Independent Used Car Dealers - Market Segment Specialization Program Independent Used Car Dealers Training

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  • Market Segment Specialization Program

    Independent Used Car Dealers

    Training 3147-106 (Rev 08-2002) TPDS No. 84219B

  • The IRS Mission ____ Provide America ’s taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all.

    3147-106

  • Independent Used Car Dealers

    TABLE OF CONTENTS

    Page Chapter 1, Industry Background

    Introduction................................................................................................................1-1

    Industry Jargon ..........................................................................................................1-1

    Industry Overview .....................................................................................................1-1

    Impact of State Regulation and State Law.................................................................1-2

    Curbstoners ....................................................................................................1-3

    Records ..........................................................................................................1-3

    Consignments.................................................................................................1-5

    Auctions .........................................................................................................1-5

    Titling Issues and Processes ..........................................................................1-7

    Automobile Sales ...........................................................................................1-8

    Initial Interview..........................................................................................................1-10

    Information Sources on Used Car Dealers ................................................................1-15

    Chapter 2, Accounting Methods

    General Information...................................................................................................2-1

    Change of Accounting ...............................................................................................2-2

    Issue ...............................................................................................................2-3

    Audit technique..............................................................................................2-3

    References......................................................................................................2-3

    Chapter 3, Gross Receipts

    Introduction to Gross Receipts ..................................................................................3-1

    Internal Controls ........................................................................................................3-1

    Miscellaneous Income ...............................................................................................3-2

    Fee Income.....................................................................................................3-3

    Rebate Income ...............................................................................................3-3

    Warranty Contracts ........................................................................................3-5

    Consignments.................................................................................................3-5

    Dealer Financing............................................................................................3-6

    Sales Taxes, Registration, and Licensing Fees ..........................................................3-7

    Non-Taxable Receipts................................................................................................3-7

    Income Reporting.......................................................................................................3-8

    State Departments of Transportation/Motor Vehicles ...............................................3-10

    Repossessed Vehicles ................................................................................................3-10

    Issues..............................................................................................................3-10

    Audit Techniques ...........................................................................................3-11

    v 3147-106

  • Page

    Chapter 4, COST OF GOODS SOLD/INVENTORY

    Introduction to Cost of Goods Sold/Inventory ........................................................4-1

    Purchases .....................................................................................................4-1

    Auctions .......................................................................................................4-1

    Purchases from Other Dealers .....................................................................4-2

    Cost of Labor ...............................................................................................4-2

    Other Costs ..................................................................................................4-2

    Reconditioning Expenses.............................................................................4-2

    Remanufactured Cores.................................................................................4-2

    Inventory Valuation .................................................................................................4-3

    Accounting Records.................................................................................................4-3

    Trade-Ins ..................................................................................................................4-4

    Cost Basis of a Trade-In ..............................................................................4-4

    Trade-in Valuation.......................................................................................4-5

    Repossessions ..........................................................................................................4-10

    Issues........................................................................................................................4-11

    General Audit Techniques .......................................................................................4-11

    Specific Audit Techniques.......................................................................................4-12

    References................................................................................................................4-15

    Sample Workpapers .................................................................................................4-16

    CHAPTER 5, Balance Sheet

    Introduction to Balance Sheet..................................................................................5-1

    Cash..........................................................................................................................5-1

    Accounts Receivable................................................................................................5-2

    Inventory ......................................................................................................5-3

    Loans to Shareholders..................................................................................5-3

    Loans Versus Constructive Distributions ....................................................5-4

    Fixed Assets .............................................................................................................5-4

    Loans From Shareholders ........................................................................................5-5

    Short Term Liabilities ..............................................................................................5-6

    Other Current Liabilities..........................................................................................5-6

    Deferred Income Accounts ......................................................................................5-7

    Retained Earnings ....................................................................................................5-9

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    Chapter 6, Expense Issues General.......................................................................................................................6-1

    Advertising Expense ..................................................................................................6-1

    Amortization ..............................................................................................................6-2

    Contributions .............................................................................................................6-3

    Dues and Subscriptions..............................................................................................6-4

    Interest Expense.........................................................................................................6-4

    Legal and Professional...............................................................................................6-4

    Employee Benefits .....................................................................................................6-4

    Freight and Delivery ..............................