IRS Form 4549 Refund: What Happens Next?
Concluding an IRS audit with a Form 4549 refund? Understand the report and the procedural steps that follow for a smooth overassessment process.
When an IRS examination or audit concludes, the examiner prepares Form 4549, “Income Tax Examination Changes,” to summarize their findings. This document is not a form for you to fill out; it is the official report detailing the adjustments the IRS proposes to make to your tax return.
The proposed changes can result in an increase in tax owed, no change to your tax liability, or an overassessment, which means you are due a refund. An audit can uncover deductions or credits you were entitled to but did not claim. This article addresses the scenario where Form 4549 indicates a refund is due, explaining how to interpret the report, your response options, and what happens after you agree.
Understanding the Proposed Changes on Form 4549
Form 4549 is structured as a comparative report with columns showing the figures “As Shown on Return or as Previously Adjusted,” the “Corrected Amount of Income or Deduction,” and the “Adjustment” amount. The adjustment is the difference between the first two columns. This layout provides a line-by-line reconciliation of the changes made by the examiner.
The report begins with your income and details calculations for adjustments that can either increase or decrease your Adjusted Gross Income (AGI). For instance, if the audit confirmed you were eligible for a business expense deduction you had not taken, the “Adjustment” column would show a negative number. This reduces your AGI and, consequently, your taxable income.
The form continues by recalculating your total tax based on the corrected taxable income. The line item for those expecting a refund is labeled “Overassessment,” which represents the principal amount of your refund before any interest is added. The IRS must pay interest on refunds not issued within 45 days of the tax filing deadline or the date you filed, whichever is later. An accompanying document will detail the calculation of this interest, which is added to your total refund.
For example, imagine an examiner allows a $2,000 deduction for a home office you were entitled to but did not claim. On Form 4549, the “Adjustment” column would show a -$2,000 change to your income. This reduces your taxable income by $2,000, which, depending on your tax bracket, might lower your total tax liability by several hundred dollars, creating an “Overassessment” that becomes the basis for your refund.
Responding to the Form 4549
After reviewing the proposed changes, you must decide whether you agree or disagree with the examiner’s findings. If you agree with all the adjustments and the resulting overassessment, you indicate your agreement by signing, dating, and returning Form 4549 as instructed in the accompanying letter.
Signing the form means you accept the findings as final and waive your right to appeal the decided issues through the IRS Independent Office of Appeals or petition the U.S. Tax Court. By signing, you are closing the case and allowing the IRS to process the agreed-upon refund.
A taxpayer might disagree with the form even when it proposes a refund. This can happen if you believe the refund amount should be larger because the examiner disallowed other valid deductions or credits. If you disagree, do not sign the form. Instead, communicate your disagreement to the examiner and provide additional documentation to support your position. If you cannot resolve the issue with the examiner, you can request a conference with their manager or take your case to the IRS Independent Office of Appeals.
The Refund Process After Agreement
Once you have signed and returned Form 4549, the IRS examiner will close the audit file and forward it to the appropriate processing unit. You can expect to receive your refund within six to eight weeks, though timelines can vary depending on IRS processing volumes.
The refund will be issued as a paper check to your address on record or as a direct deposit to the bank account the IRS has on file. The method used mirrors how you received your last refund or made your last tax payment. If your banking information has changed, you should notify the IRS to avoid delays.
Before any funds are sent, the refund is subject to the Treasury Offset Program, a system that intercepts federal payments to satisfy outstanding debts. The IRS will first apply your refund to any other federal or state tax liabilities you may have. If a balance remains, it can be used to pay other non-tax federal debts, such as past-due child support, federal student loans, or unemployment compensation debts. You will receive a notice from the Treasury’s Bureau of the Fiscal Service if your refund has been offset.