Last Updated: February 24, 2022
What You Should Do After Getting an IRS Deficiency Notice
First, take a deep breath and relax. A deficiency notice is not a bill. It simply outlines information sent to the IRS by a third party and proposes how it may affect your taxes.
The IRS cross-references information filed on your tax return with reports they receive from your employer and financial institutions you have accounts with. This means the IRS has reason to believe you owe income tax, along with interest or penalty fees if your taxes are delinquent. The IRS will always corroborate or double-check any information they receive.
What is a Notice of Deficiency Letter from the IRS?
An IRS Notice of Deficiency (Form CP3219A/N) informs the taxpayer that either there has been an increase in the amount of tax due to the IRS or no tax return was received. This judgment is determined after your appeal or 30 days after non-response. After receiving this tax deficiency notice, you have 90 days to petition the tax court.
Often times the notice of deficiency is also called a “90-day letter” because of the amount of time it gives you to dispute the IRS tax assessment. While some people might just pay off the deficiency to put the nail in the coffin, it’s important to realize that you have the right to dispute the assessment amount. Just because the IRS issues a notice does not mean that it is always right.
In the case that you have additional items to report (such as additional income, credits, or expenses) you need to amend your tax return and file Form 1040-X. If you agree with the changes made by the IRS and have no additional items to report, don’t worry about making amendments. In this case, you can simply sign the notice of deficiency waiver (IRS Form 5564) and send it directly to the IRS. If you’re wondering where to mail Form 5564, look for the specific IRS address shown on the Notice of Deficiency, and send it there.
If you believe the IRS is wrong, you have the option to contact them and challenge their proposal. You have 90 days upon receiving the notice to dispute the claim. You can do this by petitioning the IRS to reassess the proposed adjustment. It is in your best interest to provide the IRS with a written statement that explains the reason for your appeal. In addition to this statement, you may wish to include documents to substantiate your claim.
Your Options if You Disagree With the Notice of Deficiency
When filing an appeal it is important that you get all of the facts correct. It can be easy to overlook details that can diminish the validity of your claim. Seeking help from tax expert will save you a lot of time and money in the long turn. Your Notice of Deficiency may explain changes made to your taxes, but it won’t help you challenge the proposal. Contact us if you decide to file an IRS notice of deficiency appeal. A licensed agent or tax attorney can help evaluate all options and recommend the course of action most likely to be successful. You also might want to look into hiring a tax preparer, who can help you ensure that you never receive a deficiency statement from the IRS ever again.