Tag Archives: refund

New tax breaks cause confusion, enforcement issues

New tax breaks enacted last year are causing confusion for taxpayers and enforcement problems for the Internal Revenue Service, according to a government report issued Thursday, the deadline for filing individual returns.

As of March 5, the IRS erroneously gave out $24.2 million in Making Work Pay tax credits, according to the report by J. Russell George, the Treasury inspector general for tax administration. The IRS issued a total of $25 billion worth of the credits during the period, for an error rate of less than one-tenth of 1 percent.

The IRS also erroneously issued about $4.7 million in tax credits meant for people who bought plug-in electric cars. The new tax breaks were enacted as part of the massive economic recovery package passed last year.

“Our report concludes that the IRS is having a mixed filing season this year,” George said. “On the one hand, they are having difficulty implementing many of the changes created by the passage of the laws designed to stimulate the economy. On the other hand, the news is not all bad as the IRS is detecting and stopping more erroneous refunds this year.”

The report covers returns processed as of March 5. At the time, the IRS had received about 61 million returns. The agency expects to receive about 140 million individual returns this year.

“Any time you have major tax changes you will see some confusion over it,” said IRS spokesman Terry Lemons. The IRS is doing “everything we can” to work through problems and process returns quickly.

The stimulus package enacted last year presented many challenges for taxpayers and the IRS, making an already complicated tax system even more complex. There were tax credits for qualified families who buy new homes or make energy improvements to existing ones, as well as tax breaks to help pay college tuition or buy new cars.

The Making Work Pay tax credit was President Barack Obama’s signature tax break in the package. It provides individuals with up to $400 and couples up to $800.

The homebuyer tax credit was so popular that Congress extended and expanded it in November. Buyers who have owned their current homes at least five years are eligible, subject to income limits, for tax credits of up to $6,500. First-time homebuyers — or people who haven’t owned homes in the previous three years — can get up to $8,000. To qualify, buyers have to sign purchase agreements before May 1 and close before July 1.

The IRS expects half the people claiming the homebuyer credit not to include proper documentation, such as a settlement statement, and that will delay refunds, according to the report.

As of April 2, the average refund was $2,950, up about $255 over last year, Lemons said. The fastest way to get a refund: file electronically and have the refund deposited directly into a bank account, which takes about 10 days.

Refunds can take six to eight weeks for last-minute filers who use paper returns and receive checks, Lemons said.

Mercedes-Benz must pay $482,000 for ‘LEMON’

A judge has ordered Mercedes-Benz USA LLC to pay $482,000 in damages and legal fees to a Wisconsin customer who was sold a defective car and not given a refund on time.

Vince Megna, a Milwaukee lawyer who represents the customer, said he believes the judgment is the largest involving a single car under a state “lemon law,” which protect consumers who are sold junk cars. The judge is expected to sign the final order as early as Friday.

Mercedes-Benz spokeswoman Donna Boland said the company, a unit of the German car maker Daimler AG, is disappointed the judge overturned an earlier verdict in favor of the company. The spat over the 2005 Mercedes-Benz E 320 has already dragged on more than four years, and the company’s lawyer on Friday asked the court to put the judgment on hold pending an appeal.

While states have a variety of lemon laws, Wisconsin’s is one of the strongest. It allows customers who buy cars that don’t run or can’t be repaired to demand a replacement or refund. Manufacturers have 30 days to respond and can be ordered to pay double the purchase price plus legal fees for violating the law.

Bob Silverman, a prominent lemon law attorney in Ambler, Pa. who was not involved in the case, agreed it was one of the largest judgments for a car he’s seen and was an important victory for consumers.

“This one result is very important to the entire auto industry,” Silverman said. “It teaches them a lesson they ought to comply with the law promptly or they are going to have to pay in the end.”

‘A complete nightmare’
Despite the pending judgment, customer Marco Marquez, a 37-year-old businessman from Waukesha, called the case “a complete nightmare” and said he was still waiting for his money back. Once a big fan of Mercedes-Benz who has owned several of its cars, he now says he’ll never buy another.

It all started when Marquez, who owns Mexican restaurants in Waukesha and Janesville, purchased the E 320 for $56,000 from a Milwaukee dealership in 2005.

Almost immediately, the car often would not start. The battery was replaced multiple times, but the problem continued. After several repair attempts, the dealership said the problem could not be fixed.

Marquez hired Megna, who sent the company a refund demand in October 2005. After a few weeks, an employee tried to talk Marquez into taking a replacement instead. He declined and again asked for a refund. At one point, the employee said he should fire his lawyer and deal with them on his own.

The company finally agreed to the refund, but failed to provide one within 30 days. On the 31st day, Megna filed the lawsuit on behalf of Marquez seeking double damages and attorneys’ fees.

Mercedes-Benz has acknowledged the car was defective, but for years has accused Marquez of acting in bad faith.

The company says an employee asked Marquez for information about his auto loan on the 30th day so the refund could be granted, but Marquez failed to follow through. Megna said Mercedes-Benz had the information it needed for the refund but was stalling.

Ruling overturned
A judge ruled in Marquez’s favor in 2007, awarding $202,000 in damages and legal fees. But an appeals court in 2008 overturned that decision and ordered additional proceedings, saying a jury should decide whether Marquez intentionally prevented the company from giving the refund on time.

A jury sided with the company last year, agreeing Marquez acted in bad faith. But in a rare move, Waukesha County Circuit Judge Michael Bohren overturned the verdict, saying it was not backed up by evidence. He ruled in Marquez’s favor, citing a clear “lack of urgency” by Mercedes-Benz to refund his money.

A series of rulings by Bohren have calculated the damages for Marquez at roughly $168,000 (double the purchase price plus interest), plus $314,000 in costs and legal fees for Megna and other lawyers.

In the meantime, Marquez has continued to drive the vehicle in question, which now has 56,000 miles. He said it was back in the shop for repairs twice last year but has been “working fine” lately. Still, he can barely contain his anger at the company he once admired.

“Frustrated is really an understatement,” he said. “You put that much faith in a car company and you give your hard-earned money to that company and then you are basically let down. You drop $50,000 for a car that doesn’t work.”