Notice of Deficiency Letters

IRS envelope

Remember when you were in high school and you’d see your boyfriend/girlfriend in the hallways, but they weren’t smiling. Remember how you felt when they’d get to you and ominously say, “We need to talk…”?

Getting letters from the IRS is a lot like that, except you don’t feel as good as you did when it happened in high school. Most people become panicked, in fact.

And in panic mode, they make two very common—but very dangerous—mistakes:

  •  They ignore it, thinking that either the IRS will see the error of their ways, correct it, and never bother them again, or perhaps that the IRS will shuffle their file to the bottom of the stack, forget, and that some file clerk will accidentally drop their folder out of the window of a very tall building in a very big city, all will be lost forever and the IRS will give up;
  •  They REALLY panic and start calling the 800 number on the letter, even though it’s 6 p.m. and no one is in the office to talk with them. They leave a message, then they try again in 30 minutes, just to make sure. Then they’re up at 6:00 a.m., phone in hand, waiting for the stroke of 8 a.m. If they actually get to talk to someone, they’re lost and things get massively complicated quickly.

No, the best thing to do is to scan the letter, email it to me (after we establish a professional relationship, of course) and go have a delightful dinner and enjoy your evening with your family.

You see, sometimes when you saw your boyfriend/girlfriend in school and they said “We need to talk”, it wasn’t always a bad thing (but it felt like it for a bit). Sometimes they just wanted to talk, or sometimes there was a delightful surprise in it for you. I’m like that, a delightful surprise. My clients know to give the matter to me and go enjoy life. It may not be all roses and glitter—I can’t promise anyone that—but it most likely will be much better than what you first thought when you opened that letter.

For instance, I had a client freak out a few weeks ago. He got a Notice of Deficiency from the IRS. He got one for his business as well. IRS claims he was deficient in paying his taxes by $90,000, and that his business was deficient by $169,000. Honestly, I’d be a little freaked out too…..

But he forgot that I handle these things every day. He didn’t recall that I tell him every time I see him that I eat taxes for breakfast! I don’t really care how big (or small) the Notice of Deficiency is, what matters is how we handle it. In this case, the important thing is to file a petition with the Tax Court. You see, look at item #2 above—where folks start frantically calling IRS in hopes they can talk their way out of it. You can’t. Just like you aren’t going to talk your way out of a traffic ticket, you aren’t going to talk your way out of a tax deficiency from IRS.

If you get a Notice of Deficiency from IRS, the dirty little secret is that no one can help you! IRS actually loses their authority once they assess you as being deficient. The only way you can get relief is to file a lawsuit in Tax Court. And this is what I do on a regular basis.

My client isn’t going to pay $259,000. I’m going to continue to climb the procedural ladder until I can find someone who can understand the complexities of the deductions my client took (because some Revenue Agent couldn’t understand he disallowed them) and then negotiate the matter away.

If you have gotten a love-letter from IRS recently, give me a call and let’s chat a little. Don’t talk to anyone at IRS until you get some solid advice from me or some other experienced tax practitioner.