What to Do if You Receive an IRS Notice of Deficiency

If you've received an IRS Notice of Deficiency, it's important to act quickly and take the necessary steps to resolve the issue. A Notice of Deficiency is a formal notification from the IRS that you owe additional taxes, penalties, and interest on your federal income tax return. In this post, we'll cover what you should do if you receive a Notice of Deficiency from the IRS.

Read the Notice of Deficiency carefully:

The first step is to read the notice carefully and understand what the IRS is claiming you owe. The notice will include information on the tax year in question, the amount of tax owed, and the specific adjustments made to your return. Make sure to review the notice in detail and take note of any deadlines to respond.

When you receive a Notice of Deficiency from the IRS, it's important to understand that this is a formal legal document that requires your immediate attention. The notice will typically provide you with specific information regarding the amount of tax, penalties, and interest owed, as well as the tax year(s) in question and the adjustments the IRS has made to your tax return.

When reviewing the notice, be sure to pay close attention to the following:

Tax Year: Make sure you understand which tax year the notice is referring to. If you have multiple tax years in question, each one will be listed separately.

Amount Owed: Take note of the total amount of tax, penalties, and interest owed. The notice will provide a breakdown of these amounts so you can see how they were calculated.

Adjustments: Review the adjustments made by the IRS to your tax return. This will help you understand why the IRS is claiming that you owe additional taxes.

Deadline to Respond: The notice will provide a deadline for you to respond. It's important to make note of this deadline and take action before it expires.

Explanation of Your Rights: The notice will also provide an explanation of your rights, including your right to petition the U.S. Tax Court if you disagree with the IRS's assessment.

It's important to read the notice carefully and make sure you understand everything it contains. If there's anything you don't understand or if you have any questions, it's a good idea to consult with a tax attorney for guidance (you can contact us for help, and one of our tax attorneys will respond shortly).

In addition to the items listed above, the notice may also include other important information, such as:

Contact Information: The notice may provide contact information for the IRS, including a phone number and mailing address.

Explanation of Penalties and Interest: The notice may provide an explanation of the penalties and interest you owe, as well as how they were calculated.

Payment Options: If you agree with the assessment, the notice may provide information on payment options, such as paying in full or setting up a payment plan.

By carefully reviewing the notice and understanding the information it contains, you can take the necessary steps to resolve the issue and avoid additional penalties and interest.

Understand your options:

After reviewing the notice, it's important to understand your options. You can either agree with the IRS's assessment and pay the amount owed, negotiating a payment plan or collection alternative, or you can challenge the assessment by filing a petition with the U.S. Tax Court. If you choose to challenge the assessment, you must file the petition within 90 days of the date the notice was mailed.

Here are some additional details to help you understand your options and what you need to consider before deciding how to handle your IRS tax assessment:

Timely Response: It's important to respond to the Notice of Deficiency within the timeframe specified in the notice. If you don't respond within this timeframe, the IRS can assess the additional tax and begin collection proceedings, including garnishing wages or seizing assets.

Payment Options: If you agree with the assessment, you can choose to pay the amount owed in full or set up a payment plan. It's important to note that interest and penalties will continue to accrue until the balance is paid in full.

Collection Alternatives: If you're unable to pay the full amount owed, you may be eligible for a collection alternative, such as an Offer in Compromise, which allows you to settle your tax debt for less than the full amount owed.

Petitioning the U.S. Tax Court: If you disagree with the IRS's assessment, you can file a petition with the U.S. Tax Court. This must be done within 90 days of the date the notice was mailed. The Tax Court is an independent court that hears disputes between taxpayers and the IRS.

Consider Working with a Tax Attorney: If you're unsure of how to proceed or need assistance in negotiating with the IRS, consider working with a tax professional. An experienced tax professional can help you understand your options and develop a strategy for resolving the issue.

Keep Records: It's important to keep records of all communication with the IRS, including any letters or emails you send or receive. This will help you keep track of important deadlines and provide documentation if you need to file a petition with the Tax Court.

By understanding your options and taking timely action, you (the taxpayer) can successfully resolve a Notice of Deficiency from the IRS. Whether it's paying the amount owed, negotiating a payment plan or collection alternative, or filing a petition with the Tax Court, it's important to approach the situation with a clear strategy and understanding of the available options. Contact us for help with to speak with a tax attorney to respond to the IRS.

Gather supporting documentation:

If you choose to challenge the assessment, you'll need to gather supporting documentation to prove your case. This may include bank statements, receipts, and other financial records that support your position.

Consult with a tax attorney:

It's always a good idea to consult with a tax attorney if you receive a Notice of Deficiency. A tax attorney can review the notice and help you understand your options. They can also represent you in court if you decide to challenge the assessment.

We have experienced tax attorneys who can review your matter and give you advice on how to respond to the IRS.

Respond in a timely manner:

Whether you agree with the assessment or decide to challenge it, it's important to respond to the notice in a timely manner. If you fail to respond, the IRS may assess the tax and begin collection efforts.

Request a meeting with an IRS agent:

If you receive a Notice of Deficiency, you have the right to meet with an IRS agent to discuss the assessment. You can use this meeting to present your evidence and argue your case. This meeting is known as a "conference before the IRS" and must be requested in writing within 30 days of receiving the notice.

Consider a payment plan:

If you agree with the assessment but can't pay the full amount owed, you can request a payment plan from the IRS. A payment plan allows you to pay off the debt over time with monthly installments. You'll need to fill out Form 9465, Installment Agreement Request, and submit it to the IRS.

Be aware of the statute of limitations:

The IRS has a limited amount of time to assess additional tax on a return. This time period is generally three years from the date the return was filed. If the IRS issues a Notice of Deficiency after the statute of limitations has expired, you may be able to challenge the assessment on that basis.

Keep copies of all correspondence:

It's important to keep copies of all correspondence related to the Notice of Deficiency, including any letters or emails you send or receive. This can be useful if you need to refer back to the correspondence in the future.

Don't ignore the notice:

Whatever you do, don't ignore the Notice of Deficiency. Ignoring the notice can result in additional penalties and interest, as well as the IRS taking collection actions against you.

What to do now?

Receiving an IRS Notice of Deficiency can be stressful, but it's important to take action and respond in a timely manner. By understanding your options and working with a tax professional, you can resolve the issue and avoid additional penalties and interest. If you have any questions or need assistance with a Notice of Deficiency, don't hesitate to reach out to a qualified tax professional for guidance.

Contact Lopes Law today for help with your IRS tax assessment. We have experienced tax attorneys who can help you protect your rights against the IRS.