Furniture Manufacturing - Audit Technique Guide (ATG)

National Tax Services, Perspection Inc.

Informations

• Publié par: Thuen
• Nombre de lectures: 45
• Langue: English

Extrait

Internal Revenue Service Market Segment Specialization Program Furniture Manufacturing Audit Technique Guide (ATG) NOTE: This guide is current through the publication date. Since changes may have occurred after the publication date that would affect the accuracy of this document, no guarantees are made concerning the technical accuracy after the publication date. This material was designed specifically for training purposes only. Under no circumstances should the contents be used or cited as sustaining a technical position. The taxpayer names and addresses shown in this publication are hypothetical. They were chosen at random from a list of names of American colleges and universities as shown in Webster’s Dictionary or from a list of names of counties in the United States as listed in the U.S. Government Printing Office Style Manual. www.irs.gov Training 3147-107 (07-1997) Catalog Number 83997W This page intentionally left blank.Furniture Manufacturing Table of Contents Page No. 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 iii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 iv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 v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 9-7 Pollution Control Permits .............................. 9-8 Commissions .......................................... 9-9 Depreciation ........................................... 9-9 Revenue Procedure 87)56 ............................. 9-10 viListed Property ...................................... 9-10 Examination Techniques ............................... 9-12 Dues and Subscriptions .................................. 9-12 Insurance ............................................. 9-13 Life Insurance ....................................... 9-13 Other Issues ........................................ 9-14 Legal and Professional ................................... 9-15 Examination Techniques 9-15 Pension Plans .......................................... 9-16 ............................... 9-16 Rent ............................................... 9-16 9-17 State Income Tax ....................................... 9-20 Taxes and Licenses ......................................