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IRS Guidance On Binding Agreement

Autolycus

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ICE only :(
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.
Funny how the words "and" and "or" can mean completely opposite things based on other context.
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JerseyGreens

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If it comes down to states - I'm fine in NJ.

Consideration:
Consideration is something of value. Thus for there to be a sufficient exchange of consideration, something of value must be bargained for.

Consideration can be a benefit to one party or loss of a benefit to the other party. Its actual value in money terms is not important. But each party must have given or promised something of value to the other party.

Where the contract provides for an exchange of promises, each promise is consideration for the other promise.
 

freshpow

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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




https://www.reuters.com/business/au...l-get-ev-credits-through-end-2022-2022-08-16/
I don’t think that’s the correct interpretation. In order for it to be considered a binding contract in the eyes of the IRS, the non-refundable deposit has to be 5% of the total contract price or the down payment has to be 5% of the total contract price.

I’ll choose to trust @taycanfrank’s CPA and hope we’re covered by state laws regarding binding contracts. Thankfully, I have a long wait still to go so won’t have to be the guinea pig on this one.
 

kylealden

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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?
They're not - you've still signed a binding contract to purchase a vehicle. Theoretically (I am not a lawyer etc.) Rivian could sue you to force you to fulfill your obligation. (The practical chances of that happening are, not a lawyer, zero.)
 

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I don’t think that’s the correct interpretation. In order for it to be considered a binding contract in the eyes of the IRS, the non-refundable deposit has to be 5% of the total contract price or the down payment has to be 5% of the total contract price.
Edit: Below post may not be accurate, there is a regulation and IRS notice that define a written binding contract. See posts below.

I disagree. The 5% is a safe harbor which is common with the IRS in many instances. Just because the safe harbor isn’t met doesn’t mean it won’t qualify.
 
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Aag12

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Anyone know how you can search your state rules?

Also, does signing an actual Pba make a difference in any of this? Guide sent me a Pba a day before Tony sent the other esign letter
 

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We already have the legal opinion of the tax attorneys who created the binding contract we signed. "An attorney" doesn't know shit about tax law. I have big law corporate attorneys in my immediate family who would need to have a tax partner in their firms review the contract to give an option.

But I'm not going to ask them because I have the opinion of the big law partner harvard educated Rivian G.C. who has already consulted a tax partner at probably Cooley, her old firm.

JR didn't whip up the contract using an online legal guide. Tax lawyers and CPAs who do a lot of taxes are the experts. Neither are casual about getting it right.
 
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anyone know the specifics in California law for a "binding contract" ?
 

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We already have the legal opinion of the tax attorneys who created the binding contract we signed. "An attorney" doesn't know shit about tax law. I have big law corporate attorneys in my immediate family who would need to have a tax partner in their firms review the contract to give an option.

But I'm not going to ask them because I have the opinion of the big law partner harvard educated Rivian G.C. who has already consulted a tax partner at probably Cooley, her old firm.

JR didn't whip up the contract using an online legal guide. Tax lawyers and CPAs who do a lot of taxes are the experts. Neither are casual about getting it right.
4. Disclaimer of Tax Eligibility. Rivian cannot guarantee that you will be eligible for any tax credits because you signed this Agreement. You are responsible for your own personal tax situation and determination of eligibility for credits and incentives for Federal, State, and Local taxes. Rivian does not guarantee the actions or determinations of the Internal Revenue Service or any other tax authority, and Rivian is under no obligation to defend you in disputes with any tax authority. Rivian makes no representations under this Agreement as to pending or future legislation.
 

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For those who live in non direct sales states, is the contract under Illinois law or the state of the buyer?
 

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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.
Your CPA is my kind of CPA. I'd like to send the IRS to them if I have any trouble. :)
 

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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.
I think you are right. But heck yeah, I'm an engineer so what do I know! The text to me seems to imply if there is ever a dispute about what constitutes a binding contract, a downpayment of 5% or more for sure will make it binding from tax purpose (but if there is no dispute at the state level then anything they say is, is)
 
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pc500

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If it comes down to states - I'm fine in NJ.

Consideration:
Consideration is something of value. Thus for there to be a sufficient exchange of consideration, something of value must be bargained for.

Consideration can be a benefit to one party or loss of a benefit to the other party. Its actual value in money terms is not important. But each party must have given or promised something of value to the other party.

Where the contract provides for an exchange of promises, each promise is consideration for the other promise.
But does it? Is Rivian a licensed dealer in your state? Is it an Illinois contract?
 

JerseyGreens

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But does it? Is Rivian a licensed dealer in your state? Is it an Illinois contract?
Rivian is not a licensed dealer in NJ (if I recall correctly).

I think we are mixing up too many thoughts on this thread.

IRS posted "guidance" - it brings up State law within said guidance. Plus we have someone who has a dear friend who is a big time CPA on this thread saying it comes down to state law...

I'm not giving this much more thought. I'm 99% certain I'll get the credit.
 

McMoo

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The IRS is using this regulation below related to bonus depreciation to define a written binding contract.

Requirement 1: Enforceable under state law
Requirement 2: Does not limit damages to a specified amount (see exception below)

Exception to Requirement 2: If damages are limited to more than 5% of the purchase price, the contract is not considered to limit damages to a specified amount.

The IRS also issued Notice 2013-29 related to other energy credits that has the same rules.

https://www.irs.gov/pub/irs-drop/n-13-29.pdf

https://www.law.cornell.edu/cfr/text/26/1.168(k)-1#b_4_ii

(ii) Definition of binding contract -

(A) In general. A contract is binding only if it is enforceable under State law against the taxpayer or a predecessor, and does not limit damages to a specified amount (for example, by use of a liquidated damages provision). For this purpose, a contractual provision that limits damages to an amount equal to at least 5 percent of the total contract price will not be treated as limiting damages to a specified amount. In determining whether a contract limits damages, the fact that there may be little or no damages because the contract price does not significantly differ from fair market value will not be taken into account. For example, if a taxpayer entered into an irrevocable written contract to purchase an asset for $100 and the contract contained no provision for liquidated damages, the contract is considered binding notwithstanding the fact that the asset had a fair market value of $99 and under local law the seller would only recover the difference in the event the purchaser failed to perform. If the contract provided for a full refund of the purchase price in lieu of any damages allowable by law in the event of breach or cancellation, the contract is not considered binding.

(B) Conditions. A contract is binding even if subject to a condition, as long as the condition is not within the control of either party or a predecessor. A contract will continue to be binding if the parties make insubstantial changes in its terms and conditions or because any term is to be determined by a standard beyond the control of either party. A contract that imposes significant obligations on the taxpayer or a predecessor will be treated as binding notwithstanding the fact that certain terms remain to be negotiated by the parties to the contract.

(C) Options. An option to either acquire or sell property is not a binding contract.
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