IRS Revenue Procedure
2002-42

Code Secs. 30, 50, 179, 179A

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26 CFR 601.105: Examination of returns and claims for refund, credit, or
abatement; determination of correct tax liability.
(Also Part I, sections 30, 50, 179, 179A.)


REV. PROC. 2002-42

SECTION 1. PURPOSE

This revenue procedure sets forth a process that allows taxpayers who
purchase certain clean-fuel vehicle property to rely on a manufacturer's
certification of the incremental cost of the property for purposes of the
clean-fuel vehicle property deduction provided in section 179A of the
Internal Revenue Code. This revenue procedure applies to motor vehicles
(other than buses, and trucks and vans with a gross vehicle weight rating
greater than 10,000 pounds) that are propelled by both a gasoline internal
combustion engine and an electric motor that is recharged as the motor
vehicles operate (hybrid vehicles) and that otherwise meet the
requirements of section 179A.


SECTION 2. BACKGROUND

.01 IN GENERAL. Section 179A allows a deduction for certain costs of
"qualified clean-fuel vehicle property" for the tax year in which the
property is placed in service. In the case of hybrid vehicles, only the
incremental cost of permitting the use of the clean-burning fuel
(electricity) can be taken into account when determining the allowable
deduction under section 179A.

The Internal Revenue Service has received numerous inquiries from
taxpayers concerning the determination of the incremental cost for
specific hybrid vehicles for purposes of section 179A. This revenue
procedure sets forth a process allowing a taxpayer who purchases a hybrid
vehicle to rely on the original equipment manufacturer's (or, in the case
of a foreign original equipment manufacturer, its domestic distributor's)
certification of the incremental cost of the property for purposes of
section 179A.

.02 QUALIFYING MOTOR VEHICLES. This revenue procedure applies only to
motor vehicles that meet the requirements of section 179A. In order to be
eligible for the deduction under section 179A, a motor vehicle must: (1)
be acquired for use by the taxpayer and not for resale and have its
original use commence with the taxpayer; (2) meet the applicable federal
and state emissions standards with respect to each fuel by which the
vehicle is propelled; (3) be manufactured primarily for use on public
streets, roads, and highways; (4) have at least four wheels; and (5) not
operate exclusively on a rail or rails. Section 179A and this revenue
procedure do not apply to motor vehicles that are primarily powered by
electricity and qualify for the credit provided in section 30 or to motor
vehicles that are used predominantly outside the United States.

.03 DEDUCTION AMOUNT LIMITATIONS. Under section 179A, except in the
case of any truck or van with a gross vehicle weight rating greater than
10,000 pounds or any bus with a seating capacity of at least 20 adults
(not including the driver), the maximum cost that may be taken into
account when determining the deduction is $2,000 for motor vehicles placed
in service on or before December 31, 2003. The $2,000 maximum is reduced
by 25 percent for motor vehicles placed in service in calendar year 2004,
50 percent for motor vehicles placed in service in calendar year 2005, and
75 percent for motor vehicles placed in service in calendar year 2006. No
deduction is allowed for motor vehicles placed in service after December
31, 2006. No deduction is allowed with respect to the portion of the cost
of any property taken into account under section 179.


SECTION 3. PROCEDURE

.01 ORIGINAL EQUIPMENT MANUFACTURER'S CERTIFICATION. An original
equipment manufacturer (or in the case of a foreign original equipment
manufacturer, its domestic distributor) may prepare a certification
concerning the incremental cost of permitting the use of electricity to
propel its vehicles. The certification should contain the following
information:

(1) the name and address of the certifying entity;

(2) the make, model, year, and any other appropriate identifiers of the
motor vehicle; and

(3) a statement disclosing the total per-vehicle cost to acquire and
install the motor vehicle's electric motor and related generating,
storage, and delivery equipment. If the total cost exceeds $2,000, the
statement may so indicate without disclosing the specific amount of the
cost.

The certification should be signed by an officer of the original
equipment manufacturer (or, in the case of a foreign original equipment
manufacturer, an officer of its domestic distributor). This original
signed certification must be sent to the Internal Revenue Service,
Industry Director, Large and Mid-Size Business, Heavy Manufacturing and
Transportation, Metro Park Office Complex -- LMSB, 111 Wood Avenue, South,
Iselin, New Jersey 08830.

.02 INTERNAL REVENUE SERVICE'S ACKNOWLEDGMENT. The Internal Revenue
Service will review the original signed certification and issue an
acknowledgment letter to the original equipment manufacturer (or, in the
case of a foreign original equipment manufacturer, its domestic
distributor). This acknowledgment letter will state whether purchasers may
rely on the certification.

.03 PURCHASER'S RELIANCE. Copies of the certification and
acknowledgment may be made available to purchasers. Except as otherwise
provided in the acknowledgment, a purchaser of a hybrid vehicle may rely
on the certification concerning the incremental cost of permitting the use
of electricity to propel the vehicle.


SECTION 4. DRAFTING INFORMATION

The principal author of this revenue procedure is Jolene J. Shiraishi
of the Office of the Associate Chief Counsel (Passthroughs & Special
Industries). For further information regarding this revenue procedure,
contact Ms. Shiraishi at (202) 622-3120 (not a toll free call).

<<END RULING>>

 

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