Being contacted by the IRS with a Notice of Deficiency is enough to send most individuals and businesses owners into panic mode. Though it is certainly something to be concerned about, peacefully resolving a court case involving taxes can be done if you take the right steps along the way.
Responding to Notice of Deficiency
The first thing to keep in mind when you receive a Notice of Deficiency is that you have 90 days to respond. Before the end of those 90 days, no levies can be assessed. In some cases, you and your CPA can resolve the issue before the 90 days is up. What you do not want to do is contact the IRS for two reasons:
- The IRS cannot reverse their determination and will drag their feet and allow the 90 days to expire, winning their case by default.
- Though they claim to be your advocate, what will really happen is that you will be manipulated into signing a Notice of Deficiency Waiver (form 4089B), which is an agreement on your part that you owe them money. This is an admission of guilt that cannot be reversed.
If you want to have any chance of peacefully resolving court cases involving taxes, do not contact the IRS when you receive a notice of deficiency.
Filing a Petition
Before the 90 day period following delivery of the Notice of Deficiency expires, you will need to file a petition to the tax court nearest you. Though you can file this on your own, it is a pretty good idea to allow a tax attorney to do it for you and begin the process well armed and well advised about what is going to take place.
After the filing of a petition, the IRS has 60 days to respond to the petition. What typically happens is that the case is transferred to IRS Appeals and every attempt it made to make an out of court settlement instead of going to trial. You will want someone like Travis W. Watkins tax resolution firm representing your interests in this process.
Your best bet of winning or reducing your penalty can be negotiated and settled during this out of court settlement.
Presenting Your Case
Though you might be able to represent yourself, the vast majority of individuals are not able to do so, and you should avoid it even if you can. Attorneys are better equipped and much more experienced in presenting a tax court case and will notice things with their objective eyes that you will miss because you are emotionally invested in the procedure. Your best bet is to focus on getting your documents in order while your tax attorney focuses on the legal procedures.
Your expectation of winning in tax court should be fairly low, because the IRS will have made an out of court settlement unless it has an extremely strong case to present. In fact, the taxpayer only wins about 14% of the cases they present. If you lose in tax court, there is the opportunity to make an appeal, unless it is considered a small case, in your US District Court of Appeals.
A Notice of Deficiency does not need to throw you into panic mode. If you recognize and follow the procedures we have discussed above, a court case involving taxes can be resolved peacefully. Make sure your documents are in order and you have a knowledgeable and experienced tax attorney to represent you if you have any expectations of a positive outcome.