Independent Used Car Dealers

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

Chapter 1, Industry Background

Page

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

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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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