07 Jun How to Respond to the ’90 Day’ IRS Letter aka Statutory Notice of Deficiency – IRS Publication 3598
IF you find yourself ‘running out of time’ on the 90 day period, filing a tax court petition and paying court fees and representing yourself pro-se or hiring a tax court lawyer are last choice decisions. They are costly and tax court I hate to say it usually favors the government. The best solution is to manage the IRS Examination (aka Audit), IRS Appeals, and/or IRS Collections early and often to obtain the BEST outcome.
The problem with the 90 day letter is that it is an uphill battle to get the proposed assessment amount changed. If gone unchecked the assessment will proceed to IRS Collections and Collections will assume the amount is correct. It is possible to get the matter back to IRS Examination, but the IRS does not have to comply with that request. If the amount in the 90 day letter is not correct, and you have the documentation and tax authority backing your position, IRS Examination, Appeals, and/or Collections will want to settle the case. The trouble is that by the time the average taxpayer does anything about the 90 day letter there may not be enough time left to arrive at a resolution with IRS examination. Subsequently if a tax court petition is not filed timely, the taxpayer’s options become limited and resolution becomes potentially more expensive.
All of my cases are settled in IRS Appeals before the Tax Court Hearing date. I prefer not go to Tax Court. Also you are not going to Tax Court immediately if you petition, you will go to IRS Appeals as a docketed case, and you can most likely settle it there. You should try to work it out with the IRS, but you need to be prepared that if the 88th day comes, that you will need to petition the Tax Court to preserve your rights. I’m not a lawyer but I can tell you that filing the petition in tax court is not as daunting as it sounds. The first thing the court does is send the file to IRS Appeals to be worked out and that is where I come in. The tax court petition kicks a taxpayer’s file into appeals from wherever it is in the IRS system. If you can work it out with IRS before the petition is filed, that saves the fees for filing the petition and the additional correspondence required for dealing with the IRS attorneys.
I must say that from my own somewhat biased perspective it is much easier to get the total amount of an entire tax liability (covering multiple tax periods) established in IRS appeals where the IRS Appeals Officer can deal with the entire situation rather than spending copious amounts of time on the phone coordinating between IRS examination or IRS customer services (processing the past due or amended returns) and IRS collections for each specific tax matter and tax period.
Most anyone, be they an EA or CPA or a person with no professional training whatsoever, can assist other tax payers in tax court presuming the taxpayer with the court petition is willing to act on their own behalf. Before considering this route go to tax court and sit in that room and hear a proceeding. This is a valuable experience to learn how the tax court actually operates. Tax court proceedings are not the same as Federal Court. I’ve found the tax court judges offer more room for parties to argue cases which I consider to be a special talent. The proceeding is usually less formal but timeliness and preparation are demanded and the tax rulings themselves have been fairly predictable.
Filing a Tax Court Petition is ultimately a great tool in buying more time to prepare the necessary documents to prove the assessment should not take place. More than likely you will have 6 months after you file the petition before you even hear from an IRS Appeals Agent.
Keep in mind that as long as you have not signed and waived your dispute rights with a ‘closing agreement’ (IRS Form 906); a ‘compromise agreement’ or an ‘appeals agreement’ (IRS Form 870-AD) with the IRS you do not have to go to tax court. So before you SIGN ANYTHING be sure to consult with someone you trust.