What Do I Do If There Is a Serious Error on My Return and I Get Audited?

So the first thing you need to do if there's a serious error on your return is to understand what your risk is. Was the error caused willfully? Was it not caused willfully? This is not the time to be an advocate. You need to answer yourself honestly because it's always important to understand where the truth is in order to find out what your position is and the position you're going to take in negotiating with the Auditor. If the error was a simple mistake and there's no criminal liability, then the decision needs to be made on whether or not you're going to disclose that to the auditor or not. If you don't disclose it to the auditor and the auditor catches it later, there could be consequences in terms of penalties; however if you get out in front of the issue and disclose it, although you're on

the hook for whatever the taxable adjustment is as a result of the error, you may be able to leverage it to your advantage. For example if you can cause the auditor to divert their attention to the error, you may be able to cover up smaller errors and ultimately reduce the tax liability that you would have owed depending on what the error is. Depending on where it is, you need to measure the strategy carefully. That's why we recommend that clients go through the planning and pre-audit process so that we know how these things are going to play out in the audit and we can determine what the best way to play the error is. Also if you have a serious error on the return and you don't hire a representative, it's really important that you really think about doing so. Having a serious error can subject you to lots of penalties, some as high as 75% for civil fraud, so it's important that you talk to a knowledgeable tax attorney to get a fair opinion on what your risk is. Serious errors are no laughing matter. It's important that you deal with it honestly and appropriately before the IRS makes the decision.


Sam Brotman, JD, LLM, MBA

Owner and Director of Legal
Brotman Law