March 12, 2021 ABA Tax Times

The Incompetent Authority: Questions and Answers

By Andy Howlett, Miller & Chevalier, Washington, DC; and Guinevere Moore, Moore Tax Law Group, LLC, Chicago, IL

The Incompetent Authority: Questions and Answers, provides some useful responses to your questions about the mysteries of the tax profession, including tax career, business of tax, tax ethics, and other burning tax questions. If we don’t know the answer, we know who to ask. And we hope to offer the answer with a touch of humor. Of course, the standard disclaimer applies: this column does not dispense individualized tax advice, but merely presents the considered views of the writers about tax topics of general interest to the readers.

Andy Howlett is a member at the law firm of Miller & Chevalier in Washington D.C. He focuses his practice on tax planning and helps his clients understand and plan for the federal tax consequences of a wide range of transaction. He is married with two children, all of which made sense from a tax perspective at the time.

Guinevere Moore is the Managing Member of Moore Tax Law Group, LLC in Chicago. She’s worked at big shops (both accounting and law firms) but has found true tax bliss at her four lawyer firm. She is married with four children, all of whom are still young enough to want to spend time with her. Her favorite section of the Internal Revenue Code is § 7430. Obviously.

Dear Incompetent Authority,

Should I get an electric car? I keep hearing about tax incentives for doing so, but I’m having trouble making sense of them. Some electric cars seem to be eligible for the incentives, but others do not. Are the incentives expiring? Help!

– Life in the Fast Lane

Dear Fast Lane:

Like all major decisions in life (marriage, home purchases, having children), what vehicle to buy is primarily a tax-motivated question. KIDDING! Of course, there are lots of considerations. But your question allows us to delve into the exciting, complicated world of tax incentives for electric vehicles.

For four-wheeled electric vehicles—and let’s not even go there for vehicles with fewer than four wheels—the primary federal incentive is the nonrefundable income tax credit of section 30D(a). That provision provides a credit ranging from $2,500 to $7,500 for the purchase of any “new qualified plug-in electric drive motor vehicle,” a term of art to be sure, but one that the IRS has happily clarified by providing a list of vehicles that are eligible. In general, the amount of the credit is based on the battery capacity: the credit increases by $417 for each kilowatt hour in excess of 5 kilowatt hours, up to a maximum of $7,500. The IRS website linked earlier in this paragraph will tell you the amount of the credit for which each new electric vehicle is eligible.

Section 30D(c) explicitly makes the credit nonrefundable, so even if the chosen vehicle is eligible for the full $7,500, a taxpayer will only receive that benefit to the extent he or she (or a married couple together) has federal income tax liability that exceeds $7,500. Any excess (unused) credit cannot be carried forward, so some planning may be prudent if you are considering buying a car late in the year (e.g., delaying end-of-year charitable deductions from December 31 to January 1 to ensure sufficient 2022 taxable income and tax).

Depending on the car you want, it may be advisable to run rather than walk. Unlike many tax incentives, the section 30D credit for four-wheeled electric vehicles isn’t an “extender” that’s subject to temporal expiration and renewal (sometimes after the fact) by Congress. But it does have its own, somewhat quirky, built-in expiration provision: the credit phases out on a per-manufacturer basis. The phase-out begins on the second calendar quarter after the calendar quarter in which a given manufacturer has sold 200,000 electric vehicles, starting at 50 percent of the credit (for two quarters) and then increasing to 75 percent of the credit (for the following quarter). After that, the credit is gone for electric vehicles produced by that manufacturer.

This means if you want a Tesla or Chevy Bolt, you’re out of luck. Well, not really—you can still buy those cars, but they won’t be eligible for the credit. The IRS tracks quarterly and aggregate manufacturer electric vehicle sales for Ford, Mercedes and BMW on its website. Ford and BMW cleared 100,000 electric vehicles as of June 30, 2020. Other manufacturers likely will follow soon. Of course, the astute consumer (and reader of this column) knows that there’s a one quarter grace period between hitting the 200,000 threshold and the phase-out beginning. Nevertheless, given reporting delays, consumers looking to acquire one of the most popular EV brands may want to move quickly.

What about other incentives? In 2021, these are found primarily at the state level, and they vary—in some cases dramatically—from state to state. For example, the District of Columbia (the location of ½ of Incompetent Authority headquarters) offers a credit for 50 percent of the equipment and labor costs for the purchase and installation of a home electric vehicle charging station, along with reduced registration fees and a sales tax exception for electric vehicles. Some states—like Colorado and California—also offer a rebate for purchasing an electric vehicle. While for most it won’t be worth moving to a new jurisdiction to get the best deal, the U.S. Department of Energy maintains a fairly comprehensive and up-to-date database of the various state incentives.

Happy driving, Fast Lane. Just don’t drive too fast or too far—you might run down the battery.

Want to see your questions about the mysteries of the tax profession, including tax career, business of tax, tax ethics, and other burning tax questions answered by The Incompetent Authority? Readers may submit questions anonymously for a future The Incompetent Authority column through our Submission Portal.

Dear Incompetent Authority,

To what does The Incompetent Authority allude? I hope it is not the Competent Authority in the IRS.

            – Anonymous

Dear Anonymous:

To go through the founding of the Incompetent Authority would spill so much ink as to make the Federalist Papers look like a haiku. Many of the decisions about this column’s establishment are lost to the status of myth now, but I can tell you from a long night in the National Archives (where the founding documents of Incompetent Authority are stored in a secure and climate-controlled environment) that the original impetus for the column may be lost to the sands of time.

Nevertheless, here’s what we were able to piece together. Article 3, paragraph 1(f) of the 2017 OECD Model Convention on the Taxation of Income and Capital defines “competent authority” as follows:

f) the term “competent authority” means:
(i) (in State A): .................................
(ii) (in State B): ................................

Under Article 25 of Convention, where a person considers that the actions of one or both of the Contracting States will result for him or her in taxation not in accordance with the provisions of the Convention, he or she may present his or her case to the competent authority of either state. The competent authority may resolve the case by mutual agreement with the competent authority of the other contracting state. So, it seems from this context that the term “competent authority” may well indeed have been intended to refer to the IRS or to the taxing authority of another state.

What’s more, the prefix “in” means “not, opposite, without,” from the Latin in cognate with the Old French and Middle English en-. In the case of the word “competent,” the addition of the prefix “in” simply means “without competence” or “lacking competence.”

Synthesizing these two strands of authority, it seems to us that the founders intended the title to be a gentle pun on the long-standing tax concept of a “competent authority,” appropriate for a column that—sometimes irreverently—provides advice and items of interest to tax practitioners. If that’s right, then we can take solace that the vision of the originator of this column—dearly departed for greener pastures though he may be—lives on quarterly installments. Long may it endure, and thank you for your question.

Dear Incompetent Authority,

I’ve been working from home since March in my small apartment with my spouse and my kids. My office will be closed at least through summer. I can’t believe I’m saying this, but I miss going to the office. I miss my colleagues. I miss going places. I feel like I’m missing out on professional opportunities because I haven’t seen anyone in a long time. I have young kids who are home as well, and there’s no good solution for childcare. I know I’m lucky to have a home, a job, food, and I feel like I have no right to complain.

            – Venting

Dear Venting:

We at the Incompetent Authority feel your pain. Between us we have about 100 children—or at least it feels like that when trying to juggle everything that they need, our clients need, our colleagues need, and not to mention what we need. This has been one of the most difficult stretches of isolation any of us have felt. This situation—there’s just no other way to say it—totally and completely sucks.

You are allowed to be upset and feel trapped, and you’d be lying to yourself if you pretended like you didn’t feel that way. Yes, you are lucky to have a job, a home, food on the table. You can acknowledge and feel grateful for that and also feel lonely, trapped, and frustrated.

One thing being tax lawyers has taught us is that things that might feel or seem mutually exclusive are not. You can be both sad and frustrated and also grateful. You can be both someone who gets a really disturbing amount of enjoyment from formatting an excel spreadsheet and also from kicking butt in the courtroom.

The lesson we’ve taken away from this time—apart from the lesson that if in fact we “don’t count” calories during a pandemic then nothing in the closet will fit when we return to the office—is that it is ok to be both. Both enjoying the extra time with our kids and also super frustrated by all of the difficulties that poses. Both enjoying the time away from our colleagues and missing happy hour with them.

There’s no “answer” to your problem, but the advice we offer is this: allow yourself to not be perfect. Tell your kids when you need a break. Tell your colleagues when you need a break. Take a walk around the block, a deep breath, and maybe even scream.

Sometimes just accepting that things are outside of our control helps us feel better, and we hope it will for you, too.