As soon as the auditor finishes the examination, the Internal Revenue Service mails Form 4549 or the Income Tax Examination Change, which is supposed to show the proposed changes to your tax liabilities. You can classify the report under three kinds: win, lose, and mixed.
If, instead of a report, you got a refund letter or a mail that said there would be no changes, congratulations because you have won. Otherwise, if it said that you owe more taxes than what was previously stated, then you will be assessed interests and penalties and you can fairly construe this result as a loss. There could be multiple reasons why the IRS came up with this conclusion, but your poor recordkeeping is most likely the main one.
On the other hand, if the documents and your justifications during the examination were accepted, then it is a mixed result.
Now, what are your next steps? You have three options after receiving the audit report.
Sign Form 4549
If you are happy with the result, you can opt to sign Form 4549, and it can be considered an agreed case. Once you consent to the report, there will be an immediate assessment of the tax liabilities, including the penalties and interest listed in the audit. This also means that you are forfeiting your right to appeal and bring the case to the tax court. Even if you signed the report, it would not be considered final until the auditor’s manager approves it.
Negotiate For Modifications
On the other hand, if you want to fight for it, you can always choose to call the auditor and tell him or her that you disagree with the report. Inquire about the additional records and documents necessary to make changes to the report. If you have a difficult auditor or they become uncooperative, talk to their manager because if you end up being successful in your pursuit, they will give you an amended audit report. When you speak to the manager, try to discuss the adjustments you disapprove of and propose a compromise.
Lastly, you can appeal the report and the process for filing an appeal should be included in the audit report sent to you. You will not be given an administrative appeal because it is discretionary. The IRS will send a Statutory Notice of Deficiency before finalizing the audit. You can file a petition in the tax court within 90 days after receiving the notice because once the period lapses, your report becomes final, and your right to contest will also end.