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Yes you can! With the caveat stated that most people do not go to jail because of errors on the return, criminal prosecutions take willfulness. There has to be some deliberate action on your part to mess up the return or to conceal income or hide expenses in some way. If there’s no evidence of willfulness, prosecution is probably not likely but in the course of the investigation, the auditor is looking for things called badges of fraud. They’re looking for evidence that you manipulated the numbers on your return in order to lower your taxable liability. If the errors are serious enough, it’ll trigger a referral to the Criminal Investigation Division of the IRS. So while the chances of jail are not exactly likely, if you’ve got a serious error on the return and you suspect willfulness it can and will trigger a criminal referral which is something that you don’t want to deal with.

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So the penalty structure in an audit is really rangy and it can range anywhere from a five percent penalty all the way up to a seventy five percent penalty depending on the conduct and the course of dealing during the audit and how the material is presented. The most common penalty is the negligence penalty which is about 20 percent. If at all possible you want to avoid that negligence penalty and knock this thing down to an accuracy penalty which is about 10 percent. An accuracy penalty is usually the best case scenario because the accuracy penalty is mandatory for adjustments that are $5,000 or more in tax. Generally speaking with most of our clients, although we try and get them out with flying colors, there’s usually some reason that the IRS has audited another return. So a $5,000 adjustment is usually not out of the ordinary; however, we’ll do everything that we can during the course of the audit to mitigate any penalties. For more serious cases, the goal in the audit is to mitigate the civil fraud penalty which is a 75% penalty. In addition to the 75% penalty on top of the tax that you owe, civil fraud prevents certain resolutions within IRS collections. That’s why it’s really important to avoid the stigma of fraud going forward in your IRS matter.

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