Many folks think that it contains new “earth shattering” revelations.

Wow! A lot of attention is being directed toward the IRS Market Segment Specialization Program (“MSSP”) for auto dealers.

I have seen articles concerning this MSSP in no less than three national publications. While information released by the IRS always draws attention, this time it really seems to be undeserved.

The MSSP, issued in September, seems to be misunderstood by those not really familiar with the tax issues that revolve around the car business. Many folks think that it contains new “earth shattering” revelations. See what you think after a closer look.

As stated by the IRS, “One of the goals envisioned with this Audit Techniques Handbook is to achieve a high level of proficiency in the way we conduct our examinations of automobile dealerships. In addition, by establishing and maintaining close contact with other industry specialists, including the Motor Vehicle Industry Specialist, National Office, Appeals and District Counsel, we can maximize the effectiveness of our efforts.”

The MSSP is divided into five parts:

  1. Part I leads the agent through the examination; from pre-audit through the Books and Records, concentrating on the fulcrum concept of “Financial Status.”

  2. Part II illustrates Inventory, concentrating on LIFO computations.

  3. Part III discusses Aftersale Financial Products sold by auto dealerships. This includes consideration of Non Captive issues.

  4. Part IV considers “stand alone” topics, unique to automobile dealerships.

  5. Part V is the Appendix which includes comprehensive case studies, legal authorities, issue analysis, and a glossary of terms.

Part I is simply a guide to the retail car business for IRS field agents. It attempts to teach them the very basic concepts of automotive accounting accounting. No new news here.

Part II deals with the Last In, First Out (LIFO) method of inventory valuation. It reviews the history of LIFO but does not even include Revenue Procedure 2000-23 which introduces “Used Vehicle Alternative LIFO.” For those unfamiliar with automotive LIFO this part of the MSSP provides some great information, but again no new news.

Part III addresses extended service contracts including the definition of “dealer agent” and contracts and the SWIM method of accounting. Nothing new here since a 1997 Rev. Proc. Since then I have adopted a beautiful baby daughter from China who now is almost ready for school. Time does fly.

Lets move on to other inclusions in Part III. The tax aspects of credit life and accident and health insurance sold by dealerships is addressed. Oh here is something new about Producer Owned Reinsurance Companies. Not! How many times do we have to read William T. Wright et al. v. Commissioner, T.C. Memo. 1993-328?

Part IV covers advertising associations, covenants not to compete, the amortization of goodwill (Blue Sky to most of us) and related finance companies.

Oh, here's something new, the amortization of Blue Sky. It started in 1993, so it's “only” seven years old. Hey, same age as another of my girls. She's going into second grade. Wait, Related Finance Companies are also reviewed here. We've only been setting them up for a little over 10 years. Sorry none of my five kids are ten. (Two are older and three are younger).

Passive Activity rules were introduced in 1986. Shucks, no kids born that year either. Voluntary Employee's Benefits Associations (VEBAs). Catchy acronym, but not really new. (There may be some neat opportunities here regarding tax deductible life insurance, though.) Enough with this. Part IV goes to discuss such “new” dealership concepts like holdback, warranty advances, finance reserves and even dealer compensation issues.

Part IV finishes up with a detailed review of sub-prime contracts and the issues surrounding them. There is really a lot of good information covered in this review, but once again… nothing new.

Part V concludes with a glossary of dealership terminology. There, we made it all the way though the MSSP and not one piece of new information. That is of course unless you don't keep up with the tax issues surrounding car dealerships.

None of my comments should diminish the value of this MSSP as a guide for IRS agents and others not really familiar with this area of the car business.

Terri Harris, the top IRS person in the automotive field, and her staff did a great job in writing this MSSP for car dealerships. I applaud her efforts to open the lines of communication between the IRS and those it serves.

I should tell you that there is some new news. The MSSP is about to be revised and will get a NEW name! It will be called the Examination Support and Procedures (ES&P) manual.


Don Ray is the President of the George B. Jones Companies, an ISO 9002-certified national accounting and consulting group for retail automobile dealers. He's at donr@gbj.comor 800-323-6736, website www.gbj.com.