Opening an envelope from the IRS is stressful enough. But discovering that an audit has resulted in thousands of dollars in additional taxes can turn that stress into fear. You may be wondering how you’ll pay the bill, whether the IRS can take money from your bank account, or what will happen if you simply cannot afford to pay.
Understanding what happens next can help you protect your rights and take control of the situation before it becomes more overwhelming. If after reading this article you still have questions about resolving your tax debt, schedule a free consultation with Powerhouse Tax Resolution.
Why Would an IRS Audit Result in Additional Taxes?
An IRS audit examines whether the information on your tax return is accurate. The IRS may request receipts, bank statements, business records, or other documents to verify reported income, deductions, and credits.
If the IRS determines that you underreported income or claimed deductions or credits you weren’t entitled to, it may propose adjustments that increase your tax liability. Interest and applicable penalties may also add to the amount you owe.
For example, a self-employed taxpayer might discover that certain business expenses were disallowed because adequate documentation wasn’t provided. A taxpayer who failed to report income from multiple sources could also face an additional assessment.
However, an IRS audit doesn’t automatically mean you owe the amount the IRS initially proposes. You have rights throughout the process, including opportunities to respond to proposed changes and, in many cases, challenge them.
What If You Cannot Afford the Additional Tax Bill?
If an audit results in a tax bill you cannot pay, don’t assume you must immediately drain your savings or borrow money to cover it. Start by understanding whether the assessment is final and what options may be available.
1. Review the Audit Findings Before Agreeing
If you disagree with the IRS’s proposed adjustments, review the findings carefully. You may have records, receipts, or other documentation supporting your original tax return.
Depending on the audit stage, you may be able to provide additional evidence, request a discussion with the examiner, or pursue an appeal.
Pay attention to deadlines in IRS correspondence. Ignoring a proposed assessment could limit your opportunities to challenge it through certain administrative procedures.
2. Explore Payment Options if You Owe the Balance
If the additional tax is correct but you cannot pay it all at once, you may be eligible for an IRS installment agreement. This allows qualifying taxpayers to pay their balance over time.
Interest and applicable penalties generally continue accruing until the debt is paid, so it’s important to understand the total cost and choose a payment amount you can realistically afford.
Depending on your financial circumstances, other resolution options may also be worth exploring.
3. Understand Your Options if Paying Would Cause Financial Hardship
What if even monthly payments would leave you struggling to cover housing, food, utilities, and other necessary expenses?
Depending on your situation, you may qualify for Currently Not Collectible status, which temporarily suspends certain collection efforts when the IRS determines you cannot afford to pay.
Some taxpayers may also qualify for an Offer in Compromise, which can settle eligible tax liabilities for less than the full amount owed. Approval depends on the facts of your case and the IRS’s evaluation of your financial situation.
Neither option is guaranteed, but understanding your eligibility can help you avoid assuming that the full balance must be paid immediately.
What Happens If You Ignore the Audit Bill?
Avoiding IRS notices may feel tempting when you don’t know how you’ll pay, but ignoring the problem can make it harder to resolve.
If the additional tax becomes an assessed liability and remains unpaid, the IRS may pursue collection activity. Depending on the circumstances and applicable procedures, this can include filing a federal tax lien or taking steps to levy certain assets or income.
Interest and applicable penalties may also increase your balance over time.
The better approach is to understand your rights, respond to notices on time, and investigate potential solutions before collection activity escalates.
Take the First Step Toward Resolving Your IRS Debt
At Powerhouse Tax Resolution, Nora Riano, an Enrolled Agent authorized to represent taxpayers before the IRS, helps individuals and small business owners in Virginia, Maryland, and nationwide resolve IRS tax problems, in English and Spanish.
If you are facing an unexpected IRS audit bill, schedule a free consultation. Find out where you stand, what steps you can take to address your tax bill, and how to avoid letting an IRS audit derail your financial future.