- 15 Marks
AT – May 2016 – L3 – Q6 – Tax Audits and Investigations
Define tax avoidance and evasion, outline the differences, and explain key stages and objectives of a tax audit.
Question
YASSAR LIMITED imports baby wears and has been in business for some years now. The company is doing very well, and the Directors are impressed with the growth. The company’s Managing Director, Chief Agbaegonkiti, is a member of Enugu Sports Club. On January 14, 2015, after the morning aerobics in the club’s gym, a friend of Chief Agbaegonkiti, who is also the Finance Director of a trading outfit, narrated how the company he works for was subjected to a Tax Audit by the Federal Inland Revenue Service (FIRS), which resulted in payment of additional tax liabilities totaling N10.5 million.
The Finance Director attributed their company’s ordeal to the Board’s poor understanding of key tax-related issues. Chief Agbaegonkiti, after listening to his friend, was highly worried about such a fate befalling his company. As a proactive move, he enquired for seasoned tax practitioners, and your firm, Cutting-Edge & Co, Chartered Accountants, was referred to him.
As the Managing Partner, you are to take action and address the following:
REQUIRED:
a. Briefly explain what you understand by the terms Tax Avoidance and Tax Evasion. (2 marks)
b. State FIVE differences between Tax Avoidance and Tax Evasion. (5 marks)
c. Outline the key stages in the Tax Audit process. (3 marks)
d. State SIX objectives of a Tax Audit exercise. (5 marks)
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