IRS Form 4549-A: What It Means and Your Next Steps

IRS Form 4549-A, “Income Tax Examination Changes,” is a formal report issued by the Internal Revenue Service after an examination of a tax return, known as an audit. This form is not a tax bill; it summarizes the specific changes the IRS proposes to make to your return.

The purpose of Form 4549-A is to communicate the audit results. It details adjustments to your income, deductions, or credits, and calculates the resulting change in your tax liability. This could be a “deficiency,” meaning you owe more tax, or an “overassessment,” which means you are due a refund. The form also outlines any penalties or interest.

Deciphering the Report of Income Tax Examination Changes

Schedule A – Adjustments to Income

Schedule A itemizes the specific changes to your financial figures. Each line corresponds to an item on your original tax return, showing the amount as reported, the corrected amount, and the adjustment. For example, if the IRS disallowed a portion of your claimed business meal expenses, this schedule would show the original deduction, the reduced amount, and the resulting increase in your taxable income.

Schedule B – Explanation of Items

Schedule B provides the “why” behind each change. For every adjustment made, the examiner must provide a written explanation referencing the specific tax laws that support the IRS’s position. For instance, if a deduction was disallowed, Schedule B would explain that the expense did not meet the requirements of IRC Section 162.

Schedule C – Tax Computation

This part of the form demonstrates the mathematical process of arriving at the new tax liability. It begins with the taxable income from your original return and applies the net adjustments from Schedule A to calculate a “Corrected Taxable Income.” From there, it recalculates the tax based on this new income figure and accounts for any impact on tax credits.

Schedule D – Computation of Penalties

If the IRS determines that penalties are warranted, Schedule D provides a detailed breakdown. This schedule specifies the type of penalty being applied, such as the accuracy-related penalty under IRC Section 6662. This is often assessed for negligence or substantial understatement of income tax. The section shows how the penalty was calculated, which is typically 20% of the underpayment.

Required Actions and Decision Making

Choosing to agree with the report means you accept the IRS’s adjustments and the resulting tax consequences. By signing the consent portion of Form 4549-A, you are formally stating your agreement. This action also serves as a waiver of your rights to further challenge the adjustments within the IRS or in Tax Court.

Conversely, you may disagree with some or all of the proposed changes. Disagreement is your right, and it preserves your ability to appeal the examiner’s findings. If you disagree, you should not sign the form.

Procedural Steps After Your Decision

If You Agree

If you agree with the proposed changes, you must sign and date the consent section of Form 4549-A. The form should be returned to the IRS using the address or fax number provided. If there is a balance due, you can include a check with the signed form or wait for the IRS to send a bill. Once billed, you can pay online or by phone.

If You Disagree

If you choose to disagree, do not sign or return the Form 4549-A. Your first informal step is often to request a conference with the examiner’s manager to discuss the disputed items. If this does not lead to a resolution, the IRS will issue a “30-day letter,” formally known as Letter 525.

This letter explains your right to appeal the decision to the IRS Independent Office of Appeals. Should you not respond to the 30-day letter or if the appeals process does not resolve the issue, the IRS will issue a Statutory Notice of Deficiency, also known as a “90-day letter.” This is a legal notice that gives you 90 days to file a petition with the U.S. Tax Court if you wish to dispute the tax before it is assessed.