An IRS Notice of Deficiency, also known as a 90-Day Letter, is a formal legal notice sent by the IRS when they believe a taxpayer owes additional taxes. The notice is typically issued after the IRS has conducted an audit or reviewed a tax return and determined that the taxpayer underreported income or claimed deductions or credits they were not entitled to.
The Notice of Deficiency gives taxpayers 90 days to dispute the proposed tax assessment by filing a petition with the U.S. Tax Court. If the taxpayer disagrees with the IRS’s findings, they can use this period to challenge the assessment or present additional information to correct the IRS’s understanding of their return.
If the taxpayer does not respond within the 90-day window, the IRS will proceed with assessing the additional taxes, penalties, and interest. It’s crucial to respond promptly to a Notice of Deficiency to avoid escalating penalties or more aggressive IRS collection actions.