A 90-Day Letter is a formal notice sent by the Internal Revenue Service (IRS) to a taxpayer, informing them that the IRS has determined a deficiency in their tax return and intends to assess additional taxes, penalties, or interest. The letter gives the taxpayer 90 days (150 days if the taxpayer is outside the United States) to respond by either paying the amount owed or filing a petition in the U.S. Tax Court to dispute the IRS’s findings.

This letter is also known as a Notice of Deficiency.

Key Features of a 90-Day Letter:

1. Notice of Deficiency: The 90-Day Letter serves as an official notification that the IRS believes the taxpayer owes additional taxes. The letter outlines the reasons for the deficiency, the amount owed, and the tax periods in question.
2. Response Period: The taxpayer has 90 days from the date of the letter (150 days if they are outside the U.S.) to take action. During this time, the taxpayer can either:
   • Pay the amount due: If the taxpayer agrees with the IRS’s assessment, they can pay the amount specified in the letter.
   • File a petition with the U.S. Tax Court: If the taxpayer disagrees with the IRS’s findings, they can file a petition in Tax Court to challenge the deficiency. The 90-day period is critical because the IRS cannot assess or collect the additional tax until this period has expired or until the court rules on the case.
3. Consequences of Inaction: If the taxpayer does not respond within the 90-day period, the IRS will proceed with assessing the additional tax and begin the collection process. This could lead to wage garnishment, bank levies, or other collection actions.
4. Opportunity to Resolve: The 90-Day Letter gives taxpayers the opportunity to resolve disputes with the IRS without immediate enforcement action. Filing a petition with the Tax Court stops the IRS from collecting the disputed amount until the court makes a decision.
5. Tax Court: If the taxpayer chooses to challenge the deficiency, they must file a petition in the U.S. Tax Court within the 90-day window. The Tax Court will then hear the case and determine whether the IRS’s assessment is correct.

Steps to Take When Receiving a 90-Day Letter:

1. Review the Letter Carefully: Understand the reasons for the deficiency, the amount owed, and the tax periods involved. The letter will include detailed explanations for the IRS’s adjustments.
2. Consult a Tax Professional: Given the seriousness of the situation, it’s often advisable to consult with a tax professional, such as a CPA, tax attorney, or enrolled agent, who can help you understand your options and determine the best course of action.
3. Decide How to Respond:
   • If you agree with the IRS’s findings, you can pay the amount due by the deadline to avoid further penalties and interest.
   • If you disagree, you can file a petition with the U.S. Tax Court to challenge the IRS’s determination.
4. File a Petition if Disputing: To dispute the deficiency, file a petition with the U.S. Tax Court within the 90-day period. Missing this deadline means you lose the right to challenge the IRS’s assessment in Tax Court.
5. Keep Records: Maintain copies of all correspondence with the IRS, including the 90-Day Letter, payment records, and any documents related to your tax return and the disputed amount.

Importance of the 90-Day Letter:

• Legal Rights: The 90-Day Letter is crucial because it provides the taxpayer with a legal right to challenge the IRS’s determination before any tax is assessed and collected.
• Deadline Awareness: The 90-day deadline is strict. Failure to respond within this period results in the IRS moving forward with tax assessment and collection actions.

In summary, a 90-Day Letter is a formal notice from the IRS indicating a tax deficiency and giving the taxpayer 90 days to either pay the amount owed or file a petition in Tax Court to dispute the IRS’s findings. It is a critical document in the tax dispute process, providing the taxpayer with an opportunity to challenge the IRS before additional taxes are assessed.