How an Audit Can Affect Your Credit
Receiving notice that you are subject to an IRS audit is never exactly met with excitement. The IRS spends significant time each year reviewing all tax returns for red flags, inconsistencies and errors. If the IRS determines that something on your return warrants an audit, you should respond quickly and thoroughly. The good news is that the IRS does not report any information about what you owe them to credit agencies, so the audit itself will not impact your credit. The IRS auditor may ask to look at some of your financial information and ask you questions about your financial records, so you will want to prepare for that.
While the audit does not impact your credit score, it is important to realize that if an IRS audit determines that you owe the government a significant sum of money, how you handle payment CAN affect your credit score. Many people are not in a position to be able to pay tax debt back in full, so this poses a real problem for their financial future. If you fail to pay your tax debt, the result may be a lien on your property, which will quickly appear on your credit report (and is public record). Credit agencies nearly always notice tax liens and your FICO credit score will take a nose dive. If you have been subject to an audit and it is determined that you owe a sizable amount money to the IRS, you do have viable options to help avoid a negative impact on your credit report. The two most realistic options are:
1. Payment via Installment Agreement: It is extremely difficult for most individuals to pay their tax debt to the IRS in one lump sum. The IRS offers many taxpayers the option of negotiating an installment agreement, which allows for the person to make smaller payment over time. Most often, the payment plan allows for monthly payments, very similar to a credit card bill.
2. Offer in Compromise: It is also very possible that an audit can result in a taxpayer owing significantly more money to the IRS than they can afford to pay, no matter whether it is paid in a lump sum or via monthly payments. In such cases, the taxpayer can negotiate an offer in compromise. In this scenario, you “settle” your debt with the IRS by paying a lower amount of money, in line with what you can afford. The IRS conducts a review of your finances to help determine what you can actually afford.
Need Audit Support or Negotiation with the IRS? Contact Success Tax Relief
If you have been contacted by the IRS about a pending audit, or if you have recently been through an audit and are trying to figure out a way to manage the tax debt without affecting your credit score, consider getting some help. Success Tax Relief is a full service tax relief firm that has more than 30 years of experience helping taxpayers solve difficult tax problems. We specialize in audit support and negotiating directly with the IRS on an individual’s behalf to apply for an offer in compromise or an installment agreement. Contact us today for help!