable vehicle to the
extent the basis of the vehicle was reduced by the section 30 credit
net of any basis increase from recapture of the section 30 credit.
Accordingly, the gain from the sale of the vehicle is subject to
section 1245 to the extent of the depreciation allowance for the
vehicle plus the credit allowed under section 30 ($3,000), less the
previous recapture amount ($2,000). Any remaining amount of gain may
be subject to other applicable provisions of the Internal Revenue
Code.
(c) Effective date. This section is effective on October 14, 1994.
If the recapture date is before the effective date of this section, a
taxpayer may use any reasonable method to recapture the benefit of any
credit allowable under section 30(a) consistent with section 30 and its
legislative history. For this
[[Page 39651]]
purpose, the recapture date is defined in paragraph (b)(4) of this
section.
Par. 3. Section 1.179A-1 is added to read as follows:
Sec. 1.179A-1 Recapture of deduction for qualified clean-fuel vehicle
property and qualified clean-fuel vehicle refueling property.
(a) In general. If a recapture event occurs with respect to a
taxpayer's qualified clean-fuel vehicle property or qualified clean-
fuel vehicle refueling property, the taxpayer must include the
recapture amount in taxable income for the taxable year in which the
recapture event occurs.
(b) Recapture event--(1) Qualified clean-fuel vehicle property--(i)
In general. A recapture event occurs if, within 3 full years from the
date a vehicle of which qualified clean-fuel vehicle property is a part
is placed in service, the property ceases to be qualified clean-fuel
vehicle property. Property ceases to be qualified clean-fuel vehicle
property if--
(A) The vehicle is modified by the taxpayer so that it may no
longer be propelled by a clean-burning fuel;
(B) The vehicle is used by the taxpayer in a manner described in
section 50(b);
(C) The vehicle otherwise ceases to qualify as property defined in
section 179A(c); or
(D) The taxpayer receiving the deduction under section 179A sells
or disposes of the vehicle and knows or has reason to know that the
vehicle will be used in a manner described in paragraph (b)(1)(i) (A),
(B), or (C) of this section.
(ii) Exception for disposition. Except as provided in paragraph
(b)(1)(i)(D) of this section, a sale or other disposition (including a
disposition by reason of an accident or other casualty) of qualified
clean-fuel vehicle property is not a recapture event.
(2) Qualified clean-fuel vehicle refueling property--(i) In
general. A recapture event occurs if, at any time before the end of its
recovery period, the property ceases to be qualified clean-fuel vehicle
refueling property. Property ceases to be qualified clean-fuel vehicle
refueling property if--
(A) The property no longer qualifies as property described in
section 179A(d);
(B) The property is no longer used predominantly in a trade or
business (property will be treated as no longer used predominantly in a
trade or business if 50 percent or more of the use of the property in a
taxable year is for use other than in a trade or business);
(C) The property is used by the taxpayer in a manner described in
section 50(b); or
(D) The taxpayer receiving the deduction under section 179A sells
or disposes of the property and knows or has reason to know that the
property will be used in a manner described in paragraph (b)(2)(i) (A),
(B), or (C) of this section.
(ii) Exception for disposition. Except as provided in paragraph
(b)(2)(i)(D) of this section, a sale or other disposition (including a
disposition by reason of an accident or other casualty) of qualified
clean-fuel vehicle refueling property is not a recapture event.
(c) Recapture date--(1) Qualified clean-fuel vehicle property. The
recapture date is the actual date of the recapture event unless an
event described in paragraph (b)(1)(i)(B) of this section occurs, in
which case the recapture date is the first day of the recapture year.
(2) Qualified clean-fuel vehicle refueling property. The recapture
date is the actual date of the recapture event unless the recapture
occurs as a result of an event described in paragraph (b)(2)(i) (B) or
(C) of this section, in which case the recapture date is the first day
of the recapture year.
(d) Recapture amount--(1) Qualified clean-fuel vehicle property.
The recapture amount is equal to the benefit of the section 179A
deduction allowable multiplied by the recapture percentage. The
recapture percentage is--
(i) 100, if the recapture date is within the first full year after
the date the vehicle is placed in service;
(ii) 66\2/3\, if the recapture date is within the second full year
after the date the vehicle is placed in service; or
(iii) 33\1/3\, if the recapture date is within the third full year
after the date the vehicle is placed in service.
(2) Qualified clean-fuel vehicle refueling property. The recapture
amount is equal to the benefit of the section 179A deduction allowable
multiplied by the following fraction. The numerator of the fraction
equals the total recovery period for the property minus the number of
recovery years prior to, but not including, the recapture year. The
denominator of the fraction equals the total recovery period.
(e) Basis adjustment. As of the first day of the taxable year in
which the recapture event occurs, the basis of the vehicle of which
qualified clean-fuel vehicle property is a part or the basis of
qualified clean-fuel vehicle refueling property is increased by the
recapture amount. For a vehicle or refueling property that is of a
character that is subject to an allowance for depreciation, this
increase in basis is recoverable over its remaining recovery period
beginning as of the first day of the taxable year in which the
recapture event occurs.
(f) Application of section 1245 for sales and other dispositions.
For purposes of section 1245, the amount of the deduction allowable
under section 179A(a) with respect to any property that is (or has
been) of a character subject to an allowance for depreciation is
treated as a deduction allowed for depreciation under section 167.
Therefore, upon a sale or other disposition of depreciable qualified
clean-fuel vehicle refueling property or a depreciable vehicle of which
qualified clean-fuel vehicle property is a part, section 1245 will
apply to any gain recognized to the extent the basis of the depreciable
property or vehicle was reduced under section 179A(e)(6) net of any
basis increase described in paragraph (e) of this section.
(g) Examples. The following examples illustrate the provisions of
this section:
Example 1. A, a calendar-year taxpayer, purchases and places in
service for personal use on January 1, 1995, a clean-fuel vehicle, a
portion of which is qualified clean-fuel vehicle property, costing
$25,000. The qualified clean-fuel vehicle property costs $11,000. On
A's 1995 federal income tax return, A claims a section 179A
deduction of $2,000. On January 2, 1996, A sells the vehicle to an
unrelated third party who subsequently converts the vehicle into a
gasoline-propelled vehicle on October 15, 1996. There is no
recapture upon the sale of the vehicle by A provided A did not know
or have reason to know that the purchaser intended to convert the
vehicle to a gasoline-propelled vehicle.
Example 2. B, a calendar-year taxpayer, purchases and places in
service for personal use on October 11, 1994, a clean-fuel vehicle
costing $20,000, a portion of which is qualified clean-fuel vehicle
property. The qualified clean-fuel vehicle property costs $10,000.
On B's 1994 federal income tax return, B claims a deduction of
$2,000, which reduces B's gross income by $2,000. The basis of the
vehicle is reduced to $18,000 ($20,000-$2,000). On January 31, 1996,
B sells the vehicle to a tax-exempt entity. Because B knowingly sold
the vehicle to a tax-exempt entity described in section 50(b) in the
second full year from the date the vehicle was placed in service, B
must recapture $1,333 ($2,000 x 66\2/3\ percent). This recapture
amount increases B's gross income by $1,333 on B's 1996 federal
income tax return and is added to the basis of the motor vehicle as
of January 1, 1996, the beginning of the taxable year of recapture.
Example 3. X, a calendar-year taxpayer, purchases and places in
service for its business use on January 1, 1994, qualified clean-
fuel vehicle refueling property costing $400,000. Assume this
property has a 5-year recovery period. On X's 1994 federal income
tax return, X claims a deduction of $100,000, which reduces X's
gross income by $100,000.
[[Page 39652]]
The basis of the property is reduced to $300,000 ($400,000-$100,000)
prior to any adjustments for depreciation. In 1996, more than 50
percent of the use of the property is other than in X's trade or
business.
Because the property is no longer used predominantly in X's
business, X must recapture three-fifths of the section 179A
deduction or $60,000 ($100,000 x (5-2)/5 = $60,000) and include that
amount in gross income on its 1996 federal income tax return. The
recapture amount of $60,000 is added to the basis of the property as
of January 1, 1996, the beginning of the taxable year of recapture,
and to the extent the property remains depreciable, the adjusted
basis is recoverable over the remaining recovery period.
Example 4. X, a calendar-year taxpayer, purchases and places in
service for business use on January 1, 1994, qualified clean-fuel
vehicle refueling property costing $350,000. Assume this property
has a 5-year recovery period. On X's 1994 federal income tax return,
X claims a deduction of $100,000, which reduces X's gross income by
$100,000. The basis of the property is reduced to $250,000
($350,000-$100,000) prior to any adjustments for depreciation. In
1995, X converts the property to store and dispense gasoline.
Because the property is no longer used as qualified clean-fuel
vehicle refueling property in 1995, X must recapture four-fifths of
the section 179A deduction or $80,000 ($100,000 x (5-1)/5 = $80,000)
and include that amount in gross income on its 1995 federal income
tax return. The recapture amount of $80,000 is added to the basis of
the property as of January 1, 1995, the beginning of the taxable
year of recapture, and to the extent the property remains
depreciable, the adjusted basis is recoverable over the remaining
recovery period.
Example 5. The facts are the same as in Example 4. In 1996, X
sells the refueling property for $351,000, recognizing a gain from
this sale. Under paragraph (f) of this section, section 1245 will
apply to any gain recognized on the sale of depreciable property to
the extent the basis of the property was reduced by the section 179A
deduction net of any basis increase from recapture of the section
179A deduction. Accordingly, the gain from the sale of the property
is subject to section 1245 to the extent of the depreciation
allowance for the property plus the deduction allowed under section
179A ($100,000), less the previous recapture amount ($80,000). Any
remaining amount of gain may be subject to other applicable
provisions of the Internal Revenue Code.
(h) Effective date. This section is effective on October 14, 1994.
If the recapture date is before the effective date of this section, a
taxpayer may use any reasonable method to recapture the benefit of any
deduction allowable under section 179A(a) consistent with section 179A
and its legislative history. For this purpose, the recapture date is
defined in paragraph (c) of this section.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
Approved: June 21, 1995.
Leslie Samuels,
Assistant Secretary of the Treasury.
[FR Doc. 95-19028 Filed 8-2-95; 8:45 am]
BILLING CODE 4830-01-U
