The Notice of Deficiency: What to Do If You Receive One

Few things are more worrying than receiving a letter from the IRS. When that communication is IRS Notice of Deficiency, it can be even more stressful.  This notice can advise you that the information on your tax return does not match government records, or can be sent after an IRS audit when you have not agreed with the IRS’ findings.  It also puts you on notice that your tax obligation is being assessed and gives you up to 90 days to dispute the tax in Tax Court before the IRS assesses what the IRS believes that you owe.

Why Are You Receiving This Notice?

The most common reason for this notice is a perceived discrepancy between the information on your tax return and what the government believes you owe. For example, if you earned both employment and freelance income but only reported the employment information on your W-2, the IRS may compare your return to its records and notice that you didn’t report the freelance wages that your clients noted on their Form 1099-MISCs. The IRS will add this unreported income to your return, which changes the taxes that you owe.

The IRS may also send out a Statutory Notice of Deficiency if you did not respond to earlier pre-assessment letters requesting verification of income you reported or credits and deductions claimed.

Regardless of the reason for the pre-assessment, if the IRS concludes that you owe more tax, it will issue a Notice of Deficiency to:

  • Inform you of the proposed change to your return
  • Explain how the change was calculated
  • Give you an opportunity to agree to or challenge the proposed change.

What If You Agree With the Notice?

If you agree with the IRS amendment and have no additional income, credits, or deductions to report, your tax return won’t need to be amended. All you have to do is sign Form 5564, Notice of Deficiency – Waiver, and send it in. If you do have additional income, credits, or deductions to claim, send this information to the address listed in the Notice of Deficiency.

What If You Disagree?

If you disagree with the assessment, you have 90 days from the date on the notice to appeal it in the United States Tax Court. An experienced tax attorney can help you weigh the pros and cons of filing a petition and advise you about your chances of prevailing in the U.S. Tax Court.  Since most people are unfamiliar with the Tax Court, the advice of a qualified tax attorney is invaluable when making this decision whether or not to file a petition.

What If You Can’t Afford to Pay?

If you can’t afford to pay your tax balance in full and in a timely manner, it’s important to notify the IRS immediately to discuss a payment plan. Your tax attorney can assist you in proposing a tax debt settlement solution like one of the following:

  • Installment Agreement: An installment agreement lets you pay off your tax bill through monthly payments lasting up to 72 months or even longer, depending on how much you owe.
  • Offer-in-Compromise: If you can’t pay what you owe, you may make a settlement offer known as an Offer-in-Compromise. Eligibility requirements are strict and you will need to prove hardship, but a tax attorney can increase your chance of a successful petition.

When it comes to addressing unpaid taxes, you have several options. At Boeshaar Law, we can help you in exploring all possible solutions and coming up with a strategic means of resolving this stressful situation. To schedule a consultation to discuss your tax concern, call (206) 899-4860 or contact us.

Written by Robert V. Boeshaar

Robert V. Boeshaar

Robert V. Boeshaar is a Seattle tax attorney committed to helping individuals and small businesses who are facing problems with the IRS. He believes in using his experience to serve others and to make a difference in their lives.