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Tax Consideration for Buick Dealers Accepting Termination and Wind-Down Payments From GM

Thursday, January 18, 2024 3:19 PM | Anonymous member (Administrator)

[From the NADA] For Buick dealers who have opted to accept buyouts offered by GM to voluntarily terminate their Buick franchise agreements, experienced CPA Jay Goldman, who serves as chair of Boyer & Ritter LLC’s Dealership group, has identified some important tax issues related to the buyout compensation paid by GM for consideration.

What You Need to Know

  • Ordinary or Capital Gain: IRS regulations generally consider the termination of a franchise agreement for which compensation is received as a sale or exchange. As such, the IRS will characterize the buyout compensation as either a capital gain or a 1231 gain from the sale of property or assets used in trade or business. In 1231 gain, the amount of the buyout compensation exceeding the tax net book value or basis of the franchise will be taxed at ordinary rates until the amount of any amortization previously deducted is recaptured. The amount received in excess of the gross original purchase price of the Buick franchise will be taxed as a capital gain.  

Please see example below: 


If the Buick franchise was purchased with other franchises simultaneously and the entity continues to own them, the Buick goodwill would continue to be amortized with the other franchises and the entire amount of the proceeds would be considered capital gain.

Please see example below:


  • Installment Sale Treatment: If the buyout compensation payments are received during two separate tax years, the dealer may use the installment method to report the payments
  • Taxability in 2022: Some dealers that entered termination agreements in calendar year 2022 with effective franchise termination dates in calendar year 2023, received a portion of the buyout compensation in 2022, with the remaining amounts to be paid in 2023 upon satisfaction of certain conditions. For those dealers, the payment received in 2022 is 2022 gross income unless restrictions were imposed on the dealer’s right to receive the 2022 payment. If no restrictions were imposed on receipt of the 2022 payment, the dealer’s right to receive the payment is considered fixed, so it is included in the dealer’s 2022 gross income as of (i) the date it is received, (ii) the date it is due, (iii) the date it is earned, or (iv) the date on which title is passed, whichever is earliest.

The information provided here is for informational purposes only and does not constitute legal or tax advice. Affected Buick dealers should consult their attorney, CPA or other professional advisor familiar with the applicable laws to obtain specific advice regarding these matters to ensure proper tax reporting for their specific transactions.

Jay Goldman works in Boyer & Ritter LLC’s office in Camp Hill, Pennsylvania and may be reached at 717.761.7210 or jgoldman@cpabr.com.

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