Deficiency Procedures

IRS Definition

A notice of deficiency must be issued when there is a proposed tax deficiency with which the taxpayer does not agree and:

1. The statute of limitations is imminent and no extension can be obtained,
2. The taxpayer does not respond to, or file a valid protest to, a 30-day letter, or
3. The taxpayer requests the issuance of the notice in order to petition the case to the Tax Court.

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The IRS follows certain rules called deficiency procedures to charge you taxes after an audit or CP2000/underreporter adjustment, or when the IRS prepares a tax return for you because you didn’t file one. Deficiency procedures mean that the IRS sends a series of notices:

1. First, you’ll receive a 30-day letter that shows the additional taxes, penalties, and interest the IRS thinks you owe. This letter gives you 30 days to appeal the proposed amount within the IRS.
2. If you don’t take any action after the first letter, or if your appeal within the IRS is unsuccessful, you’ll receive a 90-day letter (known as a Statutory Notice of Deficiency). This letter gives you 90 days to file a petition with the U.S. Tax Court to appeal the taxes.
3. If you don’t take any action after the 90-day letter, or if your Tax Court appeal is unsuccessful, you’ll receive a bill from the IRS for the taxes, penalties, and interest you owe.

If you want to appeal the taxes after you receive the bill, your only option is to pay the amount and then file a formal claim for refund.

Learn what to do if you receive a deficiency notice and can’t pay your taxes.