Automotive Dealerships - IRS Audit Guide Part 5

IRS Audit Guide Table of Contents 


Non-Qualified Deferred Compensation 

  • New, restrictive rules effective October 3, 2004
  • Includes nearly all types of deferred compensation agreements (phantom stock, etc.)
  • Failure to meet these requirements result in recognition of taxable income for all years unless subject to substantial risk of forfeiture.
  • 20% penalty on all deferred amounts included in income
  • Beware of amending plans
  • Action Plan:
    • Identify each plan
    • Determine if new rules apply
    • Evaluate alternatives & develop plan

IRS Audit - Preparing 

  • Decide who will work with the agent - Controller or CPA
  • Designate Employee for Agent contact
  • Audit Site - Dealership or Offsite
  • Prefer Not at the Dealership - Reasons

Conducting an IRS Audit

  • Procedures
  • Requests for Information
  • Providing Gratuitous Information
  • Request Agents Plan
  • Computerized Records Request
  • Agent Relations
  • Resolving the Issues

Top 5 Audit Mistakes

  1. Allowing Unrestricted access to Information
  2. Agents allowed to Use Copier without Limits
  3. Dealer interviews
  4. Negotiating Every Aspect of the Audit
  5. Computer-based audits

Tax Deferral Opportunities

  • Insurance Premiums
  • Reconditioning Costs
  • Floorplan Credits
  • Advertising in Inventory
  • Lifo
  • Cost Segregation



Charles Diegel, CPA

Tom Earley, CPA, MST

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