What Happens After an IRS Audit & Form 4549?

What Happens After an IRS Audit & Form 4549?

Form 4549 and What Happens After an IRS Audit?

What Happens After an IRS Audit? More often than not, an IRS Audit is not as bad as many attorneys try to make it out to be. While the audit process may be scary and overwhelming for the taxpayer — especially when there is a risk of offshore penalties involved —  it is generally not that bad.  And, after the process has completed, the Taxpayer generally has a few options. 

Which option the Taxpayer chooses will be based on the outcome of the audit, the proposed tax and penalties due, and how much time, effort and cost the taxpayer wants to put into the process.

Let’s review what happens after an IRS Audit.

After the IRS Audit — What Happens Next?

After the Internal Revenue Service audit has ended, the Taxpayer will usually receive an IRS Form 4549. *If the Audit did not end and the IRS Agent went “silent,” your case may be referred to the IRS Special Agents for a potential criminal investigation.

What is Form 4549?

The IRS Form 4549 is the Income Tax Examination Changes Letter. The Form will include a summary of the proposed changes to the tax return, penalties, and interest determined as an outcome of the audit. It will include information, including:

  • Adjustments to Income
  • Total Adjustments
  • Taxable Income
  • Corrected Taxable Income
  • Tax
  • Additional Taxes/AMT
  • Corrected Tax Liability
  • Less Credits
  • Balance
  • Other Taxes
  • Total Corrected Tax Liability
  • Total Tax Shown on Return
  • Adjustments
  • Deficiency or Overpayment
  • Adjustments
  • Balance Due

As further provided by the IRS form:

“The Internal Revenue Service has agreements with state tax agencies under which information about federal tax, including increases or decreases, is exchanged with the states.

If this change affects the amount of your state income tax, you should amend your state return by filing the necessary forms. You may be subject to backup withholding if you underreport your interest, dividend, or patronage dividend income you earned and do not pay the required tax.

The IRS may order backup withholding (withholding of a percentage of your dividend and/or interest income) if the tax remains unpaid after it has been assessed and four notices have been issued to you over a 120-day period.”

Do You Have to Sign the 4549 after an IRS Audit Ends?

No, the IRS cannot make you sign the form and accept the changes.  If you do not sign the Form 4549, the IRS will send you a Notice of Deficiency. The Notice of Deficiency will provide you 90 days (150 Days if you are outside the U.S.) to respond by petitioning the Tax Court. If the time to petition Tax Court expires, the IRS will begin collection and enforcement.

What is a Form 12203 Request for Appeals Review

Before getting to tax court, one stop along the way is Form 12203. The Form 12203 is the Request for Appeals Review form and can be used in certain situations to try to informally resolve the matter. The form provides the following:

Purpose of this form: You can use this form to request a review in the Internal Revenue Service Independent Office of Appeals when you receive Internal Revenue Service (IRS) proposed adjustments or other changes of $25,000 or less to a tax year questioned in the IRS letter you received with this form.

When you take no action and your case involves income taxes, we will send you a formal Notice of Deficiency and bill for the amount you owe. The Notice of Deficiency allows you to go to the Tax Court and tells you the procedure to follow.

When you don’t agree with the IRS proposed adjustments or changes and you have submitted all supporting information, explanations, or documents, you may:

(1) discuss the IRS findings with the person identified (or their supervisor) in the heading on the IRS letter that provided you this information; and if you can’t reach agreement,

(2) appeal your case by requesting an Appeals Review. If you want to request an Appeals Review, complete this form and return it in the envelope provided to the address in the heading of the IRS letter.

The IRS Independent Office of Appeals is independent of the IRS office proposing the action you disagree with.

Appeals conferences are conducted in an informal manner. Most differences are settled in these conferences without expensive and time consuming court trials. Appeals will independently consider the reason(s) you disagree, except for moral, religious, political, constitutional, conscientious objection, or similar grounds.”

Audit Reconsideration after an IRS Audit

In some situations, a Taxpayer may seek to have a “reconsideration” of the the outcome of the Audit. The IRS does not have to grant the request for audit reconsideration, and it only occurs in certain situations. As provided by the IRS: What is Audit Reconsideration?

An Audit Reconsideration is a process used by the Internal Revenue Service to help you when you disagree with the results of an IRS audit of your tax return, or a return created for you by the IRS because you did not file a tax return as authorized by the Internal Revenue Code 6020(b). Reasons for a Request You may request audit reconsideration if you:

  • Did not appear for your audit
  • Moved and did not receive correspondence from the IRS
  • Have additional information to present that you did not provide during your original audit
  • Disagree with the assessment from the audit”

Notice of Deficiency Options after an IRS Audit

The Notice of Deficiency is referred to as the 90/150 day letter. The notice starts the clock for the Taxpayer to file a Petition with Tax Court. If a Taxpayer misses the time to respond, they must forego tax court and file in Federal Court instead (which requires payment of the disputed debt and then seeking a claim for refund). As provided by the IRS:

What this Notice is About

We received information that is different from what you reported on your tax return. This may result in an increase or decrease in your tax. The notice explains how the amount was calculated and how you can challenge it in U.S Tax Court.

What You Must do

  • Read the notice carefully. It explains the proposed increase or decrease in your tax. Note: The amounts shown as due on the notice may not match your previous notice because you can’t challenge all items in U.S. Tax Court.
  • If you agree with the changes, sign the enclosed Form 5564, Notice of Deficiency – Waiver, and mail to the address shown on the notice.
  • If you don’t agree with the changes, you have the right to challenge the proposed changes by filing a petition with the U.S. Tax Court no later than the date shown on the notice. Please note the court can’t consider your case if you file the petition late.
  • If you don’t agree with the changes and have additional information for us to consider, mail or fax the information with the Form 5564 to the address or fax number on the notice. Our review of the new information won’t extend the time you have to file a petition with the U.S. Tax Court.”

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