IRS 4549-EX Income Tax Examination Changes Form?

Question

Hello ,

I just received a notice in the mail from the IRS regarding my 2006 taxes. This notice/form is a 4549-EZ (Income Tax examination Changes) form. It states that I owe $1,536.15 in back taxes due to a Self employment Tax that was not reported in box 8a of my 2006 tax return. In 2006 was the first year that I did my own taxes, using Turbo Tax, since I became married and purchased a home. The only real difference from the previous year (2005 to 2006) was that I received a 1099 form that year for $10,715 that I earned in commissions from my employer. I registered these monies in line 21 as (Other Income From Form 1099-Misc) which dropped my return by some $1,500, so I know that they charged me the tax on it. I am an employee that is not self employed. All of my income has come from the same employer whether in the form of a W2 alone or both a W2 and my commission 1099 form. Any Ideas as to where the problem lies?

Thank you in advance!

-Charles

Answer 1

Well you have a number of issues.  First of all, for your case to have gotten to an Income Tax Examination Changes form you must have received or at least they sent a CP2000 notifing you of under reporting of income.  So you have now moved down the process by at least three steps which makes it more difficult to go back and fix this.

However the proper thing to do is file an amended return.  It is most likely that your employer put your commission on a 1099MISC form with the income in box 7.  Box 7 income is reported on a Schedule C as Self Employment income.  In that case you pay both halves of the SS and Medicare Tax.  You would amend your return and include the "commission" in your wages.  That may be a trick to do with Turbo Tax but that is where it goes. Next you need to complete and attach a form 4137 ( I included a link to that form in the 2006 version) to calculate and pay the SS and Medicare Tax.  Take the results on line 12 of the 4137 form to line 59 of your amended 1040 form.  Don't forget to take out the entry you made on line 21.  From the bottom of the 4137 complete Schedule U which should be the dollar amount you entered on line 59.  Send the Schedule U and a check for this amount to the IRS with the amendment.  I would send this to the address given on the 4549EZ along with as detailed explanation as you can and something that this is the first you heard of this problem. (ie you did not get the CP2000).



Now comes the hard part for some folks.  Complete a IRS Form SS8 (link provided) which is basically a complaint that your employer misrepresented your income with the aforementioned 1099MISC.  If this is accepted they will go after the employer for the second half of the SS and Medicare Tax.  Please note that you send this form to a different place than you will send the amendment.  However include a copy with your amendment.  Write "for reference only original mailed to _______" (the IRS center).

You are about to have a very upset "employer" since he has likely done this with all of the employees.  You might wish to tell him before he hears from the IRS.

http://www.irs.gov/pub/irs-prior/f4137--...

http://www.irs.gov/pub/irs-pdf/fss8.pdf

Answer 2

It's not income tax.  It's fica/mc.

Your employer screwed you.  They weren't supposed to issue you both a W-2 and a 1099-Misc.  As an employee, all money goes on the W-2 including commissions.  

On the W-2, it was subject to 7.65% fic/mc for $820--which you STILL owe.  And, tada, you didn't pay it when you did your taxes because you tried to sneak the commissions through on line 21.  (Your employer also tried to shift his $820 matching amount to YOUR tax return.)  So now you will owe 6% interest and probably another 6% in failure to pay penalty.

Get a form 4137 for 2006 (the newer form 8919 doesn't apply until 2007).  Fill in lines 3, 5-12 and schedule U.  Add a letter of explanation and mail this with a check for at least the $820 to the IRS.

To get to the form, irs.gov and type 2006 in the search box.

Answer 3

Do you still have the 1099?  It sounds like your employer reported it as non-employee compensation.  You refer to them as "my employer" but it's not at all clear from your description that you were actually their employee.  Did you also get an hourly amount from them that was shown on a W-2, or was the commission your only pay from them?  If not, it's very likely that you do owe the extra amount.  What you paid was income tax on them, but didn't pay the se tax for social security and medicare.