Rev. Rul. 54-222

Advice is requested whether the income tax treatment of profits on the sale of demonstrator cars, as set forth in I. T. 4062, C. B. 1951-2, 61, is changed as a result of the acquiescence of the Internal Revenue Service in the court decision of Latimer-Looney Chevrolet, Inc. v. Commissioner, 19 T. C. 120, acquiescence C. B. 1953-1, 5, previous nonacquiescence, page 7, withdrawn.

In I. T. 4062, C. B. 1951-2, 61, it is held that motor vehicles acquired by a dealer in the usual course of purchase for resale and temporarily used as "demonstrators" are presumably held for sale to customers in the ordinary course of the dealer's business. Consequently, no depreciation is allowable with respect to such vehicles, they are not property used in the trade or business, and gain on their sale may not be treated as capital gain under section 117(j) of the Internal Revenue Code. It was stated that a dealer in motor vehicles is presumed to hold all such vehicles owned by him primarily for sale to customers in the ordinary course of his trade or business but that this presumption may be overcome where a dealer can establish that a certain vehicle was acquired and used in the operation of the business.

The case of Latimer-Looney Chevrolet, Inc., supra, dealt with the tax treatment of profits on sales of certain vehicles which the petitioner contended were "company cars" used in its business. The Commissioner argued that they were "demonstrators." The court found, as a fact, that the vehicles were "company cars" held primarily for use in the petitioner's business and held, consequently, that gain from their sale was subject to the provisions of section 117(j) of the Code. A contrary finding of fact was made as to certain cars in the case of W. R. Stephens Company v. Commissioner, Tax Court Memorandum Opinion August 8, 1951, affirmed 199 Fed. (2d) 665, which were found to be "demonstrators" held primarily for sale to customers in the ordinary course of business.

There is no conflict between the cases insofar as the law is concerned. The decision by the court in each instance was based entirely on its findings of fact. While the Revenue Service does not necessarily concur in the findings of fact in the Latimer-Looney case, such findings are not subject to review by appellate courts, therefore, no appeal was taken. The acquiescence entered in the Latimer-Looney decision is an acceptance of the determination in that case only.

The decision in the Latimer-Looney case does not necessitate any modification of the ruling in I. T. 4062, supra, and that ruling continues to express the position of the Revenue Service.

Whether a particular vehicle is a "demonstrator" or a "company car" is a question of fact dependent upon the circumstances. Some of the factors to be considered are: the method by which it is financed, the registration of the vehicle, the manner in which it is insured, the nature, duration, and extent of its use by the dealer, and the requirements of the manufacturer as to its treatment. The mere occasional use by a dealer of a "demonstrator" car will not make it a "company car." In order to qualify for treatment as property used in the trade or business, a vehicle must have been acquired for that purpose and devoted, bona fide, to use in the business (other than for demonstration purposes) of the taxpayer.

Where the facts in a particular case establish that a vehicle qualifies as a "company car," depreciation is allowable for the period of time it is held for such use. Any gain from the sale of such car so held and used for more than six months is subject to the provisions of section 117(j) of the Code.