What are potential consequences of failing a tax compliance audit?

The correct answer highlights the serious ramifications that can arise from failing a tax compliance audit. When an audit reveals discrepancies or non-compliance with tax laws, it typically leads to additional taxes owed due to underreporting of income or disallowed deductions. Additionally, the tax authorities may impose penalties for failing to meet legal obligations, which could include fines or interest on the owed amount. In some instances, legal consequences could arise if the non-compliance is found to be willful or fraudulent, leading to more severe repercussions such as criminal charges or civil litigation.

In contrast, the other options do not accurately reflect the outcomes commonly associated with a failed tax audit. Increased social security benefits and automatic refunds of previous taxes paid are not direct results of a failure in tax compliance. Deductions of expenses allowed may potentially be a benefit, but if the audit fails, it typically means that such deductions may be disallowed rather than allowed. Therefore, the ramifications of a failed audit are primarily concerned with the financial penalties and legal issues that can result from non-compliance, making additional taxes owed, penalties, and legal consequences the most accurate and relevant outcome.