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

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Y E A R E N D EXAMPLE OF DEALERSHIP OWNERSHIP T Y P E C A U T O D E A L E R S H I P F I N A N C I A L S T A T U S Dealership Make Chevrolet Ford Subaru Saturn Infiniti B M W Porsche/Audi Filing Form 1065 1120 S 1065 1120 S 1120 S 1120 S 1065 Assets $3,000,000 $2,000,000 $1,000,000 $8,000,000 $20,000,000 $5,000,000 $1,000,000 Gross Receipts $12,000,000 $10,000,000 $3,000,000 $5,000,000 $100,000,000 $15,000,000 $1,000,000 Profit/Loss ($1,000,000) $0 $0 ($1,000,000) $3,000,000 ($2,000,000) ($1,000,000) Capital Account ($2,000,000) $0 ($1,000,000) $1,000,000 $8,000,000 ($1,000,000) ($1,000,000) Owners Asset Investment Real Estate Owner’s Insurance Holding Corp. Corporation Corporation Living Trust Subsidiary Form 1120S Form 1120S Form 1120S Form 1120PC Assets/Liabilities $30,000,000 $10,000,000 $15,000,000 $30,000,000 $35,000,000 Income $1,000,000 $1,000,000 $1,000,000 $5,000,000 $25,000,000 Profit/Loss ($2,000,000) ($1,000,000) ($2,000,000) $0 ($5,000,000) Paid in Capital/Stock $15,000,000 $5,000,000 $1,000,000 $10,000,000 $20,000,000 Retained Earnings $4,000,000 $1,000,000 $3,000,000 $5,000,000 $10,000,000 Owner 1040 AGI $2,000,000 TI $1,000,000 1-11
Conclusion "Financial status" is one of the keys to planning any auto dealership examination. Such preplanning will aid in enabling the agent to determine the scope of the audit. Work papers should clearly demonstrate answers to feasibility questions regarding the taxpayer’s ongoing business. The next section will offer guidelines on how this information can be obtained. 1-11
Page 1 and 2: Internal Revenue Service Market Seg
Page 3 and 4: Preface One of the goals envisioned
Page 5 and 6: Table of Contents Preface .........
Page 7 and 8: The Reinsurance Transaction .......
Page 9 and 10: Part 1 General Focus and Procedure
Page 11 and 12: 1. Type A Return Information Schedu
Page 13 and 14: Percentage has gone down. The incre
Page 15 and 16: the principal shareholders to finan
Page 17: Rents $ 500,000 Interest $ 50,000 C
Page 21 and 22: Chapter 2 Getting Started The key t
Page 23 and 24: entities and their purpose and rela
Page 25 and 26: It is recommended that officer comp
Page 27 and 28: Chapter 3 Standard Audit Index Numb
Page 29 and 30: Chapter 4 Books and Records Charact
Page 31 and 32: c. Reconcile (2): Beginning Trial B
Page 33 and 34: 3 Repair Order Sales 4 Parts Sales
Page 35 and 36: Conclusion Although intimidating at
Page 37 and 38: Chapter 5 Balance Sheet Why do we c
Page 39 and 40: When an adjustment to a balance she
Page 41 and 42: Part 2 Inventory Chapter 6 General
Page 43 and 44: . Purchasing c. Handling, processin
Page 45 and 46: dealerships use specific identifica
Page 47 and 48: Chapter 7 LIFO Background Overview
Page 49 and 50: A Short History of LIFO Application
Page 51 and 52: improper inflation through unwarran
Page 53 and 54: Introduction Chapter 8 Computing LI
Page 55 and 56: The double extension index formula
Page 57 and 58: as one item, there would probably n
Page 59 and 60: (existing items) and non-comparable
Page 61 and 62: The current-year costs that can be
Page 63 and 64: Assuming the dealership elects LIFO
Page 65 and 66: matching of revenues and costs. Thu
Page 67 and 68: 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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This page intentionally left blank.
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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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1. Spread income over a number of y
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RELATED FINANCE COMPANY CHECKSHEET
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3. Question the taxpayer directly w
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Technicalities Under the provisions
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Cash 300 Accounts Receivable 300 2.
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The dealer sells the note to a fina
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For purposes of this rule, an "empl
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10) relationship of stockholder-off
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purely for services. See Treas. Reg
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Howard Sole, Inc. v. Commissioner,
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Milford Motor Co. v. United States,
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new pool for additional, subsequent
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6. The finance company is entitled
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when the back-end distributions are
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The transfer of the installment con
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Report as a Loan or an Assignment
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Reported as a Sale… (How it Shoul
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Other Sources of Information IRC se
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Part 4 Appendices Appendix A Initia
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2) Adjusting Journal Entries 3) Tax
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k. Do you receive rebates from anyo
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f. Employee Benefits 1) Form 5500?
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Appendix B Balance Sheet Section -
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. Dealership financing If the deale
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f. Dealer Reserve Holdbacks 3. Inve
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Once the existence of a shareholder
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Despite the fact the computation ma
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corporate minutes if material. d. L
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Appendix C Definition of an Item Co
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two cars of the same model can vary
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Appendix D An Analysis of the Wrigh
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(D) also moved (DLRS) income to be
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The court did not allow (D)’s cla
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Appendix E Glossary The following t
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FIFO: An inventory cost flow assump
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PLATFORM: A vehicle platform is the
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