Taxpayer DJ is in an IRS audit of his 2018 tax return. It is now at the IRS appeals level.
The vehicle in question is an SUV with a curb weight of 5,700 pounds and a gross vehicle weight of 6,100 pounds.
- If the tax code makes the SUV a passenger vehicle, the curb weight of 5,700 pounds limits DJ’s tax deduction to $18,000.
- If the tax code makes the SUV a truck using the gross weight of 6,100 pounds, DJ’s deduction is $55,000.
The IRS lawyer in the appeals office tells DJ that his SUV is built on a car chassis and therefore it’s a depreciation-limited car. It does not qualify for the $55,000 deduction that DJ claimed.
Logical
If the IRS lawyer told you what he told DJ, what would you think?
Here’s what DJ thought: the lawyer is wrong. DJ is a Bradford Tax Institute member, and he remembered some article on this subject that would prove him right. And they did — he won the $55,000 deduction.
The Rule
To qualify for bonus depreciation (or Section 179 expensing), the SUV must escape the luxury vehicle depreciation limits on deductions.
The escape works like this:
- The SUV must have a gross vehicle weight rating (GVWR) of 6,001 pounds or more.
- Also, the SUV must be a truck under the Department of Transportation (DOT) regulations. (Using guidelines set out in DOT regulations, manufacturers label SUVs as “trucks” or “cars”).
Under the DOT rules, an SUV can qualify as a truck regardless of chassis, as explained in Does the SUV Built on a Unibody Frame Qualify for $25,000 Expensing?
As explained in the article above, many crossover vehicles and SUVs built on the car chassis qualify as trucks under the DOT regulations.
Confused for Years
The original SUVs were used on farms and built on a truck chassis for driving on bumpy fields. Today’s SUVs are used by people who drive on highways and often don’t like the rougher ride, so manufacturers tend to build them on a unibody car frame for a smoother ride.
Beginning in 2003, the term “truck chassis” caused some confusion at the IRS and among tax practitioners. The term “truck chassis” was never technically correct for defining passenger vehicles as trucks or cars.
Years ago, the IRS recognized this error, and it has removed “truck chassis” from most of its references. One example of such removal is the “truck chassis” reference in Rev. Proc. 2007-30 and the no “truck chassis” reference in Rev. Proc. 2008-22.
Ten years ago, in IRS Chief Counsel Advice, the IRS acknowledged that the truck chassis does not make a truck and that the manufacturer’s classification controls.
Takeaways
You have to think that DJ was nonplussed when, at the appeals level, the IRS lawyer raised the car chassis conundrum.
DJ could have folded. But his knowledge gave him the confidence to say. “No, let me check this before I agree.”
His result: he saved his $55,000 deduction.
As to the IRS lawyer’s error, that’s just the way he remembered it. He did not have to research it. He simply made it DJ’s problem — and DJ rose to the occasion.
