Rev. Rul. 60-15

The Internal Revenue Service has reconsidered its position as stated in Revenue Ruling 54-222, C.B. 1954-1, 19, with respect to depreciation and the income tax treatment afforded profits from the sale of company cars in the hands of an automobile dealer, in the light of the decisions of the Tax Court of the United States in Johnson-McReynolds Chevrolet Corporation v. Commissioner, 27 T.C. 300, and Duval Motor Company v. Commissioner, 28 T.C. 42.

Revenue Ruling 54-222, supra, distinguishes between "demonstrator" automobiles in the hands of an automobile dealer as set forth in I.T. 4062, C.B. 1951-2, 61 and "company cars" as referred to in the case of Latimer-Looney Chevrolet, Inc. v. Commissioner, 19 T.C. 120, acquiescence, C.B. 1953-1, 5, stating that there is no conflict in the policy of the Internal Revenue Service regarding the income tax treatment of each vehicle. That Revenue Ruling holds that whether a particular vehicle is a demonstrator or company car is a question of fact dependent upon the circumstances in each case. Some of the factors to be considered in making this determination are set forth in the Revenue Ruling.

In the Johnson-McReynolds Chevrolet Corporation case it is stated that an automobile dealer is presumed to have acquired all his vehicles as part of his stock-in-trade, and before a dealer may consider a vehicle as property used in his business, he must overcome this presumption.

In the Duval Motor Company case, it is stated that the automobiles were acquired by the taxpayer in its normal and usual acquisition of its stock-in-trade, and at no time was there any thought or intention other than the sale of the vehicles in question to its business customers. The petitioner looked to the sale of the cars for the recovery of most or substantially all of its investment therein and not to consumption through use of the vehicles in the course of its operations. Therefore, where the dealer annually replaced cars which were carried in the "company cars" account and then sold the replaced cars from its used car lots, it was held that, though temporarily assigned to business use, the vehicles were, on these facts, at all times held primarily for sale to customers in the ordinary course of petitioner's business.

It is held, therefore, that any vehicle in the hands of an automobile dealer is presumed to have been acquired as part of his stock-in-trade to be held by him primarily for sale to customers in the ordinary course of his business. This presumption may be overcome where a dealer can establish that the vehicle in question was acquired for and used in the operation of the business. In order for a vehicle to be considered property used in the business of an automobile dealer, it must be clearly shown that the vehicle was expressly acquired for, and actually devoted to, use (other than for demonstration purposes) in the business of the taxpayer, and that the dealer looks to normal depreciation in the ordinary course of business operations to recover his cost. A vehicle is not property used in the business of an automobile dealer merely because it is temporarily used for such purpose.

Revenue Ruling 54-222, amplified.