T.C. Summary Opinion 2015-67

SD

T.C. Summary Opinion 2015-67

UNITED STATES TAX COURT

TROY S. PODRAZA AND JILL A. PODRAZA, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 9461-13S.

Filed November 19, 2015.

Troy S. Podraza and Jill A. Podraza, pro se.

Lisa Kathryn Hunter, for respondent.

SUMMARY OPINION

PARIS, Judge: This case was heard pursuant to the provisions of section

7463¹ of the Internal Revenue Code in effect when the petition was filed. Pursuant

¹Unless otherwise indicated, all section references are to the Internal

Revenue Code (Code), as amended and in effect for the year in issue, and all Rule

references are to the Tax Court Rules of Practice and Procedure.

SERVED Nov 19 2015

-2to section 7463(b), the decision to be entered is not reviewable by any other court,

and this opinion shall not be treated as precedent for any other case.

Respondent determined a deficiency of $6,253 in petitioners' Federal

income tax for 2009. The issue before the Court is whether petitioners are eligible

for a New Qualified Plug-in Electric Drive Motor Vehicle tax credit (PEVC) of

$6,253 pursuant to section 30D for 2009. The notice of deficiency did not

determine a penalty.

Background

Some of the facts are stipulated and are so found. The stipulation of facts,

the supplemental stipulation of facts, and the attached exhibits are incorporated

herein by this reference. Troy S. Podraza and Jill A. Podraza timely filed a joint

Federal income tax return for 2009. Petitioners resided in Nebraska when their

petition was filed.

The electric vehicle at issue, a Spark NEV-48 EX, was manufactured by

Zone Electric Car, LLC (Zone Electric). Pursuant to Notice 2009-54, 2009-26

I.R.B. 1124 (June 29, 2009), Zone Electric submitted a request on October 1,

2009, to the Internal Revenue Service (IRS) to certify that its electric vehicles

were qualified plug-in electric vehicles for purposes of section 30D, which as of

the date of the notice allowed a tax credit for qualified plug-in electric vehicles

-3placed in service from January 1 to December 31, 2009. On October 7, 2009, the

IRS issued a letter to Zone Electric stating that the Spark NEV-48 EX model

"meets the requirements of the Qualified Plug-in Electric Vehicle Credit as a

Qualified Plug-in Vehicle. This acknowledgment is valid only through December

31, 2009, at which time the vehicle will need to be re-submitted under the revised

provisions of IRC 30D and any subsequent Notice covering that period." The

letter goes on to state that "purchasers of this Qualified Plug-in Electric Vehicle

may rely on the certification concerning the vehicle's qualification for the

Qualified Plug-in Vehicle Credit."

The electric vehicle was delivered to petitioners on June 8, 2010, even

though petitioners placed an order for a low-speed electric vehicle reflecting their

choice of color, radio, and size from Drive Electric, LLC (Drive Electric), through

its Web site FreeElectricCar.com on December 21, 2009.2

On December 21, 2009, petitioners remitted full payment of $7,786.53 for

the vehicle with a credit card and promptly commenced insurance on the vehicle

on December 28, 2009.

2After confirmation of a purchase agreement with a buyer, Drive Electric

sends the order to Zone Electric. Zone Electric manufactures low-speed electric

vehicles whereas Drive Electric is listed as the dealer.

-4Petitioners were provided with a bill of sale and a copy of the certificate of

origin. The bill of sale conveyed an electric vehicle to petitioners and included a

description of the vehicle and a vehicle identification number (VIN). The bill of

sale purported to transfer "title to the specific vehicle as evidenced by the

accompanying Manufacturer's Statement of Origin." The certificate of origin

stated that the purchased electric vehicle would be transferred from the

manufacturer to the dealer on the date listed and under the invoice number

indicated by the dealer. Drive Electric was listed as the dealer, and the certificate

of origin was signed by the manufacturer, Zone Electric, with a transfer date of

December 21, 2009. The certificate of origin indicated that the manufacturer

transferred the new electric vehicle to the dealer on the transfer date, leading

petitioners to believe that the electric vehicle was located at the dealer's location

in Tulsa, Oklahoma, on December 21, 2009. After receiving the documents

petitioners attempted to license the electric vehicle at the Department of Motor

Vehicles in Nebraska. However, slow-moving vehicles were not required to be

licensed under Nebraska law.

Before placing their order petitioners did considerable research on the tax

consequences of purchasing an electric vehicle with Drive Electric. Petitioners

discussed the potential transaction with a representative from Drive Electric,

-5examined samples of title documents, and reviewed the model certification letter

issued to Zone Electric by the IRS. In addition, petitioners consulted with their

tax professional in regard to the requirements of a PEVC. Relying on

representations made by Drive Electric and their tax professional's advice,

petitioners negotiated a purchase of the electric vehicle. At the time of the

purchase petitioners were under the impression that all of the vehicles were

currently in existence and manufactured in China.

At trial petitioners did not recall any representation of terms and conditions

relating to the purchase or delivery of the electric vehicle. Consequently,

petitioners do not believe they accepted any such terms and conditions beyond the

agreement to purchase. Although purchased on December 21, 2009, the electric

vehicle was not delivered to petitioners until June 8, 2010.

When petitioners filed their Federal income tax return for 2009, they

claimed a PEVC tax credit of $6,253.3 Their return was prepared and signed by an

accountant. On January 29, 2013, respondent issued a notice of deficiency to

petitioners determining an income tax deficiency of $6,253. Respondent issued

3The IRS provided a certification letter to Drive Electric which stated that

the Spark NEV-48 EX was eligible for a PEVC of $6,496.53. The record does not

explain how petitioners calculated the reduced amount of the credit claimed of

$6,253.

-6the notice of deficiency on the ground that petitioners were not eligible for the tax

credit because the qualified motor vehicle was not placed in service during the

taxable year at issue.

A trial was held on June 3, 2014, at which the parties filed a supplemental

stipulation of facts attaching Exhibit 8-R and describing it therein. Exhibit 8-R is

a "Declaration For Records of Regularly Conducted Business Activity of Steven

R. Ball", who is the "Managing Member and Custodian of Records for Zone

Electric", executed on May 21, 2014. Petitioners reserved an objection to the

declaration based on lack of foundation, relevance, and other grounds. The Court

reserved ruling on the objection and ordered the parties to brief its applicability.

Discussion

I.

Evidentiary Issue

Generally, to resolve evidentiary objections, the Court applies the Federal

Rules of Evidence applicable in nonjury trials in the U.S. District Court for the

District of Columbia. Sec. 7453; Rule 143(a); see Clough v. Commissioner, 119

T.C. 183, 188 (2002). Rule 174(b) and sections 7453 and 7463(a), however, carve

out an exception for trials of small tax cases. Under this exception, the Court

conducts small tax cases as informally as possible consistent with orderly

-7procedure and "any evidence deemed by the Court to have probative value shall be

admissible." Rule 174(b); Schwartz v. Commissioner, 128 T.C. 6, 7 (2007).

Respondent asserts that the terms and conditions in Exhibit 8-R are the

same terms and conditions petitioners agreed to when they purchased their electric

vehicle on December 21, 2009. The terms and conditions are dated May 15, 2014,

and certified by written affidavit by the custodian of records for Zone Electric. It

is unclear whether the terms and conditions dated May 15, 2014, are the same as

those putatively accepted by petitioners during purchase on December 21, 2009, or

if the date is merely an electronic time stamp. Because of the length of time

between the purchasing event and the recorded date within the terms and

conditions in Exhibit 8-R, the Court concludes that this Exhibit raises more

questions than it provides answers. Therefore, petitioners' objection is sustained

on the basis that the document is not probative and Exhibit 8-R is not admitted as

evidence.4

4If this was a trial of a regular tax case, the Court would not conclude that

the business record was reliably "made at or near the time" of the transaction.

Exhibit 8-R would not come within Fed. R. Evid. 803(6) and would not be entered

into evidence. Fed. R. Evid. 801(c) defines "hearsay" as a statement, other than

one made by the declarant while testifying at the trial or hearing, offered in

evidence to prove the truth of the matter asserted. Hearsay is generally excluded

from evidence unless an exception applies. See Fed. R. Evid. 802; Snyder v.

Commissioner, 93 T.C. 529, 532 (1989).

(continued...)

-8II.

Burden of Proof

Generally, the Commissioner's determination of a deficiency is presumed to

be correct and the burden of proof in cases before the Court is on the taxpayer.

Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Under section

7491(a), the burden of proof may shift to the Commissioner if the taxpayer

produces credible evidence with respect to any factual issue relevant to

determining the tax liability of the taxpayer. This section becomes applicable only

if the taxpayer produces credible evidence at trial. See Higbee v. Commissioner,

116 T.C. 438, 444 (2001). Petitioners have not argued that section 7491(a) applies

and have not shown that they meet the requirements to shift the burden of proof;

therefore, the burden of proof remains with petitioners.

III.

Section 30D

The PEVC was originally enacted in the Emergency Economic Stabilization

Act of 2008, Pub. L. No. 110-343, div. B, sec. 205, 122 Stat. 3765, 3835 (Oct. 3,

4(...continued)

A business record may be introduced into evidence under the business

records exception to the hearsay rule. See Fed. R. Evid. 803(6). In accordance

with Fed. R. Evid. 803(6), a record of a regularly conducted business activity is

generally admissible if the record was made at or near the time of the event by a

person with knowledge and if the record was kept in the regular course of

business. See Goldsmith v. Commissioner, 86 T.C. 1134, 1145 (1986) (holding

that a report made two to eight years after the event was inadmissible in part

because it was not made "at or near the time" of the event).

-92008), and effective for tax years beginning after December 31, 2008. Under

section 30D(a)(1), a taxpayer is allowed a one-time credit against income tax with

respect to each new qualified plug-in electric drive motor vehicle placed in service

during the taxable year.

Section 30D(a)(1) as signed into law on October 3, 2008, was amended on

February 17, 2009. The American Recovery and Reinvestment Act of 2009, Pub.

L. No. 111-5, sec. 1141(a)-(c), 123 Stat. 115, 326-328, amended section 30D(d)(1)

to define a "new qualified plug-in electric drive motor vehicle" more narrowly for

tax years after December 31, 2009, to exclude low-speed vehicles, such as those

primarily for use on golf courses, as they would no longer constitute qualified

motor vehicles for purposes of the PEVC. Notice 2009-89, 2009-48 I.R.B. 714

(Nov. 30, 2009).

After December 31, 2009, the definition of qualified motor vehicles would

effectively exclude low-speed vehicles from eligibility for a PEVC. As a result, a

taxpayer who intended to claim a PEVC for a low-speed electric vehicle must have

been in compliance with the provisions of section 30D on or before December 31,

2009.

Petitioners claimed a tax credit of $6,253 on their 2009 tax return for the

purchase of a new low-speed electric vehicle. On December 21, 2009, petitioners

- 10 paid Drive Electric in full for a low-speed electric vehicle. Drive Electric then

issued the certificate of origin and the title document with a unique VIN.

Ultimately, a vehicle with the matching VIN was delivered on June 8, 2010.

There is no dispute that Drive Electric's model Spark NEV-48 EX is a low-speed

electric vehicle and, for purposes of section 30D, would not qualify under the

more narrow definition to be applied after December 31, 2009.

Section 30D(a)(1) as effective on the date of petitioners' purchases provides

that low-speed vehicles can qualify for the PEVC when the vehicle is: (1) placed

in service by the taxpayer in a taxable year beginning after December 31, 2008

(the enactment of the statute); (2) acquired by the taxpayer on or before December

31, 2009 (before the amendment of the statute took effect); and (3) generally in

compliance with the requirements of section 30D. Notice 2009-89, supra.

Respondent argues that petitioners are not eligible for a PEVC for 2009

because the qualified motor vehicle was not placed in service on or before

December 31, 2009, and the $6,253 credit that petitioners claimed was no longer

in effect since respondent asserts that the vehicle was placed in service when the

vehicle was delivered on June 8, 2010. Consequently, respondent argues

petitioners are not eligible for a PEVC for 2009.

- 11 Petitioners argue they remitted payment and acquired title to a qualified

electric vehicle on December 21, 2009. Petitioners assert that legal title passed to

them on the date of purchase and therefore they are entitled to a PEVC for 2009

because the vehicle was acquired before December 31, 2009. However, the statute

effective on the date of purchase also required a qualified motor vehicle to be

placed in service on or before December 31, 2009. Thus, the statutory

requirements are twofold: (1) petitioners had to acquire title to the vehicle after

December 31, 2008, and (2) place it in service on or before December 31, 2009.

Petitioners are entitled to a PEVC for 2009 if they met these requirements.

Section 30D(a)(1) allows a credit against tax for qualified property for the

taxable year in which such property is placed in service. "Neither the [C]ode nor

the regulations provide a general definition for a term that each uses many times

regarding property: 'placed in service'". Jasper L. Cummings, "When Is Property

Placed in Service?", 149 Tax Notes 409 (2015). "The de facto general definition

is the earlier of readiness for use for its intended purpose or actual regular use for

that intended purpose. But piecing together the de facto definition is far harder

than it ought to be". Id.; g, Rev. Proc. 2007-65, 2007-2 C.B. 967 ("placed in

service" not defined for section 45, but the depreciation and investment credit

- 12 definition is adopted without question); see IRS Publication 946, How to

Depreciate Property 7 (Feb. 27, 2015).

Although "placed in service" is not explicitly defined for purposes of

section 30D, other sections of the Code provide guidance. Section 38(a) provides

a business credit against tax with respect to property in the first taxable year in

which qualified property is placed in service by the taxpayer. See also sec. 1.463(d)(4)(i), Income Tax Regs. Property will be considered placed in service when

it is in a condition or state of readiness and availability for a specifically assigned

function. R subpara. (1)(ii); see also Consumers Power Co. v. Commissioner, 89

T.C. 710 (1987) (referring to investment credit for purposes of section 38(a)).

There are other tests in the regulations which have been used to determine

when a vehicle has been placed in service. Section 1.150-2(c), Income Tax Regs.,

for purposes of tax-exempt bonds defines placed in service as "the date on which,

based on all the facts and circumstances--(1) The facility has reached a degree of

completion which would permit its operation at substantially its design level; and

(2) The facility is, in fact, in operation at such level." Section 1.1250-4(b)(2),

Income Tax Regs., provides that property is placed in service on the date of first

use, regardless of when depreciation starts. Finally, section 145.4051-1(c)(2),

- 13 Excise Tax Regs., states that the placed-in-service date for the tax on heavy trucks

and trailers is the date when the owner takes possession of the vehicle.

The Court will look at whether the vehicle was "in a condition or state of

readiness and availability" for the "specifically assigned function" for which

petitioners purchased it to determine when petitioners placed the Spark NEV-48

EX in service. See sec. 1.46-3(d)(1)(ii), Income Tax Regs.

This Court has held that the asset is considered to be "placed in service"

only when the asset is in a state of readiness and available for full service. Noell

v. Commissioner, 66 T.C. 718, 728-729 (1976). In Noell, the taxpayer built an

airport runway which was fully completed in late 1968. R at 721. Construction

of the runway required the taxpayer to grade the land, supply a rock base, lay

down asphalt payment, and plant sod. R Before the surface was completed,

pilots occasionally used the runway to land and take off in 1967 despite the risk

of damage to the plane from using an unpaved runway. R The incomplete and

rough surface made the runway unsatisfactory for permanent use and available

only in good weather. R The taxpayer contended that the runway construction

was not complete until 1968, and so the investment credit for the runway should

be taken for his 1968 taxable year. E at 728-729. The Commissioner objected on

the grounds that because pilots began to use the runway in 1967, the runway was

- 14 placed in service that year. Id. Despite even occasional use, the Court concluded

that the runway was not placed in service until it was in a state of readiness for full

service of its specifically assigned function in 1968. Id. at 729.

Caselaw requires that the Court determine more specifically whether the

asset in question was ready and available for full operation on a regular basis for

its specifically assigned function. See Consumers Power Co. v. Commissioner, 89

T.C. 710; Brown v. Commissioner, T.C. Memo. 2013-275. The Court determined

the placed-in-service date for a hydroelectric utility plant was deferred until the

plant was available for full operation on a regular basis. Consumers Power Co. v.

Commissioner, 89 T.C. 710. The Court determined a depreciation deduction for

the hydroelectric plant was not allowed for the year it first generated electric

power during preoperational testing because the plant was not available for full

operation on a regular basis until the following year. Id. at 724. The Court noted

that responsibility and control of the plant remained with the contractor during the

preoperational testing and the taxpayer did not formally accept the plant until the

following year. Id. Ultimately, the placed-in-service date of property is when it is

in a state of readiness and availability for full service of its specifically assigned

function. Id.

- 15 The issue in this case closely resembles the issue in Brown. In response to

growing concern for the economy, Congress enacted section 168(k), which

granted a "special allowance" for qualified property acquired after September 10,

2001, and before January 1, 2005. See Job Creation and Worker Assistance Act of

2002, Pub. L. No. 107-147, sec. 101, 116 Stat. at 22. Section 167(a) offered a

depreciation deduction for qualified property "for the taxable year in which such

property is placed in service" which included an allowance equal to 30% of the

adjusted basis of the qualified property in addition to depreciation otherwise

allowable. Sec. 168(k)(1)(A). This additional allowance, also known as bonus

depreciation, was temporarily increased from 30% to 50% for qualified property

placed in service after May 5, 2003, and before January 1, 2005. See sec.

168(k)(4)(B). Similarly, a PEVC was applicable to low-speed electric vehicles

during a limited time. In order to qualify for a PEVC, the taxpayer must comply

with the provisions set forth by section 30D before its expiration.

The taxpayer in Brown v. Commissioner, T.C. Memo. 2013-275, sought to

take advantage of the increased bonus depreciation for the purchase of a plane to

serve the air transportation needs of his insurance business. In Brown, the

taxpayer took delivery of a plane in December 2003 and claimed the credit for that

year. Before purchasing the plane, the taxpayer insisted the plane undergo various

- 16 modifications so that it could serve his business needs. The additional

modifications were completed over a month later in the following tax year. The

Commissioner disallowed the credit on the grounds that the plane, while fully

functional, was not available for its intended function of serving the taxpayer's air

transportation needs in his insurance business until the following year. I_d.

Much as in Brown, the dispute in this case is over timing. Petitioners

entered into the transaction for purchase of the vehicle just before the close of the

year. As previously discussed, they received a bill of sale, which contained a VIN,

and a certificate of origin shortly after they remitted full payment. However, a bill

of sale containing a description of the vehicle and a VIN is not sufficient to show

the vehicle was ready and available for full operation for its intended use.

Petitioners have not offered evidence to show the vehicle was available for their

use, much less fully manufactured. In fact, the vehicle was not delivered until

June 8, 2010, making it impossible for the vehicle to be available for use until that

date. Even if the Court were to assume the vehicle was fully manufactured and

operational while awaiting shipment to petitioners, Brown and Noell tell us that

the vehicle could not be considered placed in service unless and until the vehicle

was readily available to serve its assigned function for petitioners' personal use on

a regular basis. The Court finds that the low-speed electric vehicle was not

- 17 available for its intended use on a regular basis until it was delivered on June 8,

2010. Consequently, petitioners did not place the vehicle in service in 2009 and

are not eligible for a PEVC for that year.5

The Court has considered all of the arguments made by the parties and to

the extent they are not addressed herein, they are considered unnecessary, moot,

irrelevant, or without merit.

To reflect the foregoing,

Decision will be entered

for respondent.

5The American Recovery and Reinvestment Tax Act of2009, Pub. L. No.

111-5, sec. 1141(a), 123 Stat. at 326, amending sec. 30D modified the plug-in

electric drive motor vehicle credit. The modification created a new credit against

tax for qualified motor vehicles "acquired after the date of the enactment of this

Act". R sec. 1142(a)-(c), 123 Stat. at 328-331. The enactment took place on

February 17, 2009. R Thus, the new credit against tax applies to qualified motor

vehicles placed in service after February 17, 2009, and before January 1, 2012. Id.

The amount of the credit is 10% of the cost of the vehicle, up to a maximum credit

of $2,500. R To qualify, a vehicle must either be a low-speed vehicle propelled

to a significant extent by a rechargeable battery with a capacity of at least four

kilowatt hours or be a two- or three-wheeled vehicle propelled to a significant

extent by a rechargeable battery with a capacity of at least 2.5 kilowatt hours. R,

123 Stat. at 329. This credit was available to petitioners for the tax year in which

the qualified motor vehicle was placed in service, which was tax year 2010. The

Court does not have jurisdiction of petitioners' tax year 2010.