What Is Tax Form 5564 and Should I Sign It?
When the IRS proposes a tax deficiency, your response has financial and legal implications. Learn how to evaluate their claim and make an informed decision.
Form 5564, titled Notice of Deficiency – Waiver, arrives as part of a formal package from the IRS that proposes changes to your tax liability. This form allows you to agree with the tax adjustments proposed by the IRS. By signing it, you are waiving your right to a 90-day period to formally challenge the IRS’s findings in the U.S. Tax Court.
Understanding the Notice of Deficiency
Form 5564 is included with a legal document called a Statutory Notice of Deficiency, often referred to as a “90-day letter.” This notice is not a bill but a formal proposal from the IRS asserting that you owe additional tax. The issuance of this letter triggers a 90-day deadline for you to file a petition with the U.S. Tax Court if you disagree with the proposed changes.
The IRS is legally prevented from assessing or collecting the proposed tax during this 90-day window, giving you time to decide on a course of action. Signing Form 5564 allows you to waive this protective waiting period.
Evaluating the Proposed Tax Deficiency
You should analyze the Notice of Deficiency before making a decision. This notice contains the details of the IRS’s position, including the tax year in question and the precise adjustments being made to your return. These changes could relate to unreported income, disallowed deductions, or incorrect credits.
The notice will provide a breakdown of the total amount the IRS believes you owe, which consists of the primary tax deficiency, any applicable penalties, and the interest that has accrued on the deficiency. Compare the IRS’s reasoning with your own records to determine if you agree with their assessment.
Completing and Submitting Form 5564
If you agree with the IRS’s proposed changes, you can complete Form 5564 by signing and dating it in the designated spaces. If you filed a joint tax return, your spouse must also sign the form for the waiver to be valid. The form will already include details about the specific tax deficiency you are agreeing to, including the tax year and amount.
Once signed, mail the form back to the IRS using the address provided in the Notice of Deficiency package. It is advisable to send the form via certified mail to have proof of delivery.
Consequences of Signing vs Not Signing
The path you choose determines the immediate next steps for both you and the IRS, particularly concerning the assessment of the tax and the calculation of interest.
Outcome If You Sign and Return Form 5564
Signing and returning Form 5564 gives the IRS permission to assess the proposed tax deficiency immediately. After processing the waiver, the IRS will send you a formal bill for the total amount owed. This action can be advantageous regarding interest accrual.
If the IRS does not issue a bill within 30 days of receiving the waiver, interest charges are suspended. This suspension starts after the 30-day period and lasts until a bill is sent, potentially reducing your final payment.
Outcome If You Do Not Sign
If you choose not to sign Form 5564, your right to challenge the deficiency in Tax Court remains intact for the full 90-day period. You can use this time to file a formal petition with the U.S. Tax Court to dispute the IRS’s findings.
If you take no action and the deadline passes, the IRS will automatically assess the deficiency at that point. However, interest will have continued to accrue during the entire 90-day period, increasing your total liability.