Receiving a notice of deficiency can be a daunting experience for Washington taxpayers. It is an official notification from the IRS that you owe additional taxes, penalties or interest for a tax year. This notice is usually sent after an audit or examination of your tax return.
Read the notice carefully
The first step is to read the notice carefully and ensure you understand what the IRS claims. The notice will state the tax year in question, the amount of deficiency and the basis for the IRS’s claim. You should also review your tax return for that year to see if you agree with the IRS’s calculations.
File a petition
If you disagree with the IRS’s assessment, you can file a petition in Tax Court within 90 days of the date of the notice as per tax law. This will allow you to contest the deficiency in front of a judge. You should consult with a tax professional before filing a petition, as other options may be more appropriate for your situation.
Consider an offer in compromise
If you agree with the IRS’s assessment but cannot afford to pay the full amount of the deficiency, you may be able to negotiate an offer in compromise. You and the IRS agree to settle your tax debt for less than the full amount owed. You should consult with a tax professional to determine if an offer in compromise is a viable option for you.
Request an installment agreement
If you cannot pay the full amount of the deficiency but do not qualify for an offer in compromise, you may be able to negotiate an installment agreement with the IRS. This will allow you to pay the amount owed over time, in monthly installments.
It is important to respond promptly to a notice of deficiency. Failure to respond can result in the IRS taking further collection action, such as seizing assets or garnishing wages. If you need additional time to respond, you can request an extension from the IRS.
Dealing with a notice of deficiency
Receiving a notice of deficiency can be a stressful experience, but it is crucial to respond promptly and correctly to avoid further complications. If you are unsure how to respond, don’t seek knowledgeable help to avoid legal implications.