Just because the IRS audits your tax return doesn’t mean they’ll find any wrongdoing. In fact, you may be confident that your return is 100% accurate and you won’t find yourself dealing with any issues.
However, there’s never a guarantee when it comes to the IRS and a tax audit.
Should you find yourself in this situation, there are several possible outcomes:
- No additional action required: If everything checks out, the IRS will not require you to take any additional action or pay any additional money. In rare cases, you may even learn that the IRS owes you money. This is the best possible outcome.
- Additional interest: For example, if the IRS finds that you made a math mistake on your return, it could lead you to owing additional money. And in that case, there’s a good chance you’ll owe interest on this amount, too. As frustrating as it may be, this never puts you at risk of criminal charges.
- Civil penalty: This comes into play if you underpaid your tax as a result of fraudulent activity. This takes on many forms, such as hiding income and using deductions and/or credits that you don’t qualify for.
- Criminal penalties: This is the most serious outcome of an IRS tax audit. You never want to learn that the government believes you committed a crime against them, such as tax evasion. While not always the case, this can result in serious consequences, such as a large fine and even jail time.
There are a variety of reasons for receiving a tax penalty related to an audit. These include:
- Neglecting to follow all IRS rules and regulations
- Neglecting to pay your taxes by the deadline
- Understating the value of property or reportable transactions
Some people go their entire life without ever coming face to face with a tax audit. Others seem to run into this time after time.
If you’re facing an audit, learn more about the possible outcomes as they pertain to your situation. This will help you better understand what you’re up against and formulate a strategy for protecting your legal rights.