Disallowance refers to the rejection of a taxpayer's claim for a deduction or credit during the audit process, often leading to an increased tax liability. This process usually occurs when tax authorities find that certain expenses do not meet the necessary criteria under tax law, which can happen for various reasons including lack of documentation or non-compliance with specific regulations. Understanding disallowance is crucial because it directly impacts a taxpayer's financial situation and the potential for disputes during appeals procedures.
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