Maquoketa! The Day 1 team of the ISU Center for Agricultural Law and Taxation Farm and Urban Tax Schools is in the northeast Iowa town of Maquoketa, known for its cave system and the 61 Drive-in theater, “one of the few remaining outdoor theaters in the United States.” We then get two weeks off before the penultimate session in Denison, on the other side of the state, and our December 14 final session in Ames. Register here for one of the final schools or for the webcast of the Ames session.
“Ordered” doesn’t cut it for year-end asset purchases. Among the many silly tax rules enacted in the panicked response to the 2008 financial crisis was the tax credit for “low-speed electric vehicles,” more conventionally known as golf carts. This led to panic buying of golf carts to claim the lucrative tax spiff. Last week the Tax Court disappointed one buyer who tried to get a tax credit purchase in under the wire. It provides a lesson for all taxpayers looking at year-end purchases to get a Section 179 deduction or bonus depreciation.
The credit was available only for carts “placed in service” in 2009. Judge Paris sets the stage (all emphasis mine, footnotes omitted):
Respondent determined a deficiency of $6,253 in petitioners’ Federal income tax for 2009. The issue before the Court is whether petitioners are eligible for a New Qualified Plug-in Electric Drive Motor Vehicle tax credit (PEVC) of $6,253 pursuant to section 30D for 2009. The notice of deficiency did not determine a penalty.
The electric vehicle at issue, a Spark NEV-48 EX, was manufactured by Zone Electric Car, LLC (Zone Electric). Pursuant to Notice 2009-54, 2009-26 I.R.B. 1124 (June 29, 2009), Zone Electric submitted a request on October 1, 2009, to the Internal Revenue Service (IRS) to certify that its electric vehicles were qualified plug-in electric vehicles for purposes of section 30D, which as of the date of the notice allowed a tax credit for qualified plug-in electric vehicles placed in service from January 1 to December 31, 2009. On October 7, 2009, the IRS issued a letter to Zone Electric stating that the Spark NEV-48 EX model “meets the requirements of the Qualified Plug-in Electric Vehicle Credit as a Qualified Plug-in Vehicle.
So the Spark NEV-48 EX qualified — if it beat the deadline. Back to Judge Paris:
The electric vehicle was delivered to petitioners on June 8, 2010, even though petitioners placed an order for a low-speed electric vehicle reflecting their choice of color, radio, and size from Drive Electric, LLC (Drive Electric), through its Web site FreeElectricCar.com on December 21, 2009.
On December 21, 2009, petitioners remitted full payment of $7,786.53 for the vehicle with a credit card and promptly commenced insurance on the vehicle on December 28, 2009.
For charitable contributions and cash-basis business expenses, this would normally be all that is necessary, as a credit card transaction is as good as cash to IRS. But not this time:
Petitioners argue they remitted payment and acquired title to a qualified electric vehicle on December 21, 2009. Petitioners assert that legal title passed to them on the date of purchase and therefore they are entitled to a PEVC for 2009 because the vehicle was acquired before December 31, 2009. However, the statute effective on the date of purchase also required a qualified motor vehicle to be placed in service on or before December 31, 2009.
Petitioners entered into the transaction for purchase of the vehicle just before the close of the year. As previously discussed, they received a bill of sale, which contained a VIN, and a certificate of origin shortly after they remitted full payment. However, a bill of sale containing a description of the vehicle and a VIN is not sufficient to show the vehicle was ready and available for full operation for its intended use. Petitioners have not offered evidence to show the vehicle was available for their use, much less fully manufactured. In fact, the vehicle was not delivered until June 8, 2010, making it impossible for the vehicle to be available for use until that date. Even if the Court were to assume the vehicle was fully manufactured and operational while awaiting shipment to petitioners, Brown and Noell tell us that the vehicle could not be considered placed in service unless and until the vehicle was readily available to serve its assigned function for petitioners’ personal use on a regular basis. The Court finds that the low-speed electric vehicle was not available for its intended use on a regular basis until it was delivered on June 8, 2010. Consequently, petitioners did not place the vehicle in service in 2009 and are not eligible for a PEVC for that year.
So the taxpayer’s golf cart just went up $6,000 or so in price.
The lesson for year-end tax planning is that the same “placed in service” rule applies to year-end fixed asset purchases by taxpayers wanting Section 179 deductions or bonus depreciation. If your business races to buy a big SUV or a new tractor by year-end, it needs to be in your garage or barn by December 31. A new machine has to be on the shop floor, ready to go. “Bought and paid-for” isn’t enough.
Peter Reilly, Tax Court Denies Exempt Status To Group Using Trading Card Games To Promote Sobriety. Peter has an in-depth exploration of last week’s Gamehearts Tax Court case. It explains that the organization denied tax exemption in the case was involved in non-casino games, including “Magic: The Gathering and similar games such as Pokemon and World of Warcraft Trading Card Game.” I had assumed that it was more of a gambling thing. I have edited my original post on the case accordingly.
Peter does not agree with the decision:
This is another example to me of the IRS EO group being out of touch with the modern world. Magic the Gathering has been a thing since 1993. You will also see IRS giving a hard time to not for profits dedicated to open source software. It also turned down a sorority that wanted to operate on-line and a group planning to provide free wi-fi.
The whole exempt organization function is in disarray.
Kay Bell, Is Alaska getting closer to enacting a state income tax? The oil bust has clobbered Alaska revenues.
Jim Maule, Old Tax Returns Have Value. I keep my tax returns forever; Prof. Maule explains why being a tax hoarder can be useful.
Robert Wood, Your Passport Could Be Cancelled If You Owe IRS. Because Congress apparently feels we need one more poorly-considered bill that will hugely inconvenience honest taxpayers and will be impossible to undo.
Russ Fox, The Turf Monster Striketh. With a caution against sending tax ID numbers via e-mail.
Robert D. Flach, YEAR-END TAX UPDATE WORKSHOPS. With some sound year-end planning reminders.
Me, How your calendar might help you beat the IRS. My newest post at IowaBiz.com, the Des Moines Business Record’s business professional’s blog, covers the importance of keeping track of your time to document “material participation” to take tax losses and to avoid the 3.8% Obamacare Net Investment Income Tax.
Steven Rosenthal, Treasury Pulls its Punches on Earnings Stripping (TaxVox). “Treasury made only small technical changes to the definition of an inversion. News reports suggested something much larger—namely limits on earnings stripping, which would have made inversions (and other combinations of U.S. firms with foreign corporations) much less profitable.”
Career Corner. Let’s Enjoy Some Intern Reviews of Various Accounting Firms (Caleb Newquist, Going Concern).