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Publication 4230 (10-2003)

Catalog Number 37240S

Internal 

Revenue

Service

Auto Dealership

Demonstrator

Vehicles

Federal Income Tax Guidelines

Revenue Procedure 2001-56 Simplified

Accounting Methods to Value

Demonstrator Vehicles

Small Business and Self Employed Division

Auto Dealership

Demonstrator

Vehicles

Simplified Partial Exclusion Method

Inclusion Amount Table

(Rev. Proc. Question 35)

For full-time salespersons covered under the Simplified

Method for Partial Inclusion (Section 5 of R.P. 2001-56)

dealers should include an amount based on the following

table in the salesperson's income at least monthly.

(Note: The daily inclusion amount must be applied based

on a 7-day week.)

Definition of a Qualified Salesperson

• Employed full-time by an automobile dealer

• Spends at least half of a normal business day

performing functions of a floor salesperson or sales

manager

• Directly engages in substantial promotion and

negotiation of sales to customers

• Derives at least 25% of his or her gross income

directly as a result of sales activity

Full Text of Revenue Procedure 2001-56 and other

employment tax information can be found at

www.irs.gov/smallbiz

Toll Free Assistance: 1-800-829-4933

Simplified Full Inclusion Method

Annual Lease Value -Daily Inclusion Amount

Table (Rev. Proc. Question 44)

If the employee provided the use of a demonstration

automobile is not a full-time salesperson, the full

exclusion and the partial exclusion in this revenue

procedure do not apply. The employer must include

in the employee's income and wages each month the

full value of the demonstration automobile using the

following table.

 Value of Demonstrator Provided Daily Inclusion Amount

$0 - 2,999 $3

3,000 - 4,999 4

5,000 - 5,999 5

6,000 - 7,999 6

8,000 - 8,999 7

9,000 - 10,999 8

11,000 - 11,999 9

12,000 - 12,999 10

13,000 - 14,999 11

15,000 - 15,999 12

16,000 - 17,999 13

18.000 - 18,999 14

19,000 - 20,999 15

21,000 - 21,999 16

22,000 - 23,999 17

24,000 - 24,999 18

25,000 - 25,999 19

26,000 - 27,999 20

28,000 - 29,999 21

30,000 - 31,999 23

32,000 - 33,999 24

34,000 - 35,999 25

36,000 - 37,999 27

38,000 - 39,999 28

40,000 - 41,999 29

42,000 - 43,999 31

44,000 - 45,999 32

46,000 - 47,999 34

48,000 - 49,999 35

50,000 - 51,999 36

52,000 - 53,999 38

54,000 – 55,999 39

Value of Demonstrator Provided Daily Inclusion Amount

 $0 -$14,999 $3

$15,000 - $29,999 $6

$30,000 - $44,999 $9

$45,000 - $59,999 $13

$60,000 - $74,999 $17

$75,000 and above $21

For vehicles with value in excess of $59,999, the dollar inclusion

amount is (.25 x value) + $500, divided by 365, rounded to

nearest dollar amount
Automobile dealerships often provide

demonstration vehicles (demos) to dealership

salespersons and other employees. In order to

exclude the value of the salesperson's demo from

his or her income, significant record keeping by

the salesperson and dealership is required. 

Revenue Procedure 2001-56 provides simplified

optional methods to determine the value of the

use of the demo provided and clarifies the

existing rules on demo use by salespersons. 

The simplified methods are available to any

automobile dealer engaged in the sale of new or

used autos and light duty trucks. Light duty

trucks are trucks with a gross vehicle weight of

14,000 pounds or less.

The optional methods include:

• A simplified method for the full exclusion

from income of qualified demo use (Simplified

Out/In Method)

• A partial exclusion method that allows

dealerships to include in the salesperson's

income the value of the personal use of the

demo

• A simplified method to include the full value of

the demo use in an employee's income when

other methods do not apply

• A method to apply the general rule when the

methods in the revenue procedure are not

used

Simplified Method for Full Exclusion Out/In

Method (Rev. Proc. Questions 11-25)

• Available only to qualified salespersons

• Requires a qualified written policy and

reasonable belief that it is followed 

• Limits personal use outside of normal working

hours 

o Commuting plus an average of 10 miles 

per day 

• Required Records include:

o Record of round trip commuting mileage 

for each salesperson

o Records supporting total use outside of 

working hours

Simplified Partial Exclusion Method

(Rev. Proc. Questions 26-39)

• Available only to qualified salespersons

• Requires a qualified written policy and reasonable

belief that it is followed

• Requires that an amount be included in

salesperson’s income at least monthly

o Table of amounts included

• Required Records include:

o Written Policy

o Verification of value of demo

o Evidence that the amount was timely 

included in salesperson's income

Simplified Full Inclusion Method

(Rev. Proc. Questions 40-47)

• Available to any employee

• Requires that the value of the use of the vehicle

be included in the employee’s income at least

monthly

o Amount based on Annual Lease Value 

Tables 

• Required Records Include:

o Verification of value of demo

o Evidence that the amount was timely 

included in employee’s income 

Application of the General Rule When 

Revenue Procedure Methods Are Not Used 

(Rev. Proc. Questions 1, 48-51) 

• Available to any employee

• Requires that the full fair market value of the

use of the demo be included in the employee’s

income at least monthly

Determination of the Value of Demos Provided

(Rev. Proc. Questions 33-34)

• Annual Average Look Back Method

o May be used under the Partial Exclusion or

Full Inclusion Method

o Based on average sales price and number

of all vehicles sold in the prior year

o Method is optional