Wanna Get Away

You could finance your dream vacation with the purchase of a Chevy Volt. Thank you Mr. President!

  by: Mark Modica ( July 12, 2012)

General Motors has announced a 60 day money back guarantee policy for all new Chevy models, including the Chevy Volt. The move sets up a scenario where purchasers can buy a Volt, claim the $7,500 federal tax credit (and most likely state credits) and return the vehicle for a refund within 60 days. Did GM really not consider this glitch, or is this just

Every Volt now comes with it’s own Fireworks Display

another way for Government Motors to prop up politically important Volt sales leading up to November elections?

IRS tax form 8936, for plug-in motor vehicle credit, does not have any minimum time requirement for buyers to own their qualified vehicles. The vehicle only has to be new and purchased during the tax year being claimed. Buyers of Volts will have documentation and VIN numbers for qualifying vehicles. The 60 day return policy lays the groundwork for a very easy way to scam the IRS out of $7,500. Buyers will most likely have to eat registration fees and sales tax paid that will be deducted from refund. So, in an effort to save taxpayers millions of dollars on the potential scam and save GM and its shareholders from losing more millions of dollars on the Volt, I suggest the Volt be exempted from the return program.

Of course, there is the possibility that Government Motors is aware of the situation. Volt sales may pick up, if enough people hear of this. Millions of dollars in tax credits will be claimed and GM can tout improved sales. GM will then have returned Volts to sell that will no longer qualify for the tax credits; the vehicles will be sold as used for thousands of dollars less. GM will have to reimburse dealerships for some portion of the losses. And unless the IRS has a database of VIN numbers for qualified vehicles, buyers of used Volts with low mileage may be tempted to claim the tax credit again, upping the federal subsidy to $15,000 per vehicle. Hopefully the IRS has safeguards to prevent double claiming of EV credits. In the past, the IRS did not seem too concerned as there was not even a field on prior year forms for VIN numbers, something that changed after my criticism of GM dealerships taking tax credits.

So, for the sake of taxpayers, let’s hope that GM tries to rely on GE to purchase a bunch of Volts to prop up sales instead of costing taxpayers lost revenue on an easy scam by purchasers of Volts.

Is That Your 401k?

I recall speaking to some folks a few years ago about the possible confiscation of peoples retirement as the government runs out of money. I also recall, everyone I spoke with called me a crazy person. Well, here we are a few years later and looky, looky. They aren’t proposing full confiscation yet, but it’s a start.

Feds eye retirement-fund tax to cut $16 trillion-plus deficit

By GREGORY BRESIGER

Uncle Sam, in a desperate attempt to fix its $16 trillion-plus deficit, is leering over Americans’ retirement nest egg as its new bailout fund.

Capitol Hill politicians are assessing tax changes that could let the Internal Revenue Service lay claim to a portion of the $18 trillion sitting in 401(k) accounts and other tax breaks used by middle-class workers, including cutting the mortgage tax deduction.

A commission looking for ways to close the deficit, and, noting the extent of 401(k) tax breaks, recommends an examination of the system as one way to prevent government bankruptcy.

Besides 401(k)s, other possibilities include the mortgage-interest deduction on second homes, as well as benefits from employer-provided health insurance, which are untaxed now.

Under current 401(k) rules, total employee/employer contributions can’t exceed $50,000. In the proposed rule change, employer/employee contributions would be limited to 20 percent of the employee’s compensation, with a maximum of $20,000, the so-called 20/20 proposal.

Another proposal being discussed in Congress says all tax deductions on 401(k)s and IRAs to be replaced with an 18 percent credit. The credit, according to a proposal that has been endorsed by economist William Gale, would be placed directly in a person’s retirement account.

“Unlike the current system,” Gale told Congress, “workers’ and firms’ contributions to employer-based 401(k) accounts would no longer be excluded from income and would be subject to taxation, contributions to IRAs would no longer be tax-deductible and any contributions to a 401(k) plan would be treated as taxable income.”

In other words, the employee and employer would no longer get a deduction under the Gale plan, they would qualify for a credit. And the credit would “increase [government] revenues by about $458 billion,” Gale says.

Last week a group of retirement industry experts went to Capitol Hill to criticize these proposed changes in retirement-plan rules. “These changes could have unintended consequences,” warns Lynn Dudley of the American Benefits Council (ABC).

Testifying before the House Ways and Means Committee about the proposals, Randolf Hardock, of ABC’s board of directors, said, “[The idea] could seriously undermine the retirement savings system.”

Jack VanDerhei, research director of Employee Benefit Research Institute (EBRI), believes either of the two proposed 401(k) changes under review would have a “catastrophic” effect on the current retirement saving system.

The 20/20 plan provisions curtailing non-taxable contributions would freeze out many higher-paid employees from signing up for a 401(k), which could lead some companies, according to critics, to question if plans would still be worth offering employees.

Reducing retirement-plan contributions for those at the higher end of the wage scale will inevitably have a bad effect on those in the middle and at the bottom, ABC’s Dudley says.