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The title of IRS Form 4549 is "Income Tax Examination Changes", which of course signifies that your income tax return is being "changed", often for the worse.
If your return(s) are not filed:
You could have received the Form 4549 along with a Notice of Deficiency when you have unfiled returns and the IRS has determined that you owe. In this case, you have the choice of preparing the returns or filing a Petition in Tax Court within 90 days. In the Notice the IRS might list all the documents upon which they rely to charge you the tax. But, if not, call the IRS at 1-800-829-1040 and order your Wage and Income Transcripts for the tax years. Contact our office so we can prepare your file and avoid trouble.
If your return(s) are filed
More likely, you have participated in an IRS audit and the IRS is reporting its findings to you on Form 4549. They also can use Form 4549-A or Form 4549-E. The IRS might also use Form 5278. They also will include various cover letters: Letter 525, Letter 692, Letter 915, Letter 950, Letter 1912, & perhaps, Letter 5262, which gives you another chance to respond.
The IRS will usually request that you sign & agree to the balance due with Form 870 or you can sign the second page of the Form 4549. The legal implications of signing and agreeing to this are serious so please DO NOT sign the second page if you do not agree. This is NOT A BILL so don't give up! Depending on how prompt you are, we can force a revision of this Form 4549 or we can always go to Appeals or Tax Court!
Steps in response to Form 4549
Your options are: 1) to pay the bill, 2) to gather more evidence or law to support your case & Respond with Form 12661, 3) appeal to the agent's manager, 4) Appeal within the IRS, or 5) wait for a Notice of Deficiency and petition in Tax Court. See Prep Steps - IRS Appeals or Prep Steps - Court Cases.
If You Agree
If you agree with the calculation at the bottom of the 2nd page of Form 4549, sign & send it by certified mail to the agent. The address is shown on the 2nd page or on any Letter 692 or Letter 1912 you may receive. You can also send them money but if you can't pay it entirely the IRS will send a bill to you with instructions. See Prep Steps - Collections.
If You Default
If you do not respond to Form 4549, the IRS will send you a Notice of Deficiency. This gives you 90 days to petition Tax Court. If you do not file a petition, the IRS will bill you for the taxes. We always opt for Tax Court because it is less expensive & more fair.
The IRS usually has 3 years to audit you. If time is running out, they will likely ask you to sign an extension (Form 872) so they can continue to examine you. Please do not sign this without legal advice, either. We generally do not grant extensions to the IRS.
Since an audit is a legal process, attorney guidance is critical. We have Prep Steps for you to follow for the crucial documents to bring to your confidential attorney meeting. The attorney is an advocate & will prepare an Action Plan for your specific needs.
If You Disagree
Income Issues
The IRS will determine your income by reviewing the Wage & Income Transcripts, your bank records & your lifestyle. You should get the Wage & Income Transcripts from the IRS Agent or by calling 1-800-829-1040 so you can compare them with your records.
The IRS will declare all deposits into bank or other accounts to be income unless you can prove otherwise. This can be a very exhausting task. The TaxHelpLaw Audit Program makes it easy with an entire section devoted to Proving Deposits are Not Income.
By reviewing your assets & purchases the IRS will estimate if the income you reported compares to your lifestyle. The Tax Attorney at TaxHelpLaw protects you from unwarranted IRS intrusion!
Deduction Issues
The IRS Agents often deny deductions but offer little explanation for the denial. Usually it is because the evidence is insufficient or poorly organized. The IRS cannot give you legal advice or instruct you how to prepare your records. Look how meager are the IRS "tips" for preparing for an audit or how one-sided is their "Video Series" on IRS Audit. Yet, you are required to prove every element of your case.
Evidence
Each item being questioned on your return has its own unique legal evidence requirements. You'll need more than just a few receipts or cancelled checks or even an accounting software program. The IRS will not review insufficient or improperly organized records and they will impose a "Negligent" record-keeping or Accuracy-Related penalty as well! (See IRS Notice 746)
You must produce titles, insurance policies, purchase & transaction records, license information, employment records, etc. to prove your case. Each issue requires its own unique approach. The most common reason why taxpayers lose against the IRS is failure of proof & poor record-keeping.
So, someone must organize your files or the IRS will refuse them. You can do-it-yourself or hire a CPA, bookkeeper or attorney for a cost. But, since you have access & knowledge of your business it is cheaper & more efficient for you to organize the records yourself.
Self-Prepare
The least costly method to respond to the IRS is to buy one of our TaxHelp Audit Defense Programs. These memberships show you with video, audio & publications exactly what to gather and how to arrange ALL your documents. Do-it-yourself & save a lot of time & money!
It is wise to self-prepare your records because you are familiar with your business and understand what occurred and where items are located. There is no "sample response" to the IRS. You will be prepared & the evidence will speak for itself.
To see how the TaxHelpPrograms work see our Advantages page!
Please carefully review the issues on your Form 4549 or the requests for information the IRS sent you with Form 4564 or Form 886A.
If the questions relate to a Schedule C, Form 2106 or a Schedule E, please follow the Business Program Prep Steps.
If the questions relate to your Schedule A, Form 1040, Schedule B, or Schedule D please follow the Individual Program Prep Steps.
Lost Documents
If you didn't keep your records or the records are lost or unavailable we can still re-create your case. Unless you dealt solely in cash, bank records & credit card records can be obtained. Even if you used a lot of cash, we can get affidavits or use industry standards to arrive at a reasonable figure. See Lost Documents.
IRS Mailing Address
The mailing address to send your response to the IRS is the address shown in the initial Letter 3572, Letter 2205 or Letter 2202 you have received. The address should also be on the Form 4564 or any other letter you received about this particular audit.
Please also see the TaxHelp Blog series, "Audit Issues".
Attorney Consultation
But, even if you do-it-yourself you still should get legal advice. To prepare you for the most productive attorney meeting we have designed Prep Steps to follow. You save time & money by gathering the documents for the attorney to review. We will create an Action Plan with strategies for your specific case.
Form 4549:
