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

It is recommended that officer compensation be verified as being included on the payroll returns
and that any large, unusual, and questionable items be further analyzed.
The agent should be cognizant of TEFRA applications to Form 1120S and Form 1065 tax returns
and ensure compliance with its provisions.
Perform pre-contact analysis by following the procedures covered in the financial status section of
this Guide. Compare prior and subsequent years operations of this and related entities.
Remember, it is not 1 year of one entity that is under audit. This 1 year, one entity look is the
beginning point of the examination and merely provides a window for the agent to see into the
taxpayer’s operations. The overall picture of how the taxpayer is handling the whole concern for
all relevant periods is at issue with the examination.
If this initial analysis does not result in indications of unreported income, the scope of the
examination may be limited to technical issues. This determination made in conjunction with
applicable Revenue procedure changes in accounting method compliance and Package Audit
requirement compliance could lead to strict classification of the scope auditing standard, whether
there is a large, unusual, questionable or related party transaction that requires analysis. Basically,
unless there is an item in the area of assets, equity, income or expense that stands out and begs for
further consideration, the scope should be limited.
On the other hand, as also previously stated, if financial status does not exist based on the
methodology described above, then the scope of the examination should be expanded as
circumstances warrant.
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