Direct Employer Assistance and 401(k) Plan Relief Options for Employees Affected by California Wildfires
In the past week, devastating wildfires in Los Angeles, California, have caused unprecedented destruction across the region, leading to loss of life and displacing tens of thousands. While still ongoing, the fires already have the potential to be the worst natural disaster in United States history.
Quick Hits
Employers can assist employees affected by the Los Angeles wildfires through qualified…
It Ain’t Over ‘til It’s Over: IRS Reminds Taxpayers That Section 280E Applies to Marijuana Companies Until Rescheduling Becomes Law
This is a tax blog. Stay with me – it’s short.
While marijuana advocates celebrate the potential rescheduling of marijuana from Schedule I to Schedule III, the taxman has made clear that marijuana remains a Schedule I substance subject to Section 280E of the Internal Revenue Code. For those who aren’t cannabis tax specialists, 280E provides that:
No deduction or credit shall be allowed for any…
Supreme Court Rules Against Taxpayers in IRC Section 965 Case
On June 20, 2024, the Supreme Court of the United States issued a 7-2 opinion in Moore v. United States, 602 U.S. __ (2024), ruling in favor of the Internal Revenue Service (IRS).
Moore concerned whether US Congress and the IRS could tax US shareholders of controlled foreign corporations (CFCs) on those corporations’ earnings even though the earnings were not distributed to the shareholders. The…
The Biden administration hopes its guidelines for up to $7,500 in tax credits will encourage automakers to reduce their reliance on China for batteries and raw materials.
Excerpt from this story from the New York Times:
The Biden administration on Friday released new rules that will significantly shorten the list of electric vehicles that qualify for federal tax credits. Officials hope the change will push carmakers to move their supply chains out of China and to the United States or its allies.
The rules, issued by the Treasury Department, are a result of the Inflation Reduction Act, which Democrats passed last year to fight climate change by encouraging the use of zero-emission vehicles and green energy. The law also seeks to reduce the industry’s reliance on China, which makes most of the world’s batteries and dominates the processing of critical raw materials.
For purchases of their electric cars to qualify for up to $7,500 in tax credits, automakers must meet strict requirements for where they assemble the cars and batteries and where they get the materials that go into batteries. Only a handful of vehicles are expected to qualify for the full credit when the rules, which are more stringent than previous requirements, go into effect April 18, down from 21 now.
The new rules, which could be revised in response to comments from the public, will require that a certain percentage of the components and minerals in each electric car’s battery come from domestic sources or countries with which the United States has trade agreements.
The full list of qualifying cars will not be published for a couple of weeks, but Tesla has begun informing buyers that the changes would affect its lineup. The company said on its website that the least expensive version of its Model 3 sedan, one of the most popular electric cars, would no longer be eligible for the full credit. The car uses a battery made in China.
General Motors said Friday that three electric vehicles it plans to sell this year — the Cadillac Lyriq and electric versions of the Chevrolet Equinox and Blazer sport utility vehicles — would qualify for the full credit.
James M. Wickett, a partner at Hogan Lovells who focuses on tax and energy policy, said the electric vehicle tax credit was “moving supply chains, to the tune of tens of billions.”
“The details matter in a significant way,” he added.
One significant detail on Friday expanded the program to include battery minerals from Japan and paved the way for adding more countries, such as the 27 members of the European Union.
Because of how the Inflation Reduction Act was written, confusion is rife on which EVs qualify for subsidies. A key Treasury Department decision comes this week.
Excerpt from this story from the Washington Post:
Months into a federal effort to make electric vehicles more affordable, many Americans are in the dark about which models will be eligible for tax credits, the size of the subsidies and whether they can outright purchase the cars or must lease them to get the full tax break.
On Friday, the Biden administration is expected to release guidance that will sharply limit the number of vehicles eligible for the $7,500 tax credit authorized under the Inflation Reduction Act, a landmark climate law Congress passed last year, according to auto industry lobbyists.
Experts expect that consumers and dealers will still have to parse the federal guidance to figure out which cars are eligible — and some automakers are scrambling to develop technology that will assist customers with their questions.
The uncertain state of the subsidy program has complicated what the White House hoped would be a rapid transition to electric cars and trucks. The administration faces potential political blowback from consumers if it takes years to fully expand the EV tax credit program as advocates of the Inflation Reduction Act had envisioned.
“It’s very confusing. That’s one of the biggest problems with this. Do you lease, or do you buy? What does it cost? Are you even eligible?” said Michelle Krebs a Detroit-based analyst for Cox Automotive, an industry services and technology provider. “Who is going to educate everyone on that? Even dealers are confused.”
The conundrum stems from how the electric vehicle provisions were crafted in last year’s law, which dedicated billions of dollars to transitioning America’s auto sector. Biden’s climate goals heavily depend on reducing carbon emissions from transportation, the nation’s largest source of planet-warming pollution.
But largely because of demands sought by Sen. Joe Manchin III (D-W.Va.), the consumer tax credits in the law also sought to boost U.S. supply chains for EVs and batteries, limiting the full tax credit to vehicles whose components are largely sourced in North America. Geopolitical rival China controls much of the world’s electric vehicle supply chain.
Manchin’s demands meant that most of the models currently on the market will not be eligible for the subsidies. Many automakers have howled that they’ve lacked time to prepare.
Automakers and analysts said they expect the law’s provisions to force deep cuts to the nearly 40 vehicles now eligible for tax breaks — or to slash in half the credit many buyers would get — for the next year and maybe beyond.
EV purchasers may be eligible for up to $7,500 tax credits if the final assembly for their vehicle happens in the U.S., Mexico or Canada.
Excerpt from this story from EcoWatch:
As part of the Inflation Reduction Act signed by President Joe Biden in August 2022, people who buy electric vehicles may qualify for up to $7,500 in tax credits. But U.S. consumers will need to make sure they purchase EVs that meet the new Final Assembly Requirement that the vehicle’s final assembly occurs in North America.
EV purchasers may be eligible for up to $7,500 tax credits if the final assembly for their vehicle happens in the U.S., Mexico or Canada. According to the IRS, consumers can find the manufacturing location for a specific vehicle by locating the vehicle identification number (VIN) on the National Highway Traffic Safety Administration (NHTSA)’s VIN Decoder website.
The Final Assembly Requirement will apply for consumers who bought and took possession of a new, qualifying EV after August 16, 2022. The IRS notes that consumers who bought an EV before August 16, but didn’t take possession of it until on or after that date, can apply for the tax credits based on the previous rule (and will not need to adhere to the Final Assembly Requirement).
The rule reduced the number of fully electric and plug-in hybrid vehicles eligible for federal tax incentives. Now, about eight electric vehicles and 10 plug-in hybrid vehicles are eligible under the Final Assembly Requirement, dropping from about 30 fully electric vehicles and 42 plug-in hybrid vehicles before the new rules, Yahoo! Finance reported.
Aside from the Final Assembly Requirement, people who purchase electric vehicles may be eligible for federal tax credits up to $7,500 depending on the vehicle’s battery capacity, and there may be additional local and state incentives.
The Inflation Reduction Act also made the EV tax credits non-refundable, CNBC reported. A consumer must have a tax liability of over $7,500 to maximize their EV tax credits. For example, someone filing federal taxes for 2022 who owes $4,000 and is eligible for up to $7,500 in federal tax credits could only claim $4,000, and would not receive a tax refund for the remaining $3,500.
Additional rules relating to the EV tax credits will take effect in 2023, and will increase the number of qualifying fully electric vehicles eligible for incentives to 11. Some used electric vehicles that cost under $25,000 will be eligible for up to $4,000 tax credits or 30% of the vehicle cost, whichever is lower, as reported by Bloomberg Law.
Michigan SALT Workaround Update: Accrual Taxpayers
Michigan SALT Workaround Update: Accrual Taxpayers
As a follow up to our tax advisory issued December 23, 2021, pertaining to Michigan’s new SALT workaround (Michigan Tops the Growing List of States with a SALT Cap Workaround for Pass-Through Entities), we are providing this update to alert accrual-basis taxpayers regarding the Michigan SALT workaround and the deductibility of taxes under section 164.
Section 164(a) of the Internal Revenue Code…
Excerpt from this report from the Institute on Taxation and Economic Policy:
For decades, profitable Fortune 500 companies have manipulated the tax system to avoid paying even a dime in tax on billions of dollars in U.S. profits. This ITEP report provides the first comprehensive look at how corporate tax changes under the 2017 Tax Cuts and Jobs Act affect the scale of corporate tax avoidance. The report finds that in 2018, 60 of America’s biggest corporations zeroed out their federal income taxes on $79 billion in U.S. pretax income. Instead of paying $16.4 billion in taxes at the 21 percent statutory corporate tax rate, these companies enjoyed a net corporate tax rebate of $4.3 billion.
