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1. Identity of the factor and its geographic location.
2. Identity of the legal form (partnership, corporation, LLC, etc) of the factor
3. Identity of the tax form (partnership, corporation, disregarded entity) of the
factor.
4. Identity of the functions performed by the factor; and, if appropriate, the
functions which the factor contracts to be performed on its behalf.
5. Identity of the number, names and location of any employees of the factor.
6. Identity of duties specifically performed by each employee.
7. Identity of who performs the factoring functions.
8. Explanation, in detail, of any transfer pricing methodology used in
determining how a related entity reimbursed the taxpayer for services
provided (i.e. servicing rights).
9. Explanation, in detail, of any risks assumed with regard to the factored
receivables and the entity assuming such risks.
10. Analysis, in detail, of the amounts attributable to these risks, to be
supported by appropriate workpapers.
Bad Debt History
Determine the bad debt history of the taxpayer’s accounts receivable for the
years under exam and if possible the past 3 to 5 years. Calculate the
percentage of receivables written off as bad debts for each of the years.
Identify the first time that the taxpayer entered into a factoring arrangement and
indicate the reasons the taxpayer provided for entering into such an
arrangement.
Dates the Receivables Were Collected and Transferred
The legal analysis of factoring arrangements may require identifying the dates
and amounts of receivables transferred to the factor. Accordingly, for all the
factored receivables determine:
1. The dates and the amounts of the accounts receivable the taxpayer
transferred to the factor.
2. The dates the taxpayer received collection on the accounts receivable; and
3. The dates the factor had until to accept or deny the transferred accounts
receivable.
Prior History on Sale of Accounts Receivable/Repeal of Mark-To-Market
Treatment under Section 475/Tax Avoidance
Obtain answers to the following questions:
1. Prior to July 1998, did the taxpayer utilize Section 475 to mark-to-market its
accounts receivable?