IRS Tax Audit Manual for the Gas Retailers Industry
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Why Does The Internal Revenue Service Target Gas Stations For Tax Audits?
The service station has historically been the type of business where most of the income and many of the expenses are paid in cash.
As such, the normal audit trail is more difficult to follow than other businesses with tighter internal controls. Sometimes no records are maintained or they are kept sporadically and in a disorganized manner. For these situations, the Internal Revenue Service has developed some alternative approaches to computing income for a service station under audit.
In a state that has sales tax you can work through your Federal and State contacts to get gross sales information. For example, the California State Board Of Equalization provides information for California service stations.
60 PAGES chock-full of ALL of the information you need to survive an audit from the IRS in an easy to understand format!
In the time it takes to read only 60 pages, you will be prepared when the Internal Revenue Service comes knocking on your door!
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From Chapter 3-
Internal Revenue Service Auditors Will Definitely Review The Following To Determine If You Have Other Potential Sources Of Income–
Do you have / offer any of these services?
- Unbranded Pumps
- Car Wash
- Snow Plows
- Vending Machines
- Repair Bays
- Licensing For State Inspections
- Lottery Tickets
Internal Revenue Service Audit Agents know to look for the following:
- Location and Sales – A good location site will have a high volume of sales.
- Sites that have a beer and wine license will sell much more merchandise than without the license
- Are cars for sale at the location?
- Motor Vehicle Records – determine local or state procedures for securing this information
- Be alert to any other service station(s) owned in whole or in part as an individual, partner, and/or shareholder.
- Real Estate Records – for real estate sales and purchases. Contact collection employees for the best source of this information.
- Check the current selling prices and note variances between prices of gasoline at the taxpayer’s station and other stations in the area.
- How many pumps? What are the grades of product being sold and are there any other types of products such as diesel fuel, propane, or blending products?
- Have internal controls been addressed? Are the internal controls currently in place the same as during the year under audit?
- TECS – (Treasury Enforcement Communication System) money declared with Customs when taken in or out of the country selectively
- Bank Deposit Analysis
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TABLE OF CONTENTS
- Chapter 1
- Background Information 1-1
- Flow of Products 1-1
- Gasoline Suppliers 1-2
- Major Oil Companies 1-2
- Independent Oil Companies 1-2
- Minor (Unbranded)
- Stations 1-3
- Other Products
- (Non-Gasoline Suppliers) 1-3
- Food Wholesalers 1-3
- Service Parts Suppliers 1-3
- Marketing Structures For Outlets 1-4
- Service Stations 1-4
- Pumpers 1-4
- Convenience Marts 1-4
- Other Small Gasoline Dispenser 1-4
- Surveys 1-5
- Bureau of Labor Statistics 1-5
- American Automobile Association 1-5
- U.S. Department of Energy 1-5
- Lundberg Survey 1-5
- U.S. Department of Commerce 1-5
- Chapter 2
- Pre-Audit Techniques 2-1
- Gross Receipts/Unreported Income 2-1
- Identify Sources of Information 2-1
- Chapter 3
- Audit Techniques 3-1
- The First Appointment 3-1
- Site Visitations 3-1
- Summons the Oil Company 3-1
- Potential Sources of Additional Income 3-1
- Other Gross Income Issues 3-3
- Auto Body Repairs 3-3
- Sale of Business Assets or Franchise 3-4
- Inventory 3-4
- Missing Stations 3-4
- Unreported Income 3-5
- Mechanic/Service Bays 3-5
- Useful Industry Ratios for Service Stations 3-6
- Mark-Ups 3-6
- Gasoline Sales 3-7
- Compute Purchases and Sales and
- Compare to Tax Return 3-5
- Other Issues 3-9
- Rent/Other Expenses 3-9
- Franchise Fees and Covenants
- Not to Compete 3-9
- Prepayment Account 3-10
- Rebates 3-10
- Other Taxes 3-10
- Netting Taxes 3-11
- Dyed Fuel 3-11
- Blending 3-11
- Imaging Reimbursement 3-13
- Incentive Agreements 3-16
- Accommodations 3-16
- Shrinkage, Leakage, Theft, and
- Personal Use 3-16
- Tank Replacements 3-16
- Depreciation Period for Service Station
- Canopies and Service Station Buildings 3-17
- Environmental Clean-Up Issue 3-23
- Chapter 4
- Other Considerations 4-1
- Inadequate Records Notice 4-1
- Fraud 4-1
- Non-Filer 4-2
- Preparer and Preparer Penalties 4-2
- Collection 4-3
- Bribery Awareness 4-3
- Bankruptcy 4-4
- Employment Tax Issues 4-4
- Division Counsel and Appeals 4-4
- Excise Tax Specialists 4-4
- Glossary G-1