IRS Notice of Deficiency: What to Do in the 90 Day Window

What is an IRS notice of deficiency?

A notice of deficiency is the letter the IRS sends before it can assess additional tax that a taxpayer has not agreed to. The IRS describes it as a proposed change in tax rather than a bill or an audit, and it carries the right to challenge that change in the United States Tax Court.

The CP3219A page explains the trigger in plain terms. The IRS received information from third parties such as an employer or a bank, that information differed from what the return reported, and the agency proposes to adjust the tax as a result. The page states that the notice is not a bill or an audit, that it notifies the taxpayer of a proposed change, and that it explains how the amount was calculated along with what to do in the event of agreement or disagreement.

The Taxpayer Advocate Service explains why the letter has to exist at all. Its page for Letter 3219 states that without a signed agreement from the taxpayer, the IRS cannot assess the proposed deficiency without first providing an opportunity to challenge the adjustments by filing a petition with the Tax Court. The notice is the mechanism that provides that opportunity.

That same page describes the practical value of the letter. Because it allows a challenge in the Tax Court without first paying the proposed adjustment, the statutory notice of deficiency is often called a ticket to the Tax Court. Almost every other route to a courtroom in a federal tax dispute runs through paying the amount first and suing for a refund afterward.

How long is the 90 day window and when does it start?

The IRS page for the CP3219N states 90 days from the date shown on the notice, and 150 days where the notice is addressed to a person outside the country. The count runs from the notice date rather than the delivery date, and the notice normally prints the last day to file.

The CP3219N page states the rule directly. A taxpayer who wants to challenge the proposed tax has 90 days from the date shown on the notice to file a petition with the Tax Court, and 150 days for a person outside the country. The Taxpayer Advocate Service repeats the same two periods and adds that the period is prescribed by law and cannot be extended by the IRS.

The Tax Court says the same thing from the other side of the table. Its guidance for petitioners states that the tax laws are very strict on filing dates, that in a deficiency case the petition must be filed by the 90th day, or the 150th day for a notice addressed to a person outside the United States, counting from the date of mailing, and that the court cannot extend the time for filing a petition in response to a notice of deficiency. Asked whether an extension is available, the court answers that by law it cannot grant one.

One narrow softening exists and it is calendar based rather than discretionary. The Taxpayer Advocate Service states that where the 90th day or 150th day falls on a Saturday, a Sunday, or a legal holiday in the District of Columbia, a petition filed on the next business day is still timely. The IRS also answers its own frequently asked question about more time with a single word. No.

What are the options during the 90 days?

Four routes appear on the IRS pages for these notices: sign and return Form 5564 to agree, send the IRS information along with a signed statement, file a petition with the United States Tax Court, or do the last two together. Only the petition preserves the court route.

The agreement route is the shortest. The CP3219A page instructs a taxpayer who agrees with the proposed changes to follow the notice instructions and reply with the enclosed Form 5564. The Taxpayer Advocate Service adds that after signing and returning the waiver, some or all of the liability can be paid at that point, or a bill from the IRS can be waited for.

The information route is the one most people reach for first. The CP3219A page asks a taxpayer with additional information, or with a belief that what was reported is incorrect, to reply as soon as possible with the information the IRS is being asked to consider, to include a signed statement supporting the position, and notes that the IRS can generally accept information over the phone at the number on the first page of the notice. Where the figures reported by a third party are the problem, the page describes contacting that business or person for a corrected income document or a supporting statement.

The critical caveat is printed on both the IRS and Taxpayer Advocate Service pages. The IRS states that it will work with a taxpayer to resolve issues during the 90 day response period, and immediately states that doing so will not extend the time to file a petition in Tax Court. The Taxpayer Advocate Service uses the same construction. Trying to resolve the issue with the IRS does not extend the time to file. Contacting the Taxpayer Advocate Service does not extend it either, and that office does not have authority to determine the tax deficiency.

The CP3219N works a little differently because it follows a return the IRS never received. Its page states that a taxpayer who disagrees with the proposed assessment files the tax return by the date shown on the notice. It then answers the obvious follow up question. Time for filing a petition with the Tax Court is not extended by filing a return.

How is a Tax Court petition actually filed?

The Tax Court accepts petitions electronically through its DAWSON system or on paper by mail to Washington. The court states a filing fee of 60 dollars, with a waiver application for a petitioner unable to pay, and it treats a paper petition as timely when a postmark falls inside the period.

The court sets out the mechanics on its guidance for petitioners. A case begins with a petition, filed either on paper by mail or in person, or electronically through DAWSON, which stands for Docket Access Within a Secure Online Network. The court describes the DAWSON petition generator as the most efficient route. The party who files in response to a notice of deficiency is called the petitioner, and the Commissioner of Internal Revenue is the respondent.

Three ways to produce the petition itself are listed: answer questions online and let DAWSON generate the document, complete and upload the court's standard petition form, or upload a petition that complies with the Tax Court Rules of Practice and Procedure. The court is specific about what does not belong in an uploaded petition. No Social Security number, taxpayer identification number or employee identification number, no attached tax returns or receipts, no names of minor children, and no financial account numbers. Identification travels separately on a Statement of Taxpayer Identification Number form, which is sent to the IRS and never appears in the case record.

Timing rules differ by channel. For an electronic filing the court states it must receive the petition no later than 11:59 pm Eastern Time on the last date to file. For paper, the court states a petition is generally treated as timely where it arrives in an envelope bearing a legible United States Postal Service postmark within the filing period, and recommends certified or registered mail, or a designated private delivery service, as strong evidence of the mailing date. It also warns that a private meter stamp or a postmark from an online postage printing service will not prove timely mailing.

Cost is modest and waivable. The court states a filing fee of 60 dollars, payable by check, money order or through Pay.gov, and describes an application for waiver of the filing fee where a petitioner establishes an inability to pay, signed under penalty of perjury. Married petitioners filing a joint petition may file one waiver form signed by both. Separately, the court's case procedure page sets out small tax case eligibility, which in a deficiency case turns on whether the deficiency in dispute, including additions to tax and penalties, is 50,000 dollars or less for any one year. The CP3219N page describes those same simplified procedures.

What happens once the 90 days pass with no petition?

The IRS states on the CP3219A page that where it does not hear back and no petition is filed, it assesses the proposed changes and sends a bill. The Taxpayer Advocate Service points to audit reconsideration after that, for a taxpayer holding information that could change the assessed liability.

The IRS answers this in its own frequently asked questions on the CP3219A page, in one sentence. Where the agency does not hear back and no petition is filed, it will assess the proposed changes and send a bill. That bill is a separate coded notice, and the first one in the sequence is usually the CP14, which is where the balance stops being a proposal and starts being a collection matter.

The Taxpayer Advocate Service is blunt about what the missed deadline costs. Its Letter 3219 page states that where the deadline is missed, the Tax Court cannot consider the case and the proposed tax will be assessed along with any applicable penalties and interest, and that a judge cannot review the matter without the amount being paid first. That is the difference between a deficiency case and a refund suit, and it is why the date on this letter carries more weight than the reply date on earlier correspondence.

One administrative route remains open afterward. The Taxpayer Advocate Service states that where the deadline is missed and there is additional information that could change the tax liability assessed, an audit reconsideration can be requested, and points to Publication 3598 for detail. The IRS audit reconsideration page sets out the mechanics: review the audit report on Form 4549, gather copies of documents not previously submitted, and either write a letter identifying each disputed adjustment or complete Form 12661, Disputed Issue Verification. Requests travel through the document upload tool or by mail to the office that handled the audit.

Two limits on that route are worth knowing in advance. The IRS states that the process turns on information it has not previously considered, and that audit reconsideration applies where the assessed liability remains unpaid. Where the tax has already been paid, the page describes an amended return as the route to a refund instead. Neither path is the same as the court route the notice originally opened.

Which IRS letters are notices of deficiency?

Several letters carry deficiency rights. The CP3219A follows an automated underreporter mismatch, the CP3219N follows a return the IRS did not receive, and Letter 3219 follows an examination conducted by mail. The Taxpayer Advocate Service adds Letter 531 for an audit conducted in person.

The code printed in the corner matters because it tells a reader which process produced the proposal, which in turn explains what the IRS is asking for. The CP3219A explainer and the CP3219N explainer cover each code on its own terms. What they share is the statutory clock. What differs is everything upstream of it.

A CP3219A generally follows the automated matching process. An earlier notice, usually a CP2000, proposed an adjustment after third party documents did not line up with the filed return, and the deficiency notice follows where no agreement was reached. A CP3219N follows a different failure. The IRS states on that page that it did not receive a return and calculated tax, penalty and interest from wages and other income reported by employers and financial institutions.

Letter 3219 is the examination version. The Taxpayer Advocate Service states that it is generally sent to a taxpayer whose audit was conducted by mail, while Letter 531 goes to a taxpayer whose audit was conducted in person. Its page describes the reason the letter arrived in similar terms each time. The examination was completed, changes were proposed, and either no response came back or no signed agreement consenting to the changes was provided.

Can a notice of deficiency be rescinded or sent to the wrong address?

The Internal Revenue Manual describes a rescission agreement, made case by case, where a notice went out for the wrong amount, to the wrong taxpayer, or for the wrong period. It also requires the notice to go by certified or registered mail to the last known address.

Rescission is real but narrow, and it is an agreement rather than a request that gets granted on demand. Internal Revenue Manual 4.8.9, the section governing statutory notices of deficiency, states that the determination to rescind is made case by case and lists the situations in which a rescission may be agreed to.

• The notice was issued for an incorrect amount, with the manual noting that another notice may follow and may be for a greater amount
• The notice was issued to the wrong taxpayer
• The notice was issued for the wrong tax period
• The notice was issued without considering a properly filed Form 872 or Form 872-A consent extending the time to assess
• Information is submitted establishing that the actual tax due is less than the amount shown, although the manual notes rescission is often unnecessary there
• A conference with the appropriate Appeals office is requested, and Appeals first decides the case is susceptible to agreement

The manual also flags the consequence nobody expects. Rescission returns the case to its posture before the notice was issued, so the assessment statute starts running again from the date of rescission, and the manual instructs that a rescission generally requires at least ninety days remaining on the normal statute unless a consent form is executed. That is why the route is treated as a negotiated exception rather than an undo button.

Address problems are a different question with a different answer. The manual states that a notice of deficiency must be sent by certified or registered mail to the taxpayer's last known address. The Taxpayer Advocate Service describes the last known address as the one on the most recently filed and properly processed federal return, unless the IRS has been given clear and concise notification of a different address, and points to Form 8822, Change of Address, as the way that notification is made.