Dealer Insights – March/April 2011 - Dealer Digest
IRS offers safe harbor from UNICAP rules
Auto dealerships now have two safe harbor methods to use for the capitalization of costs related to inventories per UNICAP rules. A recent IRS rule (Revenue Procedure 2010-44) permits you to use either the “retail sales facility” or the “reseller without production activities” method. The rule applies to sales facilities visited routinely by retail customers.
Under the retail sales facility method, dealerships can elect to deduct all handling and storage costs incurred at their sales facilities. Under the reseller without production activities method, dealerships can opt to be treated as resellers who aren’t producers and deduct the cost of all labor performed by the dealership on customer and dealership-owned vehicles. With the latter election, a dealership can correct the amount of profit that may have been capitalized on parts added to dealership-owned vehicles.
Dealerships can elect to use one or both of the new methods by filing IRS Form 3115, “Application for Change in Accounting Method.” You may file the form anytime from the beginning of the year of change until the income tax return is “timely filed” for the year of change.
Even if the current UNICAP method used by your dealership seems to be consistent with the UNICAP-related rules, you still need to file Form 3115 to elect the safe harbor. If you fail to file the form, your previous UNICAP calculations could be subject to review if your dealership is audited. IRS audits of dealerships reportedly have climbed over the last few years.
In-plan Roth rollovers from non-Roth accounts
The IRS has provided new guidance on in-plan Roth rollovers and rollovers from 403(b) plans to Roth accounts in the same plan. Now, existing IRS restrictions on distributions of participant contributions from a defined contribution account must be satisfied before an in-plan Roth rollover can be made.
For example, if you have a current 401(k) plan participant, an in-plan Roth rollover from the participant’s pretax elective deferral account is permitted only if the participant has reached age 59½, has died or become disabled, or has received a qualified reservist distribution.
The Small Business Jobs Act of 2010, effective for distributions after Sept. 27, 2010, changed the law to permit individuals with a qualified Roth contribution program to roll over amounts from designated non-Roth accounts to their in-plan Roth accounts. There’s potential for a large tax savings over time. Consult your tax advisor to see if an in-plan Roth rollover is right for you.
Dealer Insights – March/April 2011