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What Are the Potential Consequences of an IRS Tax Audit for Companies in Maryland?

News, Offshore Account Update

Posted in on April 30, 2024

What is at stake if the IRS is auditing your company in Maryland? IRS tax audits can present substantial risks for companies, and understanding these risks is essential for making informed decisions during the audit process. Find out what you need to know from Maryland business tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group:

7 Potential Consequences of an IRS Business Tax Audit

When the IRS audits companies, revenue agents look for evidence of any and all forms of tax evasion and tax fraud. Depending on what they find, an IRS business tax audit can lead to various types of penalties. Some of the most common types of penalties imposed on companies include:

1. Back Taxes

Companies that have underpaid their federal tax liability (whether income tax or employment tax) have a continuing obligation to pay what they owe. If an IRS business tax audit reveals an underpayment, or receipt of an improper refund, the business will generally be required to pay all back taxes owed.

2. Interest

Unpaid federal taxes begin to accrue interest immediately. While the IRS imposes different interest rates in different circumstances, any interest liability can substantially increase the cost of an unfavorable IRS audit determination.

3. Failure to Pay Penalty

Businesses that fail to pay taxes owed can also incur the IRS’s failure-to-pay penalty. In most cases, this penalty is calculated as 0.5 percent of the unpaid taxes for each month that the taxes remain unpaid, subject to a maximum penalty of 25 percent.

4. Failure to Deposit Penalty

Businesses that fail to timely pay employment taxes to the IRS can incur the agency’s failure-to-deposit penalty. This penalty starts at 2 percent of the amount owed and increases to 15 percent if the amount owed remains unpaid more than 10 calendar days after receipt of a relevant notice from the IRS.

5. Accuracy-Related Penalty

Claiming improper deductions and other mistakes that lead to inaccurate filings can lead to imposition of the IRS’s accuracy-related penalty. In cases involving substantial corporate underpayments, the accuracy-related penalty is calculated as 20 percent of the underpayment.

6. Erroneous Refund or Credit Penalty

Businesses that claim “excessive” refunds or credits on their returns can incur a penalty of 20 percent of the excessive amount claimed—provided that they do not face criminal scrutiny for offenses such as Employee Retention Credit (ERC) fraud.

7. Understatement of Estimated Tax Penalty

Understating a company’s estimated tax liability can lead to penalties as well. As the IRS explains, understatement penalties for estimated tax are determined based on the amount of the underpayment, the period when the underpayment was due and the IRS’s then-current interest rate for corporate underpayments.

Discuss Your Company’s IRS Audit with Maryland Business Tax Attorney Kevin E. Thorn

If you need to know more about the risks of facing an IRS business tax audit in Maryland, we invite you to get in touch. To schedule a consultation with Maryland business tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, call 240-235-5096 or request an appointment online today.

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