Tax investigation

 

This is a special form of review of the financial and non-financial records of taxpayer. This is similar to tax audit, but it is done when the tax authority is suspicious of tax fraud by the taxpayer.

Tax investigation exercise is carried out by inspector of tax believed to be very knowledgeable in tax matters. Such inspector of tax must have had basic training on investigative procedures and must have acquired the investigative skills required of an investigator.

Why would a tax authority carryout Tax Investigation

Tax investigation is done to:

Ø  Expose any act of tax evasion perpetrated by taxpayer

Ø  Expose transactions hitherto believed to be hidden and kept of records

Ø  Increase the revenue of government as charges may be made about the unpaid tax

Ø  Get possible evidence for purposes of prosecution.

To be successful in tax investigation exercise, the investigator has to follow some stages or sequence listed below:

1.           Surveillance

Surveillance is the first act of the sequence of tax investigation. It simply refers to the act of gathering information about a perceived tax fraud before any form of investigation can begin.

2.           Evidence gathering

Evidence gathering is the second in the sequence of tax investigation. It involves getting necessary evidence and information that will assist the inspector of tax to prosecute the taxpayer, if needs be.

 

3.           The third act in the sequence of tax investigation is to prepare the case as it will be presented for adjudication in a court of law. Here, the inspector of tax collects and assembles the evidence gathered, including but not limited to documentary evidence, oral testimonies, etc.

4.           After the case has been prepared for adjudication, next in the sequence is arraignment. Here, a prosecutor is appointed and the evidence gathered are handed over to him for use during court proceedings.

5.           Lastly, termination ends the sequence. The case of tax fraud could be terminated for a number of reasons.

ü  When the taxpayer (accused) dies before the end of the case.

ü  When the taxpayer (accused) becomes bankrupt before the end of the case.

ü  When the evidence gathered is not enough to stand the prosecution of the tax fraud case

ü  When it is discovered that there is really no criminal activity in the suspected tax fraud.

ü  Where the law upon which the prosecution is based is repealed.

With these, the criminal case of tax fraud or tax evasion could be terminated.