The initial examination of taxicab drivers in the Los Angeles District was begun in connection with the examinations of two corporate taxicab companies. Approximately 650 taxi drivers were under examination during the years 1987 to 1989, with average adjustments of $8,000.00 per driver and 7 hours of investigation time per case.

At one time, cab companies required cab drivers to report the meter readings and the money collected to a company official at the end of their shift. The drivers were employees who received a minimum salary and a commission at the end of the pay period. In that scenario, income from tips was the big issue. Now, a company fins it easier to charge drivers a flat rate for using the vehicles and not have the problems of employment taxes and the review and manipulating of meter readings. This method of operation for the can companies is the subject of Revenue Ruling 71-572, 1971-2CB347.

What The IRS Tells Their Auditor About Taxicab Drivers
Generally, the taxicab industry is characterized by taxpayers who keep very informal records or no records at all. This was demonstrated during the examination of over 600 taxi driver returns where records were inaccurate or non-existent.

Since the change, taxi drivers renting vehicles from the company are treated as independent contractors no record of fares earned is maintained by the company. If the cab company owns the taxis, the driver must pay a rental fee for the use of the vehicle. The rental fee is computed on a weekly basis and may include charges for the property damage insurance.

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Drivers who own their own vehicles are allowed to operate under the company license, but they are charge a fee for the dispatch service and insurance.

What Can I Expect From An Audit?
Prior to the actual audit, the IRS Audit will conduct a "Pre-Examination Analysis". The auditor will request the following documentation from you, and you will be required to provide it to the auditor.

• Monthly Waybills
• List Of Vehicles Owned By The Taxpayer
• Names And Addresses Of Taxi Drivers
• IRP Transcript, Form 5346 and Form 8300 Checksheet
• Personal Living Expenses
• Books And Records

If you don't understand the importance of the above documents to the auditor, or don't understand exactly what information will be required, the answers will undoubtedly affect your tax liability and you could find yourself in trouble with the IRS.

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