A 90-Day Letter, formally known as a Notice of Deficiency, is an official communication issued by the Internal Revenue Service (IRS) to a taxpayer after the conclusion of an audit. This document informs the taxpayer that the IRS has identified a proposed deficiency in their tax return and provides a 90-day period within which the taxpayer must respond to contest the findings.
Definition and Purpose
The 90-Day Letter serves two main purposes:
- Notification: It formally notifies the taxpayer of the IRS’s determination that there is a deficiency in their tax return.
- Right to Contest: It provides the taxpayer with a 90-day period (150 days if the mail is addressed outside the United States) to file a petition with the U.S. Tax Court to contest the alleged deficiency before the IRS proceeds with the assessment and collection.
Legal Framework
The issuance of a 90-Day Letter is governed by the Internal Revenue Code (IRC), specifically under Section 6212, which authorizes the IRS to send notices of deficiency to taxpayers when adjustments to their tax return are made.
Process and Implications
Timeline and Response
- Issuance: Once the IRS concludes an audit and determines that there are additional taxes owed, it issues the 90-Day Letter to the taxpayer.
- Petition Period: The taxpayer has exactly 90 days from the date of the letter (or 150 days if residing outside the U.S.) to file a petition with the U.S. Tax Court.
- Failure to Respond: If the taxpayer does not file a petition within the allowed time frame, the IRS will assess the proposed deficiency and pursue collection actions.
Filing a Petition
When contesting the deficiency, the taxpayer must file a petition with the U.S. Tax Court. This petition must:
- Clearly state the reasons for contesting the deficiency.
- Provide supporting documentation and evidence.
- Be filed within the 90-day (or 150-day) period.
Examples and Context
Case Study: Jane Doe
Jane Doe receives a 90-Day Letter after an IRS audit of her 2020 tax return reveals unreported income from a consulting job. Jane believes the IRS calculations are incorrect and decides to file a petition with the U.S. Tax Court, providing evidence of expenses that offset the disputed income.
Historical Context
The concept of the Notice of Deficiency dates back to the Revenue Act of 1924, designed to provide taxpayers with due process by allowing them to dispute tax assessments before collection actions begin.
Comparisons and Related Terms
Related Terms
- Notice of Deficiency: Another term for the 90-Day Letter.
- Tax Audit: An examination of a taxpayer’s return to ensure accuracy and compliance with tax laws.
- U.S. Tax Court: A federal court that hears cases brought by taxpayers contesting IRS deficiency determinations.
Comparisons
- 30-Day Letter: Preliminary notice that provides taxpayers with an option to request a meeting with an IRS agent or an appeals officer before the deficiency is finalized.
FAQs
What happens if I miss the 90-day deadline?
Can I negotiate with the IRS after receiving a 90-Day Letter?
How can I avoid receiving a 90-Day Letter?
Summary
A 90-Day Letter is a critical formal notice from the IRS indicating a proposed tax deficiency following an audit. Taxpayers have a limited period to contest the findings by filing a petition with the U.S. Tax Court. Understanding the process, implications, and necessary responses can safeguard taxpayers’ rights and opportunities to dispute IRS determinations effectively.
References
- Internal Revenue Code Section 6212
- U.S. Tax Court guidelines
- IRS Audit Techniques Manual
By thoroughly understanding the mechanics, legal frameworks, and practical steps involved in handling a 90-Day Letter, taxpayers can better navigate potential disputes with the IRS and ensure compliance with taxation laws.
