Tax Compliance – High Complexity – Risk
Tax Compliance – High Complexity – Risk comprises those tax compliance engagements where the risks of tax evasion are present, or the complexity of a taxpayer’s business is significant.
The Internal Revenue Service has identified criteria for high-risk taxpayers. The Department of Treasury and the IRS have a joint strategy that is designed to guide efforts to improve compliance through a set of basic principles:
- Unintentional taxpayer errors and intentional taxpayer evasion addressed;
- Sources of non-compliance and the need for enforcement targeted with specificity
- Enforcement activities combined with a commitment to taxpayer service; and
- Policies and proposals for change sensitive to taxpayer rights and maintain the necessary balance between enforcement activities and imposing taxpayer burden.
The IRS has identified techniques that they use in identifying situations where the risk of tax evasion may occur. Their techniques include:
- Analytical Tests — such as analysis of balance sheet items to identify large, unusual, or questionable accounts. Analytical tests use comparisons and relationships to isolate accounts and transactions that should be further examined or determine that further inquiry is not needed.
- Documentation — such as examining the taxpayer’s books and records to determine the content and accuracy of items claimed on the tax return.
- Inquiry — such as interviewing the taxpayer or third parties. Information from independent third parties can confirm or verify the accuracy of information presented by the taxpayer.
- Inspection — such as physically examining the taxpayer’s assets, e.g., inventory or securities.
- Observation — such as conducting a tour of the taxpayer’s business to observe the taxpayer’s daily business operations.
- Testing — such as tracing transactions to determine if they are correctly recorded and summarized in the taxpayer’s books and records.
For both domestic businesses and multi-national companies, compliance with an increasing number of tax rules, more rigorous and coordinated enforcement by tax authorities, and ongoing staffing constraints continue to be a challenge. As businesses expand operations into new markets the complexity of managing tax risks and complying with reporting requirements multiplies. aBIZinaBOX offers efficient, cost-effective tax compliance services, including co-sourcing and outsourcing options. A suite of integrated tax technologies can help companies achieve their goal of high quality, lower-cost compliance. In addition, some technologies have the potential to give businesses enhanced visibility into more global information that may be useful to them in strategic decision-making.
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