IRS Form 4549: What It Means and How to Respond to Tax Changes
When the IRS makes changes to your tax return — usually because you owe more than you expected — they send IRS Form 4549, Income Tax Examination Changes, to notify you of the changes and ask you to accept them. While these changes are often the result of a formal audit, they may also occur if the IRS does a correspondence audit or receives information from the Automated Underreporter function.
Know that signing and returning IRS Form 4549 means that you agree with their adjustments and the assessment. Before you sign anything, you must know exactly what you’re agreeing to and what your other options are. To get help now, contact us at Seattle Legal Services today.
Key Takeaways
- Form 4549 – The IRS is proposing changes to your tax return that result in you owing more money.
- When the IRS sends Form 4549 – After an audit or due to discrepancies between info received from other parties and details reported on your return.
- How to respond – You can accept the changes and pay the IRS or dispute their findings.
- What if you ignore Form 4549 – The IRS will send you a Notice of Deficiency that gives you 90 days to respond, or the changes become final.
What is IRS Form 4549?
IRS Form 4549, Income Tax Examination Changes, is a form issued by the IRS when they propose changes to your tax return. Many taxpayers receiving this form already know that they’re the subject of an audit, so changes to their tax return are generally not a surprise. The IRS may also conduct a correspondence audit, which is essentially an audit on a smaller scale that involves looking at a few potential issues in a tax return.
However, taxpayers who are blindsided by IRS Form 4549 may have been caught by the Automated Underreporter function of the IRS’s automated system. This function compares information you provide on your tax return to forms submitted by third parties, such as W-2s and 1099s. When there’s a discrepancy, the IRS may send this notice to propose changes.
Important Sections and Information
IRS Form 4549 is fairly detailed, so it’s important to review it in-depth before deciding how you want to proceed. The form includes your identifying information, allowing you to verify that you have not received it in error.
If there are changes to your income, they will be listed in the first section of the form. For example, you may find items listed here if you failed to report sources of income or if you reported amounts different from what third parties reported. This information is summed up in the following section and then used to calculate your new taxable income and tax liability.
The next section lists credits that were included on your return but should not have been. Those credits are then used to calculate the new amount you owe.
The next section lists whether you have a balance due, which is definitely the more common outcome. Or it notes if you overpaid and should be getting money back.
The next page includes penalties and interest owed as a result of potential underpayments. These penalties are added to the interest and new tax liability to calculate your total amount due.
One of the most important parts is the very last section of the form. If you sign it, you are consenting to the assessment and collection of the proposed tax liability. You are waiving your right to appeal the proposed changes.
How to Respond to Form 4549
Your next step depends entirely on whether or not you agree with the proposed changes.
If You Agree With the Assessment
If the IRS’s proposed changes are accurate and you failed to report income or you claimed credits you didn’t qualify for, you can sign the bottom of the form and return it to the IRS. If you filed a joint return with your spouse, they must also sign the form.
Once the IRS receives the form, they will officially amend the tax return and assess the proposed changes, penalties, and interest. You can then see the updated amount on your IRS account and either pay in full or request an installment agreement if you cannot pay in full.
If You Disagree With the Assessment
If you believe the proposed changes are inaccurate and you should not have to pay the proposed tax liability, interest, and penalties, you can submit IRS Form 12661, Disputed Issue Verification. This allows you to dispute specific issues on Form 4549.
For example, if you did not actually receive the income reported by a third party, you can include that information on this form. If you believe you were entitled to a credit that the IRS claimed you did not qualify for, you can list that on this form. You should include supporting documentation whenever possible to strengthen your case.
The IRS sends specific instructions with Form 4549. Check the instructions included with your form for the response deadline and any additional instructions you must follow.
Timeframe for Responding to IRS Form 4549
Generally, you have 30 days from the date listed on Form 4549 to submit Form 12661 and dispute their findings.
What Happens If You Ignore Form 4549
If you ignore Form 4549 and the 30-day window to dispute the IRS’s findings closes, they will assume you agree with their proposed changes and make the necessary adjustments to your tax return. They will then send you a Notice of Deficiency, which gives you 90 days to appeal the tax. If you don’t respond, the tax gets assessed, and the IRS can start the collections process.
Once you are in the IRS collections process, you receive a series of notices that escalate in urgency and severity. During this, penalties and interest continue to accrue — and remember, interest on tax liabilities compounds daily.
If you fail to respond or make payment arrangements, the IRS may place a lien on your assets, garnish your wages, seize your state tax refund, or levy your assets to cover your balance.
Does Form 4549 Mean That I Was Audited?
Form 4549 often means that you were subject to an audit. If you were not aware of the audit (for instance, if the notices went to the wrong address), you may still have time to request an audit reconsideration. However, as noted above, audits aren’t the only reason the IRS sends this form.
You may also receive Form 4549 if the Automated Underreporter function of the IRS system found discrepancies between what you reported and what third parties reported. You may find these forms and proposed changes in your tax transcript on your IRS account.
How the Tax Attorneys at Seattle Legal Services Can Help
We understand that finding out about proposed tax changes can be stressful, particularly if you’re afraid that you’ll have to pay sizable penalties or be subject to further IRS scrutiny. However, you have options after receiving Form 4549.
With the team at Seattle Legal Services, you can dispute the IRS’s findings, look for ways to minimize your tax liability, and try to limit the impact of penalties. If you agree with the proposed changes to your tax return, we can help you set up payments or apply for settlements.
If you’ve received IRS Form 4549, don’t wait too long to respond or decide what to do next — otherwise, those changes will be assessed, and you will owe a tax debt.
We’re here to help you protect your financial well-being. Call Seattle Legal Services at 425-428-5262 or fill out our online contact form to find out how our tax professionals can help you.
Frequently Asked Questions
Does receiving Form 4549 mean I’m under an audit?
No. You may have been under an audit, but the IRS has finished its investigation and is now contacting you with recommended changes. You may also receive this form if the IRS has conducted a correspondence examination or received information on unreported income or credits you did not qualify for.
What happens if I ignore IRS Form 4549?
The changes proposed by the IRS will be finalized and added to your tax return, and at that point, the IRS will begin trying to collect what you owe.
Can I negotiate the amount on Form 4549?
You can dispute the findings on Form 4549 by filling out Form 12661 and submitting it to the IRS within 30 days of the date on Form 4549.
How do I check the status of my dispute?
Typically, the IRS attempts to respond to audit reconsideration requests within 30 days of receiving them.
Can I still appeal after signing Form 4549?
Signing Form 4549 waives your right to appeal the IRS’s findings. Contact a tax attorney if you’re unsure about whether or not you should sign this form.
Sources:
https://www.irs.gov/pub/irs-pdf/f4549t.pdf
https://www.irs.gov/taxtopics/tc652
https://www.taxpayeradvocate.irs.gov/get-help/interacting-with-the-irs/audit-reconsiderations/
https://www.irs.gov/pub/irs-pdf/f12661.pdf