It is important as a taxpayer to understand the IRS Notice of Deficiency since it could lead to financial and legal consequences if ignored. The IRS Notice of Deficiency is also referred to as the 90-day letter, Statutory Notice of Deficiency, Deficiency Notice, Notice CP2319A, CP3219A, and Tax Deficiency Notice. We will provide you with a better breakdown and explanation throughout the page.
Understand that this is NOT an IRS Audit.
The IRS Notice of Deficiency is a notice to inform a taxpayer that additional taxes are owed. In other words, there is a difference between the amount of tax originally paid by the taxpayer and the amount determined by the IRS to be actually owed.
The name“90-day letter” is to be self explanatory. The taxpayer basically has up to 90 days to file a dispute with the United States Court. If the taxpayer chooses to ignore the notice, even if they disagree with the amount owed, the IRS will assume the taxpayer has agreed to the notice. That’s why it is important to respond promptly.
However, even if the taxpayer decides to dispute, they are still required to pay the additional taxes while the case is open with the United States court. Keep in mind that the case period and amount paid varies case by case. Please consult with our tax advisors for additional help.
The IRS notice of deficiency is a legal willpower by the IRS of a taxpayer’s tax deficiency. It is an authorized written claim that a taxpayer owes additional income tax (and often interest on that amount, as well as additional penalties). It is issued when the IRS recommend a change to a tax return because they found that the information reported on a return does not agree with their records. The notice is also sometimes referred to as a statutory notice of deficiency, or an IRS 90-day letter. The formal name for a notice of deficiency is IRS Notice CP2319A: Notice of Deficiency and Increase in Tax.
Tax laws entail that the Internal Revenue Service (IRS) issues a notice before evaluating additional income tax, estate tax, gift tax, and certain excise taxes (unless the taxpayer agrees to the additional evaluation). Although the language in the notice of deficiency says that the IRS is proposing a change, the notice is a authorized determination of tax deficiency that is supposedly correct
If you ignore your Statutory Deficiency and keep letting your tax debt go unpaid, you can face a host of penalties:
A federal tax lien is a governmental notice of purpose to levy your wages, personal property, or the contents of your bank account. A tax lien is basically a claim on your assets, in which the IRS has not yet seized anything.
A federal tax levy arises when the IRS actually seizes your possessions. They can garnish your wages from an employer, run down your bank account, and seize your assets to sell in order to satisfy your debt. A levy will not take place until after you’ve received multiple notices and ignored IRS attempts to contact you about your tax liability.
Jail time is unusual, but if the IRS launches a criminal investigation and deems your debt is due to fraud, a truant taxpayer could face imprisonment.
A notice of deficiency is sometimes referred to as a 90 days letter because it gives the taxpayer 90 days to dispute the tax assessment in the Tax Court. The 90-day period within which a petition may be filed is prescribed by statute and cannot be extended. The 90-day period is counted from the date the notice of deficiency is mailed to the taxpayer’s last known address. The IRS is required by law to include the last day a petition may be filed directly on the notice of deficiency. Until 90 days is over or a Tax Court decision is final, whichever is later, the IRS is excluded from any assessment or collection activity.
It is significant to note that a notice of deficiency is not a tax bill. However, if the taxpayer has not signed a Waiver Form 4089 in agreement to the changes or filed a petition with the Tax Court within the 90-day period, the IRS will evaluate the tax, penalties, and interest shown on the notice of deficiency and send a bill. This is one of the events that pave the way and triggers IRS collection efforts.
If you don’t have the means to immediately pay back the unpaid taxes owed to the Internal Revenue Service, it’s essential 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.
There are numerous options through which to resolve unpaid tax liability. Tax experts provide IRS notice of deficiency help from beginning to end, and will aid you in examining all possible solutions as listed below:
Taxpayers who can’t instantly pay their taxes can file a petition for an installment agreement with the Internal Revenue Service. An installment agreement permits taxpayers 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 needed to file Form 9465, along with a Collection Information Statement.
If a taxpayer cannot practically 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 firm eligibility requirements and clauses that necessitate demonstration of hardship, it’s advised to use a tax accountant for this type of petition to get best chance of success.
Every tax payer has rights and is 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 help your tax court battle.
If the taxpayer decides to file a dispute, the first step is to carefully review the notice and understand why there has been a deficiency. Second step is to carefully review the numbers breakdown, for example, tax liability (deficiency), payments made, failure-to-pay penalty (along with any other penalties), Interest charges, and total amount due. On the left side of the notice, a deadline for disputing the deficiency should be included.
After a thorough review of the notice, the next step is to contact a tax professional. We have tax advisors ready to assist you. Get in contact with our tax advisors by filling out the contact form below at the bottom of the page. Our tax advisor will explain the rights and responsibilities as a taxpayer.
Determine if disputing the deficiency is the best course of action. If so, the next step is to file a petition with the United States Tax Court. Remember, you have a 90 day window to file a dispute.
A Tax Court hearing will be held to present and argue your case to avoid paying the additional taxes owed. After the hearing, the Tax Court will either dismiss the deficiency or require payment of the deficiency.
Please note that the disputing process can be a complex and overwhelming process, which is why it is highly recommended to seek advice from a tax professional.
It’s vital to take proper steps to ensure you never find yourself in this situation again. Abiding to the following practices can aid you in preventing a future Notice of Deficiency are as follows:
Forgoing a tax prepare can leave you in a whole lot of complications with the IRS. If you’ve been informed of a tax notice of deficiency, it’s essential to determine steps that can avoid the occurrence of a tax audit.
Our tax experts are the best in the field.
