IRS Form 4549 (Income Tax Examination Changes)
Form 4549 Explanation and How to Respond
Form 4549 is an IRS form that is sent to taxpayers whose returns have been audited. This form means the IRS is questioning your tax return. The agency may think you failed to report some income, took too many deductions, or didn't pay enough taxes.
If the IRS reviews your return and decides to make a change, the agency will send you a copy of this form. Form 4549 details the IRS's proposed changes to your return and shows your updated tax liability.
The form also includes requesting an audit reconsideration using Form 12661 (Disputed Issued Verification). This taxpayer guide to Form 4549 explains what to expect if you receive this form and how to respond.
Form 4549 Explanation: What Does IRS Form 4549 Include?
IRS Form 4549 includes the following details:
- Your name, address, and Social Security Number.
- The type of tax return you filed.
- The tax year for which you were audited.
- Adjustments to your taxable income as a result of the audit.
- Tax credits removed from your return.
- Additional taxes added to your return.
- The corrected tax liability.
- The adjusted tax owed on your return.
- Balance due or refund amount.
- The amount of interest and penalties owed.
- The date the IRS Form 4549 was issued.
If you agree, sign and return the form. If the audit was favorable to the IRS, you have to sign if the audit increased your tax due. If the audit decreased your tax liability or lead to a Form 4549 refund, you don't need to sign anything.
If you disagree with any of the information on the form, you can request an audit reconsideration with IRS Form 12661.
Other Versions of Form 4549
The IRS sends Form 4549 if the tax examiner assumes that you are going to agree with the proposed changes. Typically, the IRS only sends this form if the adjustments to your return have not changed your tax liability for the audited tax year but will lead to changes to your tax liability for future years. For instance, if the IRS disallows a net operating loss (NOL) that could have been rolled into future years, the IRS may use Form 4549.
However, in some cases, the IRS may use alternative versions of this form, including the following.
Form 4549-A (Income Tax Examination Changes (Unagreed and Excepted Agreed))
If the IRS examiner believes you're likely to disagree with the proposed changes to your return, they may issue Form 4549-A. It often comes with Letter 3602 or Letter 3602-B. If you sign Form 870, you give up your right to contest the audit. Consult with a tax professional before signing this form.
Form 4549-B (Income Tax Examination Changes)
Forms 4549 and 4549-A can display changes from three tax years. If the IRS makes changes to more than three years' worth of returns, the examiner will use Form 4549-B to list the other years. Form 4549-B is a continuation of Form 4549 or 4549-A.
Form 4549 "Corrected Report"
Sometimes, the IRS sends Form 4549 with a note or stamp that says "corrected report." Form 4549 "corrected report" means that the IRS has made adjustments to its initial audit. This form will be dated, and it will supersede adjustments noted on Forms 4549 with earlier dates on them.
Form 4549-E (Income Tax Discrepancy Adjustment)
The IRS uses Form 4549-E when the proposed changes to your tax return lead to a tax discrepancy adjustment. A discrepancy adjustment is when the IRS finds a discrepancy between the information on your return and information uncovered during an examination process compliance activity.
For instance, the IRS may send this form if you had unreported income due to an incorrectly reported distribution from a deferred compensation plan. Form 4549-E usually comes with Letter 3605-A.
What to Do If You Agree With Form 4549
If you agree with Form 4549, you should sign the form and return it to the IRS. In some cases, you don't need to sign this form. In particular, if the changes don't increase your tax liability, you often don't have to sign. Check out the Form 4549 instructions on your form to find out what to do if you receive Form 4549.
Once you sign the form, you will then be liable for the taxes and penalties due. If you cannot pay the full amount, you should contact the IRS to discuss payment and resolution options. Here are some of the options:
- Installment agreement — make monthly payments on your tax debt.
- Offer in compromise — pay off your tax debt for less than you owe.
- Innocent spouse relief — get relief from taxes due to your (ex)spouse's actions.
- Penalty abatement — ask the IRS to remove penalties from your balance.
- Uncollectible status — pause collection actions if you can't afford to pay.
To get more options for resolving unpaid taxes, contact a local tax professional. They can discuss your options and help you negotiate an arrangement with the IRS.
What If You Disagree With IRS Form 4549?
If you do not agree with Form 4549, you can file an appeal. The Form 4549 instructions on your form will explain what you should do if you disagree. You will need to fill out Form 12661 and submit it to the IRS. Include a statement explaining why you disagree with Form 4549. The IRS will then review your case and make a final determination.
Responding With IRS Form 12661
To request an audit reconsideration, you must complete and submit Form 12661 to the IRS. Form 12661 must be submitted within 30 days of the date on Form 4549. Submit Form 12661 to the address listed on the form.
How to Fill Out IRS Form 12661
Form 12661 can be confusing, but our guide will help you understand what to do. Here's what you need to know about this audit reconsideration form and how to fill it out correctly.
The form asks for your contact information, social security number, and details about the tax return in question. You'll also need to explain why you believe the IRS should reconsider its position.
To fill out form 12661, enter your name, the tax period, and your Social Security Number at the top of the form. Then, note the first disputed issue or adjustment, and write the reason why you disagree with the results of the audit. Enter the amount claimed on your original return and the amount allowed on the audited return.
Form 12661 has places to note three disputed issues. Attach additional pages as necessary to send details about other disputed issues. Once you've filled out the form, you'll send it back to the IRS along with any supporting documentation. Make copies of the supporting documents. Don't send your originals in case they get lost in the mail or during processing. The agency will then review your case and make a final determination.
What If You Don’t Respond to IRS Form 4549?
If you don't respond to Form 4549 within 30 days, the IRS may send you a statutory notice of deficiency (SNOD). The IRS may also take enforcement action against you. This could include levying your property or issuing a notice of federal tax lien.
Don't ignore Form 4549. Again if you disagree with the information on this form, you can file Form 12661 to request audit reconsideration.
What Is a Notice of Deficiency?
This notice is also known as a "90-day letter." It gives you 90 days to either pay the amount of taxes owed or to file a petition with the U.S. Tax Court. Don't ignore a notice of deficiency.
If you don't respond to a notice of deficiency, the IRS can issue a notice of tax lien or a levy. A tax lien is a claim against your property. A levy allows the IRS to seize your property, including your bank account, wages, or other assets.
If you receive a notice of deficiency, you should contact a tax attorney, enrolled agent, or accountant as soon as possible. They can help you determine how to respond and what your options are.
What If the IRS Asks You to Sign Form 872?
In some cases, the IRS may send Form 872 (Extension of Assessment Statute of Limitations by Consent) along with Form 4549. By signing Form 872, you are agreeing to extend the statute of limitations for the IRS to audit your return and assess additional tax.
Usually, the IRS only has three years from the date your return was due or filed to assess additional tax. If you sign Form 872, you give the IRS more time to go over your return and determine if you owe any additional taxes. Form 872 typically notes an event, and the extension goes to that event date plus 90 days.
The IRS may also use form 872-A or other versions of this form. If you are contacted by the IRS and asked to sign Form 872, you should consult with a tax professional to discuss your options. You may want to consider signing the form if you believe that you have filed your return correctly and do not owe any additional taxes. However, if you are unsure about your return or believe that you may owe additional taxes, you may want to decline to sign Form 872.
Penalties the IRS May Charge After the Audit
Form 4549 includes a list of penalties that may be charged after the audit reconsideration process. These penalties include:
- Failure-to-file penalties.
- Failure-to-pay penalties.
- Penalties for negligence or disregard of rules.
- Accuracy-related penalties.
- Miscellaneous civil penalties.
If you have received an IRS Form 4549, it is important to review the list of penalties that may be changed. If you believe any of the penalties listed are incorrect, you can submit Form 12661 to the IRS. Again, Form 12661 must be submitted within 30 days of the date on Form 4549.
Get Help With IRS Form 4549
People receive IRS Form 4549 for all kinds of different reasons. Regardless of why you received Form 4549, a local tax professional can help you figure out what to do next.
Perhaps, you submitted an accurate return, but now the IRS has notified you about changes it made to your return. What if the changes on Form 4549 are incorrect? How do you prove that they are incorrect to the IRS? How do you protect yourself from an incorrect tax assessment on Form 4549? How do you appeal this form? These are the types of questions people have when they receive Form 4549.
In other cases, you may have made a mistake on your tax return, and you may agree with the changes noted on Form 4549. But now, you can't afford to pay your tax liability. So, you're wondering how to set up a payment plan or apply for penalty relief with the IRS.
A local tax professional can help you understand and respond to Form 4549. To get help with Form 4549 and other tax issues, use TaxCure to search for a local tax professional today.