IFTA audits have reared their ugly head. Friday, I woke up to see I have a couple of messages on my phone. I wonder who is calling so early and left a message. Imagine my surprise and concern when the message tells me that it is the Texas State Comptroller and I need to call them immediately. They have some questions about several of my IFTA filings, including Q3, Q4 of 2021 and Q2 that was just filed last week. Yikes, I am not ready for this.
So, I call my Compliance service, and of course I can’t get a hold of her. I figure I need to go ahead and make the call to the Austin State Comptroller office in Austin, Texas.
Yes Ma’am, I did what? Didn’t do what? Can I provide you with exact figures for Quarters 3 and 4 of LAST year? I can’t even give you change for a quarter much less figures. No ma’am, I am not being a smart ass, I mean Alec. Just trying to figure out what I did wrong and what you need from me. She lightened up. She got my humor, we laughed… I cried.
In the conversation, she revealed to me that the figures we give them are fed into an evil algorithm (aren’t they all?) that computes averages for our businesses and past filings. I admitted that I had often wondered if anyone even looked at our figures and if I missed one or two filings, would matter. Boy was I wrong, as usual.
Big Brother, Greg Abbott and his henchman Texas Comptroller Glenn Hegar, run a tight ship and are watching our pennies for us. I told the Auditor, damn, I didn’t know they were watching us that close, maybe I better go brush my teeth. She got a laugh and I breathed a breath of fresh air. I was going to survive this maybe.
So, I asked her, “Let’s say I drive my truck home or take off a few weeks from driving. I stop at Kroger and do not have my Garmin GPS with IFTA log with me and I do not enter a couple 35 gal. fill ups, will that matter?” Yes, it will cause you to have an increase in your MPG fuel usages.
In my case, I was averaging around 20 and it had gone up to 30 for those two quarters. Which if I had missed two entries for my Ram Diesel truck and the fact that I had taken off, and not pulling a trailer under load, it explained it.
She cut me some slack because I had been honest (and don’t forget I made her laugh). She didn’t charge me a late charge or interest, but I had to pay the increased fuel taxes. So, lesson learned. This is a real concern for all you IFTA filers. Here are some red flags that will sic them on you.
IFTA Audits – 5 Red Flags That Can Trigger an IFTA Audit
Fuel taxes are a fact of life for carriers but missteps in the filing process can bring unwanted attention and IFTA audits
Carriers that fail to file their IFTA tax records and payments on time face penalties of as much as 10% of the unpaid taxes and include interest payments. If IFTA auditors determine that record-keeping requirements are not being met, they may issue an inadequate-records assessment. They can lower miles per gallon to 4 or reduce it by 20% if they suspect a carrier is inflating MPG to pay lower taxes. Any failure to comply with IFTA provisions can be grounds for suspension or revocation of the IFTA license.
IFTA Audits basics
Jurisdictions are required to conduct regular audits of licensees to ensure compliance and proper revenue collection. However, not all licensees are audited, explained Corrina Peterson, transport editor with J. J. Keller & Associates Inc. IFTA must audit an average of 3% of their accounts (not including new licensees) annually, and at least 15% of those audits must be for “low-distance accounts.” These are accounts that had the lowest number of miles/kilometers reported in all member jurisdictions the previous year. An additional 25% of audits must be for high-distance accounts.
Red Flags To Avoid IFTA Audits
While a small portion of licensees face an audit each year and are generally randomly chosen, there are several red flags that can increase the chance a carrier will be chosen for an audit, according to Peterson.
Carriers that miss deadlines or struggle with record-keeping are at increased risk of an audit. Peterson said carriers can avoid this red flag simply by filing their returns on time. To ensure returns are filed on time, carriers should have procedures in place that controls that, at a minimum:
While drivers and carriers should address errors in tax returns, a large number or consistent trend of amended returns signals to auditors the potential for problems. Whether in record-keeping procedures, data entry, or trip and fuel data collection processes.
Besides completing the returns accurately, Peterson advises carriers to look for common mistakes such as missing or gap miles (this could include miles driven by mechanics, empty miles, deadhead miles and bobtail miles). Also, verify that the ending odometer reading for one month matches the beginning reading for the next month.
Missing or illegible fuel receipts are also indications of potential problems, as are units with no activity. Scrutiny of the driver trip report can also identify potential issues before an auditor sees them. Inaccurate or incomplete driver trip reports may cause auditors to ask for secondary information to verify tax return information. Finally, check individual vehicle mileage reports for distance accuracy against routes.
Fluctuating MPG or fuel purchases/consumption
Large discrepancies in MPG for the type of vehicle or significant fluctuations in quarterly fuel usage raise suspicions. Peterson suggests double-checking MPG to ensure the math is correct and verify dates and amounts of fuel purchases.
When it comes to MPG reporting, IFTA auditors will check the type of vehicle against the MPG it is expected to achieve and numbers far from the norm may be questioned. Peterson advises knowing the vehicles you operate, how they typically operate and the average MPG of each to verify the accuracy of the reports.
Large refunds can trigger IFTA Audits
If a carrier is owed money, IFTA will gladly refund it, but a disproportionately large refund raises a red flag. Avoid this by filing only for refunds you are entitled to, and only in the amounts you are entitled. Again, documentation is key. Fuel purchases are only eligible for reimbursement if the licensee paid the fuel tax at the time of purchase. Peterson said licensees should verify dates and amounts from all fuel receipts to ensure they are included in the correct reporting period.
Closing the account
Some jurisdictions perform audits on all carriers that close their accounts. Most jurisdictions regularly share information on suspended/revoked licenses and closed accounts with each other and with law enforcement to ensure a revoked account is not opened in another jurisdiction or that the carrier is not operating illegally.
Maintaining proper records and adhering to records retention periods are key to avoiding this misstep. If a carrier has closed its account, it can purchase a temporary fuel permit if necessary.