Another important Internal Revenue Service letter is the Notice of Deficiency or 90-day letter. This comes in two forms, the Letter 531, if the audit of your tax return was conducted in person, and the Letter 3219, if the tax return exam was completed by mail. While it is most common to think about IRS audits in the context of an income tax return, any return can be reviewed, including payroll tax, estate tax, or any other return that has been fuled. While this statutory notice of deficiency comes at the end of the audit, it is one of the most important letters in the ongoing series of letters that the IRS sends you. This IRS notice gives you a ticket to Tax Court and opens the limited window in which you can file a suit against the IRS.
Why Am I Getting This Notice?
The IRS Notice of Deficiency is a legal notice is sent by the IRS via certified mail at the end of an audit or exam when the Service determined that there is an amount due or a deficiency. The IRS already sent you a Notice of Proposed Adjustment and either has not heard from you, or you disagree with the result. Now, by law, the IRS has to give you a chance to go to Tax Court. This letter will describe the reason for the tax deficiency, the amount of tax due, amount of interest, and penalties. However, there is only a short window in which you have the ability to challenge the IRS’s position. If you decide to go to tax Court, you must file a petition within 90 days letter’s issue date. The last day to file with the Tax Court will be listed on the letter.
What If I Agree or Don’t Want to Keep Fighting?
If you agree or just want to pay the amount due, then you can complete the Form 5564, also called a notice of deficiency waiver, which will be included in the letter you received. You will need to sign the Form 5564 and send it via certified mail to the address provided on the notice of deficiency.
If you do not agree, then you should consult with a tax attorney on how to petition the tax court.
Should I File in Tax Court?
There is no single answer to this question. If you never filed a tax return for the year under exam, then preparing a return is the first step. If you have filed for bankruptcy for that year, then you will not be able to go to Tax Court (whether the tax debt will be included in the bankruptcy discharge is another issue).
If you still disagree with the content of the IRS Notice of Deficiency, and results of the exam, the only option you have is to fight it in court. At this point, you have a few choices on which court to file your case. You can file it in United States Tax Court, your local District Court, or the Federal Court of Claims. There are benefits and hazards to each, but one of the largest distictions is that you have to pay the tax before filing in District Court or Court of Claims. You do not have to pay the tax before filing in Tax Court.
However, your likelihood of success is going to depend on a number of factors, including whether tax laws are on your side, the facts and circumstances of your case, and the availability of relevant documentation. If you have questions about your chances, tax to a tax attorney that is familiar with tax litigation.
Failing to file a petition with the Tax Court will result in the loss of important rights related to your ability to appeal and fight the decision.
If you need help with a current IRS audit or have received a Notice of Deficiency, contact us today.
Photo by Scott Graham on Upsplash.