You have filed your taxes on time and reported your income and expenses accurately. Why does the Internal Revenue Service want to audit your returns? There are several reasons you can be selected for an audit. Mostly it is a system of random checks and balances designed to keep taxpayers honest with consequences for failing a tax audit.
Your tax return may be selected for audit through various methods:
- A computer-generated scoring system which is responsible for the majority of audits.
- Matching Programs – your reported income is matched to the information reported in information returns, i.e. W-2, 1099-R, etc.
- IRS special projects targeting certain professions or occupations.
- Informant reports of potential tax fraud (can result in a reward to the informant).
- Information received from sources concerning criminal activity, and newspaper reports.
- Random selection (no specific information noted).
- Prior IRS audits.
How much will you be charged for penalties and interest? The amount is unknown as it takes at least three years for the Internal Revenue Service to discover your debt. In the meantime, your tax liability has steadily increased due to compound interest and ongoing fines. The balance owed will continue to increase unless you are able to halt the collection process.
Yes, your finances can be hurt by an IRS tax audit. If you fail to satisfy the IRS or to delay their collection tactics, you may face tax audit consequences. These include your bank accounts being frozen and your assets seized for non-payment. Even your business can be forced into bankruptcy.
Before an audit begins, you will receive notice from the IRS. Working with a qualified tax professional will ensure your peace of mind. Your tax specialist can protect you from IRS intimidation and guide you in the correct procedures. You cannot prevent the audit, but you can be prepared to face the IRS and tax audit consequences.
If you do end up owing the IRS, your tax attorney can negotiate with the IRS on your behalf. The IRS may agree to waive penalties and/or interest; or you may obtain an affordable tax repayment plan that will stop further IRS collection action and protect your assets.