Why Did I get a Notice of Deficiency from the Internal Revenue Service?
Getting anything in the mail from the Internal Revenue Service is stressful and anxiety inducing.
Being told you’re deficient isn’t any picnic either.
Receiving Form CP3219N Notice of Deficiency is the best of both worlds.
What Does a Notice of Deficiency Mean Exactly?
This is a notice that the IRS has made the legal determination that you owe additional income taxes beyond what you reported on your federal income tax return. The notice includes information that they will propose a change to your tax return based on the other records they’ve received for that tax year.
The legal notice also starts a 90-day window in which you and the Internal Revenue Service will need to check paperwork and review each other’s math. The notice itself doesn’t mean the Internal Revenue Service believes you’ve committed tax fraud. Instead, it just means that the IRS has gotten more information about your income (usually from an employer or another agency filing their taxes) and that your tax payment wasn’t enough, i.e. deficient.
Now, according to tax laws, the Internal Revenue Service has to send notices of deficiency before assessing additional income tax, estate tax, gift taxes and some excise taxes.
Did you receive a Notice of Deficiency from the IRS? Not sure what to do? Get Started
If you agree with the Notice of Deficiency and don’t wish to challenge it, then simply sign Form 5564, the Notice of Deficiency Waiver, and send it back to the agency that issued it. They’ll return a bill that includes your unpaid taxes, as well as interest and penalties you’ve incurred due to your late payment. If you don’t respond to the Notice of Deficiency, you’ll receive this bill once your 90-day window has expired.
The Internal Revenue Service moves slowly and steadily and only sends this notice to taxpayers after trying to contact them and filing multiple requests for more information.
Why Me? Why Did They Send Me a Deficiency Notice?
The tax deficiency notice is part of the process of proposing a change to a federal income tax return. It simply shows information someone else sent the Internal Revenue Service, how it relates to you, and how it affects your taxes. The notice also includes a few ways you can respond, either by making the notice of deficiency appeal or signing the notice of deficiency waiver (IRS form 5564) to say that you agree with what they found and that you’ll pay it. However, you cannot request additional time to do your own tax assessment.
But how does this happen? Odds are that a third-party filer such as your employer or one of your financial institutions, has sent in information that doesn’t coincide with what you recorded. If you have outstanding taxes, the notice from the Internal Revenue Service tells you that you’ll have forthcoming taxes to pay.
As an example, a taxpayer may earn wages from two employers, not uncommon for low- and middle-income individuals. At the end of the year, both employers issue W2s to the employee and to the Internal Revenue Service. But if the taxpayer only reports one of the W2s on his return, 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. Before sending any collection notices, the IRS redoes the individual tax return and, odds are, it changes the taxes that individual would owe to the Internal Revenue Service.
The tax deficiency notice goes out as soon as the Internal Revenue Service has made the legal determination that you owe more, but the deficiency letter itself isn’t the final say.
How Does a Statutory Notice of Deficiency Work?
If the IRS thinks you owe taxes, they’ll start pre-assessment procedures, including a first pre-assessment letter, also known as a 30-day letter to tell you they’re going to propose a deficiency against 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. If the IRS sent you one or more pre-assessment letters requesting income, credit, or deduction verification, but never received a response from you, then they’ll send you the 30-day letter.
Within 30 days, you have the opportunity to choose to appeal it or send a notice of deficiency waiver, saying you agree to it.
The 30-day letter is the friendly one. If you don’t respond in 30 days, someone at the Internal Revenue Service will send you the full Notice of Deficiency, also called the IRS 90-day letter. It’ll include details of the deficient payment, the unreported income, as well as the calculations that have determined the deficiency. Now, you have 90 days to decide to challenge it in tax court. This is why the IRS Notice of Deficiency is sometimes referred to as the 90-day letter.
They must file a petition that they are challenging their notice. If they have additional information that backs up their claim, they should send that to the IRS, as well. The letter will list the last day to challenge the Notice of Deficiency.
Here’s the good news: The Internal Revenue Service cannot proceed with any collections until the 90 days have passed.
Is an IRS Notice of Deficiency a Tax 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.
If you’ve received either notice from the Internal Revenue Service, contact us today and let our team help you come up with a plan. Our team is well versed in responding to the different types of notices from the Internal Revenue Service. While deficiency isn’t one of the more common notices, you can be sure our team has dealt with them before.
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 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 of Deficiency?
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 the Notice of Deficiency Waiver form, 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. Community Tax can help you create a payment plan to present to the IRS. Contact our team today.
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.
It’s wise to consider using the help of a tax attorney or tax professional before sending a notice of deficiency appeal; 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. Our team has resolved numerous cases, helping our clients craft airtight appeals. Contact us now for professional tax assistance.
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. The IRS will not give you additional time 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.
These are just some of the federal tax debt solutions we offer:
Taxpayers that are not currently in financial hardship, but may be very close to that threshold, may be able to qualify for an Offer In Compromise. This mostly applies to those who would be put into financial hardship if they added tax debt payments to their current list of expenses. In this situation, the IRS determines the maximum amount they would be able to get from a taxpayer without causing financial hardship. Then the remainder of the debt is forgiven and the individual is released from their liability as soon as the taxpayer meets the conditions of their agreement with the IRS. The IRS will factor in disposable income and any assets held by the taxpayer when making a determination for an offer in compromise. An offer in compromise can wipe the slate clean with the IRS for substantially less than what the taxpayer owes. Offers in Compromise are difficult to achieve, but offer a substantial benefit to struggling taxpayers if they qualify. CTR has tremendous experience in determining a taxpayer’s eligibility for an offer in compromise and also has tremendous success in negotiating our offers in compromise we submit for our clients.
The installment agreement is a method of tax debt resolution that allows an individual to pay off their balance over a period typically ranging from 6 months to ten years. Depending on the amount owed to the IRS or state tax agency, the period can vary. CTR determines the amount of each monthly payment based on the taxpayer’s personal assets, property and other financial information and negotiates with the IRS to achieve that payment. These agreements come in many forms to accommodate other financial obligations and the needs of the taxpayer while still satisfying IRS or state tax debt.
STAIR STEP AGREEMENT
This form of Installment Agreement exists to allow taxpayers to finish payment on a large expense, such as a car loan or child support payments. This plan begins with a divided payment schedule in which the larger expense gets the main focus and small installments are collected on the unpaid tax balance. Once the outstanding balance on the initial expense is completed (usually within 12 months), the taxpayer switches the entire payment to the back taxes over the following 48-60 months. This program eases the stress of tax payments without causing other financial obligations to default.
STREAMLINE INSTALLMENT AGREEMENT
This type of installment agreement comes with a couple of strict guidelines that determine an individual’s eligibility. There are some added benefits that make this program worthwhile, such as not having to disclose all of a taxpayer’s financial information to the federal or state tax agency. The assessed or actual tax balance owed must be less than or equal to $50,000. Additionally, the total balance, which includes accrued penalties and interest, must be paid to the IRS or state within a 60-72 month period. This arrangement is ideal for taxpayer’s with substantial assets or disposable income.
PARTIAL PAY INSTALLMENT AGREEMENT
The PPIA is a bit more complicated to manage from a records perspective, but can save taxpayers a substantial amount on their tax balances. Taxpayers following this plan have to disclose all financial information and documents to the IRS to be accepted. CTR negotiates a hardship payment based on the taxpayer’s current financial information. This hardship payment is less than the monthly payment needed to satisfy the tax debt in full. The IRS has a 10-Year Statute of Limitations in which they can collect on past due tax debt. The PPIA payment will be made for the duration of that 10-year period, but will not pay the tax balance in full by the time the IRS can no longer collect on the tax debt.
CONDITIONAL EXPENSE INSTALLMENT AGREEMENT
As one of the more accommodating agreements, the CIA allows taxpayers to continue paying a long-term monthly bill or expense(s) while still addressing their tax debt problems. Those that qualify for this agreement must have a steady payment schedule for something like a 401k program or a credit card that they are required to keep. The CIA usually lasts for 60 months and pays the debt in full. During this time, the individual is required to do three things: make payments to the IRS in the agreed amount, continue to pay their conditional expense(s) with submitted proof to the tax agency, and give the IRS any required financial documents or records. This program allows a taxpayer to continue their current lifestyle without disruption while also paying back their IRS debt in full.
TRADITIONAL INSTALLMENT AGREEMENT
This straight-forward payment method is a simple installment plan in which the taxpayer settles their entire tax debt over many payments. The amount is divided into monthly installments over the 10-Year Statute of Limitations and is based on the taxpayer’s current financial situation. This program removes the stress of trying to make a full one-time payment and grants the taxpayer peace of mind. This program allows the taxpayer to pay-off their tax debt obligations over time without being at risk for a levy or wage garnishment.
Taxpayers that are struggling with financial hardship may be able to find a way to be completely relieved of their IRS debt. Currently Not Collectible Status removes the taxpayer’s tax balances from active collections with the IRS. A taxpayer provides documentation of their current financial condition, and if such documentation shows that the taxpayer cannot meet their basic obligations, let alone their tax liability, the IRS will declare a financial hardship. As the Statute of Limitations on a tax debt is 10 years, the individual must continually file their tax returns and provide any requested information to the IRS in a timely manner. Anytime a taxpayer receives a raise or has their income to expense ratio change such that they are no longer in financial hardship, they may lose their Currently Not Collectible Status. At this point, a new payment plan may be drawn up to settle the balance with the IRS based on the new financial situation in which the taxpayer finds themselves. The Currently Non Collectible Status allows taxpayers some relief while they try to improve their financial condition.
Penalties can quickly turn a tax debt situation from bad to worse. With our penalty abatement assistance, the added penalties to tax obligations may be removed. Remember, a penalty abatement only applies to penalties. The IRS does not currently abate interest. To accomplish a penalty abatement, an individual can submit proof that they missed payments or filing deadlines or other noncompliant behavior for uncontrollable reasons. In addition, they must show that they are working to rectify the problem by filing any missing forms or returns and paying the required balances.
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 the best chance of success.
Understand Your Taxpayer Rights
You do have rights 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.
How Can Community Tax Help Me?
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.
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. If you have more questions about your IRS Notice of Deficiency, we can help. Call today at (888) 676-4319.
Let our team help you contact the IRS after a Notice of Deficiency. Get started with a FREE consultation today!