Tax audits are investigations that check to see if you paid your taxes. These investigations will dig into what income and assets you reported, deductions taken and whether or not you were honest with the government. If the investigation results in evidence of a mistake, the government could pursue criminal charges.
Back up for a second — who gets audited?
The Internal Revenue Service (IRS) will generally use one of two methods to select taxpayers for an audit. The first, involves a random selection and computer screening using a formula to compare your returns with other taxpayers. One factor used in this formula is the taxpayer’s reported income. The agency will often look more closely at taxpayers who are on either extreme of the income scale. The IRS may flag those who report no or very little income on their tax returns as well as those who report a very high income for an audit.
The second method involves those who are connected to other taxpayers under an audit.
What about the criminal charges discussed above?
Audits can go a number of ways. The first involves the taxpayer providing additional information as requested by the IRS and the IRS finding no errors. The second, the IRS finds errors and issues the taxpayer an additional tax bill. This amount is generally for the missed tax payment and could include a penalty fee and interest. The third involves allegations the mistakes were intentional and could include criminal charges for tax evasion.
Those who receive notice of an audit are wise to seek legal counsel. The attorneys at Goldburd McCone can provide guidance throughout the audit process.