Following a six-month campaign by the National Automobile Dealers Association (NADA), the Internal Revenue Service (IRS) has issued three favorable rulings for an Oldsmobile dealer that could result in a tax reduction.

The IRS concluded: 1) that the transition payments that GM provides to the Olds dealer will be regarded as amounts received in exchange for the cancellation of the franchise; 2) that the gain calculated upon the exchange will be considered long-term capital gain; and 3) that the transition payment may be taken into account under the installment method.

“While the rulings were issued for a specific dealer, as a practical matter, all Olds dealers in a similar situation can use the rulings as

nonbinding guidance,” said Bill Newman, NADA’s COO of Public and Legal Affairs.

Initially, the IRS did not agree that this situation qualified for special capital gain treatment. But NADA put together a team that

presented arguments to convince the IRS to favorably apply existing tax law to the Olds dealer’s situation.

“It took a number of face-to-face meetings and hundreds of pages of written submissions to persuade the IRS to make the correct ruling,” Newman said.

The capital gain issue is significant because dealers who can claim it will save significantly on taxes because of the lower rate (20 percent vs. 40 percent). A detailed analysis of the Private Letter Ruling, along with a copy of the document itself, will be mailed to all Oldsmobile dealers.

The materials will also be available online. To view the materials, visit www.nada.org. Click

on Member Services; then click on Government Affairs; and Regulation.