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Dealers should consult tax practitioners about UNICAP safe harbors offered by IRS

March 2, 2012
Revenue Procedure 2010-44, issued by the Internal Revenue Service in 2010, created two optional safe harbor methods of accounting for motor vehicle dealerships. If properly elected and applied, the safe harbors permit dealers to (a) deduct, instead of capitalize, certain costs related to their inventories, and (b) significantly simplify their computation of these costs known as Uniform Capitalization, or UNICAP.
If qualifying dealers elect the safe harbor methods of accounting for their first or second tax year ending after Nov. 9, 2010, when the procedure was implemented, they may do so without having to consider most of the potential restrictions that apply to automatic method of accounting changes. Consequently, for dealers whose tax year corresponds with the calendar year and who did not elect these methods for the 2010 tax year, they should speak with their tax practitioner soon about whether they should elect the UNICAP safe harbors for the 2011 tax year.
The election is made on IRS Form 3115. For more information, consult summaries of the revenue procedure by the IRS Motor Vehicle Technical Advisor and the National Automobile Dealers Association.