taxes

Motor Fuels Tax Audit Procedures Manual - Ch. 153

Chapter 5 - Pre-audit Research

Introduction

The auditor should refer to the Auditing Fundamentals Manual, Chapter 2, for a detailed explanation of the pre-audit research process. Fuels tax audits, like all other tax audits, may be generated by audit select in headquarters, in the field office, or as a special division request. Agency Work Manager ensures inventory control to avoid duplicate audits and to track the assignment and progression of an audit. Numerous factors are involved in the selection process. Selected Accounts include:

  • Top fuels taxpayers in audit area
  • Re-audits of entities where the prior audit was productive
  • Computerized randomly selected accounts

In addition, audits can be generated as:

  • Spin-offs of related companies being audited
  • Leads obtained while performing audits of other taxpayers
  • Leads from newspaper articles
  • Leads resulting from bankruptcy action

For more information on audit method selection and pre-audit research, see the Auditing Fundamentals Manual, Chapter 2.

Other areas of pre-audit research include Agency Work Manager screens, Audit Questionnaire, Computer Auditing, Taxpayer History, Terminal Inquiries, Account Information Cards, Prior Audits, Researching Taxability, Requested Records, and Tax Fraud Awareness. These topics are discussed in detail in the Auditing Fundamentals Manual. Those topics, which have special areas of concern to Fuels Tax, will be discussed in this Chapter.

TAX CODES
The codes assigned to motor fuels taxes are as follows:
Gasoline 90 06
Diesel 90 07
Liquefied Gas 90 08
Common Carrier 90 95
Gasoline Interstate Trucker 90 96
Diesel Interstate Trucker 90 97
Liquefied Gas Interstate Trucker 90 98

History

The history is a computer-generated summary of all transactions relating to a particular tax account. Each fuels tax return including the supplements filed becomes a part of the fuels tax history. The audit file should always contain a history.

The auditor should be certain that the history is current in order to have the latest updated information. For more information on supplements, see Chapter 9 Purchases and Chapter 10 Sales in this manual. If the history in the file does not cover all audit periods, the XIDATA and XISCHD inquiries can be used to update the history and supplements. The following numbered information relates to Exhibit II, Diesel Taxpayer History.

  1. This is the date the history was generated and may indicate an old history that necessitates update with XIDATA function or a new history.
  2. This is the period covered by the history.
  3. Taxpayer information - The taxpayer name and address should be the same on XISUMM and the history.
  4. The last report filed by the taxpayer - may indicate XIDATA should be run.
  5. If the history is old and updated by XIDATA inquiry, then the XICOLL inquiry should be run to ensure there are no open collection records. If there are open collection records, the auditor will need to address them during the audit.
  6. If in management halt, the auditor should find out why before proceeding with the audit.
  7. If a prior audit exists, that information will appear here.

The "Return Information" records are shown on Exhibit III. Exhibit IV, page 1, is Receipts by Period; Exhibit IV, page 2 displays summary totals for all Receipts reporting categories. The "Disbursements by Period" by reporting categories are on Exhibit V, page 1 with the summary totals by reporting category on Exhibit V, page 2.

"Deductions" by reporting category are on Exhibit VI, page 1, and the summary of these reporting categories on Exhibit VI, page 2. Supplement information can be viewed on Exhibits VII - X. The reporting categories are "Tax Free Purchases, "Tax Free Sales Permit Holders," "Signed Statement Dyed," and "Signed Statement Undyed" respectively. Payment information is on Exhibit XI and collection information for all taxes on Exhibit XII.

IMPORTANT: The auditor should examine all reported amounts for any fluctuations which appear to be unusual. These fluctuations may indicate a change in personnel, accounting procedures, or internal control. These fluctuations need to be considered when choosing periods for preliminary testing or sampling.

It is recommended that the auditor enter the history information on worksheets similar to the worksheets depicted in Exhibits XIII - XVI for viewing ease.

History Graphics

Go to History Graphics (PDF) to view Exhibits II thru XII.

  • Exhibit II – Summary Page
  • Exhibit III – Report Information
  • Exhibit IV – Receipts by Period (1 of 2)
  • Exhibit IV – Receipts by Period (2 of 2)
  • Exhibit V – Disbursements by Period (1 of 2)
  • Exhibit V – Disbursements by Period (2 of 2)
  • Exhibit VI – Deductions by Period (1 of 2)
  • Exhibit VI – Deductions by Period (2 of 2)
  • Exhibit VII – Tax-Free Purchases Supplement
  • Exhibit VIII – Permit Holder Sales Supplement
  • Exhibit IX – Dyed Diesel Signed Statement Supplement
  • Exhibit X – Undyed Diesel Signed Statement Supplement
  • Exhibit XI – Payment Information
  • Exhibit XII – Collection Information

Go to History Recap Worksheet (PDF) to view Exhibits XIII thru XV.

  • Exhibit XIII – History Recap Worksheet - Receipts
  • Exhibit IV – History Recap Worksheet - Disbursements
  • Exhibit XV – History Recap Worksheet - Deductions

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(Revised 02/2004)