Because the IRS and the individual states' Departments of Revenue investigate two completely separate tax returns, it's possible to be selected for a state audit and not a federal audit (or vice versa).
Generally, what triggers a state tax audit is a tax return with an error or discrepancy. Some of the most common ones are mathematical mistakes, incomplete information and mismatches between what the taxpayer reported and data the government has in its database.
The IRS is authorized by IRC section 6103(d) to disclose federal tax information to state and local tax authorities for tax administration purposes. IRS and state and local agencies share data such as audit results, federal individual and business return information, and employment tax information.
Maybe. Under the State Income Tax Levy Program, the IRS can levy (take) your state tax refund to offset back taxes, addressing any tax debt you might owe. If this happens, the state will give you notice of the levy.
New York, state with the most state audits.
Will a federal audit trigger a state audit or vice versa? Sometimes, but not always. Because the IRS and the individual states' Departments of Revenue investigate two completely separate tax returns, it's possible to be selected for a state audit and not a federal audit (or vice versa).
Yet less than 40 thousand of their returns were audited by the IRS in FY 2021 – just 4.5 out of every 1,000 of these returns[2]. This contrasts sharply with 13.0 out of every 1,000 of these lowest income returns that were audited last year by the IRS.
Levying your state tax refund through the State Income Tax Levy Program (SITLP) Under the State Income Tax Levy Program, we may levy (take) your state tax refund. Currently, this only applies to individual state tax refunds, but may include business state tax refunds in the future.
When you file your federal income tax return, you can check the status of your tax refund by visiting the IRS website or its mobile app. However, each state has its own process for handling state income taxes. If you expect a refund, your state may take only a few days to process it or the state may take a few months.
Key Takeaways. The IRS can seize some or all of your refund if you owe federal or state back taxes. It also can seize your refund if you default on child support or student loan debts. If you think a mistake has been made you can contact the IRS.
States can assess penalties and take enforcement collection actions against taxpayers who have not filed a required tax return or paid state taxes owed. In addition to some of the same options the IRS has, states can revoke, suspend, or not renew specific licenses granted to taxpayers who owe state taxes.
IRS computers automatically exchange your tax data with all states except Nevada. Most state tax agency procedures are modeled after the IRS. State tax agencies generally have the same powers of audit and tax collection as the IRS.
Under California Revenue and Taxation Code Section 19255, the statute of limitations to collect unpaid state tax debts is 20 years from the assessment date, but there are situations that may extend the period or allow debts to remain due and payable.
Here's what happens if you ignore an office audit:
You may have avoided the meeting, but you'll pay for it later in taxes, penalties, and interest. The IRS will change your return, send a 90-day letter, and eventually start collecting on your tax bill. You'll also waive your appeal rights within the IRS.
If you get audited and don't have receipts or additional proofs? Well, the Internal Revenue Service may disallow your deductions for the expenses. This often leads to gross income deductions from the IRS before calculating your tax bracket.
Answer only the questions you are asked to keep the investigation on task. Know your rights. You can bring a CPA, IRS Enrolled Agent, or other tax professional to support you during the audit. Appeal your results if you disagree with them.
Here is a link to the IRS website that explains what notice the IRS must give before levying. The good news is that normally the IRS sends you five letters (five for individuals and four for businesses) before actually seizing your assets.
The IRS may immediately levy against property without issuing a Notice of Intent to Levy under certain conditions. For example, if the collection of the tax is in jeopardy, no prior notification will be served.
First, they look for things like back taxes and unpaid child support. If they find any debts, they'll offset (reduce) your refund to cover the outstanding amount. Once they are satisfied that you have no outstanding debts, they will approve and then issue your refund.
BFS will notify the IRS of the amount taken from your refund once your refund date has passed. You should contact the agency shown on the notice if you believe you don't owe the debt or if you're disputing the amount taken from your refund.
No. Federal income taxes and State income taxes are totally separate.
There are several agencies that can garnish your federal tax refund. They include student loan agencies, child support agencies, unemployment offices and the IRS itself.
Generally, the IRS can include returns filed within the last three years in an audit. If we identify a substantial error, we may add additional years. We usually don't go back more than the last six years. The IRS tries to audit tax returns as soon as possible after they are filed.
What happens if you get audited and owe money? If you get audited by the IRS and owe money, you'll be notified of the additional tax that you're required to pay as well as any penalties and interest due. The correspondence that you receive from the IRS will mention a deadline by which you must pay.
The Short Answer: Yes. The IRS probably already knows about many of your financial accounts, and the IRS can get information on how much is there. But, in reality, the IRS rarely digs deeper into your bank and financial accounts unless you're being audited or the IRS is collecting back taxes from you.