To discourage people from fraud and false statements, IRS have the auditing system. (a) Explain why increasing the frequency of auditing can deter fraud and false statement. At the same time, congress passed the law specifying that: upon conviction of fraud and false statements, the taxpayer is guilty of a felony and is subject to (1) imprisonment for no more than 3 years, (2) a fine of not more than $250,000 for individuals or $500,000 for corporations, or (3) both penalties, plus the cost of prosecution (26 USC 7206(1)). (b) Explain the economic reasoning behind the specification of large penalty if convicted. How would this affect the frequency of tax audits by IRS