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Tax Audit - Manufacturing Industry Edition Ebook

Manufacturing Industry

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E-book Category: Business, Law
E-book Title: Tax Audit - Manufacturing Industry Edition
Book Description: Overview of the industry. Emphasis on change of accounting method, IRC section 263A, and inventory.

TABLE OF CONTENTS

Chapter 1
Introduction Purpose 1-1
How This Guide Is Presented 1-1
Manufacturing 1-2
Principal Industry Activity (PIA),
Principal Business Activity (PBA), and
Standard Industrial Classification Codes 1-3
Audit Technique Guides (ATG) 1-4
Industry Specialization Program (ISP) 1-4

Chapter 2
Understanding the Production
Process Introduction 2-1
Types of Manufacturers 2-1
Costing Methods for Manufacturing 2-2
Planning the Audit 2-2
Identification of Potential Issues/Tax
Return Analysis 2-2
Specialty Referrals 2-7
Comparative Years Analysis 2-8
Ratio Analysis 2-9
Initial Interview 2-10
Touring the Facilities 2-11
Specific Observations 2-13
Flowcharting the Production Process and
Related Source Document Flow 2-15

Chapter 3
Required Filing Checks Introduction 3-1
Employment Tax Reconciliation 3-1
Employee Versus Independent Contractor 3-2
Other Employment Tax Issues -- In General 3-4
Interest Free Adjustments 3-6
Information Returns 3-6
Form 1099 3-7
Examination Techniques 3-7
Information Returns Statute of Limitations 3-10
Backup Withholding 3-10
Assertion Procedures 3-11
Abatement Procedure 3-12
Related Returns 3-12
Identifying Related Returns 3-13
Corporate Taxpayer -- Shareholder Issues 3-13
Other Related Return Issues 3-17
Foreign Entities 3-20

Chapter 4
Balance Sheet Introduction 4-1
Interrelationship Between Balance Sheet and
Income Statement 4-2
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 4-10
Inventory 4-14
Loans to/from Shareholders 4-14
Building and Equipment 4-18
Accounts Payable, Other Current Liabilities and
Other Liabilities 4-21
Capital Stock/Capital Account 4-24
Retained Earnings 4-25
Schedule M-1 and Schedule M-2 4-26

Chapter 5
Sales and Income Issues Introduction 5-1
How Sales Are Generated 5-1
Independent Sales Staff 5-1
In-house Sales Staff 5-2
Trade Shows 5-2
Newspaper Advertisements/Mailers 5-2
Sales Marts 5-2
Word of Mouth 5-2
Public/Employee Sales 5-2
General Audit Techniques 5-2
Understanding the Sales Cycle 5-2
Understanding the Accounting
System/Internal Controls 5-4
Specific Audit Techniques 5-4
Internal Revenue Manual 4231.582 5-4
Other Recommended Income Probes 5-7
Other Income Issues 5-8
Unreported Interest Income 5-8
Bargain Purchases Under
IRC section 311(b) 5-8
Lease Inclusion Income:
Passenger Automobiles 5-9
Contra-Sales Accounts 5-10
Returns 5-10
Allowances in General 5-10
Warehouse Allowance 5-10
Markdown Allowance 5-11
Advertising Allowance 5-11
Yearend Allowance 5-11
Volume Allowance 5-11
Trade Discounts 5-11
Cash Discounts 5-12
Accounting for Returns,
Allowances and Discounts 5-12

Chapter 6
Inventory Introduction 6-1
Why Audit Inventories? 6-1
Types of Manufacturers 6-5
Custom 6-5
Production 6-5
Combination 6-6
Costing Methods for Manufacturing 6-6
Job Order Costing 6-6
Process Costing 6-6
Operation Costing 6-6
Inventories 6-7
Auditing Inventory 6-8
General Audit Techniques 6-9
Issues 6-18
Incorrect Inventory Counts and Omissions 6-18
Improper Valuations 6-24
Inventory Write-Down Under the
Lower of Cost or Market Method 6-25
Audit Techniques - Improper Valuations 6-28
Standard Cost Variance Treatment 6-30
Other Considerations 6-35
Practical Capacity 6-35
Idle Capacity 6-35
LIFO Inventory Valuation 6-35
Long-Term Contracts 6-36

Chapter 7
IRC Section 263A -
Uniform Capitalization Introduction 7-1
IRC Section 263A -
Uniform Capitalization 7-1
All Direct Costs 7-2
All Indirect Costs Associated with Production 7-2
Audit Techniques 7-3
IRC Section 263A Regulations: Post 199 7-15
IRC Section 263A Regulations:
Post 1993 for Self-Constructed Assets and
Interest Capitalization 7-16

Chapter 8
Change in Accounting Method Introduction 8-1
What Is a Change in Accounting Method? 8-1
IRC Section 481
Adjustment 8-4
Category A or Category B
Method of Accounting 8-5
Year of Change 8-6
IRC Section 481(a) Adjustment Period 8-6
How IRC Section 481 Interacts with an
Inventory Adjustment 8-7
IRC Section 481(b)(1) and
IRC Section 481(b)(2) Limitations 8-10
Revenue Procedure 94-49 8-13
Scope of Rev. Proc. 94-49 8-13
Procedures to Obtain Automatic Consent 8-14
Other 8-14
Revenue Procedure 95-25 8-14
Revenue Procedure 95-33 8-15
Court Cases 8-15

Chapter 9
Research and Development Introduction 9-1
IRC Section 174: Definition of Research and
Experimental Expenditures 9-1
IRC Section 41:
Credit for Increasing Research Activities 9-3
Definition of "Qualified Research" 9-3
Definition of "Qualified Research Expenses" 9-6
Definition of "Qualified Wages" 9-6
Qualified Supplies 9-7
Qualified Contract Research 9-7
Computer Software Development Costs 9-8
Revenue Procedures 69-21 9-8
Costs to Develop Internal-Use Software 9-8
Summary of Computer Software
Development Costs 9-10
Specific Issues Relating to the Research Credit 9-10
Wages Paid to Technical Writers
Re: User Manuals 9-10
Employee and Employer Contributions to a Deferred
Compensation Plan as Defined in Section 1.401(k) of
the Income Tax Regulations 9-11
Wages paid to Managers Above the
Level of First-Line Supervisors 9-11
Base Period Recomputation 9-12
BETA Testing -
Testing Conducted by Customers 9-12
Costs Attributable to Reviewing a
Competitors Product 9-12
Costs to Develop Internal Use Software 9-13
Software Expenditures Capitalized for
Book Purposes Per FAS 86 9-13
Small Tools and Purchased Software 9-14
Costs of Developing Generic Drugs 9-14
Summary of Computation of the Research Credit 9-14
Computation of the Research tax Credit 9-16
Base Amount Computation 9-16
IRC Section 280C(c)(3): Reduction of
Credit Versus Expense 9-19
Alternative Minimum Tax 9-19
Research and Development Tax Shelters 9-20
Audit Techniques 9-20

Manufacturing Glossary G-1

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