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

discussed, sometimes the dealer may not be available or not provide specified information
requested. However, most comply with requests for package audit information. This will ensure
the agent’s time at the dealership is productive and will put him or her in a position to work on
more material items as the examination progresses. Eliminating down time will ensure timely
closure of the case.
Upon initial review of the assigned tax return look for missing statements or schedules, changes in
accounting methods, and any special notes, elections, or disclosures.
Review the case file for Service Center/District Information, prior audit information, Department
of Motor Vehicle transcripts, and tax transcripts. Order and analyze this information as
necessary. Remember the necessary Taxpayers’ Bill of Rights II (TBOR II) requirements on third
party contracts.
Utilize the Integrated Data Retrieval System (IDRS) as necessary. In addition to internal
documents, the agent should consider pulling other reconciliatory information such as payroll,
payor and payee master file information, documents relative to ownership entities. Also a search
can be made for related entities by name and/or TIN. Find out if there are any open tax audits and
what the status of the case, i.e.: location of cases.
Start a list of possible third party resources which may be tapped into should necessity dictate.
Consider the manufacturer, the Department of Motor Vehicles, used car wholesalers, etc. Real
estate information showing real property in the names of the audit principles can be pulled from a
service such as "Data Quick" or "Metroscan" where the Service subscribes to it.
Consideration needs to be made whether dealership Gross Income can be accepted with minimal
testing where the amounts showing on the manufacturer’s statement match per return amounts.
An area that seems to add unnecessary time to the examination is the reconciliation of the Payroll
Tax Returns. Why? Because the cost accounting approach taken by the taxpayer means wages
are paid from PROFIT CENTERS; different accounts and various source codes permeate a
voluminous set of books and records which represent these departmentalized payroll costs.
Agents generally ask the dealership to provide photocopies of the pertinent payroll tax returns for
the applicable periods. They then try to reconcile these items to applicable expenses claimed on
the tax returns. Practitioners seldom provide the agent with beginning and ending accruals
necessary to complete the analysis. These amounts are usually fragmented through out the books.
A complete reconciliation of payroll returns, however, is typically nothing more than a verification
item. The agent may consider an assumption of correctness after "confidence in books" has been
established in other areas.
To avoid time and aggravation the agent should ask the practitioner to perform the reconciliation
and to provide photocopies of the work papers in the initial Package Audit Information Document
Requests. Some practitioners will resist and say, "I will not do your work for you." The
professional practitioners understand the situation and will do the necessary reconciliation or
provide the necessary accruals up front.
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