What Can You Do if You Got IRS Form 5278?

IRS Form 5278 is a way the IRS tells you how much money you owe. What you should do depends on why you got Form 5278, but this is usually a serious situation.

This post is provided for general information only. Please confirm the details and circumstances of your unique situation with your tax accountant or other appropriate advisor before taking action.

Why does the IRS send Form 5278?

There are two general situations where the IRS sends Form 5278.

  • If you filed tax returns, Form 5278 recalculates the tax that you owe. The IRS usually will have also sent you some other notice of deficiency. Form 5278 is the detailed explanation of what you owed.
  • If you didn’t file tax returns, Form 5278 calculates the tax the IRS says you owe. It will explain how the IRS got to that number, such as the 1099s it received that it didn’t find on a tax return.

Should you sign Form 5278?

Signing Form 5278 seriously limits your right to appeal what the IRS says you owe. You generally should not sign Form 5278 unless you’ve talked with a tax professional.

For example, you might think the IRS is right that you owe tax because you didn’t file a tax return for the 1099 income you received. However, you might not owe the full amount the IRS says. They’ll often include your full 1099 income without accounting for any possible business deductions. If you sign Form 5278, you may lose the ability to claim those deductions.

There are also situations where the IRS may be asking for an incorrect amount. This could include hobby income or a year where you actually had a business loss.

What if you think the IRS is charging you the correct amount?

Even if you’re 100% sure the IRS is charging you the correct amount, it may not be a good idea to sign Form 5278. You may have other options available.

In many cases, you could qualify for penalty relief that would reduce your penalties. In other cases, you may want to use an installment agreement instead of paying everything immediately.

It’s still a good idea to explore your options with a tax professional.

What if you think the IRS is charging you the wrong amount?

If you think the IRS is charging you the wrong amount, you definitely don’t want to sign Form 5278 saying you agree to the changes.

Instead, may want to send an explanation of why you disagree, including any supporting documentation. You may also want to appeal to Tax Court. Talk to a tax professional to see which options are best for your situation.

If you’re at the point where you’ve gotten Form 5278, there’s a good chance that you’ve made a mistake on your tax returns, at least in terms of making sure you have enough supporting information.

To make sure you don’t make another mistake that will get you charged money you shouldn’t have to pay, it can be a good idea to have a tax professional review your situation and write your response for you.

Did you try calling the IRS?

If you tried calling the IRS and they won’t answer the phone, you’re not alone. Try first thing in the morning or at the end of the day on Friday.

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