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October 16, 2023

IRS releases guidance on transferring clean vehicle credits

  • Eligible dealers of clean vehicles can receive the value of buyers’ IRC Sections 30D and 25E credits at the time the vehicle is purchased.
  • The guidance gives the specific requirements and procedures for transferring the credits from the buyer to the dealer and how to deal with changes in eligibility.
  • The guidance also tells dealers how to register to be eligible to receive the advance payments for the credits and how the IRS will administer the program through a newly-created IRS Energy Credits Online Portal.

The IRS and Treasury Department proposed regulations (REG-113064-23) and Revenue Procedure 2023-33 on how buyers can transfer clean vehicle credits under IRC Sections 30D (clean vehicles) and 25E (previously-owned vehicles) to eligible dealers at the time of purchase. For vehicles purchased on or after January 1, 2024, eligible dealers would receive advance payment of the credits from the IRS and could give the buyers cash or put the credit towards a down payment.

An updated Fact Sheet (FS-2023-22) incorporates the new information.

This guidance adds to earlier information on eligibility requirements for manufacturers and sellers of clean vehicles (Tax Alert 2023-0076); the definition of clean vehicles (Tax Alert 2023-0251); and IRC Section 30D requirements around critical minerals and battery components (Tax Alert 2023-0660).

The IRS said in the Summary of the proposed regulations that it received 884 comments from industry participants, environmental groups, individual consumers, and other stakeholders.


IRC Section 30D credit for clean vehicles

The Inflation Reduction Act (IRA) changed the IRC Section 30D "new qualified plug-in electric drive motor vehicles credit" to a "clean vehicle credit." The clean vehicle credit is a dollar-for-dollar reduction of federal income taxes by up to $7,500 for new clean vehicles placed in service by a taxpayer during the tax year before January 1, 2033.

To qualify for the credit, the taxpayer must fall within the adjusted gross income guidelines and be purchasing a vehicle within the price guidelines (e.g., $80,000 for vans, SUVs and pickup trucks, $55,000 for sedans and others). Exclusions also apply for vehicles that source battery components or critical minerals from foreign entities of concern. For more details on the requirements and how to claim the credit, see Tax Alert 2023-0076.

Buyers can elect to transfer credits to an eligible dealer subject to certain requirements, which are explained in the new proposed regulations and Revenue Procedure 2023-33.

IRC Section 25E credit for previously owned clean vehicles

The IRA also added IRC Section 25E to allow eligible taxpayers acquiring a used clean vehicle (i.e., at least two years old) before January 1, 2033, to claim a federal tax credit for the tax year of the vehicle's acquisition. The credit equals the lesser of (1) $4,000 or (2) 30% of the sales price. The credit can be used once every three years for clean vehicles sold for $25,000 or less and is based on the taxpayer's adjusted gross income.

Transfer procedure

Transferring credits is optional on the part of the buyer and the dealer. Transferring the credits at the time of purchase, however, allows buyers to receive the immediate benefit of the credit before filing their tax return. All buyers receiving the credit, even if they transfer the credit at the time of purchase, must use Form 8936, Clean Vehicle Credits, to claim the IRC Section 25E or 30D credit in the tax year in which the clean vehicle is placed in service.

The proposed regulations and Revenue Procedure 2023-33 give specific procedures for performing the transfers and would add Treas. Reg. Sections 1.25E-3 and 1.30D-5, establishing an advance payment program, which is the only way that dealers may receive a transferred clean vehicle credit.

The election to transfer the credits must be made no later than at the time of sale (when the buyer takes possession of the vehicle) and is irrevocable. The buyer must transfer the entire credit and, in exchange, the dealer must pay the credit to the buyer or treat the credit as a down payment or partial payment.

Advance payment program

Dealers will receive the value of the credits from the IRS through the advance payment program. To participate in this program, dealers must (1) submit additional registration information, (2) be "in dealer tax compliance," (3) retain information on the vehicle transfer election for three years and (4) meet any other requirements.

To receive advanced payments, dealers must, at the time of sale, provide the vehicle's VIN, the seller report and the buyer disclosure information through the IRS Energy Credits Online Portal. Electronic payments will be disbursed to bank accounts, not by paper check. The IRS has indicated that seller reports will be accepted/rejected in real time and anticipates making the deposits within 48 - 72 hours of a successfully submitted time-of-sale report and advance payment request.

The IRS may suspend a dealer's eligibility to participate in the advance payment program if the dealer does not comply with the requirements and subsequently revoke the registration for failure to cure non-compliance.

Registration requirements

Manufacturers, sellers, and dealers must all register through the IRS Energy Credits Online Portal. Buyers can rely on certifications by a qualified manufacturer that the vehicle is eligible for the IRC Section 30D or 25E credit.

Rev Proc 2023-33 gives detailed instructions on how each of these entities can register. The IRS will validate the registrations and then issue a dealer identification number.

Tax consequences

Tax consequences to buyer: The credit amount transferred by the buyer can exceed their regular tax liability for the year. The payment made to the buyer is not includible in the buyer's gross income for the tax year. If a buyer exceeds the income limitation for eligibility for the credits, the buyer must reconcile the amounts on its tax return for the tax year.

Tax consequences to dealer: The dealer does not include the advance payment in its gross income for the tax year and is not subject to recapture if the payment exceeds the dealers tax liability unless the excessive payment rules apply. The dealer cannot deduct the payment made to the taxpayer. If a dealer receives excessive payment because the buyer or vehicle turned out to be ineligible, the dealer's tax would be increased by adding the amount of the excessive payment plus 20% of the payment. The 20% will not apply if there is reasonable cause (vehicle returned within 30 days).

Tax consequences for partnerships and S corporations: The advance payment is not treated as tax-exempt income to the partnership or S corporation (for proper basis and capital accounting reporting).

Credit eligibility

Under the "first transfer" rule, the IRC Section 25E credit can only be transferred once. It must be the first transfer of the previously-owned clean vehicle since August 16, 2022, after the sale to the original owner. The credit cannot be transferred from one dealer to another. Qualified buyers of a previously-owned clean vehicle cannot receive an IRC Section 25E credit if they received one in the last three years.

A vehicle can be eligible for the IRC Section 30D credit (when bought) and also the IRC Section 25E credit (when resold). Buyers can make two transfer elections per tax year (two IRC Section 30D credits or one IRC Section 30D and one IRC Section 25E credit). For joint returns, buyers can make four transfer elections in a year.

The proposed rules discuss how to treat the credits in the case of cancelled sales, returns and resales:

  • Cancelled sale: Buyer cannot claim the credit
  • Vehicle return: If the vehicle is returned within 30 days, the buyer cannot claim the credit and the returned vehicle will no longer be eligible for the IRC Section 30D credit, although the vehicle could be eligible for the IRC Section 25E credit; any advance payment would be recaptured from the dealer as excessive payment
  • Resale: If the buyer purchases a new vehicle and resells it within 30 days, the buyer cannot claim the IRC Section 30D or 25E credit and the vehicle no longer eligible for either credit; transferred credit will be recaptured from the buyer

Mathematical or clerical errors

The proposed regulations would amend Treas. Reg. Section 301.6213-2 to specify that a mathematical or clerical errors occurs by:

  • Omitting the correct vehicle identification number (VIN)
  • Failing to include the VIN on the tax return
  • Including a VIN for an ineligible vehicle on the return

This adds to the errors for which the IRS can make certain assessments of tax without a notice of deficiency under IRC Section 6213(b).


The credit transfer opportunity provides a critical point-of-sale incentive for eligible purchasers and dealers of electric vehicles. Dealers could receive advance payment of the credits, while buyers could receive the immediate benefit of the credit before filing their tax return. In addition, buyers whose credit exceeded their annual tax liability could receive the full benefit in the form of cash or a partial payment.

Dealers wishing to participate in the advanced payment program for transferred credits under IRC Sections 25E or 30D after December 31, 2023, should assess the registration procedures so they are familiar with the process. Similarly, buyers should be aware of the applicable requirements for transferring a credit to a dealer and be diligent in completing the required forms.


Contact Information
For additional information concerning this Alert, please contact:
National Tax
   • Greg Matlock, EY’s Global Energy & Resources Industry Tax Leader (
Tax Credit Investment Advisory Services
   • Michael Bernier (
Credits and incentives and sustainability
   • Paul Naumoff (
   • Akshay Honnatti (
   • David Camerucci (

Published by NTD’s Tax Technical Knowledge Services group; Andrea Ben-Yosef, legal editor