On May 15, 2014 the Internal Revenue Service (IRS) released a General Legal Advice Memorandum (GLAM) addressing manufacturer incentive payments to dealers for facility upgrades. The issue of manufacturer payments to dealers has been a source of confusion and frustration for many years. Manufacturers often tout these payments as a “reimbursement” to the dealer for upgrading their facilities to meet manufacturer requirements. It is not uncommon for dealers to assume that these reimbursements should be used to offset the cost of the project, versus treating the payment as taxable income.
The GLAM provides cover to tax advisors, as they now have a document to cite indicating that these payments are always taxable. However, dealers and their advisors should be aware of the narrow scope of the GLAM. The GLAM explores three situations and specific fact patterns in each situation. Clearly more than three manufacturers exist and even more line makes exists, each with its own unique program. To further this, individual manufacturer programs may vary from state-to-state due to state franchise laws, so the same manufacturer program may be different in different states.
After laying out the facts of the three situations the GLAM reaches conclusions that address the arguments put forth by numerous taxpayers asserting that these payments were something other than taxable income. A summary of the GLAM conclusions are as follows:
While it may be difficult to disagree with the IRS conclusions reached on the specific fact patterns provided, dealers need to consider their specific situation. The IRS did not review all manufacturer facility programs. When discussing these arrangements with manufacturers dealers should consider alternate arrangements that provide greater tax benefits. In conclusion, while the GLAM provides some needed guidance it does not explore all of the possible manufacturer programs available.
For more information, please contact Rick Parmelee at 860-570-6492 or firstname.lastname@example.org.
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