Did Volkswagen make false or misleading assertions in any of the materials submitted to, or communications made to, the U.S. government regarding eligibility of Volkswagen vehicles for the lean-burn technology motor vehicle credit?
That’s the first of a series of pointed questions in a letter sent to Volkswagen AG and Volkswagen Group of America from Senate Finance Committee Chairman Orrin Hatch (R-UT) and Ranking Member Ron Wyden (D-R). The letter, dated October 6, marks an effort to investigate whether the company “made false representations to the U.S. government in its certification for federal tax subsidies.”
In September, Volkswagen admitted that it had sold up to 11 million cars worldwide fitted with software designed to produce favorable – and flawed emissions tests. Those cars included the Audi A3 (2009-15), VW Jetta (2009-15), VW Beetle (2009-15), VW Golf (2009-15) and VW Passat (2012-15).
Just days after the admission, an analysis ordered by the L.A. Times suggested that the IRS might have paid out as much as $51 million in tax incentive credits for Volkswagen diesel vehicles based on those flawed emissions tests. The Senate Finance Committee, while acknowledging that investigations are ongoing, is clearly attempting to find out more about the credit, advising Volkswagen that “[t]his activity raises questions of whether Volkswagen made false representations to the U.S. government in its certification for federal tax subsidies.” Those certifications were part of the process used to claim tax incentives found in the Energy Policy Act of 2005 which included provisions for an alternative motor vehicle tax credit.
Under the Act, taxpayers were entitled to a tax break for the purchase of hybrid vehicles, fuel cell vehicles and alternative fuel vehicles, including certain advanced lean-burn technology vehicles, those that generally run on diesel fuel. In order to qualify for the credit, the IRS had to acknowledge the manufacturers’ certifications that the vehicles qualified. Volkswagen did certify a number of vehicles in order to make them eligible for the tax credit. Those vehicles included the 2009 Volkswagen Jetta 2.0L TDI Sedan and 2009 Volkswagen Jetta 2.0L TDI SportWagen. The tax credit was available for a limited number of years; Volkswagen has confirmed that the company installed the so-called “defeat devices” on certain vehicles marketed from 2009 through 2015.
The tax credit is valuable to taxpayers: a $1,300 tax credit (the typical credit available for VW model cars in 2009) in a 28% tax bracket would be the equivalent of a $4,643 tax deduction. That’s a substantial savings – and certainly provides an incentive for a taxpayer to purchase a Volkswagen over another car that did not qualify for the credit.
As part of the Senate Finance Committee inquiry, Sens. Hatch and Wyden have asked not only for primary points of contact for communication between Internal Revenue Service (IRS) and Volkswagen but also a list of dates and attendees of any meetings and other communications between Volkswagen employees and the Department of the Treasury, IRS, or the Department of Energy regarding the certification. Perhaps most telling, Sens. Hatch and Wyden have also requested “[a]ll promotional materials promoting or otherwise making potential vehicle purchasers aware of the availability of lean-burn technology motor vehicle credits.”
That suggests that the focus of the investigation isn’t just to determine whether taxpayers accidentally benefitted from Volkswagen’s fraud but rather whether Volkswagen manipulated the government with the intent to use the tax credit as a marketing tool. If the Committee finds the latter, it’s likely that Volkswagen could face hefty penalties and high-level employees – my words, not those of Hatch or Wyden – could possibly face criminal charges in the United States (I note that this has already been bandied about in Germany).
The Committee hasn’t given Volkswagen much time to respond to the inquiry: the company’s deadline is October 30, 2015.
