CATA News

The IRS has released the following information and guidance on Clean Vehicle Credits:

IR-2022-231: IRS releases frequently asked questions about clean vehicles credits for new, previously owned and commercial clean vehicles

FS-2022-42: Frequently asked questions related to new, previously-owned and qualified commercial clean vehicle credits

IR-2022-232: Treasury, IRS issue guidance on their intent to publish regulations regarding clean vehicles

Notice 2023-1: informs taxpayers that the Department of the Treasury and the Internal Revenue Service (IRS) intend to propose regulations addressing the definitions of certain terms in respect of the credit available under section 30D of the Code, and lays out the expected content of those regulations. The proposed regulations will include definitions of the following terms, which are relevant for new clean vehicles placed in service after December 31, 2022:

1. Final Assembly;
2. North America;
3. Manufacturer’s Suggested Retail Price;
4. Classifications for categories of vehicles, including vans, sport utility vehicles, pickup trucks, and other vehicles; and
5. Placed in service.

Notice 2023-9 will be in IRB: 2023-3, dated January 17, 2023.

IR-2022-233: Treasury, IRS issue guidance on the incremental cost for the Commercial Clean Vehicle Credit

Notice 2023-9: informs taxpayers that based on analysis by the Department of Energy of representative qualified commercial clean vehicles and comparable internal combustion engine vehicles, the Department of the Treasury and the Internal Revenue Service (IRS) have reviewed the incremental cost for all street vehicles in calendar year 2023. This analysis shows that the incremental cost of all street vehicles (other than in the case of compact car PHEVs) that have a gross vehicle weight rating of less than 14,000 pounds will be greater than $7,500 in calendar year 2023. Accordingly, the incremental cost will not limit the available credit amount under § 45W for street vehicles (other than compact car PHEVs) that have a gross vehicle weight rating of less than 14,000 pounds and are placed in service in calendar year 2023. 

For compact car PHEVs for which the incremental cost was calculated to be less than $7,500, the Treasury Department and the IRS will accept for vehicles placed in service during calendar year 2023 a taxpayer’s use of the incremental cost published by the DOE in calculating the § 45W credit amount.  In addition, this analysis provides an incremental cost for several different classes of street vehicles with a gross vehicle weight rating of 14,000 pounds or more in calendar year 2023. The IRS will accept a taxpayer’s reliance on the incremental cost published by the Department of Energy for the appropriate class of street vehicle. 

NADA has also released the following:

A new NADA Regulatory Affairs alternative fuel vehicle and refueling incentive webpage focuses on the Inflation Reduction Act text credits for clean vehicles and refueling infrastructure that start to kick in as of January 1, 2023. The webpage contains sample Seller Report forms and a link to a recordingof NADA’s December 27 Webinar on these tax credits. Dealers should also review important new IRS information on these credits and look out for brand-specific EV tax credit communications from their OEMs.

The maximum amount that Illinois dealers can charge in 2023 for documentary preparation fees is $347.26, the Illinois attorney general’s office announced Dec. 13.

The $23.02 increase over the 2022 maximum fee reflects a 7.1-percent rise in the federal Consumer Price Index for the 12-month period ending Nov. 30. The index is tracked by the U.S. Department of Labor. As always, the DOC fee is taxable and must be substantiated upon request by the attorney general’s office.

The CATA is developing a poster about the DOC fee that dealer members can display. On the poster, the DOC fee amount is left blank for dealers to fill in; any amount up to the maximum allowed may be charged, but all customers should be charged the same amount. Systematically charging one group but not another — all males but no females, for instance — could bring charges of profiling.

Two copies of the poster will be mailed to dealers later this month. For limited additional copies, call the CATA at (630) 495-2282.

IMPORTANT: The new maximum fee cannot be charged before Jan. 1.

The 2023 What Drives Her program returns to the Chicago Auto Show Social Media Preview held Feb. 10 at McCormick Place. This program, now in its fifth year, celebrates women in the industry who are deserving recognition.

At a local level, the Best Retailer award calls on CATA dealers to nominate an extraordinary female at your dealerships.  

Best Retailer Award Description: Employed by a Chicago-area dealership, this person demonstrates a high level of commitment and drive to any task at hand, whether that’s in sales, service, finance or technical support.

Last year’s award recipient was Megan Deters, sales manager at Brilliance Honda.

“Megan has worked her way up in this business through hard work, talent and compassion for Brilliance Honda customers,” said Kevin Keefe, owner of Brilliance Honda, who nominated Deters for the award. “One of the faces of Brilliance Honda, Megan is an incredible retailer and one with world class customer satisfaction skills. She brings a positive outlook every day to work and it is contagious amongst the team.”

Nominations are now open for the 2023 awards. Please submit your nominations by January 9.

Click here to submit your nomination.

Tickets and coupons that admit the holder to the 2023 Chicago Auto Show free or at a reduced price can be ordered by CATA members using the order form posted at www.CATA.info.

The passes promote goodwill with customers and even can help persuade a prospect to close a deal. Two kinds of passes are available, General Admission tickets and Weekday Discount coupons. The former, which costs CATA members $7 each for a minimum 100 tickets, admits the holder to the auto show free, without a box-office wait. The coupon costs members $100 for 100 and admits the holder for $10 during the week. Regular adult admission is $15.

Click here to download the order form.

Chicago Automobile Trade Association (CATA) dealers are at the center of their communities and giving back during the holiday season is no exception to that standard.

From Jeeps on the Run to Fill the Van, dealers across the area rallied their communities to raise money and goods for those in need this holiday season. In its 10th year, Jeeps on the Run, in partnership with Ray Chrysler Dodge Jeep Ram, once again took over the streets of northern Illinois to bring Jeep lovers together for a good cause. This year’s event was a huge success!

Jeeps on the Run and Ray CDJR had a significant impact in their community:

Ray Scarpelli, president of Ray CDJR and Ray Chevrolet, is also in the running for the TIME Dealer of the Year Award. That ceremony is set to take place at the NADA Show this January.

Jeeps on the Run and Ray CDJR aren’t the only ones raising money and collecting items for Toys for Tots. Dealers from across the area are holding toy drives as well including Arlington Heights Ford, Elgin Hyundai and Apple Chevrolet.

Apple Chevrolet hosted its annual Toys for Tots event on Dec. 10 in conjunction with the Marines Toys for Tots Foundation. The day included free food, a live DJ playing holiday music, pictures with Santa, conversations with U.S. Marines and an appearance from ABC 7 Chicago’s Tracy Butler.

By the end of the event they filled three Humvees (large military trucks) with toys for donation.

Advantage Chevrolet of Bolingbrook hosted a “Fill the Van” event this month with the DuPage County Area Project (DuCAP). Now in the 13th year, this partnership sponsors local families in need of food and gifts. The showroom Christmas tree was decorated with families’ wish lists for customers to fulfill.

These are just a few examples of the many generous events happening throughout the Chicagoland area this season. Dealers make a difference and we thank you for all that you do for our communities during the holidays and year-round. Does your dealership or organization deserve to be spotlighted in an upcoming CATA e-Headlines? Let us know.

Tuesday, December 27 | 1pm-2pm ET

Presented by:

Join experts from NADA and the Alliance for Automotive Innovation as they review the vehicles and customers that may be eligible for these tax credits. They'll also discuss how dealers may best obtain the information that must be disclosed at the point of sale, how these credits likely will change in the future, and how to get additional information. This webinar is designed for dealers, new, used, and F&I sales managers, accountants and attorneys. REGISTER.

[courtesy of CATA member Woodward & Associates]

2022 YEAR-END CHECKLIST FOR DEALERS
Woodward & Associates
P.O. Box 1584, Bloomington, IL 61702
309.662.8797

As another tax year comes to a close, it is time to consider your tax planning opportunities and year-end tasks.

Year-End Planning:

1. Owners who operate their businesses as sole proprietors or as a pass-through entity such as Partnerships and S Corporations are potentially eligible to a deduction of up to 20% of their qualified business income (QBI). The deduction can be maximized through salary planning and entity aggregation.
2. The Section 179 expensing limit for 2022 is $1,080,000 with a $2,700,000 investment limit phase-out. This allows businesses to expense the cost of fixed assets such as equipment and furniture and fixtures. This expensing opportunity is also available for certain qualified improvements to property. Consider placing eligible assets into service before the end of 2022 to take advantage of this expensing limit.
3. 100% bonus depreciation also can be used to write off the cost of both used and new fixed assets that are placed in service before year end. The amount is reduced to 80% for assets acquired and placed in service in 2023. This is not available if you will need to use the floor plan interest exception to fully deduct interest expense for 2022. For tax years ending on or after December 31, 2021, Illinois no longer allows a deduction for bonus depreciation.
4. If you plan to make any charitable contributions, consider making them in 2022 to receive a tax deduction. Payments by credit card are deductible on the day they are made even if the payment to the credit card company occurs on a later date. With the increase in the standard deduction, consider bunching two years of contributions into one year in order to benefit from itemizing your deductions.
5. Confirm you have made all required personal and corporate income tax estimated payments for 2022 and see that your personal income tax withholding is adequate.
6. Consider maximizing your 401k retirement contribution, which is $20,500 for 2022. An additional $6,500 catch up deferral is allowed for age 50 or over.
7. If you or the dealership own stock that has unrealized losses, consider discussing with your tax or investment professional the benefit of selling them by year end to offset realized gains recognized earlier in the year.
8. Confirm you have substantiation for your 2022 meal and travel expenses. Travel expenses continue to be 100% deductible. Meals, including those provided to employees purchased from a qualified restaurant are 100% deductible. Entertainment expenses are not deductible.
9. Accrued interest on loans from shareholders and other related parties, as well as rents, must be paid in order for the dealership to deduct these amounts in the current year.
10. The pass-through entity income tax election (Illinois and certain other states) allows owners to increase their federal deduction for state taxes and bypass the $10,000 SALT limitation. This tax must be paid by December 31, 2022 to be deductible in 2022.

Keep the Accounting Records Open at the End of December:

1. Maximize LIFO deductions. Record all new vehicles that were built and invoiced in 2022 as vehicle purchases in 2022 by keeping the new vehicle purchase journal open the first few days of 2023.
2. You must include a reasonable estimate of your LIFO adjustment for the year on all versions of your December financial statements. There are no exceptions.
3. Compare your actual parts inventory to the accounting parts inventory and make adjustments where appropriate. Have your parts manager determine which parts should be considered worthless and disposed of by year end.
4. Make sure all miscellaneous inventories are adjusted to actual, including labor inventory, sublet, gas-oil-grease, etc.
5. Record December finance chargebacks in December.
6. Keep your accounts payable journal open to record all 2022 expenses in 2022.
7. If you did not pay your 2022 real estate taxes by year end, adjust your property tax payable account to equal what you anticipate it will be.
8. If any vehicle deal is not a 100% completed deal in 2022 (all paperwork and funding in 2022), then treat it as a 2023 vehicle sale.
9. All wages and commissions paid in 2023 for 2022 services should be accrued in 2022. Make sure the first payroll in 2023 (even though some portion of the payroll was for 2022 services) is not included on your W-2s for 2022, but will instead be on the W-2s for 2023.
   1.  All accrued payroll for non-shareholders must be paid no later than March 15, 2023 to be deductible in 2022.
   2. If you are a C Corporation, make sure you pay any salaries, commissions, or bonuses to stockholders and related parties in December (if their ownership exceeds 50% including related party interests) in order to take a 2022 tax deduction.
   3. If you are an S Corporation, wages to any shareholder (or certain related family members) cannot be accrued and deducted for tax purposes. You must pay them in 2022 and include the wages on the 2022 W-2.
10. Distributions paid to S Corporation shareholders should be equalized in accordance to their ownership percentage before year end.
11. Reconcile, where possible, all balance sheet accounts before closing the year.

Additional Year-End TO DOs:

1. If you are not on LIFO for used vehicles, adjust all of your used vehicles to current wholesale market value at year end. On an annual basis, used vehicle LIFO should be discussed with your tax advisor.
2. Businesses should consider the “de minimis safe harbor election” to expense the costs of lower value capital assets, materials, and supplies. Regulations allow businesses to write off small asset purchases. The safe harbor amount that can be written off is up to $5,000 per item or invoice if you have an audited financial statement and $2,500 if you do not. However, you can set a write-off policy at any level that is material to you. (As long as the write-off policy is at or below these thresholds, the regulations will support the expensing treatment.)
3. Review all past due accounts receivables, including employee receivables. Write off those receivables that are uncollectible.
4. Review prepaid assets and expense all items in this account that are not valid as prepaid at year end.
5. All payroll tax and sales tax payable accounts must equal the actual amount of the applicable taxes paid in 2023 for the 2022 fourth quarter and year-end filings.
6. Compute the December 31, 2022 accrued vacation wages payable and adjust the books accordingly. Accrued vacation wages paid January 1, 2023 through March 15, 2023 are deductible in 2022 for tax purposes. No vacation accrual is allowed for any shareholders.
7. Review bank reconciliations for checks (including payroll checks over 60 days old) not expected to clear. These checks should be voided and reissued.

Year-End Tax Reporting:

1. IRS Form 1099-NEC must be issued to all individuals who are not employees and all unincorporated businesses who received $600 or more for payment for services, commissions, or fees. This includes payments of fees for services to all attorneys, whether incorporated or not. Form 1099-MISC must be issued for all rents, royalties, prize, awards, and other income paid to non-corporate taxpayers, including shareholders. Forms 1099-INT and 1099-DIV must be used to report interest payments to shareholders and others and dividend payments to shareholders, respectively. 1099-NEC forms must be filed with the IRS and sent to recipients by January 31, 2023. 1099-MISC, 1099-INT and 1099-DIV forms must be filed with the IRS by February 28, 2023 if you file on paper or March 31, 2023 if you file electronically and must be sent to recipients by January 31, 2023.
2. W-2s for S Corporation shareholders must include in wages health insurance premiums paid by the corporation. This amount is not subject to social security or Medicare tax.
3. W-2s are required to be filed electronically if there are 250 or more.
4. Under the Affordable Care Act, if you have 50 or more full-time or full-time equivalent employees, you are considered an Applicable Large Employer (“ALE”). ALEs are required to complete Form 1095-C, Employer-Provided Health Insurance Offer and Coverage for all full-time employees. 

Review Procedures for the Use of Demonstrators to Ensure You Comply With the Current IRS Regulations:

1. All individuals who are provided a demo to drive should sign a written demonstrator agreement.
2. There are two IRS approved methods that can be used for full-time salespeople. The first method, used by most dealers, is the partial exclusion method. Under this method, an amount is added to wages on a monthly basis. The IRS has provided daily income amounts based on the value of the vehicle. For example, for a vehicle valued at $40,000, the daily inclusion is $9.00. Under this method, employees are not required to maintain logs. The second method provides them with tax-free use of the demo. This method is fairly complicated and restrictive.
3. For employees who are not full-time salespeople and any other individuals who drive demos, the annual lease value method is used. The amount included in income is based on personal-use mileage and the IRS annual lease table. The IRS requires that logs be maintained in order to verify business versus personal use of the vehicle.
4. The amount included in income is to be added to each employee’s W-2. Non-employee family member income amounts must also be included in the employee’s W-2. This income is subject to social security, Medicare tax, state, and federal withholding. Shareholders not on the payroll and any other non-employees must be issued a Form 1099-MISC for the income.
5. You can obtain more information about the personal use of autos, including sample demonstrator agreements, by requesting our Dealer Demonstrator Guidelines.

Other:

1. Form 8300 must be filed if you receive cash in excess of $10,000 from a customer. This includes cashier checks, money orders, and traveler’s checks except those issued by financial institutions requiring a lien on the vehicle.
2. If the dealership has a Section 125 plan (cafeteria plan), make sure eligible employees complete the 2023 election forms before the first 2023 payroll. Remember that stockholders owning more than 2% in S Corporations (LLCs, etc.) are not eligible to participate.
3. If you offer a health care Flexible Spending Account (FSA) as part of your cafeteria plan, in order for it to be a qualified benefit under a cafeteria plan, the maximum salary reduction contribution to the health care FSA for 2022 is limited to $2,850. Stockholders owning more than 2% in an S Corporation or an LLC are eligible to participate with certain restrictions. If your company offers a qualified high deductible health insurance plan, you and employees might be able to contribute to individual Health Savings Accounts (HSAs). Contribution limits for 2022 are $3,650 for an individual and $7,300 for a family with a $1,000 additional contribution for those who are age 55 and over.

Here are the results from the 2022 CATA Dealer Holiday Hours Survey.

Former CATA and Chicago Auto Show Chairman Mike McGrath, Sr. passed away on Monday. Nov. 28 at the age of 75. McGrath, Sr. was CATA Chairman in 2002-03 and Chicago Auto Show Chairman in 2004. Visitation was Tuesday, Dec. 6. In lieu of flowers, donations can be made to USO of Illinois, www.uso.org, 312-822-6699. More information can be found here. 

[NADA] The Federal Trade Commission on Nov. 15 announced it is extending by six months the deadline for companies to comply with some of the amendments to the FTC’s Safeguards Rule. Earlier this year, NADA submitted comments to the FTC seeking an extension of the deadline. The deadline for complying with some of the updated requirements of the Safeguards Rule is now June 9, 2023.

The provisions of the updated rule specifically affected by the six-month extension include requirements that covered financial institutions:

• designate a qualified individual to oversee their information security program,
• develop a written risk assessment,
• limit and monitor who can access sensitive customer information,
• encrypt all sensitive information,
• train security personnel,
• develop an incident response plan,
• periodically assess the security practices of service providers, and
• implement multi-factor authentication or another method with equivalent protection for any individual accessing customer information.

Dealers are encouraged to continue in their efforts to expeditiously comply will all the new requirements of the Rule but should consult with their attorneys, service providers and IT professionals about the potential impact of this deadline extension. More information can be found here: https://www.nada.org/nada/issues/issues/ftc-safeguards-rule.