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IRS Examination Report – Form 4549

Adjustment to Income

The IRS form 4549 is the “Income Tax Examination Changes” report. This report is filled out by auditors to show the adjustments to income made in order to arrive at the total adjustments. The adjustments to income can come from an increase or decrease to your taxable gross income. They are also adjustments for expenses disallowed on additional expenses that are allowed.

Corrected Taxable Income & Tax

Here is where the adjustments are compared to the income previously shown on the tax return to arrive at the corrected taxable income. Then, the additional taxes, if any, are computed. Usually, this is a much larger number than taxpayers expect. If you are not happy with the additional taxes on your examination report, please consult us concerning your options.

Less Credits

Based on the changes to income and the tax liability, credits may be affected. Any changes will be made to arrive at the net balance of taxes owed.

Penalties, Interest, Deficiency Increase

Here is where you are charged estimated tax penalties, late-payment penalties & interest, late-filing penalties, substantial understatement of tax penalties, etc. Some of these may be removed. By knowing how to apply the rules in the IRS Penalty Handbook, and knowing what the IRS is willing to accept, you may avoid paying certain penalties. Please contact us for more details.
Most people tend to focus on the amount of taxes being charged on the examination report. They forget that other issues are being considered. A good audit representative will consider the following issues in addition to just lowering the overall taxes on the report:
  1. Is the IRS tax examiner sending the case file to Criminal Investigation because they think there was fraudulent activity?
  2. Is the auditor planning on waiting until you file your next tax return before closing the audit in order to allow the IRS to examine that as well?
  3. Is the auditor trying to convince you to give them your returns or bank statements for other years?
Please, do NOT contact the IRS before calling us first.