Nissan Tax Rip-off

[Edsel]

Be ready to spend some time reading this if you're interested - if you're short on time better wait til you get unburied --

A client is a retired Nissan employee, and still receives Employee discounts when he buys or leases new cars.  The gov't considers these discounts as income taxable to the lessee.  It get worse:  he not only leases for himself, but also leases for other family members.  For the most part these are high-end Nissan cars and the leases last for 3 years.

The govt believes the discounted amount is taxable income to the ex-employee, and not only that, considers it to be earned income.  So they issue a W-2 to the employee every year.  The W-2 for 2019 was nearly $20,000 for three vehicles.

However, the $20,000 is the gross value of the leases and not the discounted value.  For example, one of the vehicles has a lease value of $5000, but the employee has paid $3800 according the lease contract.  The taxation of such a vehicle should be $1200, not $5000.

I don't have a problem with the assignment of gross value by the IRS, although they appear high.  However, I believe it is the responsibility of Nissan to subtract the amount actually paid, then issue a W-2 for the amount of discount - not the gross value of the lease.  My client has gone back to Nissan several times to protest but he gets told the IRS is controlling this and there's nothing they can do.

I would like for someone to take Nissan to court over this, but that's not going to happen with my client.  Assuming Nissan is not going to change, is there a form or attachment my client can take in order to protest or reduce the amount of the Nissan W-2?

Thanking you in advance for reading this far - Edsel

 

 

[jklcpa]

If I found the correct Nissan document for the employee Lease Vehicle Program dated in 2012, the imputed income is supposed to take into account the amount paid and be the IRS market value less the amount paid. The way it is spelled out in the agreement is the proper handling...if that is what is really happening.   Are you sure that your client is giving you the correct figures? 
 

This is on page 5 of the Nissan document:

Quote

5. Imputed Income - The Lease Vehicle Program is considered a benefit, which enables participants to lease a vehicle below its standard retail market price. Therefore, employees/retirees must pay taxes on the difference between the IRS defined market value of a lease and the actual lease payment amount (Ref. IRS Vehicle Tax Table). The Payroll department will denote this as “Car Income” on an employee’s pay advice. This amount is subject to change periodically based on the employee’s individual insurance rate changing or changes to the IRS regulations.

I have 2 clients similar to yours that work for Mitsubishi, and their W-2s each have lease vehicle comp also that runs around $3,500 per vehicle with one of them leasing a total of 3 cars for his family.

[Edsel]

Thanks Judy - I'm reasonably sure the numbers I'm getting from my client are good.  I have some idea what these cars sell for, and lease for, and one of the family members has done well getting the payment numbers together.  I haven't audited the numbers but I have to trust them unless I have reason to be suspicious.

My understanding of the real benefit is exactly as you have presented above.

My next question:  Is there a document or form I can submit with the tax return that will oppose the W-2 and reduce it accordingly to the proper amount?  The Nissan W-2 is for the IRS defined market values without any reduction for payments.

[jklcpa]

To answer your specific question, the form to use when the employer has not issued a W-2, or issued one that is incorrect, is Form 4852.  That being said, when and employee finds an error on his or her W-2,  the first course of action should always be to go back to the payroll department to verify the amounts used in calculating the imputed amount and to ask for a corrected W-2 if needed. 

Before using this form so that you don't do a disservice where the client ends up with notice and assessment based on an indefensible filing, I'd suggest that you should have the actual the lease agreement and any other forms he was given at the time of the lease that may show other charges added in such as taxes, licenses, and insurance.  He should have some sort of documentation that shows what was supposed to be added in to his compensation.  Also, if the lease ended during the tax year, ask for any documentation that may have charged him for excess mileage. 

  

   

[Edsel]

Thanks Judy.  I believe all the items in your suggestion are available, but I will confirm with the client.

[Lee B]

I have seen these same valuation issues happen before with commission salesmen receiving non cash prizes valued at retail list.

I currently have a client who is a retired Airline Stewardess who receives a W -2 for the free flights she still receives as part of her retirement benefits

which are valued at the upper end of what a passenger would pay.  These are normally W-2s or 1099s coming from large companies

who have their own accounting/tax experts who have researched this area extensively. They aren't going to change.

While you may strongly feel this is a rip off, you are doing your client a disservice, because you aren't going to win!

[Lion EA]

I had an AT&T retiree who received a W-2 each year for his free telecommunication services. Eventually, the tax on that income was more than some of the cheaper phone plans, so they stopped using AT&T and went with a family plan from another company. But, it had been a bargain for many, many years.

[Max W]

I agree with cbs lee.  Even if you could convince Nissan they were doing it wrong, they could just say, "OK, you win, but from now on we are reducing, or eliminating the discount."  

[Abby Normal]

MD gives lower income people free special septic equipment if they live in an environmentally sensitive area. I was asked today if that would be considered income. I told them, probably, but call MD to see if they're sending a 1099. Valued around 10k.

[Edsel]

8 hours ago, cbslee said:

These are normally W-2s or 1099s coming from large companies who have their own accounting/tax experts who have researched this area extensively. They aren't going to change.

While you may strongly feel this is a rip off, you are doing your client a disservice, because you aren't going to win!

Thank you for your response cbslee.  You refer to "upper-end" pricing, and you are quite correct.  One of the Nissans is determined by the IRS to retail at $4500 per year, when practically anyone can go in and lease this model for $300/month, tax and all.

Nissan should have accounting personnel well-trained in the subject matter, and there is no real excuse if they don't.  But I am finding out increasingly that Fortune 500 companies rush to hire $7.25/hr. clerks just like everyone else, especially in non-visible areas such as accounting.  Nissan's own manual (see Judy's post) plainly says the taxation should rest with the amount of the discount, not the value of the lease.

A few years ago, I saw a similar situation with an airline stewardess who used free flights.  The flights were valued at one-day-notice first-class (most normal people ride "coach"), three-martinis, and where you tipped the flight attendant to peel you a grape.  This stewardess might have been better off buying her own ticket or just staying home.

My client and I are going to try - and we may not win.  If not, they will simply quit leasing from Nissan.

I appreciate the experience and expertise you bring to the forum.

 

[Edsel]

5 hours ago, Abby Normal said:

MD gives lower income people free special septic equipment if they live in an environmentally sensitive area. I was asked today if that would be considered income.

Fat chance Abby.  Governments do not impede other governments, in fact they can "tag team" and crush ordinary taxpayers.