0602 Publ 3106 Overview Of Imaging Reimbursements Program For Gasoline Station Owners

Document Sample
0602 Publ 3106 Overview Of Imaging Reimbursements Program For Gasoline Station Owners Powered By Docstoc
					                                                     his Brochure Provides         P R O G R A M S M AY VA RY

Market Segment Specialization Program
                                                     General Information

      MSSP                                                                       T   he facts and circumstances of specific image
                                                     for Reporting                   upgrade programs may vary and therefore
                                               Payments Received Under           produce different tax results. For example, the
                                                                                 tax results may vary depending on the relation-
                                               “Image Upgrade Programs”
      OVERVIEW                                 Having the Following
                                                                                 ship of the cash payments to purchases of
                                                                                 petroleum products, the nature and ownership of
               OF                                                                the image upgrades, or the contractual
        IMAGING                                                                  relationship between the gasoline station owner
 REIMBURSEMENT                                                                   and the petroleum company.

    PROGRAM                                                                            RECORDS TO KEEP
                                          •   A petroleum company makes
                                          payments to a gasoline station
                                          owner. The payments are to be used
                                          to improve the station’s image.        T   he following records are among those
                                                                                     frequently requested by IRS examiners when
                                                                                 reviewing a recipient taxpayer's treatment of
                                          The station owner retains ownership
                                          of the improvements.                   image upgrade payments:

                                          • The station owner’s right to             1. Written contracts or agreements with the
                                          receive or retain payments may be             payor petroleum company which detail
                                          contingent upon the station owner             the taxpayer's involvement in the image
                                          purchasing a specified volume of              upgrade program,
                                          petroleum products
                                                                                     2. Accounting records showing how the
                                          •   The petroleum company may                 payments were recorded in the recipient's
                                          disburse the cash payments in a               books and records,
                                          lump-sum or in a series of payments
                                          based upon the purchase of                 3. Invoices and descriptions of improvements
                                          p etro l eum products. The petroleum          or enhancements purchased with the
              FOR                                                                       funds received,
                                          company might also require the
GASOLINE STATION                          station owner to pay for the
    OWNERS                                improvements before disbursing the
                                          cash payments.
                                                                                     4. Applications for reimbursements or other
                                                                                        records which were filed with the payor,
    Office of Compliance Specialization
                                                                                     5. Proof of loan payments.
HOW TO REPORT PAYMENTS                                        Can
                                                    Image Upgrade Payments
• Payments Received                                        be Loans?

                                                                                                         Fo r f u r ther in fo r matio n c o ntac t the
G   enerally, a gasoline station owner should
    include the payments received fully in gross                                                                  Inter nal R ev enu e Ser v ic e,
income in the taxable year received. As noted
above, the tax results may vary depending on the
                                                    A    taxpayer does not include the proceeds from
                                                         bona fide loans in his gross income. The IRS
                                                    will ordinarily look to the existence of the
                                                                                                               Co m p l ianc e Sp ec ial izatio n at
specific situation.                                                                                                      (619) 230-8148
                                                    following in determining whether or not a bona
                                                    fide loan exists:
• Deductible Expenditures

A   gasoline station owner may deduct certain
    costs paid with monies received under an
image upgrade program. To be deductible, these
                                                        1. a true debtor-creditor relationship
                                                           between the payor and the recipient,

costs must be for ordinary and necessary expenses       2. an intent on the part of the recipient to
paid or incurred in the taxable year for                   repay the loan,
carrying on a trade or business. Deductible costs
may include incidental repairs and advertising.         3. an intent by the payor (creditor) to
                                                           enforce the obligation,
• Non-Deductible Expenditures

D   eductions are not permitted for costs paid or
    incurred for new buildings or permanent
improvements or betterments that increase the
                                                        4. a written loan agreement,
                                                                                                                This publication is also available on
                                                        5. regular payment of interest and principal,
value or prolong the useful life of property.                                                                               the IRS home page:
These costs must be treated as capital                  6. a specific date for repayment, and                      
expenditures. Generally, these costs may be
                                                                                                                    under “Forms and Publications”
recovered through depreciation, amortization, or        7. an unconditional obligation for repayment
taken into account in determining gain when                not contingent upon future events.
property is sold or otherwise disposed of. For
example, expenditures that must be capitalized      If an agreement meets the above criteria, it will
may include those for new signage and new gas       ordinarily be considered a loan. The fact that an
pumps.                                              agreement is labeled as a "loan" does not
                                                    necessarily mean it will be treated as a loan for
                                                    federal income tax purposes.

                                                                                                        Publication 3106 (Rev. 6/02)
                                                                                                        Catalog Number 25822M

Shared By: