IRS Issues Guidance on Dealership Cost Segregation Studies

IRS Issues Guidance on Dealership Cost Segregation Studies

NADA is advising dealers that the IRS has issued new technical guidance to its field examiners on dealership cost segregation studies, which many dealerships use to determine the appropriate depreciation period for different components of its facility.

Cost segregation or building studies segregate facility components into different asset classes, which can result in some facility costs being depreciated over shorter periods (e.g., 5 or 7 years) rather than the traditional 39 years used for buildings and improvements. In September 2007, the IRS Acting Director sent a letter to NADA requesting comments on a draft chapter on auto dealership cost segregation studies that the IRS intended to add to its broader Cost Segregation Audit Technique Guide (ATG). In November 2007, NADA provided the IRS with comprehensive comments on the draft that were prepared on NADAês behalf by the Auto CPA Group. After considering NADAês comments, the IRS finalized the new chapter and incorporated it into the IRS Cost Segregation ATG.

The new chapter on auto dealership cost segregation studies is available at:

www.irs.gov/businesses/article/0,id=180233,00.html.

The entire IRS Cost Segregation ATG is available at: www.irs.gov/businesses/article/0,id=134180,00.html.

The new guidance and a Motor Vehicle Technical Advisor Automotive Alert explaining it are available at www.nada.org/regulations under –Recent Federal Agency Publications.”

Please note that none of these documents serve as an official pronouncement of law.

This is one of several recent federal tax developments impacting franchised dealers (others include the new LIFO safe harbor Vehicle Pool Method, the IRSês heightened focus on whether various tool plans meet Internal Revenue Code requirements, and developments in the IRSês approach to the uniform capitalization (UNICAP) requirements). All of these topics will be addressed by the IRS Motor Vehicle Technical Advisor at an NADA webinar scheduled for Thursday May 8th from 1 3 p.m. EST. To register, visit: http://eseries.nada.org/source/Meetings/cMeetingPreFunctionDetail.cfm?section=unknown&product_major=SEM08SW11&functionstartdisplayrow=1.

The foregoing is offered for informational purposes only and is not intended as legal advice. Consult your tax practitioner for specific guidance on your compliance obligations under the IRS Code.