IRS is looking at tax treatment of factory funds for required dealership upgrades

IRS is looking at tax treatment of factory funds for required dealership upgrades

The Internal Revenue Service is looking at how funds paid to dealers who commit to image upgrades may be capitalized, fully or in part, as reimbursement for mandatory construction costs.

According to NADA, the issue of the appropriate tax treatment of factory image upgrade payments is approached differently by dealer accounting groups around the country, which has brought about the IRS scrutiny. To better define the relevant issues, NADA will conduct a workshop at the next NADA Convention (Feb., 2012) that will focus on the issue. Terri Harris, an IRS motor vehicle technical advisor, has informed NADA she intends to issue informal guidance on the topic in advance of the Convention, and she welcomes dealer input. She can be contacted at terri.s.harris@irs.gov.

GM and other carmakers have been prodding dealers to renovate their buildings as they try to change their image with car shoppers. Cadillac, in particular, has asked more than 200 of its dealers nationwide to spend thousands each to spruce up their showrooms in an effort to better compete with Lexus, Mercedes and other luxury brands.

The makeover includes oak walls, limestone exterior tiles, modern lighting and leather chairs. The upgrades are expected to be finished within the next two years. GM will help pay for the improvements in a program tied to how many cars a dealer orders.