IRS to charge Corporate Income Tax on "Cash for Clunkers" Downpayments

A recent IRS ruling will cause Car Dealers to loose money on every transaction in the Obama Adminstrations "Cash for Clunkers" or C.A.R.S. stimulus program.

According to NHTSA -- the government bureaucracy responsible for administering the CARS program -- conducted a webinar for automobile dealers last Monday. During that session, retailers were reportedly told that the federal rebate cash they'd be receiving would be non-taxable. Now, for the buyers trading in so-called clunkers, this is indeed the case. Unfortunately for car dealers, however, it appears that NHTSA got the explanation wrong. In fact, the IRS issued an advisory bulletin yesterday confirming that yes, the federal rebates dealerships receive for CARS trades count as taxable gross income.

Apparently, some retailers believed that since their customers weren't getting taxed, neither were they. And if the account of events is accurate, it's fairly obvious that NHTSA didn't fully understand the tax implications either when they conducted their webinar. As a result, some dealer smiles around the country are likely turning into frowns this weekend

In an interview for an article in Automotive News, a dealer trade magazine, Dick Heider, a dealer accountant who points out that the CARS cash simply counts as a normal payment to the retailer, and thus is taxable. "What you are dealing with are people who don't understand accounting," he says.

Apparently, on all sides of the equation.