There are few things that are more disconcerting than receiving correspondence from the Internal Revenue Service (IRS). Even if you are diligent about paying your taxes, getting a letter from the IRS can be scary. This is particularly true when the IRS sends you a notice of deficiency to inform you that you owe taxes.
A Notice of Deficiency is how the IRS informs taxpayers that they owe additional taxes. While it is not a bill, if you fail to dispute the assessment within 90 days, then the IRS will send a bill for the outstanding taxes plus any applicable penalties and interest. The only way to challenge a Notice of Deficiency is by petitioning the United States Tax Court.
At Pridgeon & Zoss, we have substantial experience handling all types of tax litigation – including challenges to notices of deficiency. As former IRS tax lawyers, we understand the system and how to get the best possible outcome for our clients. If you have received a notice of deficiency from the IRS, give our law firm a call today to learn more about how we can fight for your rights.
What Is a Notice of Deficiency?
A Notice of Deficiency and Increase in Tax (Form CP3219A) is a letter that the IRS sends to taxpayers after it determines that you either failed to file a tax return or there is an increase in the amount of tax due. A deficiency notice is not a bill, but if you fail to take action within 90 days of receiving it, then you will owe the disputed amount. For this reason, it is often referred to as a 90 day letter.
The IRS cross-references taxpayers’ returns with documentation received from employers and financial institutions. When the information that the IRS receives is different from what you reported on your tax returns, it may result in an increase or decrease in your tax obligations. The notice of deficiency explains how this tax amount was calculated, what to do if you agree or disagree with the amount, and how you can challenge it by petitioning the U.S. Tax Court.
In essence, a notice of deficiency is a legal determination that you have underpaid your taxes. While the notice states that the IRS is proposing a change in the amount due, its determination is presumptively correct.
A deficiency notice follows a pre-assessment letter, which is also known as a 30 day letter. If you fail to respond to the pre-assessment letter within 30 days, then the IRS will process the changes made to the return and issue a statutory notice of deficiency. At this point, you will either have to agree with the additional tax liability or pursue tax litigation to challenge the assessment.
What Should You Do If You Receive a Notice of Deficiency?
Taxpayers have two primary options after receiving a notice of deficiency: agreeing to the assessment or challenging it via the U.S. Tax Court. If you do not wish to appeal the determination, you can sign and submit Waiver Form 4089 and pay the tax due.
A taxpayer can also dispute the assessment in Tax Court. Any challenge must be made within 90 days of the date that the notice of deficiency was mailed to the taxpayer. An experienced IRS tax litigation attorney can advise you about disputing a notice of deficiency and represent you throughout the process.
The IRS is barred from starting a collection action until after the expiration of the 90 day period or until the U.S. Tax Court issues a decision. However, if you fail to take action on the notice of deficiency, then the IRS can send a tax bill for the assessed taxes, penalties and interest. If you fail to pay this tax bill, then the IRS will begin a collection action.
Tax Issues? Call Our Law Firm Today.
If the IRS has notified you that you owe taxes, then you may be panicked and unsure of your options. The U.S. Tax Code is incredibly complex, and difficult for most people to understand. An experienced tax litigation attorney can help you achieve the best possible outcome for your case.
Pridgeon & Zoss represents taxpayers before the IRS and the Minnesota Department of Revenue. Our legal team has decades of combined experience resolving tax disputes on behalf of our clients, through settlements, offers in compromise, installment payments, and tax litigation. To learn more or to schedule a consultation with a seasoned Minnesota tax attorney, give us a call at 952-232-0371 or fill out our online contact form.