- 1 statutory notice of deficiency
- 1.1 DEFINITION of 'Notice Of Deficiency'
- 1.2 BREAKING DOWN 'Notice Of Deficiency'
- 1.3 Notice CP2319A and a 90-day Letter
- 1.4 An Ignored Notice of Deficiency Triggers IRS Assessment and Collection Efforts
- 1.5 Why Did I Receive an IRS Notice of Deficiency?
- 1.6 Is an IRS Notice of Deficiency a Tax Bill?
- 1.7 How Soon Will I Receive a Notice of Deficiency After Filing?
- 1.8 What Should I Do if I Agree with the Notice of Deficiency?
- 1.9 What if I Disagree with the Statutory Notice of Deficiency?
- 1.10 Could My Notice of Deficiency be Due to Identity Theft?
- 1.11 Can I Get an Extension on my Response Time?
- 1.12 What Happens if I Ignore My Notice of Deficiency?
- 1.13 What if I Can’t Afford My Unpaid Taxes?
- 1.13.1 We offer, but are not limited, to these types of debt solutions:
- 1.13.2 STREAMLINE INSTALLMENT AGREEMENT
- 1.13.3 PARTIAL PAY INSTALLMENT AGREEMENT
- 1.13.4 CONDITIONAL EXPENSE INSTALLMENT AGREEMENT
- 1.13.5 TRADITIONAL INSTALLMENT AGREEMENT
- 1.13.6 CURRENTLY NOT COLLECTIBLE STATUS
- 1.13.7 Understand Your Taxpayer Rights
- 1.14 How Can I Avoid a Notice of Deficiency Next Year?
- 1.15 It’s Not The End of The World! Statutory Notice of Deficiency: Part 6
- 1.16 Tax Dictionary – Statutory Notice of Deficiency
- 1.17 Statutory Notice of Deficiency
statutory notice of deficiency
DEFINITION of 'Notice Of Deficiency'
A notice of deficiency is also known as a statutory notice or a statutory notice of deficiency because tax laws require the Internal Revenue Service (IRS) to issue a notice of deficiency before assessing additional income tax, estate tax, gift tax and certain excise taxes unless the taxpayer agrees to the additional assessment. Although its language says the IRS is proposing a change, the notice of deficiency is a legal determination of tax deficiency that is presumptively correct.
BREAKING DOWN 'Notice Of Deficiency'
A notice of deficiency is issued when the IRS proposes a change to a tax return because they found that the information reported on a return does not match their records. A notice of deficiency is usually triggered by tax information received from a third party filer such as an employer or a financial institution that does not match information reported by the taxpayer.
A notice of deficiency is triggered by a taxpayer’s failure to timely respond to or to successfully appeal a pre-assessment letter known as a 30-day letter.
Notice CP2319A and a 90-day Letter
A notice of deficiency is also known as an IRS Notice CP2319A - Notice of Deficiency & Increase in Tax. It explains any adjustments and how the amount of any deficiency was calculated. It explains the taxpayer’s options to either 1) agree to the additional tax liability by signing a Waiver Form 4089-A or 2) challenge it in U.S. Tax Court.
A notice of deficiency is sometimes referred to as a 90-day 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 not 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 expire or a Tax Court decision is final, whichever is later, the IRS is barred from any assessment or collection activity.
An Ignored Notice of Deficiency Triggers IRS Assessment and Collection Efforts
A notice of deficiency is not a tax bill. However, if the taxpayer has not signed a Waiver Form 409-A agreeing to the changes or timely filed a petition with the Tax Court within the 90-day period, the IRS will assess the tax, penalties, and interest shown on the notice of deficiency and send a bill. This is one of the events that precedes and triggers IRS collection efforts.
of Deficiency from the IRS?
Receiving notices from the IRS can be stressful and anxiety inducing. A Notice of Deficiency, also known as a 90-day letter, is an official written claim by a government agency—usually the Internal Revenue Service—that has found you owe income taxes, and often interest and penalties. This notice informs you that an assessment is being made on the income tax you owe and designed to give a taxpayer the chance to pay what is owed to the IRS.
If you’ve recently received an IRS Notice of Deficiency, you may have some questions and concerns. Our Frequently Asked Questions can help you determine the correct course of action.
FAQS ABOUT NOTICES OF DEFICIENCY
At Community Tax, LLC, we pride ourselves on being a full-service tax company, offering a wide range of tax related services geared towards both individuals and businesses. If you’ve recently received a Notice of Deficiency or have questions on the subject, Community Tax can help! Find our answers to the most frequently asked questions about Notices of Deficiency below, and determine your next steps by calling us at (888) 676-4319.
Why Did I Receive an IRS Notice of Deficiency?
An IRS Notice of Deficiency is issued when the IRS is proposing a change to a tax return because they found that the information reported on the return does not match their records. Known as IRS Notice CP3219, this informs you that a third party filer, 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 example, a taxpayer may earn wages from two employers. At the end of the year the employers will issue W2s to the taxpayer/employee and to the IRS. If the taxpayer only reports one of the W2s on his return then this will trigger a review of unreported income. The IRS will then compare the tax return to their records and will find that the taxpayer did not report one of the W2s. The IRS then adds that unreported W2 to the taxpayer’s return, which will likely change the tax.
You also may receive a statutory notice of deficiency if the IRS sent you one or more pre-assessment letters requesting income, credit, or deduction verification, but never received a response from you.
If it does change the tax, whether it lowers it or increases it (thus creating a balance), the IRS will issue a Statutory Notice of Deficiency to inform the taxpayer of the proposed change to the return. The notice will explain the proposed increase or decrease in tax, how that change was calculated and how that proposed amount can be challenged or agreed to.
Is an IRS Notice of Deficiency a Tax Bill?
No, this notice simply shows 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. If you’ve received an IRS Notice of Deficiency, contact us today and let our team help you come up with a plan.
STOP WORRYING, WHILE WE START
How Soon Will I Receive a Notice of Deficiency After Filing?
The Internal Revenue Service uses 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 few months to complete, so you may receive this notice a 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 ignored.
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 won’t need to amend your tax return. Simply sign Form 5564, Notice of Deficiency – Waver and send it back to the government agency. If you agree but have additional income, expenses, or credits to claim, you’ll need to amend your original tax return with Form 1040-X.
If you realize the IRS is correct, pay off what you owe as quickly as possible, 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 received, and work out a payment plan to avoid further penalties. Community Tax can help you create a payment plan to present to the IRS. Contact our team today.
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 help 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 incorrect, 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. Our team has resolved numerous cases, helping our clients craft airtight appeals. Contact us now for professional tax assistance.
Could My Notice of Deficiency be Due to Identity Theft?
Identity theft is a widespread problem, 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 essential you have a professional help you determine whether this is the case to avoid any further consequences.
Community Tax practitioners are skilled in discovering identity theft. A Notice of Deficiency could be triggered 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 W2s 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 due to identity theft.
YOUR NOTICE OF DEFICIENCY?
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 begins the day the statutory notice of deficiency is mailed to the taxpayer. That’s why it’s essential you get the IRS Notice of Deficiency help you need as soon as possible.
What Happens if I Ignore My Notice of Deficiency?
Should you ignore your Statutory Deficiency and continue to let your tax debt go unpaid, you can face a host of consequences:
A federal tax lien is a governmental notice of intent to levy your wages, personal property, or even the contents of your bank account. A tax lien is essentially a claim on your assets, wherein the IRS has not yet seized anything.
A federal tax levy occurs when the IRS actually seizes your property. They can garnish your wages from an employer, deplete your bank account, and seize your assets to sell in order to satisfy your debt. A levy will not occur until after you’ve received multiple notices and ignored IRS attempts to contact you about your tax liability.
Jail time is rare, but if the IRS launches a criminal investigation and deems your debt is due to fraud, a truant taxpayer could face incarceration.
What if I Can’t Afford My Unpaid Taxes?
If you don’t have the funds to immediately pay back the unpaid taxes owed to the Internal Revenue Service, it’s important 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. Community Tax can help you determine ways in which to settle your debt quickly and efficiently.
We offer, but are not limited, to these types of debt solutions:
Taxpayers that are not currently in financial hardship, but may be very close to that threshold, may be able to qualify for an Offer In Compromise. This mostly applies to those who would be put into financial hardship if they added tax debt payments to their current list of expenses. In this situation, the IRS determines the maximum amount they would be able to get from a taxpayer without causing financial hardship. Then the remainder of the debt is forgiven and the individual is released from their liability as soon as the taxpayer meets the conditions of their agreement with the IRS. The IRS will factor in disposable income and any assets held by the taxpayer when making a determination for an offer in compromise. An offer in compromise can wipe the slate clean with the IRS for substantially less than what the taxpayer owes. Offers in Compromise are difficult to achieve, but offer a substantial benefit to struggling taxpayers if they qualify. CTR has tremendous experience in determining a taxpayer’s eligibility for an offer in compromise and also has tremendous success in negotiating our offers in compromise we submit for our clients.
The installment agreement is a method of tax debt resolution that allows an individual to pay off their balance over a period typically ranging from 6 months to ten years. Depending on the amount owed to the IRS or state tax agency, the period can vary. CTR determines the amount of each monthly payment based on the taxpayer’s personal assets, property and other financial information and negotiates with the IRS to achieve that payment. These agreements come in many forms to accommodate other financial obligations and the needs of the taxpayer while still satisfying IRS or state tax debt.
This form of Installment Agreement exists to allow taxpayers to finish payment on a large expense, such as a car loan or child support payments. This plan begins with a divided payment schedule in which the larger expense gets the main focus and small installments are collected on the unpaid tax balance. Once the outstanding balance on the initial expense is completed (usually within 12 months), the taxpayer switches the entire payment to the back taxes over the following 48-60 months. This program eases the stress of tax payments without causing other financial obligations to default.
STREAMLINE INSTALLMENT AGREEMENT
This type of installment agreement comes with a couple of strict guidelines that determine an individual’s eligibility. There are some added benefits that make this program worthwhile, such as not having to disclose all of a taxpayer’s financial information to the federal or state tax agency. The assessed or actual tax balance owed must be less than or equal to $50,000. Additionally, the total balance, which includes accrued penalties and interest, must be paid to the IRS or state within a 60-72 month period. This arrangement is ideal for taxpayer’s with substantial assets or disposable income.
PARTIAL PAY INSTALLMENT AGREEMENT
The PPIA is a bit more complicated to manage from a records perspective, but can save taxpayers a substantial amount on their tax balances. Taxpayers following this plan have to disclose all financial information and documents to the IRS to be accepted. CTR negotiates a hardship payment based off the taxpayer’s current financial information. This hardship payment is less than the monthly payment needed to satisfy the tax debt in full. The IRS has a 10-Year Statute of Limitations in which they can collect on past due tax debt. The PPIA payment will be made for the duration of that 10-year period, but will not pay the tax balance in full by the time the IRS can no longer collect on the tax debt.
CONDITIONAL EXPENSE INSTALLMENT AGREEMENT
As one of the more accommodating agreements, the CIA allows taxpayers to continue paying a long-term monthly bill or expense(s) while still addressing their tax debt problems. Those that qualify for this agreement must have a steady payment schedule for something like a 401k program or a credit card that they are required to keep. The CIA usually lasts for 60 months and pays the debt in full. During this time, the individual is required to do three things: make payments to the IRS in the agreed amount, continue to pay their conditional expense(s) with submitted proof to the tax agency, and give the IRS any required financial documents or records. This program allows a taxpayer to continue their current lifestyle without disruption while also paying back their IRS debt in full.
TRADITIONAL INSTALLMENT AGREEMENT
This straight-forward payment method is a simple installment plan in which the taxpayer settles their entire tax debt over many payments. The amount is divided into monthly installments over the 10-Year Statute of Limitations and is based off of the taxpayer’s current financial situation. This program removes the stress of trying to make a full one-time payment and grants the taxpayer peace of mind. This program allows the taxpayer to pay-off their tax debt obligations over time without being at risk for a levy or wage garnishment.
CURRENTLY NOT COLLECTIBLE STATUS
Taxpayers that are struggling with financial hardship may be able to find a way to be completely relieved of their IRS debt. Currently Not Collectible Status removes the taxpayer’s tax balances from active collections with the IRS. A taxpayer provides documentation of their current financial condition, and if such documentation shows that the taxpayer cannot meet their basic obligations, let alone their tax liability, the IRS will declare a financial hardship. As the Statute of Limitations on a tax debt is 10 years, the individual must continually file their tax returns and provide any requested information to the IRS in a timely manner. Anytime a taxpayer receives a raise or has their income to expense ratio change such that they are no longer in financial hardship, they may lose their Currently Not Collectible Status. At this point, a new payment plan may be drawn up to settle the balance with the IRS based on the new financial situation in which the taxpayer finds themselves. The Currently Non Collectible Status allows taxpayers some relief while they try to improve their financial condition.
Penalties can quickly turn a tax debt situation from bad to worse. With our penalty abatement assistance, the added penalties to tax obligations may be removed. Remember, a penalty abatement only applies to penalties. The IRS does not currently abate interest. To accomplish a penalty abatement, an individual can submit proof that they missed payments or filing deadlines or other noncompliant behavior for uncontrollable reasons. In addition, they must show that they are working to rectify the problem by filing any missing forms or returns and paying the required balances.
There are multiple options through which to resolve unpaid tax liability. Our team of experienced tax experts provides IRS notice of deficiency help from beginning to end, and will aid you in examining all possible solutions:
Taxpayers who can’t immediately pay their taxes can file a petition for an installment agreement with the Internal Revenue Service. An installment agreement allows a taxpayer 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 required to file Form 9465, along with a Collection Information Statement.
If a taxpayer cannot realistically 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 strict eligibility requirements and clauses that necessitate demonstration of hardship, it’s best to use a tax accountant for this type of petition to ensure best chance of success.
Understand Your Taxpayer Rights
You do have right and are 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 aid your tax court battle.
How Can I Avoid a Notice of Deficiency Next Year?
It’s important to take proper steps to ensure you never find yourself in this situation again. Adhering to the following practices can help you avoid a future Notice of Deficiency:
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 preparer can leave you in a world of hurt with the IRS. If you’ve been notified of a tax deficiency, it’s important to determine steps that can circumvent the reoccurrence of a tax audit.
Our experienced team of tax professionals can review the filed return and compare it to IRS records to ensure the IRS has correctly identified the problem. Community Tax can also make a recommendation on how to challenge the proposed changes, providing thorough IRS Notice of Deficiency help regardless of the situation and tax liability owed. If you have more questions about your IRS Notice of Deficiency, we can help. Call today at (888) 676-4319.
Community Tax may recommend filing an amended return or to pursue audit defense to prove the unreported item is not taxable. The Community Tax audit representative will be able to catch such discrepancies that go unnoticed by the IRS and will recommend a course of action to prevent those fraudulent items from changing the taxpayer’s tax return.
There is significant value in contacting Community Tax if you need IRS Notice of Deficiency help. Although the Notice of Deficiency will explain why the changes are made, the IRS will not specify what can be done to challenge the proposal. Community Tax can evaluate all options and recommend the course of action most likely to be successful. If the taxpayer chooses to challenge the tax liability assessment, Community Tax will handle that challenge by compiling all required documents, drafting all necessary forms and representing the taxpayer in front of the IRS.
If you decide to file an IRS notice of deficiency appeal, it’s wise to use the help of a tax professional experienced in resolving disputes between taxpayer and tax court.
For more information about how we can help you, call 1-888-676-4128.
It’s Not The End of The World! Statutory Notice of Deficiency: Part 6
Taxpayer’s Other Payment Options
Determining other payment options for your client takes serious research, compilation of records and information, and then sitting the client down and having a coming to reality meeting with them. Of course, you already did all of this when reviewing for the case, but let’s do a quick review of the options and the statute tolling events:
1. The Fresh Start Initiative – Full Pay Installment Agreement or Partial Pay Installment Agreement
2. Offer in Compromise
3. Letting the CSED run and letting the levy be foreclosed
4. Bankruptcy filing
5. CDP/CAP Hearing requests
6. If available, Judicial review of the case
7. Other tax matters not in evidence (i.e. state taxes, sales taxes, payroll taxes, etc)
Representatives also need to be cognizant of actions which toll the CSED statute and which ones don’t including:
1. Offer in Compromise – Extends the statute
2. CDP and Appeals to CDP – Extends the statute
3. CAP – does not extend the statute
4. Bankruptcy – Extends the statute
5. Installment Agreements – does not extend the statute
6. Appeals of rejected or terminated Installment Agreements – Extends the statute
7. Voluntary waiver – extends the statute
8. IRS Suit to Bring the Liability to Judgment – Extends the statute
9. Client is out of the country more then six months – Extends the statute
10. Innocent Spouse – Extends the statute
11. Taxpayer Assistance Order – Extends the statute
When helping the client decide on alternative actions or payment options, please keep in mind the time lines and statute of limitations we discussed earlier. You must take a big picture approach to this topic.
Our job as representatives is threefold:
1. Protect the clients rights
2. Determine the best course of action for the client within legal guidelines
3. Assist the client in pursuing that course of action by representing him in front of the taxing authority to the best of our ability
Once we have taken on a client and done everything we need to do to protect their rights, including the things we have talked about today, we need to help our client determine his best course of action to get his situation cleared up.
Clients come to us with all sorts of expectations. From wanting us to magically make it all go away to wanting us to do whatever we can to keep them from losing everything including their freedom.
Once we have determined where the client is in the government mill, we can help them decide what to do to get things fixed. This is not always, actually very seldom, going to be a matter of “poof” and it’s all fixed.
Examinations and Collections are the two divisions of the IRS with the most power to use against the taxpayer. They are also the two divisions that keep us in the representation business.
These divisions are charged to come to the most equitable conclusion for both the government and the taxpayer. We, as Enrolled Agents, are charged to make sure that happens while protecting the taxpayers rights.
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Tax Dictionary – Statutory Notice of Deficiency
A notice of deficiency, also called a statutory notice of deficiency or 90-day letter, is a legal notice in which the IRS Commissioner determines the taxpayer’s tax deficiency. Tax laws require that the IRS issue a notice of deficiency before assessing additional income tax, estate tax, gift tax and certain excise taxes unless the taxpayer agrees to the additional assessment. The notice of deficiency is a legal determination that is presumptively correct and consists of the following:
- A letter explaining the purpose of the notice, the amount of the deficiency, and the taxpayer’s options
- A waiver to allow the taxpayer to agree to the additional tax liability
- A statement showing how the deficiency was computed
- An explanation of the adjustments
If you get a statutory notice of deficiency, you have 90 days to file a petition with the U.S. Tax Court to appeal taxes the IRS thinks you owe. You would receive this letter if you didn’t respond to a previous letter allowing you 30 days to appeal within the IRS, or if your appeal was unsuccessful.
If you don’t file a petition with the Tax Court by the deadline shown on the statutory notice of deficiency, the IRS will send you a bill for the tax, penalties, and interest shown on the notice.
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Statutory Notice of Deficiency
Taxpayers who do nothing in response to a pre-assessment letter will receive a Statutory Notice of Deficiency, commonly referred to as a 90-Day Letter. A taxpayer also will receive a Statutory Notice of Deficiency if he does not agree to the findings of the Office of Appeals following a protest. § 6212.
The 90-Day Letter that is a Statutory Notice of Deficiency should not be confused with other 90-day letters, including the one required when innocent spouse relief is denied. § 6015.
The statutory notice of deficiency grants the taxpayer 90 days within which to petition the Tax Court to re-determine the liability that is proposed by the examining agent. If the issue involves filing status and if the taxpayer was married during the year in question but did not file a joint return, consider having the taxpayer file a joint return before the petition is filed. See IRC § 6013(b)(2)(B). Once a petition is filed, a joint return is no longer permitted to be filed.
Because the 90-day period is prescribed by statute, it cannot not be extended. For this reason and to preserve the rights of the client, it is extremely important not to miss the 90-day deadline. If a student overlooks this time limit he or she may receive a failing grade in the clinic course.
The 90-day period within which a petition may be filed 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 on the notice the last day a petition may be filed. IRC § 6213. During the 90-day period, the IRS is barred from any assessment or collection activity. If taxpayer files a petition, this continues until a Tax Court decision is final. IRC § 6503(a)(1). Failure to file a petition with the Tax Court will result in the deficiency being assessed. This is one of the steps the IRS takes before collection efforts begin.