IRS Notice of Deficiency and Form 5564

May 5, 2024 | Tax Debt | Tax Notices

What is an IRS Notice of Deficiency?

An IRS Notice of Deficiency is an official letter you receive from the IRS if the tax agency determines that you owe them more money after you’ve already filed your yearly income tax return. This claim will happen if the IRS makes a legal determination that you owe additional income tax. This notice will note the unpaid tax debt plus interest and could potentially include penalties, too. The IRS might determine that you owe an additional burden if they discover the information you reported on your return doesn’t match their records or the records of other filers who reported income paid to you. The IRS may be assessing an additional tax from your income, estate, or certain excise taxes that they’ve determined you owe and haven’t paid. You can expect to receive this type of notice if a third-party filer reports income to the IRS that you didn’t or if you underreported your income.

What Is IRS Notice 3219A?

A Notice of Deficiency might also be called IRS Notice 3219A or a statutory notice. Your IRS Notice 3219A will fully outline exactly why the IRS is informing you about the deficiency and how the deficiency was calculated. The letter will describe the ‘proposed’ adjustments that the IRS is planning to make on your returns. Per the letter, you have about 90 days to respond to the assessment. The 90 days begins from the date that the notice is mailed off, not the date on which you receive the letter. If you do not respond to your letter within 90 days, then the IRS will automatically assess the tax deficiency and send you a bill. In most cases, receiving an IRS Notice 3219A won’t come as a shock. Typically, you’ll receive IRS notice CP2000 first, which is a preliminary notification about the possible discrepancy between your tax return and returns filed by other taxpayers reporting money they paid to you. For example, if a client sends a 10990NEC to the IRS and your tax return doesn’t show that income, the IRS will reach out to you about the discrepancy. If you don’t respond to that letter, you can expect Notice 3219A next.

What Is IRS Form 5564?

Form 5564 comes with IRS Notice 3219A. This form is a waiver, and you should take advantage of it if you don’t object to the IRS proposal and you’re willing to pay the deficiency without issue. To submit IRS Form 5564, get the waiver, sign it, and then mail it back to the IRS. You can also submit additional information, like your income and expense claims if you want to amend your original tax return using Form 1040-X. You’ll want to do this if you agree with the IRS’s deficiency proposal but you still want to provide more information to the tax agency. If you do not sign and return Form 5564 within 90 days or take action to file a petition with the tax court, then the tax burden, penalties, and interest payments outlined in the Notice will be levied against your account. You will receive a tax bill in the mail.

How to Respond to a Notice of Deficiency

You have multiple options when it comes to dealing with a Notice of Deficiency from the IRS. As outlined above, one option you have is to fill out Form 5564 and agree to the proposal. Another option is to file a petition with the US Tax Court and dispute the proposal. If you decide to go this route, then you’ll only have 90 days from the date the Notice of Deficiency is mailed to take action. Once you’ve filed a petition, the Tax Court will need to reassess your tax liability. This ensures that they don’t take the IRS’s proposal as fact. While reviewing your situation, the IRS will not be legally allowed to continue to issue new tax assessments or enforce collection efforts until your situation is resolved. Do you disagree with the proposal entirely? If so, you can also file an appeal. To do so, you’ll need to create a written statement that includes information that supports your argument. You can include information like expense reports or income records that disprove the tax proposal. If you do decide to go with this option, then you also have the right to ask the third party that provided the financial information to the IRS to amend their records with the correct figures for the tax year. When you’re not sure which option is best in your situation, then you might want to talk things over with a tax attorney or an IRS agent. In general, a tax attorney is more likely to advocate for your best interests, whereas an IRS agent is more likely to prioritize a timely payment when it’s possible.

Is a Notice of Deficiency a Bill?

No. Your Notice of Deficiency is not a tax bill. It is simply a proposal from the IRS. It’s not an accurate representation of anything that’s been levied against your tax account yet. If you owe back taxes or any amount to the IRS, then they will send you a specific notice that outlines exactly what you owe, the penalties you face, and details about how to resolve your situation.

Should I File a Petition with the US Tax Court?

You will want to file a petition with the US tax court if you don’t agree with the proposal sent by the IRS, but this isn’t an obligation. You have other options when it comes to managing your Notice of Deficiency. If you do want to file a petition, then you need to be sure to pay close attention to the date your letter was mailed. You’ll only have about 90 days to take action. The court will not consider your situation if you file your petition later than the 90 day period.

Do I Need to Go to Tax Court?

You’ll need to go to tax court when you disagree with the Notice of Deficiency and you want to dispute the determination. In these situations, it might be best to hire tax court representation. The right tax and legal advocate can help you gather the right documents to dispute the IRS’s claims and prove yours.

What if I Disagree With the Information in the Notice of Deficiency?

If you disagree with the information in the notice, then you can challenge the changes by petitioning the U.S. Tax Court. You can also file an amended tax return, file an appeal of the IRS’s decision, or request that the proposal be withdrawn.

When to Ask for a Deficiency Notice Withdrawal

When you know you genuinely don’t owe more taxes as outlined in the Notice of Deficiency, you can ask the IRS to withdraw the notice, proposal, and deficiency claims. To do so, you must complete IRS Form 8626, which is an agreement to rescind the notice of deficiency. You have up to 90 days from the date the notice was mailed to submit Form 8626.

If You Agree With the Notice, What Do You Need to Send?

If you agree with the proposal, then you’ll want to fill out Form 5564, sign it, and send it back to the IRS.

How Do You Fill Out Form 5564?

Filling out Form 5564 is simple. First, you’ll put in all your contact and personal details like your name, address, and tax identification numbers. Next, you’ll fill out any information about the tax, the tax years in question, and the amount owed. Sign the form and send it back to the IRS.

When to Use an Audit Reconsideration After a Deficiency Notice

There are times when you may want the IRS to reconsider your tax situation after sending you a Notice. You’ll want to use an audit reconsideration when you have new information about your tax situation that the IRS hasn’t seen yet, you disagree with the proposal, or you never sent the IRS the correct financial information.

What Happens If You Ignore IRS Notice 3219A?

If you ignore your Notice of Deficiency, then the IRS will proceed with the proposal. You’ll be issued an official assessment and tax bill. If you fail to respond to these notices as well, then collection efforts may ensue. Depending on your situation, collection efforts could include things like a wage garnishment or a tax levy.

What if I Can’t Pay the Deficiency in Full Right Away?

When you owe the IRS a tax debt that you can’t pay right away, you can usually submit to a payment plan in the form of an installment agreement. This type of payment plan allows you to pay off your tax debt over a period of time, and in exchange, the IRS will not pursue further collection efforts against you.

Do I Need to Talk to a Tax Professional if I Receive a Notice of Deficiency?

It depends on your specific situation, but speaking with a tax professional can help you make an informed decision on how to handle your Notice. The right tax advocate will fully explain your situation, inform you regarding your options, and help you decide how to move forward. If you’re already facing tax consequences, then a tax expert can help you navigate those challenges, too.

Are You Ready to Talk to a New York Tax Attorney?

Tax delinquency can become a serious concern if you avoid the situation long enough. From tax levies and wage garnishment to facing criminal charges, there are times when talking to a New York tax attorney is in your best interest. Are you ready to speak with a tax lawyer about your ongoing situation? Here at Timothy S. Hart Law Group, our firm is dedicated to helping clients with tax delinquency issues. We want to learn more about the details of your tax situation as well as your overall financial situation. From there, we’ll help you determine your best course of action by informing you about your potential options and tax solutions. When you’re ready to move forward, schedule a call with our firm.    

Attorney Timothy Hart

Timothy S Hart, the founding partner of the tax law firm of Timothy S. Hart Law Group, P.C. is both a New York Tax Lawyer & Certified Public Accountant. His area of expertise includes innovative solutions to solve your Internal Revenue Service and New York State tax problems, including tax settlements through the Federal and New York State offer in compromise programs, filing unfiled tax returns, voluntary disclosures, tax audits, and criminal investigations. [ Attorney Bio ]