Summary

A determination of a taxpayer's tax liability must be made based on all available information, including facts that support the taxpayer's position. In this chapter, the following audit techniques used to gather information and how these techniques can be used when auditing IRC §42 issues have been discussed.

Interviews with the taxpayer provide an opportunity to obtain an understanding of the taxpayer's background, financial history, business operations and internal controls, and books and records.

IRC §42 projects are toured to ensure the housing exists, includes the assets described in the records, and is suitable for occupancy. The tour is also an opportunity to observe the taxpayer's compliance with IRC §42 requirements and test internal controls.

The taxpayer's internal controls are evaluated to determine the reliability of the taxpayer's books and records. Consideration is given to the control environment, accounting system, and control procedures. The scope and depth of the audit will be established based on this evaluation. Information about the taxpayer's internal controls can be obtained by interviewing the taxpayer, observing the internal controls in place during the tour of the project, and by testing the taxpayer's books and records.

Third party contacts should be made if information cannot be provided by the taxpayer, or it becomes necessary to validate or corroborate information or documentation.