Taxation - Assignment 2 Example | Topics and Well Written Essays - 500 words

Taxation - 2 - Assignment Example Correspondence audits usually entail a single issue such as dependent exemptions. Regardless of the three types of audit, IRS tax examiners make decisions as to whether to commend changes to the reported tax or to the audited tax issues. After the tax examiner recommends a change, the taxpayer has the right to appeal or agree with their tax change. The outcome of the taxpayer appeal determines whether the auditor’s recommendations may or may not be collected or assessed. The law states that an assessment of tax must be made within three years from the date the tax return was filed. However, there are circumstances under which this rule does not apply. i) If a taxpayer omits more than 25% of their gross income from their tax returns documentation. From a government point of view, an audit seeks to verify and ascertain the details on taxpayers’ return documentation. This would ensure that every individual is accountable for their tax obligations to the government. Persons at high risks of audits include households and individuals who list their deductions, especially if the deductions in specific categories such as charity or medical expenses are more significant than average. Another group of individuals at a higher risk of audit is professionals who run businesses such as doctors, and lawyers. These professionals often run their businesses on their own and are in charge of accounting functions of the business activities. As such, they are at high risk of IRS audits. b) This would be tax avoidance. Mr. P is considering the time period variable to reduce the burden of tax. It makes good business sense to for MR. P to record the sale of the asset in the previous year where the tax rate is less by