When the IRS concludes a tax audit, there are three possible outcomes:
No changes
The IRS proposes changes and you agree with those changes
The IRS proposes changes with which you do not agree
If you agree with the auditor’s findings and owe additional taxes, you will likely also owe penalties and interest. You can work with the IRS to pay any amounts owed.
When a taxpayer disagrees with the auditor’s findings, you have the right to request a conference with an IRS manager, have the matter decided in mediation, or file an appeal if there is still time to do so under the applicable statute of limitations.
If the outcome of your appeal, mediation, or conference is that you owe additional taxes to the IRS, you could face accuracy-related penalties of up to 40% of the underpaid tax amount. If the IRS findings result in charges of civil fraud, you may owe penalties of up to 75% of underpaid taxes resulting from fraudulent activity. In extreme cases, where the IRS determines you were evading your responsibility to pay taxes, you could also face time behind bars.