What Happens if I Get an IRS Audit and Fail?

Audit | Person reviewing tax forms

IRS Audit

It may give you shivers when you hear about the IRS tax audit. However, like any other judicial process, you own the right to defend against the IRS decision as well.

You may choose to settle for early payment of evaded taxes if feasible. Else, you can prepare the case and appeal against the IRS audit response.

Seeking professional help with the IRS audit can solve several issues for you. Understanding the process and filing an effective response in the case of a failed IRS audit requires knowledge and experience.

Let us briefly discuss what options do you have with an IRS audit.

What is an IRS Audit?

Only a small number of taxpayers receive an IRS audit call. However, you may face penalties and interest charges if you fail to address the issues in an IRS audit.

The IRS looks for certain red flags in tax returns. These red flags may be errors, omissions, negligence, or misuse of tax credits. In any case, the IRS is on the hunt to find any misconduct in the tax returns filed by taxpayers.

It’s important to remember that errors in tax returns can be due to negligence or fraud. The IRS develops the case according to the nature and size of the tax evasion.

What if You Fail?

The IRS sends an audit mail to a fraction of the total taxpayers. You may be one of these unwanted taxpayers as well.

The good thing is you can always file a defense against the IRS audit. The IRS seeks an explanation from taxpayers. You can send response according to the IRS audit requirements.

There are various options to choose from when you plan an IRS audit response. The first thing you should do is to seek a professional’s help here.

Initiate Your Appeal

Once the IRS completes the audit, it will send you a detailed report of the findings. The report will include penalties, fines, interest charges, and deadline details.

If you disagree with the IRS audit results, you wouldn’t sign the first letter received from the IRS. The initial letter has a deadline of 30 days. Instead, you’ll send an official response to the dispute.

If you do not respond within 30 days, you’ll receive another notice from the IRS. It is often called a taxpayer’s “ticket to tax court”.

Your appeal should accompany important supporting documents. Again, consulting a professional tax auditor can help you a great deal here.

IRS Representation

Once you receive the 90-day letter, you can appeal for a tax court representation. You will have at least 60 days to prepare your case after submitting the appeal.

The IRS representation or the tax court hearing your chance to present your defense case against the IRS findings in the audit report.

Your best chance is to prepare for your case with the help of a professional tax agent that has the experience and skills to represent you. You should also gather the documents, evidence, and other supporting items to make a strong case of your defense appeal.

Negotiating Settlement

During the IRS representation, the appeals officer will freshly look at the evidence presented by both sides. Both parties can settle at this stage through effective negotiations.

As a taxpayer, you must present your case effectively here. A professional representing your case can build a strong case for you. It will help you get the most out of the negotiation process. For instance, the first point will be to request the waiver of penalties by establishing that any audit omissions were not intentional or fraudulent activities.

In most cases, the negotiation process results in an agreement between both parties. However, in a few cases, taxpayers may choose to opt for the tax court or tax litigation process as well.

Seek Professional Help

There are various steps. For example, you can choose to go for an early and quick settlement through the Fast Track Settlement program of the IRS.

Some other post-audit resolution types include:

  • Mutual Agreement Procedure
  • Accelerated Competent Authority Procedure
  • Accelerated Issue Resolution
  • Traditional Appeals Process
  • Early Referral to Appeal
  • Rapid Appeal Process

Preparing for the IRS audit representation and presenting an ideal case requires skills and expertise. A professional can help and represent your case effectively. The right course of action will depend on your tax returns filed and the IRS audit points.

Learn more about tax audit representation with Ash CPA. Call (617) 462-6651 or request an appointment here.