Quick summary

A Notice of Deficiency (commonly called a “90‑day letter”) is the IRS’s formal notification that it intends to assess additional tax, penalties, or interest. The notice lays out the proposed changes, explains the taxpayer’s right to petition the U.S. Tax Court, and starts a strict countdown: typically 90 days to file a petition (150 days if the notice was mailed to an address outside the United States) under Internal Revenue Code §6213. If you don’t file, the IRS can assess the proposed amount and begin collection actions.

This article explains what the notice contains, the timeline and your options, how to prepare a focused response, and when to involve a tax professional. The guidance reflects IRS rules and common tax-practice standards current as of 2025 (see IRS sources cited below).

What the Notice of Deficiency looks like and what it contains

Most Notices of Deficiency include:

  • A clear statement that the IRS proposes a deficiency and the tax years affected.
  • A breakdown of items the IRS adjusted (e.g., unreported income, disallowed deductions, changes to credits).
  • The amount of proposed additional tax, penalties, and interest.
  • The statutory right and deadline to petition the U.S. Tax Court (90/150 days).
  • Instructions for how to petition and where to send the petition (or how to contact the IRS for more information).

Important: the Notice is not the same as an audit report or a final assessment. It is a pre-assessment document that gives you the right to challenge the IRS in Tax Court without first paying the proposed tax.

Sources: IRS guidance on Notice of Deficiency and U.S. Tax Court rules (see links at the end).

What happens if you ignore the notice

If you do nothing:

  • After the 90/150‑day window expires, the IRS can formally assess the proposed deficiency.
  • Once assessed, the IRS can begin collection activity (levies, liens, wage garnishment) and add interest and additional penalties.
  • Your ability to challenge the matter in Tax Court without first paying disappears — you would need to pay the assessed tax and then sue for refund in U.S. District Court or the U.S. Court of Federal Claims, which is a different process.

In short: ignoring the notice typically removes your best procedural protections.

Your main options after receiving the notice

  1. File a timely petition in U.S. Tax Court (within 90 or 150 days). This preserves your right to litigate the correctness of the proposed deficiency without paying first. The Tax Court handles disputes over tax liability, not collection disputes.

  2. Pay the proposed amount (or a negotiated portion) and sue for a refund in U.S. District Court or the U.S. Court of Federal Claims. This is an option if you want a jury trial (available only in district court) or different procedural rules apply.

  3. Negotiate with the IRS before assessment. In some cases you can supply documents or enter into pre-assessment discussions to resolve items without going to court.

  4. Request representation. If you don’t want to deal directly with the IRS, authorize a representative using IRS Form 2848 (Power of Attorney) so a CPA, enrolled agent, or attorney can act for you. See our guide on using a power of attorney during audits and appeals: Using a Power of Attorney (Form 2848) During an Audit or Appeal.

Step‑by‑step response checklist (practical workflow I use in my practice)

  1. Read the notice immediately and note the mailing date. That date starts the 90/150‑day clock.
  2. Preserve the envelope — it helps prove mailing date if there’s a dispute about timeliness.
  3. Compare the IRS adjustments to your records. Identify exactly what they’re challenging (income item, deduction, credit, etc.).
  4. Gather clear supporting documentation: bank records, broker statements (Form 1099s), invoices, contracts, receipts, canceled checks, and correspondence.
  5. Decide whether to respond informally or file a petition. If the dollar amount or legal issues warrant it, plan to file a Tax Court petition. If you need time to collect documents, don’t miss the 90‑day window — file the petition and continue building your case.
  6. Consider retaining representation. For complex issues (large proposed amounts, corporate matters, business valuation, complex investments) a tax attorney or experienced CPA can improve outcomes.
  7. If negotiating with the IRS, document every exchange in writing and keep copies.
  8. If you file a Tax Court petition, follow the court’s filing rules exactly and serve the IRS as required. Missing procedural steps can be costly.

In my practice, even when the adjustment seems small, I advise clients to assemble a concise packet of evidence and a short cover letter explaining why the IRS figures are incorrect — clarity matters.

Evidence types that matter most

  • Third‑party statements (Form 1099, W‑2, brokerage 1099s) confirming income or loss.
  • Bank statements and deposit records for unexplained income or transfers.
  • Receipts, invoices, and mileage logs for deduction support.
  • Contracts, closing statements, and settlement sheets for real‑estate or business transactions.
  • Expert reports (valuation, forensic accounting) when the dispute involves complex valuation.

The IRS trusts verifiable, contemporaneous documentation over recollection. If you reconstruct records, explain the process and provide as much supporting material as possible.

Timing nuances and deadlines

  • Statute: The Tax Court petition deadline is generally 90 days from the date of mailing of the Notice of Deficiency; 150 days if the notice was mailed to a person outside the U.S. (IRC §6213). Always verify the mailing date shown on the notice.
  • If the 90/150 days will expire before you can collect key documents or secure representation, file the Tax Court petition before the deadline to preserve the right to litigate; you can continue discovery and evidence collection after filing.

Settlement and alternatives to Tax Court

  • Many cases resolve before trial. The IRS Office of Appeals can settle disputes based on hazards-of-litigation and other considerations. If you prefer settlement, contact the IRS appeals officer assigned to your case or seek to have the case transferred to Appeals.

  • When to involve Appeals: if the IRS examiner is firm and you believe you have a strong legal position or realistic settlement expectations, moving to Appeals can be efficient. See our article on when to escalate an audit dispute to the IRS Office of Appeals: When to Escalate an Audit Dispute to the IRS Office of Appeals.

  • You can also negotiate collection alternatives after assessment (installment agreements, offer in compromise), but those are post‑assessment remedies and don’t replace the benefit of contesting liability before assessment.

Practical examples (anonymized client scenarios)

  • Example 1: A freelancer received a notice alleging unreported 1099 income. We produced bank records and a corrected 1099 from the payer; the IRS rescinded the adjustment after documentation.

  • Example 2: A business owner received a Notice involving gross receipts. We filed a Tax Court petition to preserve rights while assembling sales records and third‑party statements; the case settled in Appeals for substantially less than the proposed deficiency.

These examples illustrate two points: (1) timely, organized evidence often resolves the issue, and (2) filing a petition preserves your options while you prepare your defense.

Common misconceptions

  • Misconception: A Notice of Deficiency is the same as a final assessment. It is not — it is a proposed assessment and provides the right to challenge in Tax Court before assessment.

  • Misconception: You must pay before you sue. If you file a timely Tax Court petition, you may litigate without first paying the proposed deficiency.

  • Misconception: Only complex taxpayers get these notices. Any taxpayer with a discrepancy — individuals, businesses, estates — can receive one.

Resources and next steps

Professional disclaimer: This article is educational and does not replace personalized tax advice. For a specific tax notice, consult a qualified tax professional (CPA, enrolled agent or tax attorney) who can evaluate your facts, deadlines, and options. In my practice, early organization and clear documentation materially improve outcomes for clients.

Authoritative citations:

  • Internal Revenue Code §6212 and §6213 (statutory basis for Notice of Deficiency and Tax Court petition deadlines).
  • IRS guidance: “Understanding Your Notice of Deficiency” (IRS.gov).
  • U.S. Tax Court rules and procedures (ustaxcourt.gov).

If you need help locating forms or filing instructions, contact a licensed tax professional or visit IRS.gov for the latest forms and court instructions.