Dealer Insights - Nov/Dec 2010 - Dealer Digest

IRS likely to further delay scrutiny of UNICAP issues 

Last year the IRS announced it would suspend auditing on Uniform Capitalization (UNICAP) rules until Jan. 1, 2011, to give dealerships time to comply with Internal Revenue Code Section 263A. But an Aug. 9, 2010, directive to field examiners indicates that the suspension is likely to be carried into 2011.

It states, “In anticipation of the pending guidance, the IRS has determined it will extend the existing audit suspension period until the date the pending guidance is published in the Internal Revenue Bulletin.”

In September 2009, Taxpayer Advice Memorandum (TAM) 200736026 indicated that most dealerships incorrectly apply Sec. 263A rules, which require taxpayers to capitalize all costs — including production, handling, purchasing and overhead expenses — for property they produce or acquire for resale. Most dealers have been deducting these expenses each year by using the simplified retail method, rather than including them as part of their inventories.

The student link 

Do many of your customers have high school or college age kids? Here’s a way to market to them that you might not have yet tried: Send them the checklist for parents offered by at The checklist is designed to help parents make sure that their children are driving a safe car.

The checklist, which parents can use with their offspring, guides them through inspecting the tires, brakes, and lights, as well as under the hood. Mom or Dad may find defects in the vehicle that require repairs — or decide it’s time to buy a new “set of wheels.” So your dealership might enjoy not just some goodwill for sending out the helpful list, but also some extra business.

Don’t forget to “HIRE” 

If you’re considering building up your staff, remember that your dealership can take advantage of a couple of tax breaks under the Hiring Incentives to Restore Employment (HIRE) Act by hiring certain unemployed workers by Dec. 31.

The law exempts dealerships from paying the 6.2% Social Security portion of FICA taxes on qualified new hires made from Feb. 3, 2010, through the end of the year for payroll paid after March 18, 2010, through Dec. 31, 2010. If the new hire works at your store for 52 consecutive weeks, you’ll potentially be eligible for a $1,000 retention credit on your 2011 tax return.

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