Think back to the days when you had to bring a report card home. For the most part, the grades were a measure of how you were learning and progressing in school.
But then there were the comments. Yikes! “Sandra would do much better in class if she were to listen more and talk less.” Whatever.
IRP and IFTA issue report cards, too, in the form of an “annual report of plan activity.”
Every year, each jurisdiction says how many fleet accounts it has, how many fleets renewed their credentials, how many were audited, how many audits produced charges, and other details. For us fleet tax compliance nerds, it’s a great way to see what the jurisdictions are up to.
The IRP report has two new categories this year: inadequate assessments and dollars assessed for inadequate assessments. We don’t have the same data available in the IFTA report.
In recent years, IFTA and IRP have adopted language regarding the adequacy of records to conduct an audit. This gives auditors latitude in determining whether records are auditable even when they don’t entirely meet IFTA/IRP requirements (many jurisdictions conduct IFTA and IRP audits at the same time).
For example, some fleets can give an auditor a neatly wrapped package of source documents, monthly summaries, and all the fuel receipts. Others offer a shoebox full of unsorted papers. Or a “dog ate my data” shrug.
At this point, the auditor can determine whether there are sufficient records to do the job. Some auditors will work with the shoebox and some won’t, and no one is going to believe the dog story.
According to the 2016 IRP annual report, 30% of carriers were determined to have inadequate records.
In California, auditors determined that 418 of 559 audits involved inadequate records. That’s right, auditors determined that 75% of carriers in the state had records that were inadequate for audit—to the tune of $1,113,926.90 in dollars assessed.
The problem isn’t limited to big states. Prince Edward Island conducted seven audits and assessed five as having inadequate records, or 77%. New Jersey conducted 466 audits and 356, or 76%, involved inadequate records.
The penalties can add up.
On a first offense in an IRP assessment, you’ll pay an additional 20% of the fees you paid when you apportioned your vehicles. For a second offense, the penalty is 50% of your apportioned fees. Third time, it’s 100%.
Now multiply that amount by two or three since a typical audit period can be anywhere from one to three years.
IFTA will assess based your KPL/MPG factor by either bringing it down to 1.7 KPL/4 MPG or reducing your KPL/MPG by 20%. Not only that, they can disallow any credit for tax paid at the pump. There’s a whole bunch of “it depends” surrounding an IFTA assessment, but penalties can be substantial.
Remember, an audit is subjective. If you know the rules and can defend your recordkeeping choices, you’ll likely be OK. But if you haven’t done your homework or your records are a mess, you’re going to wish you hadn’t played hooky when the teacher was telling you to brush up on your IFTA/IRP reporting skills.
Sandy Johnson has been managing IFTA, IRP, and other fleet taxes for more than 25 years. She is the author of the book, 7 Things You Need to Know About Fleet Taxes, and operates www.northstarfleet.com, which provides vehicle tax and license compliance services for trucking operations. She can be reached at 1-877-860-8025 or firstname.lastname@example.org.
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