Misunderstandings and confusion often arise when faced with an Internal Revenue Service (IRS) audit and subsequent tax liabilities. Many individuals worry about how to handle being audited or what to do if they owe taxes after an audit. While it's essential to fulfill your tax obligations, there are strategies available to navigate this challenging process with support from the IRS.

Understanding the IRS Audit Process

An IRS audit may seem daunting, but it's important to remember that auditors are not collectors. If an audit results in an additional tax liability, the IRS will inform you of the amount and provide you with options to address the situation. Whether it's a large sum or a smaller one, the IRS may offer various payment options based on your financial ability to pay.

Strategies for Relief from Overdue Taxes

If you find yourself in a situation where you owe back taxes or owe more than you initially expected due to an audit, there are several ways to seek relief and find sustainable payment arrangements. These strategies can help you manage your debt effectively and avoid future complications.

Income Averaging

In some cases, you can use a method called income averaging when you made significant income in one year but have seen a decrease in income in subsequent years. By using Form 104, you can file an amended return for the current year and reach back to the year in question. This approach allows you to recalculate your taxes for that prior year, potentially reducing your tax burden.

Applying for Relief with IRS Collections

The IRS understands that financial circumstances can change dramatically over time. If you find yourself unable to pay the full amount of the taxes you owe, you can apply for relief through the IRS Collections process. The IRS offers several options, such as an Installment Agreement, which allows you to pay off your debt in installments, or an Offer in Compromise, which lets you settle your debt for less than the full amount owed.

Payment Options

For more substantial amounts, the IRS may offer a Payment Plan that enables you to pay off your tax debt over time. There are various types of payment plans, including a Direct Debit Installment Agreement and a Standard Installment Agreement. These plans are designed to make it easier for taxpayers to manage their payments without facing immediate financial hardship.

What Happens After an IRS Audit?

Most tax audits do not result in additional tax liabilities for the IRS. In fact, a study by the IRS showed that only a small percentage of taxpayers end up owing more after an audit. However, if you have been audited and the IRS has assessed additional taxes, you will be required to pay these taxes along with any interest and penalties that have accumulated.

It's crucial to note that once you owe taxes, whether current or back taxes, there are few ways to avoid payment. The only possible exception is if you die and leave no heirs to your estate. Even then, interest penalties will continue to accumulate on the overdue taxes. Additionally, the IRS can place liens on your property, garnish your wages, or intercept any government benefits until the debt is paid in full. Any future tax refunds you receive will be withheld to settle the balance.

Conclusion

While no one wants to find themselves in a situation where they owe back taxes, there are strategies and assistance available to help you manage your financial obligations after an IRS audit. By understanding the options and processes available, you can minimize stress and work towards a resolution that is manageable for your current financial situation.