Description

IRS Tax Audit Manual for the Garment Manufacturers Industry

Overview of industry. Entities that design the garment, procure fabric and materials, coordinate all aspects of the construction of the garment and sell finished product to retailers.

TABLE OF CONTENTS

• Chapter 1
  • Introduction
  • Nature of the Information in this Guide 1-1
  • Results of the Examinations Conducted 1-2
  • Spin-Off Returns 1-3
  • Officers and Shareholders 1-3
  • Related Entities 1-4
  • Contractors 1-4
  • Employees and Agents 1-4
  • Employment Tax Case 1-4
  • Information Return Penalties 1-5
• Chapter 2
  • Nature of the Business
  • Overview 2-1
  • Design 2-1
  • Sales 2-2
  • Production 2-2
  • Accounting and Administration 2-3
  • Seasons 2-3
  • Factoring Accounts 2-3
• Chapter 3
  • Factory Visit and Interview
  • Factory Visit 3-1
  • Initial Interview 3-2
• Chapter 4
  • Documents Available
  • Introduction 4-1
  • Cost Sheets 4-1
  • Purchase Orders 4-1
  • Piece Goods and Trim Invoices 4-2
  • Delivery Documents 4-2
  • Credit Memos and Debit Memos 4-2
  • Cutting Tickets 4-3
  • Contractor Invoices 4-3
  • Sales Invoices 4-3
  • Factor Statements 4-4
  • Inventory Records 4-4
• Chapter 5
  • Balance Sheet Accounts
  • Introduction 5-1
• Chapter 6
  • Sales, Returns and Allowances
  • Sales 6-1
  • Sales Returns and Allowances 6-2
  • Returns 6-3
  • Warehouse Allowance 6-3
  • Markdown Allowance 6-3
  • Year-end Allowance 6-3
  • Volume Allowance 6-3
  • Advertising Allowance 6-4
  • Trade Discounts 6-4
  • Cash Discounts 6-4
  • Accounting for Returns,
  • Allowances, and Discounts 6-4
  • Accruing Returns, Allowances, and
  • Discounts at Year-end 6-5
  • Disputed Charge backs 6-7
• Chapter 7
  • Cost of Goods Sold
  • Introduction 7-1
  • Period Costs 7-2
  • Purchases 7-2
  • Labor 7-4
  • Other Costs 7-6
  • IRC section 263A 7-6
  • Ending Inventory 7-7
  • Why Audit Inventory When
  • All Adjustments Are “Rollovers?” 7-7
  • Description of Inventory Records 7-11
  • Some Suggested Audit Inquiries 7-13
  • Uniform Capitalization Requirements of
  • IRC section 263A, as Applicable to
  • Garment Manufacturers 7-20
  • Changing an Accounting Method Relative to an
  • Inventory Adjustment 7-22
• Chapter 8
  • Expense Accounts
  • Travel 8-1
  • Accounting for Travel 8-1
  • Auto Expenses 8-2
  • Accounting for Auto Expenses 8-3
  • Expense Reimbursements
  • Versus Auto Allowances 8-4
  • Leased Autos 8-4
  • Entertainment 8-5
  • Salary Deductions and Accruals 8-5
  • IRC sections 267 and 404(a)(5) 8-6
  • Other Expenses 8-6
  • Gifts 8-6
  • Sample Expenses 8-7
  • Factoring Expenses 8-7
• Chapter 9
  • Information returns and Back-up Withholding
  • General Background 9-1
  • Audit Techniques 9-1
  • Sewing and Cutting Contractors 9-1
  • Commissions for Sales Personnel and
  • Other Independents 9-4
  • Other Issues 9-4
  • Information Returns Penalties 9-4
  • Information Returns Penalties:
  • IRC sections 6652, 6676, 6678 and
  • 6721-6724 9-4
  • Information Returns Statute of Limitations 9-6
  • Back-Up Withholding 9-6
  • Back-Up Withholding —
  • Abatement Considerations 9-8
  • Trust Fund Recovery Penalty
  • (100 Percent Penalty) Statute 9-9
• Glossary G-1