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IRS audits after refunds issued

On Behalf of | Jan 4, 2023 | IRS Audits

A taxpayer might file a return and receive a refund, no longer expecting the Internal Revenue Service to make any inquiries about items on the return. However, a Georgia taxpayer might become involved in an audit on that same return several months or years after receiving the refund. Ultimately, a refund’s issuance does not necessarily indicate all matters related to the tax year are closed.

Refunds and audits

When someone overpays their taxes due, the IRS refunds the overpayment. The IRS issues the refund based on the information provided on the return. The taxpayer claims a business deduction that reduces their taxable income, contributing to the requested refund. However, the IRS may later question the deduction and other items on the return, resulting in an audit.

The IRS has up to three years to audit a tax return. If there is a substantial error on the return, the IRS may go back further, although six years is the standard cutoff. Whether someone received a refund or paid a balance-due notice previously has no bearing on whether a return undergoes an audit. When the audit leads to an increased tax assessment, the taxpayer might receive a balance-due notification despite having already received a refund.

Addressing the audit

IRS audits could be straightforward or complex, depending on the specific situation. The taxpayer may respond via mail if the IRS wants to see receipts supporting charitable contributions or various deductions. Of course, the response must provide compelling evidence, or the tax authority may strike the deductions.

An IRS auditor’s decision may not be final. When a taxpayer disagrees with the IRS, filing an appeal is possible. Sometimes, going to Tax Court could be necessary when the appeal does not provide the desired outcome.