While receiving an IRS notice of deficiency in the mail will make anyone’s knees quiver, most tax discrepancies result from honest errors and can be resolved in short order. Here's what to know.

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When the IRS establishes that your tax account owes money – perhaps due to a missed tax payment, an incorrect calculation on your part, or an error on your return – it will inform you of the discrepancy on your tax account through the mail. One of the first things the IRS will do is send you a 30-day letter. It is called a 30-day letter because you have a whole month to respond to the IRS before it will process the discrepancy and put it froth on your account. This means you have a month to challenge the IRS’ findings – failing will officially put you in tax debt. At this point, the IRS will send you a notice of deficiency (NOD). But, this is the IRS informing you that you owe them income tax money, and you should pay them as soon as possible.

Understanding Your Notice of Deficiency

A 30-day letter should alert you to the problem the IRS has discovered. A notice of deficiency should go on to inspire even further agency. One way or another, the IRS will do its best to get its hands on the money owed – and in the meantime, it will begin to levy penalties on your tax account for every month that your debt goes unpaid. From the day you were issued your notice of deficiency, you have 90 days to respond with evidence disputing the IRS’ decision or take them to tax court over the matter.

If you do not believe that you owe additional taxes or are underpaid and have the evidence to prove it, take this opportunity to call a tax professional and schedule a consultation. You may have a chance at appealing the IRS’ decision – but only a trained attorney or tax professional can make the call on that based on your circumstances. If you cannot dispute the IRS’ claims and do owe a tax debt, then contacting the IRS to resolve the matter as soon as possible is within your best interests. Otherwise, things can change quickly and go from bad to worse. If you agree with the IRS’ estimation, the notice will instruct you to sign a Waiver Form 4089.

What Will the IRS Do Next?

The notice of deficiency itself is not a tax bill. It does precede your tax bill, however, and after either the entire 90-day period has elapsed, or after the IRS has received your waiver form in writing, they will be able to charge you for the tax due. Your failure to respond to the IRS at this point will result in collection actions. Don’t worry – the IRS will continue to take its time here unless your tax debt is substantial or you are a flight risk. Tax debt doesn’t disappear overnight, unfortunately.

It is difficult to get rid of, and even if you are in a financially dire situation, bankruptcy might not be the best way out. Tax debts do expire, but it takes ten years (plus any applicable tolling periods or extensions) – and the IRS, as a powerful creditor backed by the government, has several ways to claim your wealth involuntarily. Then there’s also the fact that intentionally avoiding your tax debt can give the IRS grounds to charge you with a crime. All in all, one way or another, you must deal with your tax debt and ideally do so quickly.

Notice of Federal Tax Lien and Levies

Let’s say you received your notice of deficiency about a month ago. You know you owe the IRS money, and the IRS knows it too. It hasn’t heard back from you. Can you expect a SWAT team to knock down your doors and arrest you? No, not quite. If you do not intend to let the IRS know that you agree with their assessment, they can continue to penalize your tax account and add to your debt at a steep rate.

Interest rates are also applied to underpayment and overpayment of tax (i.e., tax refunds), so time is of the essence here. Once the IRS establishes that you do not intend to pay your tax debt back as soon as possible, it can begin to apply pressure on your tax account via a public notice of a federal tax lien. Tax liens are a creditor’s legal insurance of their claim on your wealth over that of other creditors.

When a creditor applies a lien, they effectively tell further potential and current creditors that their debt supersedes the others and must be paid off first. Furthermore, a lien keeps you from selling or liquidating any of your assets without first satisfying your debt with the government. It is a financial ball and chain. It is also a public ball and chain. All creditors can see whether a person is under a federal tax lien, which massively undermines their ability to seek credit or get financing.

It also makes it harder for you to secure a debt, as the IRS technically claims everything you own. In the past, tax liens imposed an even harsher punishment on taxpayers in the form of a black mark on your credit score, roughly on the same level as a bankruptcy. This mark would last about seven years, affecting your ability to seek financing, lease cars or property, or get a mortgage even after you’ve paid off your debt.

Thankfully, all major credit reporting agencies have stopped lowering credit scores in response to a federal tax lien. But that does not make them any less public. Levies are something else. When people talk about the IRS claiming houses and cleaning out your bank accounts, they talk about a levy. However, it isn’t something the IRS does lightly. Levies are the IRS’ last resort to satisfying your debt and only an option when all attempts at establishing a payment plan have been exhausted.

There’s no other way to secure your tax liability. The IRS can theoretically even claim your home but will usually avoid it. Instead, the IRS cleans out bank accounts, investment properties, and rental properties, and if you own nothing else, you can begin claiming a portion of your monthly wages through your employer.

What If You Can’t Pay?

The IRS is not entirely inflexible. If your financial situation is dire enough, you can negotiate a more feasible payment plan over the long term, usually about six years. If you cannot pay off your entire debt over 72 months and can prove that you do not have the financial means, the IRS may lower your debt through an offer in compromise (OIC) settlement. However, you must make that offer yourself, and the IRS can reject it. It is in your best interests to deliver a realistic offer that matches the IRS’ expectations based on your financial information, as provided through a Collection Information Statement.

When even an offer in compromise isn’t on the table, you can seek low-income taxpayer help to declare yourself temporarily not collectible. This forces the IRS to cancel collection actions until your financial situation improves (your debt will still incur applicable penalties and interest, however). Liens and levies are powerful collection tools. But you can stop them. Talk to a tax professional about establishing a payment plan or negotiating with the IRS.

Receiving an IRS notice is very stressful, so what should you do if you receive an IRS notice of deficiency CP3219A? Here's what to know.

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Receiving letters or notices from the IRS is often a mixed bag. Sometimes it’s good news (like a tax refund), and sometimes it’s nothing (like informing you of a minor change in your return). But sometimes, just sometimes, it’s something that makes the little hairs on the back of your neck stand up for a bit – like being informed that you owe the government money and are short. This means that any refunds you had don’t cover the bill the IRS has written for you and that you have a due balance for the taxman. When the IRS wants to communicate this, it will do so through a notice of deficiency, or CP3219A letter.

What Is an IRS Notice of Deficiency?

The IRS notice of deficiency is a letter informing the reader that there has been a proposed change in their due taxes and that this change has led to increased due tax. The letter, also known as a CP3219A letter, will usually come after the IRS informs you of inconsistency in your tax information or tax return, such as a CP2000, which explains that the IRS’s information doesn’t match up with what you provided. It’s important to note the language here. The notice of deficiency sounds severe, but one of the first things the IRS will note is that it’s a proposed change. You do have some recourse here. Knowing this – and acting as soon as possible – is essential. Let’s go over the letter in some more detail.

Examining Your CP3219A Letter

First and foremost, the IRS sends a CP3219A when it wants to inform you of a proposed change to your taxes that would result in a bigger tax bill. The notice also informs you of your option to either supply additional information to refute the IRS’s findings or appeal the US tax court decision. Take note of the information the IRS provides, as per the section of the notice titled “Changes to your tax return.” It is crucial to notice CP90 implications for taxpayers since this notice can indicate potential issues with tax credits or liabilities. Failing to address the concerns outlined in the CP90 may lead to further penalties or complications in your tax situation. Be proactive in seeking assistance or clarification if you receive this notice to ensure your responsibilities are managed appropriately.

If you disagree with these changes and have the information needed to correct them, you can get together with a tax professional to create a formal response defending your position and providing the appropriate information. On the other hand, if you wish to amend your return and add income, credit, or expenses, you can do so through Form 1040-X, which is used to amend your return. Attached to the notice is Form 5564. Fill out and sign this form to agree to the proposed changes. understanding your cp14 notice process can help you navigate the necessary steps and respond appropriately. Familiarizing yourself with the details on the notice, including timelines and required forms, will ensure you don't miss important deadlines. Additionally, seeking assistance from a tax professional can provide clarity and guidance tailored to your specific situation.

What to Do After Receiving an IRS Notice of Deficiency

What you do next depends on how accurate the IRS is with its assessment. If you do owe taxes, you will want to consider how you can best repay them. If the due balance is small, it might be enough to head over to the IRS’s official payment plans and look at your options for a direct transfer to the IRS, in a lump sum or overtime. But if the debt is more substantial, you may want to consider paying in installments or looking into other options.

If you have proof that you do not owe taxes, it’s still in your best interest to contact a tax attorney. You will want personal representation when discussing the potential for an appeal with the US Tax Court, not the Independent Office of Appeals. You have 90 days to petition a challenge with the US Tax Court if the IRS still hasn’t made a decision you agree with after receiving the information you have for them. Either way, you will also have to prepare any information you can to corroborate your claim that the IRS is wrong about its assessment, including receipts, transcripts, bank statements, etc. It’s important to be aware of common IRS notices for taxpayers, as these can provide crucial information regarding your tax status. Understanding the types of notices you might receive, such as a notice of deficiency or an audit notice, can help you prepare an appropriate response. Stay informed and organized to ensure you meet any deadlines or requirements outlined in these communications.

Understanding the IRS Collection Process

While it’s not something you should worry about if you get your ducks in order quickly enough, the IRS has access to an arsenal of tools to pursue a debt. This collection process works through claiming priority over other creditors through a tax lien, to claiming your wages or assets in a tax levy. Acting on notices and as they come in – or getting in touch with a tax professional as soon as possible – will help you prevent further collection actions by the IRS and help you negotiate a reasonable payment plan with them. Understanding notice of deficiency details is crucial to ensuring that you respond appropriately and in a timely manner. The notice typically outlines the IRS’s findings regarding your tax return and any discrepancies they have identified. By thoroughly reviewing these details, you can better prepare your argument against the findings or make arrangements for resolution.

Complying With the Notice

If you agree to the contents of the notice, then filing a Form 5564 means waiving your right to petition the IRS’s decision within the next 90 days. Regardless of whether you contact them, the IRS will follow up notice CP3219A with a bill for the additional tax you have incurred and any applicable penalties and interest. In addition to understanding the implications of Form 5564, you should also be aware of the filing requirements for form 8821, which allows you to authorize a third party to receive your confidential tax information. Ensuring that you meet the necessary conditions for this form can help facilitate communication between you and your tax representative. It's essential to keep track of all filing deadlines to avoid any potential issues with the IRS.

Note that there are additional penalties for failing to pay promptly (5 percent per month, up to 25 percent over 5 months). There is no limit on interest. When you decide to create a payment plan for your tax debt, there may be a chance for you to get any penalties applied to your tax debt waived under certain circumstances. Consider talking to an attorney about whether or not you apply for penalty relief. Note that your options for payment include:

• • Full payment.
  • Payment in short-term lump sums (less than 120 days).
  • Payment in monthly installments (more than 120 days).
  • Reduced payment (via an offer in compromise) only under certain circumstances.

Considering an Appeal to IRS Notice of Deficiency

If you are considering an appeal and have exhausted any potential to work with the IRS, prepare all your relevant information beforehand and get a consultation with a tax attorney and tax litigation professional. You will be asked to file a petition with the US Tax Court, which means it will ultimately be up to a judge to review the evidence and make a decision. Here at Rush Tax Resolution, we get the clear answers you need to your tax debt and litigation questions. Give us a call today for a free consultation.