An IRS tax audit can be an intimidating experience that leaves many taxpayers overwhelmed and unsure of what to expect. Understanding the potential outcomes that may arise from an audit will help you better prepare for the process. At Creative Tax Solutions, we are here to inform you about the range of tax audit outcomes – from no change in the tax return to adjustments and even legal implications.
No Change to the Tax Return
One possible outcome of a tax audit is a “no change” conclusion, meaning the IRS finds your tax return to be accurate, and no adjustments are required. In this case, the audit is closed, and you won’t owe any extra taxes. The IRS will provide an official notification stating that your audit has ended without any changes.
Adjustments to the Tax Return
Another possibility is that the IRS finds errors or discrepancies in your tax return that require adjustments. These adjustments can lead to:
- Additional taxes due: The audit may reveal undeclared income, erroneous deductions, or incorrectly claimed credits. As a result, you’ll have to pay the additional tax owed, plus interest and, potentially, penalties. We recommend working with a tax professional to understand and respond to these adjustments.
- Refund owed to you: In some cases, an audit may reveal that you overpaid your taxes, entitling you to a tax refund. The IRS will issue a refund check for any overpayment they find during the process.
If the IRS determines that you owe additional taxes, they may also impose penalties. Common penalties include:
- Failure to file: This applies when you fail to file your tax return by the deadline or within the extension period. The penalty is typically 5% of the unpaid tax due for each month the return is late, up to a maximum of 25%.
- Failure to pay: Imposed when you do not pay the taxes reported on your return in full by the due date. The penalty is 0.5% of the unpaid taxes for each month or part of a month they remain outstanding, up to a maximum of 25%.
- Accuracy-related penalties: Levied if the IRS finds that your tax return was negligently prepared, understating your tax liability. Penalties can be 20% or more of the underpayment.
To resolve any penalties, work with us at Creative Tax Solutions, and we can help you understand your options, such as requesting an abatement of penalties or setting up a payment plan.
In severe cases, a tax audit could lead to legal implications, including criminal charges if the IRS finds evidence of tax evasion, fraud, or other tax-related crimes. Consequences may include imprisonment, fines, or both. Enlisting the help of a tax attorney is highly recommended in these situations.
Appealing the Audit Findings
If you disagree with the audit results, you have the right to appeal the decision to the IRS Office of Appeals. To start this process, you’ll need to file a written protest within 30 days from the receipt of the audit findings. Creative Tax Solutions can assist you in filing an appeal and negotiating with the IRS on your behalf.
In conclusion, understanding the possible outcomes of a tax audit can help you better prepare and navigate the process. We at Creative Tax Solutions are here to guide you and work with the IRS to ensure the best possible outcome for your unique situation.