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
CPI-CONSUMER PRICE INDEX: A measure of change in consumer prices (inflation) as determined by a monthly survey conducted by the Bureau of Labor Statistics. CUMULATIVE INDEX: In the LIFO "Link Chain Method," the product of all annual indices dating back to the year of election. It is used to restate current-year cost to base year costs. This index is also used to value increments of base-year cost. CURRENT YEAR COST (CYC): Total current-year cost of items, using LIFO, may be determined in one of four ways: 1. by referring to the actual cost of the items most recently purchased; 2. by referring to the actual cost of the items purchased during the taxable year in the order of acquisition; 3. by the application of an average unit cost equal to the aggregate cost of all goods purchased during the taxable year; 4. any other proper method which clearly reflects income. CUT-OFF METHOD: A method of changing a method of accounting on a prospective basis without an adjustment under IRC section 481(a). In the context of Alternative LIFO, there is no change to prior LIFO indices or layers. DECREMENT: A decrease in a LIFO pool for a year when the end of the year quantity of the pool at base-year cost is less than the beginning of the year quantity of the pool at base-year cost. DOLLAR VALUE METHOD: The dollar-value method of valuing LIFO inventories is a method of determining costs by using base-year costs expressed in terms of total dollars rather than using the quantity and price of specific goods as the unit of measurement. DOUBLE EXTENSION METHOD: A method of computing the LIFO value of a dollar value pool. Under this method the quantity of each item in the inventory pool at the close of the taxable year is extended at both base-year unit cost and current-year cost. EARLIEST ACQUISITIONS: This is one of three methods specifically mentioned under dollar-value LIFO to determine the current-year cost of the ending quantity of inventory. This method involves repricing all of the items on hand at the end of the year at the earliest price paid for the item. EXPRESSED WARRANTY: Specifically stated in contract, controlled by conditions attached to it. EXTERNAL METHOD: A method of computing a dollar-value LIFO index where the indices are generated by information taken from any source other than the taxpayer data. E-2
FIFO: An inventory cost flow assumption where, regardless of the actual physical flow of goods, the earliest inventory costs of the period are treated as having been sold first and the latest inventory costs are those remaining in ending inventory. It may be used when "* * * Goods taken in the inventory which have been so intermingled that they cannot be identified with specific invoices * * *" See Treas. Reg. section 1.471-2(d). FINANCIAL STATUS ANALYSIS: A determination of whether what is represented on tax returns as true actually has economic merit and substance. FLOORING STATEMENT: Statement issued by lending institutions reflecting amount of credit extended to a particular dealership for vehicle purchases. Other information, such as identification of specific vehicles being financed, can also be found on these statements. IMPLIED WARRANTY: A warranty "implied" in law. Usually it involves a warranty of merchantability and fitness for a particular purpose. INCREMENT: An increase in a LIFO pool for a year when the end of the year quantity of the items at base-year costs exceeds the prior year’s quantity at base-year costs. INDEX: A statistical composite that measures changes in the economy or in financial markets, often expressed in percentage changes from a base-year or from the previous month. INDEX METHOD: Under the LIFO index method an inventory price index is computed with reference to the consumer or producer price indices for specific categories of inventory items published by the Bureau of Labor Statistics, or an alternative pricing method to the double-extension method where a taxpayer computes a price index by double extending a representative portion of the inventory. INTERNAL METHOD: A method of computing a dollar-value index where the indices are generated by information derived and maintained by the dealership. INVENTORY PRICE INDEX (IPI): A measure of change in government indexes for eligible small businesses, particularly, non-department store retailers. Beginning in 1981, the Service allowed certain taxpayers to adopt indexes issued by the Bureau of Labor Statistics in calculating their LIFO inventories. However, the measure of inflation for LIFO purposes is limited to 80 percent of the relevant BLS index. This is also known as the simplified dollar value LIFO method. JOURNAL SOURCES: Traditional books are journalized by auto dealerships into, sometimes, several sub-journals. Using source codes, particular transactions and the particular source book to which it was journalized, can be identified. JOURNAL VOUCHER STANDARD ENTRIES: Journal entries which are normally made on a monthly basis for adjustment or correction purposes. LATEST ACQUISITIONS: This is one of three methods specifically mentioned under dollar-value LIFO to determine the current-year cost of the ending quantity of inventory. This E-3
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- Page 159 and 160: Howard Sole, Inc. v. Commissioner,
- Page 161 and 162: Milford Motor Co. v. United States,
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- Page 177 and 178: Part 4 Appendices Appendix A Initia
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- Page 183 and 184: f. Employee Benefits 1) Form 5500?
- Page 185 and 186: Appendix B Balance Sheet Section -
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FIFO: An inventory cost flow assumption where, regardless of the actual physical flow of goods,<br />
the earliest inventory costs of the period are treated as having been sold first and the latest<br />
inventory costs are those remaining in ending inventory. It may be used when "* * * Goods taken<br />
in the inventory which have been so intermingled that they cannot be identified with specific<br />
invoices * * *" See Treas. Reg. section 1.471-2(d).<br />
FINANCIAL STATUS ANALYSIS: A determination of whether what is represented on tax<br />
returns as true actually has economic merit and substance.<br />
FLOORING STATEMENT: Statement issued by lending institutions reflecting amount of<br />
credit extended to a particular dealership for vehicle purchases. Other information, such as<br />
identification of specific vehicles being financed, can also be found on these statements.<br />
IMPLIED WARRANTY: A warranty "implied" in law. Usually it involves a warranty of<br />
merchantability and fitness for a particular purpose.<br />
INCREMENT: An increase in a LIFO pool for a year when the end of the year quantity of the<br />
items at base-year costs exceeds the prior year’s quantity at base-year costs.<br />
INDEX: A statistical composite that measures changes in the economy or in financial markets,<br />
often expressed in percentage changes from a base-year or from the previous month.<br />
INDEX METHOD: Under the LIFO index method an inventory price index is computed with<br />
reference to the consumer or producer price indices for specific categories of inventory items<br />
published by the Bureau of Labor Statistics, or an alternative pricing method to the<br />
double-extension method where a taxpayer computes a price index by double extending a<br />
representative portion of the inventory.<br />
INTERNAL METHOD: A method of computing a dollar-value index where the indices are<br />
generated by information derived and maintained by the dealership.<br />
INVENTORY PRICE INDEX (IPI): A measure of change in government indexes for eligible<br />
small businesses, particularly, non-department store retailers. Beginning in 1981, the Service<br />
allowed certain taxpayers to adopt indexes issued by the Bureau of Labor Statistics in calculating<br />
their LIFO inventories. However, the measure of inflation for LIFO purposes is limited to 80<br />
percent of the relevant BLS index. This is also known as the simplified dollar value LIFO method.<br />
JOURNAL SOURCES: Traditional books are journalized by auto dealerships into, sometimes,<br />
several sub-journals. Using source codes, particular transactions and the particular source book<br />
to which it was journalized, can be identified.<br />
JOURNAL VOUCHER STANDARD ENTRIES: Journal entries which are normally made on<br />
a monthly basis for adjustment or correction purposes.<br />
LATEST ACQUISITIONS: This is one of three methods specifically mentioned under<br />
dollar-value LIFO to determine the current-year cost of the ending quantity of inventory. This<br />
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