Why Did I Receive an IRS Notice of Deficiency?
Receiving certified mail from the IRS is rarely a cause for joy. And discovering that it’s an IRS Notice of Deficiency is cause for even more anxiety. But what exactly is an IRS Notice of Deficiency, and how should you deal with it?
If you received an IRS Notice, Sodowsky Law Firm, PC can help answer your questions and determine the right course of action. Contact us today to learn more.
What Is an IRS Notice of Deficiency?
An IRS Notice of Deficiency is an official notice informing you of unpaid income taxes, as well as penalties and interest. The notice is sent to you by certified mail with a return receipt request. It typically arrives after the IRS has sent and you’ve ignored a first notice and an examination report.
The IRS will send a notice when the information you reported on your income tax return doesn’t match their records. Your employer or an institution at which you hold accounts submitted information to the IRS that doesn’t match what you reported. The IRS will add any unreported income to your return and then change the tax amount you owe.
The IRS will also send a notice if you didn’t file a tax return for one or more years. Or they may send a notice if the IRS mailed a pre-assessment letter but didn’t receive a response. These letters can request verification of your income, credit, or deductions. The notice gives you a chance to respond to these requests.
Is an IRS Notice of Deficiency a Tax Bill?
It is not a tax bill. Its purpose is to notify you that what the IRS knows about your income from information it has received. It is also intended to show how this information will change the income taxes you owe. Finally, it informs you how to challenge the assessment in the U.S. Tax Court.
What Should I Do If I Received an IRS Notice of Deficiency?
How you respond to the IRS following receipt of a notice depends on whether you agree with it.
If You Agree
If you agree, all you need to do is sign and send back IRS Form 5564 (Notice of Deficiency – Waiver). By doing this, you’re telling the IRS you find no issue with the additional information they discovered you should have reported. You’re also informing them that there’s no need to revise your income tax return. If you agree and know of additional income or expenses you can claim, revise your original return with Form 1040-X.
If you sign and send back IRS Form 5564, you should pay what you owe the IRS as soon as possible. You don’t want to have to pay interest that continues to accrue the longer you wait. If you can’t pay what you owe the IRS quickly, you can work out a payment plan with them. Just call the phone number on the IRS Notice of Deficiency to avoid additional penalties and interest.
If You Disagree
If you disagree with the IRS Notice of Deficiency, you have the right to challenge the claim against you. By filing a petition for appeal, you‘ll be informing the IRS that they’ve received incorrect information or made an error.
Two types of petitions can be filed against the IRS in the U.S. Tax Court:
- An “S” or small tax case is the less formal of the two. Federal evidence rules are relaxed, but you lose the right to appeal a “S” case decision. “S” case petitions can be filed if the IRS claims you owe $50,000 or less in taxes for each year.
- “Regular” cases can be filed with the U.S. Tax Court if your tax liability doesn’t meet the “S” case threshold. A “regular” case is also a good option if you want to reserve the right to appeal the court’s decision.
When to Respond to the IRS
It’s important that you respond to an IRS Notice of Deficiency within 90 days of the date it was mailed. As soon as a notice is mailed, you can’t be granted an extension of time to respond. You have 90 days from the day the notice is mailed to dispute the IRS’ assessment. No more, no less.
The U.S. Tax Court won’t hear your case if you don’t file your petition within the 90-day period. That’s why you should hire a tax lawyer as soon as you receive an IRS Notice of Deficiency. With the help of an experienced attorney, you can effectively weigh your options, as well as get help appealing your case if the IRS is incorrect.
Talk to a Fairfax VA Tax Attorney
If you’ve received an IRS Notice of Deficiency, it’s important to take immediate action. At Sodowsky Law Firm, PC, we can help you respond to the IRS in time and avoid costly mistakes. Contact us today.