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How to Respond to an IRS Notice of Deficiency: Your First Steps

how to respond to IRS notice of deficiency

No one ever wants to receive an IRS notice. Often, getting these notices means more money spent on taxes – or worse. The IRS sends notifications for different reasons, including late payments, tax debts, or discrepancies in the amount of your tax return. 

The IRS often informs you about the discrepancies through the CP3219A: Statutory Notice of Deficiency, outlining why you’re experiencing a tax increase for that particular year.

But why exactly do you get this notice? And, how do you respond to an IRS Notice of Deficiency?

Why Did I Receive a CP3219A Notice? 

Before getting a CP3219A Statutory Notice of Deficiency, the IRS may send you the CP2000 Notice first. This happens when the IRS obtains information from a third party—such as your employer or financial institutions—that doesn’t match the ones you reported on your return.

Ignoring the CP2000 Notice may prompt the IRS to escalate the situation. If you fail to respond despite receiving numerous letters from the IRS, you may receive the CP3219A Notice. This notice is different from a tax bill. Much like the CP2000, this letter from the agency notifies you of the details that may affect your tax dues.

You receive this letter from the IRS because you may have underreported your income or have incorrect claims for deductions and tax credits, which could mean an increase or decrease in your taxes. The notice also includes the details used to assess possible tax return adjustments.

This IRS letter also contains the steps to take should you agree with its findings and how you can file a petition with the U.S. Tax Court if you disagree with the proposed amount.

What to Do When You Receive a Notice of Deficiency

Getting an IRS notice can be stressful. Receiving a deficiency notice can overwhelm you, especially if you’re being charged with the wrong amount. But, you must stay calm and keep a level head. Here’s how to respond to the IRS deficiency notice, so you’ll know what to do without making hasty conclusions. 

If you agree with the notice 

Before doing anything, thoroughly read the notice. You don’t want to miss out on any crucial details that may result in further complications. 

The CP3219A letter comes with Form 5564, also known as the Notice of Deficiency form. If you accept the proposed adjustments, you must sign and return it to the agency. For additional income, credits, or expenses, you must amend your original tax return by submitting a Form 1040-X

If you owe extra tax money, signing the form means you accept the obligation of paying it, including interests and penalties on the unpaid tax debt since it is considered a late payment.

If you disagree with the notice

If you find something amiss or think it may have been a mistake, you can always contest the supposed deficiency with the IRS. Here is how to do it:

  1. Clarify with the IRS 

Contact the IRS immediately. You can use the number indicated on the notice or email them. Request an explanation of why you received the notice and what you must do to remedy the issue.

  1. Gather supporting documents 

If you dispute the proposed tax adjustments, make sure you have supporting documentation proving that the agency made a mistake with its reporting. Mail your documents with Form 5546 back to the IRS.

  1. Request a tax transcript from the IRS 

Ask for a breakdown of your tax bill. This breakdown can help you pinpoint where the mistake occurred, so you know what supporting documents to provide in your dispute.

  1. Write a statement on why you disagree with the decision

In most cases, the IRS will consider the information you provide regarding an incorrect tax return reporting over the phone. However, you may want to send a mail or fax stating your disagreement. Remember to affix your signature to the letter.

  1. Contact a tax resolution expert

When in doubt, enlist the help of tax negotiation services. Tax professionals have the proper knowledge and skills to negotiate your case. They can also assist you with the best possible course of action should you receive a Notice of Deficiency from the IRS.

Know You’re Paying the Right Tax Amount

Receiving an IRS notice is no one’s fancy, as it can mean more tax debts than you can handle. However, the IRS sends notifications for various reasons, . Ones a discovery of discrepancies in your submitted tax return information that may change the amount of taxes you owe to the government. 

You might feel alarmed or overwhelmed, especially if you disagree with the proposed adjustments requiring considerable sums. That’s why it’s essential to know how to respond to a Notice of Deficiency and ensure you’re paying the correct tax amount. 

If you’re faced with a tax problem and need an expert to help you settle the issue, reach out to us at Peace of Mind Tax Help. Our team is composed of leading experts in tax negotiation and mediation. Contact us today and see how we can help you minimize your tax liability.

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