An IRS audit can turn up problems with your tax return—sometimes ones you didn’t even know existed. When it does, the government may tack on hefty penalties and interest. I’ve had clients sit across from me, audit letter in hand, rattled and overwhelmed by what they’re facing.
While your chance of being audited is relatively low, the consequences can be devastating if issues are found in your tax return. As a tax attorney who’s helped thousands navigate this minefield, I can tell you that understanding potential penalties and knowing how to respond can save you significant stress, money, and possibly prevent criminal tax fraud charges.
IRS audit penalties are not random. They result from the government finding problems with your tax returns. These problems can range from honest mistakes to deliberate attempts to evade taxes. If you fail to pay the correct income tax, penalties can be assessed. The situation becomes far more serious if an IRS auditor suspects tax evasion or tax fraud.
Tax evasion and tax fraud are offenses that can trigger devastating civil penalties and even lead to criminal tax evasion charges. The IRS uses sophisticated methods to detect unreported income and other signs of a false tax return. I review your records to spot potential red flags and build a defense before the government can allege a failure to pay or pursue criminal charges.
IRS audit penalties come in several forms. The most common are the failure-to-file penalty and the failure-to-pay penalty. If the IRS finds errors on your tax return, you could face accuracy-related penalties, often calculated as a percentage of the underpayment.
Penalties become much more severe with findings of fraud. Civil fraud penalties can reach a staggering portion of your unpaid tax liability. These are imposed when the IRS believes you intentionally tried to evade taxes. Filing a false tax return is a serious tax crime. The difference between a mistake and fraud is critical. An accusation of tax evasion can lead to fines, a prison sentence, and a permanent criminal record. I know how to defend you against the most damaging allegations and protect your future.
Many self-employed individuals and small business owners are required to make estimated tax payments throughout the year. If you expect to owe more than $1,000 in taxes, you are likely required to pay estimated tax. Missing the due date for these payments can trigger an underpayment penalty, even if you pay your total tax bill when you file.
Late payment penalties add to your tax debt. I can help you calculate your estimated tax liability and set up a payment plan to avoid these issues. The IRS offers several electronic payment options and online tools to make staying current easier. Meeting your estimated tax obligations is a crucial step in avoiding a larger tax bill and unwanted scrutiny from the IRS.
The IRS receives copies of your W-2s, 1099s, and other income statements. When your tax return doesn’t match these documents, red flags go up. I recently helped a client who forgot to report a small 1099 from a side gig on his tax return. The IRS computers caught it immediately, and suddenly, he was facing penalties and interest on top of the taxes he owed.
Deductions that seem disproportionate to your income level often trigger audits. If an IRS auditor determines you’ve knowingly claimed deductions you weren’t entitled to, you may face accuracy-related penalties or even civil fraud penalties.
If you don’t file your tax return by the due date, the IRS imposes substantial penalties that grow every month your return remains unfiled. IRC § 6651(a)(1) establishes a penalty rate of 5% of the unpaid tax for each month or part of a month the return is late, up to a maximum of 25% of the unpaid tax.
The longer you wait, the worse it gets. I’ve seen clients who could have owed a few hundred dollars in taxes end up with thousands in penalties simply because they buried their heads in the sand.
Even if you file on time but don’t pay your total tax by the deadline, you’ll face failure to pay penalties. IRC § 6651(a)(2) establishes a penalty rate of .05% of the unpaid tax for each month or part of a month the tax remains unpaid, up to 25% of the unpaid tax. If both failure-to-file and failure-to-pay penalties apply in the same month, the failure-to-file penalty is reduced by the amount of the failure-to-pay penalty for that month.
The IRS will continue to charge interest on both your unpaid tax and the penalty amount until the amount is paid in full. This can quickly spiral out of control.
If the IRS determines you’ve substantially understated your income tax or claimed benefits you weren’t entitled to, they can impose significant accuracy-related penalties on the portion of underpayment.
A notice or letter from the IRS about penalties and interest demands an immediate response. Delay gives the IRS more power and allows your tax problem to grow. The first step is to seek professional guidance. As your tax lawyer, I analyze the notice, explain your options, and communicate with the IRS on your behalf.
You may have grounds to request penalty relief if you can show reasonable cause for your failure to file or pay taxes on time. I can help you explore payment options, including a formal payment plan, to resolve your tax bill. Fighting for penalty relief can significantly reduce or even eliminate what you owe. The goal is to resolve the tax debt and prevent collection actions like wage garnishments or bank levies.
If you are facing an IRS audit, you do not have to face the IRS auditor alone. I am your advocate and your shield. I manage the entire audit process, protect your rights, and work to minimize any potential penalties that may arise. The IRS offers publications and online resources, but this information is no substitute for personalized legal counsel when you are confronted with complex tax issues.
The stakes in an IRS audit are incredibly high. An audit can result in civil penalties or a referral to the IRS’s criminal investigation division. This could result in felony charges and a sentence of up to five years in prison for a single tax crime. Do not risk your freedom or your financial stability by trying to handle this yourself.
If you have received an audit notice or a letter regarding penalties, take action now. Don’t let penalties spiral out of control. Request a free case evaluation today and let me help you build a defense against IRS penalties.
