IRS Guidance On Binding Agreement

[TXR1S]

Can any tax lawyers comment on how this applies to the Rivian agreement?

“What Is a Written Binding Contract?
In general, a written contract is binding if it is enforceable under State law and does not limit damages to a specified amount (for example, by use of a liquidated damages provision or the forfeiture of a deposit). While the enforceability of a contract under State law is a facts-and-circumstances determination to be made under relevant State law, if a customer has made a significant non-refundable deposit or down payment, it is an indication of a binding contract. For tax purposes in general, a contract provision that limits damages to an amount equal to at least 5 percent of the total contract price is not treated as limiting damages to a specified amount. For example, if a customer has made a non-refundable deposit or down payment of 5 percent of the total contract price, it is an indication of a binding contract. A contract is binding even if subject to a condition, as long as the condition is not within the control of either party. A contract will continue to be binding if the parties make insubstantial changes in its terms and conditions.”


https://www.irs.gov/credits-deductions/individuals/plug-in-electric-drive-vehicle-credit-section-30d

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[CommodoreAmiga]

Sounds like the agreements Rivian has been offering aren't good enough to meet this guideline.

 

[Taycanfrank]

While the language is odd, my CPA (who owns one of the largest firms on the east coast) says the $100 is fine to claim the tax credit.

 

[timesinks]

I think the fact that Rivian the contracts didn't say the $100 was liquidated damages and left open the possibility of further recourse, it may still be fine.

Though, since it's all about the technicalities, you may want to find out if a vehicle purchase contract without a VIN and final sales price is enforceable in your state (it's not here in WA).

 

[TXR1S]

While the language is odd, my CPA (who owns one of the largest firms on the east coast) says the $100 is fine to claim the tax credit.

To be clear, the language you are specifically talking about is the IRS guidance language issued in the last hour?

 

[Taycanfrank]

To be clear, the language you are specifically talking about is the IRS guidance language issued in the last hour?

*edit to clarify* The binding contract is for the state you purchase the vehicle. The IRS is obligated to honor that state's definition of a binding contract, which is usually less than the IRS guidance. Check your state. This is why they issued GUIDANCE and not a binding rule.

In Illinois there is no set % required. So depending on how Rivian treats individual state sales, you may fall under your state's rules or Illinois.

Yes, even though it's a federal credit.

 

[freshpow]

I’m no expert but don’t love the sound of this.

I would hope that Rivian’s lawyers and all the other EV companies that offered similar agreements for their reservation holders saw this coming and believe the contracts are still valid. This same definition was published by the IRS back in 2013 for the renewable energy tax credit:

“On April 25, 2013, the Internal Revenue Service updated guidance issued on April 15, 2013, that explained how to satisfy the new “begun construction” requirement for the renewable energy section 45 production tax credit (PTC) and the election to claim the section 48 investment tax credit (ITC) in lieu of the section 45 PTC. That update to Notice 2013-29 revises the definition of a “binding written contract” by adding that a contractual provision that limits damages to an amount equal to at least 5% of the total contract price will not be treated as limiting damages to a specified amount.”

 

[TexasBob]

Rivian contract meets this provision, "and does not limit damages to a specified amount (for example, by use of a liquidated damages provision or the forfeiture of a deposit)." I think it will be safe.

 

[TexasBob]

My MUCH bigger concern is part one of this guidance that says:
"If you entered into a written binding contract to purchase a new qualifying electric vehicle before August 16, 2022, but do not take possession of the vehicle until on or after August 16, 2022 (for example, because the vehicle has not been delivered), you may claim the EV credit based on the rules that were in effect before August 16, 2022. The final assembly requirement does not apply before August 16, 2022."

Or more specifically what is does NOT say: it calls out the final assembly requirement but nowhere does it talk about the price cap or income cap. Grumble.

 

[pc500]

Well, time to sleep in this for 48 hours and look again after a lawyer has commented.

 

[freshpow]

Rivian contract meets this provision, "and does not limit damages to a specified amount (for example, by use of a liquidated damages provision or the forfeiture of a deposit)." I think it will be safe.

How do you figure? The damages are limited to $100 in the form of a non-refundable deposit (forfeiture of a deposit). What am I missing?

 

[Matty J]

Interesting... https://www.reuters.com/business/au...l-get-ev-credits-through-end-2022-2022-08-16/

The IRS said "if a customer has made a non-refundable deposit or down payment of 5% of the total contract price, it is an indication of a binding contract."

It would be a real shame to now miss out on the credit if they do not deliver our R1S after waiting over 4 years. Window is Oct/Dec, but still suffering from PTSD from previous delays.

 

[Taycanfrank]

My above post is from a very well recognized CPA who owns his own (very successful) firm.

IRS guidance means nothing. What matters is what your state of purchase says regarding a binding contract. IRS can issue guidance but they don't get to actually decide.

Depending on Rivians method it's either your state or Illinois that matters. Illinois we're in the clear, as it just requires the binding act (ie.. nonrefundable deposit) without specifications on amount, check for your state.

This is *not* a new thing, this is an existing tax loophole with binding contracts and tax obligation dates. We're not waiting on a ruling or something, it already exists. EV credit just falls under it.

 

[protamine]

Im not a lawyer, in fact a doctor, so worse. I take it as a contract in place OR a 5% or more downpayment without written contract.

 

[jollyroger]

According to the Reuters article it seems like the interpretation is that the downpayment is either 5% or you have a contract, but if there are states that require a VIN, I'm not sure what we do then

The IRS said "if a customer has made a non-refundable deposit or down payment of 5% of the total contract price, it is an indication of a binding contract."

https://www.reuters.com/business/au...l-get-ev-credits-through-end-2022-2022-08-16/

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