An IRS Form 4549 is a "Statement of Income Tax Examination Changes." This is merely a proposed adjustment if it is attached to a Letter 525, 692 or 1912. However, if Form 4549 is attached to a Notice of Deficiency then the IRS has made a final determination that you owe the tax.
So, if the Form 4549 is attached as a report with a Notice of Deficiency (Letter 3219, Letter 531) then you should follow the TaxHelpLaw Prep Steps for Court Cases for further information, forms & instructions. But, if the Form 4549 was issued while an audit is in progress you must follow the IRS audit procedures while retaining all your Appeal rights.
Supposedly the IRS must examine your records before they issue a Form 4549. But, often times, it seems they ignore your evidence or reject it with little or no explanation at all. They will issue you a Form 4549 to propose a determination that you owe more taxes. This is only a proposal & they may issue revisions if you present further evidence. The Form 4549 Audit report might also be on:
WARNING: If the IRS says you owe more taxes they will often ask you to sign and agree on page 2 of the Form 4549. TaxHelp recommends investigation, advice and resistance to signing Form 4549, unless you totally agree. The Tax Attorney at TaxHelpLaw, J. David Hopkins, JD, LLM, can give you guidance.
Steps in response to Form 4549:
At this point, you have the options of: 1) presenting further evidence, 2) appealing to the agent's manager, 3) Appealing to IRS Appeals, or 4) waiting for the IRS Notice of Deficiency and petitioning Tax Court. TaxHelp believes the Tax Court is more fair to taxpayers than the other forums.
In all events, you must arrange and present your evidence for review - at any level. The TaxHelpAudit Program gets you prepared at all levels.
To see how the TaxHelpPrograms work see our Empowerment page!
Income Issues: The IRS reviews your "Wage & Income Transcripts" as well as your bank records & lifestyle to determine if you accurately accounted for your income. This is sometimes, but not often, an issue. You should order the Wage & Income Transcripts from the IRS Agent or by going online & compare them with your records.
The IRS will declare all deposits into bank or other accounts to be income unless you prove otherwise. This can be a very tedious task. But, the TaxHelpAudit Program has an entire section dedicated to Proving Deposits are Not Income, which makes the process quick & easy.
The IRS will also look at your assets & purchases to see if your lifestyle corresponds with the income reported on your returns. The TaxHelpLaw attorneys protect you from unwarranted IRS intrusion!
Deduction Issues: More often, the IRS agent simply rejects all your business deductions & offers little explanation for doing so. But, obviously he or she is either lazy or did not believe the evidence was sufficient or organized properly.
If your evidence is insufficient or isn't presented properly, it will be rejected by the IRS. The IRS will not tell you how to properly organize your evidence. Look at how meager & worthless are the IRS' "tips" on preparing for an audit. Plus, they will likely impose a "negligent records-keeping penalty" and/or the "accuracy-related penalty" if your records are improper.
Each IRS question has its own unique evidence requirements - you can't simply present a pile of receipts & cancelled checks or even an accounting software program. The IRS won't look at improperly organized documents or insufficient evidence. The IRS will want to review other documents, such as titles, insurance policies, purchase & transaction documents, license information, employer records, etc. Each issue has its own unique requirements & you must be totally prepared.
At a cost, you can hire a bookkeeper, CPA or lawyer to prepare your evidence but they don't know your business or have the authority or ability to get the documents you will need for the IRS. It's cheaper, easier & faster if you prepare your own records.
That's why the Tax Attorneys at TaxHelpLaw designed the TaxHelpAudit program - so their clients could get properly organized & the attorneys can more effectively advocate for them!
The best (& cheapest) approach to an IRS audit is to completely organize your documents & then seek legal advice prior to any IRS meetings.
Lost Documents: You may be apprehensive about an IRS audit because you didn't keep your records or your records are lost or unavailable. However, unless you only used cash, bank records & credit card records can be re-created. Also, even if cash was used, affidavits can be obtained or we can use industry standards to arrive at a reasonable figure. See TaxHelpLaw - Lost Documents.
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 Form 1040, Schedule A, Schedule B, or Schedule D, please follow the Individual Program Prep Steps.
At any time you may consult with a tax attorney from TaxHelpLaw to get more specific tactics for your case!
