Getting a letter from the IRS is never fun—but a Notice of Deficiency (also called a “90-day letter”) is one you can’t afford to ignore. It’s the IRS’s way of saying: We think you owe more tax than you reported. The good news is that you have options. Here’s what you need to know and what to do next.
What Is a Notice of Deficiency?
- It’s a formal legal notice that the IRS believes you owe additional tax.
- It is not a bill—it’s your chance to dispute the IRS before they assess the tax.
- You have 90 days (150 if you’re outside the U.S.) from the date on the notice to act.
Why You Might Receive One
- The IRS disallowed deductions or credits you claimed.
- They believe you underreported income.
- An audit or third-party reporting (like W-2s or 1099s) didn’t match your return.
Your Options After Receiving a Notice
- File a Petition with the U.S. Tax Court
- Must be done within 90 days.
- Lets you challenge the IRS without paying first.
- Agree and Pay
- If you agree with the IRS, sign the waiver and pay.
- This stops interest and penalties from growing.
- Negotiate or Settle
- You may still be able to work out a deal, such as an Offer in Compromise or an installment agreement.
- Get Professional Help
- This is where a tax attorney can make a big difference.
Why You Should Consider a Tax Attorney
While CPAs and enrolled agents are excellent for tax preparation and audits, a Notice of Deficiency is a legal matter. Here’s why a tax attorney may be the better choice:
| Tax Attorney | CPA / Enrolled Agent |
|---|---|
| Can represent you in U.S. Tax Court | Cannot represent you in Tax Court (unless they’re also admitted to practice there) |
| Trained in tax law and legal strategy | Trained in accounting, compliance, and tax preparation |
| Can negotiate settlements and handle complex disputes | Can assist with audits, filings, and IRS correspondence |
| Attorney-client privilege protects your communications | CPA-client privilege is limited and weaker in IRS disputes |
Bottom line: If your case could end up in Tax Court—or if you’re facing significant tax liability—a tax attorney is often the best advocate.
Practical Steps to Take Immediately
- Read the notice carefully—note the deadline.
- Gather your records—income statements, receipts, prior returns.
- Decide quickly whether you agree or want to challenge.
- Consult a tax attorney—especially if the amount is large or you believe the IRS is wrong.
- Don’t ignore it—after 90 days, the IRS will assess the tax and begin collections.
Final Takeaway
A Notice of Deficiency is serious, but it’s also an opportunity. You have the right to challenge the IRS before paying a dime. Acting quickly—and with the right professional help—can protect your finances and give you the best chance at a fair outcome.
Disclaimer:
This post does not constitute legal advice and does not create an attorney-client relationship, it is merely a general discussion of points of the law and may not be complete or up to date. Please contact our office for a consultation to discuss how tax laws may be relevant to your specific situation.