The tax-relief industry loves to make IRS problems sound impossible without them. They're not. I'm Darrin Mish. I've been representing taxpayers before the IRS for 32 years. Let me explain how this actually works.
The Obama Administration recently launched a novel program called CARS (Car Allowance Rebate System), commonly known as the ‘cash for clunkers’ program. Under this program, the federal government has set aside $1 billion to reimburse car dealers for giving rebates to customers who trade in their old vehicles to purchase new, more fuel efficient cars or trucks.
The problem arises when it comes to taxes. Do these reimbursements received from the government constitute taxable income? The National Automobile Dealers Association (NADA) says ‘no’ but the IRS says ‘yes’. The IRS contends that taxable income means any income from any source received in the course of doing business, less the cost of goods sold. In view of this impasse, the NADA, NHTSA and IRS have been in deep discussions over the weekend to clarify the situation.
But this problem is only one of the car dealers’ headaches.
The other problem faced by car dealers is the perpetuity of the CARS program itself. Rumor has it that the program has been cancelled due to a lack of funds from the government. However, the program’s official website and certain lawmakers indicate that the program is still on.
Nevertheless, NADA has issued an official caution to its members to continue giving rebates at their own risk. The Obama administration has given its assurance that all deals entered into till Friday would be honored.
The federal government has also taken steps to assuage the fears of car dealers by amending a crucial requirement in the CARS program. Under the original regulation, dealers who accepted ‘clunkers’ must destroy the engines before they could apply for reimbursements. This was to prevent them from re-selling the vehicles. But this would become a problem to the dealers if the federal funds dried up before they could get their money. Thus the new regulation contains an amendment whereby the dealers do not have to destroy the engines before applying for reimbursements. They only need to certify their intention to do so. However, they need to destroy the engines within 7 days of receiving their reimbursements.
As far as the continuity of the CARS program is concerned, the Transport department has said that the Obama administration will give reimbursements on all CARS deals made up to at least Tuesday, after when they will await an official word from the Senate. If Senate does not approve additional funds this week, then the program would be suspended.
In the meantime, car dealers all over the nation will be keeping their fingers crossed.
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