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:: Coal Excise Tax - Chapter 3 General Audit Techniques
Chapter
3 - General Audit Techniques
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Reconcile
Form 720 return to
taxpayer's worksheet. If tax
is reported under abstracts
37 or 39, ask how tax was
calculated to determine if
tax was calculated correctly
under the manufacturer's
excise tax guidelines.
-
If state
severance tax returns are
required, reconcile the Form
720 to state returns.
-
Reconcile
the Form 720 to the Office
of Surface Mining (OSM)
quarterly returns.
Currently, OSM does not
exempt export coal sales.
-
The tax is
to be calculated on a
load-by-load basis.
Documentation should be
available stating the rate
paid for each load delivered
to the purchaser; average
sales price calculations are
not acceptable.
-
Reconcile
the monthly sales journal to
the sales invoice worksheet.
The sales invoice worksheet
should be supported by
delivery tickets which
support the number of tons
delivered. A remittance
advice should be available
which details the loads
being paid for by the
purchaser.
-
Reconcile
weekly production reports to
the sales journal. Weekly
production reports should
show the tonnage reported
from each mine.
-
If coal is
purchased, and thus not
subject to tax because the
tax was supposedly paid by
the producer, review the
canceled checks to support
the purchases. Obtain the
EIN, name, and address of
the company from whom the
coal was purchased and
review their transcript to
ensure that the other
company has filed a Form
720.
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Taxpayers
often mine someone else's
mineral rights for which
royalties are paid. Ask to
see mineral right agreements
to determine if royalties
are payable; how royalties
are calculated; and to whom
royalties are paid. Some
agreements call for a
minimum annual payment or a
set rate per ton. Royalties
per the agreements should be
reflected on the income tax
return; if not, why not.
-
Ask how
many seams are being mined;
how many mines are being
operated; how many miners
employed; how many shifts
are run?
-
How is coal
transported? Transportation
costs to the buyer may be
deductible.
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