Will Correcting a Mistake on My Tax Return Trigger an IRS Audit?

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While there are a great many special days on the calendar that people enthusiastically anticipate, April 15 is not one of those days.  Many people hurriedly trying to file their taxes on time later discover that they have made an error when rushing to get their tax return completed by the filing deadline.  Some people are hesitant to correct their error because they fear that they will draw attention to the mistake and by subject to a dreaded IRS tax audit.  The IRS official position is that those who make a mistake in their return should simply “come clean” as soon as possible by filing a 1040X amended return that corrects the error.  The question we often receive at our New Orleans tax law firm is whether this will automatically result in an IRS tax audit.

While an amended tax return will not automatically “red flag” the taxpayer for an audit or get the taxpayer placed in the pool of returns from which returns are randomly selected, it will trigger an extra layer of scrutiny that could result in an audit.  It is important to understand there are situations where discovery of an error does not make it necessary to file an amended tax return.   For example, the IRS computer software will catch simple mathematical mistakes so there is no need to file a 1040X which will trigger closer review.  However, mistake like failing all of your income or listing the correct number of dependents should be corrected with an amended return.

The IRS does not disclose the precise formula or evaluation process used to red flag tax returns for an audit, but the federal taxing authority does indicate that the mere filing of an amended return is not sufficient to cause an audit.  The IRS will compare the old return to the new return, which means a closer examination so  potential issues that might trigger questions leading to an audit are more likely to be discovered.  One way to mitigate this risk might be to submit supporting documentation.  If you forgot to include a source of income or list a deduction for a business advertising expense, you might be able to prevent close scrutiny by attaching the W-2 or 1099 that evidences the additional income or an invoice and payment records for the additional expense.

If you are worried about a mistake on your tax return or you have questions about tax audits, you should contact experienced Louisiana tax attorney Paul A. Grego.  We offer a free initial consultation so that we can answer your questions and provide an initial assessment of your situation.  Call us today at 504-302-4949 or email us.

Can IRS Hardship Status Solve My Inability to Pay Federal Tax Obligations?

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Many people recently submitted their tax return to the IRS only to discover that they could not afford to pay the tax due.  Whether you were unable to pay your tax due based on your 2012 tax return or face outstanding balances from prior tax years, the IRS is not an agency to whom anyone wants to owe money because their debt enforcement techniques are brutal, including bank levies, wage garnishments, property liens and more.  If you cannot pay your federal income tax obligation, one option is to request “Hardship Status” (Status 53).  However, this form of relief is not available to everyone and may not be your best option so we have provided an overview of IRS Currently Not Collectible Status.

When the IRS receives a request for Hardship Status via Form 433A along with supporting documents, the federal taxing agency will evaluate a taxpayer’s gross monthly income in light of certain permissible expenses.  These “allowable expenses” generally include basic necessities based on national averages as opposed to the actual amount spent by the particular taxpayer requesting relief.  Examples of these expenses include food, housing, transportation, clothing, insurance, medical expenses, mandatory payroll deductions and the like.  The value of each allowable expense will depend on one’s geographic location and number of people in one’s household.

While the amounts generally used for these allowed expenses are based on averages, the granting of hardship status is a subjective evaluation.  This means that the IRS may consider deviations from these expense numbers based on individual circumstances.  If a family is hit with unanticipated catastrophic medical expenses associated with a life-threatening illness or injuries suffered in an accident, the actual amounts spent on medical bills may be considered rather than the accepted average usually applied for this expense.  When a taxpayer has this type of extraordinary situation, it is essential to provide supporting documentation.  The IRS will carefully scrutinize and evaluate requests for hardship (currently unable to pay status) and harsh penalties may apply for cases deemed as tax fraud or as frivolous applications.

Because the IRS will review hardship status approximately every year and a half to two years, it is not a long-term solution to your tax problems.  However, if you are close to the minimum deadline before you can file for a bankruptcy or the expiration date of a collection statute, hardship status can provide you a form of protection from enforcement procedures while waiting to meet these timing requirements.

If you are facing harsh tax debt enforcement procedures by the IRS, our experienced Louisiana tax law firm may be able to help.  When you are concerned about your inability to pay your taxes, you should contact experienced Louisiana tax attorney Paul A. Grego.  We offer a free initial consultation so that we can answer your questions and provide an initial assessment of your situation.  Call us today at 504-302-4949 or email us.