IRS Clarifies Tax Treatment Of Demos

IRS Clarifies Tax Treatment Of Demos

Last November, the IRS issued Revenue Procedure 2001-56 offering alternatives to the current rules governing the tax treatment of demonstrator vehicles. Although the revenue procedure does not fully adopt the simplification measures advocated by NADA, it does offer optional methods for determining the value of demos by qualified salespersons and other employees in the dealership.

NADA and two dealer accounting firms petitioned the IRS to develop rules which are clear, simple to apply and recognize Congressê intent to provide qualifying salespersons with this fringe benefit. Among other things, the revenue procedure provides a much-needed definition of what constitutes limited personal use and also streamlines existing record keeping requirements.

NADAês summary of Revenue Procedure 2001-56 is enclosed with this WANADA Bulletin. A complete electronic copy of the 33-page IRS document is available on the Regulation page of NADA Online, www.nada.org. Dealers can use their NADA member number as the username and password to access the information.