A Few Common Misconceptions about the IRS
Audits are not as common as they may seem. Although many taxpayers worry that their tax return might be selected for an IRS audit, the fact is that less than two percent of personal tax returns are audited by the IRS each year. On top of this, even if a return is selected for further examination, the IRS usually just contacts the taxpayer by mail and asks them to provide documentation to support certain specific items. Following this communication (aptly labeled a correspondence audit), there are three possible outcomes, none of which are accompanied by a serious consequence. An additional tax amount will be assessed, the return will be accepted as originally submitted or, in some cases, a tax refund may even be issued.
Making an honest mistake on a tax return usually has no serious consequences. When
the IRS detects a mistake on a tax return, their normal procedure is to contact the taxpayer through some form of written communication and request that the error be corrected. Although the taxpayer will be expected to pay any additional tax amount owed, there is usually no penalty for making an honest mistake on a tax return. Taking legitimate tax deductions does not flag a return for audit. The tax code provides taxpayers with certain tax credits and tax deductions with the expectation that they will make use of them. In fact, provided that they have the necessary documentation, taxpayers should claim all tax credits and tax deductions to which they are entitled because, to not do so, almost certainly means that they will be paying a higher tax bill than they would otherwise need to pay. Unless that sum total of the tax breaks claimed on a return is excessive compared to the reported income, it is unlikely that they will cause the return to be flagged for an IRS audit.
It is better to file a tax return even when resources are not available to pay the taxes owed. Although the IRS assesses a penalty for failing to pay an outstanding tax liability, they assess an additional penalty for failing to file a tax return by the filing deadline. Because of this late filing penalty, it is always advisable for a taxpayer to either submit a completed tax return by the due date or apply for an automatic six-month extension even when funds are not available to pay tax amounts owed. By doing so, the taxpayer avoids the late filing penalty which is calculated as 5% of the back tax balance for each month or partial month that the return is late up to a maximum penalty of 25 %. Once the return has been filed, there are numerous options available for resolving any back tax balance. These include setting up a payment plan or negotiating one of the various other tax settlement options offered by the IRS.
If you have tax questions or a tax debt you are unable to pay, our tax settlement professionals are happy to discuss your tax resolution options free of charge. For more information about our services, visit us today at www.professionaltaxresolution.com or call us at 877.889.6527. With over 16 years in the business of resolving tax debt, we have a thorough understanding of tax law together with the experience to know which settlement option will be the best fit for your specific set of circumstances.