Dealing with an IRS audit can be a stressful and overwhelming experience, especially when you are unsure about the legal implications involved. If you live in Pennsylvania and the IRS has chosen you for an audit, it is important to understand what that means and how it can affect you. Audits can arise from a number of factors, and knowing the process can help ease some of the anxiety that comes with this financial review. In this discussion, we will explore what IRS audits are, why they happen, and how to navigate the process in Pennsylvania. At, Gibson & Perkins, PC , we are here to guide you through the legal process and help you navigate the complexities of your case.
What Is an IRS Audit?
An IRS audit is a review or examination of an individual’s or business’s financial records to ensure that the information they have reported on their tax return is accurate. The goal of an audit is to confirm that all income, expenses, and deductions were reported correctly, and that the taxpayer has followed all tax laws. Audits do not automatically mean that you did something wrong or that you owe more taxes. Instead, they are a way for the IRS to make sure that taxes are being filed and paid correctly by everyone.
There are different types of IRS audits, including correspondence audits, where the IRS requests additional information by mail, and field audits, which involve an in-person meeting with an IRS agent. The type of audit you face depends on the complexity of the situation and the type of discrepancies the IRS is investigating.
Why Does the IRS Conduct Audits?
The IRS selects individuals or businesses for audits for a variety of reasons. One common reason is when something in the tax return stands out as unusual or inconsistent. For example, if your income and expenses do not seem to match, or if there are large deductions or unusual financial activity, the IRS may want to take a closer look. In some cases, audits are triggered randomly through the IRS’s own internal processes, which are designed to flag potential issues that require further investigation.
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In Pennsylvania, as in other states, certain industries and professions are more likely to be audited due to the nature of their work. Self-employed individuals and small business owners are often audited more frequently, especially if they report large business expenses or if their income fluctuates significantly from year to year. Regardless of the reason, it is important to know that being selected for an audit does not automatically mean that you are in trouble with the IRS. It is simply a way for the agency to verify the accuracy of your tax return.
What Are the Legal Implications of an IRS Audit?
The legal implications of an IRS audit can vary depending on the findings of the audit. In some cases, the audit may determine that no changes are needed to your tax return, and the process ends there. However, if the IRS finds that there were errors or discrepancies in your return, they may propose changes to your tax liability. This could result in you owing additional taxes, along with interest and penalties.
In more serious cases, an audit can lead to legal issues such as tax fraud or evasion if the IRS believes that you intentionally misrepresented your income or expenses. While most audits do not escalate to this level, it is important to be aware of the possibility and to ensure that you are fully prepared for the audit process.
If the audit results in additional taxes owed, you will have the opportunity to dispute the findings through an appeals process. This involves providing additional documentation and working with the IRS to resolve any disagreements. If you are unable to reach an agreement with the IRS, the case may proceed to tax court, where a judge will make the final determination.
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How to Prepare for an IRS Audit in Pennsylvania
If you are notified that you are being audited, the first step is to gather all relevant financial documents and records. This includes bank statements, receipts, invoices, and any other documentation that supports the information reported on your tax return. Having this information organized and readily available will make the audit process smoother and help you respond to any requests from the IRS.
In Pennsylvania, taxpayers have rights during the audit process. The IRS is required to conduct audits in a professional and respectful manner, and you have the right to be represented by a tax professional if you choose. You also have the right to ask questions and receive clear explanations about the audit process and the findings.
During the audit, it is important to be cooperative and provide the requested information in a timely manner. However, you should also be cautious about providing additional information that was not specifically requested by the IRS, as this could lead to further scrutiny. It is often helpful to work with a tax attorney or accountant who can guide you through the audit process and help you respond to any inquiries.
What Happens After the Audit?
Once the audit is complete, the IRS will issue a report outlining their findings. If they determine that no changes are needed, the audit is closed, and no further action is required. If they find that changes are needed, the report will detail the adjustments to your tax return and the amount of any additional taxes owed.
If you agree with the findings, you can sign the report and pay any additional taxes, if applicable. If you disagree, you have the right to appeal the decision. This involves providing additional information and explaining why you believe the IRS’s findings are incorrect. The appeals process can take some time, but it allows you the opportunity to present your case and resolve any disagreements.
It is important to note that if you owe additional taxes as a result of the audit, the IRS may charge interest and penalties. The interest is calculated from the original due date of the tax return until the date the additional taxes are paid. Penalties may also be applied if the IRS determines that the errors on your tax return were due to negligence or intentional disregard for tax laws.
How to Avoid Future IRS Audits
While it is impossible to completely avoid the possibility of an audit, there are steps you can take to reduce the likelihood of being audited in the future. One of the most important things you can do is to ensure that your tax returns are accurate and complete. This means reporting all income, expenses, and deductions honestly and making sure that your financial records are well-documented.
In Pennsylvania, as in other states, working with a tax professional can help you avoid common mistakes that could trigger an audit. A tax professional can help you navigate the complexities of tax laws and ensure that your returns are filed correctly. Additionally, they can help you identify any potential issues before you file your return, reducing the risk of an audit.
It is also important to keep thorough and organized financial records. The IRS can audit returns that are several years old, so having clear documentation of your financial activities can help you respond to any audit requests in the future.
Why Legal Representation is Important During an IRS Audit
Having legal representation during an IRS audit can be extremely beneficial. A tax attorney can help you understand the audit process, protect your rights, and negotiate with the IRS on your behalf. In Pennsylvania, the tax laws can be complex, and having a legal representative who is familiar with these laws can help ensure that you are treated fairly during the audit.
Legal representation is especially important if the audit results in significant changes to your tax liability or if the IRS is investigating potential tax fraud. In these cases, a tax attorney can help you build a strong defense and work to minimize any legal consequences.
Whether you are facing a correspondence audit or an in-person field audit, having a knowledgeable attorney by your side can make a significant difference in the outcome of your case.
While an IRS audit can be intimidating, understanding the process and your rights can help you navigate the situation with confidence. If you are facing an audit in Pennsylvania, it is important to stay organized, cooperate with the IRS, and seek professional legal assistance when necessary.
If you find yourself needing legal guidance during an IRS audit, the team at Gibson & Perkins, PC is here to help. Our experienced attorneys understand the complexities of tax law and can provide the support you need to protect your rights and achieve the best possible outcome. Contact Gibson & Perkins, PC today for assistance with your IRS audit or any other tax-related issues.