Licensing, entertainment & oil and gas
On a royalty audit, the IRS often focuses on the licensee's retained profit — not the stated rate.
If your licensing arrangements have not been formally reviewed, or an acquisition or IRS notice has put a structure under scrutiny, reach out. We assess what is there, flag what needs updating, and tell you plainly where you stand.
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TL;DR
What most clients miss on a royalty audit
Royalty audits are more targeted than most clients expect; the IRS has specific examiner playbooks for entertainment and oil and gas.
On a royalty audit, the IRS often focuses on the licensee's retained profit rather than the stated rate.
Prior IRS approval of a methodology does not protect you if the economics have changed.
Cross-border royalties carry a separate withholding exposure most companies underestimate.
Why a Royalty Auditor Who Only Knows the Rate Is on the Wrong Problem
Clients who come to us about a royalty audit tend to believe that if the percentage holds up, the structure holds up. That is the wrong frame. Examiners look at the outcome the rate produces: how much profit the structure leaves with the licensee compared with independent operators in the same market. A rate that matches unrelated-party charges does not settle that question. A royalty auditor who only knows the rate is working on the wrong problem.
If your royalty arrangements have not been looked at in a while, a short review tells you where the exposure sits before an examiner finds it. No obligation, handled by a professional.
Where exposure builds
Where royalty exposure builds
Methodology gone stale
A method set up correctly and then never revisited stops holding once the economics move.
Inconsistent advances
Advances handled differently from year to year stand out the moment an examiner reads the file.
Cross-border withholding
US-source royalties paid abroad carry a withholding obligation; when the documentation is not maintained, the obligation accumulates.
Prior-approval assumption
A methodology the IRS accepted before is not permanently shielded if the economic facts have materially changed.
Talk to a CPA about your royalty structure
If your royalty arrangements have not been looked at in a while, a short review tells you where the exposure sits before an examiner finds it.
No obligation, handled by a professional.
What we cover
What a royalty audit covers
Methodology
Is it documented, current, and backed by a functional analysis?
Advances and royalties
Are advances and ongoing royalties reported in line with the contract?
Cross-border compliance
Do foreign payments meet the withholding rules?
Rate durability
Does the rate still hold under the method the IRS is most likely to apply?
Who a royalty audit is for
A good fit if you:
- Hold licensing, entertainment, technology, or natural-resource royalty arrangements.
- Have not had your royalty methodology formally reviewed in some time.
- Are heading into an acquisition and need a due diligence review.
- Have had a structure put under scrutiny by an acquisition or an IRS notice.
Why a CPA firm
Why a royalty audit needs a CPA firm
Sourcing and treaty analysis
A bookkeeper keeps payment records clean but is not positioned to run the sourcing analysis or test treaty applicability.
Reads the file like an examiner
We review a royalty arrangement the way the IRS would, against the method it is most likely to apply.
Closes the exposure gap
The lapses that build exposure are exactly what a CPA firm is positioned to catch.
Why choose Dimov Audit
Why clients bring royalty work to Dimov Audit
Examiner-aligned methodology review, advance and rate testing against the contract, and cross-border withholding and treaty analysis — backed by hundreds of audit and attestation engagements across every state.
500+
audit and attestation engagements
50
states served, nationwide coverage
Cross-border
withholding and treaty analysis
CPA
examiner-aligned review and representation
Scoping
What drives the cost of a royalty audit
Royalty audit work is priced by the engagement.
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.
24 Mercer St, 2nd Floor, Suite 214
New York, NY 10013
United States
Royalty audit FAQs
Reviewed by George Dimov, CPA. Founder of Dimov Audit, the firm behind 500+ audit and attestation engagements across all 50 states.
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