slide1 l.
Skip this Video
Loading SlideShow in 5 Seconds..
Terri Harris Motor Vehicle Technical Advisor Grand Rapids MI 616-235-1655 616-235-2249-fax Terri.S.Harris@irs PowerPoint Presentation
Download Presentation
Terri Harris Motor Vehicle Technical Advisor Grand Rapids MI 616-235-1655 616-235-2249-fax Terri.S.Harris@irs

Loading in 2 Seconds...

play fullscreen
1 / 47

Terri Harris Motor Vehicle Technical Advisor Grand Rapids MI 616-235-1655 616-235-2249-fax Terri.S.Harris@irs - PowerPoint PPT Presentation

  • Uploaded on

NABD 2007 National Buy Here Pay Here Conference Terri Harris Motor Vehicle Technical Advisor Grand Rapids MI 616-235-1655 616-235-2249-fax Technical Advisor Program Pre filing and Technical Guidance - LMSB Pre-Filing and Technical Services

I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
Download Presentation

PowerPoint Slideshow about 'Terri Harris Motor Vehicle Technical Advisor Grand Rapids MI 616-235-1655 616-235-2249-fax Terri.S.Harris@irs' - Thomas

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.

- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript

NABD 2007

National Buy Here Pay Here Conference

Terri Harris

Motor Vehicle Technical Advisor

Grand Rapids MI



technical advisor program
Technical Advisor Program
  • Pre filing and Technical Guidance - LMSB
    • Pre-Filing and Technical Services
      • Pre Filing Initiatives (IIR, PFA)
      • Legislation Implementation
        • Example – Alternative Motor Vehicle Credit
          • Energy Act of 2005
    • Office of Tax Shelter Analysis
      • Listed Transactions and Shelter Coordination
    • Technical Advisors – 75+ in various industries and issues
technical advisor program3
Technical Advisor Program
  • TA Program Goals
    • Ensure uniformand consistent treatment of issues nationwide
    • Resolve Issues Globally
    • Alternative Issue Resolution Strategies
      • IIR – Demo Vehicles
      • Pending IIR on LIFO Pooling for Cross over vehicles
    • Responsibilities are both Internal and External
      • Communication is Vital
        • Internal – Examiners, Counsel on Current Audits
        • External – Industry Associations
          • NADA, NIADA, NABD, Recreational Vehicle Assoc, various CPA Consortiums, others
motor vehicle team members
Motor Vehicle Team Members
  • Terri Harris, Technical Advisor
  • Michael Willemsen, Technical Advisor
  • Laurie Schutter, Assistant Technical Advisor
  • Fred Gavin, Appeals Coordinator
  • Grant Gabriel, Industry Counsel
  • Melissa Brainard, Examination Audit Aide
issue resolution strategies
Issue Resolution Strategies
  • Examination
    • Examiner and Manager Issue Discussions
    • Involve Industry Specialist if appropriate
    • Request Advice from IRS Counsel
      • Technical Advice Memorandum or Case Specific Advice (Field Issued)
    • Request Appeals Conference on unagreed issues
    • On issues with national implications - involve industry associations
issue resolution strategies6
Issue Resolution Strategies
  • Global Issues
    • Industry Issue Resolution
    • IR 2007-47
      • Most recent solicitation for IIR suggestions
      • Considered twice a year for guidance
    • Intended to:
      • Resolve issues common to significant numbers of taxpayers through new and improved guidance
audit activity trends
Audit Activity Trends
  • Overall increase in examinations including dealerships
  • A few issues being considered:
    • Cash Reporting – Form 8300
    • Service Technician’s Tool Programs
    • 263A – Uniform Capitalization
    • Inventory –Lower of Cost or Market (LCM)
what resources are available
What Resources Are Available?
  • Audit Technique Guides
    • New Vehicle Dealerships Audit Technique Guide (ATG)
    • Used Car Dealerships – Part of Retail ATG
  • CPA/Accountant/Attorney
    • Are they Experienced in Your Industry?
  • Trade Associations
  • MVTA
dealership audit technique guide new vehicle atg
Dealership Audit Technique Guide“New Vehicle ATG”

December 2004,,id=137743,00.html

dealership atg
Dealership ATG
  • Chapter 1 & Chapter 2-Books and Records (franchised)
  • Chapter 3- Balance Sheet Accounts
  • Chapter 4, 5, 6 - Inventory Overview and Methods
  • Chapter 7-After Market Products–Service Contracts, etc.
  • Chapter 8 - Producer Owned Reinsurance Company
  • Chapter 9 - Advertising Associations
  • Chapter 10 - Sales of Dealerships
  • Chapter 11 - Related Finance Companies
  • Chapter 12 - Related Entity Returns
  • Chapter 13, 14 - Other Automotive Issues
retail atg including used vehicle dealerships
Retail ATGIncluding Used Vehicle Dealerships

Publication Date - August, 2005,,id=141373,00.html

retail atg
Retail ATG
  • Includes many retail industries
    • General Issues in Retail
    • Specific Industry Related – Chapter 3
        • Organization and activities
        • Income reporting
        • Expenses
        • Inventory valuation
        • After market products
        • More
independent used car dealers atg
  • Key Income Questions – Food for Thought
    • Are you using the Accrual Method of Accounting?
      • Accrual Method of Accounting is Required
        • Inventory is a Material Income Producing Item
independent used car dealers atg14
  • Inventory Questions – Food for Thought
    • Auction Purchases – How do you allocate costs on a bulk purchase?
      • Actual Costs on Individual Vehicle
    • How Do You Book the Inventory Value of A Trade In? An Auction Purchase?
      • Official Used Vehicle Guide/Auction Purchase Price
      • Adjusted for condition of the vehicle?
      • Documentation Retained?
independent used car dealers atg15
  • How Do You Value Inventory at Year End?
    • LIFO?
    • Lower of Cost or Market?
      • How Do you Determine the Write Down Amount?
        • Used Car Guide?
        • Experience?
        • Flat Percentage?
independent used car dealers atg16
  • After Market Products – Food for Thought
    • What Kinds of Extended Service Contracts Do You Offer?
      • Dealer Obligor?
      • Dealer Agent?
      • How Do You Report the Income? Expense?
    • What other After Market Products Do You Offer?
      • How are they treated for tax purposes?
independent used car dealers atg17
  • How Are Vehicle Sales Financed? – Food for Thought
    • Do You Receive any “Back End Payments?”
    • Unrelated Finance Company?
      • How is the sale of the note reported?
      • Any Dealer Reserves?
independent used car dealers atg18
  • Related Finance Company?
    • Operational Issues – Arms Length Standards
    • How is the discount rate determined?
    • Bulk Sales, Individual Sales
      • Arms Length Standards Apply
  • Buy Here Pay Here
    • How is income reported?
    • Bad Debts – When does collection stop and write off occur?
      • Reserves for Bad Debt Not Allowable
a few specific issue
A Few Specific Issue

Cash Reporting

Electronic Records Retention

Employee Tool and Equipment Plans

Inventory Write Down

IRC 263A



Form 8300 - Who Must File?

Any person who is engaged in a trade or business [including sales and service] and receives more than $10,000 in currency or certain monetary instruments to report to IRS and Financial Crimes Enforcement Network (FinCen)

what is cash
What is Cash?
  • Coin and currency of the United States or other country; and …
  • Monetary Instruments having a face amount of $10,000 or less,
    • Cashier’s Check (by whatever name)
    • Bank Draft
    • Travelers Checks
    • Money Orders
multiple cash payments
Multiple Cash Payments
  • Initial Payment > $10,000
    • Recipient must report the initial payment within 15 days of receipt
  • Aggregating Sales
    • When aggregate amount exceeds $10,000,
      • report within 15 days after receiving the payment that caused the aggregate amount to exceed $10,000
auto dealership specific questions
Auto Dealership Specific Questions
  • Automotive Alert Issued
  • 31 Questions - Issued with the assistance of NADA
    • Most are Dealer Specific
  • Answers determined in conjunction with IRS Anti Money Laundering Specialists
  • Copy is available to public
  • Any other BHPH specific questions?
electronic records a review
Electronic Records – A Review
  • Revenue Procedure 98-25
    • Applies to Taxpayers with Assets > $10,000,000
      • Best Practice for All Others
    • Electronic records must be retained
    • Must be “capable of being processed”
      • Retrieve, manipulate, print, produce output
    • Must contain sufficient transaction level detail
    • If data files stored in DBMS structure, must convert to an ASCII/EBCDIC format, or allow IRS to process historical DBMS files on taxpayer’s computer equipment
electronic records a review27
Electronic Records – A Review
  • Revenue Procedure 97-22 -Applies to:
    • taxpayers that maintain books and records by using an electronic storage system that either:
      • images their hardcopy (paper) books and records, or
      • transfers their computerized books and records, to an electronic storage media, such as an optical disk
electronic records a review28
Electronic Records – A Review
  • Rev Proc 97-22 continued:
    • permits the destruction of the original hardcopy books and records and
    • the deletion of original computerized records
    • after a taxpayer completes testing of the storage system to establish that books and records can be reproduced
electronic records update
Electronic Records - Update
  • MVTA and CAS currently working with vendors at vendor’s request
    • Conducting architecture design discussion
    • Evaluating specific software applications at a detailed level
    • IRS prohibition against disclosing companies that we are working with
    • IRS will not endorse any vendor product
Employee Tool &

Equipment Plans


Employee Tool & Equipment Plans

  • Technician must be an employee and must be required to provide and maintain tools
  • Employer compensates technician with hourly wage and a tool reimbursement
  • Programs generally purport to be compliant with Accountable Plan rules of IRC 62(c)

Employee Tool & Equipment Plans

  • Accountable Plan Rules - IRC §62(c)
    • Expense Must be Ordinary and Necessary
    • Employee Must Actually Pay or Incur an Expense
    • Employee Must provide Adequate Accounting to Employer of Expenses
      • Written Documentation & Receipts
    • Employee Must Account for All Amounts Received
    • Excess Amounts Must be Returned to Employer
employee tool equipment plans
Employee Tool & Equipment Plans
  • What are the advantages of an Accountable Plan?
    • Amounts paid under a qualifying plan are not subject to income or employment tax
      • No income or employment tax for technicians
      • Reduced employment tax for employer
employee tool equipment plans34
Employee Tool & Equipment Plans
  • Key Questions for Dealers -
    • What Are the Requirements to Qualify as an Accountable Plan?
    • What is the IRS Position on Service Technicians’ Tool Reimbursement Plans?
    • Is My Plan Compliant?
service technicians tool reimbursements coordinated issue paper july 2000
Service Technicians’ Tool ReimbursementsCoordinated Issue Paper – July 2000
  • Conclusion
    • Generally, amounts paid to motor vehicle service technicians as tool reimbursements will not meet the accountable plan requirements
    • Amounts paid under a non-accountable plan:
      • Included in the employee’s gross income
        • Must be reported on employees’ Form W-2
      • Are subject to the withholding and payment of federal employment taxes
employee tool equipment plans irs position
Employee Tool & Equipment PlansIRS Position
  • Revenue Ruling 2005-52 – August 3, 2005
    • Facts:
      • Employees required to provide and maintain various tools
      • Employees receive hourly wages and a tool allowance
        • Tool allowance is determined using national survey data and technician questionnaire
      • Employees not required to substantiate actual expenses
      • Employees not required to return any part of allowance that exceeds actual expenses
employee tool equipment plans irs position37
Employee Tool & Equipment Plans IRS Position
  • Conclusion –
    • Arrangement fails to meet the accountable plan requirements
      • No substantiation required
      • No return of excess
    • Amounts paid under such a plan are:
      • Includible in technician’s income
      • Subject to employment taxes
  • Re-characterization Issue:
    • Even if employees substantiated actual amounts and any excess paid is treated as wages by employer -- Plan does not qualify
used vehicle write downs
Used Vehicle Write Downs
  • Dealer must elect LCM
  • Write downs not allowed for dealers on LIFO
  • Rev Rule 67-107
    • Permits dealers to value vehicles for inventory purposes using an official used car guide.
    • Average wholesale prices for comparable cars.
  • Must be applied to each vehicle individually
    • No overall percentage write down (historical averages)
    • No write down based on experience
    • Watch write downs on vehicles purchased close to year end.
    • Write down must be supported with documentation.
irc 263a
IRC 263A
  • Requires certain taxpayers to capitalize direct and indirect costs related to inventory
  • Applies to retailers with sales of $10,000,000 or more and all producers
    • Average
  • Requires dealerships to capitalize certain indirect costs
  • Method of Accounting
  • Many of the issues would not apply to used vehicle dealers – except……..
irc 263a42
IRC 263A
  • Recent Service Activity
    • Overall increase in auto dealership examinations
      • Resulting increase in potential 263A issues
    • Dealerships as Resellers with Production Activity Issues Raised in Limited Areas
      • No specific guidance on this issue
    • Automotive Alert – Q&A – stand down on producer issue
irc 263a43
IRC 263A
  • If Dealers are Resellers with Production Activity
    • Do activities in the service department and body shop qualify as production?
      • Simplified Production Method is the only simplified method available
    • If this issue were sustained, it could affect BHPH dealers
irc 263a44
IRC 263A
  • Dealer as Reseller with Production Activities - continued
    • Raised in a limited number of examinations
      • Geographically concentrated
    • Technical Advice Request Submitted
    • Industry Raised Concerns to Service Executives
      • Service has committed to securing guidance on this issue
irc 263a45
IRC 263A
  • Dealer as Reseller with Production Activities – continued
  • Stand Down on “Producer” Issue ONLY
    • Other IRC 263A issues may continue to be considered
  • General Legal Advice on Producer Issue Requested
  • NADA allowed to provide “white paper”