2024 How to Respond to IRS Notice of Deficiency & IRS Form 5564 Waiver

When filing taxes each year, most people work very hard to ensure that they provide information and documentation that is accurate to their current circumstances because they do not want to face the consequences of an incorrect tax return. If your parents passed away during the year and you received an inheritance from them, it can be unclear whether or not that is considered income that needs to be reported. That uncertainty can lead you to providing incorrect information on your tax returns and not paying all the taxes the IRS claims you owe.

As a result of the confusion, there are times when someone may unintentionally provide incorrect information on their tax return because the information on their W-2 does not match their tax documents. When the discrepancy is discovered by the IRS, the person who filed will have an opportunity to fix it if the information was actually wrong or dispute it if they believe the information they shared was accurate. This process begins with an IRS Notice of Deficiency, which a skilled tax attorney can help you understand, gather evidence against if necessary, and respond to correctly.

What Is a Tax Deficiency?

When a tax return is submitted to the IRS, they assess the information provided, compare it to their own records, and determine whether or not the information is accurate. A tax deficiency essentially means that someone did not pay everything that they owe in taxes. When taxes are filed, the IRS receives a tax return from employees, but they also gather information about an individual’s bank accounts, the income their employer reports paying them, and any necessary information from other businesses they are associated with.

If the computer systems at the IRS determine that the information does not match up, typically because the income that is reported on an employee’s tax return does not match what their employer provided on a W-2, that will trigger a notification of deficiency. When a discrepancy is found, the individual will be notified several times. The first notice will be a 30-day letter that informs them of the problem and that they still owe taxes. A 30-day letter will often identify what the problem is, like their employer reported that they were paid more than what was listed on the individual tax return and how they can fix it.

Responding to a Notice of Deficiency

When someone gets a CP3219N form in the mail, they will also receive a form 5564, which is how they will respond. If the deficiency is because they made a mistake on their tax return, like marking an allowance they do not qualify for or typing their income incorrectly, they will sign form 5564 to let the IRS know that they accept the deficiency and new tax costs and return it. Once that is done, the process is complete, and their deficiency has been addressed.

In the event that someone does not agree with the charges put forth in their 90-day letter, they can dispute the discrepancy. This process also requires form 5564 because it includes the information for how they contact the IRS to dispute the deficiency. Form 5564 must be sent back to the IRS via the address or fax number indicated on the form, along with all of the necessary information. This could include pay stubs, tax information from an employer, and corrected information from their bank. Someone dealing with a tax deficiency can either work with the IRS or file a case with the U.S. Tax Court to resolve their case.

Penalties for Not Responding to a Notice of Deficiency

If a Notice of Deficiency is not addressed within the given time frame of 90 days, then the taxpayer may face consequences. Even if the failure to respond is accidental because you were out of town for months dealing with a family crisis, the outcome is the same: your full taxes were not paid. As a result, you may have a lien placed on your home that puts you at risk of foreclosure. If that is not necessary, the IRS may take money for each paycheck you receive until the tax debt is paid off. Fortunately, in most circumstances, a tax deficiency is the result of a simple error, like your bank having incorrect information connected to your checking or savings accounts, and can be fixed without dire consequences.

FAQs About How to Respond to IRS Notice of Deficiency & IRS Form 5564 Waiver

How Do I Respond to Form 5564?

When the automated systems at the IRS detect a problem with your tax payment you will receive a form 5564. This form might arrive because the income you provided on your tax return did not match your employer’s records. You could have also simply miscalculated the total deductibles and tax credits, causing the discrepancy. If you agree with the deficiency and are ready to fix it, sign the form 5564 and return it to the IRS. In order to dispute the deficiency, you will gather information and statements to support your claim and send them to the IRS with form 5564.

How Long Do I Have to Respond to an IRS Notice of Deficiency?

In many cases, a Notice of Deficiency is referred to as a 90-day letter. This is because you have 90 days to respond once you receive the form in the mail. Your response could be to sign it if you agree that you made a mistake and owe more or to dispute it with the IRS or U.S. Tax Court if you believe they made an error.

What Happens if I Do Not Respond to a Notice of Deficiency?

There could also be many reasons that you do not respond to a CP3219N, such as facing a serious illness or navigating the death of a loved one that requires your attention. If you do not respond, then ultimately, your taxes will not be paid. In the event of unpaid taxes, you may have a lien placed on your wages, have your home seized, or even face criminal charges in serious cases.

How Do I Dispute a Tax Deficiency?

You will have to return form 5564 to the IRS and include a statement explaining your position and additional documentation to verify your income reported. If your employer reported the incorrect income for you, even if it was just a mistyped number, they will have to submit a statement about their mistake.

Let a Tax Attorney Help With Your Tax Deficiency

When you file your tax return, it is important that your writing is clear to avoid confusion with your listed income. Verifying with your employer that the income you are providing to the IRS matches their records can also help avoid a tax deficiency. A skilled tax attorney from TaxSmith, LLC can walk you through this process to ensure it is done right. Contact our office today to get started.