Taxability of demos leaves many questions unanswered

Although dealer-provided demonstration automobiles for full-time salespersons is a non-taxable benefit, there are enough restrictions in the regulations that proper compliance has become difficult for auto dealers and their employees.

Trying to clear the air on that issue are Crowe, Chizek and Company, on behalf of Auto Team America, as well as O'Conner & Drew and the National Automobile Dealers Association. That group is taking the lead to question specific aspects of the rule.

The Internal Revenue Service and Treasury Department have accepted the group's Industry Issue Resolution (IIR) submission on the issue of taxability of demonstrator automobiles provided to salespersons.

One of the anticipated benefits of the IIR pilot program is to eliminate uncertainty regarding tax treatment. The IRS currently is investigating this issue and is working to provide a document by the end of the year that will provide guidance to dealers on how to handle demo vehicles.