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Used Car Sales Receipt Print NABD

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					            NABD 2007
National Buy Here Pay Here Conference


            Terri Harris
    Motor Vehicle Technical Advisor
             Grand Rapids MI
              616-235-1655
            616-235-2249-fax
          Terri.S.Harris@irs.gov
 Technical Advisor Program
Pre filing and Technical Guidance - LMSB
– Pre-Filing and Technical Services
    Pre Filing Initiatives (IIR, PFA)
    Legislation Implementation
     – Example – Alternative Motor Vehicle Credit
          Energy Act of 2005
– Office of Tax Shelter Analysis
    Listed Transactions and Shelter Coordination
– Technical Advisors – 75+ in various industries
  and issues
  Technical Advisor Program
TA Program Goals
 – Ensure uniform and consistent treatment of issues nationwide
 – Resolve Issues Globally
 – Alternative Issue Resolution Strategies
       IIR – Demo Vehicles
       Pending IIR on LIFO Pooling for Cross over vehicles
 – Responsibilities are both Internal and External
       Communication is Vital
         – Internal – Examiners, Counsel on Current Audits
         – External – Industry Associations
                NADA, NIADA, NABD, Recreational Vehicle Assoc,
                various CPA Consortiums, others
Motor Vehicle Team Members
 Terri Harris, Technical Advisor
 Michael Willemsen, Technical Advisor
 Laurie Schutter, Assistant Technical
 Advisor
 Fred Gavin, Appeals Coordinator
 Grant Gabriel, Industry Counsel
 Melissa Brainard, Examination Audit
 Aide
Issue Resolution Strategies
Examination
– Examiner and Manager Issue Discussions
– Involve Industry Specialist if appropriate
– Request Advice from IRS Counsel
    Technical Advice Memorandum or Case Specific
    Advice (Field Issued)
– Request Appeals Conference on unagreed
  issues
– On issues with national implications - involve
  industry associations
Issue Resolution Strategies
Global Issues
– Industry Issue Resolution
– IR 2007-47
    Most recent solicitation for IIR suggestions
    Considered twice a year for guidance
– Intended to:
    Resolve issues common to significant numbers of
    taxpayers through new and improved guidance
        Audit Activity Trends

Overall increase in examinations including
dealerships
A few issues being considered:
– Cash Reporting – Form 8300
– Service Technician’s Tool Programs
– 263A – Uniform Capitalization
– Inventory –Lower of Cost or Market (LCM)
What Resources Are Available?
Audit Technique Guides
 – New Vehicle Dealerships Audit Technique
   Guide (ATG)
 – Used Car Dealerships – Part of Retail ATG
CPA/Accountant/Attorney
 – Are they Experienced in Your Industry?
Trade Associations
MVTA
Dealership Audit Technique Guide
       “New Vehicle ATG”




                         December 2004
http://www.irs.gov/businesses/corporations/article/0,,id=137743,00.html
             Dealership ATG
Chapter 1 & Chapter 2-Books and Records (franchised)
Chapter 3- Balance Sheet Accounts
Chapter 4, 5, 6 - Inventory Overview and Methods
Chapter 7-After Market Products–Service Contracts, etc.
Chapter 8 - Producer Owned Reinsurance Company
Chapter 9 - Advertising Associations
Chapter 10 - Sales of Dealerships
Chapter 11 - Related Finance Companies
Chapter 12 - Related Entity Returns
Chapter 13, 14 - Other Automotive Issues
            Retail ATG
Including Used Vehicle Dealerships




              Publication Date - August, 2005
http://www.irs.gov/businesses/small/article/0,,id=141373,00.html
              Retail ATG
Includes many retail industries
 – General Issues in Retail
 – Specific Industry Related – Chapter 3
      INDEPENDENT USED CAR DEALERS
        – Organization and activities
        – Income reporting
        – Expenses
        – Inventory valuation
        – After market products
        – More
     INDEPENDENT USED
      CAR DEALERS ATG
Key Income Questions – Food for Thought
– Are you using the Accrual Method of
  Accounting?
    Accrual Method of Accounting is
    Required
     –Inventory is a Material Income
       Producing Item
         INDEPENDENT USED
          CAR DEALERS ATG

Inventory Questions – Food for Thought
 – Auction Purchases – How do you allocate
   costs on a bulk purchase?
     Actual Costs on Individual Vehicle
 – How Do You Book the Inventory Value of A
   Trade In? An Auction Purchase?
     Official Used Vehicle Guide/Auction
     Purchase Price
     Adjusted for condition of the vehicle?
     Documentation Retained?
        INDEPENDENT USED
         CAR DEALERS ATG

– How Do You Value Inventory at Year End?
    LIFO?
    Lower of Cost or Market?
     – How Do you Determine the Write Down
       Amount?
         Used Car Guide?
         Experience?
         Flat Percentage?
      INDEPENDENT USED
       CAR DEALERS ATG
After Market Products – Food for Thought
– What Kinds of Extended Service Contracts Do
  You Offer?
    Dealer Obligor?
    Dealer Agent?
    How Do You Report the Income? Expense?
– What other After Market Products Do You
  Offer?
    How are they treated for tax purposes?
INDEPENDENT USED CAR DEALERS ATG

 How Are Vehicle Sales Financed? – Food for
 Thought
  – Do You Receive any “Back End Payments?”
  – Unrelated Finance Company?
      How is the sale of the note reported?
      Any Dealer Reserves?
INDEPENDENT USED CAR DEALERS ATG
 – Related Finance Company?
     Operational Issues – Arms Length Standards
     How is the discount rate determined?
     Bulk Sales, Individual Sales
       – Arms Length Standards Apply
 – Buy Here Pay Here
     How is income reported?
     Bad Debts – When does collection stop and
     write off occur?
       – Reserves for Bad Debt Not Allowable
       A Few Specific Issue

Cash Reporting
Electronic Records Retention
Employee Tool and Equipment Plans
Inventory Write Down
IRC 263A
Questions
Cash Reporting for Auto
     Dealerships
  Form 8300 - Who Must File?


Any person who is engaged in a trade or
business [including sales and service] and
receives more than $10,000 in currency or
certain monetary instruments to report to
IRS and Financial Crimes Enforcement
Network (FinCen)
          What is Cash?
Coin and currency of the United States or
other country; and …
Monetary Instruments having a face
amount of $10,000 or less,
–   Cashier’s Check (by whatever name)
–   Bank Draft
–   Travelers Checks
–   Money Orders
Multiple Cash Payments
Initial Payment > $10,000
 – Recipient must report the initial
    payment within 15 days of receipt
Aggregating Sales
 – When aggregate amount exceeds
    $10,000,
      report within 15 days after
      receiving the payment that
      caused the aggregate amount to
      exceed $10,000
Auto Dealership Specific Questions
 Automotive Alert Issued
 31 Questions - Issued with the assistance
 of NADA
 – Most are Dealer Specific
 Answers determined in conjunction with
 IRS Anti Money Laundering Specialists
 Copy is available to public
 Any other BHPH specific questions?
Electronic Records
      Update
 Electronic Records – A Review
Revenue Procedure 98-25
 – Applies to Taxpayers with Assets > $10,000,000
       Best Practice for All Others
 – Electronic records must be retained
 – Must be “capable of being processed”
       Retrieve, manipulate, print, produce output
 – Must contain sufficient transaction level detail
 – If data files stored in DBMS structure, must convert
   to an ASCII/EBCDIC format, or allow IRS to process
   historical DBMS files on taxpayer’s computer
   equipment
Electronic Records – A Review
Revenue Procedure 97-22 -Applies to:
– taxpayers that maintain books and records by
  using an electronic storage system that either:
      images their hardcopy (paper) books and
     records, or
     transfers their computerized books and
     records, to an electronic storage media,
     such as an optical disk
Electronic Records – A Review
Rev Proc 97-22 continued:
 – permits the destruction of the original
  hardcopy books and records and
 – the deletion of original computerized records
 – after a taxpayer completes testing of the
  storage system to establish that books and
  records can be reproduced
  Electronic Records - Update
MVTA and CAS currently working with
vendors at vendor’s request
– Conducting architecture design discussion
– Evaluating specific software applications at a
  detailed level
– IRS prohibition against disclosing companies
  that we are working with
– IRS will not endorse any vendor product
 Employee Tool &
Equipment Plans
 Employee Tool & Equipment Plans



Technician must be an employee and must
be required to provide and maintain tools
Employer compensates technician with
hourly wage and a tool reimbursement
Programs generally purport to be compliant
with Accountable Plan rules of IRC 62(c)
Employee Tool & Equipment Plans


 Accountable Plan Rules - IRC §62(c)
 –   Expense Must be Ordinary and Necessary
 –   Employee Must Actually Pay or Incur an
     Expense
 –   Employee Must provide Adequate Accounting
     to Employer of Expenses
        Written Documentation & Receipts
 –   Employee Must Account for All Amounts
     Received
 –   Excess Amounts Must be Returned to
     Employer
        Employee Tool &
        Equipment Plans
What are the advantages of an Accountable
Plan?
– Amounts paid under a qualifying plan are
  not subject to income or employment tax
    No income or employment tax for
    technicians
    Reduced employment tax for employer
      Employee Tool &
      Equipment Plans
Key Questions for Dealers -
– What Are the Requirements to Qualify
  as an Accountable Plan?
– What is the IRS Position on Service
  Technicians’ Tool Reimbursement
  Plans?
– Is My Plan Compliant?
         Service Technicians’ Tool
             Reimbursements
     Coordinated Issue Paper – July 2000
Conclusion
– Generally, amounts paid to motor vehicle service
  technicians as tool reimbursements will not meet
  the accountable plan requirements
– Amounts paid under a non-accountable plan:
     Included in the employee’s gross income
      – Must be reported on employees’ Form W-2
     Are subject to the withholding and payment of
     federal employment taxes
    Employee Tool & Equipment Plans
                  IRS Position
Revenue Ruling 2005-52 – August 3, 2005
 – Facts:
      Employees required to provide and maintain
      various tools
      Employees receive hourly wages and a tool
      allowance
        – Tool allowance is determined using national
          survey data and technician questionnaire
      Employees not required to substantiate actual
      expenses
      Employees not required to return any part of
      allowance that exceeds actual expenses
Employee Tool & Equipment Plans
          IRS Position
 Conclusion –
 – Arrangement fails to meet the accountable
   plan requirements
      No substantiation required
      No return of excess
 – Amounts paid under such a plan are:
      Includible in technician’s income
      Subject to employment taxes
 Re-characterization Issue:
 – Even if employees substantiated actual
   amounts and any excess paid is treated as
   wages by employer -- Plan does not qualify
Inventory –Lower of Cost or Market
              (LCM)
    Used Vehicle Write Downs
  Dealer must elect LCM
  Write downs not allowed for dealers on LIFO
 Rev Rule 67-107
   – Permits dealers to value vehicles for inventory
     purposes using an official used car guide.
   – Average wholesale prices for comparable cars.
 Must be applied to each vehicle individually
   – No overall percentage write down (historical
     averages)
   – No write down based on experience
   – Watch write downs on vehicles purchased close to
     year end.
   – Write down must be supported with documentation.
   263A and
Auto Dealerships
               IRC 263A
Requires certain taxpayers to capitalize direct
and indirect costs related to inventory
Applies to retailers with sales of $10,000,000
or more and all producers
 – Average
Requires dealerships to capitalize certain
indirect costs
Method of Accounting
Many of the issues would not apply to used
vehicle dealers – except……..
                IRC 263A
Recent Service Activity
– Overall increase in auto dealership
  examinations
    Resulting increase in potential 263A issues
– Dealerships as Resellers with Production
  Activity Issues Raised in Limited Areas
    No specific guidance on this issue
– Automotive Alert – Q&A – stand down on
  producer issue
                  IRC 263A
If Dealers are Resellers with Production
Activity
– Do activities in the service department and
  body shop qualify as production?
    Simplified Production Method is the only
    simplified method available
–    If this issue were sustained, it could affect
    BHPH dealers
               IRC 263A
Dealer as Reseller with Production
Activities - continued
– Raised in a limited number of examinations
    Geographically concentrated
– Technical Advice Request Submitted
– Industry Raised Concerns to Service
  Executives
    Service has committed to securing guidance on
    this issue
             IRC 263A
Dealer as Reseller with Production
Activities – continued
Stand Down on “Producer” Issue ONLY
– Other IRC 263A issues may continue to be
  considered
General Legal Advice on Producer Issue
Requested
NADA allowed to provide “white paper”
Questions?

				
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