What Are Tax Audit Triggers?/ 23 Causes of Tax Audit

What Are Tax Audit Triggers?/23 Causes of Tax Audit

What Are Tax Audit Triggers?/23 Causes of Tax Audit - Tax audit is a global issue. There are causes or triggers. No one likes being audited by the Federal inland Revenue Services ( FIRS) or State Internal Revenue Service ( SIRS). The dreaded thought of getting a tax audit notice sends shivers down the spines of the bravest taxpayer. 

What Causes an  FIRS/SIRS Tax Audit? This is the subject matter of this post. Therefore, this post is for every taxpayer, tax practitioners, and tax professional students. I have taken time to enumerate about 23 causes of tax audit notice, commonly, what we call tax audit triggers.

What Are Tax Audit Triggers?/23 Causes of Tax Audit

What Are Tax Audit Triggers?/23 Causes of Tax Audit


As a matter of fact, once your tax return shows some doubts about any of these tax avoidance or tax evasion indicators, the relevant tax authority will issue tax query which is a soft landing scheme for you, and if not well answered, tax audit notice/ letter follows. 

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Consequently, watch the following:

(1) Taxpayer with tax refund claims – such tax refund claims means, you are saying you have over paid tax. This will make the tax authority to verify your claim. This verification becomes tax audit. So if you have refund claims especially from excess withholding tax credits and others like that, you will have to be tax audited.
(2) Tax payer with continuous Nil or Loss returns. This claim has also to be verified especially where other firms in the same industry make profit.
(3) Taxpayers with non-correlated adequacy ratios. In this case your various financial ratio/operational ratios are not correlated
(4) Lead information from the Tax authority Intelligence department. This is the third eye of the organisation. They could be your friends, but they watch your lifestyle, and can judge whether it’s in consonant with your said income.
(5) Indications for existence of a parent body especially abroad, multiple branches nationwide, departmental arrangements and business segmentation, all of which are indicators of artificial transactions and transfer pricing arrangements. Every transfer pricing arrangements must be verified.
(6) Indication of tax planning scheme in existence. Tax planning arrangements aim at avoiding tax, but tax authorities must ensure that it does not lead to tax evasion.
(7) Double Taxation claims are those involving foreign earnings where some taxes had been paid already on the income. This has to be verified; the tax authority would not like you to pay more than necessary especially where there is in existence some element of tax treaties between the domestic country and another country.
(8) Indication of involvement of other companies, related parties, such as holding company, subsidiaries, and associate companies. These lead to artificial transactions.
(9) Industrial/group  regulatory compliance evaluation could lead to tax auditing your own firm.
(10) Firms are deemed to be in existence to perpetuity, your poor performance could attract tax audit.
(11) Extraordinary performance also attract tax audit. Think about this.
(12) FIRS Desk examination referrals
(13) Routine industry checks
(14) Self-assessment tax regime demands a tax audit of at least once in every two years – this is always randomly chosen
(15) Third party information. Other organisations or individuals could give report about your business.
(16) Re-organisation/restructuring will attract tax audit, especially liquidation, merger or acquisition.
(17) Directive from higher government authority.
(18) Regular mathematical errors.
(19) Regular incomplete documentations.
(20) Cash-base business - this class of business people don't keep proper books of account.
(21) Deduction of unallowable expenses
(22) Making donations to unauthorised bodies - e.g. charging your church tithe to operating expenses.
(23) High net-worth individuals - these are prone to evade tax.

What Are Tax Audit Triggers?/23 Causes of Tax Audit



Do I need to promise you a post on how to avoid tax audit. If you put on your thinking cap, you will reason that taking care of these 23 points is avoiding tax audit, except those that are mandatory.


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