A lot of us are waiting for Jan for our new Prius to take advantage of the tax credit. There have been a few threads recently by people who are being pressured by dealers to sign some kind of paperwork in 2005, then, in 2006, tear up the 2005 paperwork and redo it dated 2006. Or some variation on this theme (dealers are very inventive). Basically, the dealers want to take the cars off their inventory and put it on yours. For the most part, it's clear that the IRS will consider that you put the car into service, thus disqualifying you for the 2006 tax credit. Yep, it going to be happening more and more. We need a tax expert to chime in here and let us know if there is ANY possible scenario or type of paper transfer of a car in 2005 that would GUARANTEE the 2006 tax credit. (My guess is that there is not!) We need to protect ourselves. I'm older and have come out on the bad side of deals numerous times, so I am skeptical of everything and everyone. I would walk away from any attempt to circumvent the tax laws. But 20 or 30 years ago, I might have bit on this one, signed the bogus paperwork,and gotten the instant gratification. We have to warn some of the younger buyers. Lawyers...help me out here. Can we boil it down to either: 1. Yea, it possible to sign paperwork in 2005 that also insures the 2006 tax credit, but be careful to the following points.....etc OR 2. Run, run away from ANY such offer as fast as you can!!!
I'm not a lawyer or a tax expert but, I believe that, if you get a written guarantee from the dealer guaranteeing to pay you the credit if the IRS disqualifies you, this agreement would be legally binding. You won't get a dealer to agree to this for this reason but you can use it as an effective reply. My dealer backed down after I agreed with this proviso.
Generally registration of your vehicle consitiutes putting it into service. As long as you do not close the deal and your final purchase agreement is dated after 12/31/05, in addition to the fact that your vehicle was not registered in 2005, should enable you to get the credit as opposed to the $2,000 deduction for tax year 2005.
Just a thought...I bought my 05 Prius in November. Why not trade it in on an 06 in January thus getting the 05 deduction and 06 credit. I know availability might be a problem but as of today there doesn't seem to be a shortage of 06's in my area.
This conversation really should move back to the original thread, '06 Credit Available even if you take it in '05?, where I posted the response I got from a professional financial planner/tax planner.
I love this idea...I'll just have to tell my wife, "The car was always black, with a rear camera and leather seats!"
From Sec. 179A. Deduction for clean-fuel vehicles and certain refueling property: (4) Recapture The Secretary shall, by regulations, provide for recapturing the benefit of any deduction allowable under subsection (a) with respect to any property which ceases to be property eligible for such deduction. That means, consult with your tax advisor before trying something like this. B)
Here's the problem and this applies REGARDLESS of what anyone tells you, what you've read here or elsewhere, and/or any professional advice you may receive or have received from a tax professional, attorney, et al: No one can guarantee you that your return will not be selected for audit If you are audited, and the office auditor disallows the credit, then you'll either have to pay the additional assessed tax (deficiency) or appeal. If you appeal (to a regional IRS appeals office, internally) and lose, again, you have choices; pay the deficiency and forget it, pay the deficiency, file a claim for a refund with the IRS, and then, after the claim is denied, appeal to a Federal District Court or Claims Court, or do not pay the deficiency and appeal to the U.S. Tax Court. If none of the foregoing sounds like your cup of tea, then run. If you're willing to roll the bones, then by all means do so.
From Sec. 179A. Deduction for clean-fuel vehicles and certain refueling property: "© Qualified clean-fuel vehicle property defined For purposes of this section - (1) In general The term ''qualified clean-fuel vehicle property'' means property which is acquired for use by the taxpayer and not for resale, the original use of which commences with the taxpayer,"... The IRS usually applies a reasonableness test. i.e. Would a reasonable person believe that a car purchased in December for which a tax deduction was taken and subsequently sold in January was not purchased with the intent of resale? I think the scenario described would fail this test. Consult with your tax advisor before trying something like this.
I don't think a tax advisor is necessary. The IRS will always rule in its favor. Although I still think the language is poorly conceived.
The best chance to game the system is to take advantage of the Toyota's dealer's motivation, not the IRS' motivation. The dealer is trying to sell in December to make his monthly numbers. There is a reasonable chance that his December monthly numbers don't have to be in until Jan 2 or 3. (Can a Toyota person confirm this? Troy?) So convince your Toyota person to get all the paperwork ready ahead of time, and then come in on Jan 1 or 2 for 15 minutes and sign the paperwork with you. Use the Jan date on all the paperwork. It'll still go toward the December quota, but you get your tax credit. Everyone wins, though the salesperson did have to spend a few minutes in the office on a possible day off. A smart sales person might line up several sales and spend a couple of hours in the office to make their numbers for the month. Remember, the reason the dealer wants the sale now is because of the December numbers. That's the system you want to game. Not the IRS. The feds have much bigger teeth.
Problem is, if the IRS looks, it will likely give Toyota's documentation more weight than yours. The simplest option is still the best: Conduct the transaction after December 31, 2005 as the law states.
Sage advice. Anyone attempting to circumvent the tax laws do so at their own peril! You have been warned.
