[cruzer666]

Originally Posted by bavarianride

If binding contract has no damage/no non-refundable deposit of a certain amount(e.g. at least 5% as required by IRS), the taxpayer has not demonstrated commitment.

If you're talking about Plug-In Electric Drive Vehicle Credit (IRC 30D), nowhere in that document it says you need to have at least 5% to make the contract binding.

They're saying a 5% deposit is an "indication" of a binding contract, not a "requirement".

The document also references the term "in general" which means the references that follow do not apply to all scenarios, just most scenarios.

Hopefully a tax software interview will be more clear.

[bavarianride]

Originally Posted by cruzer666

If you're talking about Plug-In Electric Drive Vehicle Credit (IRC 30D), nowhere in that document it says you need to have at least 5% to make the contract binding.

They're saying a 5% deposit is an "indication" of a binding contract, not a "requirement".

The document also references the term "in general" which means the references that follow do not apply to all scenarios, just most scenarios.

Hopefully a tax software interview will be more clear.

Yes the IRS and turbotax folks should be hard at work on this.

[bavarianride]

Originally Posted by cruzer666

If you're talking about Plug-In Electric Drive Vehicle Credit (IRC 30D), nowhere in that document it says you need to have at least 5% to make the contract binding.

They're saying a 5% deposit is an "indication" of a binding contract, not a "requirement".

The document also references the term "in general" which means the references that follow do not apply to all scenarios, just most scenarios.

I think the examples of 2013-29 are great reads to clarify what is the 5%, which effectively is the safe harbor rule.

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

Honestly, "does not limit damages to specific amount" reads to me as "damages are required, but cannot be specific dollar amount".

And if it is a % damage, that % cannot be less than 5% to satisfy safe harbor.

So my interpretation is(and please ignore as u like):

1. if the contract has no damage(e.g. any amount or % of refundable deposit is no damage), it will not be binding
2. if the contract has specific damage amount(even $0.01), it will not be binding
3. if the contract has less than 5% of damage(which includes pay up to 5% so far), it will not be blinding

And "in general" and "most scenarios" likely refer to 99%+ of the cases to IRS.

E.g. 2013-29 lists an example of a project that costs $600k, but the taxpayer only pays $25k so far when they claim the clean energy credit. Since the clean energy components(e.g. turbines?) cost $480k, the taxpayer qualifies since $25k is more than 5% of $480k to satisfy safe harbor. That is the "non-general" scenario to IRS.

[cruzer666]

Originally Posted by bavarianride

And "in general" and "most scenarios" likely refer to 99%+ of the cases as far as IRS is concerned.

It is loosely worded at this point, there's a good chance that will change. "In general" gives room for interpretation of the auditor and/or the lawyer involved. This may all be a moot point if this language is clarified.

As it stands now, I will be claiming the credit, come tax time as there are no definitive terms/requirement for the 5% deposit.

[Raille]

Originally Posted by cruzer666

It is loosely worded at this point, there's a good chance that will change. "In general" gives room for interpretation of the auditor and/or the lawyer involved. This may all be a moot point if this language is clarified.

As it stands now, I will be claiming the credit, come tax time as there are no definitive terms/requirement for the 5% deposit.

I have heard there will be some more specific guidance. Currently I've researched some backup options of cheaper EVs, but am holding onto my i4 order as well for the mean time.

[bavarianride]

Originally Posted by cruzer666

It is loosely worded at this point, there's a good chance that will change. "In general" gives room for interpretation of the auditor and/or the lawyer involved. This may all be a moot point if this language is clarified.

As it stands now, I will be claiming the credit, come tax time as there are no definitive terms/requirement for the 5% deposit.

Makes sense.

I think IRS just quickly copied 2013-29 over to the latest update, hopefully IRS will add extra examples to clarify(just like 2013-29), plus clears up if 5% safe harbor is needed or not.

[bavarianride]

Originally Posted by jayp98

In contract law nothing is "required" it's all up for interpretation and must be defended using laws set in stone and not general statements such as the one the IRS put out. In my hypothetic, I am just saying the binding contract they require is to purchase the vehicle.

IRS statement is not general, it is specific to clean energy credit language as described in Section 1603 and 2013-29. Some misinterprets written binding contract's "does not limit damage to a specific amount" as the same as "no deposit is required", that is totally false and misleading.

IRS actually says written binding contract requires damage(non-refundable deposit qualifies as damage), but it cannot be specific (dollar) amount. But how do u specify damage without specify the (dollar) amount(is it unlimited damage?)? IRS then clarifies you can use %, but must be at least 5% to be treated as not limiting.

Do read up 2013-29 and written binding contract and 5% safe harbor, it should provide the context of this (convoluted) language.

[TurtleBoy]

Originally Posted by bavarianride

IRS statement is not general, it is specific to clean energy credit language as described in Section 1603 and 2013-29. Some misinterprets written binding contract's "does not limit damage to a specific amount" as the same as "no deposit is required", that is totally false and misleading.

IRS actually says written binding contract requires damage(non-refundable deposit qualifies as damage), but it cannot be specific (dollar) amount. But how do u specify damage without specify the (dollar) amount(is it unlimited damage?)? IRS then clarifies you can use %, but must be at least 5% to be treated as not limiting.

Do read up 2013-29 and written binding contract and 5% safe harbor, it should provide the context of this (convoluted) language.

I turn off the ignore function in hopes you finally realized what the definition of the binding contract was and I see you are still posting this nonsense. By the lack of response I take it people realize to ignore your mis-interpretation. The IRS guidance this week and in 2013-29 (2013-19 was the original that had no 5% clause in it. https://www.irs.gov/pub/irs-drop/n-13-29.pdf ) is very clear in that a deposit in not required in order for a contract to be considered binding.

A deposit of 5% is only required when the contract limits the damages to a specified amount. In that case the IRS does not consider it to be binding unless the specified damage is at least 5%

Written contracts that do not limit damages to a specified amount are considered binding by the IRS if it is enforceable by state law.

As noted in 2013-29: For additional guidance regarding the definition of a binding contract, see § 1.168(k)-1(b)(4)(ii)(A)-(D).

This section includes:

(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.

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

In looking at the history of 2013-19, as stated above, the written binding contract did not have an exception for contracts with specific amounts (liquidated damages) which was something they have never done before and eliminated many from qualifying. In order to rectify that and have contracts with specific amounts included, they issued an updated notice saying that there is an exception to the specific limits rules if the specific amount is at least 5% of the total contract amount.

From one of quite a few articles at the time:

As we originally noted, the IRS guidance issued April 15 regarding the "start of construction" requirement for energy projects to qualify for PTC or ITC contained a "big surprise" regarding its definition of a binding contract. Unlike previous incentive programs, the guidance provided that contracts that limit damages to a specified amount, such as by use of a liquidated damages provision, would not be treated as “binding”. Only binding written contracts for work performed on behalf of the taxpayer are taken into account for purposes of satisfying the test for significant physical work.

Following questions about the definition, the IRS has now issued an updated version (PDF) of its Notice 2013-29.

Section 4, Physical Work, paragraph 4.03(1), originally read: “(1) Binding written contract. A contract is binding only if it is enforceable under local 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).”

The revised Notice incorporates by reference the same 5% liquidated damages threshold that was used in the previous bonus depreciation regulations by adding the following text: “… For this purpose, a contractual provision that limits damages to an amount equal to at least five percent of the total contract price will not be treated as limiting damages to a specified amount. For additional guidance regarding the definition of a binding contract, see § 1.168(k)-1(b)(4)(ii)(A)-(D).”

https://www.lexology.com/library/det...d-5d4fb7a8d664

Hopefully this time you will actually take the time to read and digest the material presented.

[bavarianride]

Where exactly is the ignore button?

All along 2013-19 and 2013-29 talk about damage, not deposit(but u keep throwing deposit into the discussion).

Non-refundable deposit is one type of damage.

The below paragraph says a binding contract does not limit damage(not deposit), and seller can reclaim the difference of FMV and contract price when buyer fails to perform.

This mean the buyer's commitment in this binding contract is the contract price(100%) when this is no liquidated damages provision per 2013-19. That 100% commitment becomes real damage upon non-performance.

2013-29 then enhances 2013-19 and allows at least 5% damage to align to Section 1603's 5% safe harbor.

Your point is that a binding contract does not need deposit.

My point is that a binding contract has 100% damage with no liquidated damages provision, or at least 5% damage(e.g. 5% non-refundable deposit) with liquidated damages provision.

So if someone sign a piece of paper that says "I agree to buy a i4 M50 for $80k", what proof does IRS want to see?

Again, IRS wants u to show commitment in order to claim the binding clause, so IRS's guidance asks u to show 5% damage upfront to align to 2013-29.

If you want to use 2013-19, I will expect IRS to ask for 100% damage upfront, and the auditors will look for those.

Those are my interpretations.

Originally Posted by TurtleBoy

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.

[TurtleBoy]

Originally Posted by bavarianride

Where exactly is the ignore button?

All along 2013-19 and 2013-29 talk about damage, not deposit(but u keep throwing deposit into the discussion).

Non-refundable deposit is one type of damage.

The below paragraph says a binding contract does not limit damage(not deposit), and seller can reclaim the difference of FMV and contract price when buyer fails to perform.

This mean the buyer's commitment in this binding contract is the contract price(100%) when this is no liquidated damages provision per 2013-19. That 100% commitment becomes real damage upon non-performance.

2013-29 then enhances 2013-19 and allows at least 5% damage to align to Section 1603's 5% safe harbor.

Your point is that a binding contract does not need deposit.

My point is that a binding contract has 100% damage with no liquidated damages provision, or at least 5% damage(e.g. 5% non-refundable deposit) with liquidated damages provision.

So if someone sign a piece of paper that says "I agree to buy a i4 M50 for $80k", what proof does IRS want to see?

Again, IRS wants u to show commitment in order to claim the binding clause, so IRS's guidance asks u to show 5% damage upfront to align to 2013-29.

If you want to use 2013-19, I will expect IRS to ask for 100% damage upfront, and the auditors will look for those.

Those are my interpretations.

As the old saying goes, you can lead a horse to water but you can't make them drink.

You would be an excellent fiction writer as well as a tap dancer. Constantly changes little things to try and make yourself more believable and closer to being correct. Most adults on here just admit when they are wrong though and move on.

The ignore list under your settings. Here is my updated one.

[bavarianride]

Originally Posted by TurtleBoy

Most adults on here just admit when they are wrong though and move on.

U focus on a tree and miss the forest. You can learn from that.

Originally Posted by TurtleBoy

The ignore list under your settings. Here is my updated one.

Very cool, and do make sure not to toggle that off again.

[spool twice]

so i take it as this law is still up for interpretation I see?

[TurtleBoy]

Originally Posted by spool twice

so i take it as this law is still up for interpretation I see?

Not really, the credit requirements and associated rules are pretty clear.

[spool twice]

Originally Posted by TurtleBoy

Not really, the credit requirements and associated rules are pretty clear.

Gotcha, I think what is throwing me for the loop is the part where it states "for tax purposes in general" under IRC 30D, especially as a "normal" consumer and not really a legal jargon person.

But then under 2013-19 it states " For this
purpose, a contractual provision that limits damages to an amount equal to at least five
percent of the total contract price will not be treated as limiting damages to a specified
amount"

So I can see it both ways here, which is the real truth?

Any tax lawyers on here that can chime in? Perhaps that's over-reaching if the consumer can see a <5% as a binding contract?

[spool twice]

does anyone have access or a link to "For additional guidance regarding the definition of a binding contract, see
§ 1.168(k)-1(b)(4)(ii)(A)-(D)."

I wasn't able to find that?

[TurtleBoy]

Originally Posted by spool twice

Gotcha, I think what is throwing me for the loop is the part where it states "for tax purposes in general" under IRC 30D, especially as a "normal" consumer and not really a legal jargon person.

But then under 2013-19 it states " For this
purpose, a contractual provision that limits damages to an amount equal to at least five
percent of the total contract price will not be treated as limiting damages to a specified
amount"

So I can see it both ways here, which is the real truth?

Any tax lawyers on here that can chime in?

They are both consistent in what they say but 2013-19/29 don't really come into play. It is the current guidance on the Transition rule that applies.

If your binding contract specifies a limit on damages, a loss of a deposit for example, then the IRS does not consider it to be binding. However, if the deposit is at least 5% of the contract price then they don't consider it to be limiting and therefore a binding contract if it can be enforced bu state law.

"In general, a written contract is binding if it is enforceable under State law and does not limit damages to a specified amount (for example, by use of a liquidated damages provision or the forfeiture of a deposit). While the enforceability of a contract under State law is a facts-and-circumstances determination to be made under relevant State law, if a customer has made a significant non-refundable deposit or down payment, it is an indication of a binding contract. For tax purposes in general, a contract provision that limits damages to an amount equal to at least 5 percent of the total contract price is not treated as limiting damages to a specified amount. For example, if a customer has made a non-refundable deposit or down payment of 5 percent of the total contract price, it is an indication of a binding contract."

https://www.irs.gov/businesses/plug-...30-and-irc-30d

[TurtleBoy]

Originally Posted by spool twice

does anyone have access or a link to "For additional guidance regarding the definition of a binding contract, see
§ 1.168(k)-1(b)(4)(ii)(A)-(D)."

I wasn't able to find that?

I posted the relevant section in a post above. Here is the link: https://bmwi.bimmerpost.com/forums/s...9&postcount=96

[spool twice]

I saw that, but it looks like on that particular site I have to register vs. a .gov website to find the direct information. I'll have to search through .gov more to see what I can find.

[bavarianride]

Originally Posted by spool twice

does anyone have access or a link to "For additional guidance regarding the definition of a binding contract, see
§ 1.168(k)-1(b)(4)(ii)(A)-(D)."

I wasn't able to find that?

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

Happy reading.

[TurtleBoy]

Originally Posted by spool twice

I saw that, but it looks like on that particular site I have to register vs. a .gov website to find the direct information. I'll have to search through .gov more to see what I can find.

No, the link to it is a free site with no registration. https://www.law.cornell.edu/cfr/text/26/1.168(k)-1

[spool twice]

Thanks guys! I clicked on the wrong link initially.

*edit*, so I'm reading this as my initial deposit isn't binding because it was considered refundable (so really zero damages right?), therefore non-binding. In otherwords, I wouldn't qualify under the new terms.

[bavarianride]

Originally Posted by spool twice

But then under 2013-19 it states " For this
purpose, a contractual provision that limits damages to an amount equal to at least five
percent of the total contract price will not be treated as limiting damages to a specified
amount"

So I can see it both ways here, which is the real truth?

I am not a lawyer, and I can only talk about what I(plus others) read w.r.t. CA.

2013-19 says binding contract needs to be unlimited damage. There is an example that says FMV of $90, and a contract price of $100. The seller can sue for the difference ($10) for non-performing. In CA's context, this matches purchase agreement(which usually has unlimited damage, since buyer is 100% committed), which is binding once signed.

2013-29 was issued 10 days after that to align with Section 1603(with 5% safe harbor), which says at least 5%(i.e. 5%-100% or even above) is good enough as "unlimited damage". In CA's context, this matches to brokering agreement, which per CA code does not allow non-refundable deposit.

In summary, in CA, anyone holding an order sheet with refundable deposit is struck out by 2013-29.

And anyone holding a signed purchase agreement (100% committed, or 100% damage), or signed purchase agreement with at least 5% downpayment(non-refundable), is safe per 2013-29.

IRC-30d clarification just copies its language from 2013-19 and 2013-29.