What is Tax Deficiency?
A tax deficiency occurs when there’s a difference in the amount of tax you report on your return and the amount the IRS calculates you owe – and the IRS will inform you of this discrepancy with a notice
A tax deficiency is usually identified when IRS computers compare the documents they received with the tax return submitted for the taxpayer. This includes the information obtained from employers, banks, and other businesses. When the tax you owe on your income – as determined by the IRS using information reported by these third parties – is higher than what you reported on your return, there’s a tax deficiency.
For instance, let’s say you’ve forgotten to include some income, but your employer submitted a W-2 for it – that’s a deficiency
Deficiency is a common issue associated with tax returns. A tax deficiency occurs when there’s a difference in the amount of tax you report on your return and the amount the IRS calculates you owe – and the IRS will inform you of this discrepancy with a notice.
How to Respond to a Tax Deficiency Notice
A notice of deficiency is a CP3219N or a 90-day letter. The notice will detail the discrepancies that have been documented, and you have 90 days to respond. It is important to act quickly if you have received a tax deficiency notice because the IRS can include court charges in the balance you owe, and interest and penalties continue to accrue. If you agree with the notice, you must sign the included form and send it back. There is no need to file an amended return. If you disagree, you can contest it. For this, you will have to get back to the IRS with an explanation and contact the third party (bank, employer, etc.) to correct any incorrectly reported income.