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

More documents

Recommendations

Info

Chapter 19 Other Prevalent <strong>Auto</strong> Practices ................................ 19 - 1 Holdback Charges ................................................... 19 - 1 Warranty Advances .................................................. 19 - 2 Finance Reserves ..................................................... 19 - 3 Compensation Issues .................................................. 19 - 4 Sub-Prime Issue..................................................... 19 - 14 Part V Appendices Appendix A Initial Interview ............................................ A - 1 Appendix B Balance Sheet Section – Examination Specifics ................... B - 1 Appendix C Definition of an Item Coordinated Issue ......................... C - 1 Appendix D An Analysis of the Wright Case ................................ D - 1 Appendix E Glossary .................................................. E - 1 viii
Part 1 General Focus and Procedure Chapter 1 Financial Status Introduction Many of us attended financial status training. The analysis suggested in these classes concentrated on cash as it affected the ultimate earner and end user of that cash. Irregularities discovered concerning this cash flow may lead to a finding that financial status does not exist. The scope of the audit would focus in this direction. Financial Status Analysis Note: The IRS Restructuring and Reform Act of 1998, Section 3412, prohibits the use of financial status examination techniques to determine the existence of unreported income unless the IRS has a reasonable indication that there is a likelihood of unreported income. The financial status analysis applied to auto dealership examinations, though seemingly more complex, is in reality the same analysis. Complexities in this analysis arise when multiple related entities, common in the auto dealership context, are discovered. If the dealership is owned or controlled by one or a few shareholders, one can classify dealerships into three categories for purposes of determining financial status. The three categories determined are: Type A: Type B: Type C: Schedule C Used Cars Single/Smaller Dealers of New Cars Large Multi-Entity Concern. The analysis presented may be diluted if the dealership has many holders of equity interest, but should be applied to large holders. A "large holder" is a question of fact. The MSSP <strong>Auto</strong> Dealership Study defined a large holder as one holding 50 percent. For example, if a dealership had five shareholders: 1-1
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: The Reinsurance Transaction .......
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 and 18: Rents $ 500,000 Interest $ 50,000 C
Page 19 and 20: Conclusion "Financial status" is on
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
Page 69 and 70:
providing to the credit subsidiary
Page 71 and 72:
Under elections made prior to Decem
Page 73 and 74:
Base Year Cost 9112 $224,000 You ha
Page 75 and 76:
BLS Sanity Check A simpler means to
Page 77 and 78:
CYC = Current Year Cost. This is th
Page 79 and 80:
Computation of 1993 Increment and R
Page 81 and 82:
This page intentionally left blank.
Page 83 and 84:
Specific Identification Increment M
Page 85 and 86:
which may be identified by a unique
Page 87 and 88:
Step # 3 For each item category, ad
Page 89 and 90:
Step # 10 Compute the total cost of
Page 91 and 92:
1991 Inventory Value at Current Yea
Page 93 and 94:
Page 95 and 96:
Dealers may offer the contracts as
Page 97 and 98:
Page 99 and 100:
2. Principal/Obligor A principal is
Page 101 and 102:
Rev. Proc. 97-38 provided for an al
Page 103 and 104:
Contract Construction Generally, a
Page 105 and 106:
Rev. Proc. 97-27 provides the admin
Page 107 and 108:
The Court ruled that when the deale
Page 109 and 110:
Considerations for Forming a Produc
Page 111 and 112:
The Reinsurance Transaction To illu
Page 113 and 114:
insurance contract reinsured throug
Page 115 and 116:
(1979). The Service’s position is
Page 117 and 118:
While not all captive situations in
Page 119 and 120:
3. IRC section 845 tax avoidance 4.
Page 121 and 122:
section, seemingly compliant arrang
Page 123 and 124:
2. By owner A dealer may own dealer
Page 125 and 126:
Rules and Regulations Many rules re
Page 127 and 128:
Page 129 and 130:
One of the assets specifically iden
Page 131 and 132:
Where a covenant may be enforced it
Page 133 and 134:
Page 135 and 136:
1. Spread income over a number of y
Page 137 and 138:
RELATED FINANCE COMPANY CHECKSHEET
Page 139 and 140:
Page 141 and 142:
3. Question the taxpayer directly w
Page 143 and 144:
Page 145 and 146:
Technicalities Under the provisions
Page 147 and 148:
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 and 184:
f. Employee Benefits 1) Form 5500?
Page 185 and 186:
Appendix B Balance Sheet Section -
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
show all

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

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?