Maryland Tax Law Blog

Many taxpayers in Maryland are perpetually concerned about the potential of an IRS audit, even when they've taken care to file everything correctly. Statistics show that the overall audit rate of the tax agency is continuing to decline and that this decrease is especially notable for high-income individuals and businesses. Less than 1 percent of individual tax returns and those filed by business partnerships are likely to be audited.

Some wonder if people will be more likely to file inaccurate returns or evade taxes if the audit rate continues to decline. In general, when people purposefully file an inaccurate tax return, they either underreport their income or exaggerate their deductions. Most people find it difficult to underreport income because their employers or contracting agencies file necessary paperwork with the federal government. However, up to 63 percent of income may be underreported when all-cash transactions and other unrecorded payments are the methods of payment.

When Maryland residents have their tax returns accepted by the IRS, it doesn't mean that there weren't any errors. In a given year, millions of people will receive a notice from the IRS, and mistakes could lead to an individual paying more to the government. However, it is worth noting that a notice is not the same thing as an audit despite the feelings it may stir in a taxpayer.

In 2016, there were 1 million audits conducted, which was a 30 percent drop from 2011. That compares to 5.1 million notices that were sent out, which were focused mostly on math errors or income that was not reported. The IRS may send out a notice or audit a tax return for up to three years after it was filed. Furthermore, notices can be received throughout the year.

Most Maryland taxpayers dread the thought of getting audited by the Internal Revenue Service. While the risk of being audited is relatively low, experts say there are a few innocent errors that could increase a person's chance of landing in the audit pile.

For example, people who rush through their taxes are more likely to be audited. Waiting until the last minute could leave a taxpayer without important financial documents or force them to hurry through calculations. This could lead to an incorrect tax return and an audit. Therefore, taxpayers should be sure to give themselves ample time to correctly prepare their returns. Another quick way to get audited is by filing a tax return on paper. According to the IRS, 21 percent of paper returns contain errors while only 1 percent of electronic returns have mistakes.

Tax season does not always result in federal tax refunds for people in Maryland. A variety of reasons could cause someone to owe taxes at the end of the year and face challenges in coming up with the money for the Internal Revenue Service. According to the IRS, tax penalties hit roughly 10 million people every year. A tax bill cannot be ignored, but people sometimes have options for gaining more time to pay or negotiate a settlement.

For people who owe less than $50,000, a long-term payment plan could provide relief. The IRS will continue to apply interest and penalties to the balance, but installment payments grant people a method for meeting their obligations when they cannot raise the money within 120 days. The tax agency might also respond favorably to requests to delay payment from people who can show that paying the bill will impose serious financial hardship.