Can I dispute the IRS’s findings on Form 4549?
Published on February 19, 2024
by Deborshi Choudhury, EA
Deborshi Choudhury, an IRS Enrolled Agent with 17 years of expat tax experience, specializes in U.S. tax preparation, tax planning, and tax advice for U.S. citizens and Green Card holders living and working in the UAE and Canada.
Table of Contents
Yes. If you disagree with the IRS’s findings on Form 4549, you have the right to dispute the adjustments.
What is Form 4549?
Form 4549, or Income Tax Examination Changes, is a document the IRS uses to propose adjustments to your income tax return.
Essentially, if the IRS conducts an audit of your tax return and determines that changes are necessary, they will outline these adjustments in Form 4549. This form serves as a detailed report of what the IRS believes should be corrected on your return, including any additional taxes owed or refunds due.
When is Form 4549 typically issued?
You might receive Form 4549 after an audit or examination of your tax return, which can occur for several reasons. Audits can be triggered by discrepancies in reported income, excessive deductions, or random selection, among other factors.
If the IRS decides your return needs a closer look and finds discrepancies, they will issue Form 4549 to propose adjustments.
What information is included on Form 4549?
Generally, these are found on Form 4549:
- Summary of Proposed Changes: This section outlines the differences between what was reported on your tax return and what the IRS believes should have been reported. It includes proposed changes to your income, deductions, credits, and tax liability.
- Explanation of Changes: The IRS provides a detailed explanation of each adjustment, giving you insight into why each change was proposed.
- Tax Computation: This part calculates the additional taxes owed or the refund due based on the proposed changes. It also includes any penalties or interest that may apply.
- Response Options: Form 4549 outlines your options for responding to the proposed changes. You can agree and sign the form, thereby accepting the adjustments, or you can disagree and provide additional documentation or clarification.
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How is the total tax liability determined on Form 4549?
The total tax liability on Form 4549 is calculated based on the findings from an IRS audit of your tax return. This form outlines any discrepancies between the income, deductions, credits, and taxes you reported and what the IRS deems correct.
The total tax liability reflects:
- Adjustments to your reported income, which could include unreported income or corrections to the income amount you’ve declared.
- Revisions to deductions and credits, possibly disallowing certain deductions you claimed or adjusting the amounts.
- Application of any relevant penalties and interest due to underreporting or late payment of taxes.
The form provides a detailed breakdown of these adjustments, culminating in the total amount of taxes the IRS believes you owe, minus what you’ve already paid, plus any penalties and interest.
Do I have to sign Form 4549 after an IRS audit ends?
Signing Form 4549 is an acknowledgment that you agree with the IRS’s findings and adjustments. However, if you do not agree with the conclusions of the audit, you are not obligated to sign the form. Instead, you can:
- Request a conference: You can ask for a meeting with an IRS manager to discuss the audit findings.
- Appeal the decision: If you’re unable to resolve the disagreement through documentation or discussion, you have the right to appeal the audit’s conclusions by submitting Form 12203.
What supporting documentation should I provide when disagreeing with Form 4549?
If you disagree with the IRS’s findings on Form 4549, you can provide documentation to contest the adjustments. This could include:
- Receipts and Invoices: To substantiate expenses or deductions you’ve claimed.
- Bank Statements: To verify income amounts or corroborate the timing of transactions.
- Employment Records: Such as W-2s or forms 1099 that might have been missed or incorrectly reported by employers.
- Correspondence: Any relevant communication that supports your case, including letters or emails related to disputed transactions.
What form should I submit to request an appeal?
You will need to submit Form 12203, Request for Appeals Review, to request an appeal of certain IRS decisions. This form is typically used when you disagree with the IRS’s findings from an audit or proposed adjustments to your tax return.
By filing Form 12203, you’re asking for a review of the decision by the IRS Appeals Office, a separate entity within the IRS that works to resolve disputes between the IRS and taxpayers. The appeal process provides an opportunity to present additional documentation or arguments to support your case in a less formal setting than tax court.
What if I want an audit reconsideration after an IRS audit?
You can choose to do so. It’s a process available to taxpayers who disagree with the results of an IRS audit, where you can resolve disputes without the need to submit a formal appeal.
This allows you to submit additional documentation or evidence that wasn’t considered during the original audit.
To initiate an audit reconsideration, you should contact the IRS office that conducted the audit and provide a detailed explanation of your disagreement, along with any supporting documents.
What should I do if I receive a notice of deficiency after an IRS audit?
A Notice of Deficiency, often referred to as a “90-day letter,” is issued by the IRS to inform you of the intention to assess additional tax based on the findings of an audit.
This notice provides you with a 90-day window to either agree with the proposed changes or dispute them. If you receive a Notice of Deficiency, you have several options:
- Agree with the Notice: If you agree with the IRS’s findings, you can sign and return the notice, after which the IRS will process the additional assessment.
- File an Appeal: If you disagree with the notice, you can file an appeal using Form 12203, Request for Appeals Review, to have your case reviewed by the IRS Appeals Office.
- Petition the Tax Court: If you prefer to contest the IRS’s findings in court, you must file a petition with the U.S. Tax Court before the 90-day period expires. This option allows for a judicial review of the IRS’s decision.
Can I negotiate a settlement with the IRS based on the findings in Form 4549?
Yes, negotiation is possible with the IRS, especially if you’re disputing the findings in Form 4549.
If you disagree with the audit findings, you can present your case to the IRS, including any supporting documentation that justifies your original tax return positions.
In some cases, you may be able to settle your tax debt for less than the full amount owed through an Offer in Compromise. This option requires demonstrating that payment in full would create financial hardship.
If you are unable to pay the full amount, you might be able to negotiate an installment agreement, allowing you to pay over time.
What should I do if I have questions or need assistance regarding Form 4549?
If you have questions or need assistance regarding Form 4549:
- Contact the IRS: The notice will typically include contact information for the IRS representative or office that handled your audit. They can provide clarifications and guidance on the findings.
- Seek Professional Help: Consider consulting with a tax professional, such as a Certified Public Accountant (CPA) or a tax attorney. These professionals can offer expert advice, help you understand your options, and represent you in dealings with the IRS.
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