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Furniture Manufacturing Industry Edition

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IRS Tax Audit Manual for the Furniture Manufacturing Industry

162 Pages of Concise, Easy To Understand Information Regarding Everything The Internal Revenue Service Auditors Know About Furniture Manufacturing.

Think About This – -If You Know What The IRS Knows – You Can Be Prepared For Anything!

In the past, various Internal Revenue Service Audit Manuals have assumed than an examiner possessed a certain skill level regarding corporate audits. Balance sheet techniques may have been mentioned but not spelled out in detail. In this regard, Uncle Sam’s Tax Audit Assistant has taken on a slightly different approach. Basic audit techniques are still outlined in this manual, but they are not outlined in a step-by-step fashion and explained in detail. Basic audit steps such as reconciliations, comparatives, balance sheet analysis, and even the initial interview have been integrated in this manual so that the examiner can read a training manual and see how audit steps are implemented in the course of a furniture manufacturing audit.

This manual includes citations from the Internal Revenue Code, treasure Regulations, Revenue Rulings and Procedures, and the IRM so the examiner can be assured of locating the basis of any conclusions drawn. This manual is set up to match the natural progression of an income tax audit and field examination for the Furniture Manufacturing Industry.

It begins with the planning stages of an audit and continues through the package audit, balance sheet, sales, cost of goods sold and expenses. Specialty sections include Changes in Accounting Methods, Maquiladoras and vocabulary.

The IRS MANUAL written specifically for Internal Revenue Service Audit Agents to use for conducting audits of The Furniture Manufacturing Industry.

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Take a sneak peek NOW into what the Internal Revenue Service Tells Its Auditors About The Furniture Manufacturing Industry…

From Chapter 5…

“The income analysis of the furniture manufacturing industry did not provide any single issue, which was found to be common or prevalent throughout the market. On the contrary, there appeared to be a range of assorted income issues, which an examiner may encounter. These issues ranged from simple unreported interest income to omitted sales. This section discusses those issues found in the study but you should be aware that many more potential income issues may exist which were not encountered in the returns examined.

During this study, the books and records used to account for income were not unique in nature. They included the usual sales, accounts receivables, cash receipts, and sometimes credit memo journals. In only one case was a factoring arrangement used to generate cash. In most cases, cash flow came directly from sales receipts and direct borrowings. It should be noted, the term “furniture manufacturer” included a broad range of products, which at times were accounted for differently in regards to sales.

For example, companies that produced “assembly line” goods such as sofas, chairs, inexpensive cabinets, etc., usually reported income when goods were shipped. Other companies that produced custom furniture or commercial type furniture such as counters, shelved and racks, or large tables, may have accounted for sales on a modified percentage of completion method.”

Oh there’s more…much, much more –

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TABLE OF CONTENTS

  • Chapter 1
    • Introduction
    • Purpose and Nature of Information 1-1
    • How the Study was Conducted 1-1
    • The Furniture Industry in Southern California 1-2
    • Characteristics of Furniture Manufacturers 1-2
    • Upholstered Goods 1-4
    • Wood Products – Custom 1-4
    • Wood Products – Assembly Line 1-4
    • Commercial Furniture 1-4
    • Corporate Income Tax Issues 1-4
    • How This Guide Is Presented 1-5
  • Chapter 2
    • Planning the Audit, Initial Interview,
    • and Touring Facilities
    • Planning the Audit 2-1
    • Identification of Potential Issues/Return Analysis 2-1
    • Preparation of Information Document Requests 2-3
    • Preliminary IDRS Research 2-4
    • Speciality Referrals 2-5
    • Initial Interview 2-5
    • Tour of Facilities 2-6
    • Fixed Assets Reported on Tax Return 2-6
    • Match Production Responses to
    • Visual Observations 2-6
  • Chapter 3
    • Required Filing Checks
    • Introduction 3-1
    • Employment Taxes 3-1
    • Employment Tax Reconciliation 3-1
    • Employee vs. Independent Contractor 3-2
    • Other Employment Tax Issues 3-4
    • Other Considerations 3-6
    • Information Returns 3-8
    • Types of Information Returns 3-8
    • Form 1099 3-9
    • Form 8300 3-11
    • Penalties 3-12
    • Form 5471 3-15
    • Backup Withholding 3-15
    • Assertion Procedures 3-17
    • Abatement Procedures 3-17
    • Related Returns 3-18
    • Identifying Related Returns 3-18
    • Corporate Taxpayer/Shareholder Issues 3-19
    • Other Related Return Issues 3-19
  • Chapter 4
    • Balance Sheet
    • Introduction 4-1
    • Interrelationship Between Balance Sheet
    • and Income Statement 4-3
    • Effect of Balance Sheet Adjustments
    • on Taxable Income 4-3
    • Preliminary Audit Steps 4-4
    • Reconcile the Book Accounts to the Return 4-4
    • Comparative Analysis 4-5
    • Auditing a Balance Sheet Account
    • and Schedules M)1 and M)2 4-5
    • Cash 4-6 Accounts Receivable 4-9
    • Inventory 4-14
    • Loans to/from Shareholders 4-14
    • Building & Equipment 4-18
    • Accounts Payable –
    • Other Current Liabilities and
    • Other Liabilities 4-20
    • Capital Stock/Capital Account 4-23
    • Retained Earnings 4-24
    • Schedule M)1 and Schedule M)2 4-24
  • Chapter 5
    • Sales and Income Issues
    • Introduction 5-1
    • How Sales Are Generated 5-1
    • General Audit Techniques 5-2
    • Understanding the Sales Cycle 5-2
    • Understanding the Accounting
    • System/Internal Controls 5-3
    • Specific Audit Techniques 5-3
    • Internal Revenue Manual 4231/582 5-3
    • Other Recommended Income Probes 5-7
    • Other Income Issues 5-7
    • Unreported Interest Income 5-7
    • Bargain Purchases Under
    • IRC Section 311(b) 5-8
    • Lease Inclusion Income:
    • Passenger Automobiles 5-9
    • Contra)Sales Accounts 5-9
    • Returns 5-10
    • Allowances in General 5-10
    • Cash Discounts 5-10
    • Accounting for Returns,
    • Allowances, and Discounts 5-10
  • Chapter 6
    • Cost of Goods Sold
    • Introduction 6-1
    • General Audit Techniques 6-2
    • Understanding the Production Cycle 6-2
    • Understanding Integration of
    • Accounting System 6-2
    • Comparative Analysis 6-3
    • Reconciliations 6-3
    • Specific Audit Techniques 6-4
    • Purchases 6-4
    • Cost of Labor 6-5
    • Other Costs and Deductions 6-7
    • Inventories 6-7
    • Determine How the Inventory
    • Amount Was Arrived 6-7
    • Determine All Possible
    • Locations of Inventory 6-8
    • Obtain Ending Inventory Records 6-8
    • Journal Entry Analysis 6-8
    • Issues 6-9
    • Incorrect Inventory Accounts/Omissions 6-9
    • Improper Valuations 6-12
    • Uniform Capitalization Rules:
    • IRC Section 263A or Tax Years
    • Ending Before January 1, 1994 6-15
    • All Direct Costs 6-15
    • All Indirect Costs Associated with
    • Production 6-16
    • Cost Which are not Required to be
    • Capitalized 6-17
    • Audit Techniques 6-18
    • IRC Section 263A Regulations:
    • Post 1993 6-25
    • LIFO Inventory Valuations 6-26
  • Chapter 7
    • Change in Accounting Method
    • Introduction 7-1
    • What is a Change in Accounting Method? 7-1
    • IRC Section 481 Adjustment 7-2
    • How IRC Section 481 Interacts with an
    • Inventory Adjustment 7-2
    • IRC Section 481(b)(1) and (2) Limitations 7-4
  • Chapter 8
    • Maquiladoras
    • Introduction 8-1
    • Identification 8-2 Issues 8-3
    • U.S. Assets Used by the Maquiladora 8-3
    • IRC Section 482 – Allocation of Income and
    • Deductions Among Taxpayers and
    • IRC Section 1059A –
    • Limitation on Taxpayer’s Basis or Inventory Cost in
    • Property Imported from Related Persons 8-3
    • Shelter Operations 8-5
    • Foreign Corporations )
    • IRC Section 1504(d) Election 8-6
  • Chapter 9
    • Expenses
    • Introduction 9-1
    • Advertising 9-1
    • Catalog Costs 9-1
    • Auto 9-2
    • Vehicle Owned by Corporation 9-2
    • Vehicle Owned by Shareholder 9-3
    • Vehicle Owned by
    • Nonshareholder Employee 9-3
    • Leased Vehicles 9-4
    • Bad Debts 9-4
    • Determination of Worthlessness 9-4
    • Amount of Deduction 9-5
    • Examination Techniques 9-5
    • Capital Expenditures versus
    • Currently Deductible Items 9-6
    • Examination Techniques 9-7
    • Pollution Control Permits 9-8
    • Commissions 9-9
    • Depreciation 9-9
    • Revenue Procedure 87/56 9-10
    • Listed Property 9-10
    • Examination Techniques 9-12
    • Dues and Subscriptions 9-12
    • Insurance 9-13
    • Other Issues 9-14
    • Legal and Professional 9-15
    • Examination Techniques 9-15
    • Pension Plans 9-16
    • Examination Techniques 9-16
    • Rent 9-16
    • Examination Techniques 9-17
    • State Income Tax 9-20
    • Taxes and Licenses 9-20
    • Examination Techniques 9-21
    • Travel and Entertainment 9-21
    • Deduction Limitation 9-21
    • Recordkeeping Requirements 9-22
    • Examination Techniques 9-23
  • Glossary G-1
Don’t forget – The IRS Tax Audit Manual for the Furniture Manufacturing Industry is tax deductible as a business expense!