Getting a surprise letter or notice from the IRS is rarely pleasant, and Form 5564 is no exception. If you’ve received this form, it probably means the IRS believes you owe them money. You might be tempted to get this tax issue behind you by signing this form, but should you?
The answer depends on several factors, such as the reasons for the IRS sending you this form, whether you disagree with the IRS’s reasons, and how easily you can find evidence to support your position. The goal of this blog post is to explain the various ways you can respond to Form 5564 and how these factors can affect which option you choose.
If you’d like additional guidance in dealing with Form 5564, contact us about our audit representation services or to get help responding to IRS notices.
Key Takeaways
- IRS Form 5564 is a waiver – Signing this form means you waive your right to challenge the IRS in Tax Court after the IRS sends you a notice of deficiency.
- IRS notice of deficiency – This tells you that you owe the IRS money because the IRS found a discrepancy with your taxes.
- Six ways to respond – You can respond to this form by signing it, providing additional information to the IRS, paying the tax assessment, filing a petition to the U.S. Tax Court, asking the IRS to rescind the notice of deficiency, or asking for audit reconsideration.
- 90 days – You’ll typically have 90 days to respond to the notice of deficiency, otherwise you lose your right to petition the U.S. Tax Court.
- Getting professional tax help – If you plan on asking the IRS to withdraw the notice of deficiency or challenging the IRS in Tax Court, it’s best to first consult with a tax pro.
What Is IRS Form 5564?
Form 5564, Notice of Deficiency – Waiver, is a form the IRS sends with a notice of deficiency. The 5564 form asks the taxpayer to agree to the IRS’s proposed tax changes contained in the notice of deficiency. It also asks the taxpayer to waive their right to challenge the IRS in U.S. Tax Court (Tax Court).
What Is a Notice of Deficiency?
A notice of deficiency is a notice that tells you that the IRS believes you owe additional taxes. The IRS will usually reach this conclusion if it calculated a higher tax bill than you reported on a tax return. The IRS can also send a notice of deficiency if it calculates a tax bill using a substitute for return for a year you didn’t file a tax return. One of the most common types of deficiency notices is CP3219A.
There are a variety of things that can trigger a notice of deficiency. Some of the more common reasons include:
- Disallowed tax credits or deductions.
- Unreported income.
- Increased tax liability following an audit.
- Administrative error, including those by the IRS or third parties (like an employer)
- Identity theft
It’s important to note that Form 5564 isn’t the same thing as a notice of deficiency. Form 5564 relates to whether or not you agree to the tax proposed in the notice of deficiency.
How Long Do You Have to Respond to Form 5564?
Notice of deficiency letters are sometimes referred to as 90-day letters because they usually offer taxpayers 90 days from the date of the letter to respond to it. This 90-day limit gets extended to 150 days for taxpayers located outside the United States.
How To Respond to Form 5564
There are six potential ways you can respond to the notice of deficiency waiver:
- Sign Form 5564.
- Tell the IRS you agree with some but not all of the proposed changes.
- Provide additional information to the IRS.
- Pay the tax amount proposed by the IRS.
- File a petition with the Tax Court to appeal the changes.
- Ask the IRS to withdraw or rescind the notice of deficiency.
- Ask for audit reconsideration (if applicable).
Here’s a more detailed overview of the main response options.
Option 1: Sign the Form
This is the easiest option, but you need to understand what it means and what rights you’re giving up by signing Form 5564. Most notably, your signature on Form 5564 means you now owe the tax deficiency the IRS has assessed against you.
Signing this form also means you can’t challenge the IRS in Tax Court or try to give the IRS additional information that might lower the amount listed on the deficiency notice. For example, the IRS might have an incorrect 1099 form, and you want the IRS to review the corrected version. Signing this form prevents the IRS from having to consider the corrected 1099.
However, signing Form 5564 doesn’t prevent you from all IRS challenges. For instance, you can still pay the proposed tax assessment, then challenge the IRS by asking for a refund (more on this later). In most cases, it makes sense to sign the 5564 form if you agree with the tax debt and want to resolve it as quickly as possible.
Option 2: Provide More Information to the IRS
If you disagree with the IRS, but don’t want to file a Tax Court petition or pay the proposed tax bill, then your best option is to contact the IRS and explain why you disagree with the notice of deficiency. If you want to provide corrected or updated information to the IRS for consideration, send copies of the necessary documents, along with a signed statement outlining your arguments.
The easiest way to provide this information is either online using the IRS document upload tool or by calling the IRS using the number listed on the notice of deficiency.
If you need a third party to provide information to the IRS, contact the third party and ask them to send the correct information to you. If possible, ask them to provide a statement explaining the error.
After contacting the third party, let the IRS know what’s going on. Then, once you receive the updated documents from the third party, send copies to the IRS.
Keep in mind that you want to act quickly regardless of which approach you take. The 90-day clock is ticking, and you don’t want to lose out on your ability to petition the U.S. Tax Court. If you’re up against this deadline, it might make sense to go ahead and file a petition, just in case. A tax professional can help confirm if this is the right approach.
Option 3: Pay the Amount Proposed by the IRS
If you’re trying to move on from this tax issue as quickly as possible, then paying the proposed tax assessment might be your preferred approach. This might make sense if the tax discrepancy proposed by the IRS is relatively small in relation to the work that might be involved in trying to challenge it.
Another reason to pay the proposed tax bill is to pay it under protest. Then, once paid and the tax balance settled, filing IRS Form 843, Claim for Refund and Request for Abatement. This strategy is sometimes used if you think you may lose the fight with the IRS, and want to avoid additional accrual of interest while you contest the tax. If the IRS refuses to refund the tax paid, you can sue the IRS in U.S. District Court or U.S. Court of Federal Claims for the refund.
Option 4: File a Petition with the Tax Court
Petitioning the Tax Court to resolve your disagreement with the IRS is a more extreme and expensive option, but if prior attempts to resolve the disagreement have failed and there’s a large tax assessment pending against you, it might be worth the effort.
Given the increased complexity that comes with going to Tax Court, it’s strongly recommended that you first consult with a tax professional. It’s also worth noting that after you file the petition, you should expect the IRS to reach out to you to try to settle the case before the court date. In most cases, it will be a representative from the IRS Independent Office of Appeals that reaches out to you.
Option 5: Ask the IRS to Rescind the 90-Day Letter
To make this request, you’ll need to complete IRS Form 8626, Agreement to Rescind Notice of Deficiency. This isn’t the easiest form to use or the most straightforward process, so it usually helps to have the assistance of an experienced tax resolution professional when asking for a rescission. It will also usually require you to contact the IRS employee listed on the deficiency notice and ask for the form.
If you decide to take this route, you’ll have to ask for the rescission before the 90-day deadline expires. If rescission doesn’t provide the results you were seeking, you can still file a petition with the Tax Court (assuming the 90-day deadline hasn’t yet passed).
But why ask for a rescission? Why not contact the IRS to explain the situation, pay the tax (then ask for a refund), or petition the Tax Court? Asking the IRS to withdraw the notice of deficiency is often a good option when the IRS makes an administrative mistake (the IRS assessed a tax for the wrong tax year or against the wrong taxpayer), or you’re the victim of identity theft.
Option 6: Ask for Audit Reconsideration
If the notice of deficiency stems from an audit, then another approach to contesting the IRS’s position is to ask for audit reconsideration. This is an option if:
- You have new information for the IRS about your tax return;
- You disagree with the tax assessment;
- You failed to appear for the audit or provide important information to the IRS for the audit; or
- You never received an IRS audit report because you moved.
McLaud Law Can Help You Respond to Form 5564
Responding to Form 5564 is an important decision with serious consequences. If you’re not sure if you should sign IRS Form 5564, contacting McLaud Law P.C. can help with this decision. We can explain what signing the waiver means, as well as your other options. We’ll also show you how to take advantage of these alternatives, especially if the 5564 notice stems from a tax audit.
IRS Form 5564 FAQs
Why did the IRS send me Form 5564?
The IRS sends Form 5564 to give you an opportunity to consent to the IRS’s proposed change to your tax return which creates a tax liability. In many cases, Form 5564 accompanies a CP3219A notice.
How should I respond to IRS Form 5564?
It depends on whether you agree or disagree with the tax discrepancy found by the IRS, and the individual circumstances of your tax matter. It’s usually best to consult with a tax resolution professional before deciding how to respond.
Why did I receive IRS Form 5564?
Form 5564 usually accompanies a notice of deficiency, such as a CP3219a notice.
How do I respond to Form 5564?
The IRS lets you respond by mail or by fax. The address and fax number should be located in the top left of the deficiency notice that came with Form 5564. You can also use the IRS document upload tool to respond online.
This communication is Attorney Advertising. It is presented for informational purposes only and does not constitute legal advice. Every legal situation is different, and prior results do not guarantee a similar outcome. This communication does not create an attorney-client relationship between McLaud Law P.C. and the recipient.
Sources
– https://www.irs.gov/individuals/understanding-your-cp3219a-notice
– https://www.irs.gov/pub/irs-pdf/n1215.pdf
– https://www.irs.gov/irm/part8/irm_08-002-002#idm139980953725312
