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What can I expect if I am audited in Massachusetts?

Taxpayers should know what to expect and what their rights are when going through a state or federal tax audit.

Receiving notification of a tax audit can be a stressful event. According to the Internal Revenue Service, approximately 1.2 million individuals went through the process in fiscal year 2014. People in Massachusetts undergoing a tax audit at either the state or federal level should have an idea of what to expect.

Audits in Massachusetts

The Massachusetts Department of Revenue points out that many state-level audits can be resolved quickly. Desk audits, which are fairly simple, can often be conducted through letters between the taxpayer and the DOR. A field audit, however, may require an in-depth examination of the taxpayer’s records.

At the start of the audit, a consumer will receive a notice that additional information is needed regarding the state income tax return, or that there is an error that needs to be corrected. That notice should include the following:

  • The deadline by which the taxpayer must respond
  • A description of the issue
  • Contact information for the person handling the case

Failing to respond to the notice could result in having to pay additional fees. The DOR states that anyone going through a field audit may have an attorney present during meetings with the office.

Once the audit is complete, the taxpayer will receive a report that details the findings. It is possible to challenge the findings through contacting the DOR. If there is no dispute and additional tax is due, it is important to pay the amount on time to avoid interest or other penalties. The DOR points out that if a taxpayer disputes the findings and fails, he or she could have to pay interest on the original amount owed.

A federal audit

There are several ways that a federal audit could be initiated. If, during a state audit, the examiners find an item that could affect the federal return, the IRS will be notified. Additionally, the IRS can randomly select returns or choose to audit a taxpayer whose documents do not match reported information.

A taxpayer will learn about the audit either over the phone or in person. The IRS will put in writing which items have been requested and why. Once the agency issues its findings, the individual can either agree with it or dispute it. To dispute a federal audit, a taxpayer must file an appeal with the IRS. Even if the appeal fails, consumers can take their case to a branch of the U.S. Tax Court. In court, a judge will listen to the case and determine if the taxpayer’s assessment will be reduced.

Though it may seem that an audit can be straightforward, the truth is that it can be very complicated. Someone who does not understand tax law could be at risk of incurring unnecessary fees or penalties. Anyone who has questions about this issue should consult with an attorney in Massachusetts.