Franchisor & franchisee positions
A franchise audit runs on two tracks: how royalties are priced and how the fee is deducted.
Send us your structure and your last filed returns. We will show you where the exposure sits on both the royalty side and the fee side, and what it takes to close it.
- Audit-only focus
- GAAP & IFRS expertise
- Senior auditor on every engagement
- Transparent, predictable pricing
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How Franchise Exposure Arises
A franchise audit rarely begins with someone cutting corners. It begins with a decision that looked correct at the time. You paid the fee your franchisor set and deducted it the way your accountant suggested, or you priced royalties to match the agreements you signed. Then the IRS reads the same numbers and reaches a different conclusion.
We work with franchisors and franchisees in all 50 states, and almost every file turns on the same two questions: how royalties are priced, and how the fee is deducted.
Who a Franchise audit is for
A good fit if you are:
- A franchisor collecting royalties from related or foreign entities.
- A franchisee who paid a sizable upfront or renewal fee.
- A multi-unit operator with franchises across several states.
What gets tested comes down to whether your royalty pricing reflects an arm's-length rate, whether franchise fees were capitalized and amortized correctly, and whether the documentation behind both holds up under a closer look.
Two sides
The two sides a Franchise audit tests
Franchisee: Fee Timing
The initial franchise fee is a Section 197 intangible amortized straight-line over fifteen years (180 months), whatever the agreement term says. Deduct it faster and the excess is disallowed on exam, with a 20 percent accuracy-related penalty and interest.
Franchisor: Royalty Pricing
A related-party royalty rate is a starting point, not a settled fact. The IRS can reject it and rebuild the number from what unrelated parties would have paid, even for the largest filers, and the same reasoning reaches a regional franchisor.
Renewal and Acquired Rights
Renewal fees and acquired franchise rights ride the same fifteen-year rule.
Past Approvals
A clean audit in one year protects only that year unless a written closing agreement says otherwise. "They approved it before" is not a defense.
Talk to a CPA about your franchise position
The moment before the notice arrives or the renewal lands is the one with the most options, not the fewest.
Reach out and we will tell you which side you are exposed, and what to do about it. No obligation, and handled by a professional.
What it delivers
What a Franchise audit delivers
Audit Preparation
Documentation organized before a notice sets the clock.
Contract Compliance Audit
Confirmation that your agreements and your books actually agree.
Accounts Payable Audit
Duplicate or unsupported payments surfaced before an examiner finds them.
Business Audit Services
Broader review for the entities sitting under a multi-unit structure.
Why a CPA firm
Why a Franchise audit needs a CPA firm
Reads the agreement against the code
Software checks arithmetic. It cannot test whether a royalty rate survives scrutiny or flag a fee deduction about to fail.
Representation
A licensed CPA can represent you before the IRS and argue the position under examination. Software cannot, and a financial advisor cannot either.
Peer-reviewed
We are an AICPA peer-reviewed firm, the audit of the auditor.
Scoped to exposure
Few owners need every procedure. We scope the work to the exposure, then do that part properly.
Why choose Dimov Audit
Why franchise owners bring this work to Dimov Audit
The royalty side and the fee side tested together, scoped to the exposure, defended under examination if it comes to that — backed by hundreds of audit and attestation engagements across every state.
500+
audit and attestation engagements
50
states served, nationwide coverage
15 yr
Section 197 amortization, the rule we test against
CPA
licensed IRS representation
Scoping
What drives the cost of a Franchise audit
Franchise work is priced by the engagement, not a flat rate.
We size the work against your situation and give you a clear quote before you commit.
Contact
Connect with Dimov Audit
Our dedicated team is ready to assist you on your path to financial success.
211 E 43rd St Suite 628
New York, NY 10017
United States
Franchise audit FAQs
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At Dimov Audit, we pride ourselves in quick communication, accurate work, and seamless delivery.