The IRS Notice of Deficiency is an official letter to put you on notice that the clock is ticking. Basically the IRS is informing you that they are about to assess a tax liability against you. Also, it gives you notice that you have only 90 days to contest the proposed assessment in Tax Court.
The tax court is the only court where you can contest a tax liability without first paying the full tax liability. Thus it is important to file a claim in a timely manner. If you miss that deadline there are other court venues but you will have to pay the full tax liability in advance to proceed.
Irrespective of any tax court filings that might be undertaken the underlying problem can often be resolved without the necessity of expensive litigation. The IRS does make errors which can result in an incorrect tax liability. The use of administrative procedures is the first option that you should explore.
There are different types of letters that you might get from the IRS:
Proposed Individual Tax Assessment Letter also known as the 30-day letter. This is your notice that the IRS has no record of your Individual Income Tax Return Form 1040. It informs you that the IRS intents to compute a tax assessment based on income reported by your employer, banks, etc. In short, you have 30 days to file your return or the IRS will compute the tax for youthen collection action will commence.
Notice of Deficiency Letteralso known as the 90 letter. This informs you of the tax assessed plus interest and penalties. Your options are:
oFile your Individual Income Tax Return Form 1040 with supporting schedules. If you do this, you dont need to petition the tax court.
oFile a consent to assessment and collection form. You are basically agreeing to the tax liability.
oSubmit a letter explaining why you are not required to file a return.
If you dont file a tax return and you dont agree with the proposed tax owing by the IRS, you have 90 days from the notice to dispute the amount owed.
Professional advice is recommended to determine your best options to minimize your tax liabilities. You should never ignore a Notice of Deficiency. As a taxpayer you have rights but you must act in a prompt manner as there is only a short window of time available.
John Spurgeon is a tax attorney in Pasadena, California servicing clients in the greater Los Angeles area. John Spurgeon & Associates, who are both tax attorneys and CPAs, have the proven knowledge to effectively deal with the IRS. Please call 626-440-9518 for a complimentary initial consultation.
About John Spurgeon & Associates
John Spurgeon & Associates is a professional services firm located in Pasadena, California with a focus on tax law and related accounting services. They have extensive experience with federal and state income taxes, payroll taxes and sales taxes. They represent business, non-profits and individuals against the IRS and the Franchise Tax Board (California State Taxes). As both tax attorneys and Certified Public Accountants they offer a broad range of tax related services.
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