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Tuesday, May 21, 2024 | Back issues
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Ford Loses Bid for More Money as US Probe Begins

CINCINNATI (CN) - In twin blowouts to Ford Motor Co., sedan steering issues will face a federal investigation, and its bid for $450 million in interest went belly-up.

News of the probe by the National Highway Safety Administration comes days after the 6th Circuit refused to have the Internal Revenue Service pay Ford $450 million in interest related to its overpayment on taxes.

Ford had paid the IRS approximately $875 million in the 1990s after a federal audit revealed that it had underpaid its taxes by nearly $2 billion during the preceding decade.

Though the results of the audit were merely preliminary, Ford issued the cash bond to stop the accrual of underpayment interest. It later converted the remittance to an advance tax payment.

Though Section 6611(b)(2) of Title 26 requires the IRS to pay overpayment interest if it ultimately determines that the taxpayer overpaid its taxes, IRS procedure does not consider cash bonds as a payment of tax.

Such interest accrues from "the date of the overpayment," according to the statute, and the IRS will not calculate interest related to a cash-bond issuance.

When the IRS eventually determined that Ford's $875 million remittance overpaid the taxes due, it issued a refund with interest from the date it converted the cash bonds into an advance tax payment.

Ford claimed in a federal complaint that it should have been awarded interest from the date it deposited the cash bonds.

Affirming a June 2010 ruling by U.S. District Judge Patrick Duggan in Detroit, the 6th Circuit sided with the government Wednesday.

The purpose and language of the revenue procedure is clear, and "the revenue procedures treated deposits and advance tax payments differently in one important respect: A taxpayer could demand the immediate return of a deposit anytime, while an advance tax payment would be returned only through the IRS's formal refund process, which takes time," Judge Julia Smith Gibbons wrote for a three-member panel.

Gibbons emphasized that "Ford is a sophisticated taxpayer, and its designation of the remittances was not accidental."

"A taxpayer's deliberate decision to designate its remittance as a deposit rather than an advance tax payment directly evidences an intent not to make a 'payment,'" the ruling states (emphasis in original). "That purpose is determinative."

The ruling concludes that "Ford's decision to designate its remittances as deposits rather than advance tax payments demonstrates that the sole purpose of the remittances was to stop the accrual of underpayment interest."

Gibbons did show some sympathy for Ford's position.

"No matter how we decide this case, taxpayers will have reason to complain about inconsistencies in the IRS's practices," Gibbons wrote.

Ultimately, however, "there is nothing we can do to rectify the IRS's inconsistent treatment of cash-bond deposits in this case, and the IRS's practices do not transform our duty to interpret § 6611," Gibbons added.

The NHTSA reportedly announced days later that that 508 complaints about steering issues had caused it to open an investigation into an estimated 938,000 Ford mid-sized sedans.

That "preliminary" probe will consider certain models of the Ford Fusion and Fusion Hybrid, Lincoln MKZ and MKZ Hybrid, and Mercury Milan, from model years 2010 to 2012.

Ford has told news outlets that it is cooperating in the probe. The finding by regulators of a safety issue could trigger a recall.

Complaints to the NHTSA have reportedly alleged loss of steering power and increased steering effort in the models equipped with rack-mounted electric, power-assisted steering.

Though no injuries were reported, four of the complaints reportedly alleged loss of vehicle control and a crash from increased steering effort.

Ford's Early Warning Reporting field-report data also included information on the issue, the NHTSA said, according to an article from Reuters.

Restarting the vehicle sometimes corrects a power-steering warning message, the NHTSA reportedly noted.

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