90-Day Letter

Understanding the 90-Day Letter: What You Need to Know About IRS Notices

Receiving a 90-Day Letter from the IRS can be daunting, but understanding its implications is crucial for taxpayers. In this comprehensive guide, we break down the definition of a 90-Day Letter, its significance, and what steps you can take to respond effectively.

Deciphering the 90-Day Letter

Definition and Overview

A 90-Day Letter, also known as a Notice of Deficiency, is an official notice from the Internal Revenue Service (IRS) indicating a discrepancy or error in an individual's taxes. It serves as a warning that unless contested, the taxpayer will be assessed with audit deficiencies within 90 days.

Timely Response

Upon receiving the notice, taxpayers have a limited window of 90 days (or 150 days for individuals residing outside the country) to respond. Failing to take action within this timeframe may result in reassessment of taxes and potential penalties.

Understanding Your Options

Agreement with Findings

If you agree with the IRS assessment and have no additional changes to make to your tax return, simply sign Form 5564, Notice of Deficiency, and return it with any applicable payment. This ensures compliance and avoids further interest or penalties.

Amendments and Adjustments

Should you wish to report additional income, expenses, or credits, you can file an amended tax return using Form 1040-X. Whether through online tax preparation services or with the assistance of a tax professional, this allows you to make necessary adjustments to your tax filings.

Disputing the Notice

In cases where you disagree with the IRS findings, it's essential to act swiftly. You have the right to dispute the notice within the 90-day timeframe by providing additional evidence or information to support your case. During this period, the IRS is prohibited from assessing or collecting the disputed amount.

Seeking Professional Assistance

Given the complexity of IRS proceedings, many taxpayers opt to enlist the help of tax professionals or attorneys, particularly for significant disputes. Their expertise can guide you through the dispute process and ensure your interests are represented effectively.

Consequences of Non-Compliance

Federal Tax Liens and Levies

Failure to address a Notice of Deficiency can lead to serious consequences, including the filing of federal tax liens against your assets or wage garnishment. However, payment plans and negotiations with the IRS can often prevent these measures, providing avenues for resolution.

Protecting Your Financial Interests

Understanding the implications of a 90-Day Letter is crucial for safeguarding your financial interests and maintaining compliance with IRS regulations. By taking proactive steps to address discrepancies and disputes, taxpayers can navigate the process with confidence and mitigate potential penalties.