|
business use. It is not
unusual to find that insurance paid covers all of the shareholder's family cars
or that the company credit card is routinely used to supply fuel for a number
of non-business vehicles. Leased Vehicles Personal use of leased
vehicles is taxable to the user based on the percentage of business use
multiplied by the fair lease value of the vehicle. If the lessee is a
corporation and has not made this addition to a shareholder's compensation or
been separately reimbursed by the shareholder, the excluded amount constitutes
a non-deductible dividend paid to him or her. Businesses leasing luxury autos are required to increase gross income by an "inclusion amount" computed as shown in Treas. Reg. section 1.280F-5T. That amount is often overlooked or miscomputed. ENTERTAINMENT AND PROMOTION Some entertainment
expenses are to be expected in the auto body and repair industry. Parts
managers at dealerships who may recommend the shop are often entertained and
there might be an occasional lunch with an adjuster to discuss differences, but
these events would not usually be frequent or lavish. Christmas gifts are
frequently given to those who have referred business to the shop during the
year. Most of the businesses
examined did not report substantial amounts of entertainment and promotion
expense. Shops grossing between $1 million and $2 million per year typically
claimed less than $10,000 in combined expenses. Some of the businesses examined
in the course of this study, however, reported much higher costs, ranging up to
a startling $134,000 in one case. As might be anticipated,
this group produced most of the adjustments made. The issues most commonly encountered are outlined below and are similar to those found in other small businesses. Inadequate Verification Inadequacies ranged from
no verification at all to a lack of one more of the elements required under IRC
section 274. In the case of some closely held corporations, it was suspected
that withheld documents contained evidence of substantial personal expense that 7-3 Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 Chapter 9 Chapter 10 Glossary |