The Short Answer: Sometimes (But Only Through the Right Procedure)
Yes, if you agree with the examiner’s proposed changes, you can resolve an audit by signing the agreement (typically Form 4549 with a Form 870 waiver) and paying the tax, penalties, and interest. Signing the waiver lifts the legal restriction on assessment so the IRS can assess immediately; you will not be able to take those same years to the U.S. Tax Court unless additional deficiencies are later determined. If you disagree, you have the right to Appeals (after a 30-day letter) and to the Tax Court (after a 90-day Notice of Deficiency). Paying without resolving the procedure doesn’t end the audit—and paying the wrong way can inadvertently waive strategic options.
Note: If you want to stop interest from piling up while you contest the issue, consider a § 6603 deposit (not a “payment”). A properly designated deposit suspends underpayment interest on the disputed amount and remains refundable if you prevail; a payment stops interest but may start refund-claim clocks and can complicate litigation posture. Use Rev. Proc. 2005-18 (and the IRM) to label remittances correctly.
How an Audit Actually Closes: Agreements, Appeals, and the 90-Day Clock
Most exams conclude with either a report that has been agreed upon or a proposed change that you can contest. If you agree, you’ll typically receive Form 4549 (Income Tax Examination Changes) and a Form 870 (Waiver of Restrictions on Assessment and Collection). Sign and pay to close. If you disagree, a 30-day letter offers Independent Office of Appeals review; if still unresolved, the IRS issues a 90-day Notice of Deficiency (150 days if addressed abroad). You can then petition the Tax Court without paying first. If you instead pay and forgo Tax Court, your remedy becomes a refund claim and, if denied, a refund suit (subject to the Flora full-payment rule).
Practical options, at a glance:
- Agree & pay now: Sign 4549/870, pay assessed tax/penalties/interest; case closes. (Tax Court route generally foreclosed for those years.)
- Disagree & appeal: Respond within 30 days to pursue Appeals; many cases settle there.
- Receive a 90-day letter: File in Tax Court within 90 days (150 if abroad) to preserve a prepayment forum.
- Pay but still contest: Make a § 6603 deposit to stop interest while you continue the dispute or pay in full and pursue a refund claim (be mindful of Flora).
“Just Paying” vs. Managing Interest, Penalties, and Collection Risk
Interest on underpayments accrues until paid; the failure-to-pay penalty generally runs 0.5% per month (up to 25%), can drop to 0.25% while a qualifying installment agreement is in effect, and can increase to 1% after a final levy notice if you don’t act. If you cannot pay in full, you can request an Installment Agreement (often online) or evaluate an Offer in Compromise. Where the dispute is about whether you owe the liability at all, a specialized Offer in Compromise—Doubt as to Liability (Form 656-L) may be appropriate.
Penalty tax exposure can frequently be reduced. The accuracy-related penalty is typically 20% of the underpayment, but reasonable-cause and good-faith arguments (e.g., competent reliance, complexity, diligence) can remove or reduce it. For certain first-time filing or payment missteps, the First-Time Abate (FTA) administrative waiver may apply. These relief avenues are fact-intensive and work best when asserted before you sign an agreement.
When “Just Pay it” is the Wrong Move: Eggshell Risk and Privilege
If your facts include potential willfulness, e.g., prior non-filing, false documents, nominee accounts, or cash/inventory irregularities, an exam can morph into a reverse-eggshell, at worst, a life-destroying criminal tax matter. In these settings, do not rely on your original preparer: communications with non-attorney preparers are not privileged and can be compelled to testify against you. Instead, place privileged counsel between you and the government immediately. Our office routinely employs Kovel arrangements to extend privilege to consulting CPAs while we control the record, limit interviews to what’s required, and avoid unnecessary admissions.
A Precise, No-Surprises Playbook
- If you agree: Close the year by signing Form 4549/870 and paying; interest stops on amounts paid, and the IRS can assess immediately.
- If you disagree but want to curb interest: Make a § 6603 deposit, not a payment, while you pursue Appeals or ready a Tax Court petition. Follow Rev. Proc. 2005-18 to designate the remittance.
- If you need time to pay, consider seeking an Installment Agreement (online, where eligible). This can reduce the failure-to-pay rate to 0.25%/month while the agreement is in effect.
- If you think the assessment is wrong: Preserve Appeals within 30 days of the letter, and if necessary, file in Tax Court within 90/150 days. Alternatively, pay in full and file a timely refund claim, mindful of Flora’s full-payment requirement for refund suits.
- If penalties loom: Evaluate reasonable cause and FTA before you sign; once you agree and pay, penalty relief avenues can narrow.
Contact the Tax Law Offices of David W. Klasing if You are Worried About being Audited by the IRS
When an audit lands, “just paying” can be the correct answer, but only when it’s done through the proper procedure and with your rights preserved. At the Tax Law Offices of David W. Klasing, our experienced team steps in to control the record, protect you with attorney–client and work-product privilege (extending to consulting CPAs via Kovel), and then pick the path that fits your facts: sign an agreed report (Form 4549/870) and pay, make a § 6603 deposit to stop interest while you pursue Appeals or ready Tax Court, or contest the proposed assessment and seek targeted penalty relief (e.g., accuracy-related penalty defenses, First-Time Abate) before anything is finalized. Our team builds defensible numbers, frames the law through a hazards-of-litigation lens, and avoids the unforced errors like waived forums, admissions in interviews, or mislabeled remittances that turn a manageable exam into a costly one.
For sensitive fact patterns like unfiled years, prior false documents, cash irregularities, or potential “eggshell/reverse-eggshell” dynamics, our dual-licensed tax attorneys and CPAs keep the matter civil, limit interviews to what the law requires, and structure all communications to avoid unnecessary admissions or a criminal referral. Whether your case is at Office, Field, or Correspondence Exam; headed to the Independent Office of Appeals; or approaching a 90-day deadline for a U.S. Tax Court petition, we move quickly to protect options and cash flow (installment agreements, where appropriate; carefully vetted Offers in Compromise when eligibility exists). Put the privileged counsel of Tax Law Offices of David W. Klasing between you and the government: call 800-681-1295 or contact us online HERE for a reduced-rate initial consultation.
