The Internal Revenue Service (IRS) must send you a Notice of Deficiency before imposing income tax or certain other taxes against you. Typically, this happens if you under-reported the tax on your return or didn’t file. The IRS may discover the tax deficiency by reviewing information from third parties, such as employers or banks, or by auditing your tax return.
Depending on the situation, you may receive audit notices, notices about proposed changes to your tax returns, or reminders to file a return. Then, if you don’t respond or the IRS disagrees with your response, the agency may send a Notice of Deficiency.
What does that mean? How do you respond? The steps you should take vary based on the situation. In this article, we’ll go through what exactly a Notice of Deficiency is, how to respond if you agree, and what to do if you disagree with the information.
What is an IRS Notice of Deficiency?
Also called a 90-day letter, the Notice of Deficiency is a letter that the IRS sends to taxpayers who have a tax deficiency. The deficiency may be related to income that wasn’t reported on a tax return or a tax return that wasn’t filed. The IRS gives taxpayers 90 days to respond to this notice, and it typically comes as a 3219A or a 3219N notice.
What is IRS Notice 3219A?
The 3219A is a Notice of Deficiency related to changes/adjustments on your tax return. Before sending this notice, the IRS usually sends a CP2000 letter, an audit determination notice, or a similar notice. Then, if you don’t respond, the agency sends the deficiency notice. You have 90 days to respond, or the IRS will assess the tax against you and start the collection process.
What is IRS Notice 3219N?
The 3219N is a deficiency notice sent by the IRS if you have unfiled tax returns. If you don’t respond in 90 days, the agency will assess the tax against you that they calculated using wages and other income reported by third parties. Then, they will start the collection process. You can respond by disputing the notice, paying the tax deficiency, writing a letter explaining why you didn’t need to file, or filing a correct tax return.
What is IRS Form 5564?
The IRS sends Form 5564 (Notice of Deficiency-Waiver) with Notices of Deficiency. If you agree with the info on your deficiency notice, you can sign and return this notice. Then, you can either pay the tax liability in full or contact the IRS to make other arrangements.
Is a Deficiency Notice a Bill?
No, an IRS Notice of Deficiency is not an assessed tax. However, it can quickly turn into a bill. To prevent this tax deficiency from becoming a tax assessment, you need to petition the United States Tax Court or request the IRS to rescind the notice within 90 days.
How to Respond to a Notice of Deficiency
There are several ways you can respond to a Notice of Deficiency. Here are the main options.
- Pay the tax in full.
- Pay the tax under protest and submit a refund claim.
- Agree with the tax due and set up monthly payments.
- Agree with the tax due and request an offer in compromise to settle for less than owed.
- Agree with the tax due and request currently not collectible status.
- File a petition with the U.S. Tax Court.
- Request that the IRS revoke or withdraw the notice.
- Ignore the notice and risk the IRS starting involuntary collections.
1. Pay the Tax
If you agree with the amount owed, you can pay the tax to the IRS. You can pay in full online or by mailing a payment to the address on the notice.
2. Pay and Submit a Refund Claim
If you’re running out of time to dispute the notice, you may just want to pay under protest. Then, you can request a refund for the tax you paid. Typically, you have two years after submitting a payment to request a refund, but the exact timing may vary based on the situation. You are usually better off submitting a petition with the U.S. Tax Court if the deadline has yet to pass. Contact a tax attorney for help.
3. Set Up Monthly Payments
If you can’t pay everything at once, you can request monthly payments. The available options vary based on your specific tax situation. Options include short-term payment plans (paying in 180 days or less), long-term payment plans (up to six years or until the Collection Statute Expiration Date), or partial payment agreements (pay until the Collection Statute Expiration Date and get a waiver for the remaining amount).
You can apply for a payment plan online or by mail. If you agree with the Notice of Deficiency and want to apply for an installment agreement by mail, place your signed Form 5564 and a completed Form 9465 in the provided envelope.
4. Submit an Offer in Compromise
Can’t pay in full without suffering hardship? Then, you may be able to settle for less than you owe. To be approved for an offer in compromise, you must meet strict eligibility conditions and prove that you don’t have enough income or assets to pay the bill.
5. Request Currently Not Collectible Status
Can’t afford to pay anything? Then, you may want to look into currently not collectible (CNC) status. First, make sure that you agree with the deficiency notice. Then, contact the IRS about CNC status. Here’s how it works: You provide financial documents showing that you can’t pay anything, and the IRS agrees not to pursue any collection actions against you.
If you disagree with the deficiency notice, you should dispute it. Even if you think you can get CNC status, you should still dispute incorrect notices. Otherwise, you may be facing that bill once your finances improve.
6. File a Petition with the U.S. Tax Court
If you disagree with the additional tax and wish to oppose it, you can submit a petition for redetermination in Tax Court. When you file a petition, the IRS cannot take any collection action until the court decides on the case.
You must submit your petition within the 90-day period. To do so, you can file a paper petition by mail or in person or use the Court’s DAWSON system to file an electronic petition.
7. Ask for a Deficiency Notice Withdrawal
If you disagree with the IRS’s deficiency notice, you can request a withdrawal by completing IRS Form 8626 – Agreement to Rescind Notice of Deficiency. Again, you only have 90 days to take this action. You must include information about the tax periods of the notice, the kinds of tax involved, the amount of tax owed, and any penalties on this request form. If the IRS agrees to withdraw, it will be as if the notice were never issued. You should keep in mind that the IRS rarely agrees to withdraw the deficiency notice.
8. Ignore the Notice
Ideally, you should not ignore this notice. But if you do, the IRS will typically finalize the tax assessment. Then, the agency will send one or two more notices before starting the collection process. That may lead to tax liens, wage garnishments, asset seizures, and similar collection actions.
What if I Disagree with the Information?
First, carefully note the deadline. You must respond by the deadline if you want to stop the tax deficiency from being assessed against you. The deadline cannot be extended. Contact the IRS as soon as possible if you have additional information you would like them to consider. Then, either ask for a withdrawal, file a petition with the Tax Court, or pay under protest. A tax attorney can help you select the best option for your situation.
What if I Agree with the Notice?
If you agree with the notice, you can either ignore it, let the deadline pass, and have the taxes assessed against you or sign and return the Form 5546 Waiver. Then, either pay the tax in full or make other arrangements. As explained above, you may be able to set up monthly payments, settle for less than you owe, or get your account marked as uncollectible.
How To Fill Out Form 5564
Form 5564 includes the following details:
- Your personal and contact information.
- Your tax information, including the kind of tax, tax year, and the amount of deficiency.
- Your signature and your spouse’s signature if a joint return was filed.
Now that you’ve completed and signed the form, it’s time to return it to the IRS to the address at the top of your deficiency notice. Note that your consent on this form does not exclude you from filing a refund claim (after you have paid the tax) if you later believe you are entitled to one.
When to Use an Audit Reconsideration After a Deficiency Notice
If the deficiency notice comes to you after an audit, you may be able to rectify the issue by filing an audit reconsideration. Sometimes, you can even take this particular step after the 90-day window, but to be on the safe side, you should consult with a tax attorney as soon as possible.
Here are some situations where you may want to ask for audit reconsideration:
- You disagree with the amount of tax the IRS claims you owe.
- You have new information that you didn’t have during the audit.
- You didn’t participate in the audit — for example, because you didn’t receive the audit notice due to moving.
Unfortunately, you cannot request an audit reconsideration if you signed an agreement to pay the tax or the Tax Court has already determined that you owe the tax.
FAQs About Notices of Deficiency
What Does a Notice of Deficiency Mean?
The IRS sends this notice to people who have a tax deficiency, meaning the agency is proposing a change to your tax return. This happens when you don’t report all of your income or you don’t file a tax return. Generally, the IRS discovers the deficiency due to an audit or by reviewing income documents submitted by others in your name.
Should I Amend My Tax Return After Receiving a Notice of Deficiency?
Generally, you don’t need to amend your tax return if you receive a deficiency notice. However, if you want to make additional changes to your tax return that are not addressed by the notice, you may need to file an amended return.
Can I Get an Extension to Respond?
No. Generally, there are no extensions to this deadline. If you request help directly from an IRS employee or if you request the IRS to rescind the notice, the 90-day clock is still ticking. Taking these actions doesn’t prolong the time you have to file a petition in the U.S. Tax Court.
If I Disagree, Do I Need to File a Petition with the U.S. Tax Court?
No, if you disagree, you are not required to file a petition with the U.S. Tax Court. First, reach out to the agent or officer listed at the top of the notice. If you contact the IRS directly, you may be able to resolve the issue without going to court.
Alternatively, consider asking for a withdrawal of the notice or talk to an attorney about paying under protest. In some cases, the Tax Court is the best option; in other situations, other options are faster and more efficient.
Contact Wiggam Law for Help Today
If you are concerned about a Notice of Deficiency, Form 5564, or any other tax problems, contact the experienced tax attorneys at Wiggam Law. Call us today at (404) 233-9800 or complete our online form for a consultation.