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How to respond after receiving a Notice of Deficiency CP3219A
What to do about your IRS Letter CP3219A Notice of deficiency
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Wednesday, September 25, 2024 at 12:38:59 AM UTC
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Table of Contents
What is a Notice of Deficiency?
Why Did You Receive a Notice of Deficiency CP3219A?
Tips on reviewing the IRS Notice of Deficiency
If you agree with how the IRS calculated your tax bill
If you disagree with how the IRS calculated your tax bill
Gather proof to support your position
Update or recreate your bookkeping records
Organize the documentary proof for easy presentation
What is a Notice of Deficiency?
A notice of deficiency is a document that IRS is required to issue if a taxpayer disagrees with the results of an audit. It represents the final notice before the IRS can proceed with collection actions. Upon receiving a Notice of Deficiency, taxpayers have 90 days (150 days if the notice is addressed to a person outside the United States) to respond.
Why Did You Receive a Notice of Deficiency CP3219A?
You received a notice of deficiency or CP3219A because the IRS completed an examination or audit of your tax return and is proposing an increase in the amount of tax you owe.
Tips on reviewing the IRS Notice of Deficiency
Review the notice carefully and note the following information in the notice,:
Your name and address (are they correct),
Your taxpayer ID no. (SS no. or EIN),
The deadline to file a petition with the US tax court (on the top right of letter in information block, last line)
The year or years involved and the amount of the tax deficiency and penalties, if any.
Form 4549, Income Tax Examination Changes or Form 5278, Statement – Income Tax Changes is included with the notice. It shows how the IRS figured out the tax increase and contains an explanation of each item of income and expense which the IRS proposes to adjust, such as:
Unreported income items.
Disallowed deductions.
Mistakes on the return.
What Are Your Options?
Agree with the Changes: If you accept the proposed adjustments, you should arrange payment for the additional tax due. All of the usual alternatives to pay the tax are available, for example installment agreement, partial payment installment agreement, Offer in Compromise, other options.
Dispute the Adjustments: If you disagree, you have 90 days to file a petition with the Tax Court to challenge the proposed changes
Resolution of the Notice of Deficiency will result in determination of the amount of the tax liability.
How the tax will be paid will come later. After the amount of the tax liability is determined, your case will be transferred to the IRS Collections Division. Payment of the tax liability will be resolved with the Collections Division.
If you agree with how the IRS calculated your tax bill
You may pay the amount of the tax liability in full.
You may request to pay the amount pursuant to an installment agreement, an offer in compromise or other collection alternative.
If you disagree with how the IRS calculated your tax bill
You must contest the notice by filing a petition with the U.S. Tax Court.
Act quickly, you have 90 days from the date of the notice to file the petition.
You may file a petition electronically or you may prepare and file a paper petition. The instructions for filing electronically are included in the Notice of Deficiency.
It is timely filed if the United States Postal Service postmark date is within the 90-day period.
The U.S. Tax Court is located in 74 cities, and your case will be assigned to one you select.
The great majority of cases filed in the U.S. Tax Court are settled.
Interpretation of Tax Law
Your disagreement with the IRS audit may be due to difference of interpretation of a tax law. In such case, the assistance of an attorney would be needed. For example, see Estate of Glassman v. Commissoner involving the issue of whether a penalty assessment was properly authorized by an IRS supervisor.
Steps for Filing the petition
Gather proof to support your position.
The specific documents needed depend on the nature of the income claimed to have been underreported or the deduction that had been disallowed. The following is a list of commonly used documents:
Zelle, Venmo, bank statements, and other similar documents to prove the absence of undisclosed income and to clarify that specific deposits are merely transfers between two bank accounts rather than earnings.
Forms from third parties submitted to the IRS concerning the income you've earned. For instance, for self-employed individuals, Form 1099-K is used to report payments you've received for goods or services throughout the year via credit, debit, or stored value cards, including gift cards (payment cards), as well as payment applications or online marketplaces.
Proof a deposit was a loan or gift, and not income.
Investment statements to show cost basis.
Business income records to prove no income had been omitted.
Proof of deductions
For deductions, the following types of documents are commonly used to verify the deductibility of expenses.
Bank statements and credit cards statements to support the payment for an expense.
Invoices and receipts that show the date, amount and purpose of the expense.
Canceled checks that have been cleared by the bank to serve as proof of payment.
Contracts and agreements to verify that certain expenses are legitimate business expenses.
Mileage and travel logs that record the date, purpose and miles driven to prove travel expenses.
Update or recreate your bookkeping records.
It may be necessary to update or recreate your bookkeeping records to prove the amount of business expenses. Accounting and bookkeeping software such as Quickbooks is very useful to organize your business expenditures.
Organize the documentary proof for easy presentation
Presentation is very important. The less work the IRS attorney must do to understand your position, the better is your position.
Frequently Asked Questions
Q: Do I have to go to Washington, DC?
A: No, The U.S. Tax Court is located in 74 cities, and your case will be assigned to one you select.
Q Is there a fee to file a Petition?
A Yes, the fee is currently $60. The fee may be waived by filing an Application for Waiver of Filing Fee.
Q: Can I get a deduction even if I don’t have all of my records to prove deductions?
A: Yes, if you have a reasonable basis to determine them the Cohan rule may be used to estimate them. Also, your verbal testimony may supplement the documentary proof.
Q: Is the IRS represented by an attorney?
A: Yes, attorneys in the Chief Counsel’s office.
Q: Can I have my case determined by the IRS Independent Office of Appeals?
A: Yes, immediately after the audit, a 30-day letter was issued giving you the opportunity to protest IRS Appeals. If you failed to protest or were not satisfied with the result at IRS Appeals, the Notice of Deficiency, IRS Letter CP3219A or 531, was issued giving you the right to petition the U.S. Tax Court. Once the Notice of Deficiency is issued you can no longer protest IRS Appeals. However, if you did not first go to IRS Appeals, the attorney representing the IRS may seek the assistance of IRS Appeals with settling the case.
Q: Is it true that the issuance of the Notice of Deficiency is the beginning of a tax court case?
A: Yes, in the sense that if you do not file a petition in the U.S. Tax Court in response you can no longer have your case heard in the tax court.
Need help?
Thomas F. DiLullo & Associates, PC has represented individual and business taxpayer in the U.S. Tax Court in a wide variety of tax cases. We have the advantage of having some of our tax pro team members being attorneys and CPAs.
Many different issues were involved, including unreported income, deductions which were disallowed, losses were, penalties abatements, payroll tax issues, offer in compromise rejections, fraud penalties, civil penalties and others matters.
Our clients have included individuals, LLC, Corporations and S Corporations, Partnerships, and unincorporated businesses. Thomas DiLullo and his team offer expert assistance in handling IRS disputes.
About the Author
Thomas F. Dilullo, Esq.,CPA
Thomas F. DiLullo brings a powerful combination of legal and financial expertise to tax resolution as both a licensed attorney and Certified Public Accountant. With over three decades of experience, Mr. Dilullo has mastered the intricacies of tax law and accounting, providing unparalleled service to individuals and businesses facing complex tax challenges.