What Happens if You Get Audited and Owe Money?

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An IRS audit can be a daunting experience, especially if you discover that you owe additional taxes. Understanding the consequences and your options for resolving the debt is crucial.

Consequences of Owing Money After an Audit

  • Additional Tax Liability: The primary consequence of failing an audit is the additional tax you owe. The IRS will calculate the correct tax amount based on the errors or omissions identified during the audit.
  • Penalties: In addition to the tax owed, you may also face penalties for inaccuracies or intentional misstatements on your tax return. Penalties vary depending on the severity of the error and can range from 20% to 75% of the underpaid tax.
  • Interest: Interest accrues on both the unpaid tax and any penalties. The IRS adjusts its interest rate quarterly based on the prime rate.

Options for Resolving the Debt

  • Pay in Full: You can pay the entire amount due immediately.
  • Installment Agreement: If you cannot afford to pay the full amount upfront, you can request an installment agreement. This allows you to spread out the payments over a period of time, typically up to 72 months.
  • Offer in Compromise (OIC): An OIC is a settlement agreement with the IRS where you pay less than the full amount owed. The IRS considers factors such as your financial hardship and ability to pay when evaluating OIC requests.
  • Partial Payment Installment Agreement (PPIA): A PPIA is similar to an installment agreement, but it allows you to pay less than the full amount each month. The IRS will determine the monthly payment amount based on your financial situation.

Steps to Take if You Owe Money After an Audit

  • Review the Audit Findings: Carefully examine the audit report to understand the errors or omissions identified.
  • Contact the IRS: Reach out to the IRS to discuss your payment options and negotiate a payment plan if necessary.
  • Gather Financial Documents: Collect all relevant financial documents, including bank statements, pay stubs, and tax returns, to support your payment plan request.
  • Consider Professional Help: If you are facing significant tax debt or have complex financial circumstances, consider seeking professional assistance from a tax attorney or accountant.

Additional Considerations

  • Timeliness: It is essential to respond promptly to IRS notices and requests for information. Failure to do so can result in additional penalties and interest.
  • Communication: Maintain open communication with the IRS throughout the process. Explain your financial situation and provide documentation to support your requests.
  • Avoid Scams: Be wary of individuals or companies claiming to offer quick or easy solutions to IRS debt. Always verify the legitimacy of any communication or offer you receive.

Remember, the IRS is willing to work with taxpayers to resolve tax debts. By understanding your options and taking proactive steps, you can minimize the impact of an audit and get back on track financially.

What Happens If You Are Audited And Fail?

FAQ

What happens if you get audited and can’t pay?

Penalties and interest both apply when you have unpaid taxes. For instance, if you file your return late, you’ll have to pay penalties and interest on the unpaid tax. If you incur audit penalties, interest will accrue on the penalty. The IRS adjusts its interest rate quarterly, and it varies based on the prime rate.

How much money do you have to owe the IRS before you go to jail?

You ignore the bill and all of the IRS’s collection notices. At this point, the IRS may obtain a civil judgment against you for the $10,000. This gives the IRS the right to issue a federal tax lien, seize your assets, garnish your wages, or take other collection actions. The IRS cannot put you in jail.

What happens if you ignore an audit?

Here’s what happens if you ignore an office audit: You may have avoided the meeting, but you’ll pay for it later in taxes, penalties, and interest. The IRS will change your return, send a 90-day letter, and eventually start collecting on your tax bill. You’ll also waive your appeal rights within the IRS.

What happens if you get audited by the IRS?

But what really keeps taxpayers in line is that the IRS can impose substantial tax penalties in addition to forcing you to pay the tax due with interest. The most common penalty imposed on taxpayers following an audit is the 20% accuracy-related penalty. The IRS can also assess civil fraud penalties and recommend criminal prosecution.

What happens if you get audited and owe money?

If you get audited by the IRS and owe money, you’ll be notified of the additional tax that you’re required to pay as well as any penalties and interest due. The correspondence that you receive from the IRS will mention a deadline by which you must pay.

What happens after a tax audit?

The audit process can be an unpleasant experience. But what really keeps taxpayers in line is that the IRS can impose substantial tax penalties in addition to forcing you to pay the tax due with interest. The most common penalty imposed on taxpayers following an audit is the 20% accuracy-related penalty.

Does an IRS audit result in a penalty?

Not all IRS audits will result in a penalty. If you’re able to justify the items being reviewed on your return, the IRS will conclude the audit without imposing any charges or penalties. What happens if you get audited and don’t have receipts to make justifications?

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