The Revenue Agent’s Report (RAR) is an essential document highlighting an IRS examiner’s findings after an audit. It specifies whether the taxpayer owes additional taxes or is due a refund. Taxpayers have several options to challenge an RAR if they disagree with the assessment.
Key Takeaways
- Insights Included: An RAR details the IRS audit results, showing any discrepancies in tax payments and applicable penalty amounts.
- Right to Challenge: Taxpayers can contest the RAR findings by approaching the IRS Office of Appeals or the U.S. Tax Court.
- Compliance and Penalties: Failure to address RAR results can lead to higher fines or even jail time for delinquent taxpayers.
In-Depth Look at the Revenue Agent’s Report
An RAR carefully outlines the adjustments made to a taxpayer’s liability and the processes undertaken, including tests and information obtained during the audit. Presented through Form 4549 (Income Tax Examination Changes), the report covers changes to income items, credits, and deductions, together with proposed taxes, penalties, and interest. Accompanying Form 4549 is Form 886A, explaining the reasons behind IRS’s changes to the taxpayer’s return.
The RAR ultimately reveals if the taxpayer overpaid, underpaid, or met their tax obligations correctly. Overpayments lead to tax refunds, while underpayments require additional tax payment, often inclusive of interest and penalties. Upon audit completion, if there are changes to a taxpayer’s federal taxable income, they receive a final determination notice from the IRS. The taxpayer has 30 days to appeal these changes with the IRS Office of Appeals.
Consequences of an RAR
When the IRS issues an RAR, it also informs state tax authorities. Most state laws mandate that any federal tax changes mean the taxpayer must file an amended state return within 30 to 90 days post the IRS’s final determination. Taxpayers need to reassess their state tax liabilities based on the federal adjustments and notify state tax authorities of any implications.
Should a taxpayer owe additional federal tax, it likely means more state taxes are due as well. This holds true for both individuals and businesses, adding a compliance burden for those operating across multiple states.
Dealing with an RAR is critical for maintaining both federal and state tax compliance. Taxpayers should address discrepancies and utilize their rights for an accurate and fair outcome.
Related Terms: IRS audit, Tax Court, taxable income, tax penalties, tax liabilities.
References
- Internal Revenue Service. “Revenue Agent Reports (RARs)”.
- Internal Revenue Service. “Requesting an Appeal”.
- Internal Revenue Service. “Form 4549-E (Rev. 12-2004) Department of the Treasury-Internal Revenue Service Income Tax Discrepancy Adjustments”, Pages 1-2.
- Internal Revenue Service. “EP Examination Process Guide - Section 7 - Appeals - Appeals Procedures - Discrepancy Adjustments”.
- AICPA. “Reporting Federal Audit Adjustments to State Tax Authorities”, Page 1.
