Auto Dealer’s Prior Year §263A Issues Considered During Routine IRS Exam

SourceCorp recently experienced a situation where an auto dealer was notified by the IRS that their 2008 and 2009 tax years were the subject of a routine IRS exam. The IRS also indicated it would be looking at §263A issues during the exam. After some negotiation, the IRS said it was willing to drop prior year §263A issues if the auto dealer elects the Safe Harbors as outlined in Rev. Proc. 2010-44. In addition, the IRS required the dealer to adopt the Safe Harbors via Form 3115 for the 2010 tax year by the 9/15 extended due date.

The IRS’ willingness to allow the dealer to move to Safe Harbor methods is in keeping with what IRS Motor Vehicle Specialist Terri Harris relayed late last year when the Safe Harbor guidance came out. Terri’s comments indicated that the IRS would be lenient on dealers for the 2010 and 2011 tax years, giving them time to transition to the Safe Harbors method. After that, dealers may face less forgiving IRS agents.

SourceCorp works with many auto dealers and their CPAs and has developed a seamless solution for the adoption of both safe harbors. We continue to monitor this issue closely and will post additional updates to our blog as they arise. For further information, contact me directly at chris.henderson@sourcecorptax.com.