Evidently, lessors navigating through the complexities of federal tax credits when leasing electric vehicles is not as simple as it is to plug in the EV to recharge it.

So, the American Financial Services sent a letter to the IRS last week, seeking clarity regarding a proposed rule for Commercial Clean Vehicle Tax Credits.

AFSA acknowledged this proposed rule intended to clarify aspects of the Section 45W tax credit.

AFSA explained leasing companies are seeking clean vehicle tax credits and using proceeds of those credits to lower leasing costs for consumers. For this reason, AFSA said leasing companies need clarity about how these tax credits will be offered in the future.

The association tried to point out a variety of areas where the proposed rule could be explained to deliver predictable outcomes for leasing companies and consumers.

AFSA began the letter with what officials see as a potential communication breakdown involving the automaker, the leasing company, the IRS and the consumer.

“The proposed rule … does not clearly specify the recipient of the written report,” the association wrote. “While AFSA interprets the proposed rule within the context of section 45W(c) as requiring the manufacturer to provide the written report to the secretary, to avoid ambiguity (e.g., an interpretation that the manufacturer must also provide the report to the taxpayer), AFSA requests that any published rule include clear language that the recipient is ‘the secretary.’”

While AFSA said it agrees that manufacturers should submit written reports in a timely manner, the association said the proposed rule places “harsh” consequences on finance sources that:

—Provide consumers with an upfront lease incentive (that corresponds to the anticipated 45W tax credit amount)

—Subsequently (months or a year later) is unable to claim the corresponding tax credit because a manufacturer included the applicable VIN number of the vehicle in a written report a short time after the vehicle was leased

“Moreover, AFSA has not identified an important tax policy or other governmental interest furthered by the timing required by the rule. Specifically, the government is not harmed so long as the secretary receives the VIN-level written report prior to a taxpayer filing its return,” the association wrote.

“Along with other concerns involving if the automaker also offers gasoline-powered vehicles or hybrids, AFSA is worried about how quickly the IRS tries to implement changes, pointing to the section that applies to taxable years ending after the date of publication of the final rules in the Federal Register.

“If published in 2025, finance sources that provided lease incentives in anticipation of the tax credit will be unfairly harmed if they do not have recapture provisions applicable to EV incentives within the lease contract,” the association wrote. “AFSA notes that it is typical industry practice, in furtherance of consumer choice and convenience, that a lessee may exercise a purchase option at any time whether or not they have leased the vehicle for 18 months.

“If the proposed rule is published in 2025, finance sources would be unable to correct any existing lease contract. Thus, finance sources would bear unexpected losses with respect to leases where the lessee exercised the purchase option within the 18-month period,” the association went on to write. “Any final rule should provide finance sources with time to ensure that lease contracts contain language that mitigates recapture risk.”