SECTION 1. PURPOSE AND SCOPE

Q–1. What is the purpose of this rev- enue procedure?

A–1. This revenue procedure provides optional simplified methods for determining the value of the use of demonstration automobiles provided to employees by automobile dealerships. The methods in this revenue procedure include

• Simplified Method for the Full Exclu- sion of Qualified Automobile Demon- stration Use. (Simplified Out/In Method) This is a simplified method for keeping records to support the full exclusion of the use of a demonstration automobile from the income of a fulltime automobile salesperson. This method is discussed in section 4, Questions and Answers 11 through 25.

• Partial Exclusion of Demonstration Automobile Use by Full-Time Sales- people. This is a simplified method for

determining the excludible business use of a demonstration automobile provided to a full-time salesperson and the amount included in income if the full exclusion is not applicable. This method is discussed in section 5, Questions and Answers 26 through 39.

• Inclusion of the Value of Demonstra- tion Automobile Use When No Exclu- sion Applies. This is a simplified method for determining the amount to be included in income of any employee provided the use of a demonstration automobile if neither the full nor partial exclusion for full-time salespeople is available. This method is discussed in section 6, Questions and Answers 40 through 47.

• Application of General Rule When Methods in Revenue Procedure are Not Used. Question 51 in section 7 provides that if the requirements of the simplified methods provided under this revenue procedure are not satisfied, generally the amount required to be included in an employee’s income is the fair market value of the use of the demonstration automobile. Question 51 also provides that if errors are identified and corrected during the calendar year in which the vehicle is provided, an employer may continue to use the simplified methods under this revenue procedure.

This revenue procedure is designed to provide a comprehensive framework for addressing the tax treatment of demonstration automobiles provided by automobile dealers to employees. The simplified methods have been structured sequentially so that if the use by an employee does not qualify for treatment under one method, the use can nonetheless be taken into account under a subsequent method with no additional recordkeeping or change in determination period. For example, if the use of a demonstration automobile by a full-time salesperson fails to qualify for full exclusion under the simplified full exclusion method, the use may still be accounted for under the partial exclusion method based on records otherwise available or already maintained under the full exclusion method. At the same time, employers can choose to use the partial exclusion method immediately for all full-time salespeople without first attempting to satisfy the requirements of

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and derive at least 25 percent of gross income from sales activities.

The simplified method for full inclusion may be applied with respect to the use of a demonstration automobile by any employee of an automobile dealer.

Q–5. Does this revenue procedure describe all of the methods for determin- ing and substantiating the value of the use of demonstration vehicles provided to employees by automobile dealerships?

A–5. No. An automobile dealer is not required to use the optional simplified methods described in this revenue procedure. An automobile dealer may use any other applicable method that complies with the Internal Revenue Code and Treasury regulations to account for the use of demonstration automobiles by employees.