Credit for New Medium-Duty and Heavy-Duty Hybrid Motor Vehicle

Part III. Administrative, Procedural, and Miscellaneous
Credit for New Qualified
Heavy-Duty Hybrid Motor
Vehicles
Notice 2007–46
SECTION 1. PURPOSE.
This notice sets forth interim guidance,
pending the issuance of regulations, relating to the new qualified hybrid motor vehicle credit under § 30B(a)(3) and (d) of the
Internal Revenue Code. Specifically, this
notice provides procedures for a vehicle
manufacturer (or, in the case of a foreign
vehicle manufacturer, its domestic distributor) to certify to the Internal Revenue Service (Service) both:
(1) that a heavy-duty vehicle of a particular make, model, and model year meets
certain requirements that must be satisfied
to claim the new qualified hybrid motor
vehicle credit under § 30B(a)(3) and (d);
and
(2) the amount of the credit allowable
with respect to that vehicle. This notice
also provides guidance to taxpayers who
purchase qualified vehicles regarding the
conditions under which they may rely on
the vehicle manufacturer’s (or, in the case
of a foreign vehicle manufacturer, its domestic distributor’s) certification in determining whether a credit is allowable with
respect to the vehicle and the amount of the
credit. The Service and the Treasury Department expect that the regulations will
incorporate the rules set forth in this notice.
SECTION 2. BACKGROUND.
Section 30B(a)(3) provides for a credit
determined under § 30B(d) for certain new
qualified hybrid motor vehicles. The new
qualified hybrid motor vehicle credit for
a heavy-duty hybrid motor vehicle is determined under § 30B(d)(2)(B) and is an
amount equal to the applicable percentage
of the qualified incremental hybrid cost
of the vehicle. The qualified incremental
hybrid cost is the excess of the manufacturer’s suggested retail price for the qualified vehicle over the manufacturer’s suggested retail price for a comparable vehicle. However, the qualified incremental

June 4, 2007

hybrid cost of a vehicle is limited depending upon the gross vehicle weight rating
of the vehicle. The applicable percentage
varies depending upon the increase in the
city fuel economy of the qualified vehicle
relative to a comparable vehicle.
SECTION 3. SCOPE OF NOTICE.
.01 Vehicles Covered. This notice applies only to heavy-duty hybrid motor vehicles. Guidance concerning the new qualified hybrid motor vehicle credit for passenger automobiles and light trucks is provided in Notice 2006–9, 2006–6 I.R.B.
413.
.02 Rules Common to All Qualifying
Vehicles. This notice does not address
a number of rules that are common to
all motor vehicles that qualify for credits under § 30B, including (1) rules under which lessors may claim the credits
allowable under § 30B, (2) the rule preventing the credits from being used to
reduce alternative minimum tax liability,
and (3) rules relating to recapture of the
credit. Certain rules applicable to all motor vehicles that qualify for credits under
§ 30B are described in Fact Sheet 2007–9
(http://www.irs.ustreas.gov/newsroom/article/0,,id=165649,00.html).
SECTION 4. MEANING OF TERMS.
The following definitions apply for purposes of this notice:
(1) In General. Terms used in this notice and not defined in this section have the
same meaning as when used in § 30B.
(2) Heavy-Duty Hybrid Motor Vehicle.
The term “heavy-duty hybrid motor vehicle” means any hybrid motor vehicle that
is not a passenger automobile or light truck
within the meaning of section 4(2) of Notice 2006–9. Thus, a hybrid motor vehicle (including a hybrid motor vehicle that
is a medium-duty passenger vehicle, as defined in 40 C.F.R. § 600.002–08) that has
a gross vehicle weight rating of more than
8,500 pounds will be treated as a heavyduty hybrid motor vehicle for purposes of
this notice.
(3) Manufacturer. (a) In general. The
“vehicle manufacturer” or “manufacturer”
of a heavy-duty hybrid motor vehicle is—

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(i) the person engaged in the manufacturing or assembling of the completed
heavy-duty hybrid motor vehicle for introduction into commerce; and
(ii) if applicable, any person (other than
the person described in section 4(3)(a)(i))
that installs the systems that convert a vehicle powered solely by an internal combustion or heat engine using consumable
fuel into the completed heavy-duty hybrid
motor vehicle.
(b) For purposes of this section 4(3)—
(i) a “completed heavy-duty hybrid motor vehicle” is a new heavy-duty hybrid
motor vehicle that is ready for use and requires no further manufacturing or assembly operations; and
(ii) “introduction into commerce” occurs when a vehicle manufacturer ships a
completed motor vehicle from a facility of
the manufacturer to a distributor, retailer,
or consumer.
(4) City Fuel Economy. (a) In general.
The term “city fuel economy” means the
fuel economy measured in a manner that
is substantially similar to the manner in
which city fuel economy is measured in accordance with procedures under 40 C.F.R.
Part 600, as in effect on August 8, 2005.
A manufacturer may develop and use for
this purpose any procedures that the manufacturer reasonably determines to be substantially similar to the procedures under
40 C.F.R. Part 600, as in effect on August
8, 2005. In addition, the Service will not
challenge a manufacturer’s determination
of city fuel economy using any safe harbor measurement method listed in section
4(4)(c) of this notice if that method is consistently used to determine city fuel economy for both the qualified heavy-duty hybrid motor vehicle and the comparable vehicle to which the qualified vehicle’s fuel
economy is compared in providing the certification under this notice.
(b) Carry-over models. The city fuel
economy determined under section 4(4)(a)
of this notice for a vehicle of a particular
make, model, and model year may be used
as the city fuel economy for any carry-over
model of that vehicle. For this purpose, a
vehicle is a carry-over model with respect
to a vehicle produced in an earlier model
year if the vehicles are of the same make

2007–23 I.R.B.

and model and the design of the model has
not changed since such earlier model year.
(c) Safe harbor measurement methods.
The safe harbor measurement methods
listed in this section 4(4)(c) are any of the
following:
(i) In the case of heavy-duty hybrid
motor vehicles that are medium-duty passenger vehicles, as defined in 40 C.F.R.
600.002–08, measurement in accordance
with procedures under 40 C.F.R. Part 600,
as in effect on the date the manufacturer’s
certification is provided.
(ii) In the case of heavy-duty hybrid
motor vehicles that are not medium-duty
passenger vehicles, as defined in
40 C.F.R. 600.002–08, measurement using the carbon balance method applied to
emissions measured using either the procedures in 40 C.F.R. Part 86, Subpart B and
40 C.F.R. § 86.1863–07 or the procedures
in the California Interim Certification Procedures for 2004 and Subsequent Model
Hybrid-Electric Vehicles in the Urban Bus
and Heavy-Duty Vehicle Classes.
(5) Comparable Vehicle. (a) In general.
The term “comparable vehicle” means, for
purposes of determining the qualified incremental hybrid cost and the increase in
city fuel economy of a qualified heavyduty hybrid motor vehicle, any vehicle that
is powered solely by a gasoline or diesel
internal combustion engine and is comparable in weight, size, and use to the qualified vehicle. For this purpose—
(i) a vehicle produced by the same manufacturer as the qualified vehicle is comparable in use only if it is manufactured in the
same model year as the qualified vehicle;
and
(ii) a vehicle produced by a person other
than the manufacturer of the qualified vehicle is comparable in use only if it is manufactured in the same 12-month period as
the qualified vehicle.
(b) Manufacturer to choose among
multiple comparable vehicles. If more
than one model of vehicle is comparable
in weight, size, and use to the qualified
vehicle, the manufacturer of the qualified
vehicle may choose a vehicle of any model
that is comparable in weight, size, or use
and treat that vehicle as the comparable
vehicle for purposes of providing a certification under this notice.
(6) Model Year. The term “model year”
means—

2007–23 I.R.B.

(a) the vehicle manufacturer’s annual
production period (determined under regulations prescribed by the Administrator
of the Environmental Protection Agency
for purposes of the administration of title
II of the Clean Air Act (42 U.S.C. 7521
et seq.)); or
(b) the calendar year in which the vehicle is manufactured, if the vehicle manufacturer has no annual production period
for that make and model of vehicle.
(7) Total Traction Power. The term “total traction power” means the sum of the
peak power from the rechargeable energy
storage system and the heat engine peak
power of the vehicle, except that if the
storage system is the sole means by which
the vehicle can be driven, the total traction
power is the peak power of the storage system.
SECTION 5. MANUFACTURER’S
CERTIFICATION.
.01 When Certification Permitted. A
vehicle manufacturer (or, in the case of a
foreign vehicle manufacturer, its domestic
distributor) may certify to purchasers that a
heavy-duty hybrid motor vehicle of a particular make, model, and model year meets
all requirements (other than those listed in
section 5.02 of this notice) that must be
satisfied to claim the new qualified hybrid
motor vehicle credit, and the amount of the
credit allowable under § 30B(a)(3) and (d)
with respect to the vehicle, if the following
requirements are met:
(1) The manufacturer (or, in the case of
a foreign vehicle manufacturer, its domestic distributor) has submitted to the Service, in accordance with section 6 of this
notice, a certification with respect to the
vehicle and the certification satisfies the
requirements of section 5.03 of this notice;
and
(2) The manufacturer (or, in the case of
a foreign vehicle manufacturer, its domestic distributor) has received an acknowledgment of the certification from the Service.
.02 Purchaser’s Reliance. Except as
provided in section 5.06 of this notice, a
purchaser of a heavy-duty hybrid motor
vehicle may rely on the manufacturer’s (or,
in the case of a foreign vehicle manufacturer, its domestic distributor’s) certification concerning the vehicle and the amount
of the credit allowable with respect to the

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vehicle (including in cases in which the
certification is received after the purchase
of the vehicle). The purchaser may claim a
credit in the certified amount with respect
to the vehicle if the following requirements
are satisfied:
(1) The vehicle is placed in service by
the taxpayer after December 31, 2005, and
is purchased on or before December 31,
2009.
(2) The original use of the vehicle commences with the taxpayer.
(3) The vehicle is acquired for use or
lease by the taxpayer, and not for resale.
(4) The vehicle is used predominantly
in the United States.
.03 Content of Certification. The certification must contain the following information:
(1) The name, address, and taxpayer
identification number of the certifying entity;
(2) The make, model, model year, and
any other appropriate identifiers of the motor vehicle;
(3) A statement that the vehicle is made
by a manufacturer;
(4) The amount of the credit for the vehicle (showing computations);
(5) The manufacturer’s suggested retail
price for the vehicle;
(6) The manufacturer’s suggested retail
price for a comparable vehicle;
(7) The make, model, and model year
of a comparable vehicle;
(8) The gross vehicle weight rating of
the vehicle;
(9) The city fuel economy of the vehicle
and evidence that—
(a) the city fuel economy was measured
in a manner that is substantially similar to
the manner in which city fuel economy is
measured in accordance with procedures
under 40 C.F.R § 600, as in effect on August 5, 2005 (including a description of
the procedures used to measure city fuel
economy and a description of the manufacturer’s basis for reasonably determining that those procedures are substantially
similar to the procedures under 40 C.F.R.
§ 600, as in effect on August 5, 2005); or
(b) a safe harbor measurement method
listed in section 4(4)(c) of this notice was
consistently used to determine city fuel
economy for both the qualified heavy-duty
hybrid motor vehicle and the comparable
vehicle to which the qualified vehicle’s

June 4, 2007

fuel economy is compared in providing the
certification;
(10) A statement that the motor vehicle draws propulsion energy from onboard
sources of stored energy that are both an
internal combustion or heat engine using
consumable fuel, and a rechargeable energy storage system;
(11) Evidence that the maximum power
available from the rechargeable energy
storage system during a standard 10 second pulse power or equivalent test is—
(a) at least 10 percent of the vehicle’s
total traction power, in the case of a vehicle
that has a gross vehicle weight rating of
more than 8,500 pounds and not more than
14,000 pounds, and
(b) at least 15 percent of the vehicle’s
total traction power, in the case of a vehicle
that has a gross vehicle weight rating of
more than 14,000 pounds;
(12) The total traction power of the vehicle;
(13) A statement that the vehicle complies with the applicable provisions of the
Clean Air Act;
(14) A statement that the vehicle complies with the applicable air quality provisions of state law of each state that has
adopted the provisions under a waiver under § 209(b) of the Clean Air Act or a list
identifying each state that has adopted applicable air quality provisions with which
the vehicle does not comply;
(15) A statement that the vehicle complies with the motor vehicle safety provisions of 49 U.S.C. §§ 30101 through
30169;
(16) A copy of the certificate of conformity under the Clean Air Act certifying
the vehicle’s internal combustion or heat
engine as meeting the emission standards
set in the regulations prescribed by the Administrator of the Environmental Protection Agency for 2004 through 2007 model
year diesel heavy-duty engines or ottocycle heavy-duty engines, as applicable; and
(17) A declaration, applicable to the
certification and any accompanying documents, signed by a person currently authorized to bind the manufacturer (or, in the
case of a foreign vehicle manufacturer, its
domestic distributor) in these matters, in
the following form:
“Under penalties of perjury, I declare
that I have examined this certification, including accompanying documents, and to
the best of my knowledge and belief, the

June 4, 2007

facts presented in support of this certification are true, correct, and complete.”
.04 Multiple manufacturers. If more
than one person is treated as the manufacturer of a vehicle under section 4(3) of this
notice, the requirements of section 5.03 of
this notice are treated as satisfied if each
item of information described in section
5.03(2) through 5.03(16) is provided by
one of the manufacturers and each manufacturer providing such information also
provides the identifying information described in section 5.03(1) and the declaration described in section 5.03(17).
.05 Acknowledgment of Certification.
The Service will review the original signed
certification and issue an acknowledgment
letter to the vehicle manufacturer (or, in the
case of a foreign vehicle manufacturer, its
domestic distributor) within 30 days of receipt of the request for certification. This
acknowledgment letter will state whether
purchasers may rely on the certification.
.06 Effect of Erroneous Certification.
(1) Erroneous Certification. The acknowledgment that the Service provides
for a certification is not a determination
that a vehicle qualifies for the credit, or
that the amount of the credit is correct.
The Service may, upon examination (and
after any appropriate consultation with
the Department of Transportation or the
Environmental Protection Agency), determine that the vehicle is not a new qualified
heavy-duty hybrid motor vehicle or that
the amount of the credit determined by
the manufacturer (or, in the case of a foreign vehicle manufacturer, its domestic
distributor) to be allowable with respect
to the vehicle is incorrect. In either event,
the manufacturer’s (or, in the case of a
foreign vehicle manufacturer, its domestic
distributor’s) right to provide a certification to future purchasers of the heavy-duty
hybrid motor vehicles will be withdrawn,
and purchasers who acquire a vehicle after
the date on which the Service publishes
an announcement of the withdrawal may
not rely on the certification. Purchasers
may continue to rely on the certification
for vehicles they acquired on or before
the date on which the announcement of
the withdrawal is published (including in
cases in which the vehicle is not placed in
service and the credit is not claimed until
after that date), and the Service will not
attempt to collect any understatement of
tax liability attributable to such reliance.

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Manufacturers (or, in the case of foreign
vehicle manufacturers, their domestic distributors) are reminded that an erroneous
certification may result in the imposition
of penalties:
(a) under § 7206 for fraud and making
false statements; and
(b) under § 6701 for aiding and abetting
an understatement of tax liability in the
amount of $1,000 ($10,000 in the case of
understatements by corporations) per return on which a credit is claimed in reliance on the certification).
SECTION 6. TIME AND ADDRESS
FOR FILING CERTIFICATION.
.01 Time for Filing Certification. In order for a certification under section 5 of
this notice to be effective for new qualified
heavy-duty hybrid motor vehicles placed
in service during a calendar year beginning
after December 31, 2006, the certification
must be received by the Service not later
than December 31st of that calendar year.
For new qualified heavy-duty hybrid motor vehicles placed in service during 2006,
the certification must be received by the
Service not later than December 31, 2007.
.02 Address for Filing. Certifications
under section 5 of this notice must be sent
to:
Internal Revenue Service,
Industry Director, Large and
Mid-Size Business, Heavy
Manufacturing and Transportation,
Metro Park Office Complex — LMSB,
111 Wood Avenue, South,
Iselin, New Jersey 08830.
SECTION 7. PAPERWORK
REDUCTION ACT.
The collection of information contained
in this notice has been reviewed and approved by the Office of Management and
Budget in accordance with the Paperwork
Reduction Act (44 U.S.C. 3507) under
control number 1545–2060.
An agency may not conduct or sponsor,
and a person is not required to respond
to, a collection of information unless the
collection of information displays a valid
OMB control number.
The collections of information in this
notice are in section 5. This information
is required to be collected and retained in

2007–23 I.R.B.

order to ensure that vehicles meet the requirements for the new qualified hybrid
motor vehicle credit under § 30B(a)(3) and
(d). This information will be used to determine whether the vehicle for which the
credit is claimed by a taxpayer is property
that qualifies for the credit. The collection
of information is required to obtain a benefit. The likely respondents are corporations and partnerships.
The estimated total annual reporting
burden is 240 hours.
The estimated annual burden per respondent varies from 35 hours to 45 hours,
depending on individual circumstances,
with an estimated average burden of 40
hours to complete the certification required under this notice. The estimated
number of respondents is 6.
The estimated annual frequency of responses is on occasion.
Books or records relating to a collection
of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally, tax returns and tax return
information are confidential, as required
by 26 U.S.C. 6103.
SECTION 8. DRAFTING
INFORMATION.
The principal author of this notice
is Nicole R. Cimino of the Office of
Associate Chief Counsel (Passthroughs
and Special Industries). For further information regarding this notice, contact
Ms. Cimino at (202) 622–3120 (not a
toll-free call).

26 CFR 601.105: Examination of returns and claims
for refund, credit or abatement; determination of
correct tax liability.
(Also Part I, §§ 199; 1.199–1 through 1.199–9,
1.199–3T, 1.199–5T, 1.199–7T, 1.199–8T.)

Rev. Proc. 2007–34
SECTION 1. PURPOSE
Section 199 of the Internal Revenue
Code provides a deduction for income
attributable to domestic production activities. This revenue procedure specifies
the conditions under which certain partnerships and S corporations may choose
to calculate qualified production activities

2007–23 I.R.B.

income (QPAI) and W–2 wages as defined
by § 1.199–2T(e)(2) of the temporary Income Tax Regulations (W–2 wages) at
the entity level, as well as the manner for
allocating and reporting QPAI and W–2
wages to partners or shareholders.
SECTION 2. BACKGROUND
Section 199(a)(1) allows a deduction
equal to 9 percent (3 percent for taxable
years beginning in 2005 or 2006, and 6 percent for taxable years beginning in 2007,
2008, or 2009) of the lesser of (A) the
QPAI of the taxpayer for the taxable year,
or (B) taxable income (determined without
regard to § 199) for the taxable year (or, for
an individual, adjusted gross income).
Section 199(b)(1) limits the deduction
for a taxable year to 50 percent of the W–2
wages paid by the taxpayer for the taxable
year. For this purpose, § 199(b)(2)(A) defines the term W–2 wages to mean, with
respect to any person for any taxable year
of such person, the sum of the amounts
described in § 6051(a)(3) and (8) paid by
such person with respect to employment
of employees by such person during the
calendar year ending during such taxable
year.
Section 199(c)(1) defines QPAI for any
taxable year as an amount equal to the
excess, if any, of the taxpayer’s domestic
production gross receipts (DPGR) over
the sum of the cost of goods sold (CGS)
allocable to DPGR and other expenses,
losses, or deductions (other than the deduction allowed by § 199) (deductions)
that are properly allocable to such receipts. Section 1.199–4(b) of the Income
Tax Regulations provides rules for determining CGS allocable to DPGR. Section
1.199–4(c) provides rules for determining
the deductions that are properly allocable
to DPGR or to gross income attributable
to DPGR. Section 1.199–4(a) and (d)
provides that a taxpayer generally must
allocate and apportion its deductions using
the § 861 method, as determined under
the rules of §§ 1.861–8 through 1.861–17
and §§ 1.861–8T through 1.861–14T, subject to the rules in § 1.199–4(d). Section
1.199–4(e) provides that an eligible taxpayer may use the simplified deduction
method to apportion deductions between
DPGR and non-DPGR. Section 1.199–4(f)
provides that a qualifying small taxpayer
may use the small business simplified

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overall method to apportion CGS and deductions between DPGR and non-DPGR.
Section 199(d)(1) provides special
rules for applying § 199 to pass-thru entities. Section 199(d)(1)(A) provides that
(i) § 199 shall be applied at the partner
or shareholder level, (ii) each partner or
shareholder shall take into account such
person’s allocable share of each item
described in § 199(c)(1)(A) or (B) (determined without regard to whether the items
described in § 199(c)(1)(A) exceed the
items described in § 199(c)(1)(B)), and
(iii) each partner or shareholder shall be
treated for purposes of § 199(b) as having W–2 wages for the taxable year in an
amount equal to such person’s allocable
share of the W–2 wages of the partnership
or S corporation for the taxable year (as
determined under regulations prescribed
by the Secretary).
Section 199(d)(1)(C) provides that the
Secretary may prescribe rules requiring
or restricting the allocation of items and
wages under § 199(d)(1) and may prescribe such reporting requirements as the
Secretary determines appropriate.
For taxable years beginning after May
17, 2006, § 1.199–2T(e)(2) provides that
the term W–2 wages includes amounts
described in § 1.199–2(e)(1) (paragraph
(e)(1) wages) that are properly allocable to
DPGR for purposes of § 199(c)(1). Under
§ 1.199–2(e)(1), paragraph (e)(1) wages
with respect to any person for any taxable
year of such person, means the sum of
the amounts described in § 6051(a)(3) and
(8) paid by such person with respect to
employment of employees by such person
during the calendar year ending during
such taxable year.
Section
1.199–5T(b)(1)(ii)
and
(c)(1)(ii) provides that the Secretary may,
by publication in the Internal Revenue
Bulletin, permit a partnership or S corporation to calculate a partner’s or shareholder’s share of QPAI and W–2 wages
at the entity level, instead of allocating to
that partner or shareholder its share of the
entity’s items and paragraph (e)(1) wages
for determining the § 199 deduction at the
partner or shareholder level. If a partnership or S corporation does calculate QPAI
and W–2 wages at the entity level, such
an entity then allocates to each partner or
shareholder its share of QPAI (subject to
the limitations of § 1.199–5T(b)(2) and
(c)(2)) (which may be less than zero) and

June 4, 2007