Receiving an audit notice from the Internal Revenue Service (IRS) can be a stressful experience. The audit process is designed to ensure that taxpayers are accurately reporting their income and claiming the appropriate deductions on their tax returns. IRS may choose to audit a tax return for a variety of reasons, including discrepancies in reported income or overstated deductions. .
Failing to respond to an IRS audit notice can have serious consequences as well. In this blog, we’ll discuss these potential consequences and why it’s important to take the audit process seriously.
Defaulting the Audit and Losing Your Rights
Not responding to an IRS audit notice can lead to you losing your rights as a taxpayer. When you receive an audit notice, IRS will typically provide a deadline by which you must respond. If you fail to respond by the deadline, IRS can consider the audit defaulted and proceed with making changes to your tax return.
If IRS defaults on your audit, you will lose your rights to appeal the proposed changes to your tax return. You may also be subject to penalties and interest on any taxes owed as a result of the changes made by IRS.
Increased Penalties and Interest
Failure to respond to an IRS audit notice can result in increased penalties and interest on any taxes owed. If IRS determines that you owe additional taxes as a result of the audit, they will assess penalties and interest on the amount owed.
Further IRS Action
Additional steps IRS can take if you fail to respond include placing a tax lien on your property, garnishing your wages, or seizing assets to satisfy the tax debt. IRS has broad powers to collect taxes owed. Failing to respond to an audit notice can allow them to take more aggressive action.
A failure to respond can even lead to criminal charges. If IRS suspects that you have intentionally failed to report income or claimed fraudulent deductions, they may refer your case to the Criminal Investigation Division. If convicted of tax evasion or other tax crimes, you could face significant fines and jail time.
The Importance of Hiring a Tax Professional
Hiring a tax professional can help you navigate an audit notice and ensure compliance with IRS. A tax professional reviews the audit notice and helps you gather the necessary documentation to support your claims. They can also communicate with IRS on your behalf and negotiate a favorable outcome.
Steps to Take if You Receive an Audit Notice
The first step to take after receiving a notice is to carefully review and understand what IRS is requesting. This can include providing additional documentation, explaining deductions, or clarifying other aspects of your tax return. It’s important to gather all relevant documentation and records to support your claims, as well as any other information that may be requested. If you’re unsure about how to respond, it may be wise to consider hiring a tax professional to help guide you through the process.
Once you’ve gathered your documentation, it’s time to respond in a timely and professional manner. You should clearly explain your position and provide any additional information requested. If the audit results in a disagreement, you may have the option to appeal the decision to IRS Office of Appeals. The appeals process allows you to present your case to a neutral third party who can review the audit findings and help facilitate a resolution.
If an agreement still cannot be reached, the taxpayer may have the option to file a petition in the U.S. Tax Court. This is a formal legal proceeding in which a judge will review the audit findings and make a decision. Filing a petition in Tax Court is a serious matter, and it’s recommended that you seek the guidance of a tax professional before taking this step.
It’s vital to handle an audit notice with care and attention to detail. By taking the necessary steps and seeking professional help when needed, you can ensure that the process goes smoothly and the best possible outcome is achieved.
Failing to respond to an IRS audit notice has significant consequences. You should take the audit process seriously and respond to any notices in a timely and thorough manner. If you are unsure of how to respond to an audit notice, seek the advice of a qualified tax professional who can help guide you through the process and ensure that your rights as a taxpayer are protected.
Need Help Responding to an IRS Audit?
At Milikowsky Tax Law, we have over a decade of experience working with IRS and tax audits. We’re experts in defending business owners in the face of IRS or other government agency audits.
Interested in learning more? Read on to learn how to respond to an IRS audit.