Can You Be Audited After Settling With the IRS
Navigating the complexities of the United States tax code often feels overwhelming, especially when facing challenges with the IRS. For many individuals and businesses, entering a settlement with the IRS can feel like crossing the finish line after a long race. It provides relief and closure to a daunting process. However, there is often an underlying concern lingering in the background of that relief. Will the IRS scrutinize taxpayers again in the form of an audit even after a settlement has been reached?
Understanding the likelihood of an audit post-settlement and what steps to take to safeguard yourself is key to long-term financial peace of mind. This article sheds light on this topic by exploring the nuances of IRS audits and how they can relate to your situation, even after settling a tax matter.
The Reality of IRS Audits Post-Settlement
It is essential to understand that settling with the IRS does not automatically preclude you from being audited in the future. Some taxpayers mistakenly believe that a settlement signals the end of any possible interaction with the IRS enforcement division. However, this is not entirely true. While a settlement resolves specific liabilities or disputes, it does not immunize you from subsequent audits on unrelated or newer tax filings.
The IRS is legally obligated to ensure tax compliance across all taxpayers, and audits remain one of its primary tools for enforcing compliance. Even taxpayers who have negotiated payment plans, offers in compromise, or other agreements remain subject to routine review for compliance in upcoming tax years. This process is not punitive but rather part of the IRS’s systemic checks to ensure taxpayers are filing correctly and paying what they owe.
Common Reasons the IRS May Audit After a Settlement
Several factors can increase the likelihood of an audit following a settlement, even if the taxpayer believes the matter has been definitively resolved. One of the primary triggers is recurring issues or patterns in tax filings. If the IRS notices recurring errors in subsequent returns after a settlement, it may lead to further scrutiny or an audit. This could stem from failing to report income accurately, claiming deductions that raise red flags, or recurring mathematical errors.
Another significant reason lies in changes to the taxpayer’s financial circumstances that do not align with the information on their tax filings. For example, a substantial increase in income without corresponding adjustments to taxable income may prompt the IRS to take another look. Similarly, large charitable contributions, sudden acquisitions of assets, or discrepancies in reported income between taxpayers and third parties could all result in an audit.
Additionally, the IRS may conduct follow-up audits if problematic patterns or discrepancies were identified during the original tax issue but remain unresolved in future filings. This especially applies to individuals who have taken part in complicated financial transactions or who own businesses with complex tax structures.
How Prior Settlements Impact Future Audits
While past settlement agreements address specific tax issues for a particular filing period, they do not act as blanket protection against scrutiny for unrelated matters. For example, if you previously resolved a tax liability attached to underreported income from five years ago, this settlement does not affect whether the IRS might audit your tax filing from last year.
There are scenarios, however, in which the terms of a settlement agreement can directly influence how likely you are to face a review in the future. Certain agreements may include revocation clauses or stipulations related to future compliance. Failure to adhere to such clauses may prompt additional audits. This is why it is critical to ensure that any post-settlement obligations, such as installment payments or filing all required returns timely, are strictly followed.
What to Do If You Are Audited Post-Settlement
Receiving an audit notice from the IRS after going through a taxing settlement experience can feel daunting. It is important to remain calm and to understand that an audit notice does not necessarily indicate misconduct or wrongdoing. It is simply a request for further review of your filings.
If the IRS contacts you for an audit, the first step is to make sure you respond promptly. Ignoring the notice will almost certainly compound the issue and invite additional scrutiny. Carefully review the notice and determine which years and issues the IRS is seeking to review.
Professional guidance is indispensable if you are facing an audit or believe you are at risk for one. A seasoned tax attorney with experience handling IRS matters can represent your interests and advocate on your behalf. They will examine your filings to identify potential areas of concern and will help gather supporting documentation for the audit process.
Why Hire a Tax Attorney for IRS Audits and Settlements
The tax code’s complexity makes it both frustrating and intimidating to many taxpayers, which is why the stakes are often so high when dealing with the IRS. Having a knowledgeable tax attorney at your side ensures you are fully prepared to address any inquiries, whether they pertain to a previous settlement or an unrelated audit.
A tax attorney brings a wealth of knowledge to the table. From understanding nuanced sections of the tax code to negotiating with IRS representatives, they are uniquely equipped to manage interactions with the agency.
Engaging professional help also provides peace of mind. Having an attorney means you can rest assured that no stone will be left unturned when reviewing your documentation, identifying potential risks, and developing strategies to resolve issues.
How to Protect Yourself After an IRS Settlement
The best way to reduce the risk of a future audit is to remain meticulous in maintaining compliance. Taxpayers should take every step necessary to file their future returns accurately, documenting income, deductions, and credits with care. If you are unsure about anything in your filing, seek advice before submitting the return.
It is also vital to retain records—even after a settlement is reached. Keeping organized, comprehensive documentation of all financial transactions and correspondence can serve you well if the IRS audits a subsequent filing.
To prevent discrepancies, it may be wise to have a professional accountant or tax attorney periodically review your filings. This proactive measure can help ensure accuracy and eliminate errors that might inadvertently trigger an audit.
Take Control of Your Tax Situation Today
Managing your obligations to the IRS does not have to be overwhelming if you have the right resources and professional guidance at your disposal. Settling a tax issue with the IRS can bring immense relief, but understanding your rights and responsibilities post-settlement is equally important. By remaining proactive and vigilant, you reduce the risk of future complications, including audits.
If you are navigating a tax settlement, facing an audit, or simply looking for clarity and guidance with your tax filings, contact the law firm of Jeffrey M. Rosenblum, P.C. Our team is experienced in helping individuals and businesses resolve IRS tax issues effectively and efficiently. Call us at 866-637-7300 to schedule a consultation and take control of your tax situation today.
