What is a Notice of Deficiency? 

A Notice of Deficiency issued by the IRS serves as a taxpayer’s final notice of additional tax owed. The notice is generally issued after the IRS audits a taxpayer and proposes changes to a tax return. More importantly, a Notice of Deficiency is a legal document that allows a taxpayer to challenge the IRS in U.S. Tax Court without having to first pay the additional tax. Of course, there are strings attached, namely the requirement to file a Petition in U.S. Tax Court within 90 days of the date of the notice.

What Does a Notice of Deficiency Look Like?

Despite its legal significance, a Notice of Deficiency (pictured below) generally looks like a typical IRS letter. The notice informs the taxpayer of the additional tax assessed for each year and provides the last day the taxpayer can file a Petition in U.S. Tax Court.

Sample Notice of Deficiency (IRS Notice 3219A, IRS Letter 531)

IRS Notice of Deficiency - CP3219A

What Happens if a Taxpayer Does Not File a Petition Within 90 Days?

The tax code imposes a strict 90-day window to file a Petition in U.S. Tax Court, measured from the date listed on the Notice of Deficiency. Taxpayers residing outside the United States have 150 days. If a taxpayer does not file a Petition within the 90-day window, the assessment becomes final and the IRS may begin collecting the tax. Once the assessment becomes final, the taxpayer loses their right to challenge the assessment in Tax Court and can only seek judicial relief by paying the tax and filing suit in either U.S. District or the Court of Federal Claims. In other words, if a taxpayer does not timely file a Petition in Tax Court, they lose their right to challenge the assessment in court without having to first pay the tax.

Even after losing their right to challenge the assessment in Tax Court, a taxpayer can still challenge the assessment without first paying the tax by filing an administrative claim with the IRS (i.e., audit reconsideration, doubt as to liability offer in compromise). However, the results of these claims cannot be challenged in court.

The Bottom Line

The Notice of Deficiency is more than just a notice. It represents a taxpayer’s ticket to Tax Court where they have the right to challenge the tax assessment in court without first paying the tax. While this right represents a tremendous opportunity, the taxpayer ultimately bears the burden of proving to the court that the IRS assessment is incorrect. It is therefore critical to seek the assistance of an experienced tax attorney if you have received a Notice of Deficiency. Learn more about DeWitt Law’s tax litigation practice in U.S. Tax Court.