Got IRS notice. Possible discrepancy on 8936, qualified plug-in electric drive motor vehicle credit

[sf_wind]

Hello,

I got an IRS notice (CP10) for my 2019 return, which adjusted the amount of refund. In the notice, IRS calculates the AGI, taxible income, and total payments the same as turbotax. However, the total tax calculation is different. 

After digging into the difference a bit more, I find that the difference amount is exactly the Part III of 8936, the credit for the personal use part of the vehicle. 

Basically I purchased a Tesla 3 in March of 2019. The total credit for the car is $3750. Since I have a self-employed business (sole proprietor) and I use the car partially for the business, the credit is split between the business use and personal use based on the mileage (I use standard milage method in business).

The IRS considered the business portion of the credit but did not take into account of the personal portion of the credit. I understand that the credit cannot reduce my tax liability to be below zero. And that is not my case, I pay a lot of tax. I have read the instructions for 8936 carefully and I could not find anywhere saying that the personal portion of the credit could not be applied. 

This really confuses me. Obviously turbotax accounts both portions of the credit. The questionnaire is straightforward enough that I don’t see any red flag. 

Can you please help me figuring out the issue? Or it could be a mistake on the IRS side? 

Thanks a lot!

btw, I tried to call IRS phone a number of times, but I simply could not get through, so I could not get any details on how they performed the calculation...

[Mike9241]

the portion of the credit attributable to business use is limited to the following

(c)Limitation based on amount of tax
(1)In general
The credit allowed under shall not exceed the excess (if any) of the taxpayer’s net income tax over the greater of—
(A)the tentative minimum tax for the taxable year, or
(B)25 percent of so much of the taxpayer’s net regular tax liability as exceeds $25,000.
For purposes of the preceding sentence, the term “net income tax” means the sum of the regular tax liability and the tax imposed by section 55, reduced by the credits allowable under subparts A and B of this part, and the term “net regular tax liability” means the regular tax liability reduced by the sum of the credits allowable under subparts A and B of this part.

The business portion of the EV credit under IRC 30D then tuns to IRC 38(b) as limited by 38(c) above 

of course the IRS could have made a mistake.

you options

keep calling 

make an appointment to visit a local IRS office to go over the issue

[sf_wind]

Thanks for your info. I got the transcript from IRS, and it did turn out that IRS did not account the personal portion of the electric vehicle credit. 

I do not pay AMT. I followed the instructions in 8936, but could not find anywhere that this personal portion should not be applied. 

Any idea why the personal portion of the credit is lost? 

Thanks a lot

[AmyC]

The IRS is encouraging business. The directions for the form use business language throughout and has a section explaining the business versus personal use. The personal portion is lost. See ​​​​​​​Instructions for Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit.

[sf_wind]

Thanks for your explanation. I have read the instructions several times, but I cannot find where it says that the personal portion is lost. Instead, I find:

"The credit attributable to depreciable property (vehicles used for business or investment purposes) is treated as a general business credit. Any credit not attributable to depreciable property is treated as a personal credit."

Can you please paste the text where you read that the personal portion is lost? 

Thanks a lot!

[AmyC]

The bottom right on page 2 says:

If during the tax year you convert property used solely for personal purposes to business/investment use (or vice versa), figure the percentage of business/investment use only for the number of months you use the property in your business or for the production of income. Multiply that percentage by the number of months you use the property in your business or for the production of income and divide the result by 12. For example, if you converted a vehicle to 50% business use for the last 6 months of the year, you would enter 25% on line 5 (50% multiplied by 6 divided by 12).

Only business use time and percentages count towards the credit.

[sf_wind]

Thanks for your reply. 

However, I don't think that means only counting the business use. It just means if the property is converted to business use, the business percentage is only calculated based on usage of  the property for the whole year.

I didn't hit that situation though. The vehicle is used partially for personal use and partially for business use throughout the year. 

It doesn't say that the personal credit is lost. The remaining credit is carried on in line 15 of 8936, and calculated in line 15-23. 

What do you think? 

[PattiF]

The IRS instructions for Form 8936 state on the instructions for Line 5 to enter the personal and business percentages of the vehicle use. The Instructions for Line 23 discuss that

 there may be a personal portion of the credit. As long as you had a tax liability, the credit for personal use of the vehicle should have been on the tax return. It would seem that the IRS may have made an error in this case.

Instructions for Form 8936

[dvsimula]

How is the business portion of the Form 8936 EV Tax Credit carried-forward on Form 3800 (Part III, Box C checked)?  TurboTax (2020 H&B) incorrectly(?) populates the carryover (~$3800) on Line 1z, and I cannot figure out how to enter the correct value on Line 1y. 

Because the value is auto-populated on Line 1z, TurboTax REJECTS E-filing and says that paper-filing is required.  Override gets rejected as well.  Help?

This thread is relevant to my previous message (and the contributors seem very knowledgeable), so I'll mention it here as my string ("E-filing rejected for carryforward Form 8936 EV tax credits") does not appear to be getting anyone's attention.  Thanks in advance.  

[ach24]

Hi,

Were you able to resolve the issue in the end? If so, could you share how resolved it?

I ran into the same issue where they didn't take into account my F8936, resulting in a balance owe on my account. I made a few calls to the IRS, and they told me they were only able to locate part 1 of the F8936 in their system (which is really weird because part 1 and part 2 are on the same page), so the system didn't take that into calculation.

Thanks!

[sf_wind]

No, I have not resolved the issue. I sent my explanation to IRS and they have received it. But I have not heard from them since. Planning to call them to find out the status later. 

[ach24]

@sf Thanks for the reply!

I see, do you mind sharing when you mailed your explanation to the IRS? I just want to get a sense of how long it will take for them to respond.

I mailed in my request for the adjustment today with supporting documents showing that I fully qualify for the credit, so hoping that it can get resolved soon too.

By the way, I was also able to make a call to their Balance Due department and they were able to extend the payment due date to 6 months later as they are aware that I am trying to dispute it.

Thanks,

Allen

[sf_wind]

I mailed in Feb. :(

Maybe I should call them to find out what happened. There phone line was notoriously difficult to get through... 

[ach24]

I see... yeah that's a long time... did you get a notice from them when they received your letter?

[sf_wind]

No, I ordered signature confirmation from USPS.