IRS Notice of Deficiency: What to Do When You Receive a 90-Day Letter

What Is an IRS Notice of Deficiency?

An IRS Notice of Deficiency — commonly called the "90-day letter" — is one of the most consequential notices the IRS sends. It formally informs you that the IRS has determined you owe additional taxes beyond what you reported on your return, or that you failed to file a return and the IRS has calculated what it believes you owe. At Brightside Tax Relief, we work with clients who receive these notices every week, and the most important message we deliver is always the same: you have a hard deadline, and missing it will cost you dearly.

The notice gets its name from the 90-day window it creates. From the date the notice is mailed, you have 90 days (150 days if you are outside the United States) to either pay the proposed deficiency or file a petition with the U.S. Tax Court to challenge the IRS's determination. If you do neither, the IRS will assess the deficiency automatically, and collection enforcement — including liens, levies, and wage garnishments — can begin.

What Triggers a Notice of Deficiency?

The IRS issues Notices of Deficiency in several common situations:

• Audit Adjustments: If the IRS examined your return and found unreported income, disallowed deductions, or other discrepancies, the notice formalizes those findings and gives you a chance to contest them before taxes are assessed.
• Substitute for Return (SFR): If you failed to file a tax return, the IRS may file one on your behalf using third-party data (W-2s, 1099s, etc.). The SFR ignores deductions and credits you may be entitled to, resulting in an inflated tax bill — and a Notice of Deficiency follows.
• Math Errors or Inconsistencies: If the IRS identifies significant discrepancies between your return and information reported by employers, banks, or other payers, a notice may follow an automated underreporter review.
• Unreported Income: Income from freelancing, side businesses, cryptocurrency, stock sales, or other sources that was not reported on your return frequently triggers deficiency notices.

Your 4 Options After Receiving a Notice of Deficiency

1. Pay the Full Amount

If you agree with the IRS's determination, you can pay the full tax, penalties, and interest within the 90-day window. This stops additional interest from accruing and avoids Tax Court proceedings. However, before you pay, have a tax professional review the notice to confirm the IRS calculated the deficiency correctly.

2. Petition the U.S. Tax Court

Filing a petition with the U.S. Tax Court is the only way to dispute the deficiency before paying it. The Tax Court has a simplified "small case" procedure for disputes under $50,000, making it accessible to individual taxpayers without extensive legal experience. Filing a petition also automatically stops the IRS from collecting the disputed amount while your case is pending, which can take months or even years.

The 90-day deadline to file a petition is absolute. Courts have consistently held that they cannot grant extensions — even for medical emergencies, natural disasters, or postal delays in most cases. Missing this window eliminates your right to pre-assessment judicial review.

3. Request an Informal Agreement

You may be able to contact the IRS examiner who issued the notice and reach an agreement on some or all of the disputed items without going to Tax Court. This is more likely when the dispute involves straightforward documentation issues (such as missing receipts or substantiation for deductions) that can be resolved quickly. Reaching an agreement before the 90-day deadline expires avoids formal court proceedings.

4. Allow the Assessment and Then Seek Collection Relief

If you let the 90-day window expire without filing a petition, the IRS will assess the deficiency. At that point, your dispute options narrow significantly — you can no longer challenge the underlying tax in Tax Court without first paying the full amount and suing for a refund in district court. However, you may still be able to negotiate a payment plan, offer in compromise, or currently not collectible status to manage or reduce the resulting debt.

What to Look for in Your Notice of Deficiency

When you receive the notice, review these key elements immediately:

• The mailing date: The 90-day clock starts from the date on the notice, not the date you received it. If the notice sat in your mailbox for a week, you may already be down to 83 days.
• The tax year at issue: Confirm which year or years are covered, as the IRS sometimes issues notices for multiple years simultaneously.
• The proposed deficiency amount: This is the additional tax the IRS claims you owe, separate from penalties and interest.
• The basis for the deficiency: The notice should explain what income, deductions, or credits the IRS adjusted. This information is critical for evaluating whether the IRS's position is correct.

Common Deficiency Notice Errors You Should Know

The IRS is not always right. Common errors in deficiency notices include failing to credit payments you already made, not accounting for deductions you were entitled to, double-counting income from incorrect 1099s, and applying the wrong tax rates. A thorough review of the notice against your own records and tax returns often reveals errors that can reduce or eliminate the proposed deficiency.

If the deficiency stems from a Substitute for Return, there is a strong likelihood that the proposed amount is significantly higher than your actual liability, because SFRs typically use single-filer status and claim no deductions. Filing the actual return for the year often dramatically reduces the assessed amount.

Act Immediately — Contact Brightside Tax Relief

A Notice of Deficiency is not a bill you can ignore for a few weeks. With a hard 90-day deadline and no exceptions, the moment you receive this notice, the clock is running. At Brightside Tax Relief, we help taxpayers evaluate deficiency notices, identify errors in IRS calculations, file Tax Court petitions when appropriate, and negotiate collection solutions when the debt is legitimate. Contact Brightside Tax Relief today for a free consultation. We will review your notice, explain your rights, and help you take the right steps before your deadline expires.