Tax Attorney – Seattle Notice of Deficiency – Bellevue Tax Court Petition

The deficiency process begins with an examination. If the Service believes additional tax is due because adjustments were made to the taxpayer’s taxable income, a 30 day letter is normally sent. This letter affords the taxpayer the opportunity to protest the adjustments to the Appeals Office before litigating.

If the taxpayer and the Appeals Office cannot reach an agreement, the Appeals Office will issue a Notice of Deficiency (the “90 day letter” or, as some call it, the “ticket to the Tax Court”). If the taxpayer wishes to pursue the matter in court without first having to pay the proposed deficiency, the taxpayer must file a Petition with the Tax Court within 90 days of the notice, or within 150 days if the notice is addressed to a person outside the United States. The matter gets docketed with the Tax Court and a docket number is assigned. The Service must generally answer within 60 days of the date of service of the petition.

If the parties cannot settle the case, they must try the case. Should the court hold in favor of the Service in whole or in part, the taxpayer is liable only to the extent the Tax Court so holds. Once the taxpayer properly petitions the Tax Court, the petitioner is bound by the decision of the Court, unless overturned on appeal.

The taxpayer can pay the taxes owed, claim a refund with the Service and, if disallowed, file a complaint in either the Federal District Court or the Court of Federal Claims. If a deficiency in income, estate, or gift taxes is involved, the taxpayer can petition the Tax Court without first paying the amount asserted. In addition, if a debtor has sought protection under the bankruptcy provisions, the Bankruptcy Court can determine the extent of debt to the Service when a debtor has petitioned for relief under Title 11 of the U.S. Code.

The most significant practical reason most taxpayers go to the Tax Court with respect to deficiency determinations is money. (If the dispute is not deficiency-related, of course, the taxpayer has no choice but to pay and go to a court other than the Tax Court.) To have the taxpayer’s deficiency case heard in the Tax Court, the taxpayer does not have to first make payment of the amount in dispute. By contrast, in order to take a deficiency-type case to the District Court or the Court of Federal Claims, the taxpayer must make payment of the entire asserted amount for the years in issue. The amount of the deficiency in a Tax Court case is not determined until after the court’s decision. Assessment of the tax is thus delayed, with interest accruing (for corporations, at a rate one percent more than what the taxpayer is entitled to if an overpayment were to arise). By contrast, because full payment of the tax is required in refund actions, interest is no longer accruing against the taxpayer.