In a perfect world, the tax law would be clear, easy to comply with, and most everyone would timely file any required returns. Those returns would, of course, all be accepted as filed. End of story. But, as we know, our world is not perfect. Whether it’s the fault of the taxpayer, the preparer, the IRS, or Congress, mistakes, misunderstandings and disagreements occur. The IRS audits income and estate tax returns to ensure and to promote compliance (as it—the IRS—interprets the law). In most cases, any disagreements are resolved during the examination, or during the protest of any proposed adjustments (see Article Accountant or Attorney? The IRS 30-Day Letter). At some point, however, if the IRS thinks additional taxes are due and no further arguments are to be entertained, the law generally requires that before any additional tax can be assessed, an official notice of the IRS determination of a deficiency must be mailed to the taxpayer by certified or registered mail. The IRS “90-Day Letter” is an official statutory Notice of Deficiency on a taxpayer’s tax return.
The Notice of Deficiency gives the taxpayer 90 days from the date of the notice (hence the “90-Day letter” nickname) to file a petition with the Tax Court for a redetermination of any deficiency. If the notice is sent to a taxpayer at an address outside of the United States, the taxpayer has a longer time (150 days from the date of the notice) to file a petition with the Tax Court.
If the taxpayer does not timely file a petition, the IRS may assess the tax and begin collection action, including placing liens and levying on bank accounts, wages and other assets. Thus, the Notice of Deficiency generally presents the last opportunity to dispute a proposed deficiency before an independent body before having to pay it. It behooves taxpayers receiving such a notice to act promptly. The 90 (or 150) day period cannot be extended for any reason.
A taxpayer may still dispute a tax liability after an assessment by paying the liability and claiming (and then suing for) a refund, although this is generally an expensive option reserved for substantial liabilities.
For a taxpayer needing to respond to a 90-Day Letter, knowing who to turn to for help becomes critical. Tax litigation attorneys have the specific knowledge and experience to deal with the taxpayer’s rights and options when presented with a 90-Day letter, and with the litigation process itself.
What about accountants and enrolled agents? Clients frequently call on their CPA or an Enrolled Agent (one who is not a CPA or attorney but has passed an IRS exam entitling them to represent taxpayers before the agency) for help with tax problems. Accountants and enrolled agents who pass a test administered by the Tax Court are also allowed to represent taxpayers before that body. In most cases, this is a bad idea, even if it’s an option. Cases that have progressed to a 90-Day Letter generally involve more complex issues of law and/or fact. Tax litigation lawyers are trained in the interpretation of tax law authorities, including the Internal Revenue Code, tax regulations, rulings, court cases, etc., the weight given to each of such authorities, the application of those legal authorities to varying factual situations, and in the presentation of arguments based on such legal authorities. Accountants and enrolled agents do not receive such training as part of their education. Tax litigation lawyers are trained in the rules of evidence, and are experienced in the process of proving necessary facts in court based on direct and indirect evidence; accountants and enrolled agents receive no such training as part of their education. IRS lawyers (as other lawyers) know when they have the upper hand by virtue of a representative with little or no training in law and legal processes; and they use that to their advantage. From the moment a Tax Court petition is filed, the taxpayer is in court, subject to court jurisdiction and responsible for following court rules. Even during any settlement negotiations, the clock is ticking down toward trial. Settlement postures are determined based on, among other things, perceived probabilities of winning or losing at trial. One who is not prepared to take a case to trial is simply not capable of adequately evaluating those probabilities. Finally, Judges like cases to go smoothly, and appreciate when experienced counsel know what to do, what evidence to present, and what not to do and present.
We don’t live in that perfect world devoid of conflict with taxing authorities. When disagreements with taxing authorities are not resolved in the earliest stages of the examination process, remember that experienced tax litigation attorneys, while representing clients at any and all levels of the tax dispute resolution process, have the specific knowledge, training and experience to represent taxpayers in Tax Court and other tribunals.