Academic journal article Journal of Accountancy

Responding to a 90-Day Letter

Academic journal article Journal of Accountancy

Responding to a 90-Day Letter

Article excerpt

Under Sec. 6212(a) the IRS can issue a statutory notice of deficiency, also known as a 90-day letter, when it determines a deficiency in an income or estate and gift tax liability. A 90-day letter is a formal legal notice, sent by certified or registered mail.

Taxpayers have a statutory 90-day window from the date of the notice to either agree to the government's adjustments or file a petition with the Tax Court for a redetermination of the deficiency If the letter is addressed to a taxpayer outside the United States, the period is 150 days. Failing to agree to the adjustments or timely file a petition will result in the assessment of the tax and actions to collect it.

The notice of deficiency is presumptively correct and consists of a letter explaining the purpose of the notice; the amount of the deficiency; the name and contact information of an IRS employee; a description of the taxpayer's options; a waiver to agree to the additional tax liability; a statement showing how the deficiency was computed; and an explanation of the adjustments, including additions to tax and/or penalties.

Most deficiencies are resolved without a 90-day letter. However, a notice sometimes must be issued to protect the government's interests. The criteria for a statutory notice of deficiency are simple. First, there must be a proposed deficiency with which the taxpayer does not agree. Then one of three criteria must be met:

1. The statute of limitation on assessment 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 (a preliminary notice of unagreed deficiency that gives the taxpayer an opportunity to request an administrative review by the IRS's Office of Appeals); or

3. The taxpayer asks for the notice to petition the case to the Tax Court.

Essentially, the 90-day notice is the government's final determination of an assessable amount and its proposal to immediately assess and collect the tax.

The government's position on every unagreed issue must be explained in the notice of deficiency. This is to tell a taxpayer of the adjustments in a clear and concise manner and to explain the government's position(s) on each adjustment being made. Standardized explanations for certain adjustments may be modified for specific facts, but more complicated explanations may be written by IRS attorneys. …

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