An Orphan Tax Provision?

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By James Edward Maule, Esq.
Villanova University School of Law, Villanova, PA

Section 30B of the Internal Revenue Code provides a credit for alternative motor vehicles. Section 30B(h)(3) provides that, “The terms 'automobile’, 'passenger automobile’, 'medium duty passenger vehicle’, 'light truck’, and 'manufacturer’ have the meanings given such terms in regulations prescribed by the Administrator of the Environmental Protection Agency for purposes of the administration of title II of the Clean Air Act (42 USC 7521 et seq.).” With one exception, each of these terms is used elsewhere in §30B, and it makes perfectly good sense for these terms to be given definitions, and it is efficient and logical to provide those definitions through a cross-reference to definitions in another federal law.

The puzzle, though, is why “medium duty passenger vehicle” is given a definition, because that term does not appear anywhere else in §30B. In fact, a search of the entire Internal Revenue Code reveals that the term “medium duty passenger vehicle” does not appear in any Code section. Thinking that perhaps the term is used in some bifurcated manner, I searched for “medium duty” in the Internal Revenue Code. It turned up once, in §30B(h)(3), as part of “medium duty passenger vehicle.”

The next task was to examine the legislative history of the provision. As introduced in the House of Representatives, §1316 of H.R. 6, the Energy Policy Tax Act of 2005, provided for a new §30B, which would allow an “advanced lean burn technology motor vehicle credit.” Section 30B(d)(6) of the proposed new Code section provided that, “The terms 'passenger vehicle’, 'light truck’, and 'manufacturer’ shall have the meanings given such terms in regulations prescribed by the Administrator of the Environmental Protection Agency for purposes of the administration of title II of the Clean Air Act (42 USC 7521 et seq.).” The term “medium duty passenger vehicle” wasn't there. As passed by the House, and as placed on the calendar in the Senate, the language of proposed §30B remained the same.

In the Senate, the credit was renamed the “alternative motor vehicle credit,” several other types of vehicles were added to the list of those qualifying for the credit, and there was a provision in proposed §30B(c)(2)(A) that set forth different credit amounts, specifically, “In the case of a new qualified hybrid motor vehicle which is a passenger automobile, medium duty passenger vehicle, or light truck.” In §30B(c)(4)(A), the definition of “new qualified hybrid motor vehicle” was separated into different types, and §30B(c)(4)(A) set forth the conditions that needed to be met by a “passenger automobile, medium duty passenger vehicle, or light truck.” Because the term “maximum available power” was used in the definition of “new qualified hybrid motor vehicle,” it, too, needed to be defined, and again, was defined separately, in §30B(c)(4)(C)(i) for any passenger automobile, medium duty passenger vehicle, or light truck. One of the types of new qualified hybrid motor vehicles was a “heavy duty hybrid motor vehicle,” and its definition excluded any “medium duty hybrid motor vehicle.” Understandably, the definition provision, then in §30B(f)(3), was changed to include medium duty passenger vehicle.

In the House-Senate Conference, subsection (c) became subsection (d), and paragraph (2)(A) was rewritten to provide different credit amounts: “In the case of a new qualified hybrid motor vehicle which is a passenger automobile of light truck and which has a gross vehicle weight rating of not more than 8,500 pounds.” That removed the need for the other definitions that referred to “medium duty passenger vehicle” and so those definitions were removed. However, nothing was done to the definition provision, which by this point had become §30B(h)(3), and the definition of “medium duty passenger vehicle” remained, even though the phrase had been taken out of the various places it had appeared in what became subsection (d).

Oops.

There are lessons to be learned. It's good to be thoroughly familiar with the document on which one is working, but that doesn't happen when tax legislation passes from committee to committee, with all sorts of people hovering over people's shoulders, figuratively, at least. It's good to let a document sit, and to go through it again, but that doesn't happen with tax legislation, and lots of other drafting tasks, because not enough time is budgeted for the process. It's good to have a reviewer who can look at the document with fresh eyes, an advantage I have for some, but not all, of my writing, and the difference can be significant.

Fortunately, this drafting error does not appear to have any adverse consequences other than making the Internal Revenue Code four words longer than it needs to be. I'm confident that fixing the error will not raise any revenue.

A question that probably has wandered into the brains of at least some readers is, “How, or perhaps why, did you find this?” I found this as I worked my way through §30B while preparing Tax Management, Inc. portfolio 512, Tax Incentives for Production and Conservation of Energy and Natural Resources. As I make certain I've dealt with every provision in an applicable Code section, and decide where to position my “translation” of the language, I necessarily ask myself how the term fits in with the overall “outline” of the section. It was during that process that I encountered a defined term that was not being used.

The question that now occurs to me is whether these four words are “deadwood.” Perhaps, but perhaps not. After all, can wood be dead if it's never been alive? This isn't a provision that was effective at some point and then rendered meaningless. It was never effective. But it's there, living in its own little world.

What happens next? Someone on Capitol Hill reads this, and arranges for the deletion of the phrase. Yes, I can dream. What's more likely is that someone will read this, and then mention it to someone who will make a remark about it to someone else, and eventually it gets to someone on Capitol Hill who remembers it at some point and puts an amendment to §30B(h)(3) into some pending tax legislation. Likely, but not guaranteed. So all of us now have something to which we can look forward, namely, the “medium duty passenger vehicle” death watch.

And if I'm wrong about this being an orphan provision, please let me, and the rest of us, know. It will be an interesting explanation.

For more information, in the Tax Management Portfolios, see Maule, 512 T.M., Tax Incentives for Production and Conservation of Energy and Natural Resources, and in Tax Practice Series, see ¶3130, Miscellaneous Nonrefundable Credits.