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What Is A Notice Of Deficiency From The Internal Revenue Service?


A Notice of Deficiency is a letter issued by the government, usually close to the end of an audit, asserting a tax increase and penalties that the IRS is proposing to assess from the audit. The notice of deficiency is also known as a 90-day letter, because the notice of deficiency gives you 90 days to file a petition with the United States tax court if you wish to dispute the balance set forth in the notice. If you do not file a petition with tax court to dispute the notice, the balance becomes final and you can no longer dispute the balance, except through audit consideration or a refund suit in Federal District court.

Why Did I Receive A Notice Of Deficiency From The IRS?

You will generally receive a notice of deficiency after you are under audit and you do not come to an agreement with the IRS on the outcome of the audit. However, in some instances, the notice of deficiency will be the first notice you receive. While the IRS has a policy to send out at least two notices prior to sending out a notice of deficiency, there are many instances where people do not receive the first notice or the second notice and receive the notice of deficiency. The IRS is required to send the notice of deficiency by certified mail to show proof of mailing to your last known address.

Is An IRS Notice Of Deficiency A Tax Bill?

The IRS notice of deficiency is not a tax bill. The notice of deficiency gives you 90 days to file a petition with United States tax court to dispute the proposed bill. If you choose to file a petition with tax court, you will have the opportunity to try to settle the case with the IRS counsel office or to take the case to court. It will only become a final bill if you reach an agreement with the IRS or if the judge enters a decision. If you do not file a petition within the 90-day period, you will receive a tax bill shortly after the 90-day period has expired.

How Soon Will I Receive A Notice Of Deficiency After Filing?

You will only receive a notice of deficiency if you are under audit. The IRS audit cycle varies. The IRS generally only pick a tax return for audit 12 to 18 months after tax returns are due.

What Should I Do If I Do Agree With The Notice?

If you agree with the notice of deficiency, you can sign the notice of deficiency waiver form that is included in the notice and then send that to the IRS. Once the IRS processes the notice of deficiency waiver form, they will send you a bill, which you can then pay in full, set up an installment agreement, or determine whether you qualify for an offer in compromise. However, do not sign the notice of deficiency waiver form if you disagree with any part of the notice of deficiency. If you disagree, you should then pursue the case through filing a petition with the tax court.

What If I Disagree With The Notice Of Deficiency?

If you disagree with the notice of deficiency, you will need to file a petition with the tax court to dispute the notice. Depending on the complexity of the case, you may need to hire a tax attorney to assist you, since filing a petition requires that you state all the items that you are in disagreement with and also that you include all the necessary paperwork for the tax court to process the petition.

How Does A Taxpayer Respond To The Notice Of Deficiency?

If the original audit is a “correspondence audit”, then you can send a response to the notice of deficiency. The IRS may review the response before the tax court petition due date, but you should still be mindful of the due date, because even if you send in a response, a petition with the tax court will need to be filed if you do not receive anything from the IRS before the due date. If the original audit was an office or field audit, then the IRS examiners usually already closed the file. You can request the examiner reopen the file and send a response, but the IRS is not always willing to do this. If the IRS is not willing to reopen the file, then your only option is to file a petition with tax court in response to the notice of deficiency.

What Is The Time Limit To Respond To The Deficiency Notice?

The deficiency notice sets a 90-day deadline to file a petition with tax court. The deadline will usually be listed on the notice as well. This deadline is extended to a 150 days if you are outside of the United States. If you are on active military duty in a combat zone, the deadline is extended to six months.

Outside Of Those Situations, Can I Get An Extension On My Response Time For Any Other Reason?

There is no extension once a notice of deficiency is issued. By law, the IRS cannot extend the time period to file a petition under the notice of deficiency. The notice of deficiency can be rescinded if it was issued prematurely and with agreement from the IRS and the individual or business to whom the notice was issued. If you live in a federally declared disaster area, then the notice can be extended through decree or an executive order.

For more information on Notice Of Deficiency From The IRS, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (714) 321-3369 today.

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