The Internal Revenue Service… if the name is enough to make you shudder, even when you do everything strictly by the book, then you’re not alone. There is something unsettling about having to contact the IRS, and when you see an envelope in your mailbox with the IRS’ return address on it, that feeling intensifies, not least because any kind of notice from the IRS usually means you are going to have to pay them some money.
One of the reasons for receiving a notice from the IRS is because whatever it was you wrote on your tax return is not the same as that which was sent in by an employer or your bank, or some other third party. In this case, you’ll most likely receive a CP3219A, more commonly known as an IRS notice of deficiency. The name of the notice sounds scary enough, but what does it actually mean, and what will you have to do if you receive one?
The IRS Notice of Deficiency Explained
When you receive an IRS notice of deficiency or CP3219A, it’s because there’s a discrepancy on your tax return. Your name and social security number have been linked to a third party, and what they’re saying you earn is not the same as what you’ve told the IRS you earn – or something similar.
Whether it was taxes, expenses, or your income, if the two figures don’t tally up, you’ll be seen as ‘deficient when it comes to the information you wrote on your tax return, and the IRS will charge you for that. They’ll adjust your tax amount, and it will align with the third party’s information rather than your own. And the thing that you’ll need to remember is that they won’t ask for any more information and they won’t inform you that it’s happening. The first you’ll hear about it is when you receive the IRS notice of deficiency through the mail.
However, don’t let that scare you (too much). You don’t have to pay the missing amount immediately unless you agree that you forgot to include something or you made a mistake, in which case you can certainly pay up, and the issue will have been dealt with. If you don’t agree with the IRS notice of deficiency, you will have a chance to declare this; the form will give you some options – namely, you agree, or you don’t, and if you don’t, you have to explain why, and you have to provide evidence. Helpfully, the IRS will also give you the information you need if you choose to file a petition with the US Tax Court.
The IRS notice of deficiency is, in simple terms, a note to let you know that there was an error and that you need to reconcile the difference that the IRS noted in your tax payment, or you need to explain why there is nothing to reconcile. It’s not a bill. It’s not an audit. It’s information – but you can’t ignore it. That would be a big mistake that could lead to all kinds of problems that you don’t need to deal with.
Plus, a notice of deficiency from the IRS isn’t always a bad thing – you might have paid too much tax.
What Happens If You Agree With The IRS Notice Of Deficiency?
Your mail has arrived, and there is a dreaded envelope containing something from the IRS. You open it, read the notice of deficiency, and realize that you made a mistake because you forgot about something or miscalculated. The reasons for the error that lead to the IRS notice of deficiency aren’t necessary; understanding that you made a mistake and that the IRS is correct is what you need to focus on here.
All you need to do in this case is to sign Form 5564 (notice of deficiency – waiver), which the IRS will have sent with the CP3219A, which states that you agree with the changes and that you can’t think of any other amendments that need to be made to your tax return, send it back, and that’s it. Apart from paying any extra you owe, that is. Unfortunately, because this additional payment is technically late, you will also need to pay the penalty and potentially interest too.
If you realize that you missed out on some other information, you’ll need to complete Form 1040-X; this will amend your original tax return.
What Happens If You Disagree With The IRS Notice Of Deficiency?
If you disagree with the IRS notice of deficiency, you will need to collect any supporting evidence to show that you are right and that the IRS is wrong. This will need to be shown to the IRS as soon as possible; leaving the IRS notice of deficiency unanswered will mean additional interest and penalties if it turns out they disagree with your evidence.
The first step is to contact the IRS. Find out exactly what it is you need to do to resolve the issues that had led to the CP3219A being sent in the first place. It might be that they will accept your information over the phone, but if not, they will tell you and will ask you to respond by mail. When this happens, Form 5564 will need to be sent back to the IRS along with all the collated evidence; remember to check the deadline as if you miss it, you’ll automatically have to agree with the notice of deficiency, even if you have proof that it’s wrong.
You will also need to contact the third party who gave the additional – non-matching – information to the IRS. Speak to them and give them your evidence regarding why they have made a mistake, asking them to change their information. It may merely be a mistake on the third party’s behalf.
If all else fails, you may contact us directly, and we can guide you through the process.
Although it’s continuously worrying to receive any kind of notice from the Internal Revenue Service, whether it’s an IRS notice of deficiency or something else, you should never ignore it. That will only lead to additional charges and missed deadlines.
If you receive an IRS notice of deficiency, all it means is that someone, somewhere, has made a mistake. It might be you, it might be your employer, but solving the issue and either paying what you owe or giving your evidence to the IRS must be done quickly and accurately. In this way, the problem will be over before it becomes something you do need to worry about.