In our 27 March blog, we discussed proposed IRS assessments based on Service-Filed (IRS) tax returns (“SFRs”). We also discussed how to rebut those SFRs by filing your own tax returns. However, an IRS Statutory Notice of Deficiency (“STAT Notice”) is a different animal altogether, and a proper and timely response is critical.
Simply put, a STAT Notice is the Government’s legal notice to you that it is making a final determination of tax due, as well as penalties and interest. If you ignore that legal notice and do not respond in ninety (90) days, the IRS considers that determination final and collectible by all means under the law (lien, levy, seizure, et al). See IRS website at IRS STAT Notice.
In the ninety (90) day window provided, you must file a petition in the United States Tax Court to preserve your rights. From taxpayers, I hear too often: “Well, I contacted the IRS on its 800# and they said the changes were fine, so I didn’t need to do anything else…”, or “I wrote a letter to IRS but haven’t heard anything further, so I assumed everything was OK…” Both are wrong answers. A telephone call or a letter to the IRS in response to a STAT Notice does NOT extend your ninety (90) days to respond or preserve your rights to correct the proposed assessment. I cannot stress enough the importance of filing a Tax Court Petition, even if only “protective” in nature.
For example, you receive a STAT Notice because you never filed a tax return and the IRS filed an SFR that you also ignored. You call the IRS and tell them that the amounts due in the STAT Notice are incorrect, and that you recently filed your own tax return to rebut the SFR. However, you are uncertain if your tax return will be processed and accepted by the IRS before your ninety (90) days is up. I recommend not gambling on processing times, or holding unbridled confidence in the faceless IRS Agent on the other end of the telephone line. Instead, I recommend filing a “protective” Tax Court Petition affirmatively disagreeing with the proposed tax, penalty, and interest on the grounds that you recently filed a tax return (that is contrary to the STAT Notice) and that your return is simply awaiting processing and acceptance. You can also request in your Petition that your case be routed back to IRS Appeals for review and processing. If accepted, you can then simply withdraw your Petition. For more information on how to file a US Tax Court Petition, see: US Tax Court Petition. See also, Responding to a 90 Day Letter, Journal of Accountancy, at: Journal Article.
Two important additional items concerning STAT Notices: one, carefully review how you are identified in the STAT Notice, and whether or not your last known address is correct. Whether you are identified correctly and whether your last known address is correct both affect the STAT Notice’s validity as legal notice to you; two, if all else fails (you ignore an SFR and let your ninety (90) days expire without a response), you may still get a “second bite of the apple” and a re-determination of tax due in bankruptcy under a 11 USC 505(a) hearing. However, the 505 approach requires a detailed and case-by-case discussion offline. Feel free to contact us if you desire to discuss that option individually.
The lesson here is simple. Even though it is easier to lock-up tax problems in some imaginary file drawer and “get to it later”, you simply cannot ignore the IRS forever. When you receive a STAT Notice, via certified mail, you must respond to it. Otherwise, you may significantly limit your options or even forfeit important legal rights with no shoulder to cry on later.