Have you received an IRS Notice of Deficiency? Commonly known as the dreaded ’90-day letter,’ this notice means the IRS has identified discrepancies between their records and the information on your tax return—such as unreported income or a disallowed deduction.
While receiving this notice is common, it doesn’t make the process any less stressful! In this article, we’ll cover our 5 key tips to resolving and responding to the IRS notice of deficiency.
Step 1: Understanding the IRS Notice of Deficiency
The IRS Notice of Deficiency is an official alert that the IRS has found issues with your tax return—typically discrepancies between what you reported and what their records show. This notice is also called a “statutory notice of deficiency,” meaning that it’s an official statement from the IRS that you owe additional tax, interest, or penalties.
The IRS issues this notice when they identify unreported income, disallowed deductions, or other discrepancies. In short, this notice is the IRS’s way of saying, “We’ve reviewed your return and believe there’s an error.”
The first step when receiving this notice is to read the notice carefully, as it outlines the specific issues the IRS identified and the amount they believe you owe. This will help you understand their claims and ensure you’re fully informed before deciding your next steps. Skipping over these details can lead to misunderstandings and may delay your path to resolution. By thoroughly reviewing the notice, you can clarify exactly what the IRS has flagged and decide if you agree or wish to dispute the findings.
Step 2: Review Your Tax Records Thoroughly
Once you understand the claims in your Notice of Deficiency, the next step is to review your tax records thoroughly. Cross-check the IRS’s findings with your own tax documents to confirm whether any discrepancies actually exist. Believe it or not, the IRS makes mistakes too!
Start by gathering all relevant records for the tax year in question—this may include income statements, receipts, bank statements, and any other documentation supporting your reported income and deductions. Organizing these records by category can make it easier to track down any potential errors or omissions.
As you review, pay close attention to details that might account for the IRS’s findings, such as income sources you may have overlooked or deductions that may require additional documentation. Accuracy is essential here; any mistakes in your assessment could affect your next steps in resolving the issue. Taking time to carefully examine your records will help you confirm whether you agree with the IRS’s calculations or need to prepare to dispute them.
Step 3: Decide Whether to Agree or Dispute
After thoroughly reviewing your tax records, it’s time to decide your next move: do you agree with the IRS’s findings, or do you believe there’s been a mistake?
Agreeing with the Notice
If, after reviewing your records, you find that the IRS’s claims are correct, the simplest option is to accept the Notice of Deficiency. In this case, you’ll need to follow the instructions in the notice to set up a payment plan or pay the balance in full. The IRS offers several payment options, including installment plans, which can make managing the balance more feasible if you can’t pay it all at once. Taking prompt action can help you avoid additional penalties or interest.
Disputing the Notice
If you believe the IRS is incorrect, you have the right to dispute the Notice of Deficiency. To do so, you’ll need to file a petition with the U.S. Tax Court within 90 days of receiving the notice. This timeframe is strict; missing the deadline can limit your options for disputing the notice. Filing a petition essentially opens a formal dispute, allowing you to present your case before the court and potentially reduce or eliminate the additional tax the IRS has claimed.
Regardless of your choice, responding promptly is crucial to avoid further penalties or complications. Whether you agree or dispute the findings, taking action within the set deadline is essential for managing the notice effectively and resolving the situation.
Step 4: File a Petition with the U.S. Tax Court (If Disputing)
If you’ve decided to dispute the IRS Notice of Deficiency, the next step is to file a petition with the U.S. Tax Court. As we mentioned above, you have a 90-day window from the date on the notice to submit this petition. Missing this deadline means losing the right to contest the deficiency in court, so it’s essential to act quickly.
Filing the Petition
To start, you’ll need to complete and submit a petition form to the U.S. Tax Court. This form includes details about your case and your reasons for disputing the IRS’s findings. Be sure to provide a clear and concise explanation of why you believe the IRS’s assessment is incorrect. Including copies of any relevant documentation, such as income records, receipts, or other evidence, will strengthen your case.
What to Expect
Once your petition is filed, the court will schedule a hearing. During this process, you’ll have the opportunity to present your arguments, provide evidence, and possibly negotiate with IRS representatives before the hearing. It’s important to go into this process with well-organized records and solid reasoning to support your dispute.
The Importance of Proper Documentation
Filing a petition is a formal legal process, so the strength of your documentation and arguments is crucial. The IRS and the court will review the evidence you present, so make sure your records are complete, accurate, and relevant to the issues raised in the Notice of Deficiency. Having proper documentation and a clear argument can significantly improve your chances of achieving a favorable outcome.
By following these steps and preparing thoroughly, you’ll be in a strong position to challenge the IRS’s claims and potentially reduce or eliminate the additional taxes assessed.
Step 5: Seek Professional Help When Needed
Navigating a Notice of Deficiency can be challenging, especially if the tax issues are complex. In these cases, seeking assistance from a tax professional can make a significant difference in both the outcome and the stress involved.
The Role of Tax Professionals
Tax professionals, such as enrolled agents, CPAs, and tax attorneys, specialize in understanding IRS procedures and resolving tax disputes. They can review your Notice of Deficiency, analyze the IRS’s findings, and guide you through the resolution process. These experts are well-versed in the intricacies of tax law and can offer valuable insights into your case.
When to Hire a Professional
While minor discrepancies might be manageable on your own, it’s crucial to seek professional help if the amount in question is substantial, if you’re considering disputing the notice, or if you feel uncertain about handling the IRS on your own. In most cases, seeking an enrolled agent can be a great choice to put you in the best position to dispute the notice. However, if the case proceeds to the U.S. Tax Court, you may need to enlist the help of a licensed tax attorney to present a compelling argument on your behalf.
How Professional Assistance Can Help
Hiring a tax professional can prevent costly mistakes that could arise from misunderstanding the IRS’s procedures. Their expertise not only helps you avoid potential pitfalls but also increases your chances of a favorable resolution, whether that means reducing the additional tax owed or successfully negotiating a payment arrangement. In the end, working with a professional can provide both peace of mind and a clearer path to resolving the issue.
Ready to Take Action? Andrin Tax Relief Can Guide You
Receiving an IRS Notice of Deficiency can feel daunting, but by taking these steps, you can approach the situation with clarity and confidence. Understanding the notice, thoroughly reviewing your records, deciding your course of action, and preparing carefully if you choose to dispute—all are essential steps to protecting your financial interests.
If you’re facing a complex tax issue or simply want peace of mind, remember that you don’t have to go through this alone. The experienced professionals at Andrin Tax Relief are here to help you navigate each step, ensuring you have the support and expertise needed for a successful resolution. Contact us today to see how we can help!
