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Auto Dealerships Edition

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Description

IRS Tax Audit Manual for Auto Dealerships 

Discusses books and records, inventory, after sale financial products and other issues unique to the industry. These may include related financial companies, covenant not to compete, advertising associations, 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 Auto Dealership’s is tax deductible as a business expense!