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What Are The IRS Audit Penalties?

  Sanjiv Gupta CPA  Published 
What Are The IRS Audit Penalties?

If your tax return was selected to be reviewed by an audit, it does not mean that you will have higher tax liabilities or IRS penalties. Unfortunately, however, approximately 75% of those people audited have to pay more taxes. If something is discovered to be wrong on your tax return, the burden of proof will be yours for most provisions for penalties except fraud.

An adverse decision could incur a wide variety of penalties. You could also have to pay more taxes if the report shows that your taxes were understated. Below are some penalty possibilities.

Penalty Related To Accuracy

If your return is found to be inaccurate, you might be subject to a 20% penalty on the tax that was understated. Some tax inaccuracies could trigger a penalty of 40%.

Penalty For Civil Fraud.

If you have an adverse audit that resulted in civil fraud, the penalty is 75% of the tax that wasn’t paid and that attributed to the fraud. Some parts of the underpayment may be attributed to an accuracy-related issue and therefore would have a lower penalty on it. Any underpayments that are attributed to civil fraud can’t be stacked with penalties for accuracy-related issues.

Failing To File Your Tax Return Fraudulently

This is extremely rare; however, if an IRS audit can prove that you purposefully filed your taxes late and did not have an extension to avoid paying taxes, you will be subject to 15% each month for a total of 75% after being late five months. The normal penalty for being late is only 5% per month.

Criminal Penalties

There are various criminal IRS charges that can be both felonies and misdemeanors. These criminal charges include evading taxes, filing a false tax return, willfully not paying estimated taxes or keeping proper records, or not filing a tax return at all. Civil penalties for fraud are much more likely than criminal penalties.
Interest On Penalties

When you are audited, you can receive penalties for accuracy-related issues, not filing your return on time or a penalty related to civil fraud. Interest will start accruing from the day that the tax return was due until all of the penalties are paid in full. With all other IRS penalties, the interest does not start accruing unless the penalties have not been paid within 21 days from when the Internal Revenue Service actually requested payment as long as the total penalty is under $100,000. If the total penalties are over $100,000, you have only 10 days to make the payment in full before the interest starts accruing.