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

This information was extracted from codes placed on each return by the taxpayer. Thesix digit codes are based on the North American Industry Classification System (NAICS)and are used to facilitate the administration of the Internal Revenue Code. NAICS wasdeveloped jointly by the U.S., Canada, and Mexico to provide new comparability instatistics about business activity across North America. The North American IndustryClassification System (NAICS pronounced Nakes) is a unique, all-new system forclassifying business establishments. It was adopted in 1997 to replace the old StandardIndustrial Classification (SIC) system, and is the industry classification system used bythe statistical agencies of the United States.U.S. Construction IndustryReturn Filing (2000) per thousands(2.5 million total filings. Includes 1040, 1120, 1120S, 1065, etc.)800,000700,000600,000500,000400,000300,000200,000100,0000Building,Developing,andContractingPlumbing,Heating, &Air-ConditioningElectricalHeavyConstructionParticipants in the Construction IndustryNumerous participants that part in the construction industry. Each participant plays adistinct role in the process. The key participants will be discussed briefly in thisintroduction.ContractorsContractors perform the construction work in accordance with the plans andspecifications provided by the owner. In general, contractors are required to be licensedby state law under separate classifications (plumbing, electrical, general building, etc.).General/Prime ContractorsA general building contractor's principal business is the performance of the constructionwork in accordance with the plans and specifications of the owner. A general contractortakes full responsibility for the completion of the project. The general contractor willnormally subcontract out a substantial part of the work, while maintaining overall control1-2