IRS Audits of Trucking Companies – Insider Tips On What IRS Auditors Look At
IRS Audits of Trucking Companies – Insider Tips On What IRS Auditors Check (http://www.evanhcpa.com). In this video I go over what auditors from the IRS are looking for when they audit trucking companies.
1. One of the main things they look at is the employment tax issue. Drivers working as independent contractors may need to be employees. The IRS auditor will determine whether or not these drivers should be employees. If they should be, you will be hit you for the past unpaid employment taxes.
2. They also look at cargo handlers to determine whether they too should be contractors if they are filed as such or employees.
3. The auditor will also look at supplemental wages to make sure that pensions, vacation pay, bonuses etc. are all included as wages.
4. The auditor will also look at excise taxes. The big one for trucking companies is for motor vehicles weighing over 55,000 pounds (form 2290). Most trucking companies will have to file this.
5. If you purchase glider kits for a truck, you are required to file retail sales tax. That’s included on form 720. Not every trucking company is liable for that, so it’s not as big an issue as the form 2290 excise tax for large vehicles.
6. Another thing IRS auditors will check for when auditing a trucking company are sales of fixed assets to make sure that they are being reported on your taxes. They will check your statements for big lump sums that look like they might be for a truck or another piece of equipment.
7. They will also check to make sure that depreciation of assets that are no longer owned by the corporation are not current.
8. They will check to see whether or not your repairs and general maintenance include pieces of equipment that should be capitalized like computers or radios, etc. So, they will take a good long and hard look at your fixed assets and your repairs and maintenance accounts.
9. They’ll also look at your customers’ credit balances, overpaid accounts and unapplied cash receipts. They’re going to look through all of this to make sure that you don’t have any income that should have been reported but was not.
10. Getting back to fixed assets, they will want to make sure that the basis of these assets is calculated correctly. Therefore, they will look to make sure that, if there were any transfers between related parties, that they were recorded at an adjusted basis, at a fair value. And the auditor will check to make sure that if you are financing the purchase of an asset, that it’s not being included as capital. You can always take the interest expense as a deductible expense when you’re financing equipment, but they want to make sure that you’re not putting it into the equipment for a larger fixed asset purchase. And they’re going to look to see if you traded in any old trucks or anything when you purchased assets to make sure that they are also taken into account.
11. Invariably, they will look at meals and entertainment to make sure that you’re capturing the 50% nondeductible amounts.
12. They’ll also look at penalties. Many trucking companies deduct penalties such as traffic violations, custom duties, federal penalties etc. But penalties are not deductible if they’re paid to a governmental agency, and that of course includes all traffic fines.
13. If you are leasing equipment from a shareholder they want to make sure that it’s at fair market value. If it’s not, it’s easy to come up with disguised dividends that pay money from the corporation, or the entity, to the shareholder for an amount that does not quite equal what the value of the equipment is.
14. And they will want to make sure that there are no kickbacks being paid from any of the vendors because that is of course is highly illegal.
So that is a brief summary of the main things an IRS auditor will check when auditing a trucking company. Of course if they are auditing you because of a red flag such as a particular amount entered on your tax return that looks extremely out of place they might just look at that amount and nothing else, but in general what I go over in the video are the main things that an IRS tax auditor will check.
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Evan Hutcheson, CPA, LLC