Diagnostic Review
A Diagnostic Tax Review, often referred to as a tax diagnostic or tax health check, is a comprehensive assessment of an individual’s or a business’s tax situation. The primary purpose of a Diagnostic Tax Review is to identify potential tax issues, risks, opportunities, and compliance requirements.
The key objectives of internal audit typically include:
Scope
The review can vary in scope depending on the objectives.
Tax Compliance
Evaluate the extent to which the individual or business is complying with tax laws and regulations. This includes reviewing tax returns, documentation, and adherence to filing deadlines.
Tax Risks and Liabilities
Identify potential tax risks and liabilities that may arise due to tax planning strategies, financial transactions, or accounting practices. This involves assessing the level of risk associated with each issue.
Tax Documentation
Review the completeness and accuracy of financial records, supporting documentation, and tax filings. Ensure that all necessary records are maintained as required by tax authorities.
Record Keeping
Assess the quality of record-keeping practices to help in case of audits. Good record-keeping can be critical for substantiating tax positions.
Tax Efficiency
Evaluate the overall tax efficiency of the business's financial operations. Determine if there are opportunities to structure transactions in a more tax-efficient manner.
Tax Reporting
Analyze the consistency and accuracy of tax reporting across different financial documents and tax returns.
Tax Compliance Changes
Keep track of any recent changes in tax laws and regulations that may impact the business. Ensure that these changes are appropriately addressed in the tax planning and compliance.
Documentation of Tax Positions
Document the rationale for tax positions taken, especially those that involve tax planning and deductions. This documentation can be crucial in case of disputes with tax authorities.
Legal and Regulatory Compliance
Ensure that the business is in compliance with all legal and regulatory requirements related to taxes, which may vary by jurisdiction.
Assessment Report
After the review, a report is typically generated, summarizing the findings, recommendations, and action items. It may include a list of tax issues, potential risks, opportunities, and a roadmap for addressing them.
A Diagnostic Tax Review is an essential tool for individuals and businesses to ensure they are meeting their tax obligations, optimizing their tax positions, and avoiding potential tax issues and liabilities. It is typically performed periodically to address changing tax laws, evolving financial circumstances, and to maintain a proactive and compliant approach to tax matters.
