How To Survive an IRS Audit of Your Trucking Business

Be Ready for an IRS Audit of Your Trucking Business

In the video above, I give an overview of the things that IRS auditors typically check when they audit trucking companies. You will be able to find out which of your current business practices might run afoul of a potential tax audit of your trucking company by the IRS by watching the video.

• Employment tax: one of the main things IRS auditors will look at is employment tax. They will check whether or not any drivers working for you as independent contractors should in fact be employees. If they should be, you will be hit you for the past unpaid employment taxes. They will also look at cargo handlers to determine what status they should be filed under, though they will treat the employment status of your drivers as being of higher priority than the cargo handlers.
• Supplemental wages: the auditor will also look at supplemental wages to make sure that all of your employees’ pensions, vacation pay, bonuses etc. are included on your tax return as wages.
• Excise tax: the big one for trucking companies is form 2290, which is for motor vehicles weighing over 55,000 pounds. Most trucking companies will have to file this. If you purchase glider kits for a truck, you are required to file retail sales tax. That’s included on form 720. Not every trucking company is liable for that, so it’s not as big an issue as the form 2290 excise tax for large vehicles.
• Sales of fixed assets: IRS auditors will check for sales of fixed assets to make sure that they are being reported on your taxes. They will check your statements for big lump sums that look like they might be for a truck or another piece of equipment.



• Depreciation of assets: the auditor will check to make sure that depreciation of assets that are no longer owned by the corporation are not current.
• Repairs and general maintenance: They will check to see whether or not your repairs and general maintenance include pieces of equipment that should be capitalized like computers or radios, etc. They will take a good long and hard look at your fixed assets and your repairs and maintenance accounts.
• They’ll also look at your customers’ credit balances, overpaid accounts and unapplied cash receipts. They’re going to look through all of this to make sure that you don’t have any income that should have been reported but was not.
• Fixed assets: getting back to fixed assets, they will want to make sure that the basis of these assets is calculated correctly. Therefore, they will look to make sure that any transfers between related parties were recorded at fair market value. And the auditor will check to make sure that if you are financing the purchase of an asset, that it’s not being included as capital. You can always take the interest expense as a deductible expense when you’re financing equipment, but they want to make sure that you’re not putting it into the equipment for a larger fixed asset purchase.
• Meals and entertainment: they will look at meals and entertainment to make sure that you’re capturing the 50% nondeductible amounts.
• Penalties: they’ll also look at penalties. Many trucking companies deduct penalties such as traffic violations, custom duties, federal penalties etc. But penalties are not deductible if they’re paid to a governmental agency, and that of course includes all traffic fines.
• Leasing from shareholders: if you are leasing equipment from a shareholder the auditor will check to see that it’s at a fair market value. It’s easy to use this situation to come up with disguised dividends that pay money from the corporation, or the entity, to the shareholder for an amount that does not quite equal the value of the equipment. So the auditor will check for that.
• Kickbacks: the IRS will want to make sure that there are no kickbacks being paid from any of the vendors because that of course is highly illegal.

That is a summary of the main things an IRS auditor will check when auditing a trucking company. If it happens to be the case that they are auditing you because of a red flag such as a particular amount entered on your tax return that looks extremely out of place, they could only look at that amount and nothing else. But in general, what I cover in the video are the main items that will be examined in an IRS audit of your trucking business.