Effective January 1, 2002, the IRS issued Revenue Procedure 2001-56 which provided guidelines for the taxation on the use of demo vehicles by dealership employees. Since it has been many years, we feel it might be time to refresh dealer’s memories on the scope of the guidelines in order to ensure their compliance.
Many of our auto dealer clients have reduced their demo fleet over the past several years due to increased liability exposure to the dealership and the costs associated with providing this benefit. Also, several of our dealer clients feel they have been targeted by the police due to their use of dealer plates. You may only provide a handful of demos, but the employees that receive this benefit must have the proper value added to their taxable income.
To view Downey & Company’s article on the methods for determining the value of the use of demo vehicles provided to employees, click here. This article explains the methods that are available to you and our recommendations on which methods to use for full-time salespeople and all other employees. The value of the vehicle is determined using the “average look back method.”
The table used to compute the taxable benefit for a full-time salesperson can be viewed by clicking here. The table is included in Downey & Company’s “Full-Time Salesperson Demonstrator Vehicle Policy” document, which you should have signed annually by each of your full-time salespeople. Also, all other employees should use the “lease value table” to determine the taxable benefit which can be viewed by clicking here.
Please take a moment to review the information included in this article to ensure that you are in compliance with the IRS guidelines.
If you have any questions regarding this article or any dealership management issues, please contact Paul McGovern at PMcGovern@DowneyCoCPA.com or 800-849-6022.
