Will EV tax credit transfers be seamless or clunky for car dealers?

WASHINGTON — After more than a year of waiting for details, car dealers now have answers to how tax credits for new and used electric vehicles can be transferred at the point of sale and how quickly they will be reimbursed by the federal government.

But some dealers and tax credit experts told Automotive News they are still wary of a potentially "clunky" process once those credit transfers start next year.

Earlier this month, the U.S. Treasury Department and the IRS released guidance specifying procedures for the credit transfer when the option becomes available to consumers as soon as Jan. 1. The transfer is allowed under the Inflation Reduction Act's Section 30D credit for new EV purchases providing consumers with up to $7,500 if certain requirements are met and Section 25E credit for used EVs providing consumers with up to $4,000.

Dealers can expect to be reimbursed for transferred credits within 72 hours of submitting an advance payment request to the IRS — a big relief for those who were concerned about a Cash for Clunkers redux that would leave them footing the bill for months.

"Three days is great news," said Juan Alarcon, president of Car Pros Automotive Group, which operates Kia, Hyundai, Honda, BMW and Mini dealerships in Washington and California. "That's a big positive — if they can pull it off."

Dealers must be registered via a new website called IRS Energy Credits Online for their customers to claim or transfer credits. The website and registration process is expected to launch this month, the Treasury said.

Starting Jan. 1, registered dealers will be able to electronically submit EV sales information to the IRS and receive payments via direct deposit for transferred credits. Dealers also will use the portal to submit time-of-sale reports, which confirm a vehicle's eligibility for a credit regardless of whether the buyer transfers it to the dealer.

If a credit is transferred at the point of sale, dealers can reduce the purchase price or provide cash to the buyer. However, the amount provided must equal the full amount of the credit available for the eligible EV.

Mike DeSilva, 2023 chairman of the American International Automobile Dealers Association, said his group's members are feeling "positive" about the online portal and three-day reimbursement, but they're also wary of how it plays out next year.

"Of course, we'll believe it when we see it. We all remember that Cash for Clunkers was supposed to have a two- or three-day reimbursement as well," said DeSilva, who owns Liberty Auto Group, a three-store group in New Jersey that sells Genesis, Hyundai, Kia and Subaru vehicles.

He said reimbursements for Charge Up New Jersey incentives — a state program that gives consumers up to $4,000 for the purchase or lease of new eligible EVs and $250 for eligible EV chargers at the point of sale — can take a month or two.

"Clearly, the process is complicated," DeSilva said, "but we are hoping for the best."

John Luciano, owner of Street Volkswagen in Amarillo, Texas, said dealers getting money back within 72 hours "sounds wonderful," but he's also still concerned about what happens next year when the credit transfers begin.

"We're worried," Luciano told Automotive News. "What is that going to look like? How seamless will it be?"

In a statement this month, National Automobile Dealers Association CEO Mike Stanton said the guidance released by the Treasury "should allay the biggest dealer concerns" with their role in facilitating EV tax credits to consumers at the point of sale.

Leading up to the guidance's release, NADA had been holding regular meetings with Treasury officials. The association's priorities included a seamless and simple dealer registration process, ease and repeatability of notices and forms that must be submitted to the vehicle buyer and the IRS, and an efficient funding portal for dealer reimbursement.

Still, the credit's success in the showroom could hinge on whether the government actually meets the 72-hour time frame once the transfers are allowed, said Levi McAllister, head of the EV and energy commodity trading and compliance working groups at law firm Morgan Lewis.

"To me, that's really the key issue of whether this is going to be workable or not," he said.

Dealers will at least have one less burden when it comes to who is responsible for verifying an EV buyer's income to determine eligibility.

Buyers will be given certain required disclosures as part of the credit transfer and electronic time-of-sale submission process, including written confirmation of an EV's eligibility and the credit amount. However, consumers will need to attest that they meet the income limits to qualify for a tax credit and repay the credit to the IRS when filing their taxes if they exceed the income thresholds.

"It is good that the customer has to be made aware of those rules in connection with the acquisition and the transfer of the credit, and they actually have to sign a statement under penalty of perjury that they received and understand those rules," said Adam Neporadny, managing director in the national tax professional standards group at Forvis.

"It's really putting it in front of the buyer very clearly that these rules exist and that they themselves have to repay the government if they do not in fact meet those … income limits," he added.

The Treasury said it has included safeguards to help prevent fraud or abuse, such as collecting certain dealer information in the registration process to ensure only verified, tax-compliant dealers can receive payments from the IRS and only eligible EVs can get the credit.

Under the guidance, credit transfers and IRS payments to dealers would "generally not affect dealers' tax liability." Advance payments received by the dealer from the IRS also would not be counted toward the gross income of the dealer.

But until dealers begin the process and start using the new IRS website, said Neporadny, "we really don't know how easy that process is going to be."