IRS Notice of Deficiency — What It Means and What To Do Next
If you’ve received a letter from the IRS called a “Notice of Deficiency”—or anything mentioning a proposed tax increase and a 90-day deadline—you’re holding one of the most important IRS documents. What you do in the next 90 days will shape your options for years to come.
This isn’t a bill or a demand for payment. It’s a legal notice. If you miss the deadline, you could lose your right to challenge the IRS before paying anything.
What Is a Notice of Deficiency?
A Notice of Deficiency—sometimes called a 90-day letter—is an official IRS document saying you owe more tax than you reported for one or more years. The IRS sends it after reviewing your return through an audit or examination and deciding you owe more.
The Notice of Deficiency serves two distinct legal purposes:
First, it officially tells you the IRS wants to charge you more tax and gives you the chance to challenge it before it’s final.
Second, it gives you the right to ask the U.S. Tax Court for an independent review—without having to pay the disputed tax first.
This second purpose is critical. In most federal courts, a taxpayer must pay the disputed tax first and then sue for a refund. The Tax Court is the one venue where you can challenge the IRS’s position before paying — and the Notice of Deficiency is your ticket in.
The 90-Day Deadline — Why It Is Absolute
You have 90 days from the notice date (or 150 days if you’re outside the U.S.) to file a petition with the U.S. Tax Court. This deadline is strict—miss it, and you lose important rights.
If you don’t file your Tax Court petition in time, the IRS’s proposed tax becomes final. The IRS can then start collecting—adding penalties and interest, and using enforcement actions like liens or levies. You’ll lose the chance to challenge the original audit findings.
There are very limited circumstances under which a late petition can be accepted — and none of them are easy to establish. The only reliable protection is to act before the deadline expires.
If you get a Notice of Deficiency, count from the notice’s date—not when you received it. Get professional help right away.
What Happens After You Receive a Notice of Deficiency
You have three options when you receive a Notice of Deficiency:
Option 1 — Do nothing:
If you don’t respond in 90 days, the proposed tax becomes final and the IRS will start collecting. You lose your chance to dispute it. Doing nothing is almost never the right choice—even if you think you owe the tax.
Option 2 — Pay the tax and file a claim for refund.
If you agree you owe the tax and want to stop interest, you can pay and then file a claim for a refund. If denied, you can sue for a refund in federal court. This requires paying first and skips Tax Court.
Option 3 — File a petition with the United States Tax Court.
This option lets you challenge the IRS before paying and keeps all your options open. Filing doesn’t mean you’ll go to trial—most cases settle before then, often with better terms than the original IRS notice. While your case is pending, nothing becomes final.
At Blackridge Tax, we almost always recommend Option 3 — because preserving your right to challenge the determination is virtually always worth more than the cost of filing the petition.
What Causes a Notice of Deficiency to Be Issued
A Notice of Deficiency is typically issued at the conclusion of an audit — but not always. The most common circumstances that lead to a Notice of Deficiency include:
Audit Findings:
The most common path to a Notice of Deficiency is through an IRS examination. After the audit concludes — whether correspondence, office, or field — and the examining agent proposes additional tax, the taxpayer has the opportunity to agree, disagree, or request an Appeals conference. If the dispute is not resolved through the examination or appeals process, the IRS issues a Notice of Deficiency as the final administrative step before assessment.
Substitute for Return:
When a taxpayer fails to file a required return, the IRS can prepare a Substitute for Return based on available third-party information. The resulting assessment — almost always higher than the taxpayer’s actual liability — is preceded by a Notice of Deficiency that gives the taxpayer the opportunity to challenge it by filing their own return and petitioning the Tax Court.
Math Error and Automated Adjustments:
In some cases, automated IRS systems identify discrepancies between the income reported on a return and the income reported to the IRS by third parties— such as employers, financial institutions, and others. When these discrepancies result in a proposed deficiency rather than a simple math error correction, the IRS issues a Notice of Deficiency.
Amended Return Disputes:
When a taxpayer files an amended return claiming a refund and the IRS disagrees with the amended position, it may issue a Notice of Deficiency for the disputed amount.
The Role of the IRS Appeals Office
If you have received a Notice of Deficiency following an audit and have not yet had an opportunity to present your case to the IRS Independent Office of Appeals, filing a Tax Court petition does not necessarily mean your case will go to trial. In most cases, after a petition is filed, the IRS’s Office of Chief Counsel — the attorneys who represent the IRS in Tax Court — will refer the case to Appeals for a settlement conference before trial.
This means that filing a Tax Court petition often provides a second opportunity to resolve the dispute through the appeals process — and the IRS’s willingness to settle is often greater at this stage than it was during the examination itself. The act of filing a petition signals that the taxpayer is serious about challenging the determination — and that signal alone can shift the dynamic of the negotiation.
At Blackridge Tax, we use the Tax Court petition process strategically — not simply as a defensive measure to stop the clock, but as an active tool for achieving the most favorable resolution available.
What the IRS Must Prove in Tax Court
One of the most important — and most frequently misunderstood — aspects of Tax Court litigation is the burden of proof. In most Tax Court cases, the taxpayer bears the initial burden of proving that the IRS’s determination is incorrect. This means that simply disagreeing with the IRS’s findings is not enough. The taxpayer must present evidence — documentation, records, expert testimony, legal argument — that supports a different result.
However, there are important exceptions. In cases where the IRS raises a new issue in Tax Court that was not part of the original examination, the burden shifts to the IRS to prove it. And in cases where the taxpayer produces credible evidence, and the IRS’s determination is arbitrary or excessive, the burden can shift to the IRS on specific issues.
At Blackridge Tax, we evaluate the burden of proof in every Tax Court case — identifying the issues on which the IRS must bear the burden and structuring our case strategy accordingly.
Small Tax Cases — The S Case Procedure
For disputes involving $50,000 or less per tax year, the Tax Court offers a simplified Small Tax Case procedure — informally known as an S Case. The S Case procedure is less formal, less expensive, and faster than a regular Tax Court case — making it accessible to taxpayers who might not otherwise be able to afford full Tax Court representation.
The tradeoff is that S Case decisions are not appealable — meaning the Tax Court’s decision is final regardless of the outcome. For cases where the amount in dispute is modest and the legal issues are straightforward, the S Case procedure can be the most practical path to a final resolution. For cases involving significant amounts or complex legal issues, the regular Tax Court procedure is almost always preferable.
At Blackridge Tax, we evaluate the S Case option for every eligible client and advise on whether the simplified procedure or the full Tax Court process better serves their specific situation.
What Happens If You Miss the 90-Day Deadline
If the 90-day deadline has already passed and the deficiency has become a final assessment, your options are more limited — but they are not exhausted. Depending on the circumstances, the following paths may still be available:
Audit Reconsideration:
The IRS’s Audit Reconsideration program allows taxpayers to request a re-examination of a final assessment when they have new information or documentation that was not considered during the original audit. Audit reconsideration does not restore Tax Court rights — but it can result in a reduction or elimination of the assessed deficiency through the administrative process.
Offer in Compromise — Doubt as to Liability:
When a taxpayer genuinely disputes the correctness of a final tax assessment, an Offer in Compromise based on Doubt as to Liability may be available — even after the Tax Court deadline has passed. This is a separate and distinct OIC basis from the more common Doubt as to Collectibility — and it can be a powerful tool in the right circumstances.
Amended Return:
In some cases, filing an amended return that corrects the errors or omissions that gave rise to the deficiency can result in a reduction of the assessed liability — though this path has its own risks and limitations that must be evaluated carefully before proceeding.
Collection Due Process:
When the IRS issues a Final Notice of Intent to Levy following a final assessment, the taxpayer has the right to request a Collection Due Process hearing, which provides an independent review of the liability and the collection action and, in some cases, can result in a reduction of the underlying assessment.
At Blackridge Tax, we evaluate every available option for clients who have missed the Notice of Deficiency deadline — and we pursue the path that offers the greatest realistic opportunity for relief given the specific facts of each case.
Blackridge Tax — Protecting Your Rights When the IRS Comes Calling
At Blackridge Tax, we represent clients who have received Notices of Deficiency with the same urgency and strategic discipline we bring to every engagement. Our team includes a Board Certified Tax Specialist, attorneys licensed in six states and before the U.S. Tax Court, a CPA, and an Enrolled Agent — professionals who understand both the legal framework governing the Notice of Deficiency process and the practical strategies that produce the best possible outcomes for our clients.
Whether your notice arrived yesterday or your deadline is days away — contact us immediately. The 90-day window is one of the most consequential deadlines in federal tax law. We move fast, we prepare thoroughly, and we fight for every available option on your behalf.
A Notice of Deficiency is not the final word. It is an invitation to respond. And at Blackridge Tax — we know exactly how to answer.
Your next step is a confidential conversation. No fees. No obligation. Just answers.
If you have received a Notice of Deficiency from the IRS, do not wait. Contact Blackridge Tax today for a private, no-obligation consultation with senior-level tax controversy professionals who understand exactly what you are facing — and exactly what needs to happen next.