What is a 90-Day Letter?
What is a 90-Day Letter?
A notice from the IRS indicating that an individual’s tax records contain an error or discrepancy, and the agency will assess these unless the subject petitions the IRS. The notice allows the taxpayer a ninety–day period to respond; otherwise, the IRS proceeds with the reassessment process.
How a 90-Day Letter Works
The moment you as a taxpayer receive the notice, you have ninety days from the date of the notice to petition the United States Tax Court challenging the proposed IRS tax. The 90-day Letter is otherwise known as a Notice of Deficiency; the IRS usually sends this notice after an audit or when eligible taxpayers fail to file their tax returns or fail to report their income. Usually, taxpayers who don’t challenge the IRS assessment’s accuracy don’t need to amend their tax returns unless they have extra income, credits, or expenses to report.
If this the situation, you only need to sign Form 5564 or Notice of Deficiency and submit it to the IRS (attaching a check to stave off additional penalties or interest). Those who agree with the IRS notice but have other expenses, income, or credits to claim will need to fill Form 1040-X to amend the original tax return. You can fill this form personally, ask for your tax professional’s help, or use the online tax prep service. Those living outside the US have 150 days to respond to the IRS notice.
If you disagree with the IRS findings or believe the notice is incomplete, incorrect, or in some way mistaken, you may contact the IRS office and furnish more information to clarify matters. Never forget that you only have 90 days from the date the IRS indicates on the notice to challenge the case. For taxpayers who find that they’re dealing with significant amounts or claims, it is advisable to engage an attorney or other tax professional to help you handle the dispute process.
Real-World Example of a 90-Day Letter
Stacy Frank, a Texas resident, received a 90-day letter that comprises the government’s final determination detailing an assessable amount and a proposal to assess and collect the due tax. The four-paragraph letter clearly explained the law provisions that informed the government position. It also expressly stated that the government was ready to defend its position in the US Tax Court if the recipient mounted a legal challenge against the IRS determination.
Stacy had earlier submitted a joint tax return with her husband, Frank, who lives in Washington DC. The IRS issued each of them a copy of the letter at their respective last known address by mail.
The 90-Day Letter’s cover contained detailed instructions (in plain language) explaining Stacy’s options to contact the Tax Court and the deadline to file a petition if the respondent wished to do so. The letter informed Stacy that the 90-day period included weekends and holidays. Stacy disagreed with several articles in the letter. She immediately contacted her tax attorneys with instructions to mount a challenge in the US Tax Court before the legally specified period expired.
Significance of a 90-Day Letter
The receipt of a 90-Day Letter is an urgent call to take immediate action to avert a possible tax rebuttal. It’s crucial to understand the notification’s correct meaning and implications and determine the IRS letter’s purpose.
It’s helpful to review the letter’s details and cross-reference the current year’s original tax returns. Taking such action will help you decide whether you agree with the audit proposals or wish to contest the matter. To avoid the consequences, you must—by all means—respond to the 90-Day Letter within the specified 90 days.
Next, if you decide to challenge the proposals, contact the IRS. You may call the IRS office directly through phone call or by sending them a letter by mail. You may also petition the Tax Court to reassess, eliminate the liability, or correct the details the IRS proposes in the notice. Within this 90-day window, the law prohibits the IRS from assessing or putting your account into collections.
A 90-Day Letter vs. a 30-Day Letter
An IRS-originated 30-Day letter is a formal statement relaying the results of an individual’s audit. On receiving this notification, a taxpayer can either accept or challenge the changes the IRS proposes. Whatever the case, the IRS usually delivers a 30-Day Letter to the taxpayer a few weeks after the audit concludes. A taxpayer has 30 days to respond.
Further, a 30-day letter (also known as a Notice for Acceptance or Appeal) contains a document summarizing the auditor’s proposed changes or demands, a waiver or agreement form, and an IRS Publication 5 document. These documents explain how to pay, withhold, or anticipate tax estimates.
In a nutshell, the 90-Day Letter is a Notice of Deficiency in tax returns, while a 30-Day Letter is a Notice for Acceptance or Appeal against an audit result and proposal.