Taxpayer Options to Make Peace with the IRS
From amended returns to audits in New YorkBy Katrina Styx | Reviewed by Canaan Suitt, J.D. | Last updated on October 19, 2023 Featuring practical insights from contributing attorneys James O. Druker, Bryan Skarlatos and
Use these links to jump to different sections:
- Fixing Your Filing: Negligent versus Intentional Errors
- The IRS Tax Audit Process and Appeal
- From Tax Audit to Tax Court
- Getting an Experienced Tax Lawyer Involved
When it comes to filing your own federal taxes, getting it wrong can lead to some serious consequences, including civil or criminal charges.
You may expose yourself to penalties if the Internal Revenue Service (IRS) finds your mistakes, says Bryan Skarlatos of Kostelanetz & Fink. Civil penalties are usually equal to 20 percent of the [full amount] you should have paid. “It can add up,” Skarlatos adds.
Fixing Your Filing: Negligent versus Intentional Errors
The good news? If you do want to proactively fix a negligent mistake in your tax record, the IRS offers a “qualified amended return or QAR. “It eliminates the possibility of civil penalties,” he says.
But that won’t cover a person who knowingly filed incorrectly within a tax year. Willful errors on your taxes can result in criminal prosecution, jail time, or the civil fraud penalty, which is equal to 75 percent of the tax you avoided.
“If it was willful, then you should consider correcting it in a special way that will help mitigate the chance that you could be criminally prosecuted,” Skarlatos says. “The main way is what’s called making a voluntary disclosure.”
Once the IRS has begun an audit, voluntary disclosures are no longer an option. “If it’s an issue that’s raised in the audit, then you’ve just got to resolve it during the audit,” Skarlatos adds. “You hopefully argue about whether or not there should be penalties.”
The IRS Tax Audit Process and Appeal
However, taxpayers do have time to work out a resolution with the IRS. “The audit process is definitely a process,” says David K. Spencer of the Law Offices of David K. Spencer. “There’s a very involved procedural sequence of steps.”
Generally, you will get an IRS notice and then speak with an auditor. If you agree with the initial decision? “Just pay them [the balance due], and you’re not going to have any problems,” says James O. Druker of Kase & Druker. If you disagree, you can fill out the provided form, attach your explanation and supporting documents, and return it to the IRS via certified mail. “Typically, if they have erred, they’ll accept it, make a correction, and send you a new notice,” he says.
If that notice still doesn’t seem correct, you can file an appeal with the Independent Office of Appeals. “And the IRS appeals people are the best part of the whole IRS system,” Druker says. “They’re fair, they’re smart, they get a grasp on things, and they do the right thing.”
From Tax Audit to Tax Court
Not all disputes are easily negotiated, however. “If it’s willful and they find out about it, they’re going to be a lot more hard-ass about it,” Skarlatos says. “There’s a principle at stake. You lied to the IRS, and now they’re going to go after you.”
If the problem can’t be resolved in the audit or through negotiation with IRS agents, it may go to tax court, where a judge will hear both arguments and issue a decision.
Time is critical. “A lot of these things are on 30-day or 60-day or 90-day timelines,” Spencer says. “And if you come to me 32 days later, I’ve lost my legal right to appeal. Without a time machine, there’s nothing I can do.”
Getting an Experienced Tax Lawyer Involved
A tax attorney tends to be most useful well before a controversy over tax liability comes into play.
“I would say I do more work proactively than I do reactively,” Spencer says, “and we add more value there. Our tax planning and tax strategy is the aspect of getting ahead of this process and making sure that you are comfortable in the positions you’re taking and that you’re not making these mistakes.”
Whether it’s a lawyer, a tax professional, or another type of representative, you should always have someone on your side in an audit, Skarlatos says. “Individual taxpayers should not handle their own audit in 99 percent of the cases,” he says. “It should be either the tax return preparer, an accountant, [or] an enrolled agent. Or, if enough money is involved or if it’s criminal, the lawyer.”
Visit the Super Lawyers directory to find an experienced tax lawyer in your area. For more information about federal income taxes, taxable income, and the collection process, check out our tax law overview and related content on addressing tax debts through payment plans and installment agreements with the IRS.
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