Form 5564: How to Respond to an IRS Notice of Deficiency

When the IRS processes your tax return, they may discover that you have underreported what you owe. In this situation, they will notify you that the proposed changes have resulted in a deficiency and that you need to address the issue. When that happens, the IRS ultimately sends you a notice or letter that they have proposed changes to your tax return and that you must respond. 

When you receive Letter 3219, known as a Notice of Deficiency, you will also receive Form 5564 to help you respond to the IRS. You can use this form to indicate that you agree with the deficiency, but you must take other steps if you want to dispute the deficiency.

What is IRS Form 5564?

IRS Form 5564 is a Notice of Deficiency Waiver. If you agree with the changes the IRS has made to your tax return and believe you owe the amount stated, you can fill out and return this form to them. 

When to Use Form 5564

Form 5564 is only used when you accept the Notice of Deficiency and agree with the information provided by the IRS. It is a fairly short form, and returning it does obligate you to pay the amount that the IRS believes you owe.

Deadlines and Submission Timelines

Notice 3219A comes with a 90-day deadline, which is extended to 150 days if the recipient is located outside the United States. If you agree with the proposed tax increase, you should submit Form 5564 before the 90-day timeframe.

Consequences of Failing to File

If you do not return Form 5564 or otherwise contact the IRS regarding their proposed changes, they will treat your file as if you did accept the proposed changes. They will assess the proposed tax increase, along with any penalties and interest that apply. 

This is essentially the same outcome as sending in Form 5564, but sending in the form allows you to address your tax debt more quickly and in a more proactive manner. Additionally, if you pay promptly, sending in Form 5564 with payment means that there’s less time for interest and penalties to accrue.

Step-by-Step Guide to Completing Form 5564

When you’re ready to fill out Form 5564, make sure you have the time to focus on it exclusively. Filling out and submitting this form waives your right to contest the proposed deficiency and obligates you to pay the amount listed by the IRS. Ensure that you accept these outcomes before you send in the form because it will be difficult to dispute the amount if you change your mind later.

Step 1: Review the Notice of Deficiency

Before you start filling out Form 5564, review your 3219A in detail. The form will indicate the proposed increase in tax and any penalties associated with the increase. The notice also notes that the proposed change is due to changes based on information from employers, financial institutions, or others who may provide financial information to the IRS. 

The paperwork may also include more detailed data about changes made to your tax return, such as where additional income was uncovered and added to your tax return. Review your right to challenge the IRS’s determination to verify that you do not want to challenge the amount.

Step 2: Fill in Identification and Contact Details

After you have reviewed Letter 3219A in its entirety, you can begin filling out Form 5564. Verify that the contact and identifying information, including your name, address, and SSN are all correct. Make any necessary changes, or if the form isn’t pre-filled out for you, fill it out. Double-check the information filled out on this form, as any inaccurate or outdated information could delay the processing of your form.

Step 3: Indicate Agreement

Below your identifying information, you’ll find a paragraph that outlines your consent to the assessment and collection of the deficiencies. It also states that you are waiving your right to a notice of claim disallowance. The paragraph ends with noting that this waiver is irrevocable. If you agree with all of the stated information, sign and date the form. If you filed your taxes jointly with your spouse, they will also need to sign and date the form.

Step 4: Submit the Form

Following the instructions attached to Form 5564, send the form promptly back to the IRS. Keep a copy of the form for your records. You may also submit your payment at this time if you choose. If you do, make sure that your form doesn’t have a different address for those who are sending payment with their form.

Common Mistakes to Avoid

This is an important form that can significantly change your financial obligations and tax debt options, so it’s important to double-check every aspect of it before submission to avoid unnecessary delays and penalties. These common mistakes can cause you additional stress and result in higher penalties as your payments are delayed.

Errors in Personal Information

Errors in your name, SSN, or address can cause your form to get lost or delayed as the IRS tries to match it with taxpayer information. If this information is incorrect, don’t just submit the form as is and assume that the IRS will sort it out—especially if your Social Security number is inaccurate. Instead, call the IRS directly about the error and get professional guidance about how to move forward.

Misunderstanding the Notice Details

Some people believe that they have to send back Form 5564 regardless of whether or not they agree with the proposed deficiency. When they receive a bill with the assessed penalty, they are dismayed to find out that they can no longer contest the amount owed and are legally required to pay it all back. There are significant obligations that come with this form and you waive certain legal rights. Read both your 3219A and Form 5564 in detail so you know exactly what you are agreeing to before you submit the form.

Failing to Sign or Date the Form

If you do not sign or date the form, the IRS will likely not file it. They will either treat it as unreceived or send you another notice requiring you to fix your error. Either way, this generally results in a delay of weeks or months, during which your interest and penalties continue to pile up.

Another common error is not having your spouse sign the form if you filed jointly. This is required if you filed jointly with your spouse.

Late Submissions

Submitting Form 5564 after the 90-day deadline doesn’t do anything for you. Once the 90-day window closes, the IRS automatically assesses the penalties and increased taxes. Submit the form promptly and within the allowed timeframe to give yourself more time to consider different payment options.

What Happens After Submitting Form 5564?

Once you submit Form 5564, a lot depends on how quickly the IRS is processing submissions and whether or not you submitted other paperwork at the same time.

Possible Outcomes and Next Steps

If you send Form 5564 with full payment for the taxes you owe, you may not receive further correspondence from the IRS. You can watch your IRS account online and your bank account to see when your payment clears. Other than that, you may not hear further from them unless there are additional issues with your account.

If you did not submit payment with this form, the IRS will send you a bill for the newly assessed taxes and penalties. At that point, you must either pay the amount due in full or send in additional paperwork to request other payment options.

If you submitted Form 5564 and paperwork for a payment plan, such as an installment agreement or offer in compromise, you should receive correspondence from the IRS regarding your proposal and your next steps.

What to Do If You Receive a Follow-Up Notice

Should the IRS contact you after you send in Form 5564, it’s likely just to notify you that the proposed changes have been assessed and payment is now due. Additionally, they may notify you if your payment arrangement application has been processed and either approved or rejected. Read the correspondence they send, review your options, and if you have further questions, consult a tax pro to delve into your options a little more deeply.

Additional Tips for Handling a Notice of Deficiency

Having extra taxes added to your tax bill can be overwhelming, especially if you are uncertain about how to catch up on your tax debt. However, many other people have been in this situation, and approaching your next steps carefully can help you avoid further problems.

First, make sure you save copies of any correspondence you receive or send. Before sending back Form 5564, make a copy and keep it for your records. If there are discrepancies down the road, you’ll be able to refer back to everything you sent and received.

You may also want to reach out to a tax attorney, such as the team at W Tax Group. The wording used in IRS documents can be difficult to understand, especially when you’ve received multiple notices and you’re not sure which ones have the most up-to-date information. In addition to helping you understand your current situation and next steps, we can help you decide how you want to tackle your tax debt with the variety of payment options offered by the IRS.

Finally, don’t be afraid to spend some time reviewing your rights and options throughout this process. If you are unsure whether or not the IRS’s calculations are correct, you may want to talk to a tax pro before signing Form 5564 and sending it in. Remember, once you’ve waived your rights, that waiver is irrevocable. Reviewing your options if you don’t agree with the IRS’s assessment may allow you to decide which options are best for you.

Frequently Asked Questions About Form 5564

Do I have to send back Form 5564?

No. If you disagree with the IRS’s proposed changes, you should not send in Form 5564 and should instead request a CDP hearing.

I’m not sure the amount on my notice is correct; can I send in the form now and get more time to review my notice?

No. Once you sign the waiver and return it, you cannot revoke it. The time to review the deficiency notice is before you sign and return your form. You have 90 days to review the notice, better understand what it states, and seek professional legal advice to ensure that what it states is accurate.

What if I find an error in the IRS’s calculations after sending back Form 5564?

Once you send Form 5564, you have waived your right to contest the IRS’s assessment and you must pay what they say you owe. Check for calculation errors before you return the form. However, once you pay, you may be able to request a refund with Form 843, but this is a complicated process. 

How long do I have to send in Form 5564?

If you accept the IRS’s assessment, send in Form 5564 before the 90-day period ends.

What payment options are available after I send in Form 5564?

Depending on your assets and general financial situation, you may be able to pay in full, pay via an installment agreement, make an offer in compromise, request currently not collectible status, or request a partial payment installment agreement.

While Letter 3219A may include a lot of information and options for you to consider, you don’t have to explore your options alone. With W Tax Group, you can get an in-depth explanation regarding your current tax situation and get up-to-date legal advice regarding the best path forward for you. Reach out online or call us at 877-500-4930 to set up a time to talk.