What is a Revenue Audit?
A Revenue Audit is an examination of the information and figures shown by a taxpayer in their tax returns to Revenue against those shown in their business records.
The Revenue Auditor will require access to all books and records in relation to the tax for the period being audited and these records should be made available on the first day of the audit.
The audit will normally review a particular year but if significant discrepancies are found during the audit, the Revenue may extend the audit to prior years.
What is the objective of a Revenue Audit?
The primary objectives of a Revenue Audit is to promote voluntary compliance and monitor tax compliance. The function of a Revenue Audit is to:
- Determine the accuracy of a return in relation to tax liability or claim for repayments.
- Identify any additional liabilities or other matters requiring adjustment
- Collect tax, interest and penalties where applicable.
- Specify any actions which may need to be taken to put the taxpayer on a compliant footing for the future.
- Publish defaulter’s name under the provisions of S. 1086 TCA97.
- Where serious evasion is uncovered the Revenue may consider prosecution.
How do Revenue select taxpayers to be audited:
- Screening tax returns – this involves examining the returns of taxpayers and reviewing their tax compliance history. Figures in returns may be evaluated in the light of trends in particular businesses or professions and analysed against available information.
- Information may be received from third parties in relation to particular tax payers.
- To examine tax compliance levels in particular trades or professions.
- A number of audits are carried out on a random basis giving rise to the possibility of all taxpayers being liable to audit.
There are two types of audit:
- Field Audit which is conducted at the taxpayer’s place of business and generally applies to trades and professions and will involve a comprehensive review of the books, records and returns of the business.
- Desk Audit this audit is conducted at the Revenue offices and generally applied to investment and rental income. The Revenue may seek verification in relation a particular transaction.
Conduct of Revenue Audit
At the initial meeting the auditor identifies himself/herself to the taxpayer and explain the purpose of the audit while giving an indication of its duration. At this meeting the inspector will outline his/her authority and draw the taxpayer’s attention to the Charter of Rights.
The auditor will invite a voluntary disclosure thus giving the taxpayer an opportunity to disclose all inaccuracies in the tax returns. The auditor will ask questions about bookkeeping and accounts systems in operation to obtain information about the business and the taxpayer’s lifestyle and financial commitments. He/she will then commence to examine the books and records of the business in order to verify the figures in the tax return.
During the course of the audit, the auditors will ask questions and may look for explanations to help on assessing the accuracy of the tax returns.
The auditors may in the course of the audit, inspect the business premises manufacturing or other processes or items of machinery or stock.
The auditor will inform the taxpayer that in the event that discrepancies are discovered, he/she will seek a meeting to discuss the result of the audit and making a formal settlement offer for all outstanding liabilities
Co-operation with the auditors is important in helping conclude the audit promptly. Co-operation is also one of the factors which Revenue takes into account in deciding what level of penalties if any are to apply in a particular case. Cooperation includes having all books and records available responding to requests for information and explanations responding to correspondence and prompt payment of the audit settlement liability.
Conclusion of Audit
Where the auditor finds adjustments are necessary he/she will quantify the adjustments and the additional tax, interest and possibly penalties. The taxpayer will be given time to consider the proposed adjustments. The Inspector will also make the taxpayer aware of his or her rights in relation to the appeal procedures and also the review procedures.
When the audit has been completed the Revenue Inspector will request a meeting with the taxpayer and their accountant at which he/she will present the findings, inform them as to whether the records and returns are satisfactory and where there are discrepancies he/she will work towards agreeing the undercharges under each tax heading. At the closing meeting he/she will ask for responses to any discrepancies discovered e.g. queries on gross profit, undeclared sales etc. The Revenue auditor will quantify the undercharge in respect of tax interest and penalties if applicable and invite a written offer and payment from the taxpayer. Where publication arises, the taxpayer and his/her agent will be so advised.
At this final meeting, the auditor will ask for agreement to the total settlement figure. This figure will include tax, interest and, if they arise, penalties.
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