Navigating an IRS Audit: A Deep Dive into IRS Form 886-A
- Howard Richardson
- 5 days ago
- 4 min read
Receiving a notice from the Internal Revenue Service (IRS) can be a stressful experience for any taxpayer. When that notice is related to an audit or examination of your tax return, it is crucial to understand the documents you receive and the implications they have. One of the most important documents you may encounter during an IRS examination is Form 886-A, Explanation of Items. This document provides the detailed reasoning behind the IRS’ proposed adjustments to your tax return. A thorough understanding of Form 886-A is essential for navigating the audit process and protecting your rights as a taxpayer.
This article provides a comprehensive overview of Form 886-A. We will explore the purpose of Form 886-A, its key components, its relationship to other IRS forms, and your rights and options when you receive one.
What is Form 886-A and When is it Used?
Form 886-A, titled “Explanation of Items,” is a document used by the IRS to explain the specific adjustments that an examiner is proposing to a taxpayer’s return. It is not a standalone form that you fill out, but rather a detailed explanation that accompanies other IRS correspondence, such as an examination report (Form 4549) or a 30-day letter in an unagreed case. The primary purpose of Form 886-A is to ensure that you, the taxpayer, fully understand the facts, the law, and the reasoning behind the IRS’ position.
The IRS is required to use Form 886-A in several situations, including:
•Unagreed Audit Issues: It is a mandatory attachment for all unagreed issues in an examination.
•Joint Committee Cases: For high-dollar refund cases that require review by the Joint Committee on Taxation, Form 886-A is required for both agreed and unagreed issues.
•Partnership Examinations: In audits of partnerships under the Bipartisan Budget Act (BBA), Form 886-A is used to explain adjustments to partnership items.
The Legal Authority for IRS Examinations
The IRS’ authority to conduct examinations and request information is granted by the Internal Revenue Code. Specifically, IRC § 7602, “Examination of Books and Witnesses,” empowers the IRS to:
“examine any books, papers, records, or other data which may be relevant or material to such inquiry” and to “summon the person liable for tax…to appear…and to produce such books, papers, records, or other data, and to give such testimony, under oath, as may be relevant or material to such inquiry” .
This broad authority allows the IRS to gather the information necessary to determine the correctness of a tax return. Form 886-A is a direct result of this examination process, serving as the formal explanation of the examiner’s findings.
The Anatomy of Form 886-A: A Section-by-Section Breakdown
The Internal Revenue Manual provides a specific format that IRS examiners must follow when preparing Form 886-A for Large Business and International (LB&I) cases. This structured format is designed to provide a clear and comprehensive explanation of the proposed adjustments. The seven key sections are as follows:
Form 886-A and its Relationship to Other IRS Forms
Form 886-A does not exist in a vacuum. It is an integral part of the larger audit and examination process and is typically issued with other key IRS forms:
Form 4549, Income Tax Examination Changes: This form, often referred to as the Revenue Agent Report (RAR), summarizes the proposed adjustments to your income and tax liability. Form 886-A is attached to Form 4549 to provide the detailed explanations for the changes shown on the report.
30-Day Letter (Letter 525): In an unagreed case, the IRS will issue a 30-day letter, which gives you 30 days to either agree to the proposed adjustments or appeal your case to the IRS Independent Office of Appeals. The examination report, including Form 886-A, is part of the 30-day letter package.
Your Rights as a Taxpayer
When you receive a Form 886-A, it is important to remember that you have rights. The Taxpayer Bill of Rights ensures that you have the right to be informed, the right to quality service, the right to challenge the IRS’ position and be heard, and the right to appeal an IRS decision in an independent forum. When you receive a Form 886-A, you should:
Review the Document Carefully: Take the time to read and understand each section of the Form 886-A. Pay close attention to the “Facts” section to ensure they are accurate and complete. Review the “Applicable Law” and “Argument” sections to understand the basis for the IRS’ position.
Gather Your Documentation: Collect all of your records that support your position on the issues raised in the Form 886-A.
Respond to the IRS: You have the right to respond to the Form 886-A. You can provide additional information, clarify facts, and present your legal arguments. It is highly recommended that you do so in writing.
Consider Professional Representation: The audit process can be complex. If you are unsure how to proceed or feel that your rights are not being protected, you should consider seeking assistance from a qualified tax professional, such as a CPA, an Enrolled Agent, or a tax attorney.
Appeal if You Disagree: If you do not agree with the proposed adjustments, you have the right to appeal. The 30-day letter will explain how to request a conference with the IRS Independent Office of Appeals.
Conclusion
Form 886-A, the Explanation of Items, is a critical document in any IRS examination. It provides the roadmap to understanding the IRS’ proposed changes to your tax return. By understanding the purpose and structure of Form 886-A, and by knowing your rights as a taxpayer, you can navigate the audit process more effectively and ensure that you are treated fairly. If you have received a Form 886-A, do not ignore it. Take the time to understand it, gather your information, and respond accordingly.
Watch our free video, The Ultimate Guide to Solving Your IRS Tax Problems for more in-depth explanations of complex tax topics and tips for navigating the IRS. Download the QR Code or click the button to view it now:
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