IRS Sharpens Its Pencils

New-car dealers will undergo more IRS audits, says Terri S. Harris, motor vehicle technical adviser for the Internal Revenue Service.

Why more dealership tax-return audits? Because many domestic dealerships have experienced tightening profits and revenue challenges in the past two years.

That raises the greater possibility of dealers fudging on their tax returns. At least that is how the IRS sees it.

“We are hiring more auditors to handle the dealer load, which is rising with the recession in sales for domestic brands,” Harris tells an annual auto dealership conference of the Michigan Association of Certified Public Accountants.

And where is the IRS getting those extra staffers?

From an ironic source, as it turns out. “Many of our new examiners are laid-off finance personnel from auto makers or dealerships,” says Harris.

She denies dealerships are “a favorite target” for tax audits. Nor is the IRS necessarily trying to catch dealers doing something wrong, she claims.

“We want to help you stay out of trouble,” she says, and to “not overpay” on taxes.

She reminds dealership principals, chief financial officers and CPAs that the IRS insists dealers comply with filings of 8300 forms for cash payments above $10,000, and the IRS is cracking down on a rule requiring retailers with sales of $10 million per year to capitalize certain costs as “resellers” with production activity.

Meanwhile, another conference attendee, James Egan of Plante and Moran, a certified public accounting firm, warns auto dealers to beware of fraud schemes.

He doesn't want to cause alarm, but a dealer unworried about fraud “may soon find nothing left to worry about,” he says.

“Dealers are particularly vulnerable to electronic fund transfers (EFT) fraud, unless reasonable protections are in place,” Egan says. Safeguards include daily bank conciliations “preferably by someone with no access to cash or accounting duties.”

Financial and cost-control advice at the conference comes from three dealership chief financial officers:

Sloan, a 40-year veteran as a dealership controller and CFO, saved his store $100,000 in insurance premiums by getting bids from three or four insurers.

He reviews cash receipts daily, plus all checks over $2,000.

Ganley's 19 stores in northeast Ohio have joined a self-insurance group with four other groups, resulting in significant savings over the past five years, says Fornal.

Ver Planck says he is constantly reviewing his dealer management systems (DMS) providers' invoices because “they have trouble getting the bill right.”

He says his dealer principal personally interviews every job applicant. Ver Planck says that can save money because a wrong hiring choice can be costly.