How to Deal With an IRS Notice of Deficiency
A notice of deficiency is a legal notice the IRS sends via certified mail to taxpayers informing them that the IRS has determined they owe additional tax.
If they choose to do so, the taxpayer has 90 days from the date of the notice to petition the United States Tax Court to challenge the IRS’s determination.
Learn why the IRS sends notices of deficiency and their significance for taxpayers.
Table of Contents
Definition and Example of a Notice of Deficiency
A notice of deficiency is an IRS notice informing a taxpayer that the IRS has determined they owe additional tax.
- Alternate Names: Statutory Notice of Deficiency, 90-Day Letter
- Acronym: SNOD
For example, if a taxpayer does not file a tax return for a given year, but the IRS believes they owe tax for that year, the IRS will send notices to the taxpayer telling them to file a tax return.
If the taxpayer does not file a tax return or otherwise satisfy the IRS’s inquiries, the IRS will eventually make its own determination of the taxpayer’s liability for the year and send the taxpayer a notice of deficiency.
How Does a Notice of Deficiency Work?
If the IRS believes that a taxpayer owes more tax than the taxpayer reported on their tax return or if a taxpayer does not file a tax return and the IRS determines that the taxpayer nevertheless has a tax liability, the IRS will begin sending letters and notices to the taxpayer.
In general, these initial communications either instruct the taxpayer to file the missing tax return, request that the taxpayer provide the IRS with documentation to support positions taken on their tax return, or inform the taxpayer that their return has been selected for an audit.
If after these initial attempts to resolve the issue are not successful or if the taxpayer does not respond to these communications by the IRS, the IRS will determine the amount of tax owed by the taxpayer and send them a notice of deficiency.
If the taxpayer agrees with the amount of tax the IRS has determined they owe, they can sign the notice of deficiency waiver that the IRS sends along with the notice of deficiency and pay the tax.
If the taxpayer does not agree with the amount of tax the IRS has determined they owe, they can either provide more information to the IRS in an attempt to resolve the dispute or petition the United States Tax Court within 90 days of the date of the notice of deficiency.
Taxpayers who live outside the United States have 150 days rather than 90 days to petition the Tax Court.
Petitioning the Tax Court gives the taxpayer an opportunity to legally challenge the IRS’s deficiency determination as well as prevent the IRS from assessing the tax and taking collection action until after the Tax Court has made its determination.
If the taxpayer does not respond to the notice of deficiency or petition the Tax Court within 90 days, the IRS will assess the determined tax and begin collection activity if necessary.
Types of Notices of Deficiency
The IRS sends different notices of deficiency to taxpayers depending on their situation.
IRS Letter 3219
The IRS sends Letter 3219 as a notice of deficiency to taxpayers with whom it conducted a correspondence audit that did not result in an agreement with the taxpayer.
IRS Notice CP3219A
The IRS sends Notice CP3219A as a notice of deficiency to taxpayers whom it determined underreported their tax liability on their tax return based on information the IRS received on tax documents prepared by third parties such as W-2s and 1099s.
Before sending the Notice CP3219A, the IRS generally sends the taxpayer a Notice CP2000 indicating the proposed deficiency and giving the taxpayer an opportunity to respond to the IRS with more information before the IRS sends the actual deficiency notice.
IRS Letter CP3219B
The IRS sends Letter CP3219B as a notice of deficiency to business taxpayers whom it determined underreported their tax liability on their tax return.
IRS Letter 3219C
If the IRS believes that the amount of a taxpayer’s withholding or refundable credits reported on their tax return may be inaccurate or falsified, the IRS sends the taxpayer Letter 4800C.
If the taxpayer does not respond at all or does not respond adequately to Letter 4800C, the IRS may send Letter CP3219C as a notice of deficiency to the taxpayer.
IRS Notice CP3219N
The IRS generally sends Notice CP3219N as a notice of deficiency to individuals who did not file a tax return but for whom the IRS determined owe a tax liability based on information provided by third parties.
Note that Letter 3219N is a variant of Notice CP3219N.
Letter 531
The IRS sends Letter 531 as a notice of deficiency to taxpayers with whom it conducted an in-person audit that did not result in agreement between the IRS and the taxpayer.
Letter 902
The IRS sends Letter 902 as a notice of deficiency for estate or gift taxes.
In the case of an estate, the fiduciary may petition the Tax Court.
Criticism of Notices of Deficiency
The Taxpayer Advocate Service is an independent service within the IRS whose mission is to ensure that taxpayers are fairly treated.
As part of its 2018 Annual Report to Congress, the Taxpayer Advocate Service identified lack of clarity in notices of deficiency as a “most serious problem” with the IRS.
In particular, the Taxpayer Advocate Service criticized notices of deficiency for not alerting taxpayers of their rights, not being written in plain English, and omitting information about where taxpayers can get help from their Local Taxpayer Advocate.
How to Deal With an IRS Notice of Deficiency, Step by Step
Here is a step-by-step guide on what to do if you find yourself the recipient of a notice of deficiency from the IRS.
Step 1: Read the entire notice of deficiency.
The first step is — no surprises here — to read the entire notice of deficiency.
This isn’t just to understand what the notice is saying but also to make sure that you are looking at a legitimate piece of mail from the IRS and not a scam letter.
Start by verifying that the notice is genuine and pertains to you.
Keep the envelope and any certified-mail receipts because they help prove timing.
Read the notice carefully, noting your name and address, the tax year or years involved, the IRS’s proposed changes, and — most importantly — the “Last Day to Petition.”
That 90-day deadline (150 days if you are outside the United States) runs from the date printed on the notice, not the day you opened your mail or the day it was delivered to you via certified mail.
Step 2: Put the 90-day deadline in your calendar.
Immediately put the petition deadline on your calendar and set multiple reminders.
If the last day falls on a Saturday, Sunday, or Washington, D.C. legal holiday, the deadline moves to the next business day.
Missing this date generally forfeits your ability to challenge the IRS in Tax Court before paying.
Step 3: Decide whether you agree, disagree, or need more time to evaluate.
After your first read-through, decide if you accept the IRS’s changes, dispute them in whole or in part, or simply need more time to investigate.
The clock continues to run regardless, so even if you are undecided, proceed with gathering documents and considering a protective Tax Court petition to preserve your rights.
Step 4: Gather records and organize your file.
Collect your filed return, W-2s and 1099s, bank and brokerage statements, receipts, invoices, mileage logs, and any earlier correspondence with the IRS.
Create a short summary of each proposed change and your response to it.
Organize everything by issue so you can present a clear story supported by documents.
Step 5: If you agree with the IRS, finalize the waiver and arrange payment.
When you agree with the proposed deficiency, sign the waiver form that usually accompanies the notice and arrange payment.
If you cannot pay in full, explore an installment agreement and consider requesting penalty relief, such as first-time abatement, if you qualify. Interest will generally continue to accrue until the balance is paid.
Step 6: If you disagree and want to try resolving directly with the IRS.
You may call the number on the notice and submit additional documents with a concise explanation of why the IRS’s adjustments are incorrect.
In rare cases, the IRS may agree to rescind the notice, but this is discretionary.
Crucially, conversations or document submissions do not pause the 90-day deadline, so continue preparing to petition Tax Court if resolution is not imminent.
Step 7: Consider filing a timely U.S. Tax Court petition to preserve your rights.
If you disagree and want judicial review without paying first, file a petition with the U.S. Tax Court on or before the deadline.
For disputes of $50,000 or less per tax year, you can elect Small Tax Case procedures, which are generally simpler and more informal.
File electronically through the court’s system or mail your petition using USPS certified mail or an approved private delivery service, and keep proof of timely mailing or electronic filing.
Attach a copy of the notice and state, in plain language, the issues you dispute and why.
Step 8: Understand what happens after you petition.
Once your petition is filed, the IRS is barred from assessing and collecting the proposed deficiency while the case is pending.
Most cases are routed to IRS Appeals to explore settlement based on your documentation.
Many disputes resolve at this stage.
If you do not settle, your case proceeds through pretrial steps and, if necessary, a trial before a Tax Court judge.
Step 9: If you miss the 90-day deadline, consider your remaining options.
If the deadline passes, the IRS will assess the tax and may begin collection actions such as liens or levies if unpaid.
You may still seek relief through audit reconsideration, particularly if you did not previously provide documents or the IRS used third-party information to compute your liability.
Another route is to pay and file a claim for refund; if the IRS denies the claim or fails to act within the statutory period, you can sue for a refund in District Court or the Court of Federal Claims.
If you later receive a Final Notice of Intent to Levy, you may request a Collection Due Process hearing within that notice’s deadline to challenge collection and, in some cases, the underlying liability.
Step 10: Avoid common pitfalls that jeopardize your case.
Do not assume that phone calls or informal discussions extend your deadline; they do not.
Do not wait to organize records until the last week.
Do not mail your petition without a trackable, timely postmark or electronic confirmation.
And do not ignore the compounding effect of interest and penalties when deciding between settlement, litigation, or payment options.
Step 11: Consider professional representation.
A qualified CPA, tax attorney, or enrolled agent can evaluate the notice, estimate your total exposure including penalties and interest, prepare a persuasive factual record, file your Tax Court petition on time, negotiate with IRS Appeals, and represent you in court if necessary.
Professional guidance can help you avoid missteps and may lead to a faster, more favorable resolution.
Key Takeaways
- A notice of deficiency is a legal notice sent by the IRS to a taxpayer informing them that they owe a certain amount of tax.
- When a taxpayer receives a notice of deficiency, they can choose to either agree to the notice and pay the tax, attempt to resolve the dispute with the IRS, or petition the United States Tax Court.
- If a taxpayer wants to petition the Tax Court to legally challenge the IRS’ determination of tax due, they must do so within 90 days of the date of the notice of deficiency.
Author:
Logan Allec, CPA, Founder and Owner
Logan Allec has been serving taxpayers as a CPA for over 14 years. After leaving his role at a "Big 4" firm, he started Choice Tax Relief to help everyday Americans who have found themselves behind on their taxes. He also educates thousands of people daily about tax relief on his YouTube channel. In addition to his CPA license, Logan also has a Master's Degree in Taxation from the University of Southern California (USC). He lives with his wife and children in the Los Angeles area. Learn more about Logan here.
