Revenue Administration: Taxpayer Audit--Use of Indirect Methods
Technical Notes and Manuals, April 14, 2010
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- Revenue Administration: Taxpayer Audit--Use of Indirect Methods
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Bibliographic details
- Published: April 14, 2010
- Series: Technical Notes and Manuals
- DOI: https://doi.org/10.5089/9781455238101.005
Summary
- This technical note examines the use of indirect methods in a taxpayer audit.
- Indirect methods involve the determination of tax liabilities through an analysis of a taxpayer’s financial affairs utilizing information from a range of sources beyond the taxpayer’s declaration and formal books and records.
- Assessments are often based on circumstantial evidence indicating a reasonable estimate of the taxpayer’s correct liability.
- The note describes why tax administrations need to use indirect audit methods, elaborates commonly used indirect audit methods, and analyzes the legislative requirements for the use of indirect audit methods.
Why tax administrations need indirect audit methods
- Indirect methods allow determination of tax liabilities when formal books and records are incomplete, unreliable, or unavailable.
- Assessments based on circumstantial evidence can produce a reasonable estimate of the taxpayer’s correct liability when direct verification is not possible.
Indirect audit methods commonly used
- The note elaborates common indirect audit methods (listed in the source terminology):
- cash expenditure method
- methods based on receipts and declarations (including customs declaration)
- methods that reconstruct taxable income from available circumstantial evidence
- Indirect methods utilize information from a range of sources beyond the taxpayer’s declaration and formal books and records to determine tax liabilities.
Legislative requirements for use of indirect methods
- The technical note analyzes legislative requirements governing the use of indirect audit methods, including conditions under which assessments based on circumstantial evidence are permissible.
Subject areas and keywords
- Subject: Administration in revenue administration, Auditing, Expenditure, National accounts, Personal income, Public financial management (PFM), Revenue administration, Tax administration core functions
- Keywords: administration, Administration in revenue administration, answers to question, audit program, Auditing, auditor, cash expenditure method, customs declaration, declaration of income, indirect audit methods, indirect method, indirect methods, method, method assessment, Personal income, receipt, risk taxpayer, Tax administration core functions, tax audit methods, taxable income, taxpayer audit, taxpayer audit--use, taxpayer challenge, taxpayer claim, taxpayer's book, taxpayers figure, TNM