How to Avoid Tax Penalties and Interest After an Audit
Tax collection divisions of the state and the Internal Revenue Service can levy bank accounts, wages, personal property and other things to collect a tax debt. However, taxpayers who have been audited and have extenuating circumstances or access to sufficient funds can keep penalties and interest from accruing on a tax debt.
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Instructions
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Pay any agreed upon tax settlements in full following an audit to keep penalties and interest from accruing. For large tax bills, determine whether savings accounts or equity in a home should be used to pay the debt. Accruing tax penalties and interest can sometimes double the amount of taxes originally owed.
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Get penalties and interest removed if you can cite a reasonable cause that led to a late tax payment or other payment problem. Serious medical issues or a death in the family are a couple of situations that may cause the IRS to remove tax penalties and interest. However, you must contact the IRS and send an explanation of the circumstances involved.
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Consider an offer in compromise (OIC)--an agreement made between a taxpayer and the IRS or state that settles the taxpayer's debt for less than the amount of taxes owed, even after an audit. If there is any doubt concerning the accuracy of the tax liability or the taxpayer's ability to pay the debt, then an OIC may be an option. Additionally, all principal and interest stops accruing if an OIC is accepted.
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Tips & Warnings
Generally, interest charges accrue until the assessed tax, penalties and interest are paid in full.
An OIC is typically seen as a last resort, after a taxpayer has looked into all other payment options.
The IRS allows about 25 percent of all OIC offers.
