Tax Audit, Here’s How it Works.

An interesting news about income tax audit came to my attention recently.

In Germany, a restaurant operator was flagged for tax audit, because his purchase of supplies did not match with the amount of revenue he was reporting.

The restaurant in a working class neighborhood of Saxony, makes larger than average schnitzels for its customers. Its giant schnitzel servings are very popular with his customers. He serves about 70 dishes a day of this lavish meal.

But according to Tax Auditors, they believe the restaurant sells 200 servings daily, based on the amount of

raw material purchase reported in the tax form. They also said that his servings of french fries and pasta are too lavish.

As per the owner of the restaurant, his customers from a pool of labourers have a hearty appetites and if he served the customers smaller portions at the normal price, it would not fill them up and he would not have any customers.

The restaurant’s supporters held a rally to protest a demand by the Tax Auditors to pay an additional $51,600 in tax based on the auditors calculation of his revised food sales.

Tax Auditors in Canada and USA have the same practice. They compare a tax report of a business with similar business in the same industry. Any significant difference in tax report line items, with the industry standard will raise a flag for audit.