Magazine article American Banker

Car Dealers Meeting with Congress on Tax

Magazine article American Banker

Car Dealers Meeting with Congress on Tax

Article excerpt

Auto dealer trade association executives are meeting with members of Congress this week, trying to end a taxation practice that threatens to upset the way that the subprime auto industry operates.

At issue is the way dealers account for money they get for the cars they sell. The Internal Revenue Service requires dealers to pay taxes on the entire amount of a car loan when it is made-despite the fact that dealers get only part of that money up-front from the lender.

The remainder, often referred to as a holdback, is realized over the life of the loan and-depending on the credit quality of the borrower-may never even be paid back.

Although the rule that tax is due on the full amount of a loan has been in place for years, the recent rapid growth in the subprime auto lending industry has spurred stepped-up enforcement by the IRS, dealers said.

"It's an impossible situation," said Philip White 3d, owner of White's Automotive Co., Chester, Va. An IRS audit of White's Automotive more than a year ago found that the dealer owed almost $200,000 in back taxes not paid on holdbacks.

Representatives of the National Independent Auto Dealers Association are trying to resolve the issue, a representative from the trade group said.

Meanwhile, Mr. White is appealing the audit in court and said the IRS is reconsidering its long-standing rule.

In fact, the IRS is considering two requests for technical advice on the issue but has yet to issue a ruling, a spokesman for the agency said. …

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