Notice of Deficiency

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Notice of Deficiency: What it Means and How to Respond

Definition

A notice of deficiency (also called a statutory notice of deficiency or commonly CP3219A) is an official IRS communication that states the agency’s proposed increase to a taxpayer’s tax liability. It represents the IRS’s legal determination that additional tax is owed based on discrepancies between a filed return and the IRS’s records.

Key points

  • It is issued after the IRS proposes changes to a return and determines there is a tax deficiency.
  • Typical triggers include mismatches with third-party information (employers, banks, etc.) or failure to respond to a pre-assessment 30-day letter.
  • The notice explains the proposed adjustments, how the deficiency was calculated, and the taxpayer’s options to accept or dispute the changes.

How the process works

  1. IRS examination or information mismatch prompts a 30-day letter (a pre-assessment notice). The taxpayer has 30 days to respond.
  2. If the issue is not resolved, the IRS issues the notice of deficiency. The notice formally proposes the additional tax, plus interest and potential penalties.
  3. The notice gives a strict 90-day (statutory) window from the mailing date to file a petition in U.S. Tax Court. This 90-day period cannot be extended and is counted from the date mailed to the taxpayer’s last known address. The notice states the last day to petition.
  4. While the 90-day period is active—or until a Tax Court decision is final—the IRS generally cannot assess or collect the tax shown on the notice.
  5. If the taxpayer neither files a petition nor signs a Waiver (Form 4089) within 90 days, the IRS will assess the tax, penalties, and interest and may send a bill and begin collection actions.

Options after receiving a notice

  • Sign Waiver Form 4089 to accept the changes and allow the IRS to assess immediately.
  • File a petition in U.S. Tax Court within 90 days to dispute the deficiency without first paying the assessed amount.
  • Respond to the notice with documentation or engage with the IRS (often through a tax professional) to attempt resolution before assessment.

Practical advice

  • Compare the notice’s figures to your filed return and any third‑party forms (W-2s, 1099s).
  • Act quickly—missing the 90‑day deadline generally forfeits the ability to litigate in Tax Court.
  • Consider consulting a tax attorney, CPA, or enrolled agent for complex disputes or if amounts are large.

Outcome and consequences

A notice of deficiency itself is not an immediate tax bill, but if no timely action is taken, the IRS will assess the tax and pursue collection, including interest and penalties. Filing a timely petition preserves the taxpayer’s right to challenge the proposed deficiency in Tax Court.