Receiving an audit notice from the Internal Revenue Service (IRS) can be unsettling. However, ignoring such a notice can lead to significant financial and legal repercussions. At Tax Law Advocates, we emphasize the importance of addressing IRS communications promptly to safeguard your financial well-being.

Understanding IRS Audit Notices

An IRS audit notice indicates that the agency is reviewing your tax return for accuracy. The notice will specify the items under examination and the documentation required. It’s crucial to respond by the deadline provided to avoid further complications. 

Consequences of Ignoring an Audit Notice

1. Disallowance of Claimed Items

Failure to respond to an audit notice can result in the IRS disallowing deductions, credits, or exemptions claimed on your return. This disallowance can increase your tax liability. 

2. Issuance of a Notice of Deficiency

If you don’t respond, the IRS may issue a Notice of Deficiency, proposing additional taxes owed. You have 90 days (150 days if outside the U.S.) to petition the Tax Court to contest the proposed changes. 

3. Accrual of Penalties and Interest

Ignoring an audit notice can lead to penalties and interest on unpaid taxes. For instance:

  • Failure-to-Pay Penalty: 0.5% of the unpaid tax per month, up to 25%. 
  • Accuracy-Related Penalty: 20% of the underpayment due to negligence or substantial understatement. 

Interest continues to accrue on unpaid taxes and penalties until the balance is paid in full.

4. Collection Actions

Unresolved tax liabilities can lead to collection actions, such as:

  • Liens: Legal claims against your property.
  • Levies: Seizure of assets, including bank accounts and wages.

Ignoring notices can expedite these actions. 

5. Two-Year Ban on Certain Credits

For refundable credits like the Earned Income Tax Credit (EITC), failure to respond to an audit can result in a two-year ban on claiming the credit. This ban can be imposed automatically if the IRS deems the non-response as reckless or intentional disregard of rules. 

Steps to Take Upon Receiving an Audit Notice

  1. Read the Notice Carefully: Understand what the IRS is requesting and the deadline for response.
  2. Gather Documentation: Collect all relevant records to support the items under review.
  3. Respond Promptly: Submit the requested information by the deadline. If you need more time, contact the IRS to request an extension.
  4. Seek Professional Assistance: Consider consulting with a tax professional to navigate the audit process effectively.

Your Rights During an Audit

As a taxpayer, you have rights during the audit process, including:

  • Right to Representation: You can have an authorized representative, such as a tax attorney, represent you.
  • Right to Appeal: If you disagree with the audit findings, you can appeal within the IRS or take your case to court.
  • Right to Finality: You have the right to know the maximum amount of time the IRS has to audit a particular tax year or collect a tax debt. 

$10000 or More In Back Tax Issues? Contact Tax Law Advocates Today.

Ignoring an IRS audit notice can lead to increased tax liabilities, penalties, and enforcement actions. It’s imperative to address audit notices promptly and seek professional guidance to navigate the process. At Tax Law Advocates, we are committed to assisting you through every step of the audit process to ensure your rights are protected and to achieve the best possible outcome.