If you get audited by the IRS and are guilty of a deduction that you can't prove, what happens?

Question

Do they just remove that deduction and reconfigure your totals or do you have to pay a penalty for not being able to support your deduction?

Answer 1

They remove the deduction and refigure your taxes. Then they add interest and penalties.

There is a tax court rule called the "Cohen Rule" that allows an estimate of a deduction if you can prove that you incurred the expense.

So if there is proof that the expense occurred such as you drove from New York to LA but only kept some of the receipts, the other receipts for gas show you made the journey so you can fill in the missing ones with estimates.

Answer 2

It depends. Sometimes nothing will happen, but that's only for something really small where you have a logical explanation, and have receipts for all the other items.

Most of the time, they'd just disallow that deduction and recalculate the tax you owe. You'd have to pay interest on that though, back to when you should have paid it in the first place. If it's a very large amount, there could also be a penalty.

The only time you really get into trouble is if you've just made something up - say you claimed 3 kids and didn't really have any. Then they'd not only disallow the deduction, but there could be large penalties, and possible prosecution and even prison time, depending on how big your lie was.

Answer 3

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RE:
If you get audited by the IRS and are guilty of a deduction that you can't prove, what happens?
Do they just remove that deduction and reconfigure your totals or do you have to pay a penalty for not being able to support your deduction?

Answer 4

It depends on the dollar amount of the deduction, what kind of a deduction it was. Sometimes it can mean fines, penalties, loss of benefits such as Food Stamps, Medicaid, Housing. In the worse situation, it could be prison. Now, if it is a simple error and you can show it was taken in good faith and a small infraction, get a tax professional to look this over. If you have a regular tax firm who has prepared your return, you need to get them to help you. If you feel as if you are being treated unfairly and can prove it, you can call the IRS and ask of a Tax Advocate. Usually the IRS is pretty reasonable about making arrangements, but remember they are not going to crunch your tax numbers with credits and deductions, this is why you need a tax professional.

Answer 5

You have to pay a penalty no matter what. The amount of the penalty depends on whether they think you did that intentionally and how far off you were. I know some people who misfile every year and just take what the IRS gives them after the IRS adjusts the return to match their W2s. Crazy. Jail time only comes from an intentional misstatement that is large.

Answer 6

I think you just have to pay the tax on your income without the unsupported deduction... but there's probably some fine if it's minor. I think it would have to be pretty big for anything worse to happen to you. Good luck!

Answer 7

Normally they just recompute your tax without the deduction. If this is after the filing deadline for the return, penalties and interest may be assessed.

Answer 8

It's penalty fine time!

On the upside, you probably won't get jail time EVEN though you perjured yourself by signing your tax documents which stated that they were complete and honest.

Answer 9

hai

i am not clear about this. but i can suggest you with some tax filing sites which can help you in this and will file your tax returns providing some tax deductions.

try these out . i think you will be benifited with these . all the best.

Answer 10

Penalty plus interest! Jail time if it was done to commit a fraud!