Mea culpa - 20% penalty

Technical topics regarding tax preparation.
#1
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I realize I may take some slings and arrows for this, but hopefully any sincere and seasoned advice will offset it.

On a 2019 1040 for some reason I took a $7,500 electric vehicle credit for a USED electric car. This is a very savvy and intelligent client, and in all honesty I believe she provided the invoice just to see if it would fly, knowing the car wasn't eligible. Nevertheless I acknowledge it is completely my fault, and the client received a 20% accuracy-related penalty of $1,500. Looking back I do not know why I would have thought the car qualified, except that I remember reading two sources about the credit, neither of which referred to the requirement that only new vehicles qualify. It also occurred during the initial maelstrom of Covid.

In 30 years of practice I have never had a client receive this penalty so I have no experience trying to get it waived. My due diligence process is probably more thorough than 90% of practitioners and includes a 5-page tax questionnaire. In other words, I am not a careless practitioner by ANY measure. In any event, I've done some reading on the subject to get up to speed, but my primary question at this point is whether requesting abatement of the penalty should be made from the taxpayer's position since it is they who are being assessed, or should it be from me as the tax professional who signed the return? It seems their reliance on me is one of the reasonable care provisions that could be cited in the request for abatement. That strategy may result in a penalty being assessed on me, but I am prepared to address that if it happens.

Any advice on penalty waiver strategy would be appreciated.
 

#2
Nilodop  
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#3
MilesR  
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Yes, TP's penalty. You can try to abate it with the reasonable cause exception. Here's the reg: https://www.law.cornell.edu/cfr/text/26/1.6664-4

Read it thoroughly so you know how to structure your grovelling. If it were 2019 then maybe something about how the laws changed recently with the TCJA and there was confusion. The tax practitioner was confused because it was "actually" bonus depreciation that you could use with a used car, not the EV credit. The new laws caused confusion and it went unnoticed. The TP relied on the advice of the advisor, yada yada.
 

#4
TheGrog  
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How did they even find out? Do EV dealerships report purchases to the IRS?
 

#5
sjrcpa  
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As I recall, you have to list the VIN on the credit form.
The original owner probably took the credit and maybe IRS matches these.
Pure speculation on my part.
 

#6
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If I buy a demo car from the dealer with 5000 miles on it, is that considered "new" for the EV credit?
 

#7
Nilodop  
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And we could add buying a so-called executive car, in which the owner of the dealership uses the car for a few months before selling it.

There seems to be no specific guidance on the question of "what is original use". Just letting the buyer drive it around the block is a "use" but I doubt that disqualifies the car for the credit. And as long as the car has not een "placed in service" before I buy it, I am the original user.

There is guidance on when it is "acquired" but that's not really on point.

And there are 3 identical adverse PLRs (202219006,7,8) on original use involving title, leasing, regarded and disregarded entities, but they don't specifically answer the question you raise. However, they do contain this encouraging language:

For a taxpayer to obtain this credit, § 30(d)(1)(A) requires that the “original use” of the qualifying vehicle commence with that taxpayer. Actions that constitute or are consistent with “original use” are not delineated in the statute or accompanying guidance. First, we look to the acquisition of the electric vehicles. Next, we look to the original use, when the vehicles were originally placed in service by being made available for lease.


They seem to equate "placed in service" with "original use". That makes sense and would be my conclusion for a demo car, and maybe evn the exec car, but I'm less comfortable with that one.
 

#8
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sjrcpa wrote:As I recall, you have to list the VIN on the credit form.
The original owner probably took the credit and maybe IRS matches these.
Pure speculation on my part.


Pure speculation on my part too, but I agree. Further, you would think the matching would be done as part of the e-file acceptance process. "The credit for this vehicle has already been claimed on another tax return." Well, it's nice to dream.
 

#9
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MilesR wrote:Yes, TP's penalty. You can try to abate it with the reasonable cause exception. Here's the reg: https://www.law.cornell.edu/cfr/text/26/1.6664-4

Read it thoroughly so you know how to structure your grovelling. If it were 2019 then maybe something about how the laws changed recently with the TCJA and there was confusion. The tax practitioner was confused because it was "actually" bonus depreciation that you could use with a used car, not the EV credit. The new laws caused confusion and it went unnoticed. The TP relied on the advice of the advisor, yada yada.


Good info, thank you. Wonder if the following might be the place to start....requesting a copy of the written supervisor approval.

Under Sec. 6751(b)(1), accuracy-related penalties must be "personally approved (in writing) by the immediate supervisor of the individual making such determination" before the first formal communication of the penalties to the taxpayer (Graev, 149 T.C. 485 (2017)).
 

#10
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Nilodop wrote:And we could add buying a so-called executive car, in which the owner of the dealership uses the car for a few months before selling it.

There seems to be no specific guidance on the question of "what is original use". Just letting the buyer drive it around the block is a "use" but I doubt that disqualifies the car for the credit. And as long as the car has not een "placed in service" before I buy it, I am the original user.

There is guidance on when it is "acquired" but that's not really on point.

And there are 3 identical adverse PLRs (202219006,7,8) on original use involving title, leasing, regarded and disregarded entities, but they don't specifically answer the question you raise. However, they do contain this encouraging language:

For a taxpayer to obtain this credit, § 30(d)(1)(A) requires that the “original use” of the qualifying vehicle commence with that taxpayer. Actions that constitute or are consistent with “original use” are not delineated in the statute or accompanying guidance. First, we look to the acquisition of the electric vehicles. Next, we look to the original use, when the vehicles were originally placed in service by being made available for lease.


They seem to equate "placed in service" with "original use". That makes sense and would be my conclusion for a demo car, and maybe evn the exec car, but I'm less comfortable with that one.


My brother, who is knowledgable in auto dealerships, told me that demos are considered new car sales under state law. Presumably under most state lemon laws.
 


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