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What a taxpayer can expect from a Tax Audit

27th October 2020 Print

Taxpayers must complete state and federal tax return each year and report all income they earn through a job or profits accumulated through a business. A failure to complete tax returns is tax evasion. However, if the individual didn't submit the return by accident, the IRS could provide some help for the taxpayer such as an extension. The IRS has strict tax laws and codes that can change without warning, and the individual could make mistakes if they complete their own tax returns. Reviewing what the taxpayer could expect after a tax audit shows them what to expect if they receive an IRS notice.

Initiating the Tax Audit

The Internal Revenue Service can start an audit for any taxpayer whenever they choose. Some audits are conducted at random while others happen when the system flags suspicious activities on a tax return. Once the IRS starts an audit, the taxpayer is notified through mail, and the federal agency requests documents to support claims made on the tax return. Typically, the IRS requests documentation for tax deductions that may seem false, and the individual must provide evidence via receipts for their expenses. Taxpayers who need information about what happens after an audit can contact a tax attorney now.

How to Handle the Tax Audit

The IRS conducts an investigation for the year in question and determines if the taxpayer made an errors in calculations or if they just didn't bother to pay their taxes. The files for the taxpayer show whether they have a history of failing to pay all their taxes, or if the individual just forgot. Typically, a taxpayer that submits their tax returns and hasn't shown signs of a crime may not be a suspect for tax evasion. However, this doesn't mean they won't face penalties if they don't file a return. The IRS can impose 20% penalties according to how much the taxpayer would have submitted each month in addition to what they owed for the year.

What Happens after the Audit is completed?

The IRS sends a letter with a Form 4549 to the taxpayer after the investigation. The letter shows the agency's findings of their investigation. If the IRS didn't find any issues, the individual doesn't need to take any action other than to sign the form and return it. If they agree with the decision made by the IRS, they can follow the instructions from the IRS for paying any overdue tax amounts, and the individual can return the form with the payment.

The 1912 Letter

The taxpayer will receive a 1912 letter from the IRS if they haven't responded to the initial 4549 form and the letter. This is a reminder that the individual didn't complete the steps as instructed, and the IRS will remind them that they have 30 days to respond to the decision. If the individual doesn't agree with the agency's decision, they must submit forms to file an appeal. The forms include a petition to the court for the appeal of the IRS decision. The individual will need an attorney to help them with their appeal. Some judges may grant a postponement if the individual isn't able to get an attorney within the first 30 days, however, the petition for the appeal must be filed before 90 days have passed.

If They Appeal the Decision

The taxpayer must complete the appeals process to try to overturn the IRS decision. However, the individual must present evidence that substantiates their claim and shows the judge that they were not liable. The evidence could include receipts and documents showing all their expenses appearing on their tax forms and evidence of entries that the IRS claims are inaccurate. The individual has a statute of limitations of 90 day statute to file the appeal. The court will schedule the hearing according to available court dates.

The individual must provide all evidence and documentation for their case to their attorney. The information is vital to the case and could prevent the individual from facing civil penalties for tax fraud or evasion.

What Happens if the IRS Initiates Criminal Charges?

The individual will appear in criminal court and could face up to five years in prison if convicted for tax fraud or evasion. The fines for the offenses are a maximum of $100,000. The individual must appear on all scheduled court dates, and it is paramount to have legal representation even if the individual is well-versed in tax laws and codes. An attorney could help them review all the documents and determine if the taxpayer is at fault.

What If the Taxpayer Didn't Prepare Their Taxes?

The documentation must show that another party prepared and submitted the tax returns for the individual. Taxpayers who aren't familiar with tax laws and codes could have a mistake on their returns because of an error made by their preparer. When submitting forms to the IRS, the agency will review the preparation service for evidence of fraud. If the preparation services have previous offenses of fraud, the IRS may investigate them further and determine if the preparer caused the error to collect more money from the taxpayer.

Honest Mistakes Are Not a Crime

Taxpayers are not infallible, and it is easy to make a mistake on their tax returns. If this happens, the IRS will find the mistake. If the mistake constitutes a very low amount, the IRS may not seek penalties against the taxpayer. Instead, they will require the taxpayer to repay the remaining balance they owe. The IRS reserves the right to add penalties for taxpayers who make mistakes, but the individual will not face jail time for an honest mistake.

Taxpayers must evaluate their tax returns carefully when filing, and they could avoid a tax audit. The audits are started when the IRS believes the individual made a mistake on their tax forms. When reviewing the tax documents, the IRS goes through each line of the tax forms to ensure that there weren't any mistakes. Reviewing common mistakes and tax laws shows the individual if they committed a crime or just made an honest mistake.