What is an IRS notice of deficiency?

A notice of deficiency is a proposed increase of tax and your notice to dispute the deficiency in tax court.

Before it can assess liability for unpaid taxes, the IRS must send a deficiency notice to the taxpayer’s last known address by certified mail or registered mail.

The notice also gives taxpayer the right to challenge the deficiency determination, including penalties, by filing a petition with the U.S. Tax Court.

The petition must be filed within 90 days (or 150 days if the notice is addressed to a person outside of the United States).

Responding to an IRS notice of deficiency

A taxpayer may respond to a deficiency notice by filing a petition for re-determination of the deficiency with the Tax Court, which halts an assessment of the tax deficiency until the Tax Court rules.

But if the taxpayer does not file a petition, the IRS can make a deficiency assessment 90 days after the notice was mailed.

Disputing whether a notice of deficiency was sent by the IRS

The IRS satisfies its obligation if it mails a notice of deficiency to the taxpayer’s last known address, even if the taxpayer does not actually receive the notice.

To satisfy its burden, the government must show that the deficiency notice existed and was mailed to the taxpayer. Such a showing creates a presumption of proper mailing, which the taxpayer must rebut with clear and convincing evidence.

The IRS can meet its burden by establishing the existence of a notice of deficiency and producing a properly completed PS Form 3877 certified mail log.

Once the government has established the presumption that the notices were mailed, the burden shifts to the taxpayer to rebut the presumption by clear and convincing evidence.

What to do if you receive an IRS Letter CP3219A “statutory notice of deficiency”

A Letter CP3219A is a statutory notice of deficiency. The letter explains why there is a proposed increase in your tax and what to do if you do not agree.

The letter further explains your right to challenge the increase in tax court within 90 days from the date of the letter.

First, you should review the changes and compare them to your tax return.

If you agree, then sign the enclosed Form 5564 and mail or fax it to the address or fax number listed on the letter.

If you do not agree, you have two options:

You can provide additional documents or other information for the IRS to consider. Note, that responding with additional documents does not extend the 90 days to challenge the deficiency in tax court.

Or, you can file a petition with the U.S. Tax Court. Filing a petition will automatically stay collections activity. You do not need to make any payments while the case is pending before tax court, but penalties and interest will continue to accrue.

If you receive a CP3219A and do not agree with it or don’t understand it, it’s important to discuss with a tax attorney as soon as possible after receiving the letter.

You should always consult with a tax professional before making any decisions about how to best resolve your particular matter.

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