Audits can be bad and result in a significant tax bill. But remember: you should not panic. There are different types of audits, some minor and others extensive, and all follow a set of defined rules. If you know what to expect and follow some of the best practices, your auditing may turn out to be “not so bad”.
Generally, the IRS can include returns filed within the last three years in an audit. If we identify a substantial error, we can add additional years. We usually don't go back more than six years. In fact, Zinman says, one of the most enduring myths in tax auditing holds that auditing is commonplace.
He says that audits are, in general, “a lose-lose situation” for the IRS because they require a lot of resources and because audits project a negative image on the IRS. You may not know what happens if you don't pass an IRS audit and hope you'll never have to find out. While Benjamin Franklin was right about filing his tax documentation every year, the chances of being thoroughly examined by the IRS are few and far between. In addition, the IRS may charge you minimum late filing fees if you file your return 60 days or more after the due date of your tax return, including the extended due date of the tax return.
After reviewing your tax returns, if the IRS finds inconsistencies, there are several tax auditing penalties you could face in civil court. Facing IRS tax audits can be scary, and it can be even scarier when faced alone with the IRS. The IRS also imposes monetary penalties on tax preparers who disclose information provided to them to prepare a tax return. If an amount declared on a return is later adjusted and results in a tax increase, the IRS may impose a penalty in that amount.
In the case of “substantial errors,” the IRS maintains that it can go back six years and recommends that you keep most records for at least that long. The product name, logo, brands and other trademarks that appear or referred to in Student Loan Hero are the property of their respective trademark holders. Determining the warning signs of the IRS audit is not simple, since they do not reveal the precise reasons why a taxpayer may be selected for an audit, ultimately leading to a tax auditing penalty. To be convicted of tax evasion, the IRS must be able to prove that you have an unpaid tax liability and that you intentionally took steps to evade taxes.
Keep in mind that even if the IRS has only marked one return for auditing, it can review any return from recent years. You could face any number of auditing penalties from the IRS, depending on the magnitude of your tax problem. Even so, he reiterates that, although the IRS has increased its level of auditing, the figure represents a very small percentage of the returns filed.
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