3.0L Trade In Credit

Does anyone have any specific info on the trade in credit option on the 3.0L's? It appears that VW will pay the dealership of your choice the buyback money owed to you, which can then be used as a credit on a different car purchase. I would think that this different car could be used, and I would also think that one could use multiple trade in credits (from multiple cars) to purchase one vehicle -thoughts?

Has anyone contacted a dealer yet with any of these questions? Thanks!

I think its too new for anyone to really know how it will work.

Generally speaking, it should work fine because you CAN trade in 2 cars and get 1 new one.

This is made so people can take advantage of trade in tax credit.

TDIforDays said:

I think its too new for anyone to really know how it will work.

Generally speaking, it should work fine because you CAN trade in 2 cars and get 1 new one.

This is made so people can take advantage of trade in tax credit.

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For sure, that is why I'm asking - I'm thinking of rolling the 2 Q7's I have into a Jeep or Ram Ecodiesel (so I can do this craziness all over again soon!)

TommyGun said:

Does anyone have any specific info on the trade in credit option on the 3.0L's? It appears that VW will pay the dealership of your choice the buyback money owed to you, which can then be used as a credit on a different car purchase. I would think that this different car could be used, and I would also think that one could use multiple trade in credits (from multiple cars) to purchase one vehicle -thoughts?

Has anyone contacted a dealer yet with any of these questions? Thanks!

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Usually I just read (lurk) and keep it moving but this is of interest to me. Would we be bound by this which is in the final settlement?

(2) Trade-In: Owners could instead choose to trade in their eligible vehicle at a participating Volkswagen or Audi dealership and receive the full amount they would receive in a Buyback as a Trade-In Credit towards another vehicle.

If we could trade in at any dealership that would be a game changer for me. I was reading it as if we had to trade-in on a VW for VW or Audi for Audi basis. My apologies if I am off in left field listening to an iPod. Back to lurking.....

MommaMorgan said:

(2) Trade-In: Owners could instead choose to trade in their eligible vehicle at a participating Volkswagen or Audi dealership and receive the full amount they would receive in a Buyback as a Trade-In Credit towards another vehicle.

I was reading it as if we had to trade-in on a VW for VW or Audi for Audi basis.

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you were reading it correctly. They would give you a little extra if you trade at a VW/Audi dealer on a replacement VW or Audi.

Mythdoc said:

you were reading it correctly. They would give you a little extra if you trade at a VW/Audi dealer on a replacement VW or Audi.

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I don't read it like that at all - the Audi's have to be turned into an Audi dealership (VW dealers can't take in Audi TDI's), but the replacement vehicle is just that, a replacement "vehicle", not a replacement VW/Audi branded vehicle.

My current understanding is that you WILL be bound to buy a car from the dealer you turn your car in at, but you WON'T be bound to replace it with a VAG branded vehicle, nor will it need to be a new vehicle. I've called our local Audi dealer and the manager said they were happy to purchase specific vehicles from around the country to satisfy their customer's desire for a very specific car.

MommaMorgan said:

I was reading it as if we had to trade-in on a VW for VW or Audi for Audi basis.

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Not at all. You need to turn in your VW to a VW dealer, or your Audi to an Audi dealer. But if that VW (or Audi) dealer also sells other brands of new cars (which is common), or sells used cars (which is near-universal), you could use that trade-in credit for any other car sold by that dealer.

State law may limit the usefulness of this--in OH, for example, last time I checked, a trade-in would save tax on the purchase of a new car, but not a used one.

Thank you all for the clarification. That opens up my options to shop the Audi lot now before I head out elsewhere.

Check the flyer that was sent out to 3.0 gen 1 owners. It says "trade in your vehicle for a new or used Volkswagen or Audi."

[Edit: the language does not specify brand in the deeper dive I just did into the settlement documents.]

Which begs the question: where do you folks think up these twisty ways to get around and through the obvious intent of the settlement?

[Edit: I still kinda stand by this statement. I know consumers are mad at VW and VW dealers are mad at VW, but if you think the settlement negotiators countenanced individuals searching for a dealer to buy a Jeep to sell to them, well, I'll just say it seems too clever by half. But hey, whatever you can get away with under the rules, that's what goes these days, right?]

Mythdoc said:

Check the flyer that was sent out to 3.0 gen 1 owners. It says "trade in your vehicle for a new or used Volkswagen or Audi."

[Edit: the language does not specify brand in the deeper dive I just did into the settlement documents.]

Which begs the question: where do you folks think up these twisty ways to get around and through the obvious intent of the settlement?

[Edit: I still kinda stand by this statement. I know consumers are mad at VW and VW dealers are mad at VW, but if you think the settlement negotiators countenanced individuals searching for a dealer to buy a Jeep to sell to them, well, I'll just say it seems too clever by half. But hey, whatever you can get away with under the rules, that's what goes these days, right?]

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The intent of the trade in provision is to allow people to take advantage of the trade in tax credit on turning in their car at a dealership, which was notably absent from the 2.0L settlement.

Because this has to happen at an Audi or VW dealership, the person taking advantage of the credit will more than likely consider a VW or an Audi, simply because a VW or Audi dealership is more likely to have more used vws and Audis than other brands. The intent of the settlement was never to force people into a specific brand of car, however.

Mythdoc said:

Which begs the question: where do you folks think up these twisty ways to get around and through the obvious intent of the settlement?

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I don't think it's at all the intent of the settlement, much less the "obvious" intent. There's been a lot of complaining--you've seen it yourself--that the buybacks of the 2-liter cars don't count as trade-ins, and therefore you don't get the tax benefit on the purchase of a replacement car that you would (in many states) if you'd traded in the car. So, the 3-liter buyback program has been changed to offer this as a possibility.

Of course, a trade-in means you turn in the old car to, and buy the new car from, the same dealership. So, either VW starts occupying space at every dealer in the country, or they limit you to being able to do the trade-in at VW/Audi dealers. Of course, they chose the latter, for objectively reasonable reasons. But that doesn't mean it was even VW's intent (much less the FTC's intent, or class counsel's intent) that you could only buy a VW/Audi.

So--trade in to only VW/Audi dealer? Right, and it has to be that way. But you can (or should be able to) buy whatever that dealer sells, and I don't see any indication that this is contrary to the intent of the settlement.

^^yep.

My local VW and Audi dealer also owns a Jaguar dealership, Infiniti, Acura, even Alfa Romeo. Have at it, friends!

Couple of thoughts and a question. By way of background, I was a named defendant in the 3.0 liter lawsuit, and have had access to settlement proposals for quite a while. Once the case was finalized, the gag order was lifted, and I have been working pretty closely with my local dealership. I am a finance guy with an MBA in international finance.

My paperwork was submitted Sunday, May 22, and accepted May 23. I am on hold until the third party claims administrator reviews the settlement offer (2012 TDI Lux: $42,061= $30,775 vehicle value, plus $11,286 restitution), and final appointment can be set up. This does not include Bosh $1,500 or extended warranty pro-rata.

I have been researching cash payment vs trade-in, and have been at my local Mercedes and VW dealer to try and figure out whether to purchase a diesel MB, or another Touareg. Very tricky, and some needed information is not yet available.

Here is the tricky part. Court settlements are taxable as personal income. So, if I take the cash, the $11,286 is most probably taxable income. In my bracket this would be $3,000+.

Another tricky part. If the total payment is used for a trade-in, I would feel pretty comfortable in an IRS audit claiming it was simply a straight vehicle sale, as the dealership has indicated the full $42,061 would apply to a purchase, and would not be subject to Washington State sales tax.

Another unknown tricky part. VW authorized $5,000 sales incentive rebates to 2.0 liter Passat owners. If they did the same with eligible Touareg owners (I suspect it would be higher), then that means I would have $47,061 available for a trade-in, and $39,061 to purchase a Mercedes. That's a pretty big swing.

The dealership is currently trying to run down any incentive offers, but this is totally up to VW corporate. Interesting exercise.

Dan_Clements said:

Court settlements are taxable as personal income. So, if I take the cash, the $11,286 is most probably taxable income.

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Don't think so. Yes, the general rule is that proceeds of a lawsuit are taxable income unless they're for personal injury. But what's happening here is that VW is being ordered to buy your car. Selling your car doesn't generate a taxable event unless you're selling it for more than your basis in the car (i.e., unless you've deducted depreciation on it, what you paid for it). And in that case, the difference would be taxed as capital gains.

Taxable Income on Payout

@ DanB:

That's the problem. VW has two different parts to the cash payment: 1) The buy back portion; and 2) The penalty portion imposed by the courts.

It is pretty clear that the buy back portion is not taxable. However, the penalty portion imposed by the courts may very well be, as is the Bosh settlement, but not the pro-rata warranty. My tax attorney feels it most likely is, if I take the cash, since the payment is broken out into vehicle purchase and court awarded penalty.

In case of a trade-in, however, there is a lump sum buy back amount applied to the purchase of a new vehicle: there is a single payment.

Folks are going to have to choose how to file taxes. I am regularly audited, so I tend to follow advice from my accountant and attorney.

Getting advice from the appropriate professionals is a good strategy, and better than most here have followed with respect to the tax issue. I don't think I agree with your tax attorney, though tax isn't my area of practice, and it's getting into a fairly murky area.

You're right that folks will have to choose for themselves what to do. Since there are no 1099s for these payments, I expect that in the overwhelming majority of cases, the answer will be, "nothing."

Dan_Clements said:

@ DanB:
That's the problem. VW has two different parts to the cash payment: 1) The buy back portion; and 2) The penalty portion imposed by the courts.
It is pretty clear that the buy back portion is not taxable. However, the penalty portion imposed by the courts may very well be, as is the Bosh settlement, but not the pro-rata warranty. My tax attorney feels it most likely is, if I take the cash, since the payment is broken out into vehicle purchase and court awarded penalty.
In case of a trade-in, however, there is a lump sum buy back amount applied to the purchase of a new vehicle: there is a single payment.
Folks are going to have to choose how to file taxes. I am regularly audited, so I tend to follow advice from my accountant and attorney.

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Getting advice form a professional is always a good idea. That said, the payment from VW if they buyback your car will be in one payment as far as I know, not broken up into buyback and restitution.

IRS Taxable Rationale

Forgot to mention what I think would be IRS' response.

If an owner keeps their vehicle and receives only the penalty payout, then this is clearly taxable income.

The same rationale would hold with someone selling the vehicle back to VW: purchase price part of the payout is non-taxable, but the penalty portion, just like an owner who keeps the vehicle, is taxable.

@ VWMark: There may be only one payment or EFT, but everything I have received from VW so far very carefully breaks out the purchase price and what they are calling "Additional Restitution Payment."

I am not sure how these distributions are being reported to the Feds, but in a personal audit the documentation of my payment would clearly show the two parts making up the payment.

Take a look at the Long Form class notice, page 11:

7. What are the tax implications of receiving a settlement payment?
While it is the intention of the parties that any payments made as a result of the Class Action Settlement not be subject to taxation, you should consult a tax professional to assess the specific tax implications of any payment you may receive. For example, if you have used your vehicle for business purposes, previously claimed a depreciation deduction on your vehicle, or receive an amount that exceeds the cost of your vehicle, some or all of your payment may be subject to taxation.

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Of course, the IRS isn't a party to this action, so this certainly isn't an official answer from them. But it does show that (1) the parties, including class counsel, considered this question; and (2) the parties, including class counsel, believe that the payments are not taxable in most cases. Under your/your attorney's view, every payment will be at least partially taxable. That just doesn't seem consistent with the express understanding of the people who negotiated the settlements.

@ DanB36: Checked that link, and I believe it is for the 2.0 liter engine settlement. I may have missed something, but I don't recall seeing anything similar in the 3.0 liter settlement material that I was sent during negotiations, and have not been able to find anything similar in the court documents.

If I missed it, and you have a link, please let me know so I can share it with my tax people.

Regarding the wording in the 2.0 liter settlement, I have difficulty seeing how the "Additional Restitution Payment" is not taxable for someone who keeps their vehicle and receives the penalty payment.

And don't get me wrong, I have no desire to send additional funds to IRS, but I also want to avoid a situation three years from now, where I have an IRS desk audit and they send me a bill for back taxes, plus interest, plus penalties, and I spend the next three months (plus accountant and legal fees) getting it settled.

Think I will send a note to my contact at Lieff Cabraser Heimann & Bernstein and see if they have any thoughts on the matter.

@ DanB36: Had a long chat with Lieff Cabraser Heimann & Bernstein. They obviously cannot opine on a tax question, but I asked them why the tax wording was different in the 2.0 vs 3.0 liter settlements.

The response was that while the intent regarding taxation was the same with both settlements, the change in buy-back terms was modified, hence several changes in the agreements. Not sure this clears anything up.

A couple of other points related to processing the 3.0 buy-backs/trade-ins.

1.) Bosh Settlement Checks. There has been quite a few questions about the Bosch payments from the 2.0 group regarding delayed payments. Once VW has finalized an agreement with individuals, the information is sent to Bosh for processing. Apparently it can take quite a while for claimants to actually receive checks.

2.) 3.0 Offer Timing. VW has 15 days from the final settlement to start processing claims. After looking at my case, it is apparent they have already started processing them. I have a July 1 date in the material by which everything is supposed to be signed off, with mileage calculated to that date.

He said "Don't get too excited if the date slips." In the 2.0 settlement, many people were assigned a November 1 date by the computer system, but claims processing did not take place for several weeks after that date.

3.) Date Slippage. If the closing date does slip, the mileage allowance increases for each month.

4.) Odometer Readings. He said one of the major issues causing delays closing buy-backs were people rounding odometer readings down to potentially increase the value of their vehicle. He encouraged claimants to enter exact mileage, as this will be physically read at some point.

That's about it. I am still a bit troubled by the tax issue.

Dan_Clements said:

@ DanB36: Checked that link, and I believe it is for the 2.0 liter engine settlement.

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Correct, it is from the 2.0 settlement. And though the details of how the payments are computed are different between the two settlements, in both of them a buyback payment consists of "vehicle value" plus "restitution". In both of them, the "restitution" is a certain fraction of the "vehicle value" plus a fixed dollar amount. And in both of them, there's the (notional) ability to have the car fixed, in which you receive the "restitution". In short, I'm having trouble seeing any reason why the tax treatment of payments under the 2.0 settlement would be any different from the tax treatment of payments under the 3.0 settlement.

Everyone gets a restitution payment. So if the restitution payments are taxable, at least a portion of everybody's payment is taxable (and VW probably ought to be sending out 1099s, which they aren't).

@ DanB36: Had a few hours this morning to check some accounting sites, and it looks to me like the tax question is really unresolved: especially relating to the "Additional Restitution Payment." Lots of strong opinions, but IRS has not weighed in. Then there is also the Bosh settlement.

So I think what I am going to do is meet with my tax folks next week, and possibly bite the bullet for an IRS Private Letter Ruling if they still have major concerns about the taxability of the "Additional Restitution Payment" and Bosch settlement.

I am audited every two to three years, and have always come out a bit ahead when the dust settles. But in these audits I am responsible for everything, and know what records and schedules to keep. In the VW case, there are a sufficient number of unknowns and other entities involved that I am uneasy.

The penalties and interest charges that IRS adds on are very robust, so from my perspective it is worth the $3,000+ for a Private Letter Ruling to get a firm response from IRS. It would be a drag to have to sort this out in an audit three years from now.

A PLR certainly would help clear up the situation, even if they strictly aren't binding on anyone other than the taxpayer they're written to. I'll be interested to hear what else you find out.

From an official offer letter on a 3.0L Q7:

"Trade-in Credit option: Owners who choose to return their vehicles for a Trade-In credit at a participating VW, Porsche, or Audi Authorized dealer will receive a Trade-in credit equal to the estimated Buyback Amount provided above, subject to any adjustments based on your actual mileage at turn-in. In the event that the trade-in credit exceeds the retail transaction price of the newly acquired vehicle, you are entitled to the difference between the transaction price and the trade-in credit, in whatever form you negotiate with the authorized dealer, including, but not limited to, a check for the remaining amount. All trade-ins of VW vehicles must be at a participating VW authorized dealer… [same for Audis]… [requirements are the same as buyback]…"

From the dealer-issued notice from VWGoA regarding the 3.0L settlement:

“For trade-in transactions, consumers, VWGoA and a thirty-party [sic] Settlement Specialist at a participating dealership of the customer’s choice will facilitate the provision of a trade-in credit for the customer to use at that dealership on the day of the closing appointment. [verbiage about vw’s going to vw dealers, etc]… “

[Paraphrasing] is mine, the rest is right from VWGoA.

It doesn't give a ton of clarity, but appears to be fairly simple - VW will pay the dealership the amount of the buyback, the dealership will use those funds as a credit to the consumer, and the consumer walks away with the newly traded vehicle + a check from the dealership for the remaining amount, if applicable.

One interesting aspect of this is that the money never goes from VW to the consumer in this case - it goes from VW to the dealership, then from that dealership to the consumer. They could have worked it differently and still given a tax credit for the traded-in car, but decided to use the dealership as the middleman in the transaction.

@ TommyGun: I believe that is correct only in the situation where you use the proceeds as a "down payment" for a vehicle from the dealership. My understanding is that, if you elect to either keep the vehicle or buy-back option, an EFT or check will be generated from VW.

I am looking at non-VW options, so I am going the full buy-back route.

I just finished up-loading the executed Selected Option and Individual Release of Claims documents. Interesting process so far.

Dan_Clements said:

I believe that is correct only in the situation where you use the proceeds as a "down payment" for a vehicle from the dealership.

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Yes, exactly. That's the "trade in" option, which is the subject of this thread. The buyback and fix options are not the subject of this thread.

I found this nugget of information on the tax question. I am an accountant but not a tax expert. This makes sense to me and is also from some tax expert opinions. To me, if I received more $ than I originally paid for it then yes, I would definitely think it is taxable. However, getting more than some random NADA value does not constitute making $ on a deal. NADA is a guideline and I would say that a lot of transactions at dealers give more or less than NADA values which is a range and not an absolute. If you were purchasing an expensive high end car and you traded in a Geo Metro with 200k miles on it and they gave you $5k on the trade when NADA had it at $500 you would not be taxed nor would that be taxable. Nor would selling the Geo Metro for $5k on Craigslist for some unsuspecting buyer. This is assuming you purchased the Geo Metro new for $15k some years ago. I see this as no different.

In general, “any settlement you get for something other than personal physical injury or sickness is taxable,” said Mark Luscombe, principal federal tax analyst for Wolters Kluwer Tax & Accounting. Most other settlements, such as for back pay and punitive damages, are taxable.
In the case of property, if the settlement merely restores your original value, it’s not taxable, but if it enriches you beyond where you were before, it is taxable, he said.
Theoretically, owners who sold their cars back would not owe tax if the combined payment (trade-in plus cash payment) was less than their basis, which is generally what they paid for the car (or the depreciated basis if they used it in a business). If it was more than their basis, they could owe tax on the excess.

Dan_Clements said:

@ TommyGun: I believe that is correct only in the situation where you use the proceeds as a "down payment" for a vehicle from the dealership. My understanding is that, if you elect to either keep the vehicle or buy-back option, an EFT or check will be generated from VW.

I am looking at non-VW options, so I am going the full buy-back route.

I just finished up-loading the executed Selected Option and Individual Release of Claims documents. Interesting process so far.

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Correct, but keep in mind the trade in money has to be used at a VW/Audi dealership, not on a VW/Audi car from said dealership. My local Audi dealer said they would work with me to get exactly the car I was looking for (which at the time was a ram 1500 Laramie limited with the ecodiesel. I've since abandoned hope for getting an FCA settlement similar to the VW cheating). They also said that since they owned several dealerships it was possible to get a new car from a different manufacturer.

The trade in credit is the smart way to go if you are buying another car with the proceeds and your local dealer will work with you on getting the car you want. Especially when purchasing a high priced vehicle, if your state has the trade in tax credit it could save you thousand of dollars.