An income tax audit is never a pleasant process but a skilled attorney who understands the tax laws can make the process much less painful and offer audit defense. You can also relax in that you are ensured that you do not overpay any taxes you may owe. Basically, an income tax audit can end in one of three ways. You can have a no change to the amount of taxes you owe, a fully agreed case where both sides agree on the amount of taxes owed, or a partially unagreed and fully unagreed case of what you owe. But what does that mean in plain English? Let us have a look at each possibility.
If, at the end of your income tax audit, the IRS issues a “no change” letter, then it is time to celebrate. What this means is that after looking over your returns, getting answers to their questions and noting no outstanding issues after reviewing all the documentation, they concluded that your return was correct and no changes are needed. Keep in mind that an income tax audit, at its simplest, is just like someone grading your term paper. Sometimes they mark it up and other times, all is well and you get an A. The IRS does not always find problems though it is rare this is the end result. In addition, the IRS, in the income tax audit procedure, may actually find that you missed some deductions, or your tax attorney may find missed deductions or other ways to reduce your tax liability, and that the IRS owes you money. This does happen on occasion.
Next in line would be an income tax audit that closes as fully agreed. In this case, the auditor does find some issues, and after consulting with your New York tax lawyer and yourself, a deal, so to speak is worked out. The main point here is that the auditor does find problems and you and your attorney will agree after negotiation with his/her assessment and you agree to pay the outstanding amount. Once this agreement is reached, you will sign off as will the IRS, usually using forms like the Form 4549 that has been reviewed by your tax lawyer . After this, the IRS will move to collect the amount agreed upon and when they are paid, all is well and the audit case is closed.
If things do not allow a full agreement then you end up with either a partially or fully unagreed case and then things can get more complicated. However, there is still a solution to this tax problem. If you and your tax lawyer and the auditor simply can’t come to an understanding, then the process moves to a higher plane of existence and your case can be appealed within the IRS (or State). If you can agree on some things, you will be asked to sign a Form 4549 and those issues get dealt with and taken off the table. If your case is not resolved in the Appeals process, you then have 90 days to file a petition with the US Tax Court.