Understanding the Risks of IRS Tax Audits for Companies in New Jersey

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Posted on April 30, 2024 |

Federal tax audits present risks for companies of all sizes. Not only can audits lead to liability for back taxes and interest (which begins to accrue immediately), but the IRS imposes various penalties for income and employment-related tax violations as well. As most of these penalties are percentage-based—up to 75 percent in cases of fraud—all companies can face penalties that have a major impact on their bottom line. This makes it essential to hire an experienced New Jersey business tax attorney when facing scrutiny from the IRS. Learn more from Kevin E. Thorn, Managing Partner of Thorn Law Group:

Common Penalties in IRS Business Tax Audits

The IRS imposes different penalties in different circumstances. When facing an IRS audit, it is imperative that business owners have a clear understanding of the risks their companies are facing, as this will play an important role in informing their audit defense strategies. Common penalties resulting from IRS business tax audits include:

  • Accuracy-related penalty
  • Erroneous refund or credit penalty
  • Failure to deposit penalty (for employment taxes)
  • Failure to file penalty
  • Failure to pay penalty (for income taxes)
  • Underpayment of estimated tax penalty
  • International information reporting penalty

It is not unusual for companies to face multiple penalties as the result of an unfavorable IRS audit. For example, if a company has underreported its income tax liability and failed to timely pay over its employees’ FICA taxes held in trust, the company could face both the accuracy-related penalty and the failure to deposit penalty. When facing scrutiny from the IRS, companies (and their owners) need to ensure that they have a clear and comprehensive understanding of all issues that are likely to come up during the process so that they can structure their defense strategies accordingly.

The IRS’ Civil Tax Fraud Penalty

In most cases, the penalties imposed as the result of an IRS business tax audit will not exceed 20 to 25 percent of the amount at issue. But, there are exceptions. Most notably, the IRS has the authority to impose a 75-percent penalty in cases of civil fraud.

Criminal Investigations Resulting from IRS Business Tax Audits

Additionally, as the IRS explains, “examiners who find strong evidence of fraud will refer the case to Internal Revenue Service Criminal Investigation . . . for possible criminal prosecution.” In these cases, “both civil sanctions and criminal prosecution may be imposed.” When targeted in criminal tax fraud investigations, companies can face substantial fines—and company owners can face both fines and prison time.

Request a Confidential Consultation with New Jersey Business Tax Attorney Kevin E. Thorn

Is the IRS targeting your company in New Jersey? If so, we can help, but it is important that you contact us promptly. To discuss your company’s IRS tax audit with New Jersey business tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, in confidence, call us at 201-842-7696 or contact us confidentially online today.

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