IRS Letter 5042 – Proposed Tax Adjustment
The IRS is proposing changes to your business tax return.
Type of Notice: Return accuracy
Likely next step: Address a business audit
Also see: Business penalties, Unpaid business taxes
Why you received IRS Letter 5042
- You received income through a credit card merchant account and/or through other third-party network transactions.
- You filed a tax return reporting business income.
- The IRS thinks that your tax return shows an unusually high portion of gross receipts attributable to credit card payments. The IRS would typically expect a higher portion of gross receipts from cash and checks for your type of business.
- A notice was sent asking you to explain why your gross receipts from credit cards is higher than expected, but you did not respond.
- Letter 5042 was sent to propose changes to your tax return including additional taxes, penalties and interest.
Notice deadline: 30 days
If you miss the deadline: You will lose the right to appeal the proposed increase in taxes with the IRS Office of Appeals and the IRS will issue a Statutory Notice of deficiency, which gives you 90 days to petition the U.S. Tax Court.
Want more help?
Your tax professional can deal with the IRS for you. Learn more about H&R Block’s Tax Audit & Notice Services.
Get help from an IRS expert
H&R Block’s experts can solve any IRS problem, no matter how complex.
Understand the most common types of IRS business tax penalties for filing and paying late, and your possible options for requesting IRS penalty relief.
Learn what the IRS is looking for during a business tax audit, the steps you should take to prepare for an IRS audit, and when it's best to get expert help.
Learn how to request an IRS payment option, like an extension to pay or an IRS installment agreement, when your business owes taxes and can't pay.
The Statutory Notice of Deficiency is part of a series of notices sent by the IRS to propose additional tax, penalties and interest. Learn more from the tax experts at H&R Block.