IRS FOCUSES ON UNICAP RULES WITH RESPECT TO AUTO DEALERS

Volume 3, Issue 6, October 10, 2007

All but the smallest auto dealerships are subject to the Uniform Inventory Capitalization Rules. These very complex rules under Internal Revenue Code Section 263A generally require dealers and other taxpayers to capitalize certain expenses such as purchasing costs, handling costs, and general and administrative expenses as part of inventory. That is, these expenses are not currently deductible. The UNICAP rules have been on the books since 1986, but until recently the IRS has placed little focus on how dealers should apply them. The complexity of these rules have no doubt created many varying interpretations by dealers.

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