Form 4549 / Penalty Abatement

[bbrownatl]

I’m in new territory with an IRS audit of a client return. Client received the Form 4549 showing the examination changes and is in agreement with the changes. The penalties assesses are 1) Delq. – IRC 6651(a)(1) and 2) Accuracy-IRC 6662. I’ve obtained the power of attorney and filed the Form 2848. My question, do you request the abatement of the penalties now before the client signs the Form 4549 or afterwards as that would deem to be at the time of actual assessment? I would think afterwards since until it is agreed upon, there technically has not been an assessment. However, the IRS auditor indicated that it needs to be now before signing. Further, the Form 4549 has the following at the bottom:

“Consent to Assessment and Collection - I do not wish to exercise my appeal rights with the Internal Revenue Service or to contest in the United States Tax Court the findings in this report. Therefore, I give my consent to the immediate assessment and collection of any increase in tax and penalties, and accept any decrease in tax and penalties above, plus any interest as provided by law.”

This would indicate that it needs to be done now before the client signs the Form 4549.
Any assistance much appreciated.

[DaveO]

You can agree to only the changes in income and expense and not the penalties. You also have a right to a very detailed calculation of those penalties. Once you agree to the changes to income and expense you have, in most cases, frozen the audit to the issues identified. The auditor can’t go off on another area of the return. I would not advise the client to sign the 4549 until he is in complete agreement. Outline what you agree with and what you don’t agree with in a letter and respond to the auditor in that manner. If they don’t accept your changes and you are willing to go to appeals and/or the tax court don’t sign and wait for the NOD.

[bbrownatl]

Client agrees with the change, later submit abatement request?

The client is in agreement with the change as it relates to an accuracy correction with respect to a passive loss recognition. So by signing the Form 4549, they agree to the income and expense amounts, correct? Subsequent to this, the tax due and penalty assessment go into the IRS system and at that time we file our abatement letter with the IRS, right? Again, much thanks for your insight.

[DaveO]

I'm pretty sure you ned to argue about the penalty before they sign. Once they sign they are agreeing to the penalty and adjustments. If you mean to appeal the penalty do it before you sign.