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What Happens if I Receive a Statutory Notice of Deficiency?

If you receive a Statutory Notice of Deficiency from the Internal Revenue Service you have limited options that you must act on quickly before the amount indicated on the notice becomes an assessed liability. The notice always arrives as certified mail.

The most important information of the notice is the date that you must reply by which is 90 days form the date of the letter. This is why this Notice is often referred to as a 90 day letter by practitioners. This is also know as the ticket into the U.S. Tax Court. Since if you file a petition before the 90 days are up you can go to the U.S. Tax Court and argue your position. This is the only court where you do not have to pay the tax first to get in to the court.

  1. The first thing you can do is agree with the notice and accept the tax liability by sending back the form indicating you agree with the liability that is included with the notice.
  2. You can do nothing and in 90 days you will lose your ticket to Tax Court and the liability will be assessed. Your only legal recourse now is to pay the tax and sue for a refund in the U.S. District Court or Court of Claims.
  3. You can ask the IRS auditor to reconsider and adjust the Notice, or have their manage review the Notice with you for possible adjustment. This is worth a shot, but more and more lately the IRS is not willing to do this.
  4. You can file your petition to the U.S. Tax Court. This will normally get the case into Appeals for a possible settlement. If you do not settle at Appeals you will have several more opportunities to settle the case prior to trial. About 5 percent of the cases actually make it to trial.

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