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

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Tax Issues........................................................................................... 8-12Chapter 9: Income Probes - New ChapterIntroduction........................................................................................ 9-1Understanding the Accounting System.............................................. 9-1Minimum Income Probes................................................................... 9-2Internal Controls ................................................................................ 9-4Use of Indirect Method ...................................................................... 9-6Miscellaneous Income Sources.......................................................... 9-8Chapter 10: Construction Joint VenturesOverview............................................................................................ 10-1Types of Joint Ventures ..................................................................... 10-1Joint Venture Examinations............................................................... 10-3Potential Joint Venture Issues............................................................ 10-3Chapter 11: Employee or Independent Contractor - New ChapterClassification of Workers .................................................................. 11-1Chapter 12: Alternative Resolution - New ChapterOverview............................................................................................ 12-1Industry Issue Resolution Program.................................................... 12-1Pre-Filing Agreements....................................................................... 12-2Fast Track Mediation and Settlement ................................................ 12-3
Chapter 13: Electronic Filing and Paying of Business Taxes (“E-submissions”) -New ChapterE-File for Business............................................................................. 13-1Electronic Federal Tax Payment System (EFTPS)............................ 13-3AppendixAppendix 1- Applicable Federal Tax Law & Guidance .................... A-1Appendix 2- Tax Methods of Accounting ......................................... A-2Appendix 3- Construction Industry Associations and Resources...... A-3Appendix 4- Cost Allocation ............................................................. A-4Appendix 5- Definitions and Terminology........................................ A-5
Page 1 and 2: Internal Revenue ServiceConstructio
Page 3 and 4: De minimis Construction Activities.
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
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2000 2001 2002Job 1 - in process in
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completed during the taxable year.
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specific “facts-and-circumstances
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Year 1: At year end, the taxpayer
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Subcontracted costs represent eithe
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1.460-2(d), the applicable percenta
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• Verify that warranty expenses a
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If the contractor had billed and re
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Example of hypothetical computation
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commencement date, and (2) has a gr
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(A) first allocating income under t
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Percent Complete 11.6 % 60.00% 100.
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The income tax liability, computed
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Hypothetical Overpayment of Tax 300
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Simplified Marginal Impact Method (
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determined in this step may be limi
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liability or a tax refund. Treas. R
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Balance Sheet AccountsWhen accounti
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Revenue RecognitionAs discussed abo
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XYZ CorporationStatement of Income
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XYZ CorporationSchedule 2 - Contrac
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Chapter 6 / Table of Contents / Cha
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(A) Dwelling units, as defined in s
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Treas. Reg. § 1.263(a)-2 sets fort
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into a long-term contract and would
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B. Contracts which are expected to
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Normally each house is a separate c
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• Developer’s identifying infor
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Commissioner may use her statutory
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) All obligated common improvement
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contractor owned 51% of the joint v
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advice of the construction manager,
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Homebuilder Building for Speculatio
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will frequently reveal an interest
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expense. Revenue Procedure 2003-80,
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Examiners should consider the “do
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• Reg. §1.446-1(c)(1)(ii) - Unde
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• Homebuilders - IRC § 56(a) app
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The initial interview is the best t
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• Tour the business sites and rec
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• A high percentage of cash expen
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• A review of the taxpayer’s pr
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Clearly, the examiner’s judgment
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Chapter 9 / Table of Contents / Cha
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classified as either (1) a partners
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Liquidation/Distribution Issues•
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work, but also the means and detail
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• In Publication 1779, Independen
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for other tax purposes. For further
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Chapter 11 / Table of Contents / Ch
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• Availability of IRS and taxpaye
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Fast Track Mediation works best for
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Chapter 12 / Table of ContentsInter
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eturns with taxable years ending on
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EFTPS EnrollmentTo participate in E
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Appendix 1 - Applicable Federal Tax
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Page 169 and 170:
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Page 173 and 174:
Available Accounting Methods for Lo
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Appendix 3 - Construction Industry
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Plumbing, Heating,Cooling Contracto
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June 1953October 1955July 15, 1981A
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PRODUCTION PERIOD INTEREST IS ALLOC
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elated costs• Productionperiod in
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TermBONDING CAPACITYBONUSBRIDGE LOA
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COMMITMENT FEECOMPLETED-CONTRACT ME
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CONTRACTto the actual construction
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HARD DOLLARCOSTSHISTORICSTRUCTUREHO
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MECHANIC’S LIENNEGOTIATED BIDOFFS
Page 195 and 196:
PROGRESSPAYMENTSPROGRESSSCHEDULEPRO
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