What Is IRS Form 886-A and How Do You Respond?

Form 886-A, “Explanation of Items,” is a document that often appears during an IRS audit. It is not a bill, a penalty notification, or a form that you need to fill out and return. Instead, it is a detailed communication tool from the IRS examiner assigned to your case that provides a written justification for any adjustments the agency is proposing to your tax return.

The form serves as the narrative behind the numbers in an audit, explaining why the IRS believes your reported income, deductions, or credits might be incorrect. It gives you a clear, itemized understanding of the agency’s position and outlines the specific points you will need to address if you disagree with the examiner’s conclusions.

Understanding the Contents of Form 886-A

Form 886-A is not a standalone document; it is attached as a supporting schedule to an examination report, most commonly Form 4549, Income Tax Examination Changes. While Form 4549 provides a numerical summary of the proposed changes to your tax liability, Form 886-A presents the detailed, issue-by-issue reasoning behind those numbers. The form is structured to present a logical argument for each adjustment, allowing you to analyze one disputed item at a time.

Each section of the form will address a specific item and is broken down into several parts. It begins with the “Issue,” which is a concise statement of the matter in question, such as “Business Meal Expenses.” Following this, the “Facts” section summarizes the information the examiner has gathered, which can include documents you provided, bank statements, and third-party information reports like Form 1099s.

The form then details the “Law and Authority,” citing the specific Internal Revenue Code sections or Treasury Regulations the examiner believes apply to your situation. This is followed by the “Government’s Argument,” where the examiner applies that law to the facts of your case to justify the proposed change. Finally, the “Conclusion” or “Proposed Adjustment” states the examiner’s final determination and the specific change to your income, deduction, or credit.

Preparing Your Response

After reading Form 886-A, you must prepare a response, which begins with a detailed review. Compare the “Facts” section of the form against your own records, looking for any discrepancies, factual errors, or misinterpretations by the examiner. Pinpointing where your information differs from the examiner’s summary will form the basis of your counterargument.

After analyzing the examiner’s position, gather the specific evidence needed to support your claims. The type of documentation required will depend on the issue in question. For example, to substantiate business expenses, you would need organized receipts, canceled checks, and bank statements. If vehicle expenses are disputed, a mileage log detailing the date, miles, and business purpose of each trip is necessary.

If you disagree with the proposed adjustments, the appeal procedure depends on the total amount in dispute for the tax period. If the total amount, including tax and penalties, is $25,000 or less, you can make a “small case request” with a brief written statement or by filing Form 12203, Request for Appeals Review.

For disputes exceeding $25,000, you must file a formal written protest. This detailed letter must be signed under penalties of perjury and include:

• Your name and address
• The tax periods involved
• A statement of the disputed issues
• The facts supporting your position
• The law or authority you are relying on

The Formal Response and Next Steps

You must decide whether to agree or disagree with the findings on Form 886-A. If you agree with the proposed changes, you will sign and return the agreement form, such as Form 4549, by the indicated deadline. After the IRS processes the agreement, you will receive a bill for the additional tax, penalties, and interest.

If you disagree with the findings, you must submit your appeal. This response, along with copies of your supporting documents, should be mailed to the address provided in the IRS letter. It is best to use a trackable shipping method, like USPS Certified Mail with a return receipt, to have proof of the delivery date.

Submitting a protest transfers your case from the examiner to the IRS Independent Office of Appeals. This office is separate from the audit division and resolves tax disputes without litigation. After your protest is received, you can expect an acknowledgment letter, and an Appeals Officer will eventually contact you to schedule a conference.