Every year, over 140 million income tax returns are filed with the Internal Revenue Service (IRS). Of those 140 million returns, nearly 1.5 million are audited by the IRS. Taxpayers with an adjusted gross income of over $200,000 generally have a higher chance of being audited, as well as taxpayers will little or no adjusted gross income. Although the probability of actually being chosen for an audit is relatively low, it is still important for taxpayers to understand what tax auditing entails, the procedures the IRS takes in determining which tax returns to audit, and the IRS’s process in selecting the outcome of the audit. This way, taxpayers are able to indicate the common red flags of the IRS and can greatly minimize the possibility of being chosen for a tax audit.
A tax audit is an examination of a tax return by the IRS to verify that information, such as income and deductions, are being reported accurately. Typically, the IRS assesses a business or individual’s financial situation to ensure taxpayers are following tax laws and stating the correct amount of tax on their tax return. The IRS goes through the tax audit process by selecting the tax returns to audit, conducting the audit, and determining the conclusion of the audit.
The IRS uses various audit selection methods, including random selection and computer screening, document matching, and related examinations, to determine which tax returns are selected. Random selection and computer screening is when returns are selected based on a statistical formula. This method demonstrates that some returns are simply chosen at random, even though an error may not have actually occurred. Document matching is a process used to ensure that documents filed by taxpayers, such as W-2...
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...documentation to support his business expenses, resulting in no change to his tax return. This example demonstrates once again that although a tax return may contain some minor errors, providing strong documentation can greatly benefit a taxpayer if audited.
A tax audit can be a lengthy and strenuous process for both the IRS and the taxpayer. If the taxpayer is aware of the methods and procedures of the tax audit process and is prepared whenever receiving a notification, the process can be less alarming and stressful. Being mindful of the many indicators that the IRS looks for when auditing can greatly reduce the chances of being audited, as well as always keeping relevant documents, statements, and records. Tax auditing not only verifies the correct reporting of tax return information but also assists the IRS in guaranteeing the fair treatment of all taxpayers.
Last week, we talked about the IRS Criminal Investigation unit, which just released their Fiscal 2012 report. That report was filled with the sort of dry statistics you would expect from an IRS annual report: 5,125 total investigations launched, 202 crooked tax preparers indicted, 199 identity thieves sent to prison, and 64 months average time behind bars for money launderers. But the report also includes dozens of stories of tax cheats who really just should have known better — and some whose stories are so entertaining we just had to share them. Are you having a bad day? Well, be glad you're not one of these people!
Our current system of taxation is a varied rate percentage based on different income brackets. Many say that it violates our constitutional rights through unequal taxation. Multiple deductions, loopholes, special rates, and a complex system of regulations all characterize our Federal Income Tax System, prompting many to question why it is still being used (Peters, 2013). The current system although bringing in over $3 trillion, taxes income multiple times, and includes the taxing of estate, labor, savings, and investments (National Priorities Project, 2013). The system itself is complex with over 20,000 pages of regulations, requiring a massive filing system, which is set up and maintained by an even larger IRS, requiring over $225 billion in compliance costs (Hall, 2001). One can be hard pressed to find an advantage in the current system, other than the fact that it provides the government with an enormous amount of funds, and it has...
A third party company will perform this audit that has no interest in the company to verify that they are operating in an ethical manner.
For the past eleven years, opponents from the left and right side of the political spectrum have lambasted the FairTax. Politicians who don’t want to relinquish the power given them by the current tax system are the proposal’s biggest opposition. They don’t want to give up the withholding system. They don’t want to give up the sixteenth amendment. They don’t want to lower taxes. They oppose the FairTax for the sake of their own greed and agendas. Despite all their baseless criticism, the FairTax is continuing to gain support on the grass roots and political levels. The statistical data and scientific analysis, compiled over the last eleven years, is overwhelming proof of the FairTax’s ability to bring transparency to the tax system, broaden the tax base and to fix the U.S. economy.
The ethical dilemma in this case is one that Daniel Potter is faced with. Daniel is a staff
According to the article authored by Mark Rupert, what are the seven best practices in the roles and responsibilities of an internal audit function?
Within the current crisis of confidence in the public accounting profession after the Enron debacle and series of high profile failures of financial services firms, the issues about ‘audit expectation gap’ have never been more important. Though it would take an enormous amount of effort to address these issues, I will argue that tremendous amounts could be done in order to close the gap down. In this essay I will discuss some of these issues and in particular the strategies to reduce the gap.
According to Accounting Theory: Contemporary Accounting Issues by Evans, accountants have developed two alternative approaches to accounting for income taxes, which are the cash method and the allocation method. The cash method is described as a simple and direct approach. The amount of income taxes actually paid for the year is reported on the Income Statement. The amount comes from the firm's income tax return and fit is not adjusted in any way. Therefore, the firm's actual transaction to record its income tax liability is the basis for the amount of the income tax expense reported on the Income Statement. The allocation method is a bit different. The actual amount of tax that is paid in the year is ignored when it comes to reporting income tax expense on the Income Statement. The amount of income tax expense reported on the Income Statement is based on the on the income tax rate that the firm pays, which is applied to the amount of pretax income. This makes the Income Statement perfectly consistent with the before-tax income. Using the allocation method makes it look like all items on the Income Statement based on the same method.
When I hear the word ‘Forensic’ the idea and image of a homicide investigation in which evidence gathered is analyzed at a laboratory to determine ‘who done it’. Shows like CSI, Bones, Law and Order depicts the forensic aspect in their broadcast. Being a registered nurse, another thought comes to mind when hearing the term ‘forensic’. I like to watch Dr. G medical examiner on the Discovery channel. That is a reality show regarding investigative research on how a person died. This is done by performing an autopsy and analyzing the pathological reason for a death to determine if foul play was involved. However, I rarely placed the thought that accounting can have a forensic aspect, too. I was always under the impression that auditors were the forensic accountants. Internal Revenue Agents to audit income tax filings to make sure all income are reported, and deductions have receipts as supporting evidence. Certified Internal Auditors to look at business operations and financial statements within a corporation to make sure internal controls are in place, financial statements are properly recorded, and government regulations have been met. External auditors perform audits for SEC compliance and to attest that the company is in good standings to ensure protection of the public interest. These auditors, in essence, would be able to detect fraud in their job when reviewing audit trails and documentations. Needless to say, I my conception have been construed. There is a whole new field of accounting that is on the rise, which specifically deals with fraud detection. This is called Forensic Accounting. This area sparked my interest.
As audit firms look to invest in big data, it will be even more critical to understand the implications of using big data and analytics on the audit profession. There are multiple ways in which data analytics would enhance the effectiveness and efficiency of external audits. From looking at the complete population, to finding trends, to allowing employees to do less routine tasks, there are multiple ways big data benefits audits. Big data would also enhance critical procedures performed for the sales and collection cycle. These benefits are not without some drawbacks that would need to be addressed by the profession.
Dowd (2016) runs above and beyond with the clarification to state accounting fraud incorporates the change of accounting records in regards to sales, incomes, costs and different components for a profit motive, for example, boosting organization stock prices, getting ideal financing or maintaining a strategic distance from obligation commitments. Dowd is of the feeling that covetousness, absence of straightforwardness, poor administration data and poor accounting interior controls are a couple of explanations behind accounting fraud. (Dowd,
Alteration: paper evidence difficult to alter without detection. Any one tries to change anything on paper there must be marks, auditor can find the marks and whether there are changes in financial statements. Any change for fraudulent, misappropriation of asset can been found easily if auditor wants to find.
The revenue/cost period-: Revenue and the cost period in accounting that the company get income from normal business activities. It’s referred to normal business income that the company got by selling their product and service.
...e financial reports and statements are correct. This auditing will be conducted by auditing department of the organization, even may be done by an independent auditor who is not part of the organization, and sometimes public officials are elected. In case of unmatched consequences the organization need to give explanation on the misrepresentation of wrong statements. Auditors purpose is then to ensure that the misrepresentations are corrected, then maintain accurate, reliable financial documents and statements.
Auditing has been the backbone of the complicated business world and has always changed with the times. As the business world grew strong, auditors’ roles grew more important. The auditors’ job became more difficult as the accounting principles changed. It also became easier with the use of internal controls, which introduced the need for testing, not a complete audit. Scandals and stock market crashes made auditors aware of deficiencies in auditing, and the auditing community was always quick to fix those deficiencies. Computers played an important role of changing the way audits were performed and also brought along some difficulties.