A 90-day letter, officially called a Notice of Deficiency, is a formal notice from the Internal Revenue Service (IRS) that you owe additional income tax beyond your original return. It is usually sent after the IRS completes an audit or examination and disagrees with your reported tax figures.
This letter is crucial because it starts a 90-day countdown—the timeframe in which you must respond if you disagree with the IRS’s proposed changes. The Notice of Deficiency gives you the unique right to petition the U.S. Tax Court to contest the assessment without paying the disputed tax first. Missing this deadline means the IRS can finalize the tax assessment and begin collection actions such as liens, levies, or wage garnishments.
Background and Purpose
The 90-day letter process was created to protect taxpayers’ rights, offering a formal opportunity to challenge the IRS’s tax adjustments before payment is required. Historically, before the establishment of this process and the U.S. Tax Court, taxpayers had limited options to dispute assessments prior to enforcement. The Notice of Deficiency ensures due process by providing an independent venue—the Tax Court—for tax disputes.
How the 90-Day Letter Works
The letter typically comes after several IRS steps:
- Initial Audit or Examination: The IRS reviews your tax return and finds discrepancies.
- Proposed Adjustment (30-day letter): The IRS sends a preliminary notice explaining the proposed changes and offers 30 days to respond.
- Your Response Options: You can agree and pay, provide additional documentation, or request an IRS Appeals Office conference.
- If No Agreement is Reached: The IRS issues the 90-day letter by certified mail. The mailing date marks the start of your 90-day deadline to act.
Once you receive the 90-day letter, your options include:
- Accept and Pay the Tax: Pay the additional tax amount owed.
- File a Petition with the U.S. Tax Court: Contest the IRS findings without paying first. The petition must be submitted within 90 days.
- Pay and Seek Refund Through Court: Pay the tax, then file a refund claim with the IRS. If denied, sue in U.S. District Court or the Court of Federal Claims, a process often more costly and time-consuming.
Real-Life Scenarios
Typical reasons for receiving a 90-day letter include unreported income, questionable deductions, or disallowed tax credits. For example:
- A freelancer omits some cash payments, prompting IRS adjustments.
- A taxpayer claims travel deductions later deemed personal vacations.
- A family incorrectly claims an expired educational credit.
In all cases, the 90-day letter signals a formal dispute phase before the IRS can finalize the tax deficiency.
Who Receives a 90-Day Letter?
Any individual or business facing unresolved IRS audit issues and potential additional tax liability can receive this notice. It applies across income levels and types of taxpayers, including individuals, small businesses, and corporations.
Key Tips for Responding
- Act Quickly: The 90-day deadline is strict and begins on the letter’s mailing date.
- Review Carefully: Understand the IRS’s reasoning and proposed adjustments.
- Seek Professional Help: A tax attorney or enrolled agent experienced with Tax Court can provide invaluable assistance.
- Prepare Documentation: Collect relevant records to support your case.
- Consider Petitioning the Tax Court: This preserves your right to dispute before paying.
- Don’t Ignore It: Failure to respond leads to enforced tax collection.
Common Mistakes to Avoid
- Ignoring the letter can result in enforced collection without further review.
- Misunderstanding the deadline’s start date can cause missed opportunities to dispute.
- Believing you must go to trial if filing; many cases settle during appeals.
- Assuming only large taxpayers receive these notices; IRS issues them based on discrepancies, not income alone.
Frequently Asked Questions
Can I extend the 90-day deadline? No, except if the 90th day falls on a weekend or holiday, the deadline moves to the next business day.
What if I don’t respond? The IRS assesses the tax and may begin collection actions like liens or levies.
Do I need a lawyer to petition the Tax Court? While you may represent yourself, professional legal or enrolled agent help is highly advised.
Can I still appeal after receiving the 90-day letter? The letter often follows Appeals process, but Tax Court petitions can lead to IRS Appeals involvement before trial.
Is the 90-day letter the same as a tax bill? No, it is a proposed assessment giving you a chance to dispute before it becomes a final bill.
Additional Resources
For more on filing a petition or understanding the Tax Court process, see our Tax Court Petition article. Learn about the IRS audit process to understand how audits lead to such notices. For details on the formal Notice of Deficiency itself, see CP3219B Notice.
Authoritative External Reference
Refer to the official IRS resource on Notices of Deficiency via IRS Tax Topic 651 for comprehensive guidance on your rights and the process.
By understanding the 90-day letter’s role, deadlines, and your response options, you can effectively navigate IRS disputes and protect your financial interests.
