The IRS has recently announced in a field memorandum that it will be stepping up its audit activity with auto dealerships with respect to inventory issues. The issue here is that under the law resellers of tangible personal property with annual average sales of $10 million or more are required to capitalize a portion of their overhead under Section 163A of the Internal Revenue Code. This is more commonly known as the Uniform Capitalization Rules. The rules usually apply to manufacturers but can apply to resellers that fit the criteria noted above.
It is our feeling that once this audit activity is completed the IRS will extend its scope to include manufacturers and other resellers in other industries. Therefore it is very important that these records are maintained and are adequately documented. Please feel free to contact us if you have any questions.
Written by: Doug Rodrigues