Internal Revenue Service

Beauty and Barber Shops: IRS Audit Techniques Guide Internal Revenue Service

This beauty salon guide is composed of collective information from audits conducted in Las Vegas, interviews of salon owners, and contacts with the State Board of Cosmetology (Nevada, Oregon, and New Jersey). This guide is intended to provide an overview of the industry. The salon industry is cash intensive. The majority of the work force has a high school education and are graduates from cosmetology school. The books and records provided are often limited. Overall, the examiner is faced with a cash business and few if any records. The preceding characteristics can be overcome by conducting a good initial interview, preparing a standard of living analysis, and utilizing an innovation method (see Exhibits 1-3 for possible variable) of determining income. Each examination will be unique and challenging. The examination should not be entirely comprised of reconciling the books to return, evaluating internal controls, documenting your understanding, and testing the established controls.