How The Notice Of Deficiency Work And How To Challenge It | Axiom Tax Resolution Group

Do you know what a notice of deficiency is? It is a legal notice that the IRS sends to taxpayers, letting them know that they owe the IRS additional income tax. The taxpayer is then given 90 days from the date of notice to challenge the determination should they disagree with the amount owed.

That said, how exactly does the notice of deficiency work, and how can you challenge it? Let’s talk about that:

1. Determining The Need For The Notice

Before the taxpayer receives the notice of deficiency, the first step that the IRS needs to take is to determine if the notice is even needed in the first place. This will be dependent on any of the two conditions:

The IRS believes that the taxpayer owes more than what is reported on their tax return, or the IRS determines that the taxpayer has a tax liability and that the taxpayer did not file a tax return.

If any of the above conditions are met, then the IRS will start sending the notices to the taxpayer.

2. Sending The Notice Of Deficiency

Once any of the above conditions stated previously are met, they will start requesting the taxpayer to provide the IRS with documentation that supports the taxpayer’s position on their tax return. The IRS can also inform the taxpayer that their tax return will be audited.

Now, if the above steps are not successful, the IRS will finalize the amount owed by the taxpayer and then send them the notice of deficiency.

3. Agreeing Or Disagreeing To The Notice

If the taxpayer decides to agree on the amount stated by the IRS, they can quickly sign the notice of deficiency waiver and then pay the tax. Also known as Form 5564, this is the waiver that’s to be filled and where the owed tax is to be paid.

On the other hand, if the taxpayer disagrees with the amount that the IRS has stated they owed, there are two things that can be done:

The taxpayer can further provide IRS with more information to resolve the dispute, or they can send a petition to the United States Tax Court within 90 days of the date on the notice of deficiency. Note that taxpayers living outside of the US will be given 150 days to respond rather than the 90 days given to those living inside the US.

In the case of the Tax Court, if this is the route the taxpayer takes, the IRS will be unable to do two things. First, this prevents the IRS from assessing the tax further. Second, the IRS is unable to collect until the court themselves have made a determination.


If you’ve recently received a notice of deficiency by the IRS, you are given two choices: to agree or disagree with it. If you do agree, then you will have to sign the waiver and pay the tax. If you don’t agree, then you will need to take action to ensure that your stance is justified, whether by providing more documents to the IRS or reaching out to the Tax Court. Regardless, this event may be incredibly nerve-wracking for you, and making a mistake isn’t an option. So, it pays to reach out to tax resolution services to help you overcome any IRS tax problems to keep your business running legally and tax-problem-free!

Axiom Tax Resolution Group is a tax resolution services specialist that can help business owners overcome various tax issues. If you are looking for tax relief solutions and more, reach out to us today!