The IRS released a new audit technique guide this month designed to help auditors when auditing somebody who is employed in the entertainment industry.
Most entertainers set up corporate entities, so the auditor is really auditing a trade or business.
While the guide was intended for auditors, it is a valuable tool for CPAs, other tax practitioners and entertainers.
The purpose of the Entertainment Audit Technique Guide (ATG) is:
1. To provide an overview of the activities encountered in examinations of individuals in the entertainment industry
2. To familiarize examiners with issues and terminology pertinent to individuals in the entertainment industry
3. To assist examiners with their examinations by providing audit techniques
The very comprehensive ATG is composed of 18 chapters. Some of the interesting chapters and topics covered in them are as follows:
- Chapter 3 deals with income issues. Some of the topics are residual income, royalties and license fees, fringe benefits, advances and reconstruction of income.
- Chapter 5 looks at passive activity issues. Rental of equipment and royalty income are two of the major topics covered.
- Chapter 8 covers personal expense issues, such as appearance and image, wardrobe, make-up, physical fitness and security.
Other chapters deal with songwriters, publishers and live performers.
This guide is very extensive and detailed. It is helpful information for people in the entertainment industry and must reading for CPAs and tax practitioners.