Taxing the ZIP Rebate
This will come as a surprise to many on the Rav4EV list who claimed that anything on a 1099 - including the ZIP rebate for the Rav4EV purchase - is taxable. Surprise. It is not. And now thanks to Jim's pioneering effort detailed below, we have proof.
By Jim Hannigan
IRS Accepts ZIP Payment as non-taxable Rebate
Like many others, I received a $3000.00 ZIP payment each year for three years following the purchase of our RAV4EV. I also received a 1099 each year for the payment. On our tax returns I showed the payment amount, and followed the practice (as others did as well) of using a matching negative entry to zero out the payments.
In November 2006 I received a notice from the IRS relating to the ZIP money we received in the 2004 tax year. The IRS was seeking $1050.00 additional tax plus $117.00 interest on our 2004 return. According to the IRS, the additional tax resulted from $3000.00 in income reported to the IRS but not shown on the return.
I did some homework, and wrote a response to the IRS in which I provided background on the ZIP program, explained the way the payment was handled on the tax return, and made my case for considering the payment a rebate.
Last weekend I was extremely pleased to receive a written reply from the IRS accepting my explanation, and stating that the matter had been closed, with no tax, interest or penalties due.
This would seem to establish a precedent that the direct-to-consumer ZIP disbursements can be considered rebates for federal tax purposes, and are not taxable.
I am obviously very happy with the way things have turned out and hope this information may be of assistance to others.
Following is the text of the relevant letters between Jim and the IRS:
Department of the Treasury
Internal Revenue Service
5045 E Butler Avenue
Fresno CA 93888-0021
RE: Form 1040 Tax Year 2004
I am writing in response to the IRS ____________notice dated ___________.
A $3,000.00 amount appears to be the source of possible confusion resulting in this billing. I believe the billing to be in error.
It is my contention that the payment was a cash rebate that I qualified for by purchasing a 2002 Toyota RAV4EV electric vehicle, and as such, the amount was not income, did not have to be reported to the IRS, and should not cause me to be assessed federal tax, nor to incur interest or penalties on the amount.
The paying agency, SCAQMD, reported the amount on form 1099-MISC. The amount does appear on my 2004 form 1040, on line 21 3 b. I showed a negative entry for the same amount on line 21 17, identified as “CA ZEV Incremental Cost”.
The source of the rebate funds was a California State program called the Zero Emissions Vehicle Incentive Program (ZIP) established by California State Assembly Bill AB2061 in September 2000.
ZIP funds were allocated to reduce the cost differential, (the Incremental Cost) between electric vehicles and similar gasoline powered cars. Program funds were allocated, at the discretion of the manufacturers of qualifying vehicles, in one of two ways; either disbursed to the manufacturer to be applied to reduce the retail lease or purchase price of the vehicle, or as rebate payments to be paid to the retail consumer.
Some makers of Electric Vehicles such as General Motors and Nissan, elected to receive ZIP payments and reduced their retail EV prices and/or lease payments accordingly. Others such as Toyota opted for direct-to-consumer payments.
In my area, ZIP program administration and payment functions were via the South Coast Air Quality Management District (SCAQMD). My contact person there was Lisa Mirasola at 909 396 2638. In other areas of California, program administration was by the California Air Resources Board (CARB). To my knowledge neither SCAQMD, nor CARB took a position as to whether the ZIP program payments made to consumers were or were not taxable. Both agencies advised program recipients to seek tax advice.
The Toyota dealer from whom I purchased the qualifying vehicle advised me of the existence of the ZIP program, (along with the unrelated Federal Electric Vehicle tax credit) and prior to my purchase defined the program as a rebate. The dealer provided me with the contacts and application form for the ZIP program when I made the purchase.
The net cost of the vehicle represented to me by the dealer before purchase was a retail price of approximately $42,500, less the $4000.00 Federal Electric Vehicle tax credit and the ZIP rebate. The equivalent gasoline vehicle was priced at approximately $18,000.00. Given the above information, I determined that I wanted to go forward with the purchase, and paid the dealer a cash down payment and arranged financing for the balance of the full retail price of the vehicle. I then filled out the ZIP paperwork and subsequently received payment.
I hope the above information is of assistance in resolving this matter and look forward to your response. If you have any questions or require additional information, you may contact me at your convenience at __________.
Thank you for your consideration of this matter.
Department of the Treasury
Internal Revenue Service - UR
Fresno CA 93888-0021
Notice Number: CP-2005
Date of this Notice: 03/27/07
Tax Form: 1040 Tax Year: 2004
Thank you for providing us with additional information about the issue we recently wrote to you about. We are pleased to tell you that, with your help, we were able to clear up the differences between your records and your payers' records. If you sent us a payment based on our proposed changes, we will refund it to you if you owe no other taxes or have no other debts the law requires us to collect.
If you have already received a notice of deficiency, you may disregard it. You won't need to file a petition with the United States Tax Court to reconsider the tax you owe. If you have already filed a petition, the office of the District counsel will contact you on the final closing of this case.
If you have any questions about this notice, please write to
us at the address shown above. Include your telephone number and the best
time to call you if we need additional information.
Thank you for your cooperation.