What is a Notice of Deficiency?

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What Is A Notice Of Deficiency?

The Notice of Deficiency is a legal notice sent by IRS to inform taxpayers about their previous deficient tax payments. It can also inform taxpayers about lack of necessary funds. When the IRS discovers that the tax return of a taxpayer has omitted income information, they send the Notice of Deficiency. It clearly indicates that the tax payment made to the IRS is smaller than what it should be.

How can I possibly get a Notice of Deficiency? For each and every tax document you receive from financial institutions, employers, and lenders, the IRS will have a corresponding record. In other words, the IRS has completed and detailed information about your financials for the year. Once you go ahead and file for taxes, the IRS will cross-check your reporting along with records that they have. This is where they determine whether you have successfully reported all your tax obligations or not. If you fail to report all information, you will end up with getting a Notice of Deficiency.

The Notice of Deficiency can act in the form of a reminder document about forthcoming taxes. The IRS is usually sending this notice before assessing additional tax.

If you get a Notice of Deficiency, you will be confused on what to do next. Feel free to get in touch with us. We will help you to deal with the situation.

How It Work

How Does A Notice Of Deficiency Work?

The IRS will cross-check your tax filing and determine whether there is a deficiency. If a deficiency is noticed, they will go ahead and issue you with a pre-assessment letter. This pre-assessment letter is also called as the 30-day letter. It would inform a taxpayer like you that there is a deficiency in your filing. You can use it to appeal the assessment. If you decide to go ahead with the appeal, you will need to send it within 30 days of receiving the letter.

But if you don’t respond within 30 days, the IRS will go ahead and issue a Notice of Deficiency. The IRS will clearly outline all important details related to the deficient payment. You can find your unreported payments and all other calculations that determined the deficiency in it.

When you receive a Notice of Deficiency, you will have 90 days from the mailing date to challenge it by taking the case to the US Tax Court. Because of this, the Notice of Deficiency is often called as the 90-day letter. You will need to file a petition at the Tax Court, challenging the notice you received. In case if you have additional information to back up the claim, you will need to send them to the IRS as well. The IRS will not be able to proceed with any action during this 90 day period.

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What If You Agree To The Notice Of Deficiency?

If you noticed that the IRS is correct, you should not challenge it. All you have to do is to complete the Form 5564, which is the Notice of Deficiency. Then you can send it to the agency that issued the Notice of Deficiency. After that, you can get a bill, which will contain the amount equivalent to your unpaid taxes. On top of that, you will have to pay penalties and interests for your late tax payment. You will also receive this bill if you don’t respond to the Notice of Deficiency within 90 days.

It is better if you can contact us at XeroTax Strategies after getting your Notice of Deficiency. We will evaluate your situation and provide information on what you should do. Give us a call today.


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