Tax Evasion and Tax Audit
Definition of Tax Evasion: Tax evasion usually entails taxpayers deliberately misrepresenting or concealing the true state of their affairs to the tax authorities to reduce their tax liability and includes in particular dishonest tax reporting, such as declaring less income, profits or gains than actually earned or overstating deductions,. It is an illegal practice where a person, organization or corporation intentionally avoids paying his/her/its true tax liability. Examples of practices which are considered tax evasion: Knowingly not reporting income * Under-reporting income (claiming less income than you actually received from a specific source * Providing false information to the NBR about business income or expenses * Deliberately underpaying taxes owed * Substantially understating your taxes (by stating a tax amount on your return which is less than the amount owed for the income you reported). Tax Audit: A tax audit is an investigation into the background of tax returns submitted by an individual or business to a tax agency.
While it is true that a tax audit may be called due to some perceived irregularity in one or more returns, it is also true that an audit may be done simply as part of a random sampling. Tax audit is when the IRS decides to examine your tax return a little more closely and verify that your income and deductions are accurate. Tax return is chosen for audit when something you have entered on your return is out of the ordinary.
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There are three main types of IRS audits: the mail audit, the office audit and the field audit.