IRS NOTICE OF DEFICIENCY

The IRS Notice of Deficiency, also known as an IRS 90-day letter, is a formal written claim by a government agency, usually the Internal Revenue Service—that has found out you owe income taxes, and often interest and penalties. Receiving notices from the IRS can be worrying and anxiety-inducing. This notice informs you that an evaluation is being made on the income tax you owe and gives you the opportunity to pay back your IRS debt.

Why Did I Receive an IRS Notice of Deficiency?

An IRS Notice of Deficiency is issued when the government is proposing a change to a tax return because they discovered that the information reported on the return does not match their records. Known as IRS Notice CP-3219, this informs you that a third party filer, just 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 instance, a taxpayer may be earning wages from two employers. At the end of the year the employers will issue W-2s to the taxpayer/employee and to the IRS. If the taxpayer only reports one of the W-2s on his return then this will instigate a review of unreported income. The IRS will then compare the tax return to their records; if they find the taxpayer did not report one of the W-2s, the government agency then adds that unreported W-2 to the taxpayer’s return, which will likely change the tax. You may also receive a legal notice of deficiency if the IRS sent you one or more pre-assessment letters requesting income, credit, or deduction verification, but never received a reply from you.

Is an IRS Notice of Deficiency a Tax Bill?

No, this notice simply reveals 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 utilizes 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 up to 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 disregarded.

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 will not need to amend your tax return. Simply sign Form 5564, Notice of Deficiency Waiver and send it back to the government agency. If you agree but have additional income, expenses, or credits to claim, you will need to amend your original tax return with Form 1040-X. If you realize the IRS is right, pay off what you owe as quickly as you can 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 you got, and work out a payment plan to prevent 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 aid 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 mistaken, 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 crisis, 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 important that you have a professional help you determine whether this is the case to avoid any further consequences. A Notice of Deficiency could be instigated 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 W-2’s 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 as a result of 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 starts the day the statutory notice of deficiency is mailed to the taxpayer. That’s why it’s of great importance that you get the IRS Notice of Deficiency help you need as soon as possible.