What happens if the 90 days passes and you don't respond at all? Do they automatically assess the full amount they think you owe?

Yes, if you don't respond within the 90-day period, the IRS will automatically assess the tax as proposed on the Form 4549. The amount will then be added to your account balance, interest will continue accruing from the original due date of the return, and the IRS may begin collection activities. This is why it's so important to either respond with documentation showing why you disagree with their findings, or if you agree, to set up a payment plan before collection activities begin. Once the assessment is finalized, your options become more limited and potentially more expensive.

Does the Form 870 come with every 4549 notice? I don't think I got one with mine but now I'm worried I might have missed something important.

Thanks for the additional insights! Do museums typically provide documentation stating they'll use the artwork for their exempt purpose? And how does the IRS verify this - do they actually follow up with the museum?

Museums will typically provide you with a formal acknowledgment letter that should state their intentions for the artwork. The better museums will explicitly state that the work will be used for their exempt purpose (display, education, etc.). The IRS doesn't routinely follow up with museums, but in case of an audit, they can request documentation from both you and the receiving organization. This is more common with high-value donations. Form 8283 actually requires the receiving organization to sign acknowledging receipt of the donated property, and they're supposed to file Form 8282 if they dispose of the property within three years, which creates a paper trail the IRS can follow.

There absolutely are rules about this! If you hold the property for less than a year before donating, it's considered a short-term capital gain property, and your deduction is limited to your cost basis (what you paid for it), not the appraised value. You need to hold the property for more than a year to get the full fair market value deduction. This is specifically to prevent the kind of quick flip-and-donate scenario you're describing.

Thanks so much for sharing your experience! Have you ever had any issues with state filing through FreeTaxUSA? I've heard their federal is great but some people complained about the state portion.

I've done both federal and state with FreeTaxUSA with no issues at all. The state portion isn't free like the federal filing, but it's still way cheaper than TurboTax - I think I paid about $15 for state filing last year. The state section works exactly the same way as the federal part - straightforward questions and it imports all your relevant info from the federal return automatically. I'm in California which has some complex state tax rules, and it handled everything correctly. The software even flagged when I qualified for a specific state credit I didn't know about.

This is what I keep telling my friend! She made like $700 on Etsy last year and is freaking out about getting audited. It's just not worth the IRS's time to go after such small amounts unless you're doing something really weird with your deductions.

I tried the $0 trick and my return got rejected. Does that only work with certain tax software? I was using FreeTaxUSA.

The $0 AGI option works with all tax software that uses the IRS e-file system, but there are some specific conditions. It's most reliable for first-time filers. For returning filers, it works if you didn't file last year or if you've had a significant change (like filing status). With FreeTaxUSA specifically, make sure you're selecting the right option - there should be something like "I don't have last year's AGI" or "I don't have access to my previous return." The software might have a specific workflow for this situation.

If you don't file by midnight tonight and you owe taxes, you'll face a failure-to-file penalty of 5% of unpaid taxes for each month your return is late, up to 25%. There's also interest that accrues daily. HOWEVER - if you're getting a refund, there's no penalty for filing late! You just won't get your refund until you file. So if you're getting money back, you can file tomorrow without any penalty.

That's really helpful information. Is the low-income certification something separate I need to apply for, or is it part of the OIC application?

The low-income certification is actually included as part of the OIC application process. When you complete Form 656, there's a section (Section 1) where you can check a box to request the low-income certification. If your household income is at or below 250% of the federal poverty guidelines, you qualify for both the application fee waiver and to skip the initial payment requirement. Based on your annual income of $41K, you might qualify depending on your household size. For 2025, the threshold for a single person is around $36K, but for a household of 2, it's about $49K. Definitely worth checking if you're close to those numbers.

I used a CPA who specializes in IRS resolution for my OIC last year. Cost me $1,500 total. Worth every penny because they found several exemptions I would have missed. My offer got accepted for about 15% of what I originally owed. Those national tax relief companies with the radio ads wanted to charge me $4,500+ for the same service, so definitely shop around.