What to do when you or your business is undergoing an IRS Audit? What to do once an audit is closed.?

When an entity undergoes a tax audit by the IRS and receives a proposed assessment final audit report that it disagrees with, there are several options available for addressing the situation. Here are some of the steps an entity can take:

1. Discuss with the Auditor: If there are disagreements regarding the audit findings, it's often a good first step to communicate directly with the IRS auditor who conducted the audit. They may be able to clarify their findings, provide additional information, and address any concerns.
2. Appeal the Decision: If the entity still disagrees with the audit findings after discussions with the auditor, it has the right to appeal the decision. The appeal process involves submitting a formal written protest to the IRS within a specified timeframe. The appeal will then be reviewed by an independent IRS appeals officer who was not involved in the original audit.
3. Request a Collection Due Process (CDP) Hearing: If the IRS issues a notice of intent to levy or seize assets because of the audit assessment, the entity can request a Collection Due Process hearing. This hearing allows the entity to present its case and propose alternatives to the proposed collection action. This can also be a forum to address any underlying tax liability issues.
4. File a Lawsuit: If the entity disagrees with the outcome of the appeal or CDP hearing, it can file a lawsuit in federal court. This option is usually pursued if all administrative remedies have been exhausted and the entity believes there was a violation of its rights.
5. Offer in Compromise: An Offer in Compromise (OIC) is an option where the entity proposes to settle its tax debt for less than the full amount owed. This is a complex process, and the entity must demonstrate that paying the full tax liability would cause financial hardship or that there is doubt about the amount of tax owed.
6. Installment Agreement: If the entity acknowledges the tax liability but can't pay the full amount immediately, it can negotiate an installment agreement with the IRS. This allows the entity to pay off the debt in smaller, manageable monthly payments.
7. Seek Professional Advice: It's often beneficial for the entity to seek advice from a tax professional or tax attorney who specializes in IRS matters. They can provide guidance on the best course of action based on the entity's specific situation.

Once a tax audit has been closed and a tax bill has been assessed by the IRS, taxpayers still have several options to address the situation and manage their tax liability. Here are some common options:

1. Pay the Tax Bill in Full: If the taxpayer agrees with the assessment and can afford to pay the full amount owed, this is the simplest option. It helps avoid any further penalties and interest that could accrue over time.
2. Set Up an Installment Agreement: Taxpayers who are unable to pay the full amount upfront can request an installment agreement. This allows them to pay off the tax debt in smaller monthly payments over an extended period. Keep in mind that penalties and interest will continue to accrue until the debt is fully paid.
3. Request a Temporary Delay: If the taxpayer is experiencing financial hardship and is unable to make any payments, they can request a temporary delay in collection efforts. The IRS may temporarily delay collection until the taxpayer's financial situation improves.
4. Offer in Compromise (OIC): An Offer in Compromise is an option for taxpayers who are unable to pay their tax debt in full and can demonstrate that paying the full amount would cause them financial hardship. Through an OIC, the taxpayer can propose to settle the debt for less than the total owed. This option involves detailed financial analysis and is not always accepted by the IRS.
5. Appeal the Assessment: If the taxpayer disagrees with the audit findings and the resulting assessment, they can appeal the decision. This involves submitting a formal written protest to the IRS and requesting a review by an independent appeals officer.
6. File a Lawsuit: If the taxpayer exhausts all administrative remedies, including the appeal process, and still disagrees with the IRS decision, they can file a lawsuit in federal court to challenge the assessment.
7. Innocent Spouse Relief: If a joint return was filed and one spouse believes they should not be held responsible for the tax liability due to the other spouse's actions, they can apply for innocent spouse relief.
8. Request Penalty Abatement: In some cases, taxpayers may be able to request the removal of certain penalties that were assessed. This might apply if the taxpayer has a reasonable cause for the failure to comply with tax obligations.
9. Consult a Tax Professional: It's often advisable to consult a tax professional, such as a tax attorney, certified public accountant (CPA), or an Enrolled Agent who is an individual that is licensed to represent clients with IRS and State tax agencies to help navigate these options or others and choose the best course of action based on individual circumstances.

It's important for taxpayers to act promptly after the audit is closed and the assessment is issued. Ignoring the tax debt can lead to additional penalties and collection actions by the IRS.

Call Martha De la chaussee at 323-344-2294, Luz Orozco EA at 310-650-4664 or Hassan Dornayi 626-337-4664.