There are a lot of loopholes in the U.S. That’s mainly because there are countless laws, rules, and regulations being enacted almost daily in America; and the more of these there are, the greater the number of loopholes will be.
But there’s one loophole created where federal tax laws intersect with a promotion offered by a major U.S. automaker. In fact, you could say that the loophole is so big that you can drive a Chevy Volt through it.
When Government and Detroit Collide
You may have heard about Chevrolet’s money back guarantee offer. General Motors says that for a limited time, any customer who doesn’t like his or her Chevy vehicle can return it for a full cash refund for any reason. This promotion includes the Volt, Chevy’s plug-in electric vehicle.
A few years ago, the federal government instituted a tax credit for any American who purchased a qualifying alternative-fuel vehicle in an effort to promote sales of these products. The Volt is one such vehicle, and it can earn a purchaser $7,500 in federal tax credits (and perhaps more in state tax credits).
Therefore, when you pair Chevy’s money back offer with Uncle Sam’s tax credit, here’s what you get: a situation where a person can buy a Chevy Volt, return it for a full refund, and still keep the money earned by the tax credit! And the IRS can’t do anything about it because it’s perfectly legal!
How Is This Possible?
The conditions for obtaining the $7,500 tax credit only refer to the alternative-fuel vehicle being “placed into service.” That means the owner must legally register it with the state (and perhaps purchase an auto insurance policy for it). But the IRS form does not say anything about how long you must own the vehicle in order to qualify for the tax credit.
Meanwhile, Chevrolet only requires buyers to return the purchased vehicle before 60 days have elapsed (but after 30 days have passed) without damage and with fewer than 4,000 miles on it. The promotion applies to all Chevy vehicles purchased (but not returned) before September 4 of this year. The automaker will reportedly refund the entire purchase price along with the sales tax paid; the only money that the buyer will not get back is what was paid to register the vehicle with the state and a month’s worth of auto insurance premiums (and possibly some financing fees imposed by the Chevy dealer). But even then, a taxpayer who claims the alternative-fuel credit should still earn a profit of at least $6000.
Here’s the most astonishing aspect of this loophole: there’s a strong probability that no one really cares that it exists.
Why? Because Chevrolet would love to see sales numbers for the Volt improve, since only 1,760 of them were sold in June across the nation (to put that in perspective: more than 31 times as many Ford F-Series pickup trucks were sold that month). And even if Volts were returned later, Chevy’s August and September numbers would receive a significant boost — which would make shareholders happy.
Is This Legal?
So is this loophole “cheating the IRS?” It depends on how you define “cheating.” If you subscribe to the legal definition of cheating — also known as fraud — then consumers who take advantage of this loophole are not cheating because no laws are being broken. But if you believe that the spirit of the law is being violated by people earning end-of-year tax credits for cars they no longer own, then you may feel that this tax credit abuse does constitute cheating the IRS. But you would also have to admit that General Electric’s perfectly legal practice of claiming numerous tax credits to avoid paying any income taxes would also be considered cheating.
One thing’s pretty certain: the odds of anyone acting quickly enough to close this loophole are slim to none.