Automotive Dealerships - IRS Audit Guide Part 6
IRS Audit Guide Table of Contents
- General Focus
- Books and Records
- Balance Sheet
- Extended Service Contractsand Aftermarket
- Producer Owned Reinsurance Company (PORC)
- Sales of Dealerships
- Compensation Issues
- Tool Reimbursement Programs
- Miscellaneous Provisions
- Items Not in the Guide
- Non-Qualified Deferred Compensation
- IRS Audit - Preparing
- Conducting an IRS Audit
- Top 5 Audit Mistakes
- Tax Deferral Opportunities
- Cash Benefits of Tax Deferrals
- Internal Gross Profit/Reconditioning
- Floorplan Credits
- Advertising Expense
- To LIFO or Not to LIFO?
- Cost Segregation
- Prepaid Expenses – 12-Month Rule
- Insurance Deductibility
- Option #1 - Pay no tax
- Option #2 - Defer Paying as Long as Possible
- Example of Deferral: IRA’s
- Time Value of Cash Savings
- Example: $10,000 @ 9.5%
- Pay back in 10 years = $4,234
- Pay Back in 20 years = $1,643
- Recondition Used Vehicles
- Recognize Profit in Service or Body Shop
- Vehicles Still in Inventory @ YE?
- Why Pay Tax on Profit not Realized?
- Example: 100 vehicles @ $500 ea. recon.
- 50% back end gross $25,000 *45%=$11,250
- Floorplan Credits: Interest Income or Purchase Discount
- Receive Regardless of Expense
- Receive Regardless of Days Vehicle is Actually in Inventory
- Considered Discount?
- Recognize Discounts When Vehicle is Sold
- Defer Discounts Until Vehicle is Sold
- Financial Statement Issues
- Included on Invoice
- Paid to Association
- When to Expense?
- * When Vehicle is Sold?
- * When Invoiced by Mfg?
- TAM 9243010
- Deduct When Invoiced
- Example: Inventory= $2 million
- 1.5% = $30,000*45% = $13,500
- Last-in, First-Out
- Don’t Pay Tax on Inflation
- Dealers Afraid to Utilize?
- New - Yes; Used - ?; Parts - No!
- Used - write-offs vs. Lifo vs. inflation
Example: $3,000,000 New Inventory 3% inflation in base cost $90,000 deferral $36,000 in deferred taxes
Charles Diegel, CPA
Tom Earley, CPA, MST