Taxpayers and Tax Preparers, Beware of Automated Notices of Deficiency

The IRS has stepped up its practice of issuing Notices of Deficiency without an audit. For example, if there is a mismatch between what was reported on a Form 1099 for a taxpayer and the income shown on the taxpayer's return, or the IRS computer fails to see the income shown on the Form 1099 was reported on the taxpayer's return, the IRS will issue an automated adjustment notice (called a CP-2000 notice), followed by an automated Notice of Deficiency (called a CP 3219A notice). There are many reasons a Form 1099 may not accurately reflect a taxpayer's income tax liability, and the IRS computer often gets it wrong.

These automated Notices of Deficiency (CP 3219A) typically resemble other IRS notices, except that they have the language "Notice of Deficiency" at the top. For whatever reason, we have seen taxpayers or their tax preparers simply write letters to the IRS in response to an automated Notice of Deficiency (like they would with other IRS notices). The problem with this is that writing letters to the IRS has almost become an exercise in futility, and the IRS regularly proceeds with collecting erroneous tax liabilities through liens and levies without any proper response to letters disputing the underlying assessment. Therefore, if a taxpayer receives a Notice of Deficiency, it is important for the taxpayer or counsel for the taxpayer to file a Petition with the U.S. Tax Court within the time prescribed, which can be done relatively easily and with minimal cost. See https://www.ustaxcourt.gov/petitioners_start.html. It can get much more difficult and expensive to resolve tax disputes if the taxpayer does not file a Petition with the U.S. Tax Court by the date prescribed in the Notice of Deficiency. A Petition with the U.S. Tax Court preserves the taxpayer's challenge to an erroneous proposed assessment, and typically results in a swifter resolution of the issues.