Hi, I’m Patrick, and I work for the IRS.
It can be scary to receive a letter from the IRS saying your tax return has been selected for an audit.
If you received a Letter 566, please, don’t ignore this letter.
Take action and respond by the deadline within 30 days or arrange for additional time.
If we don’t hear from you by the deadline provided in your Letter 566 within 30 days, or if we didn’t allow some or all of your documentation, we’ll send you another letter.
That letter will explain changes we’re proposing to your tax return.
Along with this letter, you’ll receive two forms.
One of these forms is Form 4549, Income Tax Examination Changes, which outlines proposed changes to your tax return.
The other Form is 886-A, Explanation of Items.
This explains specific changes to your return and why we didn’t accept your documentation.
It’s important that you understand the information on Form 4549, since it has proposed changes to your tax return.
So let’s take a look at the form.
And while we’re looking, remember that the changes are only proposed changes to your tax return.
Let’s start with the top of the form, which includes the tax year we are auditing.
Line 1 covers adjustments to income that could affect your taxable income.
This might include changes to your itemized deductions on Schedule A, such as employee business expenses, charitable contributions or medical expenses.
Now, as we go through the form, some of the lines are self-explanatory, but still worth noting.
Such as Line 2 with total adjustments and Line 3 with the taxable income shown on your tax return or from a previous adjustment.
The next section on Form 4549 refers to the proposed changes.
Line 4 is corrected taxable income based on the proposed adjustments.
And Line 5 is the tax liability calculated based on the Line 4 results.
Any additional tax, such as the alternative minimum tax, is shown on Line 6 and included in the proposed corrected tax liability on Line 7.
Various credits, such as the child tax and child care credits on Line 8, are subtracted from the tax liability to arrive at the balance on Line 9.
Other taxes, such as self-employment tax or additional tax on retirement plans, are included on Line 10 and then added to Line 9 for the total corrected tax on Line 11.
Tax adjustments reported on Line 13 may change some credits, such as the Earned Income Tax Credit and the American Opportunity Credit.
The tax increase or decrease shown on Line 14 is adjusted by any prepayment credits on Line 15.
Your proposed balance due or overpayment is shown on Line 16.
A positive amount on Line 16 is a proposed balance due.
A negative amount, usually shown in bracket, is a proposed refund, excluding any penalties and interest.
Speaking of penalties and interest, Line 17 on page two of the form lists any penalties incurred or proposed.
Line 18 shows the total penalties.
Finally, Line 19 summarizes all of the proposed changes, including the increase or decrease in tax, and any penalties and interest.
If you agree with the proposed changes, sign and date Form 4549 and send it back to us using the envelope provided.
If you filed jointly, both of you need to sign the form.
Publication 556, “Examination of Returns, Appeal Rights, and Claims for Refund” is one resource on IRS.gov that you may find helpful.
This publication explains the audit process in more detail, including your responsibilities and rights during and after an audit.
And if you owe additional taxes, our website has information about that too, including how to apply for a payment plan.
Keep in mind that paying your bill in full will reduce the amount of interest and penalties you’ll have to pay.
And if you can’t pay it all right away, pay as much as you can and contact us.
For more information, go to IRS.gov and type “audit” in the search field.