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DEALER TAX WATCH JUNE 2003 TABLE OF CONTENTS
From the June 2003 Issue's Tax Watch Out ...If you had called Will De Filipps personally to ask, "What's happening lately with IRS audits of dealers and dealerships that I need to know about?" Here's what he'd say ... (Dealer Tax Watch, June 2003, Pages 1-2.)*Where, Oh Where, Have My Little PORCs Gone? Update on IRS Attack On PORCs & Reportable Transactions.Since our last coverage on the IRS' broadside attack on tax shelters and its impact on dealer reinsurance activity in Notice 2002-70, the Service has not released any further guidance or specifics. But, there has been an enormous concentration of effort within the IRS to try to figure out just exactly what it wants to do about all of this. ...* Outsourcing All of the Detail Work Offers Cost-Effective Alternative for Changing Accounting Methods for Factory Incentives & Ad Fees. In Update #5 in the December 2002 DTW, we overviewed the benefits for dealers who are making changes in accounting methods to reduce inventory costs by Factory incentive payments, trade discounts and advertising charges. As mentioned there, contending with all the details can become tedious and overwhelming. Not only do year-end invoices for many years have to be analyzed, but other information including various floorplan and other reports must be reviewed in the course of making these determinations. Complicating matters further, incentive programs vary by manufacturer and, in some cases, by year. And, if the new vehicle inventory is on LIFO, all prior year LIFO layers need to be recomputed to reflect the Section 481(a) adjustments that are required. For CPAs and dealers wanting to obtain the benefits, but not wanting to do all of the detail work themselves, the opportunity to outsource this work can be irresistible. This includes the detailed invoice analysis for the three prior years, preparation of the Forms 3115, and the LIFO index recalculations. ...* Technician Tool Reimbursement Accountable Plans ... Request for Clarification of Tax Issues. Here's a new development ... one provider of Section 62(c) accountable plans for technicians has requested that the IRS consider clarifying the answers to some of the underlying tax questions that are involved in determining reimbursement rates. It isn't surprising that different programs have different reimbursement rates, some (considerably) higher than others. And this alters the relative attractiveness of the plan being offered to dealers and their technicians. This request was made to the IRS for consideration under its IIR (IRS Issue Resolution) Program. A similar request for clarification was made for this issue to be placed on the IRS' Priority Guidance List. ...* Frontier Chevrolet's Payments for Non-Compete Agreements Have to Be Stretched Out Over 15 Years. In the June 2001 Dealer Tax Watch, we reported on the defeat that Frontier Chevrolet Co. experienced in the Tax Court. Frontier had argued that it should be allowed to write-off its payments for non-compete agreements over 5 years. The IRS had said that Section 197 required amortization over 15 years, and the Tax Court agreed with the IRS. Recently, the United States Court of Appeals for the 9th Circuit agreed with the Tax Court in denying the 5-year write-off. However, the Appeals Court seemed to introduce the possibility that the 15-year write-off period might not be required in all cases. ...* One Dealership Family's 10-Year War with the IRS ... Another Really Good Case Study. A year ago, we selected Metro Leasing & Development Corp. as a dealer case worthy of special attention. Metro is an opportunity to see the mishaps or misadventures that lurk in a situation that could be fairly common. The tax issues were encountered in the context of dealership activities that had resulted from the formation of a real estate holding company controlled by the former dealer. In this issue of the DTW, we are focusing on another interesting series of cases, all involving another extended dealership family who went to court with the IRS over a host of tax issues for over 10 years. In this group of cases, collectively the "Cordes" cases, the dealer patriarch really controlled the entities, and he was the beneficial owner of all of the stock of all of the entities, even though there seemed to be prior gifts of stock to other family members. Mr. Cordes was taxed big-time on the receipt of constructive dividends. He even ultimately paid the "F" penalty. ...* Used Car "Dealer" Not Allowed to Deduct Losses from Used Car Activity. There was an unusual case reported in May out of the Small Tax Case Division of the Tax Court (Claude D. Mayo, Sr. v. Commissioner, T.C. Summary Opinion 2003-51. Mr. Mayo and his wife were not allowed to deduct net losses attributable to their used car activities in Schedule C of their individual income tax returns for 1995 and 1996. ...* The Tax Court (also) declined to sustain penalties under Section 6662(a). The IRS had also asserted negligence penalties in this case. The Court pointed out that the taxpayers were not sophisticated in financial matters and that their income tax returns were prepared by a professional tax return preparer. Note: This is the same case as T.C. Summary Opinion 2001-146. (* For full text, see the Dealer Tax Watch, June 2003.) * * * |
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