Auto Dealerships - Audit Technique Guide - Uncle Fed's Tax*Board
Auto Dealerships - Audit Technique Guide - Uncle Fed's Tax*Board Auto Dealerships - Audit Technique Guide - Uncle Fed's Tax*Board
18. If so, does the agreement state how he discount rate was determined? 19. Does the discount rate approximate the actual loss experience? 20. Are the finance contracts non-recourse? 21. Does the RFC handle repossessions? 22. Does the dealership sell any finance contracts to unrelated finance companies? 23. Does the RFC report income on a pro-rata basis? 24. Did the profit reported on the initial sale of the vehicle exceed the loss on the sale of the finance contract? 25. Does the RFC have a business purpose? 26. Did the RFC investigate items such as the borrower’s credit history, length of the note, age of the vehicle, and payment history prior to determining FMV of the note? Conclusion An adjustment is appropriate where the note is not discounted at fair market value to a "controlled financier" or where the Related Finance Company arrangement is an economic sham. If such is the case, then adjustments should be made to assign income to the proper year it was incurred in connection with the rules aforementioned. See MSSP Used Car Audit Techniques Guide (ATG) for additional discussion of Related Finance Company Issues. 16-5
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- Page 149 and 150: Cash 300 Accounts Receivable 300 2.
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18. If so, does the agreement state how he discount rate<br />
was determined?<br />
19. Does the discount rate approximate the actual loss<br />
experience?<br />
20. Are the finance contracts non-recourse?<br />
21. Does the RFC handle repossessions?<br />
22. Does the dealership sell any finance contracts to<br />
unrelated finance companies?<br />
23. Does the RFC report income on a pro-rata basis?<br />
24. Did the profit reported on the initial sale of the vehicle<br />
exceed the loss on the sale of the finance contract?<br />
25. Does the RFC have a business purpose?<br />
26. Did the RFC investigate items such as the borrower’s<br />
credit history, length of the note, age of the vehicle,<br />
and payment history prior to determining FMV of the<br />
note?<br />
Conclusion<br />
An adjustment is appropriate where the note is not discounted at fair market value to a<br />
"controlled financier" or where the Related Finance Company arrangement is an economic sham.<br />
If such is the case, then adjustments should be made to assign income to the proper year it was<br />
incurred in connection with the rules aforementioned.<br />
See MSSP Used Car <strong>Audit</strong> <strong>Technique</strong>s <strong>Guide</strong> (ATG) for additional discussion of Related Finance<br />
Company Issues.<br />
16-5
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