What is a Deficiency Waiver?

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 IRS notice of deficiency 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 of deficiency 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 of deficiency 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:

Federal Tax Lien

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.

Federal Tax Levy

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

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.

How a Notice of Deficiency Works

1.     A notice of deficiency is usually prompted by tax information gotten from a third party filer–such as an employer or a financial institution–that does not match the information reported by the taxpayer.

2.     A notice of deficiency is triggered by a taxpayer’s inability to respond in good time to, or to successfully appeal, a pre-assessment letter known as a 30-day letter.

3.     When an assessment results in a proposed tax deficiency, the first step the IRS takes towards amending this deficiency is to present a 30-day letter to the taxpayer. It is known as a 30-day letter because the taxpayer has 30 days to reply before the IRS processes the changes made to the return.

4.     A notice of deficiency explains any changes or alterations and how the amount of any deficiency was calculated. It explains the taxpayer’s options to either concur to the additional tax liability by signing a Waiver Form 40893 or challenge it in U.S. Tax Court.

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.

What if I Can’t Afford My Unpaid Taxes?

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:

An Installment Agreement

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.

An Offer in Compromise

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.

Understand Your Taxpayer Rights

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.

How Can I Avoid Notice of Deficiency Next Year?

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:

• 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 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.