IRS Steps Up Dealer Audits for Cash Reporting Violations

Automotive News reported last week that the Internal Revenue Service (IRS) has sharply increased audits of car dealers in the wake of new anti-terrorist legislation. Accountants and lawyers surveyed by Automotive News said two factors are behind the trend: the anti-terrorist USA Patriot Act, and a campaign against tax fraud that has uncovered federal cash-reporting violations at auto dealerships. Several large accounting firms say the IRS is auditing dealers at twice the normal rate. Some say as many as 10 percent of their clients have faced audits this year.

The IRS auditors have focused primarily on violations of federal cash transaction reporting rules. Those rules are intended to prevent money laundering by drug pushers and other criminals. Since 1985, vendors of high-ticket products have had to file Form 8300 if a customer makes a cash purchase exceeding $10,000. Once auditors get in the door, accountants say they pursue a checklist of other tax issues, according to Automotive News.

–I don’t think there is any question there is an increase in audit activity,” Mike Charapp, a Washington lawyer who represents dealers and is a WANADA kindred member, told Automotive News. He said one of his clients is fighting a six-figure penalty for cash-reporting violations, and he knows of another mid-Atlantic dealer who settled similar charges. –The USA Patriot Act has empowered them to do this,” Charapp said.

Although first-time offenders are only fined $50 for each violation of the cash reporting rules, Charapp pointed out that the IRS revisits dealerships where it previously found violations. –The IRS will treat each unreported transaction on the second audit as a willful violation and assess a civil penalty of $25,000 per transaction,” he said.

The IRS has started more than 1,000 audits of new- and used-car dealerships as part of a campaign to catch tax evaders, Automotive News said. The agency has begun 280 criminal investigations of dealership employees this year, 15 percent of which involve violations of cash-reporting requirements.