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 | Tax Audit - Furniture Manufacturing Industry Edition Ebook | |
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 | |  | | E-book Category: Business, Law
E-book Title: Tax Audit - Furniture Manufacturing Industry Edition
Book Description: 162 Pages of Concise, Easy To Understand Information Regarding Everything The Internal Revenue Service Auditors Know About Furniture Manufacturing
Think About This - -If You Know What The IRS Knows - You Can Be Prepared For Anything!
In the past, various Internal Revenue Service Audit Manuals have assumed than an examiner possessed a certain skill level regarding corporate audits. Balance sheet techniques may have been mentioned but not spelled out in detail. In this regard, Uncle Sam's Tax Audit Assistant has taken on a slightly different approach. Basic audit techniques are still outlined in this manual, but they are not outlined in a step-by-step fashion and explained in detail. Basic audit steps such as reconciliations, comparatives, balance sheet analysis, and even the initial interview have been integrated in this manual so that the examiner can read a training manual and see how audit steps are implemented in the course of a furniture manufacturing audit.
This manual includes citations from the Internal Revenue Code, treasure Regulations, Revenue Rulings and Procedures, and the IRM so the examiner can be assured of locating the basis of any conclusions drawn. This manual is set up to match the natural progression of an income tax audit and field examination for the Furniture Manufacturing Industry.
It begins with the planning stages of an audit and continues through the package audit, balance sheet, sales, cost of goods sold and expenses. Specialty sections include Changes in Accounting Methods, Maquiladoras and vocabulary.
The IRS MANUAL written specifically for Internal Revenue Service Audit Agents to use for conducting audits of The Furniture Manufacturing Industry.
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Take a sneak peek NOW into what the Internal Revenue Service Tells Its Auditors About The Furniture Manufacturing Industry...
From Chapter 5...
"The income analysis of the furniture manufacturing industry did not provide any single issue, which was found to be common or prevalent throughout the market. On the contrary, there appeared to be a range of assorted income issues, which an examiner may encounter. These issues ranged from simple unreported interest income to omitted sales. This section discusses those issues found in the study but you should be aware that many more potential income issues may exist which were not encountered in the returns examined.
During this study, the books and records used to account for income were not unique in nature. They included the usual sales, accounts receivables, cash receipts, and sometimes credit memo journals. In only one case was a factoring arrangement used to generate cash. In most cases, cash flow came directly from sales receipts and direct borrowings. It should be noted, the term "furniture manufacturer" included a broad range of products, which at times were accounted for differently in regards to sales.
For example, companies that produced "assembly line" goods such as sofas, chairs, inexpensive cabinets, etc., usually reported income when goods were shipped. Other companies that produced custom furniture or commercial type furniture such as counters, shelved and racks, or large tables, may have accounted for sales on a modified percentage of completion method."
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TABLE OF CONTENTS
Chapter 1
Introduction
Purpose and Nature of Information 1-1
How the Study was Conducted 1-1
The Furniture Industry in Southern California 1-2
Characteristics of Furniture Manufacturers 1-2
Upholstered Goods 1-4
Wood Products - Custom 1-4
Wood Products - Assembly Line 1-4
Commercial Furniture 1-4
Corporate Income Tax Issues 1-4
How This Guide Is Presented 1-5
Chapter 2
Planning the Audit, Initial Interview,
and Touring Facilities
Planning the Audit 2-1
Identification of Potential Issues/Return Analysis 2-1
Preparation of Information Document Requests 2-3
Preliminary IDRS Research 2-4
Speciality Referrals 2-5
Initial Interview 2-5
Tour of Facilities 2-6
Fixed Assets Reported on Tax Return 2-6
Match Production Responses to
Visual Observations 2-6
Chapter 3
Required Filing Checks
Introduction 3-1
Employment Taxes 3-1
Employment Tax Reconciliation 3-1
Employee vs. Independent Contractor 3-2
Other Employment Tax Issues 3-4
Other Considerations 3-6
Information Returns 3-8
Types of Information Returns 3-8
Form 1099 3-9
Form 8300 3-11
Penalties 3-12
Form 5471 3-15
Backup Withholding 3-15
Assertion Procedures 3-17
Abatement Procedures 3-17
Related Returns 3-18
Identifying Related Returns 3-18
Corporate Taxpayer/Shareholder Issues 3-19
Other Related Return Issues 3-19
Chapter 4
Balance Sheet
Introduction 4-1
Interrelationship Between Balance Sheet
and Income Statement 4-3
Effect of Balance Sheet Adjustments
on Taxable Income 4-3
Preliminary Audit Steps 4-4
Reconcile the Book Accounts to the Return 4-4
Comparative Analysis 4-5
Auditing a Balance Sheet Account
and Schedules M)1 and M)2 4-5
Cash 4-6 Accounts Receivable 4-9
Inventory 4-14
Loans to/from Shareholders 4-14
Building & Equipment 4-18
Accounts Payable -
Other Current Liabilities and
Other Liabilities 4-20
Capital Stock/Capital Account 4-23
Retained Earnings 4-24
Schedule M)1 and Schedule M)2 4-24
Chapter 5
Sales and Income Issues
Introduction 5-1
How Sales Are Generated 5-1
General Audit Techniques 5-2
Understanding the Sales Cycle 5-2
Understanding the Accounting
System/Internal Controls 5-3
Specific Audit Techniques 5-3
Internal Revenue Manual 4231/582 5-3
Other Recommended Income Probes 5-7
Other Income Issues 5-7
Unreported Interest Income 5-7
Bargain Purchases Under
IRC Section 311(b) 5-8
Lease Inclusion Income:
Passenger Automobiles 5-9
Contra)Sales Accounts 5-9
Returns 5-10
Allowances in General 5-10
Cash Discounts 5-10
Accounting for Returns,
Allowances, and Discounts 5-10
Chapter 6
Cost of Goods Sold
Introduction 6-1
General Audit Techniques 6-2
Understanding the Production Cycle 6-2
Understanding Integration of
Accounting System 6-2
Comparative Analysis 6-3
Reconciliations 6-3
Specific Audit Techniques 6-4
Purchases 6-4
Cost of Labor 6-5
Other Costs and Deductions 6-7
Inventories 6-7
Determine How the Inventory
Amount Was Arrived 6-7
Determine All Possible
Locations of Inventory 6-8
Obtain Ending Inventory Records 6-8
Journal Entry Analysis 6-8
Issues 6-9
Incorrect Inventory Accounts/Omissions 6-9
Improper Valuations 6-12
Uniform Capitalization Rules:
IRC Section 263A or Tax Years
Ending Before January 1, 1994 6-15
All Direct Costs 6-15
All Indirect Costs Associated with
Production 6-16
Cost Which are not Required to be
Capitalized 6-17
Audit Techniques 6-18
IRC Section 263A Regulations:
Post 1993 6-25
LIFO Inventory Valuations 6-26
Chapter 7
Change in Accounting Method
Introduction 7-1
What is a Change in Accounting Method? 7-1
IRC Section 481 Adjustment 7-2
How IRC Section 481 Interacts with an
Inventory Adjustment 7-2
IRC Section 481(b)(1) and (2) Limitations 7-4
Chapter 8
Maquiladoras
Introduction 8-1
Identification 8-2 Issues 8-3
U.S. Assets Used by the Maquiladora 8-3
IRC Section 482 - Allocation of Income and
Deductions Among Taxpayers and
IRC Section 1059A -
Limitation on Taxpayer's Basis or Inventory Cost in
Property Imported from Related Persons 8-3
Shelter Operations 8-5
Foreign Corporations )
IRC Section 1504(d) Election 8-6
Chapter 9
Expenses
Introduction 9-1
Advertising 9-1
Catalog Costs 9-1
Auto 9-2
Vehicle Owned by Corporation 9-2
Vehicle Owned by Shareholder 9-3
Vehicle Owned by
Nonshareholder Employee 9-3
Leased Vehicles 9-4
Bad Debts 9-4
Determination of Worthlessness 9-4
Amount of Deduction 9-5
Examination Techniques 9-5
Capital Expenditures versus
Currently Deductible Items 9-6
Examination Techniques 9-7
Pollution Control Permits 9-8
Commissions 9-9
Depreciation 9-9
Revenue Procedure 87/56 9-10
Listed Property 9-10
Examination Techniques 9-12
Dues and Subscriptions 9-12
Insurance 9-13
Other Issues 9-14
Legal and Professional 9-15
Examination Techniques 9-15
Pension Plans 9-16
Examination Techniques 9-16
Rent 9-16
Examination Techniques 9-17
State Income Tax 9-20
Taxes and Licenses 9-20
Examination Techniques 9-21
Travel and Entertainment 9-21
Deduction Limitation 9-21
Recordkeeping Requirements 9-22
Examination Techniques 9-23
Glossary G-1
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