IRS Tax Deficiency Notice Tips
Recommendations for Handling

When the Internal Revenue Service disagrees with your computation of taxes due or the size of the overpayment you compute as due to you, you will receive a Tax Deficiency Notice by mail.

Please do not make the mistake many people make. They do not open the envelope from the IRS; instead, they send it to their tax professional.  As soon as the IRS makes their determination and sends you the notice, interest and penalties are accruing.

Your tax professional is probably busy and may not examine the letter for some time.  Your failure to look at the notice and address the issue immediately could be expensive.

Most of these notices are generated by IRS computers automatically.  If you have not declared on your tax returns all of the interest, dividends, or capital gain or loss transactions reported to the IRS on 1099 forms, you will definitely receive a tax deficiency notice.

If you have calculated the taxes due or the refund due to you incorrectly you will also receive a deficiency notice. In either of these cases, you should pay the deficiency showed on the notice as well as any interest or penalties computed by them promptly to avoid the assessment of further interest and penalties on the tax deficiency.

If after examining their notice you think the IRS is incorrect, you should write to them a clear and concise letter pointing out why they are wrong and asking them to credit your account for the deficiency shown on the notice, plus penalty and interest.

Three important points to note here:

• Do not send the IRS an e-mail response. It will not accomplish anything.
• Second, do not claim that you don’t owe the taxes because you object to U.S. policy in Iran or that the imposition of federal income taxes is unconstitutional. Such claims are considered to be frivolous and will subject you to additional penalties.
• Always keep a copy of all correspondence you send to the IRS as well as their response. Generally, within 60 to 90 days you will receive from them, either a letter crediting you for the deficiency plus interest and penalty, or a letter imposing reasserting the deficiency and assessing additional penalties and interest or no response at all.

Don’t assume the problem is solved unless you get a letter crediting out the deficiency and all penalties and interest thereon. If your letter does not result in the hoped for correction, you should follow your letter up with a subsequent letter or a telephone call.

If you have contacted the IRS three times in attempting to resolve a deficiency notice without success, you can present your case to a special Internal Revenue Service employee called a Taxpayer Advocate. It is the job of the Taxpayer Advocate to resolve tax situations where a taxpayer has tried repeatedly on their own to resolve a tax deficiency. We have always found the Taxpayer Advocates to be very helpful and very professional.

Professional Tax Preparation

Most of the problems associated with IRS Tax Deficiency Notices can be avoided by professional tax preparation and business tax planning or personal tax planning.

It is interesting that an IRS study of tax returns prepared by tax professionals has found a much higher percentage of tax returns that the agency regards as problematic prepared by unlicensed professionals as opposed to licensed tax professionals.  The Internal Revenue Service has proposed to Congress that unlicensed professionals be required to take an annual exam administered by it, pay an annual fee and complete a number of continuing education credits to maintain their right to prepare tax returns.

David Kass is both an experienced tax attorney and a CPA.  Esta Kass has been a practicing CPA since 1977 and is extremely innovative, creative, and ingenious in adopting tax law to the situations in which her clients find themselves.  Please contact Kass & Kass to schedule a consultation. A brief introductory consultation is available for a nominal charge.