Audits usually done by the government appointed auditors, in order to find out if the tax was full is known as tax audit. Returns are selected on the basis of any discrepancy that the auditors suspect with respect any major change in the income level or high claim for deductions.
Tax audits are very important for the government and the person found guilty of misleading in the returns filed may have to bear consequences of penalties or pay-back-taxes. The auditors work on superficial level to examine the returns and any discrepancy found either with the help or computer or manually can lead to strict actions against the tax payer. Tax evasions are not legal at all however; tax avoidance can be done to minimize the payment of tax. For example prolonging the period of sale of the assets such that it effects the tax payment or using any other technique can be utilized to minimize the payment.
Tax audit is normally done in three stages in most of the countries which are the control stage, reply and dialogue stage and the litigation process stage. In the first stage the auditors may call upon several meetings to analyze the bank accounts and other financial position of the company or the individual. They then send a request for justification or a tax adjustment advice. The second stage comprises of sending a notice to the tax payer with time duration to reply back. The tax payer is bound to reply in that period or else the adjustments sent will be treated as accepted. If the tax payer does not agree with the tax authorities he has the option of calling a meeting with the authorities to clear his position. However if the matter is not solved, in some countries tax payer has the option of going to the court to clear the matter. The third stage involves the courts decision on the case and the tax payer has the authority of going to the highest court present in the country, if the lower court rejects his case. If the case still then gets rejected the tax payer is then forced to accept the claim and pay accordingly.