Auto Dealerships - Audit Technique Guide - Uncle Fed's Tax*Board

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i. Sources of other income (commissions, referrals, money held back, rebates, warranty, etc.) j. Existence of reserves (not limited to extended service contracts or credit insurance) in varying forms (self-insured, escrow and trust accounts, finance, etc.) k. Treatment of lease capital cost reduction payments l. Employment tax treatment of salesperson incentive programs established by the manufacturer m. Economic performance of advertising expenses and accrual of rebates n. An understanding of all insurance and financing arrangements and any money received as a result of these arrangements o. An understanding of all related party and entity transactions and arrangements resulting in deferrals, losses, at less than arm’s length sales, loans, diverted funds, etc. p. Did the taxpayer file any Form(s) 3115 to change any method of accounting? A-8
Appendix B Balance Sheet Section – Examination Specifics Below are Balance Sheet items related to the auto industry. 1. Cash 6. Accounts Payable, Other Current Liabilities and 2. Accounts Receivable Other Liabilities 3. Inventory 7. Capital Stock/Capital Account 4. Loans to/from Shareholders 8. Retained Earnings 5. Building and Equipment 1. Cash One of the objectives in analyzing the cash account is to determine if cash equivalents and balances are properly classified on the balance sheet. <strong>Auto</strong> dealers may put an asset into the cash portion of the balance sheet in order to make financial statements look more attractive. Contracts in Transit is one example of this. Although much like a receivable, most auto dealerships treat these as a cash item. What’s a Contract in Transit? A Contract in Transit is the amount of the automobile’s sale price which is going to come from the financing company that has not yet arrived. The dealer justifies a cash treatment of these contracts as they typically deal with one or two institutions on an ongoing basis, collection is close to certain, and turn around is fast (about a week). When the financing institution "makes the loan," proceeds are forwarded to the dealer who then acts on the note executed by the buyer and subsequently an entry is made: DR Cash in Bank CR Contracts in Transit Sources of cash verification and substantiation items include: a. Bank Statements b. General Ledger and subsidiary journals c. Statement of Cash Flows B-1
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Internal Revenue Service Market Seg
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Preface One of the goals envisioned
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Table of Contents Preface .........
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The Reinsurance Transaction .......
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Part 1 General Focus and Procedure
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1. Type A Return Information Schedu
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Percentage has gone down. The incre
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the principal shareholders to finan
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Rents $ 500,000 Interest $ 50,000 C
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Conclusion "Financial status" is on
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Chapter 2 Getting Started The key t
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entities and their purpose and rela
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It is recommended that officer comp
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Chapter 3 Standard Audit Index Numb
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Chapter 4 Books and Records Charact
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c. Reconcile (2): Beginning Trial B
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3 Repair Order Sales 4 Parts Sales
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Conclusion Although intimidating at
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Chapter 5 Balance Sheet Why do we c
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When an adjustment to a balance she
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Part 2 Inventory Chapter 6 General
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. Purchasing c. Handling, processin
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dealerships use specific identifica
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Chapter 7 LIFO Background Overview
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A Short History of LIFO Application
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improper inflation through unwarran
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Introduction Chapter 8 Computing LI
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The double extension index formula
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as one item, there would probably n
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(existing items) and non-comparable
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The current-year costs that can be
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Assuming the dealership elects LIFO
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matching of revenues and costs. Thu
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section 1.471-9. Both of these regu
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providing to the credit subsidiary
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Under elections made prior to Decem
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Base Year Cost 9112 $224,000 You ha
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BLS Sanity Check A simpler means to
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CYC = Current Year Cost. This is th
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Computation of 1993 Increment and R
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Specific Identification Increment M
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which may be identified by a unique
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Step # 3 For each item category, ad
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Step # 10 Compute the total cost of
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1991 Inventory Value at Current Yea
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Dealers may offer the contracts as
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2. Principal/Obligor A principal is
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Rev. Proc. 97-38 provided for an al
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Contract Construction Generally, a
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Rev. Proc. 97-27 provides the admin
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The Court ruled that when the deale
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Considerations for Forming a Produc
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The Reinsurance Transaction To illu
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insurance contract reinsured throug
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(1979). The Service’s position is
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While not all captive situations in
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3. IRC section 845 tax avoidance 4.
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section, seemingly compliant arrang
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2. By owner A dealer may own dealer
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Rules and Regulations Many rules re
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One of the assets specifically iden
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Where a covenant may be enforced it
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Page 135 and 136: 1. Spread income over a number of y
Page 137 and 138: RELATED FINANCE COMPANY CHECKSHEET
Page 141 and 142: 3. Question the taxpayer directly w
Page 145 and 146: Technicalities Under the provisions
Page 149 and 150: Cash 300 Accounts Receivable 300 2.
Page 151 and 152: The dealer sells the note to a fina
Page 153 and 154: For purposes of this rule, an "empl
Page 155 and 156: 10) relationship of stockholder-off
Page 157 and 158: purely for services. See Treas. Reg
Page 159 and 160: Howard Sole, Inc. v. Commissioner,
Page 161 and 162: Milford Motor Co. v. United States,
Page 163 and 164: new pool for additional, subsequent
Page 165 and 166: 6. The finance company is entitled
Page 167 and 168: when the back-end distributions are
Page 169 and 170: The transfer of the installment con
Page 171 and 172: Report as a Loan or an Assignment
Page 173 and 174: Reported as a Sale… (How it Shoul
Page 175 and 176: Other Sources of Information IRC se
Page 177 and 178: Part 4 Appendices Appendix A Initia
Page 179 and 180: 2) Adjusting Journal Entries 3) Tax
Page 181 and 182: k. Do you receive rebates from anyo
Page 183: f. Employee Benefits 1) Form 5500?
Page 187 and 188: . Dealership financing If the deale
Page 189 and 190: f. Dealer Reserve Holdbacks 3. Inve
Page 191 and 192: Once the existence of a shareholder
Page 193 and 194: Despite the fact the computation ma
Page 195 and 196: corporate minutes if material. d. L
Page 197 and 198: Appendix C Definition of an Item Co
Page 199 and 200: two cars of the same model can vary
Page 201 and 202: Appendix D An Analysis of the Wrigh
Page 203 and 204: (D) also moved (DLRS) income to be
Page 205 and 206: The court did not allow (D)’s cla
Page 207 and 208: Appendix E Glossary The following t
Page 209 and 210: FIFO: An inventory cost flow assump
Page 211: PLATFORM: A vehicle platform is the
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Auto Dealerships - Audit Technique Guide - Uncle Fed's Tax*Board

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