Many people feel an immediate sense of dread or panic when they receive notice letters from the Internal Revenue Service (IRS) in their mailboxes. After all, the IRS generally only communicates with people about issues related to their federal income taxes.
A small percentage of taxpayers every year end up receiving letters advising them of an upcoming audit. Professionals at the IRS may suspect that they did not pay their taxes in full. Therefore, an audit is necessary to validate those concerns or exonerate the taxpayer.
It is common for people to imagine the worst-case scenario as they contemplate what an audit might mean for their future. Does an audit typically lead to criminal charges against a taxpayer?
Many audits exonerate the person audited
Contrary to what people sometimes think, the IRS does not have the authority to bring criminal charges against an individual. Instead, they investigate tax issues and then notify federal authorities about potential cases of tax fraud or tax evasion. An IRS audit usually occurs well before any criminal prosecution. When IRS professionals notice discrepancies in a tax return, they may decide to audit that taxpayer’s recent financial history. The audit process can involve an in-person meeting at the IRS or simply the submission of additional financial records to the IRS.
Proper supper can reduce the risk inherent in an audit
Taxpayers do have the right to have an attorney represent them throughout the audit process. They can potentially explain any unusual inclusions in their tax returns and may be able to resolve the tax controversy they face without any additional complications. In scenarios where the audit leads to claims of tax underpayment, it may be possible to negotiate an arrangement to pay what someone owes without any further legal action.
If people respond to the audit in good faith and make appropriate arrangements to resolve what they owe in taxes, they may be able to avoid prosecution even if the audit affirms the allegations of a tax underpayment. Even in scenarios with a large tax bill due, it is often possible to reach an arrangement that prevents criminal prosecution.
Responding assertively to an upcoming IRS audit can help someone to potentially avoid the worst-case scenario, which might include prosecution. Those who learn their rights and have the right support can work to limit the negative impact a tax controversy has on their lives.