Avoiding IFTA Audits and How to Handle Them
If reading the words “IFTA Audit” made you shake in your boots, you have probably encountered one or more of these lovely events. We have compiled helpful tips on how to avoid an IFTA audit and what you can do to get through one smoothly.
IFTA and Why It Exists
IFTA, International Fuel Tax Agreement, is an agreement between the 48 contingent U.S. states and all provinces in Canada that requires all motor carriers to report their fuel taxes quarterly for each jurisdiction they pass through.
Once upon a time before fuel receipts and odometer readings, motor carriers and drivers had to not just report their fuel and miles to each state (or jurisdiction) that they traveled through, but they had to do it individually and could be audited by each individual one. Additionally, each state had their own deadlines, reporting requirements and other miscellaneous requirements that needed to be met individually. So, if you think the paperwork and time spent doing IFTA is bad now, think about how time consuming it was before 1984.
In 1984 IFTA came along after a “1.0 version” was created, RFTA, and was being used in Maine, New Hampshire and Vermont in 1983. The idea was to have a singular entity that all carriers can report to and create a more organized, workable approach that was not as tedious and time consuming as the way things were done before. The purpose of IFTA itself is to make sure that correct taxes are being paid to each state for road maintenance since they are being utilized by heavier vehicles that create more wear and tear.
Every quarter, motor carriers must report each of their vehicles’ (basically any vehicle that has 3 or more axles OR a two-axle vehicle that have a gross weight of 26,000 pounds or more) miles driven and/or fuel purchased in each state to IFTA. Everything must line up accurately and be proven by showing all fuel receipts. There are multiple ways to report from filling out physical forms to reporting to the official website. There are also third-party services that companies use to do this work for them that help them stay within IFTA compliance, but we will get into more of that later.
Because this has to do with taxes and the federal government, every carrier must be sure to have complete accuracy when completing these reports each quarter. If a carrier neglects one aspect of the report, makes a mistake, or is late in turning it in, or all the above, this can lead to an IFTA audit.
If you’re going to avoid anything, let it be an IFTA Audit
Though it happens to the best of them and most of us can not go a lifetime in this career without experiencing one directly or by secondhand, they can still be avoided or at least have minimal penalties or repercussions. Staying of the IFTA radar and keeping a low profile is a lot of work and should not be taken for granted. The key is to create fool-proof organization habits and keeping the entire team involved in the reporting, including the drivers, on top of it.
Out of everything that could go wrong in filing your IFTA reports, it is handy to know the slip ups that could cost you and pay special attention to what IFTA pays special attention to.
Common slip up #1 – Late Reporting
Whatever part you play in the IFTA reporting, the end of every quarter can be a bit chaotic. Since reporting is required on the last day of the month at the end of each quarter, it can be easily swept up into the closing out of those quarters for other functions of the company. Whether you are a driver needed to gather all those fuel receipts or an admin of sorts trying to double check odometer readings, time is a thief, and it can easily become a race to the finish.
Late reporting can become a big issue and is not something to take lightly. One just may be okay but more times than not it sends up a red flag to IFTA that will have an auditor checking your company out in the background. From there your report needs to be spotless in order to stay under the radar.
Penalties of late reporting are typically $50 or 10% of your net tax liability, whichever one is more. Additionally, if an auditor suspects you are not filing in time because you have the intent to commit fraud it can be punishable with a $5,000 penalty and even criminal charges.
Common slip up #2 – Estimating
It is easy to get comfortable if you have been in the business for a while and run the same routes, month after month but getting complacent could cost you. There are various reasons a carrier decides to estimate their IFTA reports, one of them being short on time. (This is where organization and prioritizing can come in handy). Regardless of the reasoning, it is never a good idea. This can result in inaccurate reporting which will not do you any favors while trying to stay under the radar.
Common slip up #3 – Amendments
You would think amendments would be a good thing, that you are correcting a mistake on your report. But one too many and this sends a signal to the IFTA auditor that something in your reporting process is not correct or certain things are not being reporting like they should be.
“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.” – freightwaves.com
Making sure you have everything the first time around, and on time, makes for a much smoother operation overall.
Common slip up #4 – Personal Miles
It may not make sense to some, but it is a fact that personal miles also need to be reported on the report just like all other miles. That is sometimes the most common mistake when it comes to misreading the odometer and numbers not adding up like they should (which could also lead to more amendments once “fixed”). Mileage gaps and discrepancies on a report will always bring unwanted attention to your company.
Common slip up #5 – Not Reporting
Especially for newer carriers, this can be a big whoopsie. Just because your unit may not move for that quarter doesn’t mean you should not report it. If your company has an IFTA license, they need to be reporting regardless of if they moved or not.
Other typical mistakes made:
Ignoring odometer issues – get it taken care of to avoid more work on the back end
Large refunds – only file for refunds you are eligible for. Filing for more than what you are entitled to is asking for an audit.
So, you are up for an audit, now what?
“An IFTA audit is done to ensure that the trucking company’s distance accounting process is accurate. Why? Because the mileage data is used to determine tax obligations for each jurisdiction on a driver’s route.” – truckingoffice.com
And because of this reason IFTA has to do audits, to ensure accuracy. If you find you and your company up against an audit it is most important to stay calm and courteous. Thinking of an audit like a test, the best way to prepare is to obtain as much knowledge as you can. Auditors will give notice thirty days out of their visit and it is up to you to gather everything needed within that time frame so that you can be well equipped for the audit.
Remember what we said about organization earlier? This is where it will benefit most. Creating daily habits to make sure all your information is put in the right spot (i.e., fuel receipts, odometer readings etc) and making a weekly schedule to review and ensure quality of that information would not just help with an audit but be a good general practice.
Most companies rely on their ELD to export this information needed for IFTA reports to an online database or housing which can make not just submitting reports easier, but have audits go smoothly as well. ELDs on trucks automatically store data of miles and trips, both on duty, off duty and personal conveyance so keeping track of that information can be made easy.
Once you learn that you will be audited, the first and most important step is finding out what you need. Which information will you be required to present? Then get that information in an orderly manner whether binder or some sort of storage that is easy to access and digest. This may make it easier to see where the holes are and what you are missing.
After evaluating your information, it may be a good time for this next step to become regular practice. If you have not already, take this opportunity to put a manageable and efficient reporting system in place. If the auditor is able to see that you are making some concerted effort into the reporting process that will look good.
Finally, incorporating an IFTA auditing software or service, especially if you are a larger fleet, could save you from headaches and late nights at the office. These are becoming more advanced with abilities to connect directly to an ELD and extract the data it needs while it can transfer fuel receipts and compare side by side. Services are available to help the carrier manage their reports and hold them accountable in real time instead of waiting till the last minute. These can become your life line even after an audit to help avoid any future ones.
Below is a more detailed list of what else you can do to prepare for an audit from etrucks.com :
- Auditors will examine, test, and gain an understanding of how the motor carrier’s distance accounting system or process works. They will also look for original driver records if these are available. So, make sure to keep your supporting mileage and fuel documentation organized.
- For your mileage to be IFTA compliant, make sure your mileage recording devices (GPS, AOBRD, ELD) record pings every 15 minutes or less.
- Use precise odometer readings that match your trip logs or drops and picks whether these odometer readings are collected via electronic devices or manual processes.
- Your main mileage recording device, or other method of recording your miles per state, will be the main source for mileage that auditors will look at. If you happen to have a fuel card that records miles/kilometers this will be considered only if your main mileage system has gaps in the mileage. So, it is best to have only one main mileage recording system that records properly. Do not waste money and time in a fuel card system that keeps track of mileages, if you already have a main mileage recording system (device/process).
- Avoid having any missing mileage or fuel data for each quarter.
- The purpose of IFTA and IRP audits is to make sure that you are doing your compliance record keeping correctly. Audits are also carried out because they are the validation vehicle for the IFTA program on behalf of all member jurisdictions. It is the vehicle to ensure taxes are collected for all member jurisdictions. So, be sure to keep complete and accurate records of your mileage and fuel data.
- IFTA mileage should be equal to IRP mileage.
- Use an IFTA program that helps you keep correct records, organizes them, finds missing mileage, generates proper reports, runs unlimited reports, and stores your data for 6 years exceeding IFTA requirements.
Meadow Lark knows what it means to play by the book and in the transportation industry, you have to. We pride ourselves in our compliance and attention to detail. If you are looking for someone to partner with that has worked with well known companies across the country, look no further!