Ordinarily, taxpayers file their income tax returns each year with the IRS and hear nothing more. Rather, the Internal Revenue Service (“IRS”) simply processes the tax return, assesses the reported amount of tax due, and accepts and credits the taxpayer’s payment against the reported tax amount. In this manner, life moves on until the same process is repeated again the next year.
But, there are times in which the IRS disagrees with the amount of tax reported on a taxpayer’s return. In these instances, the IRS must utilize so-called “deficiency procedures” to communicate to the taxpayer the IRS’ belief that adjustments should be made to the return. These deficiency procedures provide taxpayers with significant procedural rights to contest the IRS’ determinations. This article discusses the deficiency procedures including the Notice of Deficiency (“NOD”) the IRS must issue prior to making an assessment of federal tax. This article also discusses the taxpayer’s right to challenge the IRS’ determinations in the NOD through filing a petition with the United States Tax Court (“Tax Court”).