New Car Sales Tax Credit

[AJsTax]

Read The Earleir Posts

Quote: New Car buyer is just not the original user, but is also to be the first registered owner at DMV. In the scenario that I have - the Auto Dealership is the "Original User" it remains to be seen who the "first time registered owner" is.


DMV requires the dealerships to register the cars so how can the buyer be the original owner?

IRS defines New Car in this issue as original user of the car. A demo car is used the the dealership which makes it the original user.
It matters not to me if you take the credit for your client but it sure is going to matter to your client when the IRS denies the claim and the client owes addition taxes, penalties and license.

Demos are the same as leases...when they are sold they are sold as used cars.

Dealership use of the vehicle DOES NOT COUNT as a proir owner of the vehicle for the purposes of this credit according to the RULE. Try reading it. So the first registered owner of the vehicle outside the dealership is the qualifying event. Now if the car had been sold and bought back by the dealership I might have a problem with that one.

[S T]

TaxEA

Taxea -
Have you not been reading what has been posted

You should also check the rules on "Demos" as your post is somewhat incorrect, at least based on the information I have for California.

Sandy

[taxea]

Quote: New Car buyer is just not the original user, but is also to be the first registered owner at DMV. In the scenario that I have - the Auto Dealership is the "Original User" it remains to be seen who the "first time registered owner" is.


DMV requires the dealerships to register the cars so how can the buyer be the original owner?

IRS defines New Car in this issue as original user of the car. A demo car is used the the dealership which makes it the original user.
It matters not to me if you take the credit for your client but it sure is going to matter to your client when the IRS denies the claim and the client owes addition taxes, penalties and license.

Demos are the same as leases...when they are sold they are sold as used cars.

[S T]

Same Article

Thanks Dany,
That is the same article I found earlier today and posted a small quote on.
We are obtaining DMV history now at least through the Dealership and Carfax, although I have been told by a DMV processor at a Dealership - not to trust those reports.
So t/p might have to go to DMV to obtain.

Sandy

[geekgirldany]

Sandy I was doing some research and found this:

http://www.webcpa.com/ato_issues/2009_9/-50465-1.html?zkPrintable=true

The IRS has not really said one way or another atleast to me. I think facts and circumstances way in. If your client can get the carfax report that would help. If there are two registered owners and it was from a deal that wasn't completed on the car then get a letter from the dealer stating the reason why there are two registered owners. I think with the appropriate paperwork to backup the deduction it would stand an audit.

[S T]

Take a Look TAXEA

IMO common sense, established practice, the fact that the IRS instruction and IRC do not specifically speak to any other way of defining the issue(in this case a new car) make me think we are safe to say that when they say a new car means buyer is original user that is what they mean.

How can you apply "common sense" to this issue? And established practice - there is none for this issue. IRC does specifically speak to the defining issue of the "Qualified New Car" How can you be safe in your assumptions?


If I applied your theory of Common Sense - The "contract" says "USED" and I would have quit there.

New Car buyer is just not the original user, but is also to be the first registered owner at DMV. In the scenario that I have - the Auto Dealership is the "Original User" it remains to be seen who the "first time registered owner" is.

David was right on a prior post - a car salesperson will tell a taxpayer anything they want to hear so the vehicle will be sold. The taxpayer is gullible for that thinking that he will receive a "huge" tax savings. What a game! Since I don't , as a preparer, want to be on the receiving end of an IRS notice or have the client contact me 2 years from now on this issue, I am requesting that the client provide the necessary documentation to establish the deduction. A "PITA" in this case, as it is a mess.

I have spent countless hours on this issue all for a "maybe" potential increase of $420 of tax refund and I am afraid on this "client" that add'l refund is quickly "flying out the window" through no fault of the t/p, but the way dealer represented at point of sale and then subsequently reported on the Contract and possibly DMV.

I hope from this thread that someone else can share the experience and won't have to do as much research, so I will try to update on Monday or Tuesday. At this point all I can say is request those Auto Contracts and review them closely and if need be obtain the DMV History-----


Sandy

[taxea]

Quote from Larmil: In the matter of federal taxes the IRC does not have to conform to state laws and it sometimes does not.

IMO common sense, established practice, the fact that the IRS instruction and IRC do not specifically speak to any other way of defining the issue(in this case a new car) make me think we are safe to say that when they say a new car means buyer is original user that is what they mean.

[Burke]

How do you know they were the first person to title the vehicle?
Does carfax still do the free info by VIN for cars that might show if it was titled previously?

I believe they do. Or the dealer could more than likely get it for him.

[S T]

New Developments

I am working so hard to obtain this $400+ tax reduction for this client, it is pathetic.
I have called many people that I know clients and friends that work in the Automotive Dealership, and the only State that I am dealing with right now is California.

Scenarios from those that have been employed by Auto Dealerships in California and process Contracts and Calif DMV Registration suggest the following:

1. Demo vehicle at dealership should only be authorized to Gen Mgrs and upper mgmt - if sold under approx 7500 miles the contract should reflect New Car and the DMV registration - report of sale should show New Car

2. Demo vehicle at dealership - sold over 7500 miles - should reflect New car on contact and the DMV registration would reflect Used Car

3. Demo vehicle at dealership - if contract shows Used Car would more than likely show Used car at DMV registration as there was a prior sale that was "unwound"

Waiting for the paperwork from the dealership and might have to have the T/p go further to the Calif DMV for the history. My contacts tell me - THIS IS A USED CAR!

FYI - for anyone else in this position, you need all copies of the dealer packet that was signed by the t/p. Which should be a auto sales contract, odometer statement, some statement that recognizes it was a demo, and another statement that it "might" be recognized as a used car. (Of course I am stating California requirments) so each State might be different.

So I guess to be continued on Monday or Tuesday when I receive add'l paperwork

[Larmil]

Yes, in every state I know of. Why would you think that the IRC would not be the same?
You shouldn't read into any of the instructions for what you want it to mean. It is best to read what is there and follow that.

In the matter of federal taxes the IRC does not have to conform to state laws and it sometimes does not.

[taxea]

Yes, in every state I know of. Why would you think that the IRC would not be the same?
You shouldn't read into any of the instructions for what you want it to mean. It is best to read what is there and follow that.

[Larmil]

[QUOTE=taxea;93810]I worked for dealerships back in the day when salesmen were allowed to drive "demo" cars as their personal cars. Then the law tightened up and dealers demo's were only allowed to be driven by the owner or maybe general manager.
The demo's have to be registered and are required to be sold as used cars.

That is a matter of state law.

[taxea]

I worked for dealerships back in the day when salesmen were allowed to drive "demo" cars as their personal cars. Then the law tightened up and dealers demo's were only allowed to be driven by the owner or maybe general manager.
The demo's have to be registered and are required to be sold as used cars.

This dealership rightly issued a used car invoice. This is not a new car. The "first use" was not with your client, the buyer.

Both the sales/excise tax credit and the motor vehicle credit require the vehicles to be new...first used by the TP. Neither apply in this case.

[AJsTax]

Very good points

I don't think it's about denying a legitimate claim at all.

You could ask the question like this, "If audited, what evidence does the taxpayer need to have to claim the new car sales tax deduction?" In which case you might advise the taxpayer as to what they need. It could be part of the service, part of the reason they come to you instead of relying upon The Box. Will a contract indicating the car is "used" and a "the sales guy told me" do it? If not, wouldn't it be better to get the proper documentation now when it's still recent or wait a couple years until audited and hope the dealership still has records that old?

I will agree with what you say. The next move would be to tel the client to get a statement from the dealership that the vehicle was a new title or a copy of a title that shows no previous owner. I am not sure how all states show this. He has to prove this to the IRS if he is audited, not to his tax preparer.

[S T]

Vehicle History

I have asked the T/P to obtain a Vehicle Owner History - looks like he can do that online at Carfax.com, otherwise DMV

I spoke with someone that use to write Auto Contracts, and he said what they did was

Dealership Demo sold - would indicate as NEW on the contract if it had never been registered.

He thought that maybe with 11,000 miles, the vehicle had been sold prior and then the sale "unwound", but the dealership had completed all of the "report of sale info" to DMV, in which case there would be a prior registered owner.

Sandy