Receiving a Notice of Deficiency (or 90-Day Letter) is the most serious and time-sensitive event in any IRS tax dispute. It signifies that the IRS intends to formally assess additional tax against you.
This letter is a final legal warning that brings four critical points to light:
- The IRS is seeking to finalize a tax assessment.
- You have the legal right to challenge this assessment.
- You must act within a strict legal deadline of 90 days.
- If you fail to act, the IRS’s proposed assessment becomes final and fully collectible.
The Notice of Deficiency is the only path to petition the U.S. Tax Court before paying the tax owed, one of the most powerful rights a taxpayer possesses. Miss the 90-day window, and the tax, plus penalties and interest, will be immediately assessed, triggering IRS collection actions like liens and levies.
📘 References:
- IRS Notice of Deficiency Overview
- U.S. Tax Court
- Publication 556 — Examination of Returns
- IRS Independent Office of Appeals
What Is a Notice of Deficiency?
A Notice of Deficiency is the IRS’s official legal statement declaring its formal determination that a taxpayer owes an additional amount of tax.
What it IS (Legally Defined):
- A statutory notice issued under IRC §6212.
- A prerequisite that establishes the U.S. Tax Court’s jurisdiction over your case.
- Your last chance to formally dispute the liability before the tax is officially assessed.
What it is NOT:
- It is not a bill, a final tax liability, a lien, or a levy.
The primary function of this notice is to grant you the powerful right to challenge the IRS’s determination in Tax Court without having to pay the tax first.
Why Did I Receive a Notice of Deficiency?
A taxpayer typically receives a Notice of Deficiency after a process of unresolved disputes with the IRS. This letter is often the result of one of the following events:
- Unresolved Inquiry: Disagreement with an initial CP2000 underreporter notice.
- Formal Review: Conclusion of an unagreed-upon IRS audit (correspondence, office, or field examination).
- Failed Resolution: Denial of a formal appeal.
- IRS Action: Assessment based on a Substitute for Return (SFR) prepared by the IRS.
- Specific Adjustments: Issues related to adjustments of credits, deductions, or incorrect third-party reporting.
- Non-Cooperation: Failure to timely respond to previous IRS communication.
💡 Crucial Takeaway: The Notice of Deficiency represents the IRS’s final determination and last step before it proceeds with enforced collection actions.
What the Notice of Deficiency Includes?
The Notice of Deficiency is a statutory document that must contain specific information for it to be legally valid. These mandatory elements include:
- The proposed amount of tax due.
- The tax years under examination.
- A clear explanation of the adjustments.
- Any proposed penalties.
- A statement of your right to petition the U.S. Tax Court.
- The 90-day (or 150-day) deadline.
💡 Note: If any of these required elements are defective, the entire notice may be considered invalid.
Your Legal Deadline: 90 DAYS (or 150 Days if Outside the U.S.)
The law is absolute regarding your deadline to act:
- General Rule: You have 90 days from the date the notice is mailed (not received) to file a petition with the U.S. Tax Court.
- International Exception: If you are outside the United States when the notice is mailed, the deadline is extended to 150 days.
⚠️ Warning: Filing your petition even one day late is a jurisdictional failure, and the Tax Court will be legally obligated to dismiss your case.
📘 References: IRC §6213(a)
What Happens If You Do NOTHING?
Failing to file a petition with the U.S. Tax Court by the deadline is highly detrimental and results in the immediate loss of your strongest legal position:
- Final Assessment: The IRS automatically and formally assesses the proposed tax, interest, and penalties, transforming the proposed liability into a legally binding debt.
- Collection Action Begins: The IRS gains the authority to initiate collection enforcement, which includes filing a tax lien or executing a levy against your bank accounts or wages.
- Loss of Pre-Payment Dispute: You forfeit your right to dispute the tax liability without paying first.
Once the tax is assessed, your options for relief become severely limited, generally requiring you to engage in a limited-scope Collection Due Process appeal, or pay the amount and then sue for a refund in District Court.
The Notice of Deficiency Demands Immediate Action!
Your 90-day window is the most crucial deadline in your entire tax case. Do not put your rights at risk.
Critical Actions to AVOID:
- DO NOT ignore the notice. It is the gateway to collections.
- DO NOT call the IRS or agree to the terms without legal review.
- DO NOT wait until the 89th day to seek help; filing a petition is complex.
How Pelham PLLC protects your 90 days? We step in to provide complete defense and protect your right to pre-payment judicial review:
- We file U.S. Tax Court petitions accurately and on time.
- We challenge the underlying IRS audit and correct examiner errors.
- We negotiate with IRS Counsel to secure the lowest legal tax liability.
- We remove penalties and prevent IRS collection actions from starting.
- We protect your full appeal rights and represent you in court.
Contact us today for a confidential Notice of Deficiency review. Let our expertise protect this vital deadline.
FAQs
Is a Notice of Deficiency a bill?
No. It is a legal notice giving you the right to challenge the IRS.
How long do I have to respond?
90 days (150 if outside the U.S.).
Can I fight a Notice of Deficiency?
Yes. By filing a U.S. Tax Court petition.
Do I need to pay first to fight it?
No — that’s the benefit of Tax Court jurisdiction.
Can the IRS be wrong?
Yes.
Do I need a tax attorney?
Yes. The process is legal, complex, and time-critical.
