You already know your car cannot function safely without sturdy and properly fit wheels. A wheel is complex, and several components must be integrated for it to function safely—including the bearings.

The proposed rules would apply to tax years on or after the date the final rules are published in the Federal Register. Taxpayers may rely on the proposed rules for tax years beginning after December 31, 2022, if they follow the proposed rules in their entirety and in a consistent manner.

The proposed rules describe the requirements for electronic pre-filing registration for eligible taxpayers that want to elect direct pay. The IRS also released temporary rules (TD 9975) that list the requirements and state that the IRS anticipates opening the electronic portal for pre-filing registration in Fall 2023.

How tocheckwheelbearing while driving

The IRS has released proposed rules (REG-101607-23) on the direct-pay election of applicable energy credits under IRC Section 6417.

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While most estimates suggest wheel bearings should last between 75,000 and 150,000 miles, the actual lifespan depends on:

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The proposed rules provide that an applicable entity may engage with other entities, including with for-profit partners, in certain types of ownership arrangements while preserving their ability to make a direct-pay election under IRC Section 6417(a) for its share of the applicable credits.

At the same time, the IRS released proposed rules (REG-101610-23) on transferring renewable energy credits (see Tax Alert 2023-1103), FAQs on the two options and temporary rules (TD 9975) on the pre-filing requirements. Taxpayers choosing to receive elective payments of the credits under IRC Section 6417 cannot transfer the credits under IRC Section 6418.

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

The IRA provides a direct-pay option for certain credits. Under new IRC Section 6417, an "applicable entity" can make a direct-pay election (effectively treating tax credits generated by a renewable energy project as equivalent to taxes paid on a filed return), but only for certain tax credits, including:

Tire balancing is an important component of your routine automotive maintenance schedule. Like changing the oil, balancing the tires is something that vehicle owners are encouraged to do several times throughout the course of the year. This is also something you’ll want to make sure to have done by automotive service professionals. There are […]

Most people are aware of the need for general car maintenance. It’s essential to take care of the basics, like regular oil changes and checking battery terminals for corrosion. But, getting an alignment is just as important. Many think it’s simply a minor irritation when your alignment starts to get off. The truth […]

Freewheelbearing check

Keep in mind that wheel bearings are not the same as engine bearings, as there is no constant source of lubrication for wheel bearings. This means they must be tight enough to keep water and road dust out. They also support the entire vehicle weight while driving, so they endure abuse from rough roads and potholes, as well as lateral forces when turning.

In the Preamble to the proposed rules, the IRS said that it anticipates that "excessive payments may arise in a variety of situations, such as an improperly claimed bonus credit amount, an error in calculating a credit, inflated basis, failure to apply the [IRC S]ection 38(d) ordering rules, or a misapplication of the credit utilization rules, among other things." If the IRS determines that an excessive payment has been made, the taxpayer's federal income tax for the tax year in which the determination is made would increase by the excessive payment plus 20% of the excessive payment. Taxpayers have the opportunity to demonstrate that the excessive payment resulted from reasonable cause, in which case the 20% excessive payment penalty does not apply.

The proposed rules also outline the methodology for taxpayers to determine their direct-pay-eligible amount, which will first offset their current-year tax liability, with any excess credit being refundable. Taxpayers should pay special attention to the pre-filing registration requirements as these requirements are a condition precedent to making an effective direct-pay election. Taxpayers must complete the registration for each eligible facility or property, so it is likely that many taxpayers will need to complete, and possibly renew, multiple registrations each tax year.

The payment would be treated as tax-exempt income and allocated to the partners or shareholders based on their share of the credit as determined under Treas. Reg. Section 1.704-1(b)(4)(ii). The income would be treated as arising from an investment activity, not from the conduct of a trade or business under IRC Section 469(c)(1)(A), and therefore would not be treated as passive income to any partners or shareholders who do not materially participate.

The best advice is to head to your nearest auto shop that offers wheel repair and replacement services. If you’re on the road, slow down steadily and avoid turning rapidly. If you drive long distances on a bad wheel bearing, you’ll eventually lose control of the vehicle, and the wheel will stop suddenly.

The proposed rules give detailed definitions for applicable entities. According to the proposed rules and FAQs, states, political subdivisions and their agencies and instrumentalities are eligible for direct-pay elections. In addition, cities, counties, water districts, school districts, economic development agencies, and public universities and hospitals that are agencies and instrumentalities of states or political subdivisions are also included in the definition of applicable entities.

Signs of rearwheelbearing failure

For the IRC Section 45Q credit, the direct-pay election applies separately to carbon capture equipment originally placed in service by the applicable entity during a tax year. Additionally, any taxpayer making a direct-pay election may revoke that election, which will apply to each subsequent year remaining within the five-year period.

If you notice signs of a bad wheel bearing, visit your nearest Meineke location. Once you bring your vehicle to us, we’ll perform a thorough diagnosis to honestly determine if a replacement is necessary.

If you want to know how to check for a bad wheel bearing, place your car on a jack stand, grip your hands on the 6 and 12 o’clock positions of the tire, and then spin the wheel to see if it wiggles. It’s also a great way to learn how to tell which wheel bearing is bad.

From a procedural perspective, a direct pay election generally (1) applies separately to each applicable facility or property, (2) must be made in the first year the facility (or applicable equipment) is placed in service and, (3) applies for the full applicable credit term period, subject to the time-limited direct pay options for certain taxpayers described previously. Certain credits tie the ability to elect direct pay to the satisfaction of the domestic content requirements. Additionally, partnerships or S corporations that directly hold a facility or property eligible for the credit must make the direct-pay election, and it is the partnership or S corporation that receives the direct payment (as opposed to the partners or owners). Finally, an additional 20% penalty can apply to taxpayers receiving "excessive payments."

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Some taxpayers had hoped that there would be a quicker way to get the direct payment. A calendar-year non-profit that generates a tax credit in 2023 would find that its tax return is not due until May 15, 2024. If extended, the deadline could be as far out as December 15, 2024, at which time the non-profit would claim its refund, which would then need to be processed before being paid. This could mean a two-year wait from credit generation to direct payment receipt. Taxpayers will have to evaluate the timing of cash flow when considering investments that generate tax credits eligible for the direct-pay provision.

If you’re driving on the highway and a wheel breaks off, it’s because a wheel bearing failed. What are the signs of a bad wheel bearing, and what can you do about it? Here, we explore wheel bearings, including what they are, how they work, and how to tell if they’re about to fall off.

Drywheelbearing

The proposed rules clarify that the payment cannot apply against estimated tax payments, "because taxpayers can determine, based on their projected tax liability, the correct amount of estimated tax to pay in order to avoid a[n IRC S]ection 6654 or [IRC S]ection 6655 estimated tax penalty at the end of the year," according to the Preamble.

Should you invest the time and money required to have your vehicle’s suspension lowered? It’s a question that many drivers never even think about. Before you make the decision to proceed with lowering your vehicle’s suspension, consider the options and understand the pros and cons that a lowered suspension entails. Why Get a […]

The IRS received over 200 comment letters on the IRC Sections 6417 and 6418 provisions in response to a request for comments. Written or electronic comments on the proposed rules must be received by August 14, 2023.

The amount of miles your vehicle can endure will depend on how extensive the damage is and the conditions on the road. If you’re concerned about replacement costs, note that the average estimate for a replacement is about $350 for each bearing.

Under the proposed rules, a taxpayer may not "chain" an election for credits under IRC Section 6417 from other sources. To claim the credit, the taxpayer must own the underlying credit property or conduct activities on which the credit it based. The ownership can be direct, through a disregarded entity or through other types of ownership interests where the taxpayer has an undivided interest or share of the underlying eligible facility property.

The Inflation Reduction Act added IRC Section 6417, which allows eligible tax-exempt taxpayers to make a direct-pay election for certain energy credits so they can get payments from the government instead of tax credits. The proposed rules give details on implementing this direct-pay election.

A wheel bearing is a set of steel balls held together in a metal ring called a race. The race is located inside the hub, and each wheel has one. At the center of the wheel is a hollow piece of metal called a hub. The wheel bearings fit tightly inside this hub and ride on a metal axle shaft, helping reduce friction when the wheel spins.

The proposed rules confirm that partnerships and S corporations are not "applicable entities," even if they are tax-exempt or governments, so they are ineligible for direct pay unless the credits are for carbon capture projects (45Q), the production of clean hydrogen (45V) or advanced manufacturing (45X).

As noted, partnerships and S corporations are not "applicable entities," unless the credits are under IRC Sections 45Q, 45V or 45X. Eligible partnerships or S corporations can make the direct-pay election if they directly hold the facility or property eligible for the credit, make the direct-pay election and receive the direct payment (as opposed to the partners or owners).

An elective payment election may only be made on an original annual tax return, which must be filed by the due date (including extensions) for the original return for the tax year for which the applicable credit is determined, beginning with tax year 2023. Elective payment elections cannot be made or revised on an amended return or by filing an administrative adjustment request.

Under the pre-filing requirements, taxpayers that want to make a direct-pay election would have to obtain a registration number for each eligible property by supplying the required information about the applicable credits and property. The IRS will review the information and issue a separate registration number for each applicable credit property. The registration number would only be valid for one year and would have to be renewed each year. The registration number would be included on the taxpayer's annual tax return. Once made, the election would be irrevocable and apply to any applicable credit for the tax year for which the election is made.

The proposed rules provide electing taxpayers with a methodology to determine the credit amount for the direct-pay election. Under the proposed methodology, the taxpayer would first compute its federal income tax liability and allowed amount of IRC Section 38 credits (general business credits) for the tax year, inclusive of credit carryforwards. The taxpayer would then apply its allowed IRC Section 38 credits against its current year tax liability and determine any amount of excess or unused current-year credits. Finally, the taxpayer would reduce its direct-pay-eligible amount by the amount (if any) allowed as a credit under IRC Section 38.

The proposed rules provide direct-pay-eligible taxpayers with much-needed clarity on the requirements and timing for making an election. The inclusion of state and local government agencies and instrumentalities in the definition of "applicable entity" resolves some uncertainty based on the plain language of IRC Section 6417.

As noted, the direct-pay option can only be used by "applicable entities," which generally only include entities exempt from federal tax under subtitle A, state or local governments, the Tennessee Valley Authority, Indian tribal governments or an Alaska Native Corporation. However, certain important exceptions to the "applicable entity" limitation exist, so any eligible taxpayer can elect direct pay for:

The proposed rules further clarify that direct-pay elections cannot be made for credits (1) purchased under IRC Section 6418, (2) transferred under IRC Section 45Q(f)(3), (3) acquired by a lessee from a lessor in a pass-through election, or (4) owned by a third party or otherwise not determined directly by the applicable entity or electing taxpayer.