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Entertainment Audit Technique Guide

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Entertainment Audit Technique Guide Publication Date - October 9, 2015 NOTE: This guide is current through the publication date. Since changes may have occurred after the publication date that would affect the accuracy of this document, no guarantees are made concerning the technical accuracy after the publication date. Table of Contents Entertainment Audit Technique Guide ........................................................................................... 1 Introduction................................................................................................................................. 5 Chapter 1 - Background .............................................................................................................. 5 Overview................................................................................................................................. 5 Chapter 2 - Planning the Audit ................................................................................................... 8 General Approach to the Interview ......................................................................................... 8 Self-Employment Tax Considerations .................................................................................. 10 Employee Versus Independent Contractor ........................................................................... 10 Audit Techniques .................................................................................................................. 10 Non-Filers ............................................................................................................................. 11 Chapter 3 - Income Issues ......................................................................................................... 12 Residuals ............................................................................................................................... 12 Royalties and License Fees ................................................................................................... 12 Fringe Benefits...................................................................................................................... 12 Advances............................................................................................................................... 13 Reconstruction of Income ..................................................................................................... 14 Chapter 4 - Capitalization and Cost Recovery Issues ............................................................... 15 Capitalization Issues ............................................................................................................. 15 Cost Recovery Issues ............................................................................................................ 19 Exhibit 4-1 - Decision Path for Capitalization...................................................................... 25 Chapter 5 - Passive Activity Issues........................................................................................... 26 I.R.C. §469 ............................................................................................................................ 26 Rental of Equipment ............................................................................................................. 27 Royalty Income ..................................................................................................................... 28 Other Activities ..................................................................................................................... 29 Conclusion ............................................................................................................................ 31 Chapter 6 - Travel and Transportation Issues ........................................................................... 31 General .................................................................................................................................. 31 Travel .................................................................................................................................... 31 Transportation ....................................................................................................................... 33 Chapter 7 - Recordkeeping Issues............................................................................................. 35 Meals, Entertainment, and Gifts ........................................................................................... 35 Educational and Research Expenses ..................................................................................... 35 Telecommunication Expense ................................................................................................ 37 Chapter 8 - Personal Expense Issues ........................................................................................ 37 Keeping Current.................................................................................................................... 37 Court Cases ........................................................................................................................... 39 Chapter 9 - Other Issues............................................................................................................ 40 Office In The Home .............................................................................................................. 40 Activities Not Engaged In For Profit .................................................................................... 43 Job Search ............................................................................................................................. 43 Showcasing ........................................................................................................................... 44 Agents ................................................................................................................................... 44 Moving Expenses.................................................................................................................. 45 Personal Service Companies and Personal Holding Companies .......................................... 46 Chapter 10 - Music Business .................................................................................................... 47 Overview............................................................................................................................... 47 General Information .............................................................................................................. 48 Digital Music ........................................................................................................................ 50 Downloads ............................................................................................................................ 51 General Questionnaire .......................................................................................................... 53 Music Industry Research and Publications ........................................................................... 53 Music Industry Organizations............................................................................................... 55 Chapter 11 - Songwriters .......................................................................................................... 58 General Information .............................................................................................................. 58 Recordkeeping ...................................................................................................................... 59 Examination Plan .................................................................................................................. 59 Audit Issues........................................................................................................................... 60 Songwriters Questionnaire.................................................................................................... 61 Chapter 12 - Publishers ............................................................................................................. 62 General Information .............................................................................................................. 62 Recordkeeping ...................................................................................................................... 63 Examination Plan .................................................................................................................. 63 Audit Issues........................................................................................................................... 63 Publishers Questionnaire ...................................................................................................... 64 Chapter 13 - Live Performers ................................................................................................... 65 General Information .............................................................................................................. 65 Stars....................................................................................................................................... 65 Other Performers................................................................................................................... 66 Recordkeeping .....................................................................................................................
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