Understanding the 90-Day Letter from the IRS
The 90-Day Letter, also called a Notice of Deficiency, is an official notification from the IRS indicating discrepancies or errors in your tax filings. If not addressed within 90 days, this assessment can lead to reassessment of taxes owed.
Breaking Down the 90-Day Letter
Upon receiving a 90-Day Letter, you have 90 days (or 150 days if the notice is sent to someone outside the country) from the date of the notice to file a petition with the Tax Court to challenge the proposed tax changes. These letters are typically dispatched following audits, often concerning taxpayers who either have not filed a return or have unreported income.
What The Notice Means
If you do not wish to dispute this assessment and accept the IRS’ findings as accurate, there are a few actions you can take.
- Sign Form 5564, Notice of Deficiency, and return it to the IRS along with any payment to avoid extra interest or penalties.
- If you agree but have additional items like income, expenses, or credits to claim, amend your original tax return using Form 1040-X. This can be done through an online tax preparation service, with your tax professional, or by filling out the form yourself.
Disputing the IRS Findings
If you believe there are errors in the IRS findings, you’re entitled to dispute the notice. Here’s what you can do:
- Provide Additional Information: Submit any additional data that may affect the assessment.
- File a Petition: You have 90 days from the date of notice to ask the Tax Court to reassess, correct, or eliminate the proposed liability.
During the 90-day period, and while your case is under review, the IRS is prohibited by law from assessing or collecting the amount. Note that many taxpayers consult a tax professional or attorney for substantial disputes.
Consequences of Losing the Appeal
If your appeal is unsuccessful and you’re unable to pay the assessed amount, the government could place a federal tax lien against your assets - including wages, personal property, or your bank account. While this is a claim against your assets, not a seizure, it could escalate to a federal tax levy where the IRS takes your property. Setting up a payment arrangement with the IRS can help avoid liens or asset seizure.
Proper diligence and timely responses to the 90-Day Letter can help ensure that you manage your tax matters effectively and mitigate further complications.
Related Terms: audit, tax petition, federal tax lien, federal tax levy, unreported income
References
- Internal Revenue Service. “Understanding Your CP3219A Notice”.
- Internal Revenue Service. “How Do I Avoid a Levy”?
