After an IRS or state tax audit, the outcome can result in several possible scenarios, depending on the findings of the audit. Here’s what typically happens:
Audit Conclusion
Once the audit is complete, the IRS will notify you of their conclusion and findings. The report details any decided changes made to your tax return, including adjustments to your taxable income, deductions, or credits.
Three potential outcomes:
- No change: The auditor determines that your tax return is accurate, and no adjustments are necessary. You owe no additional taxes.
- Agreed adjustments: The auditor finds discrepancies that result in additional taxes owed. If you agree with the findings, you will be asked to sign the audit report and pay any taxes due, along with interest or penalties.
- Disagreed adjustments: If you disagree with the findings, you have the option to challenge them through an appeal or legal proceedings.
Appeal Process
If you disagree with the audit results, you have the right to appeal. The audit report will typically provide instructions on how to file an appeal. To appeal, you will need to submit a formal protest letter, outlining why you disagree with the findings and providing any supporting documentation. The case will then be reviewed by the IRS Office of Appeals.
If the appeal within the IRS, you can take your case to U.S. Tax Court, where a judge will review the audit findings and make a final determination.
Payment and Penalties
If the audit results in a tax liability, you will receive a bill that includes the additional tax, interest accrued from the filing date of the return, and any penalties assessed (e.g., accuracy-related penalties or late payment penalties). To possibly lower your penalty amount, you may request penalty abatement if you can demonstrate reasonable cause for accuracy related penalties.
When paying the liability, penalties, and interest, you can pay the amount owed in full or request a payment plan, such as an installment agreement, if you cannot afford to pay the full balance at once. Tax professionals can assist with determining eligible payment plans, calculations of payment amounts, and communication with the IRS while establishing a payment plan.
Future Compliance and Record Keeping
After an audit, it’s critical to review your tax planning strategies and ensure full compliance with tax laws moving forward. Many taxpayers seek professional help after an audit to improve record-keeping and tax reporting practices to avoid future problems.
After the audit, retain all documents related to the audit, including the audit report, correspondence with the IRS or state, and supporting documentation used during the audit. These records may be important if you need to amend other returns or appeal the audit findings.
Handling the aftermath of an audit correctly is essential for resolving any outstanding tax issues and ensuring that you avoid similar problems in the future. Keep organized records, pay any taxes due, and consult with a tax professional to navigate the post-audit process smoothly.
