IRS Notice of Deficiency - Tax Group Center

Did an IRS Notice of Deficiency show up in the mailbox? It’s a jarring experience, but keeping a cool head and reaching out for the right kind of assistance will let you handle the situation promptly and correctly. Let’s talk about your next steps. 

What Is a Notice of Deficiency?

A Notice of Deficiency is often referred to as the “IRS 90-day letter.” 

The IRS gives a Notice of Deficiency the alternate title of “Form CP3219A.” The big thing to remember is that it’s not a bill. However, a tax bill could follow based on what’s contained within the letter.

The IRS uses this notice to inform you that there’s a discrepancy within your tax return. In other words, what you’ve reported doesn’t match up perfectly with what was reported by a third-party source or employer.

It may be that the IRS has discovered you owe income taxes. In addition, you may also owe interest and penalties tied to those taxes. There is a silver lining, however: the IRS is providing you with an opportunity to pay back what you owe before serious consequences begin to mount. It’s important for you to view this letter as your chance to “nip the problem in the bud” before bigger headaches crop up.

How Do I Respond to an IRS Deficiency Notice?

The process of complying with the IRS doesn’t have to be intimidating. Let’s talk about your options.

The IRS will automatically change the amount you owe in taxes in the official record if you don’t respond. That’s why you need to submit your response to the IRS right away. You have the option to agree with the IRS’s change if it turns out you made a mistake on your tax return, and that will essentially be the end of the story. Of course, you’ll need to pay any of the extra tax that the IRS claims you owe as quickly as possible. On the other hand, if it’s determined you paid more than what you owed, you might be receiving a refund from the IRS.

Things get a little more complicated if you don’t agree with what the IRS is proposing. That’s when you’ll need to respond to the IRS with an objection. The IRS will provide you with a Form 5564 and envelope that can be returned with your answer. This is also the time to begin thinking about filing a petition with the United States Tax Court.

One option may be to contact the third party that provided the information that triggered the letter to see if they can correct the information. In addition, you’ll want to get a transcript of your return in your hands if you don’t have one already. A tax expert will be able to explore possible options for working out a payment plan with the IRS if you did underpay your taxes.

It’s also important to explore the possibility that a discrepancy on your tax return is the result of identity theft. A fraudulent return that was filed using your Social Security number could trigger a discrepancy. The IRS will be willing to work with you if it can be proven that fraudulent activity has occurred. Of course, getting to the bottom of the situation as quickly as possible is the key to a good outcome.

What Does Deficiency in Income Tax Mean?

This term simply means that you paid less than what the IRS has determined you owe in taxes for the year. The actual reason could range from an employer reporting error to a math mistake on your end.

Keep in mind the IRS does not allow for any extensions when it comes to responding to the 90-day letter. Here’s a look at the potential consequences of failing to respond in time if you didn’t pay enough:

  • Federal liens
  • Federal tax levies
  • Jail

The first tier of your response is simply acknowledging that you’ve received the IRS’s letter. It’s best to answer honestly regarding whether or not you believe you’ve paid the correct tax amount. Next, you will need to be prepared to provide supporting evidence to back up your case.

What Is a Waiver of Deficiency?

The official Notice of Deficiency Waiver is the form you’ll use to notify the IRS that you’re in agreement with the additional tax amount proposed. You can show your compliance by signing and returning Form 5564. You will receive your bill for your IRS notice of deficiency payment shortly after. Just keep in mind that you should never sign Form 5564 if you only partially agree with the IRS’s conclusion.

How Can Tax Group Center Help?

Reach out to us immediately if you’ve received a Notice of Deficiency from the IRS. Our team of tax professionals, lawyers, and CPAs will help you to understand the IRS’s assessment. In addition, we’ll work hard to help you avoid any unnecessary costs or penalties that you could be forced to pay to the IRS. We’re also here to assist with tax preparation to decrease your odds of encountering a discrepancy. Contact us today!