Consequences of Failing IFTA Audit & IFTA Audit Crucial Info
What happens if you fail an IFTA audit
The 10 provinces of Canada and the Lower 48 states are signatories to the International Fuel Tax Agreement (IFTA). As per this treaty, motor carriers can pay fuel taxes where their trucks are registered. By reporting taxes to the base state, they do not have to deal individually with each location.
The responsibility then falls on the base state to distribute the payments to all the applicable states and provinces. Although this process helps to minimize paperwork, it leaves this task of auditing fuel and mileage records to the truckers and fleet operators. If you are a truck driver or fleet operator and if you fail an IFTA audit, you become liable for IFTA audit fines.
Let’s move on to studying more about an IFTA audit.
IFTA Audit: a Brief
Going by your mileage data, the amount of fuel tax you have to pay to each jurisdiction is determined. Even though your state has the responsibility of making payments, the job of IFTA auditors is to find out if the data is recorded as per the procedure.
In addition, each IFTA jurisdiction is required to audit three percent of its accounts every year. This means you may be randomly selected. Also, remember that if you consistently report errors, your chances of an IFTA audit go up.
Now, if you have to undergo an audit, there is no need to worry. Here we have compiled an IFTA audit checklist to help you sail through the process smoothly.
How often do IFTA audits take place?
IFTA audits are scheduled every three months. Even so, not all trucking companies are audited three times a year. Several trucking companies have run without audits for years. Certainly, you are likely to be audited at some point. And you will be given 30 days for your IFTA audit preparation. So, use this time judiciously to organize the IFTA paperwork and other audit-related matters.
IFTA Audit Process: Step-by-Step Account
Here is a detailed description of what IFTA audits entail.
Ø Audit Notification: Your base state will send a letter 30 days before to inform you of the approaching audit and scheduled audit dates.
Ø Auditor Appointed: An IFTA auditor will be assigned to handle your case. The assignee will contact you directly. Be prepared to submit preliminary data to the appointee whenever needed.
Ø Opening Meeting: You will have to convene a meeting with your auditor at your office. At this meeting, you both have to discuss the audit process and mandatory documents. All that transpires at the meeting has to be documented.
Ø Assessing Internal Controls: Your auditor will study how your IFTA accounting control system functions. After the auditor examines your processes, they will check for any non-compliance issues or weak links.
Ø Sharing records: You may have to share your IFTA records and documents with the auditor to check if the due process is being followed.
Ø Visit and record verification by the auditor: Your auditor is likely to make another visit to verify all your submitted records and recheck the accounting process.
Ø Final Meeting: During the closing conference, which is the last official meeting between both parties, the auditor will present all the findings, penalties (if any), and your rights to appeal.
Ø Delivery of Audit reports: The auditor will deliver copies of the written audit report to all concerned parties, including your company.
Ø Assessment Notice: You will get an official notice of assessment mentioning your IFTA audit penalties and their payment deadline, along with more details on how to appeal.
What are the IFTA Audit Penalties?
You may want to know what happens after failing the IFTA audit. Well, your company may not shut down if you do not pass an IFTA audit. As long as you make efforts to properly document your mileage and file your fuel taxes within the given timeline, you might have to pay a penalty.
Normally, you have to pay $50 or 10% of the total tax due amount (whichever of the two is higher) towards non-filing or late charges. In addition to that, you have to pay 0.4167% interest every month on unpaid taxes.
Nonetheless, if the auditor reckons that you deliberately did not comply, the fine for failing the IFTA audit may be more severe. Nonetheless, you may be at risk of losing your IFTA license if you fail to comply hereafter.
Handy Tips when undergoing an IFTA Audit
The best way to sail through an audit is by having your paperwork in order. Also, here we offer some IFTA audit tips to reduce your chances of being audited and how to go about it.
Ø Install automated IFTA reporting software: By automating your accounting systems, you do not have to sift through records anymore. During an audit, you can simply show the auditor your software system and collection of receipts. It helps to feed data about the receipts into the system after which the program will do the rest.
Ø Hang on to your receipts: As per the IFTA regulations, you should store documentation for four years. That means you have to keep your physical fuel receipts for that long. Even if you maintain logbooks or other manual records, you should hold on to them as part of your IFTA tax preparation.
Ø Store Records: You can maintain correct odometer readings for each trip either manually or via software systems.
Ø Make your devices IFTA Compliant: As part of IFTA compliance when logging mileage via electronic devices, the mileage recording devices should ping every 15 minutes or so.
Ø Request for Time: if you need extra time to prepare for the upcoming audit, talk to your auditor about the same.
Ø Delegate audit tasks: Appoint one of your staff members who can manage the audit-linked communications and work in tandem with the auditor if you have other important business-related matters to look into.
Ø Make a good first impression: To do so, ensure to organize all your records and keep the office clean.
Red Flags likely to attract IFTA Penalties
Not many licensees undergo an audit each year. More so, most of them are randomly chosen. However, it may help to know about the red flags that can raise the chances of a carrier being chosen for an audit.
1) Filing Returns Late
Carriers can reduce the risks of failing IFTA audit reports if they miss deadlines or do not maintain records. A good way of avoiding red flags is by filing your returns within the given timelines. You can do so by:
Ø Providing training to drivers to collect fuel receipts and trip records
Ø Training your other employees on how to maintain proper records
Ø Teaching drivers how to use automated recording devices, GPS units, and hubodometers (for tracking distances)
Ø Impart training to administrative staff on data entry and other procedures
Ø Tutoring your employees on how to check records and various reconciliation methods
2) Revised Returns
Both drivers and carriers have to check and correct errors in tax returns. Failure to do so attracts IFTA audit fines. Additionally, if your records are constantly being revised, auditors get the impression that something is amiss. There may be problems linked to fuel data collection or data entry procedures, so check for the same.
Also, carriers are advised to check for some basic mistakes. These include missing miles, empty miles, gap miles, miles traveled by mechanics, deadline miles, bobtail miles, among others.
3) Fluctuating fuel records
Even if you have any discrepancies in mpg (miles per gallon) under vehicle category or quarterly fuel fluctuations, it raises suspicions and leads to IFTA audit fines.
To avoid such problems, double-check the mpg and verify the dates and number of fuel purchases. This way, you can have proper records of the average IFTA cost.
More so, you must know about the vehicles you ply, their method of operation, and the average mpg. You can then verify the accuracy of the records and reports.
4) Large Refunds
If IFTA owes you a refund, you will be refunded. However, a large refund indicates fishy business.
CONCLUSION
Everybody dreads an audit. Nevertheless, with scrupulous recordkeeping, you do not have much to worry about. Consider automating your accounting processes; it helps to produce the requisite documentation with only a few clicks. In all, by integrating all your systems, you can have a toolbox that caters to all your paperwork needs.