Receiving notices from the IRS can be stressful and anxiety inducing. A Notice of Deficiency, also known as a 90-day letter, is an official written claim by a government agency—usually the Internal Revenue Service—that has found you owe income taxes, and often interest and penalties. This notice informs you that an assessment is being made on the income tax you owe and designed to give a taxpayer the chance to pay what is owed to the IRS.
If you’ve recently received an IRS Notice of Deficiency, you may have some questions and concerns. Our Frequently Asked Questions can help you determine the correct course of action.
Why Did I Receive this Notice?
An IRS Notice of Deficiency is issued when the IRS is proposing a change to a tax return because they found that the information reported on the return does not match their records. Known as IRS Notice CP3219, this informs you that a third party filer, like your employer or another financial institution you have accounts with, has sent in information that doesn’t coincide with what you recorded.
As an example, a taxpayer may earn wages from two employers. At the end of the year the employers will issue W2s to the taxpayer/employee and to the IRS. If the taxpayer only reports one of the W2s on his return then this will trigger a review of unreported income. The IRS will then compare the tax return to their records and will find that the taxpayer did not report one of the W2s. The IRS then adds that unreported W2 to the taxpayer’s return, which will likely change the tax.
You also may receive a statutory notice of deficiency if the IRS sent you one or more pre-assessment letters requesting income, credit, or deduction verification, but never received a response from you.
If it does change the tax, whether it lowers it or increases it (thus creating a balance), the IRS will issue a Statutory Notice of Deficiency to inform the taxpayer of the proposed change to the return. The notice will explain the proposed increase or decrease in tax, how that change was calculated and how that proposed amount can be challenged or agreed to.
Is this Notice a Bill?
No, this notice simply shows the information the Internal Revenue Service received and explains how it will affect your tax, and gives you contact information should you choose to file a petition with the tax court.
How Soon Will I Receive a Notice of Deficiency After Filing?
The Internal Revenue Service uses computer systems to match the information you have provided on your tax return with the information reported by third parties such as banks, employers, businesses, and other accounts. This matching can take a few months to complete, so you may receive this notice a three or four months after filing your tax return.
An official Notice of Deficiency arrives only after a first notice and Examination Report have both been sent and ignored.
What Should I Do if I Agree with the Notice?
If you agree with the amendment the Internal Revenue Service has made and you don’t have any additional income, expenses, or credits that you should report, you won’t need to amend your tax return. Simply sign Form 5564, Notice of Deficiency – Waver and send it back to the government agency. If you agree but have additional income, expenses, or credits to claim, you’ll need to amend your original tax return with Form 1040-X.
If you realize the IRS is correct, pay off what you owe as quickly as possible, as it will start accruing interest. If you can’t afford to pay it all immediately, call the IRS notice of deficiency contact number you’ll find on the letter received, and work out a payment plan to avoid further penalties.
What if I Disagree with the Statutory Notice of Deficiency?
If you think the IRS has received incorrect information or is mistaken, you can contact them with additional information and plead your case. You have 90 days from the date of the notice to dispute the claim by petitioning the Tax Court to reassess the liability proposed by your account’s examining agent. During this time, the IRS cannot assess or perform collections on your accounts.
You should provide the IRS with a written statement that explains the reason for your appeal. It’s wise to consider using the help of a tax attorney or tax professional before appealing; their counsel can advise you on the validity of your claim, and save you time and money in the long run. If you’re incorrect, a tax expert will likely notice it before you appeal; if you’re correct, they can help you better prepare an appeal.
If your appeal proves to be unsuccessful, you’ll be required to pay the disputed amount and file a claim for a refund with the IRS. If they deny your claim, you may choose to file a lawsuit with the United States Court of Federal Claims or federal district court. You can also file a petition with the United States Tax Court to resolve the matter. Always employ the help of an experienced tax attorney to help plead your case in either of these situations.
Could My Notice of Deficiency be Due to Identity Theft?
Identity theft is a widespread problem, and it can result in serious consequences for law-abiding taxpayers. It may be that someone else has used your social security number, and it’s essential you have a professional help you determine whether this is the case to avoid any further consequences.
Community Tax practitioners are skilled in discovering identity theft. A Notice of Deficiency could be triggered by a fraudulent return that was filed by someone else using the taxpayer’s Social Security Number or it could be issued where someone is working using the taxpayer’s Social Security Number resulting in fraudulent W2s being issued to the taxpayer’s IRS account. If you discover your identity has been stolen, you can contact the IRS and let them know the discrepancies are due to identity theft.
Can I Get an Extension on my Response Time?
No, unfortunately once the Notice of Deficiency has been issued, the IRS will not extend the time you have to respond or to file a petition with the U.S. Tax Court. Once you receive a Notice of Deficiency, you have 90 days to dispute the assessment; this 90-day period begins the day the statutory notice of deficiency is mailed to the taxpayer. That’s why it’s essential you get the IRS Notice of Deficiency help you need as soon as possible.
What Happens if I Ignore My Notice of Deficiency?
Should you ignore your Statutory Deficiency and continue to let your tax debt go unpaid, you can face a host of consequences.
Federal Tax Lien
A federal tax lien is a governmental notice of intent to levy your wages, personal property, or even the contents of your bank account. A tax lien is essentially a claim on your assets, wherein the IRS has not yet seized anything.
Federal Tax Levy
A federal tax levy occurs when the IRS actually seizes your property. They can garnish your wages from an employer, deplete your bank account, and seize your assets to sell in order to satisfy your debt. A levy will not occur until after you’ve received multiple notices and ignored IRS attempts to contact you about your tax liability.
Jail time is rare, but if the IRS launches a criminal investigation and deems your debt is due to fraud, a truant taxpayer could face incarceration.
What if I Can’t Afford My Unpaid Taxes?
If you don’t have the funds to immediately pay back the unpaid taxes owed to the Internal Revenue Service, it’s important to immediately contact the government agency and begin working on a tax debt payment plan. Once you’ve received this notice in the mail, it’s important to immediately contact the IRS and begin working on a resolution. Community Tax can help you determine ways in which to settle your debt quickly and efficiently.
There are multiple options through which to resolve unpaid tax liability. Our team of experienced tax experts provides IRS notice of deficiency help from beginning to end, and will aid you in examining all possible solutions.
An Installment Agreement
Taxpayers who can’t immediately pay their taxes can file a petition for an installment agreement with the Internal Revenue Service. An installment agreement allows a taxpayer to satisfy their tax debt through monthly payments that can last for a period of up to 72 months. Taxpayers who owe less than $50,000 can apply for an online payment agreement. Should a taxpayer owe more than this, they’re required to file Form 9465, along with a Collection Information Statement.
An Offer in Compromise
If a taxpayer cannot realistically pay what is owed to the IRS, they may choose to file a petition for an offer in compromise (OIC). This is a settlement offer made to the government agency for less than the actual amount owed. Due to strict eligibility requirements and clauses that necessitate demonstration of hardship, it’s best to use a tax accountant for this type of petition to ensure best chance of success.
Understand Your Taxpayer Rights
You do have right and are protected under certain terms of tax collection processes. You have the right to challenge an IRS claim, file a petition for an appeal, and retain a tax attorney to aid your tax court battle.
How Can I Avoid a Notice of Deficiency Next Year?
It’s important to take proper steps to ensure you never find yourself in this situation again. Adhering to the following practices can help you avoid a future Notice of Deficiency:
Keep accurate and full records all year long.
- Hold off on filing your tax return until you’ve received all of your income statements.
- Check your records with your employer, bank, mortgage broker, or other income sources to ensure they’ve been listed correctly.
- Be sure that all of your income is included on your tax return.
- Strictly follow instructions on reporting income, deductions, and expenses.
- File an amended tax return if you receive more information after you’ve filed your return to reassess your tax liability.
Forgoing a tax preparer can leave you in a world of hurt with the IRS. If you’ve been notified of a tax deficiency, it’s important to determine steps that can circumvent the reoccurrence of a tax audit.
How Can Community Tax Help Me?
Our experienced team of tax professionals can review the filed return and compare it to IRS records to ensure the IRS has correctly identified the problem. Community Tax can also make a recommendation on how to challenge the proposed changes, providing thorough IRS Notice of Deficiency help regardless of the situation and tax liability owed.
Community Tax may recommend filing an amended return or to pursue audit defense to prove the unreported item is not taxable. The Community Tax practitioners will be able to catch such discrepancies that go unnoticed by the IRS and will recommend a course of action to prevent those fraudulent items from changing the taxpayer’s tax return.
There is significant value in contacting Community Tax if you need IRS Notice of Deficiency help. Although the Notice of Deficiency will explain why the changes are made, the IRS will not specify what can be done to challenge the proposal. Community Tax can evaluate all options and recommend the course of action most likely to be successful. If the taxpayer chooses to challenge the tax liability assessment, Community Tax will handle that challenge by compiling all required documents, drafting all necessary forms and representing the taxpayer in front of the IRS.
If you decide to file an IRS notice of deficiency appeal, it’s wise to use the help of a tax professional experienced in resolving disputes between taxpayer and tax court. For more information about how we can help you, call 1-888-676-4128.