CCH Tax News Headlines = August 4, 2009

Posted by John H. Fisher on August 5, 2009, 3:01 am

Please log in for more thread options

CCH Tax News Headlines = August 4, 2009

Federal Headlines: - http://tax.cchgroup.com/news/headlines/2009/nws8409.htm#1
8/4/2009 - Senate Hopes to Clear "Clunkers" Bill Before Recess
8/4/2009 - Collection Proceedings Were Not Abuse of Discretion
(Willock, TCM)
8/4/2009 - Subsidiary's Redetermination of FSC Commissions Barred by
Assessment Statute of Limitations; Regulation Reasonably Interpreted
(Abbott Laboratories, CA-FC)
8/4/2009 - Overstatement of Basis Was Not Omission of Gross Income;
Six-Year Assessment Limitation Period Did Not Apply (Salman Ranch
Ltd., CA-FC)

State Headlines:
8/4/2009 - All States --Sales and Use Tax: SST Panel Asked to Rule
on Viability of Origin-Sourcing Option
8/4/2009 - California --Corporate, Personal Income Taxes: FTB
Clarifies Tax Treatment of "Cash for Clunkers" Vouchers
8/4/2009 - Connecticut --Multiple Taxes: Governor's Third Budget
Proposal Contains Some Tax Increases

Missed a headline? Click here for last week's tax highlights. -
http://tax.cchgroup.com/News/TaxNews/default.asp?PageID=4

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by D. Stussy on August 5, 2009, 5:40 pm

Please log in for more thread options

> CCH Tax News Headlines = August 4, 2009

> ...

> State Headlines:

> 8/4/2009 - California --Corporate, Personal Income Taxes: FTB

> Clarifies Tax Treatment of "Cash for Clunkers" Vouchers

But is it actually a sale or exchange? It's NOT valued at the FMV of the
vehicle given up, but at a government set price. Also, although passed
through to the consumer, it is the DEALER who applies for the amount.
Since the government doesn't actually take possession, I don't see
constructive receipt as applying either. Vehicles are titled property. Is
the U.S. government recording a new title for their acquisitions? NO.
It's NOT a sale.

Is this a taxable government benefit? Maybe*. Perhaps it should be
reducing the basis of the acquired vehicle instead, which has no current
tax effect, just as any other rebate would. Therefore, it's not recognized
until this new vehicle is later sold. (*-Congress declared it isn't, at
least federally, in the bill itself).

Is this a 1031 exchange? Not entirely. Although the dealer may be an
accomodator and it might be a 1031 to the consumer, where's the taxable
amount coming out? The consumer gives up a used vehicle and additional
cash for the difference (less $3,500 or $4,500) and gets a new vehicle.
However, as the consumer has paid IN, there's no taxable result to him.
His basis in the new vehicle is the old vehicle's basis plus the cash he
paid. However, with the dealer and the government, it's NOT even a sale -
as the government never takes possession or title. (For purposes of 1031,
I'm ignoring the business property requirement for the moment.)

So, where's the position that the CA FTB has taken that yields a taxable
result to the consumer?
Is the FTB's only premise that it's income based on IRC 61 - anything not
excluded is included?

I see this as the dealers' income, not that of the consumers. The dealers
are the parties taking in the used vehicles and getting paid the credit to
destroy them. Paying a rebate (by passing on the credit) reduces basis
(IRC 263A regulations/case law). It's still in the dealers' [federally
non-taxable] gross receipts before returns/allowances.

>From the Los Angeles Times:

"The 'cash for clunkers' law specifically states that the
cost savings aren't considered income for the buyer
and are not subject to federal income taxes."

URL: http://latimesblogs.latimes.com/uptospeed/2009/07/clunkers.html

I'm uncertain as to the correctness of the CA FTB's ruling on this:

"California income tax purposes as a sale or exchange of the
used car that the person delivers, in exchange for consideration
of the $3,500 or $4,500 voucher, as the case may be. Persons
trading in used cars may offset the applicable amount realized by
the basis of the used cars relinquished, which is generally cost,
in determining whether they realized gain on the transaction."

I can't find any document on the FTB's web site that leads to that
conclusion. I tried searching for "Car Allowance Rebate System", "CARS",
"cash for clunkers", and "July 30, 2009" (the alleged date of the
announcement per CCH). All searches I tried on Google lead back to the CCH
article as the source.

So, what is the California Franchise Tax Board's non-conforming position
based on?
Did the consumer "sell" his car to the dealer or to the U.S. Government
(who paid)?

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by Kurt Ullman on August 5, 2009, 7:28 pm

Please log in for more thread options

> "California income tax purposes as a sale or exchange of the

> used car that the person delivers, in exchange for consideration

> of the $3,500 or $4,500 voucher, as the case may be. Persons

> trading in used cars may offset the applicable amount realized by

> the basis of the used cars relinquished, which is generally cost,

> in determining whether they realized gain on the transaction."

> I can't find any document on the FTB's web site that leads to that

> conclusion. I tried searching for "Car Allowance Rebate System", "CARS",

> "cash for clunkers", and "July 30, 2009" (the alleged date of the

> announcement per CCH). All searches I tried on Google lead back to the CCH

> article as the source.

Even worst a case, though, wouldn't the only thing that could be
remotely taxable is any difference between the voucher and trade-in
value of the car? According to Edmunds, a 1991 Ford Bronco trade-in
would be around $100.00. The only thing taxable MIGHT be the $4400
difference correct? How could anything else be considered income or
taxable?

--
Searching is half the fun: life is much more manageable when thought
of as a scavenger hunt as opposed to a surprise party.
Jimmy Buffett

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by D. Stussy on August 6, 2009, 10:02 am

Please log in for more thread options

> > "California income tax purposes as a sale or exchange of the

> > used car that the person delivers, in exchange for consideration

> > of the $3,500 or $4,500 voucher, as the case may be. Persons

> > trading in used cars may offset the applicable amount realized by

> > the basis of the used cars relinquished, which is generally cost,

> > in determining whether they realized gain on the transaction."

> >

> > I can't find any document on the FTB's web site that leads to that

> > conclusion. I tried searching for "Car Allowance Rebate System",

"CARS",

> > "cash for clunkers", and "July 30, 2009" (the alleged date of the

> > announcement per CCH). All searches I tried on Google lead back to the

CCH

> > article as the source.

> Even worst a case, though, wouldn't the only thing that could be

> remotely taxable is any difference between the voucher and trade-in

> value of the car? According to Edmunds, a 1991 Ford Bronco trade-in

> would be around $100.00. The only thing taxable MIGHT be the $4400

> difference correct? How could anything else be considered income or

> taxable?

OK, but is it a sale, and to whom: The dealer or the U.S. Gov't?

In all likelihood, if the adjusted basis of a vehicle is that low, it was a
business use vehicle, in which case 1031 can be used to render the gov't
payment as non-recognized even under California law. If it were a personal
use vehicle, then basis is still the original cost (plus capital
improvements) because there was never any depreciation, so in general, the
sale will be a loss (one not recognized as personal losses aren't
deductible). Except for the rare case where the used vehicle's original
purchase price was less than the credit, how would there ever be income
here? I am unaware of any vehicles over the past 25 years that sold for
less than the credit amount when new. It's NOT CoD income as that first
requires a debt, and there's no debt on the new vehicle, and the credit is
clearly tied to it, not the old vehicle. How else could a person pay INto
the transaction and still have income?

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>