How Do Prior Audits Affect Current Cases?
Prior audits often influence how the Internal Revenue Service (IRS) or other authorities approach new investigations. Whether it’s a tax dispute, an appeal, or a fresh audit, understanding how prior audits come into play is necessary for anyone dealing with tax law matters.
At Common Law, our seasoned tax attorneys provide experienced representation, protecting your rights throughout the audit process. We understand the urgency of your tax matters, so we address them promptly and effectively. Clients throughout Salt Lake City, Utah, and the surrounding communities of Provo, St. George, Ogden, and Park City have benefited from the comprehensive guidance and skilled advocacy we offer in tax law-related matters, including tax planning and tax audits.
Today, we're here to explore how prior audits affect current cases and how you can protect your business interests.
What Are Prior Audits?
Before we dive into how prior audits affect current cases, it’s important to define what a prior audit is. An audit examines an individual’s or business’s financial records to confirm compliance with tax laws.
The IRS or state tax agencies typically conduct them to verify the accuracy of tax returns and assess the proper amount of tax owed. Prior audits are simply audits that have already happened. They can involve any tax year or period and may result in penalties, adjustments, or even litigation if issues arise. The conclusions and outcomes of prior audits can influence future dealings with the IRS or state tax authorities.
How Prior Audits Impact Current Cases
There are various ways in which the results and findings of prior audits can affect how new cases are handled. Here are some key areas where past audits may play a role:
Precedent – If a prior audit resulted in adjustments or penalties for certain tax positions, it can create a precedent for how future audits will be approached. Tax authorities may scrutinize similar issues more closely in the future.
Increased scrutiny – If a taxpayer or business was subject to an audit in the past, the IRS or other tax authorities might apply more scrutiny to current filings, especially if they find patterns of non-compliance.
Penalties and interest – A prior audit that resulted in tax underpayment can attract greater penalties or interest in future cases. The IRS may assess a higher penalty rate for similar errors if they believe there is a history of non-compliance.
Audit history – A taxpayer or business with a history of audits may be flagged by the IRS for additional scrutiny. This can lead to more frequent or extensive audits, complicating current cases.
As you can see, the outcome of a prior audit can significantly influence how tax authorities view subsequent filings.
What Does It Mean for Taxpayers and Businesses?
Understanding how prior audits affect current cases is critical for taxpayers and businesses, as it helps them prepare for future audits and potential disputes. Here are a few ways prior audits can infuence the approach to new cases:
Filing behavior – If you or your business has been audited in the past, it’s important to maintain accurate and transparent records moving forward. A previous audit could lead tax authorities to scrutinize your filings more closely.
Correcting prior mistakes – If a prior audit revealed errors or issues, they should be corrected in future filings. Failing to do so could result in repeated audits or additional penalties.
Understanding patterns – Recognizing patterns in prior audits can help businesses identify areas of concern. If certain tax positions have been questioned before, it’s wise to seek advice before filing again.
By taking proactive steps based on the outcome of prior audits, taxpayers and businesses can avoid future issues.
The Role of Tax Law in Audits
Tax law have a significant impact on how audits are conducted and how prior audits impact current cases. Each jurisdiction has specific rules for tax audits, penalties, and appeals. In the U.S., tax law governs the entire audit process, from the initial examination of tax returns to the final resolution.
If you've undergone a prior audit, understanding how tax law works can help you make informed decisions when facing a new audit or tax case. Here are some important aspects of tax law that can influence how prior audits impact current cases:
Statute of limitations – In most cases, the IRS can audit a tax return for up to three years after the filing date. However, if there is substantial underreporting of income or fraud involved, this period can be extended.
Appeals process – If a prior audit resulted in unfavorable findings, taxpayers can appeal the decision. Understanding how the appeals process works is critical when facing future cases.
Taxpayer rights – Tax law grants taxpayers certain rights during an audit, including the right to appeal and the right to be represented by a tax professional. These rights can protect taxpayers during subsequent audits.
By staying informed about tax law, taxpayers and businesses can better prepare for how prior audits may affect future cases.
How Prior Audits Influence Tax Disputes
If a taxpayer faces a new audit or tax dispute, the results of prior audits can shape the outcome. Here are a few ways that prior audits may influence tax disputes:
Pattern of behavior – If a taxpayer has a history of audits and adjustments, the IRS may be more likely to assume that future disputes are due to negligence or intentional errors. This can impact how the case is handled.
Relying on prior findings – In some cases, the IRS may use findings from previous audits as evidence in current disputes. For example, if a prior audit revealed underreported income or incorrect deductions, the same issues may be revisited in future disputes.
Additional penalties – If a taxpayer was penalized in a prior audit, the IRS might apply the same penalties to a new dispute. Repeated offenses can often result in higher penalties or more serious consequences.
The impact of prior audits on tax disputes is one reason why it’s essential to address issues during earlier audits. Taking corrective actions before a dispute escalates can prevent similar problems in the future.
Dealing with Multiple Audits
Some taxpayers or businesses may face multiple audits over several years. In this case, there are several strategies to mitigate the impact of prior audits on current cases:
Maintain detailed records – Keeping accurate financial records is essential, especially if you’ve been audited before. This can clarify discrepancies and reduce the likelihood of further audits.
Seek professional help – If you’ve been audited previously, a tax professional or legal advisor can help ensure you handle future audits properly. They can also assess how prior audits may impact current tax matters.
Be proactive – Addressing issues early can prevent them from escalating. If a prior audit revealed potential problems, making adjustments before they become a major issue can help mitigate future risks.
By proactively addressing potential issues, taxpayers and businesses can minimize the impact of prior audits on future cases.
Call Common Law Today
At Common Law PC, we know tax matters can’t wait, so we prioritize efficiency and prompt resolutions. Whether you need help with tax planning, audits, or resolving disputes with the IRS, we’ve got your back. Our experienced team is here to protect your finances and make sure you're compliant with tax regulations. Located in Salt Lake City, Utah, we serve clients in Provo, St. George, Ogden, and Park City. Call today to schedule a consultation.