IRS Suspends UNICAP Audits for Dealerships Pending Additional Guidance
The IRS announced that it is once again extending the IRC Section 263A (UNICAP) audit suspension period, which was set to expire on December 31, 2010.
“The latest suspension is great news for auto dealers,” says Saylor Sims, a dealership manager with LarsonAllen. “The tax consequences related to the change in UNICAP could have required dealers to capitalize up to five percent of their inventory balance at year-end.”
Based on the IRS’s current interpretation, very few dealers are in compliance.
|
The latest suspension is great news for auto dealers.
—Saylor Sims, Dealership Manager
|
“The continuation of the audit suspension gives those dealers more time to address the issue,” says Dave Wiggins, a dealership principal with LarsonAllen. In addition, auto dealers will have a chance to review the IRS’s guidance before deciding if and when they should change their inventory accounting methods, Wiggins notes.
As with previous IRS guidance in this area, the audit suspension continues to apply to new and used car dealers as well as light, medium, and heavy duty truck, but not to RV or equipment dealers.
Announcement and pending guidance
The official announcement was made on August 9, 2010, when the IRS issued Tier III – Field Directive on the Planning and Examination of IRC Section 263A Issues in the Auto Dealership Industry #2. The brief indicates that it will extend the suspension period until pending guidance is published in the Internal Revenue Bulletin. The additional guidance should address many of the issues outlined in TAM 200736026.
Background
The complexities of the uniform capitalization rules of UNICAP for vehicle and parts inventories have been a source of misunderstanding and inconsistent tax treatment among auto dealers. In September 2009, the IRS issued a directive to encourage compliance among dealers and allow the IRS to address issues with their proposed methodology in computing UNICAP. Read more background.
How we can help
LarsonAllen can help you understand how the latest UNICAP extension will affect your dealership and prepare your business for the tax implications.
Dave Wiggins, Dealership Principal
dwiggins@larsonallen.com or 314-925-4316
Saylor Sims, Dealership Manager
ssims@larsonallen.com or 480-615-2314
View our dealership principals.