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Personal Finance

How to Respond to a Notice of Deficiency

If the IRS completes an examination of what you owe and proposes changes, the agency sends a notice of deficiency. It’s also called a CP3219N Notice, 90-day letter, or Letter 531. 

The letter informs you about the proposed changes and your legal rights for appeal. 

IRS notices can feel stressful, especially when you’re unsure how to respond. Here’s everything you need to know about a notice of deficiency from the IRS, including the steps to take in response. 

What is a notice of deficiency?

Taxpayers receive a notice of deficiency when the IRS completes an examination of taxes owed and proposes changes. The analysis might be because you didn’t file a tax return or because of another tax-related error. The agency sends several notices before the notice of deficiency. 

Here’s a sample notice of deficiency from the IRS website:

IRS sample notice of deficiency
Source: IRS

If you don’t respond to the initial notices, the IRS sends a notice of deficiency, CP3219N, through certified mail. This can help you identify it as an official communication from the government.

The notice of deficiency is a letter—Letter 3219 or IRS Letter 531—that outlines the proposed changes, including the amount you owe and income information. The IRS calculates those numbers based on your earnings and other income employers report. The tax balance on the notice also includes penalties and interest, which accrue on unpaid taxes.

Once you get the notice, you must respond. The following response timelines apply to the notice of deficiency. 

  • 90 days: If you live within the United States, you have 90 days from the date of the notice to file an appeal or complete your tax return. If you don’t believe you need to file a return, call the number on the top right of your notice as soon as possible. 
  • 150 days: If you live outside the U.S., you have 150 days to file an appeal or submit your tax return. 

The sooner you respond to the notice of deficiency, the better. It can take time to follow the steps for an appeal or gather documentation for a tax return. Read the information carefully to understand what you need to do.  

Why did I get an IRS notice of deficiency?

The IRS sends notices of deficiency after completing an examination of your tax return and proposing changes to the amount you owe. The statement provides information about the changes, including requests for a missing tax return or updates on the amount you owe. The letter also includes steps you can take to resolve the issue. 

You will receive other communication from the IRS about your tax situation before the notice of deficiency. When you don’t respond to the initial messages and letters, the IRS sends a notice of deficiency. It’s the final step before the IRS begins collecting unpaid taxes with a lien or levy. 

If you fail to respond, the IRS will take additional steps to collect payment, including seizing assets. To avoid further action, respond within 90 days, or 150 days if you live abroad. 


Our expert’s advice

Erin Kinkade

CFP®

I’ve worked with individuals who received phone calls from a person who stated they were a representative calling from the IRS and used scare tactics such as saying the individual owes taxes and must pay immediately. In my experience, these scammers target older adults. Remember: The IRS will not call a taxpayer; they’ll send letters in the mail. A phone call should be the first sign it’s a scam.


How to respond to a notice of deficiency

Regardless of how you proceed, you must take action before the response deadline, usually 90 days. 

Here’s what to do depending on your situation:

If you agree

If you agree the notice is correct, you can file your tax return or mail the Response form. Both actions indicate that you agree with the tax assessment and want to resolve the issue.

  • Response form: The Response form is with the notice. Complete the form and return it to the address listed on the paperwork. Include any relevant information about your return or taxes, especially if you believe the amount you owe differs from what’s on the notice. You still need to pay any taxes you owe, and the form indicates you intend to do so. 
  • File your tax return: You can complete your tax return online or include a copy when you mail your Response form. If you’ve submitted your return in the last 12 weeks, you don’t need to do anything.

If you disagree

You can file a petition or contact the IRS if you disagree with the notice of deficiency and think it needs to be revised. Depending on the situation, one option might be better than the other. 

  • File a petition: If you want to challenge the notice, you can file a petition with the U.S. Tax Court online or in the mail. The Tax Court will review your petition and provide guidance for the next steps. You must file the appeal before the deadline, typically 90 days from the notice of deficiency.  
  • Contact the IRS: You can contact the IRS if you believe the notice of deficiency is inaccurate but you don’t want to file a petition. Call the number at the top right of your notice, or mail a letter to the address on the Response form. 

What happens if I don’t respond to a notice of deficiency?

Whether you owe the IRS money or the IRS owes you money determines the next steps once you fail to respond. If the IRS owes you money, you can expect payment minus any penalties or fees. 

If you owe money, the IRS will begin the collections process, which often involves a lien. Once the IRS files a lien, the agency can levy your assets to collect payment. It’s a stressful process, often involving wage garnishment and bank account levies. 

How to get help with your notice of deficiency

If you need help handling a notice of deficiency, you have options. The following agencies and professionals can help. 

  • Taxpayer Advocate Service (TAS): The TAS is an independent agency within the IRS that assists taxpayers in navigating the tax system. If you need additional guidance about how to proceed after receiving a notice of deficiency, the TAS can help. To get started, you can use the TAS Qualifier Tool or call 1-877-777-4778.
  • Tax attorney: Tax attorneys are qualified lawyers specializing in tax law. A tax attorney can help if you have a complex tax issue related to your notice of deficiency. Many attorneys bill hourly, but some might offer tax assistance packages. CFP® Erin Kinkade recommends working with a professional “in circumstances that prove to be overwhelming to the taxpayer or where they don’t have the time, as well as other special circumstances.”
  • Tax relief company: Tax relief companies offer professional tax assistance services for a fee. If you’re overwhelmed or do not have time to contact the IRS or file an appeal, working with a tax relief company might be a cost-effective way to settle your tax debt

Expert tip

Erin Kinkade

CFP®

Working directly with the IRS is always an option if you feel comfortable and competent. In addition, you could consult a trusted friend or family member with experience in dealing with the IRS to help you.


FAQ

What are the types of deficiency notices?

The two types of deficiency notices are Letter 3219 and Letter 531. Letter 3219 is for when the IRS conducts the audit by mail, and Letter 531 is sent when the audit occurs in person. An I-693 deficiency notice from the U.S. Citizenship and Immigration Services indicates you need to submit a medical exam form for immigration purposes and is unrelated to taxes.

Can notices of deficiency be issued for state taxes?

State tax agencies handle taxes differently than the IRS and don’t send notices of deficiency. However, state tax agencies will notify you if there’s a change to your tax return or the amount you owe. The notices are often similar to those from the IRS but have a different name. 

How long does the IRS have to file a notice of deficiency?

Due to the Assessment Statute Expiration Date, the IRS must assess taxes within three years after the return due date. Exceptions to the rule exist, but you’ll generally receive a notice of deficiency within three years. However, the IRS has longer to collect taxes and can continue to collect up to 10 years after the assessment.