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Auto Body and Repair Industry Edition

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Description

IRS Tax Audit Manual for the Auto Body and Repair Industry

Overview of the industry… Discusses some issues that may be encountered – including other sources of income; cost of sales; employment taxes; etc.

TABLE OF CONTENTS

  • CHAPTER 1: THE NATURE OF AUTO/BODY REPAIR INDUSTRY
    • Overview 1-1
    • Description of Auto Body Repair Process 1-2
    • Repair/Replacement 1-2
    • Paint Process 1-2
    • Other Processes 1-3
    • Estimation Process 1-3
    • Differences Between Body and Repair Shops 1-4
  • CHAPTER 2: DOCUMENTS AVAILABLE
    • Introduction 2-1
    • General Books and Records 2-1
    • Specific Documents 2-2
    • The Mitchell Guide 2-5
    • Organization of Records 2-5
  • CHAPTER 3: INITIAL INTERVIEW/TOUR OF BUSES
    • Initial Interview 3-1
    • Tour of Business 3-4
  • CHAPTER 4: BALANCE SHEET ACCOUNTS AND M-1 ANALYSIS
    • Introduction 4-1
    • Comparative Review 4-1
    • Cash Account 4-2
    • Inventories 4-3
    • Buildings and Other Depreciable Assets 4-3
    • Other Receivables 4-4
    • Liabilities and Shareholder’s Equity 4-4
    • Treasury Stock 4-4
    • Schedule M-1
    • Review 4-5
  • CHAPTER 5: SALES
    • Introduction 5-1
    • Categories of Charges 5-4
    • Labor 5-4
    • Sublet 5-4
    • Towing 5-4
    • Storage 5-5
    • Estimate Fees 5-5
    • Vehicle Sales 5-5
    • Sales Tax 5-5
    • Other Income Sources 5-6
    • Rebates and Refunds of Expense 5-6
    • Sublease of Premises and Equipment 5-6
    • Advertising Space 5-6
    • Old Checks 5-6
    • Other Sources 5-7
    • Accounting for Sales Taxes 5-7
    • Sales Tax Audits 5-8
    • Indications of Underreporting 5-9
    • Estimating Sales 5-9
    • Bank Deposits 5-10
    • Repair Orders 5-12
    • Breakdowns of Sales and Costs 5-13
    • Checks to Check Cashers 5-13
    • Cash Transactions Records 5-13
    • Other Income Issues 5-14
    • Held Checks 5-14
    • Waived Deductibles 5-14
    • Cash Payments 5-15
    • Cashed Checks 5-15
    • Journal Entries 5-17
  • CHAPTER 6: COST OF SALES
    • Introduction 6-1
    • Purchases 6-1
    • Records to Request/Examine 6-2
    • Labor 6-4
    • Metal Labor 6-4
    • Frame Labor 6-4
    • Paint Labor 6-4
    • Minor Mechanical Repairs 6-5
    • Labor: Records to Request/Examine 6-5
    • Audit Procedures 6-5
    • Sublet Expenses 6-7
    • Inventory 6-7
    • Inventory Requirements 6-8
    • Records to Examine/Request 6-9
    • Audit Procedures 6-9
    • Inventory Listed on Return 6-13
    • Paint and Supplies Inventory 6-13
    • Change in Accounting Method 6-14
  • CHAPTER 7: EXPENSES
    • Introduction 7-1
    • Automobile Expense 7-1
    • Vehicle Owned by Corporation 7-2
    • Vehicle Owned by Shareholder 7-2
    • Leased Vehicles 7-3
    • Entertainment and Promotion 7-3
    • Inadequate Verification 7-3
    • Personal Expenses 7-4
    • Misclassified Business Meals 7-4
    • Gifts 7-4
    • Expense Allowances 7-4
    • Rent Expense 7-4
    • Real Property 7-5
    • Personal Property 7-6
    • Insurance 7-6
    • Prepaid and Accruals 7-6
    • Dividends, Refunds and Claims 7-7
    • Medical Insurance 7-7
    • Life Insurance 7-8
    • Auto Insurance 7-8
    • Officer Compensation 7-9
    • Reasonable Compensation 7-9
    • Bonuses 7-10
    • Journal Entries 7-10
    • Accruals 7-11
    • Loan Accounts and Related Interest Expense 7-11
    • Imputed Interest 7-12
    • Employee Related Expenses 7-14
    • Uniforms 7-14
    • Employee Advances 7-14
    • Group Plans 7-15
    • Bonuses and Gifts 7-15
    • Expenses Reimbursements 7-15
    • Unethical Practices 7-15
    • Automobile Rental Kickbacks 7-15
    • Finders or Referral Fees 7-16
    • Political Contributions and Lobbying Costs 7-16
    • Lien Sale Filings 7-16
    • Towing Service Payments 7-17
    • Insurance Fraud 7-18
    • Smog Certificate Sales 7-18
  • CHAPTER 8 : CHANGE IN ACCOUNTING METHOD
    • Introduction 8-1
    • Why Make an IRC Section 481 Adjustment? 8-1
    • Inventory Adjustment 8-1
    • Computation of Accrued Sales and Purchases 8-3
    • Computation of IRC Section 481
    • Adjustment for Accrued Receivables 8-3
    • Determination of Accrued Purchases 8-8
    • IRC Section 481(b)(1) & (2) Limitations 8-8
    • Revenue Procedure 92-20 8-11
  • CHAPTER 9: EMPLOYMENT TAXES
    • Introduction 9-1
    • Recharacterization of Payments as Wages 9-4
    • Consistent Treatment as Non-Employees 9-5
    • Occasional Treatment as Non-Employees 9-6
    • Bonuses 9-7
    • Officer Salaries 9-8
    • Other Situations 9-8
    • Examining Returns, Books and Records 9-9
    • The Tax Return 9-9
    • Transcripts 9-9
    • Reconciliation and Form W-2 and
    • 1099 Inspection 9-10
    • Disbursements 9-11
    • Related Returns 9-11
    • Penalties 9-12
    • Backup Withholding 9-12
    • Statutes and Closing Procedures 9-12
  • CHAPTER 10: INFORMATION RETURNS/PENALTIES FORM 1099
    • Information Returns 10-1
    • Audit Techniques 10-2
    • Other Issues 10-4
    • Form 8300 Information Returns 10-4
    • Package Audit Requirements/Audit Techniques 10-5
    • Penalties 10-7
    • Failure to File Correct Information Returns —
    • IRC section 6721 10-7
    • Failure to Furnish Correct Payee Statements —
    • IRC section 6722 10-8
    • Backup Withholding 10-9
    • Abatement Procedure for Backup
    • Withholding 10-11
  • Glossary G-1
Don’t forget – The IRS Tax Audit Manual for the Auto Body and Repair Industry is tax deductible as a business expense!