SECTION 5. SIMPLIFIED

METHOD FOR PARTIAL EXCLUSION OF DEMONSTRATION AUTOMOBILE USE BY FULL-TIME SALESPEOPLE

Q–26. What is the partial exclusion of demonstration automobile use?

Q–27. When can an employer use the partial exclusion method?

Q–28. What are the requirements for the partial exclusion of demonstration automobile use by a full-time salesper- son?

Q–29. What is the treatment if the requirements for the partial exclusion are not met?

Q–30. What is a qualified written policy for purposes of the partial exclu- sion?

Q–31. May a qualified written policy under the full exclusion method be used for the partial exclusion method?

Q–32. When may the employer reason- ably believe that the full-time automobile salesperson complies with the written policy?

Q–33. What method does an employer use to determine the value of the demon- stration automobile used by a full-time salesperson?

Q–34. How does an employer deter- mine the annual average sales price if more than one franchise is operated at or from a single location?

Q–35. What is the amount included in the full-time salesperson’s income and wages for use of the demonstration auto- mobile under the partial exclusion method?

Q–36. How does an employer deter- mine the number of days that a salesper- son has the use of a demonstration auto- mobile?

Q–37. May an employer elect under section 3402(s) of the Code not to with- hold income taxes from the portion of the vehicle fringe benefit required to be included under the partial exclusion method provided under this revenue pro- cedure?

Q–38. What records must an employer maintain to satisfy the requirements for the partial exclusion?

Q–39. What records must an employee maintain to satisfy the requirements for the partial exclusion?

2001-51 I.R.B 591 December 17, 2001

the full exclusion method. Moreover, an employer can choose to apply the different optional methods on an employee by employee basis. Thus, if some employees are unwilling to maintain the records necessary to satisfy the full exclusion method, the employer can account for their use under the partial or full inclusion methods while still retaining the ability to use the full exclusion method for the other employees.

Q–2. Who may use the simplified methods in this revenue procedure?

A–2. The simplified methods provided in this revenue procedure are available to any automobile dealer engaged in the business of retail sales of new or used vehicles described in Question and Answer 3.

Q–3. What vehicles are demonstra- tion automobiles that qualify for the sim- plified methods?

A–3. The application of the simplified methods provided in this revenue procedure for determining the tax-treatment of employer-provided vehicles is limited to demonstration automobiles as defined in Treas. Reg. § 1.132–5(o)(3). That regulation requires that the vehicle be currently in the inventory of the automobile dealership and be available for test drives by customers during the normal business hours of the employee provided its use. For purposes of this revenue procedure, demonstration automobiles can include passenger vans, sport utility vehicles, and light-duty trucks. Light-duty trucks are trucks with a gross vehicle weight of 14,000 pounds or less, which are also referred to as class 1, 2, or 3 trucks.

Q–4. For which employees can the simplified methods be used?

A–4. The application of the simplified methods provided in this revenue procedure for the full or partial exclusion of demonstration automobile use is limited to use by full-time salespeople as defined in Treas. Reg. § 1.132–5(o)(2). That regulation requires that the individual be employed by an automobile dealer, customarily spend at least half of a normal business day performing the functions of a floor salesperson or sales manager, directly engage in substantial promotion and negotiation of sales to customers, customarily work a number of hours considered full-time in the industry (but at a rate not less than 1,000 hours per year),

Q–50. What evidence would satisfy the requirement under Treas. Reg. § 1.274–6T that the employer must main- tain evidence that would enable a deter- mination whether the use of the vehicle met the requirements?

Q–51. What amount is included in the income of an employee if the use was not taken into account and included in income for the month in which the use of a demonstration automobile was pro- vided?