The International Fuel Tax Agreement (IFTA) is an agreement between the Lower 48 states and 10 provinces in Canada. It allows motor carriers to report and pay fuel taxes to their base state, where the truck is registered, rather than dealing separately with each locale. Your base state then distributes the payments to all the relevant states and provinces. It reduces paperwork and confusion, but it also means that your fuel records and mileage records might be audited. Here is what you need to know about an IFTA audit.
What is an IFTA audit?
Your mileage data determines how much fuel tax you owe to each jurisdiction. While your state takes care of the payment process, IFTA auditors want to know that this data is being accurately recorded. Each IFTA jurisdiction must audit three percent of its accounts each year, and you might be selected randomly. Reporting errors can increase your chances of an IFTA audit. If you’re chosen for an audit, don’t panic. Follow this IFTA audit checklist to get through the process seamlessly.
When do IFTA audits occur?
IFTA audits typically occur every three months. However, that doesn’t mean that you will be audited three times per year. Many trucking companies go years and years without being audited. Eventually, though, your number is likely to come up. You will have 30 days’ notice to prepare for your IFTA audit. Take advantage of this time to gather your documentation and get organized.
IFTA audit process
All IFTA audits follow a standard, step-by-step process. Here is what you can expect at each stage.
- Audit notification. If you are selected for an audit, you will receive a letter from your base state informing you of the upcoming audit and tentative date (roughly 30 days out).
- Auditor assigned. When a specific IFTA auditor is assigned to your case, he or she will contact you directly. Be ready to send preliminary data to help the auditor contextualize your situation.
- Opening conference. On the agreed-upon date, you’ll meet with your auditor. This meeting normally takes place in your office. You and your auditor will discuss your operation, the documents to be examined, and how the audit will proceed. Everything discussed will be documented in writing.
- Evaluation of internal controls. This is when your auditor examines and evaluates your IFTA accounting control system. He or she will carefully examine your process, looking for any weaknesses or noncompliance issues.
- Share records. Your auditor may ask you to share additional IFTA records and documentation during the evaluation process.
- Auditor visits and verifies reporting. You will likely get another visit from your auditor to verify all records you sent and discuss how the process is going.
- Closing conference. The closing conference is your last official meeting with the auditor. He or she will present all findings, recommendations, any penalties and interest you owe, and information about your right to appeal.
- Audit reports sent. The auditor will send copies of the written audit report to all relevant parties, including you.
- Notice of assessment. You will receive an official notice of assessment that details exactly how much you have to pay, by when, and further details on how to appeal.
IFTA audit penalties
You might be wondering what happens if you fail an IFTA audit. The good news is that it is extremely unlikely that your company will be shut down. If you’ve made a good faith effort to properly document your mileage and to file and pay your fuel taxes on time, then IFTA audit penalties are typically not too severe. In general, you’ll owe $50 or 10% of the total tax due (whichever is higher) for non-filing or filing late, along with 0.4167% interest per month on unpaid taxes.
However, IFTA audit fines could be more severe, especially if your auditor believes that your non-compliance was on purpose. In addition, your IFTA license could be in jeopardy if you continue to not comply.
IFTA audit tips
An audit is never fun, but the best defense is always scrupulous record keeping. To reduce your chances of being audited and sail through the process if you’re randomly selected, follow these IFTA audit tips.
- Use software to automate the IFTA reporting process. Automated IFTA reporting software does 99% of the work for you. You won’t need to dig through your records and report a quarter’s worth of data. Instead, you can start when you create a load, enter your fuel receipts as you get them, and let the program do the work! You’ll just click a few buttons when it’s time to file. If you do get audited, you’ll be able to show the auditor your software and your receipts, making it easy to provide documentation.
- Keep your receipts. Your auditor will want to compare what’s in your software system with the physical fuel receipts, so hang onto them. IFTA regulations require you to keep documentation for four years. If you also keep any manual records such as logbooks, hold onto those.
- Track your actual mileage. Either in your software system or by hand, keep precise odometer readings for each trip. Sometimes bridges are out of service or roads are closed for maintenance, so trying to estimate your mileage could lead to discrepancies.
- Ping every 15 minutes or less. If you’re logging mileage electronically, your device must ping at least every 15 minutes to be IFTA compliant.
- Ask for what you need. If you need extra time to prepare for the audit, just ask. Likewise, if you have a large fleet, you may be able to produce several sample trucks rather than every truck in the fleet. Auditors will usually work with you if your request is reasonable and polite.
- Designate one point of contact. If you’re an owner-operator, you will most likely deal with the auditor directly. But if you are responsible for a medium or large carrier, there may be several people who are qualified to work with the auditor. Choose one, and have that person handle all audit-related communications. This will prevent the audit from turning into a giant game of Telephone.
- Clean your office. First impressions go a long way. Before the auditor arrives, clean and organize your office. Make sure a comfortable chair is available and present organized records rather than a shoebox of loose receipts.
Automate your IFTA reporting with ITS Dispatch
It’s normal to dread an upcoming IFTA audit. But detailed and accurate recordkeeping can help the process go smoothly. The Truckstop IFTA reporting tool makes it easy to automate your IFTA reporting with just a few clicks. If you’re audited, you’ll be able to produce the documentation you need without digging through a bunch of bins or filing cabinets. And it’s fully integrated into the comprehensive TMS, ITS Dispatch, which includes a complete toolbox of solutions for all your paperwork needs. Get started with a free demo today!