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New-car Sticker Price vs. Actual Sale Price? (It's IRS time.)

Question: Is there a rule of thumb for the amount a dealer will actually sell for below the sticker price? I think I’m looking for a guideline that meets IRS fair-market-value definition
My hope is that people here know if a standard formula that is acceptable to IRS exists or can refer me to a respected, ‘known’ website for same or similar info/guidance in making a determination.

Background:
(a) I won a 2011 GMC Acadia Denali in 2011, MSRP $50,425. Received 1099 for about $4500 more. [Wanting to minimize my tax liability, I do have a call in to the car-giveaway entity to discuss possibility of getting a corrected 1099 reflecting a lower figure, but it’s a long-shot. I expect they’ll confirm that the extra $4500 is for tax/title/registration/whatever, which they covered.]
(b) I sold the car back to the dealer on the spot for a good chunk less than the MSRP, hence my wish to narrow tax-liability gap. (No, cash in lieu of car was not an option. All was transacted in accordance with the official rules of the giveaway, so there’s no point in asking or scolding me or head-scratching.)
© If location may be a factor, this is New York City.
(d) Someone with some sort of IRS training will be helping me file, but the person is not a CPA.

Some of you may remember me from last spring when I was in a tizzy over the whole thing. I’m glad Carolyn is still ruling the roost and hope you’ve all been well and happy. I still say that the next time I win a car, I’ll be ready.

You need a good Tax person. This is not a DIY tax return.

Ditto on getting a pro to do your taxes this year. Show your tax guy the 1099 and show him the sales receipts for the transaction of selling the car. Perhaps he can show the “loss” on the sale as a deduction.

Yep, get a pro’s advice. I’ve given up trying to figure out unusual tax questions.

I feel your pain. I’ve never won anything but often wondered how bad I’d get screwed on the tax. Yeah, IRS.gov. You need a CPA. I’ll ask my BIL this weekend though. On a donated used car, you can claim the value but then you have to adjust it for the actual sales price. They have tightened that up quite a bit. I think you have a good point that the actual value is what you got for it, not the MSRP, but it would be one of those things you most likely would need to argue with the IRS about. They gave you the 1099 but was also provided to the IRS. Depending on your situation, you could reduce the 1099 amount you report to the sale price and wait until they audit you or send you a letter, then argue it as a false 1099. I don’t know buddy, good luck with it. I just did my tax last week and the check is waiting to be sent.

I’ll throw my 2 cents in here as a IRS certified volunteer tax preparer (note: your 1099 would certainly be within my scope of what I’m allowed to do, but the tax laws behind the whole situation are not an area of expertise):

I would go ahead and file using the 1099 that was given to you. The IRS can be rather easy to work with, but you don’t want to mess with them, either. They have records now showing that 1099 and will expect you to file based on that. The best thing to do is file with it, then you won’t trigger an automatic audit that could spread to audits of other years (even if your taxes are spotless, this is an unnecessary headache) or face interest and penalty charges. Once you’ve filed, you still have 3 years to straighten the mess out and get a 1099 reissued for a lower amount. Filing claiming a lower amount is NOT something I would recommend doing, even if you have strong evidence that the vehicle would typically have sold for much less than MSRP.

At that point, I would try to then get the dealer to reissue the 1099 with a fair market value. They do not, by law, have to claim MSRP - just the fair market value. MSRP is the easy way for them to go, however, and gives them the biggest writeoff on their own taxes. Remember that you’re going to be fighting a battle there where the dealership wants the highest price to knock down their taxes and you want the lowest price to knock down yours. The IRS doesn’t care who wins, so long as one of the parties pays. I’d look to Edmunds’ True Market Value to get a better fair market value. The dealership will need a defensible number for the 1099 (MSRP is the easy way), and TMV has a solid defense, as it is a value above invoice and equivalent to what people are generally paying. That’s a break of about $4000 off of MSRP for 2012 vehicles.

So when you look at it, the whole value of this fight to you is likely to be $4000 * your marginal tax rate. If you’re in a 25% tax bracket, that’s $1000. That’s why you don’t want to fight the IRS here - because it will cost you far more than $1000. Involving a tax attorney or CPA just to deal with the dealership will likely eat $300-$500 of your tax savings…

All in all, you might be able to get the dealership to be nice to you and give you a reissued 1099 for a lower amount, at which point you’d simply file a 1040X (VERY easy to do) and reclaim the difference in tax. But remember, they may be paying taxes at a 35% rate, so that $4000 difference in value is worth far more to them than to you, AND they’d have to amend their sales tax submissions, etc. I’d give it a shot, but go into it with an attitude that no matter what, you still ended up getting a nice chunk of cash out of the whole deal after taxes and losses on the sale…

I think the two transactions are different. You won a new car and sold a used car to the dealer. Even if you didn’t drive it, it may be technically a used car, having been registered to you if only for a few hours.

People are wonderful. Gentlemen, thanks for your comments. Yes, you’re correct. I need a professional this year.

JT Sanders, Texases, Uncle Turbo, I’m grinning at seeing you again.

JT, it became a used car in the 20 minutes my name was on the paperwork. At least I sat in it for a couple of minutes when the dealer gave me a tour of the many, crazy options. And I took great care to leave lots of fingerprints inside and out so he’d know where he [the car, that is, not the dealer] came from. Although this wasn’t a vehicle I’d look at if I were in the market, I kinda missed the big lug the next day.

Bing, I’ve never been called “buddy” before. You can guess why.

The good news is you’ve got a little over a year before you have to file taxes on it.

If the extra fees were covered, it counts as income to you and you won’t be able to avoid taxes on that money. It’s not the value of the car, it’s the value of the income that is being taxed. I hope you can make a good deal get better, but I don’t expect it to happen.

PLEASE DODGE VAN, the hope in my heart, which a friend refers to as “rum-colored glasses,” hasn’t left me senseless. Whatever my tax liability, I’ll still be ahead.

LITTLE MOUSE, nope, I won the car in 2011, hence, filing for 2011. I really do want to get the IRS forms and my check in on time. It will be nice to be done with thinking about the gummint’s cut and know for sure how far my portion will go toward the things I want to do with it – some things that are important to me but I’d be unable to afford otherwise.

Well I asked my BIL this weekend who is a CPA about your situation. You are out of luck. You need to pay based on the 1099 given you. The view of the IRS will likely be that the true value of the vehicle was the 1099 value and its not their problem if you weren’t able to get the MSRP for it when you sold it. So the IRS won’t be very understanding. Also doubtful that the dealer will amend the 1099. So I guess just pay the tax and be happy you got something out of it.

LITTLE MOUSE, nope, I won the car in 2011, hence, filing for 2011. I really do want to get the IRS forms and my check in on time. It will be nice to be done with thinking about the gummint's cut and know for sure how far my portion will go toward the things I want to do with it -- some things that are important to me but I'd be unable to afford otherwise.

Sorry, I guess I misunderstood. It just didn’t seem conceivable to me that you would wait until the last minute to ask a bunch of people with no professional qualifications in the area about your tax situation so close to the deadline.

BING, yeah, I kinda knew that, but didn’t want to proceed without considering the might-be’s. (I love Uncle Turbo’s suggestion. Sigh, if only…) If I have to write a fat check, there are plenty of places I’d choose over IRS for my donations. Thanks so much for asking your BIL. That’s what I meant when I wrote above that people are wonderful.

LITTLE MOUSE, anxiety trumped action. (Rest assured it was not I who clicked “disagree” on your comment.) I have brilliant, wise solutions for others, but stopped breathing on my own behalf. Fitting the profile, I should have been a shrink. Beside, you never know who might stop by – Eraser1998 gave sound input.

Oh I forgot. You are allowed to call the IRS and ask them questions too. An accountant may be just as good, especially if he has done this research before. If you don’t file on time, the penalties and interest will be really cheap, so feel free to take an extra week or two if needed.

Advice to all others: If the IRS has your tax return in February, the state will have something to refer to at the end of March. I mailed both returns on April 10th for the 2010 filing and ran into problems that just got fixed this February. It would have helped my case if the state could have seen the IRS corrections. Oh, try to stay awake when you work on your taxes. Tax workers love it when we do that!

It is common to send in your Fed return with your state return so they have a reference. so it doesn’t matter when you send in state, timing does not help you. (unless you purposely send in false docs)

to the original poster’s question…you are out of luck. there is case law supporting this so you need to report the original 1099. you have the right positive attitude about this also, so I commend you for not being bitter about the deemed excessive taxes.

keep this in mind for future winnings. if you took possession of a car that you won, then sold it to a non-dealer person for the same or more price that you would have received from the dealer, you could have been further ahead or atleast whole money wise.

but you would have passed on great savings to another lucky sole. (brand new car, zilch miles at used car prices) that would have been an epic pay it forward.

just for the record, the company that gave the car away would have negotiated a lower price from the dealer in return for some light advertisement of where they car was purchased. so likely the car was purchased 8-10K below sticker…and usually these deals are not done solo, as they buy other fleet cars and other promo cars int he future.

PLEASEDODGEVAN, I called the IRS 800# last year after winning the car and in the past couple of weeks. I’d advise anyone who uses the service to call a couple of times with the same question, especially if the first answer doesn’t seem quite right. Last year two people told me I’d have to pay tax on the sticker price (plus taxes/licensing/etc.) and one told me I’d be liable only for the amount I sold for. Last week I was told I’d have to file Sked D and Form 8949, which made no sense, and was told this morning that those papers are not applicable in my situation. The former and the latter, respectively, are accurate.

GDAWGS, I had given two seconds’ thought to selling privately for the reason you name, but recognized immediately that it was not the route for me. Winning a car should be fun and goofy, but it was stressful for me. Selling on my own would not have been worth the extra stress. I’m pleased with what I got ($3000 more than the dealer offered initially because I shopped the car around at the suggestion of several people here in the forums). As to my attitude, I’ve never had bitterness, just occasional disappointment or glumness. Now and then I remind myself that, because I merely showed up somewhere, a car fell into my lap, which is a happy, goofy thing. Ah, I just had a pang of missing the big lug, the first since the day after selling him. .

“… I called the IRS 800# last year after winning the car and in the past couple of weeks.”

While contacting the IRS can be useful, they are not responsible for misleading you. They even state that they are not responsible for information given out. If you contact a tax specialist, they will be responsible for their advise. Just this once, it might be good to have a professional prepare or review your taxes so that you can fall back on them standing behind their advice.

@jtsanders,

It is true that the IRS is cannot be held liable for their advice. However, if you call them, record the ID of the person you’re talking to, along with date, time, and advice given, and if you follow that advice, then you’ve generally met the requirements for making a “good faith” effort and you can’t be held liable for fraud for following their advice. You may be responsible for back taxes if they rule against you at a later date, but you’ve also narrowed the window for which they can pursue you. You haven’t been negligent or committed fraud, and the IRS will generally be limited to a 3 year window in which they can pursue an audit.

Going to a tax specialist doesn’t necessarily help you any, either. Most will only cover any penalties and interest for any errors they make, which are not likely to be that significant in this case. That’s not much better than what you get for contacting the IRS - and the penalties and interest would not likely be more than what you’d pay the tax specialist for working your case. Most will charge several hundred dollars just for basic help… I’d anticipate a cost of $400-500 for the OP’s case…

Excellent points on dealing with the IRS, eraser1998.