Construction Industry - Audit Technique Guide - Uncle Fed's Tax ...

More documents

Recommendations

Info

CONSTRUCTION INDUSTRY GUIDE(Formerly Audit Technique Guide)TABLE OF CONTENTSChapter 1: Introduction to the Construction IndustryIntended Audience ............................................................................. 1-1The Construction Industry as a Market Segment............................... 1-1Participants in the Construction Industry........................................... 1-2The Contracting Process .................................................................... 1-5Contract Income................................................................................. 1-6Types of Contracts ............................................................................. 1-7Bonding.............................................................................................. 1-8Building Permits ................................................................................ 1-8Notice of Completion......................................................................... 1-9Chapter 2: Long Term ContractsBackground........................................................................................ 2-1Definition of Long-Term Contract..................................................... 2-1Contracts Subject to IRC Section 460 ............................................... 2-1Contracts Exempt from IRS Section 460........................................... 2-2Construction Contracts versus Manufacturing Contracts .................. 2-2Real Property and its Integral Components(Treas. Reg. Section 1.460-3(a) ...................................................... 2-3Classifications of Contracts ............................................................... 2-4Hybrid Contracts................................................................................ 2-5
De minimis Construction Activities................................................... 2-5Non-Long-Term Contract Activities(e.g., Architect, Engineer Services)................................................. 2-6Contracts of Related Parties............................................................... 2-7Severing and Aggregating Contracts ................................................. 2-9Chapter 3: Small Construction ContractorsIntroduction........................................................................................ 3-1Exceptions to the Percentage of Completion Accounting Methodsand Look-Back Interest.................................................................. 3-1Production Period Interest.................................................................. 3-2$10 Million Gross Receipts Test........................................................ 3-2Determining the Proper Method of Accounting for SmallContractors...................................................................................... 3-4General Rules of Accounting Methods.............................................. 3-4Methods of Accounting...................................................................... 3-5Selecting an Accounting Method....................................................... 3-6Computation of the Cash Method of Accounting.............................. 3-11Accrual Method of Accounting ......................................................... 3-11Completed Contract Method (CCM) ................................................. 3-14Completion of a Long-Term Contract ............................................... 3-14Subcontracts and Completion ............................................................ 3-17Exempt-contract Percentage-of-Completion Method (EPCM) ......... 3-18Alternative Minimum Tax (AMT)..................................................... 3-19Small Contractors Becoming Large Contractors ............................... 3-22Pros and Cons of Long-Term Accounting Methods.......................... 3-22
Page 1: Internal Revenue ServiceConstructio
Page 6 and 7: Tax Issues.........................
Page 8 and 9: Table of Contents / Chapter 2Intern
Page 10 and 11: through project managers and onsite
Page 12 and 13: plants are classified in this categ
Page 14 and 15: measured. The object of the cost co
Page 16 and 17: Time and material contracts are con
Page 18 and 19: Chapter 1 / Table of Contents / Cha
Page 20 and 21: job. Even though the average annual
Page 22 and 23: contract would be classified as a s
Page 24: Non-Long-Term Contract Activities (
Page 27 and 28: • An S corporation and a C corpor
Page 29 and 30: ConclusionThe construction industry
Page 31 and 32: 460(e)(1)(B) any other construction
Page 33 and 34: oth businesses are considered when
Page 35 and 36: Subject to the provisions of subsec
Page 37 and 38: method would normally be required b
Page 39 and 40: Rev. Proc. 2002-28 Section 6 Exampl
Page 41 and 42: Example 18 of Revenue Procedure 200
Page 43 and 44: • When payment is due• When pay
Page 45 and 46: Example of Retainage Payable:A cont
Page 47 and 48: (approx. the remaining 3% of total
Page 49 and 50: Revenue Code. Other employee benefi
Page 51 and 52: Generally contractors meeting the
Page 53 and 54:
Assume a calendar-year corporation
Page 55 and 56:
2000 2001 2002Job 1 - in process in
Page 57 and 58:
completed during the taxable year.
Page 59 and 60:
specific “facts-and-circumstances
Page 61 and 62:
Year 1: At year end, the taxpayer
Page 63 and 64:
Subcontracted costs represent eithe
Page 65 and 66:
1.460-2(d), the applicable percenta
Page 67 and 68:
• Verify that warranty expenses a
Page 69 and 70:
If the contractor had billed and re
Page 71 and 72:
Example of hypothetical computation
Page 73 and 74:
commencement date, and (2) has a gr
Page 75 and 76:
(A) first allocating income under t
Page 77 and 78:
Percent Complete 11.6 % 60.00% 100.
Page 79 and 80:
The income tax liability, computed
Page 81 and 82:
Hypothetical Overpayment of Tax 300
Page 83 and 84:
Simplified Marginal Impact Method (
Page 85 and 86:
determined in this step may be limi
Page 87 and 88:
liability or a tax refund. Treas. R
Page 89 and 90:
Balance Sheet AccountsWhen accounti
Page 91 and 92:
Revenue RecognitionAs discussed abo
Page 93 and 94:
XYZ CorporationStatement of Income
Page 95 and 96:
XYZ CorporationSchedule 2 - Contrac
Page 97 and 98:
Chapter 6 / Table of Contents / Cha
Page 99 and 100:
(A) Dwelling units, as defined in s
Page 101 and 102:
Treas. Reg. § 1.263(a)-2 sets fort
Page 103 and 104:
into a long-term contract and would
Page 105 and 106:
B. Contracts which are expected to
Page 107 and 108:
Normally each house is a separate c
Page 109 and 110:
• Developer’s identifying infor
Page 111 and 112:
Commissioner may use her statutory
Page 113 and 114:
) All obligated common improvement
Page 115 and 116:
contractor owned 51% of the joint v
Page 117 and 118:
advice of the construction manager,
Page 119 and 120:
Homebuilder Building for Speculatio
Page 121 and 122:
will frequently reveal an interest
Page 123 and 124:
expense. Revenue Procedure 2003-80,
Page 125 and 126:
Examiners should consider the “do
Page 127 and 128:
• Reg. §1.446-1(c)(1)(ii) - Unde
Page 129 and 130:
• Homebuilders - IRC § 56(a) app
Page 131 and 132:
The initial interview is the best t
Page 133 and 134:
• Tour the business sites and rec
Page 135 and 136:
• A high percentage of cash expen
Page 137 and 138:
• A review of the taxpayer’s pr
Page 139 and 140:
Clearly, the examiner’s judgment
Page 141 and 142:
Chapter 9 / Table of Contents / Cha
Page 143 and 144:
classified as either (1) a partners
Page 145 and 146:
Liquidation/Distribution Issues•
Page 147 and 148:
work, but also the means and detail
Page 149 and 150:
• In Publication 1779, Independen
Page 151 and 152:
for other tax purposes. For further
Page 153 and 154:
Chapter 11 / Table of Contents / Ch
Page 155 and 156:
• Availability of IRS and taxpaye
Page 157 and 158:
Fast Track Mediation works best for
Page 159 and 160:
Chapter 12 / Table of ContentsInter
Page 161 and 162:
eturns with taxable years ending on
Page 163 and 164:
EFTPS EnrollmentTo participate in E
Page 165 and 166:
Appendix 1 - Applicable Federal Tax
Page 167 and 168:
Page 169 and 170:
Page 171 and 172:
Page 173 and 174:
Available Accounting Methods for Lo
Page 175 and 176:
Appendix 3 - Construction Industry
Page 177 and 178:
Plumbing, Heating,Cooling Contracto
Page 179 and 180:
June 1953October 1955July 15, 1981A
Page 181 and 182:
PRODUCTION PERIOD INTEREST IS ALLOC
Page 183 and 184:
elated costs• Productionperiod in
Page 185 and 186:
TermBONDING CAPACITYBONUSBRIDGE LOA
Page 187 and 188:
COMMITMENT FEECOMPLETED-CONTRACT ME
Page 189 and 190:
CONTRACTto the actual construction
Page 191 and 192:
HARD DOLLARCOSTSHISTORICSTRUCTUREHO
Page 193 and 194:
MECHANIC’S LIENNEGOTIATED BIDOFFS
Page 195 and 196:
PROGRESSPAYMENTSPROGRESSSCHEDULEPRO
show all

Construction Industry - Audit Technique Guide - Uncle Fed's Tax ...

Create successful ePaper yourself

Delete template?

Save as template?