Market Segment Specialization Program 

MSSP

Office of Compliance Specialization

OVERVIEW

OF

IMAGING

REIMBURSEMENT

PROGRAM

FOR

GASOLINE

STATION

OWNERS

PROGRA

The facts and c

upgrade prog

produce differentax results may vship of the caspetroleum producthe image uprelationship betwand the petroleum 

RECO

T he following 

frequently req

reviewing a reciimage upgrade pa

1. Written co

payor petrthe taxpayupgrade p

2. Accountin

payments books and 

3. Invoices an

or enhancfunds rece

4. Applicatio

records whand

5. Proof of lo

T his Brochure Provides General Information for Reporting

Payments Received Under“Image Upgrade Programs”Having the FollowingCharacteristics

• A petroleum company makes

payments to a gasoline stationowner. The payments are to be usedto improve the station’s image.The station owner retains ownershipof the improvements.

• The station owner’s right to

receive or retain payments may becontingent upon the station ownerpurchasing a specified volume ofpetroleum products

• The petroleum company may

disburse the cash payments in alump-sum or in a series of paymentsbased upon the purchase ofpetroleum products. The petroleumcompany might also require the station owner to pay for theimprovements before disbursing thecash payments.
Publication 3106 (Rev. 6

Catalog Number 2582

Que

For further i

Interna

Complian

(61

This public

the 

w

under “F

Can 

Image Upgrade Payments

be Loans?

Ataxpayer does not include the proceeds from bona fide loans in his gross income. The IRS

will ordinarily look to the existence of the following in determining whether or not a bonafide loan exists:

1. a true debtor-creditor relationship

between the payor and the recipient,

2. an intent on the part of the recipient to

repay the loan,

3. an intent by the payor (creditor) to

enforce the obligation, 

4. a written loan agreement,5. regular payment of interest and principal,6. a specific date for repayment, and7. an unconditional obligation for repayment

not contingent upon future events.

If an agreement meets the above criteria, it willordinarily be considered a loan. The fact that anagreement is labeled as a "loan" does not necessarily mean it will be treated as a loan forfederal income tax purposes.

HOW TO REPORT PAYMENTS 

• Payments ReceivedGenerally, a gasoline station owner should include the payments received fully in gross

income in the taxable year received. As notedabove, the tax results may vary depending on thespecific situation.• Deductible Expenditures

Agasoline station owner may deduct certain costs paid with monies received under an

image upgrade program. To be deductible, thesecosts must be for ordinary and necessary expensespaid or incurred in the taxable year for carrying on a trade or business. Deductible costsmay include incidental repairs and advertising.• Non-Deductible Expenditures 

Deductions are not permitted for costs paid or incurred for new buildings or permanent

improvements or betterments that increase thevalue or prolong the useful life of property.These costs must be treated as capital expenditures. Generally, these costs may berecovered through depreciation, amortization, ortaken into account in determining gain whenproperty is sold or otherwise disposed of. Forexample, expenditures that must be capitalizedmay include those for new signage and new gaspumps.