Navigating IRS updates to R&D tax credit (Form 6765)
Discover key updates to IRS Form 6765 for R&D tax credits. Learn how new rules impact compliance and claims, especially in banking and financial services.
Proposed regulations on the Section 30C tax credit
October 2024
In brief
What happened?
The IRS and Treasury published proposed regulations on September 19 under Section 30C, the tax credit for alternative fuel vehicle refueling property. The rules are proposed to apply to property placed in service in tax years ending after final regulations are published in the Federal Register.
The IRS also released Notice 2024-64, which updates guidance previously issued in Notice 2024-20 on identifying eligible census tracts.
Why is it relevant?
The proposed regulations implement amendments to Section 30C under the Inflation Reduction Act of 2022 and include important clarifications on the definition of alternative fuel vehicle refueling property, eligible census tracts, credit recapture, and other issues.
Action to consider:
Taxpayers may consider submitting comments on the proposed regulations, which are due by November 18, 2024. A public hearing will be scheduled if requested.
In detail
Statutory background
As amended for property placed in service after 2022 and before 2032, Section 30C provides a tax credit of 30% of the cost of qualified alternative fuel vehicle refueling property a taxpayer places in service in the United States during the tax year. For property that is not subject to a lease and is used by a tax-exempt organization or government entity, the seller of the property is treated as the taxpayer that placed the property in service if the seller clearly discloses to the user the amount of an allowable Section 30C credit.
The credit is 6% for depreciable property, increased to 30% if the taxpayer meets prevailing wage and apprenticeship (PWA) requirements. The credit is limited to $100,000 (depreciable property) or $1,000 (other property) for a single item of property. The allowed credit reduces the property’s basis. The credit is part of the general business credit if the property is depreciable and a personal credit otherwise.
Qualified alternative fuel vehicle refueling property (Section 30C property) is defined (in part by reference to former Section 179A) as property, excluding buildings and structural components:
(1) That is either depreciable or installed on the taxpayer’s principal residence,
(2) Of which the taxpayer has the original use, and
(3) For the purpose of:
(a) Storing or dispensing a clean-burning fuel into a motor vehicle fuel tank at the point of delivery, or
(b) Recharging an electric motor vehicle at the point of recharging.
Bidirectional charging equipment and property that recharges depreciable two- or three-wheeled vehicles may qualify.
“Clean-burning fuels” include certain petrochemical fuels, electricity, and (after 2024) certain transportation fuels.
Treasury is authorized to issue rules for recapturing the credit if property ceases to be eligible.
Section 30C property must be placed in service in an eligible census tract, which is a population census tract that is:
(1) A low-income community for purposes of the Section 45D new markets tax credit (NMTC), or
(2) Not designated as an urban area by the Department of Commerce (nonurban census tract).
Under the NMTC, a low-income community generally is a population census tract with:
(1) A poverty rate of at least 20% or a median family income of 80% or less of statewide median family income (nonmetropolitan areas, 85% for a high migration rural county) or 80% or less of the greater of statewide or metropolitan area median family income (metropolitan areas),
(2) Certain targeted populations as determined by the Community Development Financial Institutions (CDFI) Fund, or
(3) A population under 2,000 within an empowerment zone or contiguous to a low-income community.
Areas not within census tracts also are low-income communities for purposes of the NMTC.
Credit amount
The proposed regulations require the credit and the credit limitation to be apportioned between business and personal credits if the property is used 50% or less for business and is installed at the taxpayer’s residence.
In determining whether a taxpayer qualifies for the PWA bonus, multiple Section 30C properties are treated as a single Section 30C project if the items of property are (1) constructed and operated on a contiguous piece of land, (2) owned by a single taxpayer, (3) placed in service in a single tax year, and (4) the properties either are described in common regulatory permits, constructed under a single master contract, or financed under the same loan agreement. For additional information on the PWA bonus, see the PwC Insight Regulations on prevailing wage and apprenticeship credit bonus are finalized.
Section 30C property
Components
The proposed regulations define Section 30C property as property (other than real property, buildings, and structural components) that is comprised of components that are functionally interdependent or that is an integral part of the refueling or recharging property.
Components are functionally interdependent if the placing in service of each component is dependent upon the placing in service of each of the other components to refuel or recharge a motor vehicle. Components located within a motor vehicle that are necessary for the propulsion of the vehicle are excluded.
Observation: The preamble to the proposed regulations explains that this rule excludes onboard bidirectional charging equipment from the Section 30C credit.
Property is an integral part of refueling or recharging property if it is used directly in and is essential to the completeness of the intended function of the property, meets all of the requirements for Section 30C property, is owned by the same taxpayer as the property, and is specifically designed to be integrated with the property. These “associated” costs are included in the Section 30C credit to the extent they are directly attributable and traceable to a particular single item of Section 30C property. Costs that are directly attributable and traceable to more than one item of property must be allocated based on the cost of each single item of property.
Single item of property
A single item of property is defined as each charging port for recharging property, fuel dispenser for refueling property, or qualified alternative fuel storage or electrical energy storage property.
Observation: The single item of property rule is a change from an earlier rule that applied the credit limitation to all property placed in service during the tax year at a particular location.
A charging port is the system within a charger that charges one motor vehicle. It may have multiple connectors, but provides power at its rated electrical output to charge only one motor vehicle through one connector at a time. The cost of a charger with more than one port must be allocated among the number of ports in determining the credit for each single item of property.
A fuel dispenser is the unit through which fuel is dispensed into the fuel tank of a motor vehicle, is capable of fueling at or above the dispenser’s minimum rate of fueling, and has at least one hose and nozzle. A dispenser may include a meter, valve, controller, or enclosure.
Storage property is qualified alternative fuel storage property or electrical energy storage property. Qualified alternative fuel storage property stores qualified alternative fuel. Electrical energy storage property receives, stores, and delivers energy for conversion to electricity. Storage property meets the requirement to be located at the point where the motor vehicle is refueled or recharged if it is located at the same or an immediately adjacent physical address.
Observation: Treating electrical energy storage property as a separate item of property is a departure from the treatment under former Section 179A, the predecessor to Section 30C.
The proposed regulations modify proposed regulations under Sections 48 and 48E to provide that energy storage technology for which a taxpayer claims a Section 30C credit is property primarily used in the transportation of goods or individuals and not for the production of electricity, and thus does not qualify for a Section 48 or 48E credit.
Dual-use property
The proposed regulations provide that the creditable portion of the cost of dual-use property (such as property used for dispensing or storing both qualified alternative and conventional fuel) is limited to the increase in the cost of the dual-use property over the cost of equivalent property used only for a non-creditable purpose.
Eligible census tracts
Notice 2024-20 explains how the Census Bureau determines the boundaries of census tracts and how the CDFI Fund, which administers the NMTC jointly with the IRS, identifies low-income community population census tracts. See the PwC Insight Guidance provided on eligible census tracts for Section 30C recharging property. Consistent with this explanation, the proposed regulations define a population census tract as a geographic division comprised of census blocks to which a unique 11-digit census tract Geographic Identifier (GEOID) is assigned.
The preamble to the proposed regulations advises that the CDFI Fund has identified and published lists of census tracts that qualify as low-income communities for alternative fuel vehicle refueling property based on poverty rate or median family income. However, the IRS and Treasury, in consultation with the CDFI Fund, have been unable to identify census tracts that qualify as low-income communities as a targeted population or because the population is less than 2,000. Comments are requested on whether and how these population census tracts can be accurately identified.
Observation: Notice 2024-20 provides guidance for determining if Section 30C property is located in an eligible census tract and includes appendices identifying eligible census tracts by GEOID. Notice 2024-64 modifies Notice 2024-20 to provide links to updated mapping tools.
The proposed regulations provide that a nonurban census tract is a population census tract in which at least 10% of the census blocks are not designated as urban areas. An area that is not within a census tract does not qualify as an eligible census tract for purposes of Section 30C, although it may qualify for the NMTC. The IRS will periodically publish lists of eligible census tracts and instructions for determining census tract identifying numbers.
Placed in service
Under the proposed regulations, depreciable Section 30C property is placed in service in the earlier of the tax year that the property’s depreciation period begins or the property is placed in a condition or state of readiness and availability for an assigned function. Nondepreciable property is placed in service when it is installed at the taxpayer’s principal residence and is operational.
Observation: These definitions are consistent with how the IRS and Treasury have defined “placed in service” for purposes of other energy tax credits.
Tax-exempt entities
Tax-exempt entities may elect to receive the Section 30C credit as a direct payment. See the PwC Insight Regulations finalized on direct payment of energy and advanced manufacturing tax credits. Accordingly, the proposed regulations provide that a seller of Section 30C property to a tax-exempt user may not claim the credit if the user notifies the seller that it intends to elect a direct payment.
Recapture
The proposed regulations require taxpayers to recapture the benefit of the allowed Section 30C credit if a recapture event occurs within three years of placing property in service. A recapture event occurs if the property is modified and ceases to be eligible for the credit, is depreciable and is no longer used over 50% in a trade or business, was apportioned-use and is no longer used in a trade or business, or is sold or disposed of and the taxpayer has reason to know it will not be credit-eligible or used over 50% in a trade or business. A change in the status of an eligible census tract is not a recapture event.
The taxpayer must include a recapture amount based on a formula in income for the tax year that the recapture event occurs. The recapture amount increases the property’s basis.
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