Paul L. Caron

Sunday, July 22, 2012

Tax Consequences of Chevrolet's 'Love It Or Return It' Promotion

Chevy-confidence_2Chevrolet is running a Chevy Confidence Love It or Return It sales promotion for purchases of any new 2012 or 2013 Chevrolet through September 4:  if you do not love the car, you can return it for a full refund (less sales tax) between 31 and 60 days after purchase (as long as the car has been driven less than 4,000 miles). Here is the tax fine print:

Tax Implications: You may be subject to federal, state, or local tax on any benefit paid. You should contact a tax advisor/consultant if You have any questions regarding the tax implications associated with this program.

For example, Edmunds says that a 2012 Chevy Impala LTZ sells new in San Diego for $27,235, and $21,313 used with 3999 miles. So would an Impala buyer have $6,000 income upon returning the car? Or would this be analogous to a purchase price adjustment under § 108(e)(5)?

Hat Tip: Scott Matthews.)

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JS said "Where's the sale in excess of basis to produce income?"

The program is structured as a guaranteed repurchase of the car. See T&Cs at:

So, buy Volt for $40k, take tax credit of $7.5k, basis = $32.5k. Repurchased for $40k, you get $7500 of gain. Credit still exceeds tax on gain.

Also: §30D (f)(5) authorizes regs to "provide for recapturing ...of any credit allowable ... with respect to any property which ceases to be property eligible for such credit."

Posted by: Tu Phat | Jul 24, 2012 8:27:24 AM

The IRS would have to issue an additional publication to neutralize the arbitrage available to an opportunistic taxpayer who buys the vehicle and subsequently returns it. They will probably require the vehicle owner to hold it for 90 days before becoming eligible.

I, too, fail to see the "accession to wealth" in this scenario. You're paying a third party fair market value in an arm's-length transaction. I don't see how the taxpayer is required to realize or recognize.

Posted by: Matthew Rappaport | Jul 23, 2012 11:29:19 AM

"3. However, it is a Chevy and thus would fail Glenshaw 'ascension to wealth' prong."


too funny for tax lawyers

Posted by: bobby b | Jul 23, 2012 9:20:55 AM

You don't get back more than you paid. You don't even get your sales tax back. Ouch. The only issue I can see is timing. If you buy a Chevy in the last month of your tax year, and the right of return does not lapse until the next tax year, in which year should begin depreciation?

Posted by: Walter Sobchak | Jul 23, 2012 7:30:35 AM

So, does this mean that there is thousand upon thousands of tax frauds for exercising Kohl's or Target's return policy? Seems absurd. I think it has to be that the purchase price includes the right of return for 60 days and is just not gross income anymore than its income when you return a used toy or clothing that did not fit your expected needs. Why wouldn't it be considered a reduction in expense as opposed to gross income?

Change of thought...Nevermind... Of course it's not gross income!

The taxpayer's basis in the vehicle is the purchase price plus sales tax. The sales price is the value of the return...since the most you can ever get back there would never be a capital gain (excluding a depreciated vehicle in which case there should be recapture.). The car is a personal use capital asset and would be treated as such.

Where's the sale in excess of basis to produce income?

Posted by: Gov98 | Jul 23, 2012 7:19:27 AM

The contract of sale-or-return has been around since Roman Law and contracts of sale with conditions subsequent aren't exactly new either, so if the tax code hasn't worked out how to deal with these sorts of deal, it really ought to.

Posted by: JS | Jul 23, 2012 7:06:09 AM

1. Fact pattern silent as to if vehicle is financed. There is no discharge of debt. Forgive me, Professor, but I don't see how 108 applies.
2. I think if anything, 61 applies.
3. However, it is a Chevy and thus would fail Glenshaw 'ascension to wealth' prong.

Posted by: Anthony E. Parent | Jul 23, 2012 5:02:21 AM

Considering that other articles have pointed out that many Volts aren't eligible for credits because dealers have found a way to spirit the credit away before the consumer even sees it, I doubt that there'll be much tax fraud there.

Posted by: greg | Jul 23, 2012 1:03:19 AM

"IRS tax form 8936, for plug-in motor vehicle credit, does not have any minimum time requirement for buyers [of the Chevy Volt] 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."

Posted by: Bob | Jul 22, 2012 11:22:23 AM