IRS Notice of Deficiency

Any taxpayer knows how IRS notices can easily cause anxiety and stress. One of such official letters from the IRS is the Notice of Deficiency.

The IRS Notice of Deficiency informs you of income taxes that you owe and may also include additional penalties and interests on the tax amount.

You are likely to have questions when you receive this type of official letter from the IRS. If you are unsure about how to proceed, we can guide you and offer actionable insights.

Important Things to Know About the IRS Notice of Deficiency

If you recently received a written claim from the IRS informing you of an additional income tax that you owe, it is important to understand what the notice means and what you are expected to do.

To help you figure this out, our experts have compiled a list of vital information that can gear you to the right steps.

1. Reasons for Receiving an IRS Notice of Deficiency

Why did you get an IRS Notice of Deficiency?

There are two likely reasons for this.

First, you may have received a previous pre-assessment letter from the IRS but failed to respond.

A pre-assessment letter may request you to furnish the Internal Revenue Service with information about your credit, income, or deduction verification. The IRS can send you a Notice of Deficiency if it does not get a response from you after one or a couple of such requests.

The second and usually the most common reason for receiving an official claim from the IRS is because the agency is proposing a change to your tax return.

This typically happens if a third party (businesses, bank, employer, etc) files a return that does not match the records that the IRS has about you.

The Notice of Deficiency will explain the difference observed and how the change was arrived at. The letter will also include advice on how to dispute or challenge the proposed change.

2. The Notice of Deficiency is not a Tax Bill

It is common for many people to assume that the Notice of Deficiency is a tax bill. However, this is not the case.

The Notice of Deficiency is an official claim by the IRS letting you know about potential changes in your tax and how you can challenge the change if you wish.

Many taxpayers do not know how to respond to a Notice of Deficiency. If this is you, feel free to get in touch with us today for professional tax advice.

3. You Can File a Petition if You Disagree with the IRS Assessment

The Notice of Deficiency is only a claim and not a final judgment. That means the IRS could be mistaken in their assessment.

If you think there was a mistake or the IRS has incorrect information about your tax return from a third party, you can get in touch with them with relevant details to dispute the claim.

The law allows 90 days from the date of notice for you to dispute the IRS claim in a tax court.

If you choose to file a petition against the claim, the IRS will not be able to make any collections against your account within 90 days.

Your Next Step if You Agree with the Notice of Deficiency

If you realize that the IRS’s assessment is correct, the right thing to do is pay off your Unpaid Taxes as quickly as possible.

You have 90 days to clear off what you owe if you agree with the agency’s assessment. Your Unpaid Taxes will start to accrue interest if you don’t pay it off.

Unfortunately, you cannot extend your response time beyond 90 days. If you are unable to clear off your Unpaid Taxes or file a petition with the tax court within the 90-day period, you can work out a payment plan with the IRS.

We can guide you on how to create the most favorable payment plan for you that will be acceptable to the IRS.

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