"Backup Contract"?

Please review the following thread: '06 Credit Available even if you take it in '05? and specifically my post: 170864

I would add that, if you agree to this arrangement with your dealer, try to get him to guarantee you the credit if, because of this arrangement, the IRS disqualifies you for the credit.

 

I believe that Toyota will send the VIN numbers of all the hybrids which qualify for the '06 credit to the IRS for confirmation. IF that is the case, and yours is reported sold this year to Toyota, it will not be on the list and will not qualify.

How else can the IRS keep track of the first 60,000 hybrids? There may be another way, but it is not worth the chance.

 

This is definitely the fishy part. If you take delivery in 2005, you do not qualify for the 2006 tax credit.

If you just sign "papers" in 2005, it's a bit fuzzier. Sounds like the paperwork transfers the car to your name. Then, who is liable for the car when it is sitting on the dealers lot?. I'll bet they would make you insure the car. We would need a tax expert, but that sounds like the IRS would consider that you put the car into service, and again you would not qualify for the 2006 tax credit.

The deal is just to fuzzy. In dealing with the IRS, you live and die by the paperwork trail. Using the 2006 paperwork is just to iffy. I'm sure the dealer will protect himself, but you may be left hanging out to dry if the IRS decides the deal constituted tax fraud!

 

Ask for a sample copy of both contracts and call your local IRS office. They might want to pay them a visit.

 

I hope this works out because I just entered into a similar arrangement. Moreover, I know of another dealer and another buyer doing something similar.

I am not particularly worried about the tax problem. According to the law and Toyota's own letter regarding the tax credit, the credit is available so long as the car is (1) new and (2) delivery is accepted after January 1, 2006 (or as the law puts it, "placed in service by the taxpayer during the taxable year.") It really should not matter if the Prius is a 2004, 2005, or 2006, or if the car was purchased in November or December of 2005 - so long as the car is new and put into service in 2006.

Toyota may have to report the VIN numbers so that the phase-out period can be calculated, but the calculation is a process separate from the determination of whether a particular taxpayer is eligible because of the purchase and use of a particular car. The calculation is triggered by the number of qualified cars that are sold for use after December 31, 2005. There is nothing in that section of the law mentioning that the cars must be sold and put into service by the taxpayer.

In short, there apparently does not need to a one-to-one correspondence between the cars that trigger the credit for an individual taxpayer and the cars that trigger the phase-out period. If that were the case, the two parts of the statute would have used identical language and probably even an express requirement. This type of close, but not exact, relationship is common in such statutes.

Therefore, I am fairly comfortable relying on the final contract, insurance, vehicle registration records, and, if necessary, my own statement under the penalty of perjury, to show that I received delivery of the car after January 1.

As to the other potential problems with such an agreement, I suppose it depends on the details and your relationship with the dealer. If you are financing the purchase through a bank, it may also want to make sure that it is all okay.

Well, that is a long first post. I will try to be more brief in the future.

 

I asked my buddy who is an IRS auditor, and he laughed. First, he didn't have any idea about the new law, because he's always working on auditing returns that are at least two years old. But he looked at it, and felt that it could be considered a tax avoidance scheme, and probably would not be looked on favorably in the unlikely event you are audited.

I still wouldn't do it, even with the "unlikely" nature of an audit from the IRS. I would be concerned that the car dealer will say anything possible to get you to take the car, even lie, and doesn't care if you don't qualify for a tax break a year and 4 months from now when you go to do your taxes.