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Have you or your business received a Notice of Deficiency from the IRS?
While often intimidating or worrisome, the Notice of Deficiency serves as a notice from the Internal Revenue Service that it believes you or your business may owe more in taxes than you paid when you filed your return. This notice has the legal effect of assessing additional taxes against you. If you do not address the issues raised in the notice the government may obtain the right to collect money from you including through such means as garnishing your bank account.
These notices will state first that it is a notice of deficiency, tell you the amount of tax owed, and identify the tax periods that are in question.
Sometimes, before adding additional tax the IRS will send you or your business a letter of "Proposed Deficiency", which means they plan to assess you additional taxes but have not yet done so. Not all taxpayers may receive this Proposed Deficiency letter. If the IRS determines that you or your business does in fact owe additional tax, it is required by law to send you the Notice of Deficiency.
Depending on which letter you receive from the IRS, you have the right to contest the amount of taxes you may owe. You may have the right to file an appeal with the IRS, where an Appeals Officer will review your case. You may also have the right to contest your case in Tax Court where your case can be argued in front of an independent judge.
However, the most important step when receiving any letter from the IRS is to reply within the number of days stated in the letter. Not doing so may cause you and your business to lose any rights to contest or appeal the newly assessed tax.